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SNR New Senior Investment

Filed: 5 May 21, 4:09pm

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, 2021
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)
Delaware80-0912734
(State or other jurisdiction of incorporation(I.R.S. Employer Identification No.)
or organization)
55 West 46th Street, Suite 2204
New YorkNew York10036
(Address of principal executive offices)
(646)822-3700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol:    
Name of each exchange on which registered:
Common Stock, par value $0.01 per shareSNRNew 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: 83,819,799 shares outstanding as of April 30, 2021.



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

the severity, duration and scope of the novel coronavirus (“COVID-19”) global pandemic, the effects of the pandemic and measures intended to prevent its spread on our and our tenant’s business, results of operations, cash flows and financial condition, including declines in occupancy and rental revenues and increases in operating expenses; constraints in our ability to access capital and other sources of funding, including due to fluctuations in the trading price of our common stock; increased risk of claims, litigation and regulatory proceedings; and the ability of federal, state and local governments to effectively respond to and manage the pandemic on an ongoing basis to prevent its continued spread;
our ability to comply with the terms of our financings, which depends in part on the performance of our property managers and triple net lease tenant;
any increase in our borrowing costs as a result of rising interest rates, the expected discontinuation of the London Inter-Bank Offered Rate (LIBOR) and the transition to any other interest rate benchmark, or other factors;
our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due or as needed to comply with the terms of our covenants or to facilitate our ability to sell assets;
our ability to manage our liquidity and sustain distributions to our stockholders, particularly in light of the cash shortfall described in our most recent Annual Report on Form 10-K under the heading “Risk Factors” and in this report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”;
our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, the terms of our financings and applicable law;
factors affecting the performance of our properties, such as a decline in occupancy and increases in operating costs (including, but not limited to, the costs of labor, supplies, insurance and property taxes);
concentration risk with respect to Holiday Retirement (“Holiday”), which, for the three months ended March 31, 2021, accounted for 94.2% of total net operating income (“NOI”);
risks associated with a change of control in the ownership or senior management of Holiday;
our ability and the ability of our property managers and tenant to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;
changes of federal, state and local laws and regulations relating to employment, fraud and abuse practices, Medicaid reimbursement and licensure, etc., including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations of our property managers or tenant;
the ability of our property managers and tenant to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties, particularly in light of the impacts of the COVID-19 pandemic on their businesses;
the quality and size of our investment pipeline, our ability to execute investments at attractive risk-adjusted prices, our ability to finance our investments on favorable terms, and our ability to deploy investable cash in a timely manner;
our ability to sell properties on favorable terms and to realize the anticipated benefits from any such dispositions, including as a result of a reduction of real estate value related to the COVID-19 pandemic;
changes in economic conditions generally and the real estate, senior housing, equity and bond markets specifically, including general economic uncertainty as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth;
our stock price performance and any disruption or lack of access to the capital markets or other sources of financing, including as a result of factors influenced by the COVID-19 pandemic;
the impact of any current or future legal proceedings and regulatory investigations and inquiries on us or our property managers;
our reliance on our property managers for timely delivery of accurate property-level financial results; and



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

Although we believe that the expectations reflected in any forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those indicated by any forward-looking statement.
 
Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this Quarterly Report on Form 10-Q, and to consider carefully the factors discussed in this report under the heading “Risk Factors” and under the heading “Risk Factors” in our 2020 Annual Report on Form 10-K in evaluating these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements and amendments included as exhibits to this Quarterly Report on Form 10-Q, please remember 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, 2021December 31, 2020
(Unaudited)(Note)
Assets
Real estate investments:  
Land$134,643 $134,643 
Buildings, improvements and other1,985,648 1,983,363 
Accumulated depreciation(433,249)(417,455)
Net real estate property1,687,042 1,700,551 
Acquired lease and other intangible assets7,642 7,642 
Accumulated amortization(2,684)(2,595)
Net real estate intangibles4,958 5,047 
Net real estate investments1,692,000 1,705,598 
Cash and cash equivalents24,749 33,046 
Receivables and other assets, net40,023 34,892 
Total Assets$1,756,772 $1,773,536 
Liabilities, Redeemable Preferred Stock and Equity  
Liabilities  
Debt, net$1,484,996 $1,486,164 
Accrued expenses and other liabilities52,896 63,886 
Total Liabilities1,537,892 1,550,050 
Commitments and contingencies (Note 15)00
Redeemable preferred stock, par value $0.01 per share with $100 liquidation preference, 200,000 shares authorized, issued and outstanding as of both March 31, 2021 and December 31, 202020,247 20,253 
Equity
Preferred stock, par value $0.01 per share, 99,800,000 shares (excluding 200,000 shares of redeemable preferred stock) authorized, NaN issued or outstanding as of both March 31, 2021 and December 31, 2020
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 83,819,799 and 83,023,970 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively838 830 
Additional paid-in capital908,976 907,577 
Accumulated deficit(707,371)(694,194)
Accumulated other comprehensive loss(3,810)(10,980)
Total Equity198,633 203,233 
Total Liabilities, Redeemable Preferred Stock and Equity$1,756,772 $1,773,536 
Note: The consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See accompanying notes to consolidated financial statements (unaudited).
1

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)

 Three Months Ended March 31,
 20212020
Revenues  
Resident fees and services$78,113 $85,007 
Rental revenue1,583 1,583 
Total revenues79,696 86,590 
Expenses  
Property operating expense49,448 51,065 
Depreciation and amortization15,889 17,536 
Interest expense14,353 17,219 
General and administrative expense6,275 5,846 
Acquisition, transaction and integration expense393 133 
Loss on extinguishment of debt5,884 
Other expense (income)615 (105)
Total expenses86,973 97,578 
Loss before income taxes(7,277)(10,988)
Income tax expense34 60 
Loss from continuing operations(7,311)(11,048)
Discontinued Operations:
Gain on sale of real estate19,992 
Loss from discontinued operations(3,107)
Discontinued operations, net16,885 
Net income (loss)(7,311)5,837 
Deemed dividend on redeemable preferred stock(296)(598)
Net income (loss) attributable to common stockholders$(7,607)$5,239 
Basic and diluted earnings per common share: (A)
Loss from continuing operations attributable to common stockholders$(0.09)$(0.14)
Discontinued operations, net0.20 
Net income (loss) attributable to common stockholders (B)
$(0.09)$0.06 
Weighted average number of shares of common stock outstanding
Basic and diluted (C)
82,815,790 82,386,622 
Dividends declared and paid per share of common stock$0.07 $0.13 
(A)Basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The outstanding shares used to calculate the weighted average basic shares outstanding exclude 266,139 and 493,599 restricted stock awards, net of forfeitures, for the three months ended March 31, 2021 and 2020, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic EPS. Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.
(B)Amounts may not sum due to rounding.
(C)Dilutive share equivalents and options were excluded for the three months ended March 31, 2021 and 2020 as their inclusion would have been anti-dilutive given our loss position.

See accompanying notes to consolidated financial statements (unaudited).
2

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)



 Three Months Ended March 31,
 20212020
Net income (loss)$(7,311)$5,837 
Other comprehensive income (loss):
Unrealized gain (loss) on cash flow hedge7,170 (8,718)
Total other comprehensive income (loss)7,170 (8,718)
Total comprehensive income (loss)$(141)$(2,881)

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, 2021
 Common StockAccumulated DeficitAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss) Total Equity
 Shares Amount
Equity at December 31, 202083,023,970 $830 $(694,194)$907,577 $(10,980)$203,233 
Equity awards vested78,776 — — — 
Shares repurchased and retired to satisfy tax withholding upon vesting(67,070)(1)— (644)— (645)
Amortization of equity-based compensation— — — 2,051 — 2,051 
Option exercise784,123 — (8)— 
Dividends declared - common stock ($0.065 per share)— — (5,380)— — (5,380)
Dividends declared - equity awards ($0.065 per share)— — (190)— — (190)
Deemed dividend on redeemable preferred stock— — (247)— — (247)
Dividends declared on redeemable preferred stock— — (49)— — (49)
Other comprehensive income— — — — 7,170 7,170 
Net loss— — (7,311)— — (7,311)
Equity at March 31, 202183,819,799 $838 $(707,371)$908,976 $(3,810)$198,633 
 
