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SNR New Senior Investment

Filed: 8 May 20, 4:32pm
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 March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________ 
Commission File Number: 001-36499
New Senior Investment Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 80-0912734
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
55 West 46th StreetNew YorkNY10036
(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 filerAccelerated filer 
Smaller reporting companyNon-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: 82,880,222 shares outstanding as of May 1, 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 duration and scope of the novel coronavirus (“COVID-19”) global pandemic, its impact on occupancy rates and on the Company’s operations and the operations of its operators/tenant; actions that local, state and the federal government take in response to the pandemic, including the introduction of public health measures and other regulations that could affect the operations of our properties; the effects of the health and safety measures adopted by us and our operators/tenant related to the pandemic; increased operational costs as a result of health and safety measures related to COVID-19, and the overall impact of COVID-19 on our business, results of operations, financial condition and liquidity, as well as on the price of our common stock;
our ability to comply with the terms of our financings, which depends in part on the performance of our operators;
any increase in our borrowing costs as a result of rising interest rates 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 our risk factors under “Part II, Item 1A”. and under “Part I, Item 2. 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 increases in 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 three months ended March 31, 2020, accounted for 94.3% 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 or 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 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 operators;
our reliance on our operators 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 “Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and “Part I, Item 1A. “Risk Factors” of 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 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
  
 PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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)
 March 31, 2020 December 31, 2019
 (Unaudited)  
Assets   
Real estate investments: 
  
Land$134,643
 $134,643
Buildings, improvements and other1,972,758
 1,970,036
Accumulated depreciation(368,979) (351,555)
Net real estate property1,738,422
 1,753,124
Acquired lease and other intangible assets7,642
 7,642
Accumulated amortization(2,327) (2,238)
Net real estate intangibles5,315
 5,404
Net real estate investments1,743,737
 1,758,528
    
Assets from discontinued operations
 363,489
Cash and cash equivalents135,103
 39,614
Receivables and other assets, net32,148
 33,078
Total Assets$1,910,988
 $2,194,709
    
Liabilities, Redeemable Preferred Stock and Equity 
  
Liabilities 
  
Debt, net$1,585,936
 $1,590,632
Liabilities from discontinued operations
 267,856
Accrued expenses and other liabilities62,313
 59,320
Total Liabilities1,648,249
 1,917,808
    
Commitments and contingencies (Note 13)


 


    
Redeemable preferred stock, $0.01 par value with $100 liquidation preference, 400,000 shares authorized, issued and outstanding as of both March 31, 2020 and December 31, 201940,500
 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 March 31, 2020 and December 31, 2019
 
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 82,880,222 and 82,964,438 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively829
 830
Additional paid-in capital902,288
 901,889
Accumulated deficit(666,424) (660,588)
Accumulated other comprehensive loss(14,454) (5,736)
Total Equity222,239
 236,395
    
Total Liabilities, Redeemable Preferred Stock and Equity$1,910,988
 $2,194,709

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 March 31,
 2020 2019
Revenues 
  
Resident fees and services$85,007
 $85,749
Rental revenue1,583
 1,582
Total revenues86,590
 87,331
    
Expenses 
  
Property operating expense51,065
 52,939
Interest expense17,219
 19,850
Depreciation and amortization17,536
 16,994
General and administrative expense5,846
 4,978
Acquisition, transaction and integration expense133
 492
Loss on extinguishment of debt5,884
 
Other (income) expense(105) 1,315
Total expenses97,578
 96,568
Loss before income taxes(10,988) (9,237)
Income tax expense60
 36
Loss from continuing operations(11,048) (9,273)
Discontinued Operations:   
Gain on sale of real estate19,992
 
Loss from discontinued operations(3,107) (1,920)
Discontinued operations, net16,885
 (1,920)
Net income (loss)5,837
 (11,193)
Deemed dividend on redeemable preferred stock(598) (598)
Net income (loss) attributable to common stockholders$5,239
 $(11,791)
    
Basic earnings per common share: (A)
   
Loss from continuing operations attributable to common stockholders$(0.14) $(0.12)
Discontinued operations, net0.20
 (0.02)
Net income (loss) attributable to common stockholders$0.06
 $(0.14)
    
Diluted earnings per common share:   
Loss from continuing operations attributable to common stockholders$(0.14) $(0.12)
Discontinued operations, net0.20
 (0.02)
Net income (loss) attributable to common stockholders$0.06
 $(0.14)
    
Weighted average number of shares of common stock outstanding   
Basic and diluted (B)
82,386,622
 82,203,069
    
Dividends declared and paid per share of common stock$0.13
 $0.13
 

(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 493,599 and 800,381 restricted stock awards, net of forfeitures, as of March 31, 2020 and 2019, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) per 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)Dilutive share equivalents and options were excluded for the three months ended March 31, 2020 and 2019 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 March 31,
 2020 2019
Net loss$(11,048) $(9,273)
Other comprehensive loss:   
Unrealized loss on cash flow hedge(8,718) 
Total other comprehensive loss(8,718) 
Total comprehensive loss(19,766) (9,273)

