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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________ 
Commission File Number: 001-36499
New Senior Investment Group Inc.
(Exact name of registrant as specified in its charter)
Delaware   80-0912734
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
55 West 46th Street New York NY 10036
(Address of principal executive offices) (Zip Code)
(646) 822-3700
(Registrant’s telephone number, including area code) 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol:    
Name of each exchange on which registered:
Common Stock, $0.01 par value per share SNR New York Stock Exchange
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).
ý Yes  No o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer  ☐
Smaller reporting company ☐ Non-accelerated filer  ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o







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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Common stock, par value $0.01 per share: 83,023,846 shares outstanding as of October 23, 2020.


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

•the severity, duration and scope of the novel coronavirus (“COVID-19”) global pandemic, the effects of the pandemic and measures intended to prevent its spread on our and our tenant’s business, results of operations, cash flows and financial condition, including declines in occupancy and rental revenues and increases in operating expenses; constraints in our ability to access capital and other sources of funding, including due to fluctuations in the trading price of our common stock; increased risk of claims, litigation and regulatory proceedings; and the ability of federal, state and local governments to effectively respond to and manage the pandemic on an ongoing basis to prevent its continued spread;
•our ability to comply with the terms of our financings, which depends in part on the performance of our property managers and triple net lease tenant;
•any increase in our borrowing costs as a result of rising interest rates, the expected discontinuation of the London Inter-bank Offered Rate (LIBOR) and the transition to any other interest rate benchmark, or other factors;
•our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due or as needed to comply with the terms of our covenants or to facilitate our ability to sell assets;
•our ability to manage our liquidity and sustain distributions to our stockholders, particularly in light of the cash shortfall described in this report under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”;
•our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, applicable law and the terms of our financings;
•factors affecting the performance of our properties, such as a decline in occupancy and increases in operating costs (including, but not limited to, the costs of labor, supplies, insurance and property taxes);
•concentration risk with respect to Holiday Retirement (“Holiday”), which, for the nine months ended September 30, 2020, accounted for 94.6% of total net operating income (“NOI”) from continuing operations;
•risks associated with a change of control in the ownership or senior management of Holiday;
•our ability and the ability of our property managers and tenant to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;
•changes of federal, state and local laws and regulations relating to employment, fraud and abuse practices, Medicaid reimbursement and licensure, etc., including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations of our property managers or tenant;
•the ability of our property managers and tenant to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties, particularly in light of the impacts of the COVID-19 pandemic on their businesses;
•the quality and size of our investment pipeline, our ability to execute investments at attractive risk-adjusted prices, our ability to finance our investments on favorable terms, and our ability to deploy investable cash in a timely manner;
•our ability to sell properties on favorable terms and to realize the anticipated benefits from any such dispositions, including as a result of a reduction of real estate value related to the COVID-19 pandemic;
•changes in economic conditions generally and the real estate, senior housing and bond markets specifically, including general economic uncertainty as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth;
•our stock price performance and any disruption or lack of access to the capital markets or other sources of financing, including as a result of factors influenced by the COVID-19 pandemic;
•the impact of any current or future legal proceedings and regulatory investigations and inquiries on us or our property managers;
•our reliance on our property managers for timely delivery of accurate property-level financial results; and


•our ability to maintain our qualification as a Real Estate Investment Trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business.

Although we believe that the expectations reflected in any forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those indicated by any forward-looking statement.
 
Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this Quarterly Report on Form 10-Q, and to consider carefully the factors discussed in this report under the heading “Risk Factors” and under the heading “Risk Factors” in our 2019 Annual Report on Form 10-K in evaluating these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements and amendments included as exhibits to this Quarterly Report on Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

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

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

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

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



NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
FORM 10-Q

INDEX
  
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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
September 30, 2020 December 31, 2019
(Unaudited) (Note)
Assets
Real estate investments:    
Land $ 134,643  $ 134,643 
Buildings, improvements and other 1,976,544  1,970,036 
Accumulated depreciation (401,779) (351,555)
Net real estate property 1,709,408  1,753,124 
Acquired lease and other intangible assets 7,642  7,642 
Accumulated amortization (2,505) (2,238)
Net real estate intangibles 5,137  5,404 
Net real estate investments 1,714,545  1,758,528 
Assets from discontinued operations —  363,489 
Cash and cash equivalents 51,680  39,614 
Receivables and other assets, net 36,460  33,078 
Total Assets $ 1,802,685  $ 2,194,709 
Liabilities, Redeemable Preferred Stock and Equity    
Liabilities    
Debt, net $ 1,487,407  $ 1,590,632 
Liabilities from discontinued operations —  267,856 
Accrued expenses and other liabilities 66,594  59,320 
Total Liabilities 1,554,001  1,917,808 
Commitments and contingencies (Note 14)
Redeemable preferred stock, $0.01 par value with $100 liquidation preference, 400,000 shares authorized, issued and outstanding as of both September 30, 2020 and December 31, 2019
40,506  40,506 
Equity
Preferred stock, $0.01 par value, 99,600,000 shares (excluding 400,000 shares of redeemable preferred stock) authorized, none issued or outstanding as of both September 30, 2020 and December 31, 2019
—  — 
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 83,023,846 and 82,964,438 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
830  830 
Additional paid-in capital 905,833  901,889 
Accumulated deficit (684,901) (660,588)
Accumulated other comprehensive loss (13,584) (5,736)
Total Equity 208,178  236,395 
Total Liabilities, Redeemable Preferred Stock and Equity $ 1,802,685  $ 2,194,709 
Note: The consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See accompanying notes to consolidated financial statements (unaudited).
1
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)

  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
Revenues    
Resident fees and services $ 81,582  $ 84,373  $ 249,540  $ 254,943 
Rental revenue 1,583  1,583  4,748  4,748 
Total revenues 83,165  85,956  254,288  259,691 
Expenses    
Property operating expense 49,957  50,576  149,782  154,208 
Interest expense 14,540  18,962  47,040  58,382 
Depreciation and amortization 16,204  17,323  50,522  51,304 
General and administrative expense 5,905  5,410  17,645  15,747 
Acquisition, transaction and integration expense 43  503  195  1,169 
Loss on extinguishment of debt —  —  5,884  335 
Other expense 192  16  520  1,393 
Total expenses 86,841  92,790  271,588  282,538 
Loss on sale of real estate —  —  —  (122)
Litigation proceeds, net —  38,226  —  38,226 
Income (Loss) before income taxes (3,676) 31,392  (17,300) 15,257 
Income tax expense 74  37  156  110 
Income (Loss) from continuing operations (3,750) 31,355  (17,456) 15,147 
Discontinued Operations:
Gain on sale of real estate —  —  19,992  — 
Loss from discontinued operations —  (2,506) (3,107) (7,077)
Discontinued operations, net —  (2,506) 16,885  (7,077)
Net income (loss) (3,750) 28,849  (571) 8,070 
Deemed dividend on redeemable preferred stock (605) (605) (1,802) (1,802)
Net income (loss) attributable to common stockholders $ (4,355) $ 28,244  $ (2,373) $ 6,268 
Basic earnings per common share: (A)
Income (Loss) from continuing operations attributable to common stockholders $ (0.05) $ 0.37  $ (0.23) $ 0.16 
Discontinued operations, net —  (0.03) 0.20  (0.09)
Net income (loss) attributable to common stockholders (B)
$ (0.05) $ 0.34  $ (0.03) $ 0.08 
Diluted earnings per common share: (A)
Income (Loss) from continuing operations attributable to common stockholders $ (0.05) $ 0.37  $ (0.23) $ 0.16 
Discontinued operations, net —  (0.03) 0.20  (0.08)
Net income (loss) attributable to common stockholders (B)
$ (0.05) $ 0.34  $ (0.03) $ 0.07 
Weighted average number of shares of common stock outstanding
Basic 82,568,919  82,209,844  82,472,115  82,207,610 
Diluted (C)
82,568,919  83,964,231  82,472,115  83,588,648 
Dividends declared and paid per share of common stock $ 0.07  $ 0.13  $ 0.26  $ 0.39 
(A)Basic earnings per common share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The outstanding shares used to calculate the weighted average basic shares exclude 454,921 and 754,594 restricted stock awards, net of forfeitures, as of September 30, 2020 and 2019, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic EPS share. Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.
(B)Amounts may not sum due to rounding.
(C)Dilutive share equivalents and options were excluded for the three and nine months ended September 30, 2020 as their inclusion would have been anti-dilutive given our loss position.

See accompanying notes to consolidated financial statements (unaudited).
2
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)



  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
Net income (loss) $ (3,750) $ 28,849  $ (571) $ 8,070 
Other comprehensive income (loss):
Unrealized gain (loss) on cash flow hedge 108  (1,003) (7,848) (7,267)
Total other comprehensive income (loss) 108  (1,003) (7,848) (7,267)
Total comprehensive income (loss) $ (3,642) $ 27,846  $ (8,419) $ 803 

See accompanying notes to consolidated financial statements (unaudited).


3
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(dollars in thousands, except share data)

Three Months Ended September 30, 2020
 Common Stock Accumulated Deficit Additional Paid-in Capital Accumulated Other Comprehensive Loss  Total Equity
 Shares  Amount
Equity at June 30, 2020 83,023,396  $ 830  $ (674,626) $ 904,135  $ (13,692) $ 216,647 
Equity awards vested 450  —  —  —  —  — 
Shares repurchased and retired to satisfy tax withholding upon vesting —  —  —  (1) —  (1)
Amortization of equity-based compensation —  —  —  1,699  —  1,699 
Dividends declared - common stock ($0.065 per share)
—  —  (5,369) —  —  (5,369)
Dividends declared - equity awards ($0.065 per share)
—  —  (551) —  —  (551)
Deemed dividend on redeemable preferred stock —  —  (506) —  —  (506)
Dividends declared on redeemable preferred stock —  —  (99) —  —  (99)
Other comprehensive income —  —  —  —  108  108 
Net loss —  —  (3,750) —  —  (3,750)
Equity at September 30, 2020 83,023,846  $ 830  $ (684,901) $ 905,833  $ (13,584) $ 208,178 

Nine Months Ended September 30, 2020
 Common Stock Accumulated Deficit Additional Paid-in Capital Accumulated Other Comprehensive Loss  Total Equity
 Shares  Amount
Equity at December 31, 2019 82,964,438  $ 830  $ (660,588) $ 901,889  $ (5,736) $ 236,395 
Equity awards vested 120,246  1  —  —  —  1 
Shares repurchased and retired to satisfy tax withholding upon vesting (121,240) (1) —  (1,051) —  (1,052)
Amortization of equity-based compensation —  —  —  4,815  —  4,815 
Directors shares issued 60,402  —  —  180  —  180 
Dividends declared - common stock ($0.26 per share)
—  —  (21,444) —  —  (21,444)
Dividends declared - equity awards ($0.13 - $0.26 per share)
—  —  (496) —  —  (496)
Deemed dividend on redeemable preferred stock —  —  (506) —  —  (506)
Dividends declared on redeemable preferred stock —  —  (1,296) —  —  (1,296)
Other comprehensive loss —  —  —  —  (7,848) (7,848)
Net income —  —  (571) —  —  (571)
Equity at September 30, 2020 83,023,846  $ 830  $ (684,901) $ 905,833  $ (13,584) $ 208,178 
 
4
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(dollars in thousands, except share data)

Three Months Ended September 30, 2019
Common Stock Accumulated Deficit Additional Paid-in Capital Accumulated Other Comprehensive Loss Total Equity
Shares Amount
Equity at June 30, 2019 83,126,259  $ 831  $ (660,078) $ 899,386  $ (6,264) $ 233,875 
Amortization of equity-based compensation —  —  —  1,045  —  1,045 
Restricted stock awards forfeited (161.821) (1) —  1  —  — 
Dividends declared - common stock ($0.13 per share)
—  —  (10,687) —  —  (10,687)
Dividends declared - equity awards ($0.13 per share)
—  —  (469) —  —  (469)
Deemed dividend on redeemable preferred stock —  —  (506) —  —  (506)
Dividends declared on redeemable preferred stock —  —  (99) —  —  (99)
Other comprehensive loss —  —  —  —  (1,003) (1,003)
Net income —  —  28,849  —  —  28,849 
Equity at September 30, 2019 82,964,438  $ 830  $ (642,990) $ 900,432  $ (7,267) $ 251,005 

Nine Months Ended September 30, 2019
Common Stock Accumulated Deficit Additional Paid-in Capital Accumulated Other Comprehensive Loss Total Equity
Shares Amount
Equity at December 31, 2018 82,148,869  $ 821  $ (616,504) $ 898,135  $ —  $ 282,452 
Restricted stock awards issued 916,415  9  (9) —  — 
Amortization of equity-based compensation —  —  —  2,031  —  2,031 
Directors shares issued 60,975  1  —  274  —  275 
Restricted stock awards forfeited (161,821) (1) —  1  —  — 
Dividends declared - common stock ($0.39 per share)
—  —  (32,062) —  —  (32,062)
Dividends declared - equity awards (0.13 - $0.39 per share)
—  —  (692) —  —  (692)
Deemed dividend on redeemable preferred stock —  —  (506) —  —  (506)
Dividends declared on redeemable preferred stock —  (1,296) (1,296)
Other comprehensive loss —  —  —  —  (7,267) (7,267)
Net income —  —  8,070  —  —  8,070 
Equity at September 30, 2019 82,964,438  $ 830  $ (642,990) $ 900,432  $ (7,267) $ 251,005 

See accompanying notes to consolidated financial statements (unaudited).