Three Months Ended March 31, 2020
Common StockAccumulated DeficitAdditional Paid-in CapitalAccumulated Other Comprehensive LossTotal Equity
SharesAmount
Equity at December 31, 201982,964,438 $830 $(660,588)$901,889 $(5,736)$236,395 
Equity awards vested23,137 — — — — 
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, 202082,880,222 $829 $(666,424)$902,288 $(14,454)$222,239 

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,
 20212020
Cash Flows From Operating Activities  
Net income (loss)$(7,311)$5,837 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Depreciation of tangible assets and amortization of intangible assets15,889 17,536 
Amortization of deferred financing costs957 742 
Amortization of deferred revenue, net(450)(64)
Non-cash straight-line rental revenue(95)(134)
Loss on extinguishment of debt5,884 
Amortization of equity-based compensation2,051 1,397 
Gain on sale of real estate(19,992)
Other non-cash expense324 235 
Changes in:  
Receivables and other assets, net(4,008)(2,505)
Accrued expenses and other liabilities(7,789)(10,072)
Net cash provided by (used in) operating activities - continuing operations(432)(1,136)
Net cash provided by (used in) operating activities - discontinued operations(3,105)
Net cash provided by (used in) operating activities(432)(4,241)
Cash Flows From Investing Activities  
Capital expenditures(2,672)(2,802)
Insurance proceeds, net209 15 
Net cash provided by (used in) investing activities - continuing operations(2,463)(2,787)
Net cash provided by (used in) investing activities - discontinued operations (A)
373,805 
Net cash provided by (used in) investing activities(2,463)371,018 
Cash Flows From Financing Activities  
Principal payments of mortgage notes payable and capital lease obligations(2,197)(1,189)
Proceeds from mortgage notes payable270,015 
Proceeds from borrowings on the revolving credit facility100,000 
Repayments of mortgage notes payable and capital lease obligations(368,149)
Payment of exit fee on extinguishment of debt(4,504)
Payment of deferred financing costs(4,767)
Purchase of interest rate caps(81)
Taxes paid for net settlement of equity-based compensation awards(645)(999)
Payment of common stock dividend(5,380)(10,708)
Payment of redeemable preferred stock dividend(302)(604)
Payment of restricted stock dividend(242)(191)
Net cash provided by (used in) financing activities - continuing operations(8,766)(21,177)
Net cash provided by (used in) financing activities - discontinued operations (B)
(260,996)
Net cash provided by (used in) financing activities(8,766)(282,173)
Net increase (decrease) in cash, cash equivalents and restricted cash(11,661)84,604 
Cash, cash equivalents and restricted cash, beginning of period53,795 63,829 
Cash, cash equivalents and restricted cash, end of period$42,134 $148,433 

(A) For the three months ended March 31, 2020, amount primarily consists of net proceeds from the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
(B) For the three months ended March 31, 2020, amount primarily consists of repayments of debt in conjunction with the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
5

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

Three Months Ended March 31,
20212020
Supplemental Disclosure of Cash Flow Information  
Cash paid during the period for interest expense$13,308 $18,922 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Capital lease obligations$258 $278 

 Three Months Ended March 31,
 20212020
Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents$33,046 $39,614 
Restricted cash (A)
20,749 24,215 
Total, beginning of period$53,795 $63,829 
Cash and cash equivalents$24,749 $135,103 
Restricted cash (A)
17,385 13,330 
Total, end of period$42,134 $148,433 
(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, 2021
(dollars in tables in thousands, except share data)

1.ORGANIZATION
 
New Senior Investment Group Inc. (“New Senior,” “we,” “us” or “our”) is a Real Estate Investment Trust (“REIT”) primarily focused on investing in private pay senior housing properties. As of March 31, 2021, we owned a geographically diversified portfolio of 103 primarily private pay senior housing properties consisting of 102 independent living (“IL”) properties and 1 continuing care retirement community (“CCRC”), 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 1 reportable segment: Senior Housing Properties.