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 March 31, 2020
   Common Stock Accumulated Deficit Additional Paid-in Capital Accumulated Other Comprehensive Income (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 23,137
 
       
Shares repurchased and retired to satisfy tax withholding upon vesting (107,353) (1) 
 (998) 
 (999)
Amortization of equity-based compensation 
 
 
 1,397
 
 1,397
Dividends declared - common stock ($0.13 per share) 
 
 (10,708) 
 
 (10,708)
Dividends declared - equity awards ($0.13 per share) 
 
 (367) 
 
 (367)
Deemed dividend on redeemable preferred stock 
 
 (500) 
 
 (500)
Dividends declared on redeemable preferred stock 
 
 (98) 
 
 (98)
Other comprehensive loss 
 
 
 
 (8,718) (8,718)
Net income 
 
 5,837
 
 
 5,837
Equity at March 31, 2020 82,880,222
 $829
 $(666,424) $902,288
 $(14,454) $222,239

  Three Months Ended March 31, 2019
   Common Stock Accumulated Deficit Additional Paid-in Capital  Total Equity
   Shares  Amount
Equity at December 31, 2018 82,148,869
 $821
 $(616,504) $898,135
 $282,452
Amortization of equity-based compensation 
 
 
 449
 449
Directors shares issued 60,975
 1
 
 274
 275
Dividends declared - common stock ($0.13 per share) 
 
 (10,687) 
 (10,687)
Dividends declared - equity awards ($0.13 per share) 
 
 (104) 
 (104)
Deemed dividend on redeemable preferred stock 
 
 (598) 
 (598)
Net loss 
 
 (11,193) 
 (11,193)
Equity at March 31, 2019 82,209,844
 $822

$(639,086) $898,858
 $260,594
 

See accompanying notes to consolidated financial statements (unaudited).


4

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


 Three Months Ended March 31,
 2020 2019
Cash Flows From Operating Activities 
  
Net income (loss)$5,837
 $(11,193)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 
  
Depreciation of tangible assets and amortization of intangible assets17,536
 16,994
Amortization of deferred financing costs742
 792
Amortization of deferred revenue, net(64) 616
Non-cash straight-line rental revenue(134) (173)
Loss on extinguishment of debt5,884
 
Amortization of equity-based compensation1,397
 449
Gain on sale of real estate(19,992) 
Other non-cash expense235
 1,046
Changes in: 
  
Receivables and other assets, net(2,505) (2,110)
Accrued expenses and other liabilities(10,072) (20,244)
Net cash provided by (used in) operating activities - continuing operations(1,136) (13,823)
Net cash provided by (used in) operating activities - discontinued operations(3,105) 2,728
Net cash provided by (used in) operating activities(4,241) (11,095)
Cash Flows From Investing Activities 
  
Capital expenditures, net of insurance proceeds(2,787) (5,263)
Net cash provided by (used in) investing activities - continuing operations(2,787) (5,263)
Net cash provided by (used in) investing activities - discontinued operations (A)
373,805
 (1,384)
Net cash provided by (used in) investing activities371,018
 (6,647)
Cash Flows From Financing Activities 
  
Principal payments of mortgage notes payable and capital lease obligations(1,189) (1,844)
Proceeds from mortgage notes payable270,015
 
Proceeds from borrowings on revolving credit facility100,000
 
Repayments of mortgage notes payable(368,149) 
Payment of exit fee on extinguishment of debt(4,504) 
Payment of deferred financing costs(4,767) (588)
Purchase of interest rate caps(81) (35)
Taxes paid related to net settlement of equity-based compensation awards(999) 
Payment of common stock dividend(10,708) (10,687)
Payment of redeemable preferred stock dividend(604) 
Payment of restricted stock dividend(191) 
Net cash provided by (used in) financing activities - continuing operations(21,177) (13,154)
Net cash provided by (used in) financing activities - discontinued operations (B)
(260,996) (1,087)
Net cash provided by (used in) financing activities(282,173) (14,241)
Net increase (decrease) in cash, cash equivalents and restricted cash84,604
 (31,983)
Cash, cash equivalents and restricted cash, beginning of period63,829
 92,656
Cash, cash equivalents and restricted cash, end of period$148,433
 $60,673


(A) For the three months ended March 31, 2020, amount consists primarily of net proceeds from the AL/MC Portfolio Disposition. Refer to “Note 3 - Discontinued Operations” for details.
(B) For the three months ended March 31, 2020, amount consists primarily of repayments of debt in conjunction with the AL/MC Portfolio Disposition. Refer to “Note 3 - Discontinued Operations” for details.


5

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


 Three Months Ended March 31,
 2020 2019
Supplemental Disclosure of Cash Flow Information 
  
Cash paid during the period for interest expense$18,922
 $22,171
    
Supplemental Disclosure of Non-Cash Investing and Financing Activities   
Issuance of common stock$
 $275
Capital lease obligations278
 215

 Three Months Ended March 31,
 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$135,103
 $41,519
Restricted cash (A)
13,330
 19,154
Total, end of period$148,433
 $60,673


(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).