5
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)

  Nine Months Ended September 30,
  2020 2019
Cash Flows From Operating Activities    
Net income (loss) $ (571) $ 8,070 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation of tangible assets and amortization of intangible assets 50,522  51,304 
Amortization of deferred financing costs 2,417  2,043 
Amortization of deferred revenue, net (634) 1,633 
Non-cash straight-line rental revenue (337) (455)
Loss on extinguishment of debt 5,884  335 
Amortization of equity-based compensation 4,815  2,031 
(Gain) Loss on sale of real estate (19,992) 122 
Other non-cash expense 849  1,045 
Changes in:    
Receivables and other assets, net (2,351) (1,563)
Accrued expenses and other liabilities (3,705) (13,592)
Net cash provided by (used in) operating activities - continuing operations 36,897  50,973 
Net cash provided by (used in) operating activities - discontinued operations (3,105) 11,381 
Net cash provided by operating activities 33,792  62,354 
Cash Flows From Investing Activities    
Proceeds from sale of real estate —  13,086 
Capital expenditures (6,693) (15,644)
Insurance proceeds, net 60  1,192 
Net cash provided by (used in) investing activities - continuing operations (6,633) (1,366)
Net cash provided by (used in) investing activities - discontinued operations (A)
373,805  (6,232)
Net cash provided by (used in) investing activities 367,172  (7,598)
Cash Flows From Financing Activities    
Principal payments of mortgage notes payable and capital lease obligations (1,549) (4,969)
Proceeds from mortgage notes payable 270,015  — 
Proceeds from borrowings on the revolving credit facility 100,000  — 
Repayments of borrowings on the revolving credit facility (100,000) — 
Repayments of mortgage notes payable and capital lease obligations (369,000) (12,922)
Payment of exit fee on extinguishment of debt (4,504) (206)
Payment of deferred financing costs (4,704) (776)
Purchase of interest rate caps (81) (35)
Taxes paid for net settlement of equity-based compensation awards (1,051) — 
Payment of common stock dividend (21,444) (32,062)
Payment of redeemable preferred stock dividend (1,802) (1,296)
Payment of restricted stock dividend (307) — 
Net cash used in financing activities - continuing operations (134,427) (52,266)
Net cash provided by (used in) financing activities - discontinued operations (B)
(260,996) (33,987)
Net cash used in financing activities (395,423) (86,253)
Net increase (decrease) in cash, cash equivalents and restricted cash 5,541  (31,497)
Cash, cash equivalents and restricted cash, beginning of period 63,829  92,656 
Cash, cash equivalents and restricted cash, end of period $ 69,370  $ 61,159 

(A) For the nine months ended September 30, 2020, amount primarily consists of net proceeds from the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
(B) For the nine months ended September 30, 2020, amount primarily consists of repayments of debt in conjunction with the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
6
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)

Nine Months Ended September 30,
2020 2019
Supplemental Disclosure of Cash Flow Information    
Cash paid during the period for interest expense $ 47,947  $ 67,151 
Cash paid during the period for income taxes 263  349 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Issuance of common stock $ 180  $ 275 
Capital lease obligations 807  468 

  Nine Months Ended September 30,
  2020 2019
Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents $ 39,614  $ 72,422 
Restricted cash (A)
24,215  20,234 
Total, beginning of period $ 63,829  $ 92,656 
Cash and cash equivalents $ 51,680  $ 35,399 
Restricted cash (A)
17,690  25,760 
Total, end of period $ 69,370  $ 61,159 
(A)Restricted cash consists of (i) amounts held by lender in tax, insurance, replacement reserve and other escrow accounts and (ii) security deposits; amounts relating to continuing operations are included in “Receivables and other assets, net” in our Consolidated Balance Sheets.

See accompanying notes to consolidated financial statements (unaudited).
7
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

1.ORGANIZATION
 
New Senior is a REIT primarily focused on investing in private pay senior housing properties. As of September 30, 2020, we owned a geographically diversified portfolio of 103 primarily private pay senior housing properties located across 36 states. We are listed on the New York Stock Exchange (“NYSE”) under the symbol “SNR” and are headquartered in New York, New York.

We operate in two reportable segments: (1) Managed Independent Living (“IL”) Properties, and (2) Other Properties.
 
Managed IL Properties – We own 102 properties managed by Holiday, FHC Property Management LLC (together with its subsidiaries, “Merrill Gardens”), and Grace Management, Inc. (“Grace”) (collectively, the “Property Managers”), under property management agreements (collectively, the “Property Management Agreements”). Under the Property Management Agreements, the Property Managers are responsible for the day-to-day operations of our senior housing properties and are entitled to a management fee in accordance with the terms of the Property Management Agreements. Our Property Management Agreements have initial five-year or ten-year terms, with successive, automatic one-year renewal periods. We generally pay management fees of 4.5% to 5% of effective gross income pursuant to our Property Management Agreements and, in some cases, the Property Managers are eligible to earn an incentive fee based on operating performance.

Other Properties – We own one continuing care retirement community (“CCRC”) and lease this property to Watermark Retirement Communities, Inc. (“Watermark”), a healthcare operating company under a triple net lease agreement. In a triple net lease arrangement, the lessee agrees to operate and maintain the property at its own expense, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Our triple net lease agreement has an initial term of 15 years and includes a renewal option and annual rent increases ranging from 2.75% to 3.25%. It also includes the operations of two managed AL/MC properties that we previously owned and sold during the nine months ended September 30, 2019.

We were formed as a Delaware limited liability company on May 17, 2012 as a wholly owned subsidiary of Drive Shack Inc., formerly Newcastle Investment Corp. (“Drive Shack”). On November 6, 2014, we were spun-off from Drive Shack and our shares of common stock were publicly listed on the NYSE.

Coronavirus (COVID-19) global pandemic

The novel coronavirus (COVID-19) global pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. During the three and nine months ended September 30, 2020, we incurred $0.8 million and $2.7 million of COVID-19 related costs, respectively, which were recorded in “Property operating expense” in our Consolidated Statements of Operations. These costs mainly consist of personal protective equipment (“PPE”) and other supplies such as packaging necessary for in-room meal deliveries to our residents and to a lesser extent testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or protocols related to the properties. During the nine months ended September 30, 2020, we saw these costs continue, but they have been largely offset by variable expense savings associated with lower occupancy and strong expense management from our operators. Depending upon how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear. However, the full extent to which the pandemic will directly or indirectly impact our business including revenues, expenses, value of our real estate, collectability of receivables and operating cash flows is highly uncertain and difficult to predict. If the economic downturn resulting from COVID-19 and measures taken to contain it persists over a long period of time, it could have a prolonged negative impact on our financial condition and results of operations. As the extent and duration of the increasingly broad effects of COVID-19 on the U.S. economy remains unclear, it is difficult for us to assess and estimate its impact on our results of operations at this time.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP’’) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes
8
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

required by GAAP for financial statements. The consolidated financial statements include the accounts of New Senior and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. We consolidate those entities in which we have control over significant operating, financial and investing decisions of the entity. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.

Certain prior period amounts have been reclassified to conform to the current period’s presentation, primarily related to the classification of certain properties as discontinued operations.

Significant Accounting Policies

Earnings per Common Share

The two-class method determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated) and their respective participation rights in undistributed earnings. Non-vested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore are included in the computation of basic EPS pursuant to the two-class method. During the nine months ended September 30, 2020, we issued 433,393 restricted stock units, net of forfeitures, to officers, employees and non-employee directors with certain participating rights (“Participating RSUs”).

Diluted earnings per share of common stock is calculated by including the effect of dilutive securities. Participating RSUs are included in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. Any anti-dilutive securities are excluded from the calculation. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund losses.

Refer to our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 for other significant accounting policies.

Recently Adopted Accounting Pronouncements

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a company to recognize an impairment allowance equal to its current estimate of all contractual cash flows that it does not expect to collect from financial assets measured at amortized cost. The adoption of this standard did not have a material impact on our consolidated financial statements as our entire balance of receivables relates to lease agreements with our residents and tenant, which are specifically excluded from this standard.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Rate (“LIBOR”) or another rate that is expected to be discontinued. Companies can adopt ASU 2020-04 anytime during the effective period of March 12, 2020 through December 31, 2022. We are currently assessing the provisions of ASU 2020-04 and have not made any hedge accounting elections as of September 30, 2020. If an election is made at a later date, we will apply the provisions of this guidance.

9
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

3.DISCONTINUED OPERATIONS

On October 31, 2019, we entered into a Purchase and Sale Agreement (the “Sale Agreement”) to sell a portfolio of 28 assisted living/memory care (“AL/MC”) properties for a gross sale price of $385.0 million (the “AL/MC Portfolio Disposition”). The portfolio represented a separate reportable segment at the time and the sale represented a strategic shift that would have a major effect on our operations and financial results. As a result, we classified the assets and liabilities associated with the operations of the 28 AL/MC properties as discontinued operations in our consolidated financial statements. The sale was completed on February 10, 2020. Refer to “Note 4 - Dispositions” for details.

As of December 31, 2019, the assets and liabilities associated with discontinued operations were as follows:
December 31, 2019
Assets
Real estate investments:
Land $ 43,313 
Buildings, improvements and other 397,808 
Accumulated depreciation (87,719)
Net real estate property 353,402 
Acquired lease and other intangible assets 996 
Accumulated amortization (996)
Net real estate intangibles — 
Net real estate investments 353,402 
Receivables and other assets, net 10,087 
Assets from discontinued operations $ 363,489 
Liabilities
Debt, net $ 255,096 
Accrued expenses and other liabilities 12,760 
Liabilities from discontinued operations $ 267,856 

10
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

For the three and nine months ended September 30, 2020 and 2019, the results of operations associated with discontinued operations are as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenues
Resident fees and services $ —  $ 29,630  $ 14,024  $ 89,534 
Total revenues —  29,630  14,024  89,534 
Expenses
Property operating expenses —  24,610  11,328  73,281 
Interest expense —  3,700  1,361  11,482 
Depreciation and amortization —  3,718  —  11,279 
Acquisition, transaction, and integration expense —  112  1,037  508 
General and administrative expense —  8  8  26 
Loss on extinguishment of debt —  —  3,602  — 
Other income —  (19) (204) (43)
Total expenses —  32,129  17,132  96,533 
Loss before income taxes —  (2,499) (3,108) (6,999)
Income tax (benefit) expense —  7  (1) 78 
Loss from discontinued operations $ —  $ (2,506) $ (3,107) $ (7,077)

4. DISPOSITIONS

On February 10, 2020, we completed the AL/MC Portfolio Disposition for a gross sale price of $385.0 million and recognized a gain on sale of $20.0 million, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations for the nine months ended September 30, 2020. In conjunction with the sale, we repaid $260.2 million of debt specifically attributable to the properties included in the AL/MC Portfolio Disposition and recognized a loss on extinguishment of debt of $3.6 million, comprising of $2.5 million in prepayment penalties and $1.1 million in the write-off of unamortized deferred financing costs, which is included in “Loss from discontinued operations” in our Consolidated Statements of Operations for the nine months ended September 30, 2020.