Our 102 IL properties are managed by Holiday Retirement (“Holiday”), a company that is majority owned by private equity funds managed by an affiliate of FIG LLC (the “Former Manager”), a subsidiary of Fortress Investment Group LLC (“Fortress”), subsidiaries of Merrill Gardens LLC (“Merrill Gardens”), a former affiliate of our Former Manager, 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 pay property management fees of 4.5% to 5.0% of effective gross income pursuant to our Property Management Agreements and, in some cases, the Property Managers are eligible to earn an incentive fee based on operating performance.

Our CCRC is leased 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.

Coronavirus (COVID-19) global pandemic

The novel coronavirus (COVID-19) global pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. During the three months ended March 31, 2021 and 2020, we incurred $0.3 million and $0.5 million of COVID-19 related costs, respectively, which were recorded in “Property operating expense” in our Consolidated Statements of Operations. These costs mainly consist of personal protective equipment (“PPE”) and other supplies such as packaging necessary for in-room meal deliveries to our residents and to a lesser extent testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or protocols related to the properties. During the three months ended March 31, 2021, we saw these costs continue, but they have been largely offset by variable expense savings associated with lower occupancy and strong expense management from our property managers. Depending upon how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear. As of March 31, 2021, almost all of our properties had hosted clinics to administer the COVID-19 vaccine to residents and employees, however it is too early to determine whether vaccination levels or availability will influence demand and occupancy at our properties. The full extent to which the pandemic will directly or indirectly impact our business including revenues, expenses, value of our real estate, collectability of receivables and operating cash flows is highly uncertain and difficult to predict. If the economic downturn resulting from COVID-19 and measures taken to contain it persists over a long period of time, it could have a prolonged negative impact on our financial condition and results of operations. As the extent and duration of the increasingly broad effects of COVID-19 on the U.S. economy remains unclear, it is difficult for us to assess and estimate its impact on our results of operations at this time. We have evaluated the impacts of COVID-19 on our business operations to date and have incorporated information concerning the impact of COVID-19 in our assessment of the business. We will continue to monitor the COVID-19 pandemic and adjust our assessment based on the latest information available.

7

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP’’) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. The consolidated financial statements include the accounts of New Senior and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. We consolidate those entities in which we have control over significant operating, financial and investing decisions of the entity. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Significant Accounting Policies

Refer to our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 for other significant accounting policies.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies accounting for income taxes by eliminating certain exceptions to the general approach in ASC 740, Income Taxes, and clarifies certain aspects of the guidance for more consistent application. The simplifications relate to intraperiod tax allocations when there is a loss in continuing operations and a gain outside of continuing operations, accounting for tax law or tax rate changes and year-to-date losses in interim periods, recognition of deferred tax liability for outside basis difference when investment ownership changes, and accounting for franchise taxes that are partially based on income. Transition is generally prospective, other than the provision related to outside basis difference which is on a modified retrospective basis with the cumulative effect adjusted to retained earnings at the beginning of the period adopted, and franchise tax provision which is either full or modified retrospective. We adopted ASU 2019-12 on January 1, 2021, and the adoption of this standard did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Rate (“LIBOR”) or another rate that is expected to be discontinued. Companies can adopt ASU 2020-04 anytime during the effective period of March 12, 2020 through December 31, 2022. We are currently assessing the provisions of ASU 2020-04 and have not made any hedge accounting elections as of March 31, 2021. If an election is made at a later date, we will apply the provisions of this guidance.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of LIBOR as a benchmark interest rate due to reference rate reform. We are currently evaluating the impact of this guidance.


8

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

3.DISCONTINUED OPERATIONS

On February 10, 2020, we sold 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”) to affiliates of ReNew REIT LLC. 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 for the three months ended March 31, 2020. Refer to “Note 4 - Dispositions” for details.

For the three months ended March 31, 2020, the results of operations associated with discontinued operations are as follows:
Three Months Ended March 31, 2020
Revenues
Resident fees and services$14,024 
Total revenues14,024 
Expenses
Property operating expenses11,328 
Interest expense1,361 
Acquisition, transaction, and integration expense1,037 
General and administrative expense
Loss on extinguishment of debt3,602 
Other income(204)
Total expenses17,132 
Loss before income taxes(3,108)
Income tax benefit(1)
Loss from discontinued operations$(3,107)

4. DISPOSITIONS

2021 Activity

We did not have any dispositions during the three months ended March 31, 2021.