6

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 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 March 31, 2020, we owned a 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 2 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 1 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%.

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.

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. 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 classification of certain properties as discontinued operations.

7

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)



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 three months ended March 31, 2020, we issued 233,974 unvested restricted stock units to officers and employees 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 assessing the impact this guidance may have on our consolidated financial statements.

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.

On February 10, 2020, we completed the AL/MC Portfolio Disposition and recognized a gain on sale of $20.0 million, which is included in “Discontinued operations, net” in our Consolidated Statements of Operations. In conjunction with the sale, we repaid $260.2 million of debt specifically attributable to the properties included in the 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.


8

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


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 other397,808
Accumulated depreciation(87,719)
Net real estate property353,402
Acquired lease and other intangible assets996
Accumulated amortization(996)
Net real estate intangibles
Net real estate investments353,402
  
Receivables and other assets, net10,087
Assets from discontinued operations$363,489
  
Liabilities 
Debt, net$255,096
Accrued expenses and other liabilities12,760
Liabilities from discontinued operations$267,856

For the three months ended March 31, 2020 and 2019, the results of operations associated with discontinued operations are as follows:
 Three Months Ended March 31,
 2020 2019
Revenues   
Resident fees and services$14,024
 $30,288
Total Revenues14,024
 30,288
 
 
Expenses   
Property operating expenses11,328
 24,408
Depreciation and amortization
 3,793
Interest expense1,361
 3,869
Acquisition, transaction, and integration expense1,037
 158
General and administrative expense8
 5
Loss on extinguishment of debt3,602
 
Other income(204) (69)
Total expenses17,132
 32,164
Loss before income taxes(3,108) (1,876)
Income tax (benefit) expense(1) 44
Loss from discontinued operations$(3,107) $(1,920)



9

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


4. SEGMENT REPORTING

We operate in 2 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 property, which is currently leased to a healthcare operating company 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 2 managed AL/MC properties we previously owned during the three months ended March 31, 2019 and sold in the second quarter of 2019.

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 March 31, 2020
  Managed IL Properties Other Properties Consolidated
Revenues    
  
Resident fees and services $85,007
 $
 $85,007
Rental revenue 
 1,583
 1,583
Less: Property operating expense 51,065
 
 51,065
Segment NOI $33,942
 $1,583
 35,525
       
Depreciation and amortization    
 17,536
Interest expense    
 17,219
General and administrative expense    
 5,846
Acquisition, transaction and integration expense    
 133
Loss on extinguishment of debt     5,884
Other income     (105)
Total expenses     46,513
Loss before income taxes     (10,988)
Income tax expense    
 60
Loss from continuing operations    
 (11,048)
Discontinued operations:      
Gain from sale of real estate     19,992
Loss from discontinued operations     (3,107)
Discontinued operations, net     16,885
Net income     $5,837

10

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


  Three Months Ended March 31, 2019
  Managed IL Properties Other Properties Consolidated
Revenues      
Resident fees and services $83,745
 $2,004
 $85,749
Rental revenue 
 1,582
 1,582
Less: Property operating expense 50,719
 2,220
 52,939
Segment NOI $33,026
 $1,366
 34,392
       
Depreciation and amortization     16,994
Interest expense     19,850
General and administrative expense     4,978
Acquisition, transaction and integration expense     492
Other expense     1,315
Total expenses     43,629
Loss before income taxes     (9,237)
Income tax expense     36
Loss from continuing operations     (9,273)
Discontinued Operations:      
Loss from discontinued operations     (1,920)
Discontinued operations, net     (1,920)
Net loss     $(11,193)

Assets by reportable business segment are reconciled to total assets as follows:
 March 31, 2020 December 31, 2019

Amount Percentage Amount Percentage
Managed IL Properties$1,735,305
 90.8% $1,748,787
 79.7%
Other Properties62,612
 3.3% 63,616
 2.9%
All other assets (A)
113,071
 5.9% 382,306
 17.4%
Total assets$1,910,988
 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.


11

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 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 three months ended
March 31, 2020
 
As of and for the three months ended
March 31, 2019
 Number of Communities % of Total Revenue Number of Communities % of Total Revenue
Florida9
 9.0% 9
 9.1%
California9
 10.3% 9
 10.6%
Texas9
 8.1% 9
 7.8%
North Carolina8
 8.5% 8
 8.3%
Pennsylvania5
 5.7% 6
 6.7%
Oregon8
 7.0% 8
 7.1%
Other55
 51.4% 56
 50.4%
Total103
 100.0% 105
 100.0%


5.REAL ESTATE INVESTMENTS
 
The following table summarizes our real estate investments:
 March 31, 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 improvements1,866,552
 (280,022) 1,586,530
 1,863,866
 (266,420) 1,597,446
Furniture, fixtures and equipment106,206
 (88,957) 17,249
 106,170
 (85,135) 21,035
Total real estate investments$2,107,401
 $(368,979) $1,738,422
 $2,104,679
 $(351,555) $1,753,124

 
Depreciation expense was $17.4 million and $16.9 million for the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes our real estate intangibles:
 March 31, 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
 $(2,327) $5,315
 43.2 years $7,642
 $(2,238) $5,404
 43.0 years


Amortization expense was $0.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

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 months ended March 31, 2020 and 2019.