During the nine months ended September 30, 2019, we sold two AL/MC assets that were previously included in the Managed AL/MC Properties segment for a combined sale price of $13.8 million, and recognized a loss on sale of $0.1 million, which is included in “Loss on sale of real estate” in our Consolidated Statements of Operations for the nine months ended September 30, 2019. In connection with these dispositions, we repaid $13.7 million of debt. Prior to the sale, both assets were classified as “Assets held for sale” and included in “Receivables and other assets, net” in the Consolidated Balance Sheets.

5. SEGMENT REPORTING

We operate in two reportable business segments, Managed IL Properties and Other Properties. Our Managed IL Properties segment includes 102 IL properties throughout the United States managed by Holiday, Merrill Gardens and Grace under Property Management Agreements. Our Other Properties segment includes one CCRC, which is currently leased to Watermark under a triple net lease agreement that obligates the tenant to pay all property-related expenses, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. It also includes the operations of two managed AL/MC properties we previously owned and sold during the nine months ended September 30, 2019.

11
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

We evaluate performance of the combined properties in each reportable business segment based on segment NOI. We define NOI as total revenues less property-level operating expenses, which include property management fees and travel cost reimbursements. We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment NOI serves as a useful supplement to net income because it allows investors, analysts and management to measure unlevered property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. Segment NOI should not be considered as an alternative to net income as determined in accordance with GAAP.

Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing segment performance. There are no intersegment sales.
  Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Managed IL Properties Other Properties Consolidated Managed IL Properties Other Properties Consolidated
Revenues    
Resident fees and services $ 81,582  $ —  $ 81,582  $ 84,475  $ (102) $ 84,373 
Rental revenue —  1,583  1,583  —  1,583  1,583 
Less: Property operating expense 49,957  —  49,957  50,678  (102) 50,576 
Segment NOI $ 31,625  $ 1,583  33,208  $ 33,797  $ 1,583  35,380 
Interest expense 14,540  18,962 
Depreciation and amortization   16,204  17,323 
General and administrative expense   5,905  5,410 
Acquisition, transaction and integration expense   43  503 
Other expense 192  16 
Total expenses 36,884  42,214 
Litigation proceeds, net —  38,226 
Income (Loss) before income taxes (3,676) 31,392 
Income tax expense   74  37 
Income (Loss) from continuing operations   (3,750) 31,355 
Loss from discontinued operations —  (2,506)
Net income (loss) $ (3,750) $ 28,849 
12
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Managed IL Properties Other Properties Consolidated Managed IL Properties Other Properties Consolidated
Revenues
Resident fees and services $ 249,540  $ —  $ 249,540  $ 251,736  $ 3,207  $ 254,943 
Rental revenue —  4,748  4,748  —  4,748  4,748 
Less: Property operating expense 149,782  —  149,782  150,450  3,758  154,208 
Segment NOI $ 99,758  $ 4,748  104,506  $ 101,286  $ 4,197  105,483 
Interest expense 47,040  58,382 
Depreciation and amortization 50,522  51,304 
General and administrative expense 17,645  15,747 
Acquisition, transaction and integration expense 195  1,169 
Loss on extinguishment of debt 5,884  335 
Other expense 520  1,393 
Total expenses 121,806  128,330 
Loss on sale of real estate —  (122)
Litigation proceeds, net —  38,226 
Income (Loss) before income taxes (17,300) 15,257 
Income tax expense 156  110 
Income (Loss) from continuing operations (17,456) 15,147 
Discontinued Operations:
Gain on sale of real estate 19,992  — 
Loss from discontinued operations (3,107) (7,077)
Discontinued operations, net 16,885  (7,077)
Net income (loss) $ (571) $ 8,070 

Assets by reportable business segment are reconciled to total assets as follows:
September 30, 2020 December 31, 2019
Amount Percentage Amount Percentage
Managed IL Properties $ 1,710,666  94.9  % $ 1,748,787  79.7  %
Other Properties 63,208  3.5  % 63,616  2.9  %
All other assets (A)
28,811  1.6  % 382,306  17.4  %
Total assets $ 1,802,685  100.0  % $ 2,194,709  100.0  %
(A)Includes $363.5 million of assets classified as discontinued operations for the year ended December 31, 2019. The remaining balance primarily consists of corporate cash which is not directly attributable to our reportable business segments.

13
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

The following table presents the percentage of total revenues by geographic location:
As of and for the nine months ended
September 30, 2020 		As of and for the nine months ended
September 30, 2019
Number of Communities % of Total Revenue Number of Communities % of Total Revenue
Florida 9  9.0  % 9  9.2  %
California 9  10.2  % 9  10.8  %
Texas 9  8.0  % 9  8.0  %
North Carolina 8  8.5  % 8  8.5  %
Pennsylvania 5  5.7  % 5  5.5  %
Oregon 8  7.1  % 8  7.2  %
Other 55  51.5  % 55  50.8  %
Total 103  100.0  % 103  100.0  %

6.REAL ESTATE INVESTMENTS
 
The following table summarizes our real estate investments:
September 30, 2020 December 31, 2019
Gross Carrying Amount Accumulated Depreciation Net Carrying Value Gross Carrying Amount Accumulated Depreciation Net Carrying Value
Land $ 134,643  $ —  $ 134,643  $ 134,643  $ —  $ 134,643 
Building and improvements 1,869,245  (307,304) 1,561,941  1,863,866  (266,420) 1,597,446 
Furniture, fixtures and equipment 107,299  (94,475) 12,824  106,170  (85,135) 21,035 
Total real estate investments $ 2,111,187  $ (401,779) $ 1,709,408  $ 2,104,679  $ (351,555) $ 1,753,124 
 
Depreciation expense was $16.1 million and $17.2 million for the three months ended September 30, 2020 and 2019, respectively, and $50.2 million and $51.0 million for the nine months ended September 30, 2020 and 2019, respectively.

The following table summarizes our real estate intangibles:
  September 30, 2020 December 31, 2019
  Gross Carrying Amount Accumulated Amortization Net Carrying Value Weighted Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Value Weighted Average Remaining Amortization Period
Intangible lease assets $ 7,642  $ (2,505) $ 5,137  43.8 years $ 7,642  $ (2,238) $ 5,404  43.0 years

Amortization expense was $0.1 million for both the three months ended September 30, 2020 and 2019, and $0.3 million for both the nine months ended September 30, 2020 and 2019.

We evaluate long-lived assets, primarily consisting of our real estate investments, for impairment indicators. In performing this evaluation, market conditions and our current intentions with respect to holding or disposing of the asset are considered. Where indicators of impairment are present, we evaluate whether the sum of the expected future undiscounted cash flows is less than book value. Based on our assessment, no charges were necessary for the three and nine months ended September 30, 2020 and 2019.

14
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

7.RECEIVABLES AND OTHER ASSETS, NET
  September 30, 2020 December 31, 2019
Escrows held by lenders (A)
$ 14,645  $ 15,895 
Straight-line rent receivable 4,420  4,084 
Prepaid expenses 7,188  3,534 
Security deposits 3,027  2,763 
Resident receivables, net 1,465  1,345 
Income tax receivable 771  821 
Other assets and receivables 4,944  4,636 
Total receivables and other assets $ 36,460  $ 33,078 
(A)Represents amounts held by lenders in tax, insurance, replacement reserve and other escrow accounts that are related to mortgage notes collateralized by our properties.

Straight-line Rent Receivable

Rental revenue from our triple net lease property is recognized on a straight-line basis over the applicable term of the lease when collectability of substantially all rents is probable. Recognizing rental revenue on a straight-line basis typically results in recognizing revenue in excess of cash amounts contractually due from our tenant during the first half of the lease term, creating a straight-line rent receivable.

We assess the collectability of straight-line rent receivables on an ongoing basis. This assessment is based on several qualitative and quantitative factors, including and as appropriate, the payment history of the triple net lease tenant, the tenant’s ability to satisfy its lease obligations, the value of the underlying collateral or deposit, if any, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will collect substantially all rents, any lease income is limited to the lesser of the lease income reflected on a straight-line basis or cash collected.

The following table sets forth future contracted minimum lease payments from the tenant within the Other Properties segment, excluding contingent payment escalations, as of September 30, 2020:
2020 (three months) $ 1,489 
2021 6,066 
2022 6,233 
2023 6,405 
2024 6,581 
Thereafter 38,888 
Total future minimum lease payments $ 65,662 
15
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

8.DEBT, NET
  September 30, 2020 December 31, 2019
  Outstanding Face Amount
Carrying Value (A)
Maturity Date Stated Interest Rate Weighted Average Maturity (Years) Outstanding Face Amount
Carrying Value (A)
Floating Rate (B)(C)
$ 1,039,485  $ 1,024,579  Mar 2022- Mar 2030
1M LIBOR + 2.00% to
1M LIBOR + 2.75%
6.0 $ 1,139,036  $ 1,128,100 
Fixed Rate
464,680  462,828  Sep 2025 4.25% 4.8 464,680  462,532 
Total $ 1,504,165  $ 1,487,407      5.6 $ 1,603,716  $ 1,590,632 
(A)The totals are reported net of deferred financing costs of $16.8 million and $13.1 million as of September 30, 2020 and December 31, 2019, respectively.
(B)Substantially all of these loans have LIBOR caps that range between 3.38% and 3.75% as of September 30, 2020.
(C)As of September 30, 2020, $620.0 million of total floating rate debt has been hedged using interest rate swaps, which is carried at fair value. See “Note 9 - Derivative Instruments” for more information.

The carrying value of the collateral relating to the floating rate and fixed rate debt was $1.2 billion and $0.5 billion, respectively, as of both September 30, 2020, and December 31, 2019.

Our debt agreements contain various customary financial and other covenants, in some cases including a debt service coverage ratio and project yield, as defined in the agreements. We are in compliance with the covenants in our debt agreements as of September 30, 2020.

In February 2020, in conjunction with the AL/MC Portfolio Disposition, we obtained mortgage financing in the aggregate amount of $270.0 million from KeyBank and assigned to Federal Home Loan Mortgage Corporation (the “2020 Freddie Financing”). The 2020 Freddie Financing is secured by 14 of our managed IL properties, matures on March 1, 2030, and bears interest at an adjustable rate, adjusted monthly, equal to the sum of the one month LIBOR index rate plus 2.12%. Concurrently on the same date, we used the funds from the 2020 Freddie Financing and proceeds from the AL/MC Portfolio Disposition to prepay an aggregate of $368.1 million of secured loans. We recognized a loss on extinguishment of debt of $5.9 million, comprising of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs, and is recorded in “Loss on extinguishment of debt” on our Consolidated Statements of Operations. We incurred a total of $3.3 million in deferred financing costs, which have been capitalized and are being amortized over the life of the loan and the related amortization is included in “Interest expense” in our Consolidated Statements of Operations.

In addition, in February 2020, we also amended and restated our secured revolving credit facility in the amount of $125.0 million (the “Revolver”) and extended its maturity from December 2021 to February 9, 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of $500.0 million, of which (i) up to 10% may be used for the issuance of letters of credit, and (ii) up to 10% may be drawn by us in the form of swing loans. The Revolver bears an interest rate of, at our option, (i) the sum of LIBOR plus 2.0% or, in the case of a swing line loan, (ii) the greater of (a) the fluctuating annual rate of interest announced from time to time by KeyBank as its “prime rate,” plus 1.0% (b) 1.5% above the effective federal funds rate and (c) the sum of LIBOR for a one-month interest period plus 2.0%. The Revolver is secured by nine of our managed IL properties and the pledge of the equity interests of certain of our wholly owned subsidiaries. We continue to pay a fee for unused amounts of the Revolver under certain circumstances, which were $0.1 million for the three months ended September 30, 2020 and $0.1 million for the nine months ended September 30, 2020, which were recorded in “Interest expense” in our Consolidated Statements of Operations.

16
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

9.DERIVATIVE INSTRUMENTS

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.