2020 Activity

On February 10, 2020, we completed the AL/MC Portfolio Disposition for a gross sale price of $385.0 million and recognized a gain on sale of $20.0 million, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations for the three months ended March 31, 2020. In conjunction with the sale, we repaid $260.2 million of debt specifically attributable to the properties included in the AL/MC Portfolio Disposition and recognized a loss on extinguishment of debt of $3.6 million, comprised of $2.5 million in prepayment penalties and $1.1 million in the write-off of unamortized deferred financing costs, which is included in “Loss from discontinued operations” in our Consolidated Statements of Operations for the three months ended March 31, 2020.



9

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

5.SEGMENT REPORTING

Our primary business is investing in senior housing properties. We currently operate and report results in 1 reportable segment, Senior Housing Properties. Prior to the fourth quarter of 2020, we had 2 reportable segments (Managed IL Properties and Other Properties). Due to the AL/MC Disposition which resulted in the sale of all but one of the assets in the Other Properties segment, we changed the composition of our reportable segments to be in line with the financial information reviewed and used by the chief operating decision maker to make operating decisions, assess performance, develop strategy and allocate capital resources. Accordingly, all prior period segment information has been reclassified to conform to the current period presentation.

6.REAL ESTATE INVESTMENTS
 
The following table summarizes our real estate investments:
March 31, 2021December 31, 2020
Gross Carrying AmountAccumulated DepreciationNet Carrying ValueGross Carrying AmountAccumulated DepreciationNet Carrying Value
Land$134,643 $$134,643 $134,643 $$134,643 
Building and improvements1,874,723 (334,834)1,539,889 1,873,132 (321,025)1,552,107 
Furniture, fixtures and equipment110,925 (98,415)12,510 110,231 (96,430)13,801 
Total real estate investments$2,120,291 $(433,249)$1,687,042 $2,118,006 $(417,455)$1,700,551 
 
Depreciation expense was $15.8 million and $17.4 million for the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes our real estate intangibles:
 March 31, 2021December 31, 2020
 Gross Carrying AmountAccumulated AmortizationNet Carrying ValueWeighted Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet Carrying ValueWeighted Average Remaining Amortization Period
Intangible lease assets$7,642 $(2,684)$4,958 44.5 years$7,642 $(2,595)$5,047 44.1 years

Amortization expense was $0.1 million for both the three months ended March 31, 2021 and 2020.

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, 2021 and 2020.

Impact of Texas Winter Storm

During the three months ended March 31, 2021, we recognized $0.3 million related to damage remediation and other incremental costs for 21 properties impacted by a significant winter storm in Texas in February 2021, which are included in “Other expense” in our Consolidated Statements of Operations. We do not expect additional remediation costs related to the winter storm in subsequent periods to be material.

10

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

7.RECEIVABLES AND OTHER ASSETS, NET

The following table summarizes our receivables and other assets, net:
 March 31, 2021December 31, 2020
Escrows held by lenders (A)
$14,396 $17,694 
Straight-line rent receivable4,610 4,515 
Prepaid expenses6,803 3,923 
Security deposits2,989 3,037 
Resident receivables, net985 1,151 
Derivative asset4,208 
Other assets and receivables6,032 4,572 
Total receivables and other assets$40,023 $34,892 
(A)Represents amounts held by lenders in tax, insurance, replacement reserve and other escrow accounts that are related to mortgage notes collateralized by our properties.

Straight-line Rent Receivable

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

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

The following table sets forth future contracted minimum rents from the tenant of our triple net lease property, excluding contingent payment escalations, as of March 31, 2021:
2021 (nine months)$4,577 
20226,233 
20236,405 
20246,581 
20256,762 
Thereafter32,126 
Total future minimum rents$62,684 