12

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


6.RECEIVABLES AND OTHER ASSETS, NET
 March 31, 2020 December 31, 2019
Escrows held by lenders (A)
$10,461
 $15,895
Straight-line rent receivable4,218
 4,084
Prepaid expenses6,462
 3,534
Security deposits2,851
 2,763
Resident receivables, net1,422
 1,345
Income tax receivable636
 821
Other assets and receivables6,098
 4,636
Total receivables and other assets$32,148
 $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 New Senior’s 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 tenants 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 March 31, 2020:
2020 (nine months)$4,455
20216,066
20226,233
20236,405
20246,581
Thereafter38,888
Total future minimum lease payments$68,628



13

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


7.DEBT, NET
 March 31, 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)(D)
$1,139,753
 $1,123,306
 Mar 2022- Mar 2030 1M LIBOR + 2.00% to 1M LIBOR + 2.75% 6.2 $1,139,036
 $1,128,100
Fixed Rate464,680
 462,630
 Sep 2025 4.25% 5.3 464,680
 462,532
Total$1,604,433
 $1,585,936
     6.0 $1,603,716
 $1,590,632

(A)The totals are reported net of deferred financing costs of $18.5 million and $13.1 million as of March 31, 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 March 31, 2020.
(C)Includes $100.0 million of borrowings outstanding under our Revolver as of March 31, 2020.
(D)As of March 31, 2020, $350.0 million of total floating rate debt has been hedged using an interest rate swap, which is carried at fair value. See “Note 8 - 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 March 31, 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 March 31, 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 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 was not material for the three months ended March 31, 2020.


14

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


8.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 May 2019, we entered into a $350.0 million notional interest rate swap with a maturity of 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 other comprehensive income (“OCI”), and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of March 31, 2020 and December 31, 2019, our interest rate swap liability of $14.7 million and $5.9 million, respectively, was recorded in “Accrued expenses and other liabilities” in our Consolidated Balance Sheets. For the three months ended March 31, 2020, $0.5 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. As of March 31, 2020, approximately $5.5 million of our 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 March 31, 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 March 31, 2020 were not material and fair value losses recognized for the three months ended March 31, 2019 were $0.5 million. 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.

9.ACCRUED EXPENSES AND OTHER LIABILITIES
 March 31, 2020 December 31, 2019
Accounts payable$10,718
 $17,554
Security deposits payable2,419
 2,486
Due to property managers6,714
 6,752
Mortgage interest payable5,218
 5,665
Deferred community fees, net5,820
 5,865
Rent collected in advance1,984
 2,099
Property tax payable4,843
 5,627
Operating lease liability1,914
 1,942
Derivative liability14,670
 5,896
Other liabilities8,013
 5,434
Total accrued expenses and other liabilities$62,313
 $59,320



15

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


10.FAIR VALUE MEASUREMENTS

The carrying amounts and fair values of our financial instruments were as follows:
 Fair Value Hierarchy March 31, 2020 December 31, 2019
  Carrying Value Fair Value Carrying Value Fair Value
Financial Assets:         
Cash and cash equivalents (A)
1 $135,103
 $135,103
 $39,614
 $39,614
Restricted cash (A)
1 13,311
 13,311
 18,658
 18,658
Interest rate caps (B)(D)
2 74
 74
 IMM
 IMM
Financial Liabilities:         
Mortgage debt (C)
3 $1,489,965
 $1,450,925
 $1,590,632
 $1,592,855
Revolving credit facility (C)
3 95,971
 94,239
 
 
Interest rate swap (B)
2 14,670
 14,670
 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 and revolving credit facility are not measured at fair value in our Consolidated Balance Sheets.
(D)As of December 31, 2019, the carrying values and the fair value of our interest rate caps were immaterial.

11.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 March 31,
 2020 2019
Current 
  
Federal$
 $
State and local60
 36
Total current provision60
 36
Deferred 
  
Federal
 
State and local
 
Total deferred provision
 
Total provision for income taxes$60
 $36


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 $7.7 million and $7.9 million as of March 31, 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.


16

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


As of March 31, 2020, our TRS had a loss carryforward of approximately $28.3 million for federal income tax purposes and $32.8 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.

12.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 the Company (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 three months ended March 31, 2020:
Balance as of December 31, 2019$40,506
Accrued dividend on Redeemable Preferred Stock598
Paid dividend on Redeemable Preferred Stock(604)
Balance as of March 31, 2020$40,500


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 $1.4 million and $0.4 million for the three months ended March 31, 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.