Derivatives Designated as Hedging Instruments

Interest rate swap

In August 2020, we entered into a $270.0 million notional interest rate swap with a maturity in September 2025 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. The interest rate swap was designated and qualified as a cash flow hedge with the change in fair value included in the assessment of hedge effectiveness deferred as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

In May 2019, we entered into a $350.0 million notional interest rate swap with a maturity in May 2022 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. The interest rate swap was designated and qualified as a cash flow hedge with the change in fair value included in the assessment of hedge effectiveness deferred as a component of OCI, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of September 30, 2020 and December 31, 2019, our interest rate swap liability of $14.3 million and $5.9 million, respectively, was recorded in “Accrued expenses and other liabilities” in our Consolidated Balance Sheets. For the three and nine months ended September 30, 2020, $1.9 million and $4.0 million of loss was reclassified from accumulated other comprehensive income (loss) into earnings and was recorded in “Interest expense” in our Consolidated Statements of Operations, respectively. As of September 30, 2020, approximately $7.9 million of our interest rate swap liability, which is included in accumulated other comprehensive income (loss), is expected to be reclassified into earnings in the next 12 months.

Derivatives Not Designated as Hedging Instruments

Interest rate caps

As of September 30, 2020 and December 31, 2019, our interest rate cap assets were recorded in “Receivables and other assets, net” in our Consolidated Balance Sheets. Fair value losses recognized for the three months ended September 30, 2020 and 2019 were not material. Fair value losses for the nine months ended September 30, 2020 and 2019 were $0.1 million and $0.6 million, respectively. These amounts are included in “Other expense” in our Consolidated Statements of Operations and “Other non-cash expense” in our Consolidated Statements of Cash Flows.

10.ACCRUED EXPENSES AND OTHER LIABILITIES
  September 30, 2020 December 31, 2019
Accounts payable $ 13,233  $ 17,554 
Security deposits payable 2,353  2,486 
Due to property managers 9,363  6,752 
Mortgage interest payable 3,731  5,665 
Deferred community fees, net 5,406  5,865 
Rent collected in advance 1,877  2,099 
Property tax payable 8,328  5,627 
Operating lease liability 1,880  1,942 
Derivative liability 14,266  5,896 
Other liabilities 6,157  5,434 
Total accrued expenses and other liabilities $ 66,594  $ 59,320 
17
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)


11. FAIR VALUE MEASUREMENTS

The carrying amounts and fair values of our financial instruments were as follows:
Fair Value Hierarchy September 30, 2020 December 31, 2019
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets:
Cash and cash equivalents (A)
1 $ 51,680  $ 51,680  $ 39,614  $ 39,614 
Restricted cash (A)
1 17,672  17,672  18,658  18,658 
Interest rate caps (B)(D)
2 23  23  IMM IMM
Financial Liabilities:
Mortgage debt (C)
3 $ 1,487,407  $ 1,538,155  $ 1,590,632  $ 1,592,855 
Interest rate swap (B)
2 14,266  14,266  5,736  5,736 
(A)The carrying amount approximates fair value.
(B)Fair value based on pricing models that consider inputs including forward yield curves, cap strike rates, cap volatility and discount rates.
(C)Fair value based on a discounted cash flow valuation model. Significant inputs in the model include amounts and timing of expected future cash flows and market yields which are constructed based on inputs implied from similar debt offerings. Our mortgage debt is not measured at fair value in our Consolidated Balance Sheets.
(D)As of December 31, 2019, the carrying value and the fair value of our interest rate caps were immaterial.

12.INCOME TAXES
 
New Senior is organized and conducts its operations to qualify as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the “Code”). However, certain of our activities are conducted through our taxable REIT subsidiary (“TRS”) and therefore are subject to federal and state income taxes at regular corporate tax rates.

The following table presents the provision (benefit) for income taxes (excluding discontinued operations):
  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
Current    
Federal $ —  $ —  $ —  $ — 
State and local 74  37  156  110 
Total current provision 74  37  156  110 
Deferred    
Federal —  —  —  — 
State and local —  —  —  — 
Total deferred provision —  —  —  — 
Total provision for income taxes $ 74  $ 37  $ 156  $ 110 

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by the TRS during the periods in which temporary differences become deductible before the net operating loss carryforward expires. Management believes that it is more likely than not that our net deferred tax assets will not be realized. As a result, we recorded valuation allowances against our deferred tax asset of $7.6 million and $7.9 million as of September 30, 2020 and December 31, 2019, respectively. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present.

18
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

As of September 30, 2020, our TRS had a loss carryforward of approximately $28.1 million for federal income tax purposes and $32.6 million for state income tax purposes. The federal net operating losses will begin to expire at the end of 2034. The net operating loss carryforward can generally be used to offset future taxable income, if and when it arises.

13.REDEEMABLE PREFERRED STOCK, EQUITY AND EARNINGS PER COMMON SHARE

Redeemable Preferred Stock

On December 31, 2018, we issued 400,000 shares of our Series A Redeemable Preferred Stock to the private equity firm that formerly externally managed us (the “Former Manager”). The Redeemable Preferred Stock are non-voting and have a $100 liquidation preference. Holders of the Redeemable Preferred Stock are entitled to cumulative cash dividends at a rate per annum of 6.00% on the liquidation preference amount plus all accumulated and unpaid dividends. The Redeemable Preferred Stock is subject to certain terms and conditions.

We may redeem, at any time, all but not less than all of the shares of Redeemable Preferred Stock for cash at a price equal to the liquidation preference amount of the Redeemable Preferred Stock plus all accumulated and unpaid dividends thereon (the “Redemption Price”). On or after December 31, 2020, the holders of a majority of the then outstanding shares of Redeemable Preferred Stock will have the right to require us to redeem up to 50% of the outstanding shares of Redeemable Preferred Stock, and on or after December 31, 2021, the holders of a majority of the then outstanding shares of Redeemable Preferred Stock will have the right to require us to redeem all or any portion of the outstanding shares of Redeemable Preferred Stock, in each case, for cash at the Redemption Price. Due to the ability of the holders to require us to redeem the outstanding shares, the Redeemable Preferred Stock is excluded from Equity and reflected in our Consolidated Balance Sheets at its initial fair value of $40.0 million. The carrying value of the Redeemable Preferred Stock is increased by the accumulated and unpaid dividends in the period with a corresponding increase in accumulated deficit. Accrued dividends are treated as deductions in the calculation of net income (loss) applicable to common stockholders.

The following table is a rollforward of our Redeemable Preferred Stock for the nine months ended September 30, 2020:
Balance as of December 31, 2019 $ 40,506 
Accrued dividend on Redeemable Preferred Stock 1,802 
Paid dividend on Redeemable Preferred Stock (1,802)
Balance as of September 30, 2020 $ 40,506 

Amended and Restated Stock Option and Incentive Award Plan

On January 1, 2019, our board of directors adopted an Amended and Restated Nonqualified Stock Option and Incentive Award Plan (the “Plan”) providing for the grant of equity-based awards, including restricted stock awards (RSAs), restricted stock units (RSUs), stock options, stock appreciation rights, performance awards and other equity-based and non-equity based awards, in each case to our directors, officers, employees, service providers, consultants and advisors. We have reserved 27,922,570 shares of our common stock for issuance under the Plan. Vesting periods for these awards generally range from one to three years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $1.7 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $4.8 million and $2.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Equity and Dividends

In January 2020, strike prices for outstanding options as of December 31, 2019 were reduced by $0.52 (the “2019 ROC Adjustment”), reflecting the portion of our 2019 dividends which were deemed return of capital pursuant to the terms of the Plan. In addition, 20,098 additional options were issued to the Former Manager, in order to maintain the intrinsic value of an option grant with a strike price below the 2019 ROC Adjustment.

19
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

Earnings per Common Share

Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. Our common stock equivalents are our outstanding stock options and equity-based compensation awards.

We have certain equity-based compensation awards that contain non-forfeitable rights to dividends, which are considered participating securities for the purposes of computing EPS pursuant to the two-class method, and therefore we apply the two-class method in our computation of EPS. The two-class method is an earnings allocation methodology that determines EPS for common shares and participating securities according to dividends declared or accumulated and participating rights in undistributed earnings. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund losses.

For the three and nine months ended September 30, 2020 and 2019, basic and diluted net income (loss) per share was computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. The following table sets forth the computation of basic and diluted income (loss) per share of common stock for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator
Income (Loss) from continuing operations attributable to common stockholders $ (4,355) $ 30,750  $ (19,258) $ 13,345 
Discontinued operations, net —  (2,506) 16,885  (7,077)
Net income (loss) attributable to common stockholders (4,355) 28,244  (2,373) 6,268 
Less: Non-forfeitable dividends allocated to participating RSUs (28) —  (59) — 
Net income (loss) available to common shares outstanding $ (4,383) $ 28,244  $ (2,432) $ 6,268 
Denominator
Basic weighted average common shares outstanding (A)
82,568,919  82,209,844  82,472,115  82,207,610 
Dilutive common shares - equity awards and options (B)
—  1,754,387  —  1,381,038 
Diluted weighted average common shares outstanding 82,568,919  83,964,231  82,472,115  83,588,648 
Basic earnings per common share:
Income (Loss) from continuing operations attributable to common stockholders $ (0.05) $ 0.37  $ (0.23) $ 0.16 
Discontinued operations, net —  (0.03) 0.20  (0.09)
Net income (loss) attributable to common stockholders (C)
$ (0.05) $ 0.34  $ (0.03) $ 0.08 
Diluted earnings per common share:
Income (Loss) from continuing operations attributable to common stockholders $ (0.05) $ 0.37  $ (0.23) $ 0.16 
Discontinued operations, net —  (0.03) 0.20  (0.08)
Net income (loss) attributable to common stockholders (C)
$ (0.05) $ 0.34  $ (0.03) $ 0.07 

(A)The outstanding shares used to calculate the weighted average basic shares outstanding exclude 454,921 and 754,594 restricted stock awards as of September 30, 2020 and 2019 net of forfeitures, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) per common share for the three and nine months ended September 30, 2020.
(B)During the three and nine months ended September 30, 2020, 651,188 and 826,408 dilutive share equivalents and options, respectively, were excluded as their inclusion would have been anti-dilutive given our loss position.
(C)Amounts may not sum due to rounding.

14. COMMITMENTS AND CONTINGENCIES
 
As of September 30, 2020, management believes there are no material contingencies that would affect our results of operations, cash flows or financial position.
20
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

 
Certain Obligations, Liabilities and Litigation
 
We are and may become subject to various obligations, liabilities, investigations, inquiries, regulatory proceedings, litigation and claims assumed in connection with or arising from our on-going business (some of which may not be fully insured and some of which may allege significant monetary damages), as well as acquisitions, sales, leasing and other activities. These claims may include, among other things, professional liability and general liability claims, unfair business practices claims, employment claims and regulatory proceedings. The risks of some of these types of claims has increased as a result of the ongoing COVID-19 pandemic. These obligations and liabilities (including the costs associated with investigations, inquiries and litigation) may be greater than expected or may not be known in advance. Any such obligations or liabilities could have a material adverse effect on our financial position, cash flows and results of operations, particularly if we are not entitled to indemnification, or if a responsible third party fails to indemnify us.
  
Certain Tax-Related Covenants
 
If we are treated as a successor to Drive Shack under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2015, we could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement entered into to effect our spin-off from Drive Shack (“Separation and Distribution Agreement”), Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Senior as necessary to enable us to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to us and our tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders and its operation as a REIT, and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2015 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that Drive Shack’s failure to maintain its REIT status will not cause us to fail to qualify as a REIT under the successor REIT rule referred to above).

Proceedings Indemnified and Defended by Third Parties

From time to time, we are party to certain legal actions, regulatory investigations and claims for which third parties are contractually obligated to indemnify, defend and hold us harmless. While we are presently not being defended by any tenant and other obligated third parties in these types of matters, there is no assurance that our tenant, its affiliates or other obligated third parties would defend us in these matters, or that such parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to us.

Environmental Costs
 
As a commercial real estate owner, we are subject to potential environmental costs. As of September 30, 2020, management is not aware of any environmental concerns that would have a material adverse effect on our financial position or results of operations.