11

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

8.DEBT, NET
 March 31, 2021December 31, 2020
 Outstanding Face Amount
Carrying Value (A)
Maturity DateStated Interest RateWeighted Average Maturity (Years)Outstanding Face Amount
Carrying Value (A)
Floating Rate (B)(C)
$1,039,137 $1,025,792 Mar 2022- Mar 2030
1M LIBOR + 2.12% to
1M LIBOR + 2.75%
5.4$1,039,316 $1,025,110 
Fixed Rate460,861 459,204 Sep 20254.25%4.3462,808 461,054 
Total$1,499,998 $1,484,996   5.1$1,502,124 $1,486,164 
(A)The totals are reported net of deferred financing costs of $15.0 million and $16.0 million as of March 31, 2021 and December 31, 2020, respectively.
(B)Substantially all of these loans have LIBOR caps that range between 3.38% and 3.75% as of March 31, 2021.
(C)As of March 31, 2021, $620.0 million of total floating rate debt has been hedged using interest rate swaps, which are carried at fair value. See “Note 9 - Derivative Instruments” for more information.

The carrying value of the collateral relating to the floating rate and fixed rate debt was $1.2 billion and $0.5 billion, respectively, as of both March 31, 2021, and December 31, 2020.

Mortgage Debt

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 senior housing 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, comprised of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs, which is included in “Loss on extinguishment of debt” on our Consolidated Statements of Operations for the three months ended March 31, 2020. 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 three months ended March 31, 2020.

Revolving Credit Facility

In February 2020, in connection with the AL/MC Portfolio Disposition, we also amended 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 senior housing properties and the pledge of the equity interests of certain of our wholly owned subsidiaries. As of March 31, 2021, there were no borrowings outstanding under the Revolver. We continue to pay a fee for unused amounts of the Revolver under certain circumstances, which was $0.1 million for the three months ended March 31, 2021 and included in “Interest expense” in our Consolidated Statements of Operations. Our fee for unused amounts was 0t material for the three months ended March 31, 2020.

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, 2021.

12

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

9.DERIVATIVE INSTRUMENTS

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

Derivatives Designated as Hedging Instruments

Interest rate swap

In August 2020, we entered into a $270.0 million notional interest rate swap with a maturity in September 2025. In May 2019, we entered into a $350.0 million notional interest rate swap with a maturity of May 2022. Both swaps effectively convert LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. These interest rate swaps were designated and qualified as cash flow hedged 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, 2021 and December 31, 2020, our interest rate swap liability of $8.7 million and $11.7 million, respectively, was recorded in “Accrued expenses and other liabilities” in our Consolidated Balance Sheets. As of March 31, 2021, our interest rate swap asset of $4.2 million was recorded in “Receivables and other assets, net” in our Consolidated Balance Sheets.

For the three months ended March 31, 2021 and 2020, $2.1 million and $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, respectively. As of March 31, 2021, approximately $8.0 million of our interest rate swap liability, which is included in accumulated other comprehensive income (loss), is expected to be reclassified into earnings in the next 12 months.

Derivatives Not Designated as Hedging Instruments

Interest rate caps

As of March 31, 2021 and December 31, 2020, 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, 2021 and 2020 were not material. These amounts are included in “Other expense” in our Consolidated Statements of Operations and “Other non-cash expense” in our Consolidated Statements of Cash Flows.

10.ACCRUED EXPENSES AND OTHER LIABILITIES

The following table summarizes our accrued expenses and other liabilities (excluding properties classified as discontinued operations):
 March 31, 2021December 31, 2020
Accounts payable$12,774 $15,067 
Security deposits payable2,263 2,303 
Due to property managers6,083 9,782 
Mortgage interest payable3,881 3,874 
Deferred community fees, net4,882 5,201 
Rent collected in advance1,808 1,735 
Property tax payable4,816 5,754 
Operating lease liability1,627 1,745 
Derivative liability8,744 11,687 
Other liabilities6,018 6,738 
Total accrued expenses and other liabilities$52,896 $63,886 

13

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

11. FAIR VALUE MEASUREMENTS

The carrying amounts and fair values of our financial instruments were as follows:
Fair Value HierarchyMarch 31, 2021December 31, 2020
Carrying ValueFair ValueCarrying ValueFair Value
Financial Assets:
Cash and cash equivalents (A)
1$24,749 $24,749 $33,046 $33,046 
Restricted cash (A)
117,385 17,385 20,749 20,749 
Interest rate swap (B)
24,208 4,208 
Interest rate caps (B)
228 28 10 10 
Financial Liabilities:
Mortgage debt (C)
3$1,484,996 $1,548,241 $1,486,164 $1,524,210 
Interest rate swap (B)
28,018 8,018 10,980 10,980 
(A)The carrying amount approximates fair value.
(B)Fair value based on pricing models that consider inputs including forward yield curves, cap strike rates, cap volatility and discount rates.
(C)Fair value based on a discounted cash flow valuation model. Significant inputs in the model include amounts and timing of expected future cash flows and market yields which are constructed based on inputs implied from similar debt offerings. Our mortgage debt is not measured at fair value in our Consolidated Balance Sheets.