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

17

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


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 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 months ended March 31, 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 loss per share of common stock for the three months ended March 31, 2020 and 2019:
 Three Months Ended March 31,
 2020 2019
Numerator   
Income (Loss) from continuing operations attributable to common stockholders$(11,646) $(9,871)
Discontinued operations, net16,885
 (1,920)
Net income (loss) attributable to common stockholders5,239
 (11,791)
Less: Non-forfeitable dividends allocated to participating RSUs(30) 
Net income (loss) available to common shares outstanding$5,209
 $(11,791)
    
Denominator   
Basic weighted average common shares outstanding (A)
82,386,622
 82,203,069
Dilutive common shares - equity awards and option (B)

 
Diluted weighted average common shares outstanding82,386,622
 82,203,069
    
Basic earnings per common share:   
Loss from continuing operations attributable to common shares$(0.14) $(0.12)
Discontinued operations, net0.20
 (0.02)
Net income (loss) attributable to common shares$0.06
 $(0.14)
    
Diluted earnings per common share:   
Loss from continuing operations attributable to common shares$(0.14) $(0.12)
Discontinued operations, net0.20
 (0.02)
Net income (loss) attributable to common shares$0.06
 $(0.14)

(A)The outstanding shares used to calculate the weighted average basic shares exclude 493,599 and 800,381 restricted stock awards as of March 31, 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 months ended March 31, 2020.
(B)
During the three months ended March 31, 2020 and 2019, 1,527,646 and 892,626 dilutive share equivalents and options, respectively, were excluded as their inclusion would have been anti-dilutive given our loss position.

13.COMMITMENTS AND CONTINGENCIES
 
As of March 31, 2020, management believes there are no material contingencies that would affect our results of operations, cash flows or financial position.
 

18

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 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 and litigation assumed in connection with or arising from our on-going business, as well as acquisitions, sales, leasing and other activities. 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 tenants, their affiliates or other obligated third parties will continue to 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 March 31, 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 March 31, 2020. Upon funding these capital improvements, we will be entitled to a rent increase.

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 4.3 years. We do not include any renewal options in our lease terms for calculating our lease liability because as of March 31, 2020, we were not reasonably certain if we will exercise these renewal options at this time.


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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


As of March 31, 2020, our future minimum lease payments under our operating leases are as follows:
YearOperating Leases
2020 (nine months)$392
2021509
2022471
2023466
2024235
Thereafter310
Total future minimum lease payments2,383
Less imputed interest(469)
Total operating lease liability$1,914


14.SUBSEQUENT EVENTS

On May 4, 2020, our board of directors declared a cash dividend on our common stock of $0.065 per share for the quarter ended March 31, 2020. The dividend is payable on June 19, 2020 to stockholders of record on June 5, 2020.

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. 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. A general economic downturn resulting from efforts to contain COVID-19 that persists over a long period of time 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 with any meaningful precision at this time.



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition. 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 in Part II, Item 1A. “Risk Factors.”
 
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 IL Properties and Other Properties. See our consolidated financial statements and the related notes included in Part I, Item 1 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 independent living (“IL”) properties and one continuing care retirement center (“CCRC”), COVID-19 impacts our business in a number of ways. Our three operators and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities around the country.
The overall effects of COVID-19, will likely have an impact on two metrics that are fundamental to our business: occupancy and operating expenses. We believe that the adverse impact that COVID-19 will have on the future operations and financial results at our communities will depend upon many factors, most of which are beyond our ability to control or predict. 
Occupancy:
As discussed in more detail in our Annual Report on Form 10-K under heading “Market Opportunity,” we believe that the rapidly growing senior citizen population in the U.S., in conjunction with longer life expectancies and other favorable demographic trends, will result in substantially stronger demand for senior housing properties. We do not know the extent of the impacts that COVID-19 will have on our business in the medium to longer term, and whether it will alter the demand for senior housing in general or in our properties in particular. We do expect occupancy to significantly decline in the second quarter of 2020, significantly driven by the voluntary restrictions our operators have imposed on move-ins at all of our properties. It is unclear when occupancy will recover, which will depend substantially on when move-in restrictions are lifted and on near-term demand trends, which are not possible to predict at this time.
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 personal protective equipment (PPE) and increased costs associated with the procurement of other supplies such as packaging necessary for in-room meal deliveries to residents. Our expectations in the second quarter of 2020 and for the near term are that while there may be some variable cost savings associated with lower occupancy, we expect increased operating expenses related to responding to the COVID-19 pandemic. These expenses are principally expected to be higher labor costs and the continued cost of PPE and other supplies. Depending upon how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear.

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Senior Housing Industry
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.
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.  See also “Part II, Item 1A. Risk Factors” and below “Liquidity and Capital Resources,” for additional discussions regarding COVID-19 and its impact on our business.
Other Recent Developments

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 included in “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 “Part I, Item 1. Note 3 – Discontinued Operations” 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 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 “Part I, Item 1. Note 7 – Debt, Net” for additional details.

As a result of these refinancing initiatives, the Company’s weighted average debt maturity increased from 4.8 years as of December 31, 2019 to 6.0 years as of March 31, 2020. We have no significant debt maturities until 2024.