Capital Improvement and Repair Commitments
 
We have agreed to make $1.0 million available for capital improvements during the 15 year lease period, which ends in 2030, to the triple net lease property under Watermark, none of which has been funded as of September 30, 2020. Upon funding these capital improvements, we will be entitled to a rent increase.

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)

Leases

As the lessee, we currently lease our corporate office space located in New York, New York under an operating lease agreement. The lease requires fixed monthly rent payments, expires on June 30, 2024 and does not have any renewal option. We also currently lease equipment (e.g., dishwashers, copy machines and buses) used at certain of our managed IL Properties under operating lease agreements. Our leases have remaining lease terms ranging from one month to 3.8 years. We do not include any renewal options in our lease terms for calculating our lease liability because as of September 30, 2020, we were not reasonably certain if we will exercise these renewal options at this time.

As of September 30, 2020, our future minimum lease payments under our operating leases are as follows:
Year Operating Leases
2020 (three months) $ 163 
2021 649 
2022 509 
2023 466 
2024 235 
Thereafter 310 
Total future minimum lease payments 2,332 
Less imputed interest (452)
Total operating lease liability $ 1,880 

Litigation Settlement

As previously described in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, a derivative lawsuit, captioned Cumming v. Edens, et al., C.A. No. 13007-VCS, was brought on behalf of the Company against certain current and former members of the Company’s board of directors, Fortress Investment Group LLC and certain affiliates and Holiday Acquisition Holdings LLC. On April 23, 2019, the parties reached an agreement to settle the derivative lawsuit. The settlement provided for the payment of $53.0 million to the Company and the recommendation of certain corporate governance changes in exchange for customary releases. The settlement was approved by the Delaware Court of Chancery on July 31, 2019 and a judgment issued the same day. Cash proceeds of approximately $38.5 million were distributed to the Company, which reflected a court-approved fee and expense award to plaintiff’s counsel of $14.5 million. The Company also paid $0.3 million in unreimbursed legal fees. These proceeds were recorded in “Litigation proceeds, net” in our Consolidated Statements of Operations. The Company previously submitted and recommended the agreed-upon governance changes to its stockholders at the Company’s 2019 annual meeting of shareholders, which was held in June 2019, and 2020 annual meeting of shareholders, which was held in June 2020, although such changes were not approved by the Company’s shareholders by the required vote for such changes.

15.SUBSEQUENT EVENTS

On October 28, 2020, our board of directors declared a cash dividend on our common stock of $0.065 per share for the quarter ended September 30, 2020. The dividend is payable on December 18, 2020 to stockholders of record on December 4, 2020.



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following should be read in conjunction with the consolidated financial statements and notes thereto included within this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included under the heading “Cautionary Note Regarding Forward-Looking Statements” and under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2019.
 
OVERVIEW
 
Our Business
 
We are a REIT with a portfolio of 103 senior housing properties located across the United States. We are the only pure play senior housing REIT and one of the largest owners of senior housing properties. We are listed on the NYSE under the symbol “SNR” and are headquartered in New York, New York.
 
We conduct our business through two reportable segments: Managed Independent Living (“IL”) Properties and Other Properties. See our consolidated financial statements and the related notes included herein for additional information regarding our segments.

COVID-19 & Considerations Related to Our Business

The novel coronavirus (COVID-19) global pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.
As an owner of senior living properties, with a portfolio of 102 IL properties and one continuing care retirement community (“CCRC”), COVID-19 impacts our business in various ways. Our three property managers and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities across the U.S. Some of the measures taken at the onset of the pandemic included restrictions on all non-essential visitors (including family), closure of group dining facilities and other common areas, restrictions on resident movements and group activities, as well as enhanced protocols which have required increased labor, property cleaning expenses and costs related to procuring necessary supplies such as meal containers and personal protective equipment (“PPE”). Over the last several months, our properties have lifted certain restrictions in a phased approach, based on both the status of state and local regulations that affect the property as well as the status of any COVID-19 cases at the property. Lifting restrictions at our properties, particularly restrictions related to onsite visitors, while being done in a measured approach in compliance with all state and local regulations, may contribute to an increase in COVID-19 cases.

COVID-19 is having and will likely continue to have an impact on three metrics that are fundamental to our business: occupancy, rental rates and operating expenses.
Occupancy:
Following the COVID-19 outbreak, occupancy at our properties began to decrease materially as move-ins at those properties slowed due to the voluntary restrictions our operators have imposed on move-ins at our properties as discussed above. At the same time, the pandemic raises the risk of an elevated level of resident illnesses and therefore higher move-out levels at our properties. While move-out levels were slightly below historical levels at the onset of the pandemic, they have increased in recent months, likely due to pent-up demand to move-out that has been hampered by the pandemic. We do not know the extent of the ultimate impacts that COVID-19 will have on our business, and whether it will fundamentally alter the demand for senior housing in general or in our properties in particular. During the third quarter of 2020, ending occupancy decreased 160 basis points compared to the second quarter. Occupancy may continue to decline as a result of the pandemic. The timing of a recovery in occupancy is difficult to predict and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur.
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The senior housing industry offers a full continuum of care to seniors with product types that range from “mostly housing” (i.e., senior apartments) to “mostly healthcare” (i.e., skilled nursing, hospitals, etc.). We primarily focus on product types at the center of this continuum, namely IL properties. We believe that our focused portfolio of primarily IL properties will allow investors to participate in the positive fundamentals of the senior housing sector. However, according to the U.S. Centers for Disease Control and Prevention (the “CDC”), older adults and people of any age who have serious underlying medical conditions might be at higher risk for severe illness from COVID-19. The CDC guidance also states that people age 65 and older and those living in nursing homes or long-term care facilities are at high-risk for severe illness from COVID-19. While we do not own nursing facilities, the age and other demographics of our residents fall within the CDC guidance. We do not know if or how this will affect seniors’ views on different types of senior living and whether it will alter demand for our types of senior living properties in the future.

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

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

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

Other Recent Developments

Completion of AL/MC Portfolio Disposition & Related Refinancing Activity

On February 10, 2020, we completed the sale of all 28 of our managed assisted living/memory care (“AL/MC”) properties pursuant to a Purchase and Sale Agreement, dated as of October 31, 2019 (the “Sale Agreement”), with affiliates of ReNew REIT for a gross sale price of $385.0 million (“AL/MC Portfolio Disposition”). We recognized a gain on sale of $20.0 million from the AL/MC Portfolio Disposition, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations. The sale of these properties represents a strategic shift that had a major effect on our operations and financial results. Accordingly, the operations of these properties were classified as discontinued operations in our consolidated financial statements included in this Form 10-Q. All prior period information has been reclassified to conform to current period presentation. Refer to “Note 3 – Discontinued Operations” to our consolidated financial statements for additional details.

In February 2020, in conjunction with the AL/MC Portfolio Disposition, we repaid $368.1 million of debt and recognized a loss of extinguishment of debt of $5.9 million, comprising of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs on the loans, which is included in “Loss on extinguishment of debt” in our Consolidated Statements of Operations. We also entered into a new financing for $270.0 million, which is secured by 14 managed IL properties. In addition, we amended and restated our secured revolving credit facility in the amount of $125.0 million (the “Revolver”), which is currently secured by nine managed IL properties and the pledge of the equity interests of
24

certain of our wholly owned subsidiaries. The amendment extended the maturity of the Revolver from December 2021 to February 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of borrowing capacity of $500.0 million. Refer to “Note 8 – Debt, Net” to our consolidated financial statements for additional details.

As a result of these refinancing initiatives, our weighted average debt maturity increased from 4.8 years as of December 31, 2019 to 5.6 years as of September 30, 2020. We have no significant debt maturities until 2025.

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

MARKET CONSIDERATIONS

Senior housing is a $300 billion market, and ownership of senior housing assets is highly fragmented. Given these industry fundamentals and compelling demographics that are expected to drive increased demand for senior housing, we believe the senior housing industry presents an attractive investment opportunity. However, increased competition from other buyers of senior housing assets, the impact of COVID-19 on the senior housing industry, as well as liquidity constraints and other factors, could impair our ability to source attractive investment opportunities within the senior housing industry and thus to seek investments in the broader healthcare industry.

According to data from the National Investment Center for Seniors Housing and Care (“NIC”) on the 99 Primary and Secondary Markets, occupancy was down 530 basis points year-over-year in the third quarter of 2020, the second full quarter impacted by the COVID-19 pandemic. New Senior’s occupancy results outperformed the industry in the third quarter, with same store managed occupancy down 480 basis points year-over-year. Industry occupancy for majority IL facilities was down 500 basis points year-over-year, while industry occupancy for majority assisted living (“AL”) facilities was down 580 basis points year-over-year.

Industry-wide, new supply remains elevated compared to pre-2015 levels, but continues to decrease. Units under construction represent 5.2% of inventory, but the ratio has decreased 210 basis points from the recent high in the third quarter of 2018. The ratio of AL construction to inventory (5.5%) remains slightly higher than that for IL (5.0%).

While supply trends have improved recently, rate growth has decelerated over the past several quarters. Industry rate growth was 1.7% in the third quarter of 2020, down from the recent high of 3.3% in the second quarter of 2019. Rate growth for IL facilities (1.8%) was slightly higher than rate growth for AL facilities (1.7%).

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

Additionally, as discussed in more detail above, the COVID-19 pandemic is having an impact on our business in 2020 and will likely continue to have an impact beyond 2020. The timing of a recovery is difficult to predict, and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur.
  
RESULTS OF OPERATIONS
 
Segment Overview
 
We operate in two reportable business segments, Managed IL Properties and Other Properties. Our Managed IL Properties segment includes 102 IL properties throughout the United States managed by Holiday, Merrill Gardens and Grace under Property Management Agreements. Our Other Properties segment includes one CCRC, which is currently leased to Watermark under a triple net lease agreement that obligates the tenant to pay all property-related expenses, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. It also includes the operations of two managed AL/MC properties we previously owned and sold during the nine months ended September 30, 2019.

25

Net Operating Income

We evaluate performance of these reportable business segments based on segment NOI. We consider NOI an important supplemental measure used to evaluate the operating performance of our segments because it allows investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. We define NOI as total revenues less property level operating expenses, which include property management fees and travel cost reimbursements.

Our Managed IL Properties segment is comprised of independent living senior housing properties that are operated by property managers to which we pay a management fee. Our Other Properties segment is comprised of a senior housing property leased on a long-term basis, and our tenant is typically responsible for bearing property-related expenses including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing segment performance. Because of such differences in our exposure to property operating results, each segment requires a different type of management focus. As such, these segments are managed separately. In deciding how to allocate resources and assess performance, our chief operating decision maker regularly evaluates the performance of our reportable segments on the basis of NOI.

Same Store

Same store information is intended to enable management to evaluate the performance of a consistent portfolio of real estate in a manner that eliminates variances attributable to changes in the composition of our portfolio over time, due to sales and various other factors. Properties acquired, sold, transitioned to other property managers or between segments, or classified as held for sale or discontinued operations during the comparable periods are excluded from the same store amounts.