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

The following table presents the provision (benefit) for income taxes (excluding discontinued operations):
 Three Months Ended March 31,
 20212020
Current  
Federal$$
State and local34 60 
Total current provision34 60 
Deferred  
Federal
State and local
Total deferred provision
Total provision for income taxes$34 $60 

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 $7.5 million and $7.6 million as of March 31, 2021 and December 31, 2020, 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.

14

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

As of March 31, 2021, our TRS had a loss carryforward of approximately $28.0 million for federal income tax purposes and $30.3 million for state income tax purposes. The federal net operating losses will begin to expire at the end of 2034. The net operating loss carryforward can generally be used to offset future taxable income, if and when it arises.

13.STOCK-BASED COMPENSATION

Amended and Restated Stock Options and Incentive Award Plans

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 $2.1 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively.

In March 2021, the Former Manager exercised an aggregate of 1,422,248 options and were issued an aggregate of 784,123 shares of New Senior’s common stock in a cashless exercise.

14.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, of which 200,000 shares are outstanding as of March 31, 2021, to the private equity firm that formerly externally managed us (the “Former Manager”). The Redeemable Preferred Stock are non-voting and have a $100 liquidation preference. Holders of the Redeemable Preferred Stock are entitled to cumulative cash dividends at a rate per annum of 6.00% on the liquidation preference amount plus all accumulated and unpaid dividends. The Redeemable Preferred Stock is subject to certain terms and conditions.

We may redeem, at any time, all but not less than all of the shares of Redeemable Preferred Stock for cash at a price equal to the liquidation preference amount of the Redeemable Preferred Stock plus all accumulated and unpaid dividends thereon (the “Redemption Price”). On or after December 31, 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, which was initially recorded at a fair value of $40 million, is excluded from Equity and presented separately on the face of our Consolidated Balance Sheets. The carrying value of the Redeemable Preferred Stock is increased by the accumulated and unpaid dividends, and reduced by redemptions and dividend payments. 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, 2021:
Balance as of December 31, 2020$20,253 
Accrued dividend296 
Paid dividend(302)
Balance as of March 31, 2021$20,247 

Equity and Dividends

Return of Capital Adjustment

In January 2021, strike prices for outstanding options as of December 31, 2020 were reduced by $0.33 (the “2020 ROC Adjustment”), reflecting the portion of our 2020 dividends which were deemed return of capital pursuant to the terms of the Plan. In addition, 20,289 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 2020 ROC Adjustment.
15

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

At-the-Market Equity Program

On February 26, 2021, we established an at-the-market equity offering program through which we may issue and sell, from time to time, up to an aggregate of $100 million of our common stock. Sales of our common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as sales agents.

During the three months ended March 31, 2021, we did not issue any shares under the Distribution Agreement.

Earnings per Common Share

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

We have certain equity 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, 2021 and 2020, 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.
16

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)


The following table sets forth the computation of basic and diluted income (loss) per share of common stock for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
Numerator
Loss from continuing operations attributable to common stockholders$(7,607)$(11,646)
Discontinued operations, net16,885 
Net income (loss) attributable to common stockholders(7,607)5,239 
Less: Non-forfeitable dividends allocated to participating RSUs(43)(30)
Net income (loss) available to common shares outstanding$(7,650)$5,209 
Denominator
Basic weighted average common shares outstanding (A)
82,815,790 82,386,622 
Dilutive common shares - equity awards and options (B)
Diluted weighted average common shares outstanding82,815,790 82,386,622 
Basic earnings per common share:
Loss from continuing operations attributable to common stockholders$(0.09)$(0.14)
Discontinued operations, net0.20 
Net income (loss) attributable to common stockholders (C)
$(0.09)$0.06 
Diluted earnings per common share:
Loss from continuing operations attributable to common stockholders$(0.09)$(0.14)
Discontinued operations, net0.20 
Net income (loss) attributable to common stockholders (C)
$(0.09)$0.06 