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 could present 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”), occupancy in the first quarter of 2020 was down 10 basis points year-over-year. New Senior’s occupancy results outperformed the industry in the first quarter, with same store managed occupancy up 10 basis points year over year. Industry occupancy for independent living (“IL”) facilities was down 30 basis points year-over-year, while industry occupancy for assisted living (“AL”) facilities was up 10 basis points year-over-year.


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Industry-wide, new supply remains elevated compared to pre-2015 levels, but continues to decrease. Units under construction represent 5.8% of inventory, but the ratio has decreased 150 basis points from the recent peak in the third quarter of 2018. The ratio of AL construction to inventory (5.9%) remains slightly higher than that for IL (5.8%).

While supply trends have improved recently, rate growth has decelerated over the past several quarters. Industry rate growth was 2.4% in the first quarter of 2020, down from the recent peak of 3.3% in the first quarter of 2019. Rate growth for IL was in line with that for AL, with both metrics increasing 2.4% year-over-year.

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 will have an impact on our business in 2020 and beyond. Our occupancy will continue to be impacted in the near-term and potentially beyond, as federal, state, and local authorities continue to enforce stay-at-home orders and mandate social distancing practices, and it is unclear whether demand for our properties will be impacted by fears related to the COVID-19 pandemic.
  
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 property, 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 during the three months ended March 31, 2019 and sold in the second quarter of 2019.

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 operators or between segments, or classified as held for sale or discontinued operations during the comparable periods are excluded from the same store amounts.


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Three months ended March 31, 2020 compared to three months ended March 31, 2019

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

 Three Months Ended March 31, Increase (Decrease)
(dollars in thousands)2020 2019 Amount Percentage
Segment NOI for Managed IL Properties$33,942
 $33,026
 $916
 2.8 %
Segment NOI for Other Properties1,583
 1,366
 217
 15.9 %
Total segment NOI35,525
 34,392
 1,133
 3.3 %
Expenses       
Depreciation and amortization17,536
 16,994
 542
 3.2 %
Interest expense17,219
 19,850
 (2,631) (13.3)%
General and administrative expense5,846
 4,978
 868
 17.4 %
Acquisition, transaction and integration expense133
 492
 (359) (73.0)%
Loss on extinguishment of debt5,884
 
 5,884
 NM
Other (income) expense(105) 1,315
 (1,420) (108.0)%
Total expenses46,513
 43,629
 2,884
 6.6 %
Income (Loss) before income taxes(10,988) (9,237) (1,751) (19.0)%
Income tax expense60
 36
 24
 66.7 %
Income (Loss) from continuing operations(11,048) (9,273) (1,775) (19.1)%
Gain on sale of real estate19,992
 
 19,992
 NM
Loss from discontinued operations(3,107) (1,920) (1,187) (61.8)%
Discontinued operations, net16,885
 (1,920) 18,805
 NM
Net income (loss)5,837
 (11,193) 17,030
 152.1 %
Deemed dividend on redeemable preferred stock(598) (598) 
  %
Net income (loss) attributable to common stockholders$5,239
 $(11,791) $17,030
 144.4 %
_______________
NM – Not meaningful

Managed IL Properties

The following table presents same store and total portfolio results as of and for the three months ended March 31, 2020 and 2019:
 Same Store & Total Portfolio
(dollars in thousands, except per bed data)2020 2019 Change %
Resident fees and services$85,007
 $83,745
 $1,262
 1.5%
Less: Property operating expense51,065
 50,719
 346
 0.7%
NOI$33,942
 $33,026
 $916
 2.8%
        
Total properties as of the period ended102
 102
    
Average available beds11,976
 11,974
    
Average occupancy (%)87.1
 87.0
    
Average monthly revenue per occupied bed$2,716
 $2,680
    

Resident fees and services
 
Same store and total resident fees and services increased $1.3 million. This increase is primarily attributable to an increase in average rental rates.
 

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Property operating expense
 
Same store and total property operating expense increased $0.3 million. This increase is primarily due to additional labor and supplies costs incurred in response to the COVID-19 pandemic.
 
Segment NOI
 
Same store NOI and total segment NOI increased $0.9 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 March 31, 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
 $
 $2,004
 $(2,004) NM
Rental Revenue1,583
 1,582
 1
 0.1% 1,583
 1,582
 1
 0.1%
Less: Property operating expense
 
 
 NM
 
 2,220
 (2,220) NM
NOI$1,583
 $1,582
 $1
 0.1% $1,583
 $1,366
 $217
 15.9%
                
Total properties as of the period ended1
 1
     1
 3
    
Average available beds463
 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 $2.0 million due to the sale of these AL/MC assets in 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 relatively 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 $2.2 million due to the sale of these AL/MC assets in the second quarter of 2019.
 
Segment NOI
 
Total segment NOI increased $0.2 million. See above for the variance explanations.

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


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Expenses
 
Depreciation and amortization
 
Depreciation and amortization increased $0.5 million primarily due to additional depreciation on capital expenditure additions put into service subsequent to the first quarter of 2019.

Interest expense
 
Interest expense decreased $2.6 million primarily due to 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 March 31, 2020 and 2019 were 4.36% and 4.89%, respectively.