26

Three months ended September 30, 2020 compared to three months ended September 30, 2019

The following table provides a reconciliation of our segment NOI to net income (loss), and compares the results of operations for the respective periods:
Three Months Ended September 30, Increase (Decrease)
(dollars in thousands) 2020 2019 Amount Percentage
Segment NOI for Managed IL Properties $ 31,625  $ 33,797  $ (2,172) (6.4) %
Segment NOI for Other Properties 1,583  1,583  —  —  %
Total segment NOI 33,208  35,380  (2,172) (6.1) %
Expenses
Interest expense 14,540  18,962  (4,422) (23.3) %
Depreciation and amortization 16,204  17,323  (1,119) (6.5) %
General and administrative expense 5,905  5,410  495  9.1  %
Acquisition, transaction and integration expense 43  503  (460) (91.5) %
Other expense 192  16  176  NM
Total expenses 36,884  42,214  (5,330) (12.6) %
Litigation proceeds, net —  38,226  (38,226) NM
Income (Loss) before income taxes (3,676) 31,392  (35,068) 111.7  %
Income tax expense 74  37  37  100.0  %
Income (Loss) from continuing operations (3,750) 31,355  (35,105) 112.0  %
Discontinued Operations:
Loss from discontinued operations —  (2,506) 2,506  NM
Discontinued operations, net —  (2,506) 2,506  NM
Net income (loss) (3,750) 28,849  (32,599) 113.0  %
Deemed dividend on redeemable preferred stock (605) (605) —  —  %
Net income (loss) attributable to common stockholders $ (4,355) $ 28,244  $ (32,599) 115.4  %
_______________
NM – Not meaningful

Managed IL Properties

The following table presents same store and total portfolio results as of and for the three months ended September 30, 2020 and 2019:
Same Store & Total Portfolio
(dollars in thousands, except per bed data) 2020 2019 Change %
Resident fees and services $ 81,582  $ 84,475  $ (2,893) (3.4) %
Less: Property operating expense 49,957  50,678  (721) (1.4) %
NOI $ 31,625  $ 33,797  $ (2,172) (6.4) %
Total properties as of the period ended 102  102 
Average available beds 11,976  11,975 
Average occupancy (%) 82.5  87.3 
Average monthly revenue per occupied bed $ 2,752  $ 2,693 

Resident fees and services
 
Same store and total resident fees and services decreased $2.9 million. This decrease is primarily attributable to a decrease in occupancy, partially offset by an increase in average rental rates.
27

Property operating expense
 
Same store and total property operating expense decreased $0.7 million. This decrease is primarily due to variable expense savings associated with lower occupancy and strong expense management from our operators, partially offset by costs incurred in response to the COVID-19 pandemic.
 
Segment NOI
 
Same store NOI and total portfolio NOI decreased $2.2 million. See above for the variance explanations.

Other Properties

The following table presents same store and total portfolio results as of and for the three months ended September 30, 2020 and 2019 but excluding properties whose operations were classified as discontinued operations:
Same Store Portfolio Total Portfolio
(dollars in thousands, except per bed data) 2020 2019 Change % 2020 2019 Change %
Rental revenue $ 1,583  $ 1,583  $ —  —  % $ 1,583  $ 1,583  $ —  —  %
NOI $ 1,583  $ 1,583  $ —  —  % $ 1,583  $ 1,583  $ —  —  %
Total properties as of the period ended 1  1  1  1 
Average available beds 463  463  463  463 

Rental revenue

Rental revenue relates to rents from our triple net lease property. Same store and total portfolio rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, same store segment NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees.

Segment NOI
 
Total and same store segment NOI remained unchanged for the comparative periods.

Expenses

Interest expense
 
Interest expense decreased $4.4 million primarily due to a lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the three months ended September 30, 2020 and 2019 were 3.70% and 4.65%, respectively.

Depreciation and amortization

Depreciation and amortization decreased $1.1 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of September 30, 2019.

General and administrative expense
 
General and administrative expense increased $0.5 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees after the three months ended September 30, 2019.
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Acquisition, transaction and integration expense
 
Acquisition, transaction and integration expense decreased $0.5 million primarily due to costs associated with the sale of two managed AL/MC properties during the three months ended September 30, 2019 and no sales during the three months ended September 30, 2020.

Other expense

Other expense increased by $0.2 million. This is primarily due to casualty related charges incurred on one IL property.

Litigation proceeds, net

As described in “Note 14 – Commitments and Contingencies” to our consolidated financial statements, on July 31, 2019, the derivative lawsuit, captioned Cummings v. Edens, et al., C.A. No. 13007-VCS was settled and approved by the relevant court. During the three months ended September 30, 2019, we recorded $38.2 million in litigation proceeds net of a court-approved fee and expense award to plaintiff’s counsel of $14.5 million, as well as $0.3 million in unreimbursed legal fees.

Income tax expense

We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. Income tax expense was relatively flat during the comparative periods.

Discontinued operations, net

For the three months ended September 30, 2019, discontinued operations, net reflect the operations of the 28 AL/MC properties that were sold in February 2020.

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Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

The following table provides a reconciliation of our segment NOI to net income (loss), and compares the results of operations for the respective periods:

Nine Months Ended September 30, Increase (Decrease)
(dollars in thousands) 2020 2019 Amount Percentage
Segment NOI for Managed IL Properties $ 99,758  $ 101,286  $ (1,528) (1.5) %
Segment NOI for Other Properties 4,748  4,197  551  13.1  %
Total segment NOI 104,506  105,483  (977) (0.9) %
Expenses
Interest expense 47,040  58,382  (11,342) (19.4) %
Depreciation and amortization 50,522  51,304  (782) (1.5) %
General and administrative expense 17,645  15,747  1,898  12.1  %
Acquisition, transaction and integration expense 195  1,169  (974) (83.3) %
Loss on extinguishment of debt 5,884  335  5,549  NM
Other expense 520  1,393  (873) (62.7) %
Total expenses 121,806  128,330  (6,524) (5.1) %
Loss on sale of real estate —  (122) 122  NM
Litigation proceeds, net —  38,226  (38,226) NM
Income (Loss) before income taxes (17,300) 15,257  (32,557) NM
Income tax expense 156  110  46  41.8  %
Income (Loss) from continuing operations (17,456) 15,147  (32,603) NM
Discontinued Operations:
Gain on sale of real estate 19,992  —  19,992  NM
Loss from discontinued operations (3,107) (7,077) 3,970  56.1  %
Discontinued operations, net 16,885  (7,077) 23,962  NM
Net income (loss) (571) 8,070  (8,641) 107.1  %
Deemed dividend on redeemable preferred stock (1,802) (1,802) —  —  %
Net income (loss) attributable to common stockholders $ (2,373) $ 6,268  $ (8,641) 137.9  %

Managed IL Properties

The following table presents same store and total portfolio results as of and for the nine months ended September 30, 2020 and 2019:

Same Store & Total Portfolio
(dollars in thousands, except per bed data) 2020 2019 Change %
Resident fees and services $ 249,540  $ 251,736  $ (2,196) (0.9) %
Less: Property operating expense 149,782  150,450  (668) (0.4) %
NOI $ 99,758  $ 101,286  $ (1,528) (1.5) %
Total properties as of the period ended 102  102 
Average available beds 11,976  11,974 
Average occupancy (%) 84.8  87.1 
Average monthly revenue per occupied bed $ 2,729  $ 2,680 

Resident fees and services
 
Same store and total resident fees and services decreased $2.2 million. This decrease is primarily attributable to a decrease in average occupancy rates, partially offset by an increase in average rental rates.
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Property operating expense
 
Same store and total property operating expense decreased $0.7 million. This decrease is primarily due to variable expense savings associated with lower occupancy and strong expense management from our operators, partially offset by costs incurred in response to the COVID-19 pandemic.

Segment NOI
 
Same store NOI and total segment NOI decreased $1.5 million. See above for the variance explanations.

Other Properties

The following table presents same store and total portfolio results as of and for the nine months ended September 30, 2020 and 2019 but excluding properties whose operations were classified as discontinued operations:
Same Store Portfolio Total Portfolio
(dollars in thousands, except per bed data) 2020 2019 Change % 2020 2019 Change %
Resident fees and services $ —  $ —  $ —  NM $ —  $ 3,207  $ (3,207) NM
Rental revenue 4,748  4,748  —  —  % 4,748  4,748  —  —  %
Less: Property operating expense —  —  —  NM —  3,758  (3,758) NM
NOI $ 4,748  $ 4,748  $ —  —  % $ 4,748  $ 4,197  $ 551  13.1  %
Total properties as of the period ended 1  1  1  1 
Average available beds 463  463  463  742 
_______________
NM – Not meaningful

Resident fees and services
 
Resident fees and services represent residents’ monthly rental and care fees from two managed AL/MC properties. Total resident fees and services decreased $3.2 million due to the sale of these AL/MC assets during the second quarter of 2019.
Rental revenue

Rental revenue relates to rents from our triple net lease property. Same store and total portfolio rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, same store segment NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees.

Property operating expense
 
Property operating expense relates to costs incurred at two managed AL/MC properties. Total property operating expense decreased $3.8 million due to the sale of these AL/MC assets during the second quarter of 2019.
 
Segment NOI
 
Total segment NOI increased $0.6 million. See above for the variance explanations.

Same store segment NOI remained relatively unchanged for the comparative periods.

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Expenses

Interest expense
 
Interest expense decreased $11.3 million primarily due to a lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the nine months ended September 30, 2020 and 2019 were 4.01% and 4.77%, respectively.

Depreciation and amortization

Depreciation and amortization decreased $0.8 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of September 30, 2019.

General and administrative expense
 
General and administrative expense increased $1.9 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees during the nine months ended September 30, 2020.

Acquisition, transaction and integration expense
 
Acquisition, transaction and integration expense decreased $1.0 million primarily due to costs associated with the strategic review during the nine months ended September 30, 2019.

Loss on extinguishment of debt

Loss on extinguishment of debt increased $5.5 million. During the nine months ended September 30, 2020, we incurred $5.9 million of loss on extinguishment of debt consisting of $4.5 million of prepayment penalties and a $1.4 million write-off of unamortized deferred financing fees related to debt paid off in conjunction with the AL/MC Portfolio Disposition.

Other expense

Other expense decreased by $0.9 million. This is primarily due to a lower fair value loss on our interest rate caps.

Loss on sale of real estate

During the nine months ended September 30, 2019, we sold two managed AL/MC properties and recognized a loss on sale of $0.1 million.

Litigation proceeds, net

As described in “Note 14 – Commitments and Contingencies” to our consolidated financial statements, on July 31, 2019, the derivative lawsuit, captioned Cummings v. Edens, et al., C.A. No. 13007-VCS was settled and approved by the relevant court. During the nine months ended September 30, 2019, we recorded $38.2 million in litigation proceeds net of a court-approved fee and expense award to plaintiff’s counsel of $14.5 million, as well as $0.3 million in unreimbursed legal fees.

Income tax expense

We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. Income tax expense was relatively flat during the comparative periods.

Discontinued operations, net

Discontinued operations, net increased $24.0 million primarily due to the sale of 28 AL/MC properties in February 2020 which resulted in a gain on sale of real estate of $20.0 million.


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LIQUIDITY AND CAPITAL RESOURCES
 
Our principal liquidity needs are to (i) fund operating expenses, (ii) meet debt service requirements, (iii) fund recurring capital expenditures and investment activities, if applicable, and (iv) make distributions to stockholders. As of September 30, 2020, we had approximately $51.7 million in liquidity, consisting of unrestricted cash and cash equivalents. A portion of this amount is held in operating accounts used to fund expenses at our managed properties and, therefore, may not be available for distribution to stockholders.

Our principal sources of liquidity are (i) cash flows from operating activities, (ii) proceeds from financing in the form of debt, and, from time to time, (iii) proceeds from dispositions of assets and (iv) proceeds from the issuance of equity securities. Our cash flows from operating activities are primarily driven by (i) rental revenues and fees received from residents of our managed properties and (ii) rental revenues from the tenant of our triple net lease property, less (iii) operating expenses (primarily property operating expense of our managed properties, general and administrative expenses, professional fees, insurance and taxes) and (iv) interest payments on our debt. Our principal uses of liquidity are the expenses included in cash flows from operating activities, plus capital expenditures, principal payments on debt, and distributions to our stockholders.

We anticipate that our cash on hand, our cash flows provided by operating activities, and cash available to be drawn down from the Revolver will be sufficient to fund our business operations, recurring capital expenditures, principal payments, and the distributions we are required to make to comply with REIT requirements over the next 12 months. Our actual distributions to stockholders have historically been higher than the REIT distribution requirement. The Revolver is an important source of liquidity for us. Our balance drawn under the Revolver fluctuates over time. Shortly after the onset of the pandemic in March 2020 and as a precaution, we borrowed $100.0 million under the Revolver. We paid down $40.0 million of the outstanding balance in May 2020 and the remainder in August 2020 due to the lack of a present need for funds, however, we continue to have access to the Revolver if our needs change in the future. The material terms of the Revolver are discussed in more detail in “Note 8 - Debt, Net” to our consolidated financial statements.