General and administrative expense
 
General and administrative expense increased $0.9 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees during the three months ended March 31, 2020.

Acquisition, transaction and integration expense
 
Acquisition, transaction and integration expense decreased $0.4 million primarily due to costs associated with the strategic review during the three months ended March 31, 2019.

Loss on extinguishment of debt

Loss on extinguishment of debt increased $5.9 million primarily due to $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 $1.4 million. This is primarily due to a lower fair value loss on our interest rate caps and insurance recoveries for property damage.

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 $18.8 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.


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 March 31, 2020, we had approximately $135.1 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,

26


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 our 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. We borrowed $100.0 million under the Revolver in March 2020. The material terms of the Revolver are discussed in more detail in “Part I, Item 1. Note 7 - Debt, Net.”

Our cash flows from operating activities, less capital expenditures and principal payments, have been, and continue to be, less than the amount of distributions to our stockholders. We have funded the shortfall using cash on hand. 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. In light of the ongoing impacts of COVID-19, the board of directors reduced the Company’s regular quarterly cash dividend on its common shares for the first quarter of 2020 by 50% to $0.065 per share. The board of directors believes the dividend reduction is the most prudent course of action as it continues to monitor the Company’s financial performance and liquidity. The board of directors will continue to re-evaluate the level of future dividends.

The impacts of the COVID-19 pandemic will also affect the Company’s liquidity in other ways. As discussed above in “Overview - COVID-19 & Considerations Related to Our Business,” we expect decreased occupancy in our properties, which 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 will 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. Lastly, we have also temporarily halted all elective capital expenditure projects and are limiting projects to those deemed necessary.

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” as well as below in “Part II, Item 1A. 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.

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 operators 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.

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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 March 31, 2020, we were in compliance with all of 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 $2.8 million for the three months ended March 31, 2020. There were no capital expenditures for the Other Properties segment for the three months ended March 31, 2020.

With respect to our property 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 senior housing properties. 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 “Part I, Item 1. Note 13 – Commitments and Contingencies” to our consolidated financial statements.

Cash Flows
 
The following table provides a summary of our cash flows:
 Three Months Ended March 31, Increase (Decrease)
(dollars in thousands)2020 2019 Amount
Net cash provided by (used in)     
Operating activities$(4,241) $(11,095) $6,854
Investing activities371,018
 (6,647) 377,665
Financing activities(282,173) (14,241) (267,932)
Net decrease in cash, cash equivalents and restricted cash84,604
 (31,983) 116,587
Cash, cash equivalents and restricted cash, beginning of period63,829
 92,656
 (28,827)
Cash, cash equivalents and restricted cash, end of period$148,433
 $60,673
 $87,760

Operating activities
 
Net cash used in operating activities was $4.2 million and $11.1 million for the three months ended March 31, 2020 and 2019, respectively. The period-over-period decrease of $6.9 million was primarily due to a one-time termination fee of $10.0 million paid in 2019 to the Former Manager when we entered into an agreement to internalize our management and higher NOI during the three months ended March 31, 2020.
 
Investing activities
 
Net cash provided by investing activities was $371.0 million and net cash used in investing activities was $6.6 million for the three months ended March 31, 2020 and 2019, respectively. The period-over-period increase of $377.7 million was due to net proceeds received in February 2020 from the AL/MC Portfolio Disposition of $375.0 million.
 

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Financing activities
 
Net cash used in financing activities was $282.2 million and $14.2 million for the three months ended March 31, 2020 and 2019, respectively. The period-over-period increase of $267.9 million was primarily due to the repayments of debt in conjunction with the AL/MC Portfolio Disposition and debt refinancing of $576.1 million, offset by proceeds from the 2020 Freddie Financing of $270.0 million and borrowings under the Revolver of $100.0 million in February 2020.

The Company borrowed $100.0 million under the Revolver in March 2020.

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 on our 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 March 31, 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 March 31, 2020, we had the following material contractual obligations, including estimates of interest payments on our floating rate debt (dollars in thousands):
 
Period from
April 1, 2020 to December 31, 2020
 2021 2022 2023 2024 Thereafter Total
Principal payments$2,305
 $9,241
 $19,103
 $19,817
 $24,160
 $44,276
 $118,902
Balloon payments
 
 48,419
 
 100,000
 1,337,112
 1,485,531
Subtotal2,305
 9,241
 67,522
 19,817
 124,160
 1,381,388
 1,604,433
Redeemable preferred stock20,000
 20,000
 
 
 
 
 40,000
Interest & redeemable preferred stock dividend (A)(B)
49,209
 63,877
 60,643
 59,175
 55,987
 87,029
 375,920
Leases392
 509
 471
 466
 235
 310
 2,383
Total obligations (C)
$71,906
 $93,627
 $128,636
 $79,458
 $180,382
 $1,468,727
 $2,022,736

(A)Estimated interest payments on floating rate debt are calculated using LIBOR rates in effect at March 31, 2020 and may not be indicative of actual payments. Actual payments may vary significantly due to LIBOR fluctuations. See “Part I, Item 1. Note 7 – Debt, Net” to the consolidated financial statements for further information about interest rates.
(B)
Includes obligations to pay dividends of $1.8 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.

In addition to our contractual obligations, we are a party to property management agreements with property managers. See “Part I, Item 1. Note 13 – 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 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.


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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 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 March 31,
(dollars in thousands)2020 2019
Net income (loss) attributable to common stockholders$5,239
 $(11,791)
Depreciation and amortization17,536
 20,787
Gain on sale of real estate(19,992) 
FFO2,783
 8,996
Acquisition, transaction and integration expense1,170
 650
Loss on extinguishment of debt9,486
 
Compensation expense related to transition awards390
 601
Other (income) expense (A)
(294) 1,306
Normalized FFO13,535
 11,553
Straight line rental revenue(134) (173)
Amortization of equity-based compensation expense1,106
 
Amortization of deferred financing costs906
 1,208
Amortization of deferred community fees and other(1,314) 569
Adjusted FFO$14,099
 $13,157

(A) Primarily includes changes in the fair value of financial instruments, insurance recoveries and casualty related charges.

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

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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 March 31,
(dollars in thousands)2020 2019
Net income (loss) attributable to common stockholders$5,239
 $(11,791)
Depreciation and amortization17,536
 20,787
Deemed dividend on redeemable preferred stock598
 598
Gain on sale of real estate(19,992) 
Acquisition, transaction and integration expense1,170
 650
Loss on extinguishment of debt9,486
 
Compensation expense related to transition awards390
 601
Other (income) expense (A)
(294) 1,306
Amortization of equity-based compensation expense1,106
 
Interest expense18,580
 23,719
Income tax expense59
 80
Adjusted EBITDA$33,878
 $35,950

(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 “Part I, Item 1. 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 “Part I, Item 1. 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 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. If market interest rates rise, our earnings and cash flows could be adversely affected by an increase in interest expense. In contrast, 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 May 2019, we entered into an interest rate swap with a notional amount of $350.0 million and a maturity date of 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. After considering the effect of the interest rate swap, $0.8 billion of our floating rate debt with an average coupon rate of 3.66% would be subject to interest rate fluctuations. As a result, a 100 basis point increase in interest rates would increase annual interest expense by $7.9 million. A 100 basis point decrease in interest rates would decrease annual interest expense by $7.8 million due to LIBOR floor 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:
 March 31, 2020 December 31, 2019
 Outstanding Face Amount Outstanding Face Amount
Floating Rate$789,753
 $789,036
Fixed Rate814,680
 814,680
Total$1,604,433
 $1,603,716



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Liquidity Risk

As described further in “Part II, Item 1A. 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 operators 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 actual receipt of income and actual 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 “Part I, Item 2. 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 our 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. We instituted a full remote working policy in mid-March that will be in effect indefinitely. Considering the COVID-19 pandemic, we have modified certain controls to address the challenges associated with a remote working environment.

(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 “Item 1A. 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 novel coronavirus (“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. As of the date of this filing, approximately 15.5% of our 103 communities have reported cases of COVID-19, and we expect the number of confirmed cases to continue to rise as testing for the virus becomes more widespread. Although we are taking various measures to reduce the risk of transmission of COVID-19 in our properties, including limiting access to our facilities and common areas within our facilities, and we are working proactively with our operators 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 additional cases of COVID-19 within our properties. 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 it has increased operating costs at our properties, and we expect these trends to continue during the course of the COVID-19 pandemic. In addition, our residents and tenant may experience 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. We also may face an increased risk of litigation if we have residents who become seriously ill due to COVID-19, or with our residents and tenant related to their obligations to us.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide, including a significant decline and volatility in equity markets and in asset values more generally. These factors have significantly affected the price of our common stock, which traded as high as $8.35 per share and as low as $1.72 per share during the first quarter 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 our Revolver.

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, both generally and with respect to its effect on our properties, all of which are highly uncertain and very difficult to predict at this time. Due to the speed with which the situation is developing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact of these factors on our business, results of operations, financial condition, cash flows and stock price could be material.


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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 many of the other risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

On May 4, 2020, the Board adopted Amended and Restated Bylaws of the Company (as so amended and restated, the “Bylaws”), which took effect immediately. The Bylaws supersede the previously existing Amended and Restated Bylaws, which took effect on February 25, 2020. The Bylaws were amended to remove the requirement in Section 5.7 of the Bylaws that there be a minimum of 30 days between the record date and payment date for a dividend or other distribution. The Bylaws continue to provide that there be a maximum of 60 days between the record date and the payment date of a dividend or other distribution, consistent with the Delaware General Corporation Law. The foregoing description is qualified in its entirety by the full text of the Bylaws, a copy of which is attached hereto as Exhibit 3.1 and incorporated by reference herein.


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ITEM 6. EXHIBITS
 
Exhibits filed with this Form 10-Q:
101.INSInteractive Data File formatted in Inline XBRL
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover 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)
  
 May 8, 2020

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