Our cash flows from operating activities, less capital expenditures and principal payments, have historically been less than the amount of distributions to our stockholders. We have in the past funded the shortfall using cash on hand. In light of the impacts of COVID-19, the board of directors reduced our quarterly cash dividend on its common shares for the first quarter of 2020 by 50% to $0.065 per share. The board of directors maintained the same dividend level in the second quarter of 2020, and subsequently on October 28, 2020 also approved a cash dividend on its common shares for the third quarter of 2020 of $0.065 per share. The board of directors believes the dividend reduction in 2020 is the most prudent course of action and it continues to monitor our financial performance and liquidity. The board of directors will continue to re-evaluate the level of future dividends. There can be no assurance that we will pay cash dividends in an amount consistent with prior quarters. Any difference between the amount of any future dividend and the amount of dividends in prior quarters could be material, and there can be no assurance that our board of directors will declare any dividend at all.

The impacts of the COVID-19 pandemic will also affect our liquidity in other ways. As discussed above in “Overview - COVID-19 & Considerations Related to Our Business,” if further decreases in occupancy in our properties occur, it will result in a reduction in our revenues and our cash flows. Over time, if financial results at the properties which secure the Revolver underperform, our availability to borrow funds under the Revolver could be limited. In addition, if rental revenues and fees received from residents of our managed properties decline as a result of financial or other difficulties in residents making rent payments to us, it would have a significant effect on our cash flows from operating activities.

The expectations set forth above are forward-looking and subject to a number of uncertainties and assumptions, which are described in more detail in our Annual Report on Form 10-K filed with the SEC under “Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations” and “Risk Factors,” as well as below in “Risk Factors.” If our expectations about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and this shortfall may occur rapidly and with little or no notice, which would limit our ability to address the shortfall on a timely basis.

Other Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations
 
The following factors could also impact our liquidity, capital resources and capital obligations:

•Access to Financing: Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with covenant terms, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto and the relative attractiveness of alternative investment or lending opportunities.

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•Impact of Expected Additional Borrowings or Sales of Assets on Cash Flows: The availability and timing of and proceeds from additional borrowings or refinancing of existing debt may be different than expected or may not occur as expected. The timing of any sale of assets, and the proceeds from any such sales, are unpredictable and may vary materially from an asset’s estimated fair value and carrying value.

•Compliance with Debt Obligations: Our financings subject us and our property managers to a number of obligations, and a failure to satisfy certain obligations, including (without limitation) a failure by the guarantors of our leases to satisfy certain financial covenants that depend in part on the performance of our leased assets, which is outside of our control, could give rise to a requirement to prepay outstanding debt or result in an event of default and the acceleration of the maturity date for repayment. We may also seek amendments to these debt covenants, and there can be no assurance that we will be able to obtain any such amendment on commercially reasonable terms, if at all.

Debt Obligations

Our debt contains various customary financial and other covenants, and in certain cases include a Debt Service Coverage Ratio, Project Yield or Minimum Net Worth, Minimum Consolidated Tangible Net Worth, Adjusted Consolidated EBITDA to Fixed Charges and Liquid Assets provision, as defined in the agreements. As of September 30, 2020, we were in compliance with all such covenants.

Capital Expenditures

For our Managed IL Properties and Other Properties segments, we anticipate that capital expenditures will be funded through operating cash flows from the Managed IL Properties. Capital expenditures, net of insurance proceeds for the Managed IL Properties segment were $6.6 million for the nine months ended September 30, 2020. There were no capital expenditures for the Other Properties segment for the nine months ended September 30, 2020. After the onset of the pandemic in March 2020, we temporarily halted all elective capital expenditure projects and limited projects to those deemed essential. We are currently re-evaluating all capital expenditures and have resumed certain projects that are capable of being completed safely.

With respect to our CCRC under a triple net lease arrangement in the Other Properties segment, the terms of this arrangement require the tenant to fund all necessary capital expenditures in order to maintain and improve the applicable property. To the extent that our tenant is unwilling or unable to fund these capital expenditure obligations under the existing lease arrangement, we may fund capital expenditures with additional borrowings or cash flow from the operations of the senior housing properties. We may also provide corresponding loans or advances to our tenant which would increase the rent payable to us. For further information regarding capital expenditures related to our triple net lease property, see “Contractual Obligations” below and “Note 14 – Commitments and Contingencies” to our consolidated financial statements.

Cash Flows
 
The following table provides a summary of our cash flows:
Nine Months Ended September 30, Increase (Decrease)
(dollars in thousands) 2020 2019 Amount
Net cash provided by (used in)
Operating activities
$ 33,792  $ 62,354  $ (28,562)
Investing activities
367,172  (7,598) 374,770 
Financing activities
(395,423) (86,253) (309,170)
Net decrease in cash, cash equivalents and restricted cash 5,541  (31,497) 37,038 
Cash, cash equivalents and restricted cash, beginning of period 63,829  92,656  (28,827)
Cash, cash equivalents and restricted cash, end of period $ 69,370  $ 61,159  $ 8,211 

Operating activities
 
Net cash provided by operating activities was $33.8 million and $62.4 million for the nine months ended September 30, 2020 and 2019, respectively. The period-over-period decrease of $28.6 million was primarily due to litigation proceeds of $38.2 million received in 2019 offset by a one-time termination fee of $10.0 million paid in 2019 to the Former Manager as a result of the Internalization.
 
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Investing activities
 
Net cash provided by investing activities was $367.2 million and net cash used in investing activities was $7.6 million for the nine months ended September 30, 2020 and 2019, respectively. The period-over-period increase of $374.8 million was due to net proceeds received in February 2020 from the AL/MC Portfolio Disposition of $375.0 million.
 
Financing activities
 
Net cash used in financing activities was $395.4 million and $86.3 million for the nine months ended September 30, 2020 and 2019, respectively. The period-over-period increase of $309.2 million was primarily due the repayments of debt in conjunction with the AL/MC Portfolio Disposition and debt refinancings of $576.1 million, offset by proceeds from the 2020 Freddie Financing of $270.0 million.

REIT Compliance Requirements
 
We are organized and conduct our operations to qualify as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains. We intend to pay dividends greater than all of our REIT taxable income to holders of our common stock in 2020, if, and to the extent, authorized by our board of directors. We note that a portion of this requirement may be able to be met in future years with stock dividends, rather than cash distributions, subject to limitations. We expect that our operating cash flows will exceed REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income. However, before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service obligations. If we do not have sufficient liquid assets to enable us to satisfy the 90% distribution requirement, or if we decide to retain cash, we may sell assets, issue equity securities or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
 
Income Tax
 
We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. Currently, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes at regular corporate tax rates.

OFF-BALANCE SHEET ARRANGEMENTS
 
As of September 30, 2020, we do not have any off-balance sheet arrangements. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose or variable interest entities established to facilitate off-balance sheet arrangements. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.
 
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CONTRACTUAL OBLIGATIONS

As of September 30, 2020, we had the following material contractual obligations, including estimates of interest payments on our floating rate debt (dollars in thousands):
Period from
October 1, 2020 to December 31, 2020 		2021
2022 (D)
2023 2024 Thereafter Total
Principal payments
$ 2,037  $ 9,241  $ 19,103  $ 19,817  $ 24,160  $ 44,276  $ 118,634 
Balloon payments
—  —  48,419  —  —  1,337,112  1,385,531 
Subtotal
2,037  9,241  67,522  19,817  24,160  1,381,388  1,504,165 
Redeemable preferred stock
20,000  20,000  —  —  —  —  40,000 
Interest & redeemable preferred stock dividend (A)(B)
12,010  46,749  44,080  42,991  42,423  60,144  248,397 
Leases
163  649  509  466  235  310  2,332 
Total obligations (C)
$ 34,210  $ 76,639  $ 112,111  $ 63,274  $ 66,818  $ 1,441,842  $ 1,794,894 
(A)Estimated interest payments on floating rate debt are calculated using LIBOR rates in effect at September 30, 2020 and may not be indicative of actual payments. Actual payments may vary significantly due to LIBOR fluctuations. See “Note 8 – Debt, Net” to the consolidated financial statements for further information about interest rates.
(B)Includes obligations to pay dividends of $0.6 million in 2020, and $1.2 million in 2021 on the Series A redeemable preferred stock.
(C)Total obligations include an estimate of interest payments on floating rate debt, see Note A above.
(D)The Company has two 1-year extension options to defer the balloon payment; the second extension requires the payment of a nominal extension fee.

In addition to our contractual obligations, we are a party to property management agreements with property managers. See “Note 14 – Commitments and Contingencies” to the consolidated financial statements for information related to our capital improvement and repair commitments.
 
NON-GAAP FINANCIAL MEASURES
 
A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not excluded from or included in the most directly comparable GAAP measure. We consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance for management and investors. GAAP accounting for real estate assets assumes that the value of real estate assets diminishes predictably over time, even though real estate values historically have risen or fallen with market conditions. As a result, many industry investors look to non-GAAP financial measures for supplemental information about real estate companies.

You should not consider non-GAAP measures as alternatives to GAAP net (loss) income, which is an indicator of our financial performance, or as alternatives to GAAP cash flow from operating activities, which is a liquidity measure. Additionally, non-GAAP measures are not intended to be a measure of our ability to satisfy our debt and other cash requirements. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP measures in conjunction with GAAP net income, cash flow from operating activities, investing activities and financing activities, as presented in our consolidated financial statements, and other financial data included elsewhere in this report. Moreover, the comparability of non-GAAP financial measures across companies may be limited as a result of differences in the manner in which real estate companies calculate such measures.

Below is a description of the non-GAAP financial measures used by our management and reconciliations of these measures to the most directly comparable GAAP measures.

Funds From Operations, Normalized Funds From Operations and Adjusted Funds from Operations

We use Funds From Operations (“FFO”) and Normalized FFO as supplemental measures of our operating performance. We use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as GAAP net income (loss) attributable to common stockholders, which includes loss from discontinued operations, excluding gains (losses) from sales of depreciable real estate assets and impairment charges of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and joint ventures to reflect FFO on the same basis. FFO does not account for debt principal payments and is not intended as a measure of a REIT’s ability to satisfy such payments or any other cash requirements.

Normalized FFO, as defined below, measures the financial performance of our portfolio of assets excluding items that, although incidental to, are not reflective of the day-to-day operating performance of our portfolio of assets. We believe that Normalized FFO is useful because it facilitates the evaluation of our portfolio’s operating performance (i) between periods on a consistent
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basis and (ii) to the operating performance of other real estate companies. However, comparability may be limited because our calculation of Normalized FFO may differ significantly from that of other companies or because of features of our business that are not present in other companies.

We define Normalized FFO as FFO excluding the following income and expense items, as applicable: (a) acquisition, transaction and integration related expenses; (b) the write off of unamortized discounts, premiums, deferred financing costs, or additional costs, make whole payments and penalties or premiums incurred as the result of early repayment of debt (collectively “Gain (Loss) on extinguishment of debt”); (c) incentive compensation recognized as a result of sales of real estate; (d) the remeasurement of deferred tax assets; (e) valuation allowance on deferred tax assets, net; (f) termination fee to affiliate; (g) gain on lease termination; (h) compensation expense related to transition awards; (i) litigation proceeds; and (j) other items that we believe are not indicative of operating performance, generally reported as “Other expense (income)” in our Consolidated Statements of Operations.

We also use Adjusted FFO (“AFFO”) as a supplemental measure of our operating performance. We believe AFFO is useful because it facilitates the evaluation of (i) the current economic return on our portfolio of assets between periods on a consistent basis and (ii) our portfolio versus those of other real estate companies that report AFFO. However, comparability may be limited because our calculation of AFFO may differ significantly from that of other companies, or because of features of our business that are not present in other companies.

We define AFFO as Normalized FFO excluding the impact of the following: (a) straight-line rents; (b) amortization of above / below market lease intangibles; (c) amortization of deferred financing costs; (d) amortization of premium or discount on mortgage notes payable; (e) amortization of deferred community fees and other, which includes the net change in deferred community fees and other rent discounts or incentives; and (f) amortization of equity-based compensation expense.

The following table sets forth a reconciliation of net income (loss) attributable to common stockholders to FFO, Normalized FFO and Adjusted FFO; adjustments below include amounts related to properties classified as discontinued operations:
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2020 2019 2020 2019
Net income (loss) attributable to common stockholders $ (4,355) $ 28,244  $ (2,373) $ 6,268 
Depreciation and amortization 16,204  21,041  50,522  62,583 
(Gain) Loss on sale of real estate —  —  (19,992) 122 
FFO 11,849  49,285  28,157  68,973 
Acquisition, transaction and integration expense 43  616  1,232  1,677 
Loss on extinguishment of debt —  —  9,486  335 
Compensation expense related to transition awards 296  291  981  1,432 
Litigation proceeds, net —  (38,226) —  (38,226)
Other expense (A)
220  23  387  1,468 
Normalized FFO 12,408  11,989  40,243  35,659 
Straight line rental revenue (95) (134) (337) (455)
Amortization of equity-based compensation expense 1,408  844  3,941  932 
Amortization of deferred financing costs 803  923  2,581  3,228 
Amortization of deferred community fees and other (158) 396  (1,904) 1,363 
Adjusted FFO $ 14,366  $ 14,018  $ 44,524  $ 40,727 
(A) Primarily includes changes in the fair value of financial instruments, insurance recoveries and casualty related charges.

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Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) facilitates an assessment of the operating performance of our existing portfolio of assets on an unleveraged basis by eliminating the impact of our capital structure and tax position. We define Adjusted EBITDA as net income (loss) attributable to common stockholders, which includes loss from discontinued operations, before interest, taxes, depreciation and amortization (including non-cash equity-based compensation expense), excluding deemed dividends on redeemable preferred stock, gain or loss on sale of real estate, impairment of real estate held for sale, acquisition, transaction and integration expense, loss on extinguishment of debt, compensation expense related to transition awards, incentive compensation on sale of real estate, termination fee to affiliate, gain on lease termination, litigation proceeds, and other expense.

The following table sets forth a reconciliation of net income (loss) attributable to common stockholders to Adjusted EBITDA; adjustments below include amounts related to properties classified as discontinued operations:
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2020 2019 2020 2019
Net income (loss) attributable to common stockholders $ (4,355) $ 28,244  $ (2,373) $ 6,268 
Depreciation and amortization 16,204  21,041  50,522  62,583 
Deemed dividend on redeemable preferred stock 605  605  1,802  1,802 
(Gain) Loss on sale of real estate —  —  (19,992) 122 
Acquisition, transaction and integration expense 43  616  1,232  1,677 
Loss on extinguishment of debt —  —  9,486  335 
Compensation expense related to transition awards 296  291  981  1,432 
Litigation proceeds, net —  (38,226) —  (38,226)
Other expense (A)
220  23  387  1,468 
Amortization of equity-based compensation expense 1,408  844  3,941  932 
Interest expense 14,540  22,662  48,401  69,864 
Income tax expense 74  44  156  188 
Adjusted EBITDA $ 29,035  $ 36,144  $ 94,543  $ 108,445 
(A) Primarily includes changes in the fair value of financial instruments, insurance recoveries and casualty related charges.

APPLICATION OF CRITICAL ACCOUNTING POLICIES
 
Management’s discussion and analysis of financial condition and results of operations is based upon our historical financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Our estimates are based on information available to management at the time of preparation of the financial statements, including the result of historical analysis, our understanding and experience of our operations, our knowledge of the industry and market-participant data available to us.

Actual results have historically been in line with management’s estimates and judgments used in applying each of our accounting policies, and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our consolidated financial statements. However, we do not expect our assessments and assumptions to materially change in the future.

Other than critical accounting policies mentioned in “Note 2 – Summary of Significant Accounting Policies” of our consolidated financial statements, there were no material changes to our critical accounting policies disclosed in our Form 10-K for the year ended December 31, 2019.

RECENT ACCOUNTING PRONOUNCEMENTS

See “Note 2 – Summary of Significant Accounting Policies” of our consolidated financial statements for information about recent accounting pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate risk and credit risk. These risks are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets and liabilities are for non-trading purposes only. In addition, we are exposed to liquidity risk.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates on borrowings under our mortgage loans that are floating rate obligations. These market risks result primarily from changes in LIBOR or prime rates. We continuously monitor our level of floating rate debt with respect to our total debt and other factors, including our assessment of current and future economic conditions.

For fixed rate debt, interest rate fluctuations generally affect the fair value, but do not impact our earnings or cash flows. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until such obligations mature or until we elect to prepay and refinance such obligations. If interest rates have risen at the time our fixed rate debt matures or is refinanced, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of maturity or refinancing may lower our overall borrowing costs.

For floating rate debt, interest rate fluctuations can affect the fair value, as well as earnings and cash flows. Generally, if market interest rates rise, our earnings and cash flows could be adversely affected by an increase in interest expense, and lower interest rates may reduce our borrowing costs and improve our operational results. We continuously monitor our interest rate exposure and may elect to use derivative instruments to manage interest rate risk associated with floating rate debt.

In August 2020, we entered into an interest rate swap with a notional amount of $270.0 million that matures in September 2025 and in May 2019, we entered into an interest rate swap with a notional amount of $350.0 million that matures in May 2022. These swaps effectively convert LIBOR-based floating-rate debt to fixed-rate debt, thus reducing the impact of interest-rate changes on future interest expense. After considering the effect of the interest rate swap, $419.5 million of our floating rate debt with an average coupon rate of 2.53% would be subject to interest rate fluctuations. As a result, a 100 basis point increase in interest rates would increase annual interest expense by $4.2 million. However, a 100 basis point decrease in interest rates would also increase annual interest expense by $1.9 million due to the impact of LIBOR floors included in certain debt agreements.

The table below sets forth the outstanding face amount of our debt subject to LIBOR fluctuations after incorporating the impact of the interest rate swap discussed above, excluding debt associated with assets classified as discontinued operations:
Outstanding Face Amount
  September 30, 2020 December 31, 2019
Floating Rate $ 419,485  $ 789,036 
Fixed Rate 1,084,680  814,680 
Total $ 1,504,165  $ 1,603,716 

LIBOR is currently expected to be phased out at the end of calendar year 2021. A portion of our debt, which includes certain mortgage loans and our revolving credit facility, is required to pay interest at floating rates based on LIBOR. We also hold derivatives (interest rate swaps) indexed to LIBOR as hedging instruments, as described above. In the event that LIBOR is phased out, the interest rate for our floating rate debt and the swap rate for our interest rate swaps will be based on an alternative floating rate as specified in the applicable debt instrument or agreement, or as otherwise agreed upon between us and our lenders. Certain of our newer loans and financial instruments have alternative LIBOR provisions, which generally give our lenders substantial flexibility in setting alternative rates if and when LIBOR is discontinued. We expect that the provisions of our other debt agreements relating to the calculation of interest will likely be amended, and over the past year we have been working with our lenders in the ordinary course to manage transition efforts to be prepared for this phase-out. We do not know what standard, if any, will replace LIBOR if it is phased out. Currently we cannot estimate the overall impact of the phase-out of LIBOR on our current debt agreements, although it is possible that an alternative variable rate could be higher or more volatile, which could raise our borrowing costs.
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Liquidity Risk

As described further in “Risk Factors,” the following factors could affect our liquidity, access to capital resources and our capital obligations.

•    Our stock price performance could impair our ability to access the capital markets, and any disruption to the capital markets or other sources of financing generally could also negatively affect our liquidity.
•    Our failure to comply with the terms of our financings or a default by our lease counterparty (including a failure by the lease guarantor to satisfy certain financial covenants that depend on the performance of our leased assets, which are outside of our control) could result in the acceleration of the requirement to repay our indebtedness or require us to seek amendments to such agreements, which we may not be able to obtain on commercially reasonable terms, if at all.
•    Our ability to obtain financing or refinancing on favorable terms, if at all.
•Real estate investments are relatively illiquid, and our ability to quickly sell or exchange our properties in response to changes in economic or other conditions is limited. In the event we desire or need to sell any of our properties, the value of those properties and our ability to sell at a price or on terms acceptable to us could be adversely affected by a downturn in the real estate industry generally, weakness in the senior housing and healthcare industries or other factors.
•    Because we derive substantially all of our revenues from operations conducted by third parties, any inability or unwillingness by these property managers to satisfy their respective obligations to us or to renew their leases with us upon expiration of the terms thereof could have a material adverse effect on our liquidity, financial condition, our ability to service our indebtedness and to make distributions to our stockholders.
•    To comply with the 90% distribution requirement applicable to REITs and to avoid income and excise taxes, we must make distributions to our stockholders. Our actual distributions to stockholders have historically been higher than the REIT distribution requirement. Distributions will limit our ability to finance investments and may limit our ability to engage in transactions that are otherwise in the best interests of our stockholders. Although we do not anticipate any inability to satisfy the REIT distribution requirement, from time to time, we may not have sufficient cash or other liquid assets to do so. For example, timing differences between the receipt of income and payment of deductible expenses, on the one hand, and the inclusion of that income and deduction of those expenses in arriving at our taxable income, on the other hand, or non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement. In the event that timing differences occur or we decide to retain cash or to distribute such greater amount as may be necessary to avoid income and excise taxation, we may seek to borrow funds, issue additional equity securities, pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements. Any of these actions may require us to raise additional capital to meet our obligations; however, limitations on our ability to access capital, as described above, could have an adverse effect on our ability to make required payments on our debt obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. The terms of the instruments governing our existing indebtedness restrict our ability to engage in certain types of these transactions.
•As discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources,” the impacts of the COVID-19 pandemic will affect the Company’s liquidity in various ways, including among other things by further impairing our ability to access the capital markets, by reducing our revenues due to decreased occupancy at our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver.


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ITEM 4. CONTROLS AND PROCEDURES
 
(a)Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

(b)Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS
 
We are supplementing the risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”) with the additional risk factor set forth below. This additional risk factor supplements, and to the extent inconsistent, supersedes such risk factors. The matters discussed below should be read in conjunction with the risk factors set forth in the Form 10-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, results of operations and financial condition.

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

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

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

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

Responding to the COVID-19 pandemic has also caused our operators to face material cost increases as a result of the need for the procurement of PPE and other supplies such as packaging necessary for in-room meal deliveries to residents. While to date these costs have largely been offset by variable expense savings associated with lower occupancy and strong expense management from our operators, there is no assurance that this will continue and depending on how the pandemic evolves, there may be other future operating expenses that we may be required to bear, such as costs for testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or new protocols related to the properties. The COVID-19 pandemic has also caused and is likely to continue to cause regulatory changes and, as a result, our industry may face increased regulatory scrutiny. Any changes in the regulatory framework or the intensity or extent of government or private enforcement actions could materially increase operating costs incurred by us or our property managers or tenant for monitoring and reporting compliance.
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The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide, including a significant decline and volatility in equity markets and in asset values more generally. These factors have significantly affected the price of our common stock, which traded as high as $8.35 per share and as low as $1.72 per share since the beginning of 2020. We cannot assure you that conditions in the credit, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our ability to obtain financing, including through refinancing our existing indebtedness at the times of maturity, will not become constrained, which could adversely affect the availability and terms of our ability to access equity and debt capital markets, or make future borrowings, renewals or refinancings. In addition, our liquidity may be adversely affected by these factors, reductions in our revenues due to decreased occupancy in our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver. Our residents and tenant are also likely experiencing deteriorating financial conditions as a result of the COVID-19 pandemic and may be unwilling or unable to satisfy their obligations to us on a timely basis, or at all, which may further reduce our revenues and cash flows.

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

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

In addition, to the extent COVID-19 adversely affects our business, financial condition, and results of operations and economic conditions more generally, it may also have the effect of heightening or increasing the magnitude of many of the other risk factors described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. For example, as a result of the COVID-19 pandemic, our cost of insurance related to our properties has increased and may continue to increase, and such insurance may contain exclusions and not cover certain claims related to COVID-19.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None. 

ITEM 4. MINE SAFETY DISCLOSURES

None.
 
ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS
 
Exhibits filed with this Form 10-Q:
101.INS Interactive Data File formatted in Inline XBRL
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

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SIGNATURES
 
Pursuant to the requirements 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:
  NEW SENIOR INVESTMENT GROUP INC.
   
     
  By: /s/ Bhairav Patel
  Bhairav Patel
  Executive Vice President of Finance and Accounting and Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
   
  October 30, 2020
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