(A)The outstanding shares used to calculate the weighted average basic shares outstanding exclude 266,139 and 493,599 restricted stock awards as of March 31, 2021 and 2020 net of forfeitures, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) per common share for the three and three months ended March 31, 2021.
(B)During the three months ended March 31, 2021 and 2020, 2,572,711 and 1,527,646 dilutive share equivalents and options, respectively, were excluded as their inclusion would have been anti-dilutive given our loss position.
(C)Amounts may not sum due to rounding.

15. COMMITMENTS AND CONTINGENCIES
 
As of March 31, 2021, management believes there are no material contingencies that would affect our results of operations, cash flows or financial position.
 
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.
  
17

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

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 regarding our spin-off from Drive Shack, 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). To date, Drive Shack has not informed us of any challenge to its REIT status for the applicable time period.

Proceedings Indemnified and Defended by Third Parties

From time to time, we are party to certain legal actions, regulatory investigations and claims for which third parties are contractually obligated to indemnify, defend and hold us harmless. While we are presently not being defended by any tenant and other obligated third parties in these types of matters, there is no assurance that our tenant, 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.

In addition, although we and our property managers maintain insurance programs against certain risks, including commercial general liability, property, casualty and directors’ and officers’ liability, we cannot provide assurance that such policies will be sufficient to mitigate the financial impact of any individual or group of legal actions, regulatory investigations or claims.

Environmental Costs
 
As a commercial real estate owner, we are subject to potential environmental costs. As of March 31, 2021, 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 our triple net lease property under Watermark, none of which has been funded as of March 31, 2021. Upon funding these capital improvements, we will be entitled to a rent increase.

Leases

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 properties under operating lease agreements. Our leases have remaining lease terms ranging from four months to 66.0 years. We do not include any renewal options in our lease terms for calculating our lease liability because as of March 31, 2021, we were not reasonably certain if we will exercise these renewal options at this time.

18

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
(dollars in tables in thousands, except share data)

As of March 31, 2021, our future minimum lease payments under our operating leases are as follows:
YearOperating Leases
2021 (nine months)$484 
2022515 
2023472 
2024240 
2025
Thereafter305 
Total future minimum lease payments2,024 
Less imputed interest(397)
Total operating lease liability$1,627 

16.SUBSEQUENT EVENTS

Effective May 3, 2021, our board of directors declared a cash dividend on our common stock of $0.065 per share for the quarter ended March 31, 2021. The dividend is payable on June 18, 2021 to stockholders of record on June 4, 2021.




19


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following should be read in conjunction with the consolidated financial statements and notes thereto included within this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included under the heading “Cautionary Note Regarding Forward-Looking Statements” and under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2020.
 
OVERVIEW
 
Our Business
 
We are a REIT with a portfolio of 103 senior housing properties located across the United States. We believe that we are the only REIT focused solely on senior housing and we are one of the largest owners of senior housing properties in the United States. We are listed on the NYSE under the symbol “SNR” and are headquartered in New York, New York.

We are organized and operate as a single reportable segment, Senior Housing Properties. We changed our structure in the fourth quarter of 2020 and no longer operate in two reportable segments: Managed Independent Living (“IL”) Properties, and Other Properties. See our consolidated financial statements and the related notes included in Item 1 “Financial Statements” 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. Although some of these restrictions have been lifted or scaled back at this time, ongoing resurgences of COVID-19 infections may result in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented to reduce the spread of COVID-19.
As an owner of senior living properties, with a portfolio of 102 IL properties and one continuing care retirement community (“CCRC”), COVID-19 has impacted our business in various ways. Our three property managers and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities across the U.S. Some of the measures taken at the onset of the pandemic included restrictions on all non-essential visitors (including family), closure of group dining facilities and other common areas, restrictions on resident movements and group activities, as well as enhanced protocols which have required increased labor, property cleaning expenses and costs related to procuring necessary supplies such as meal containers and personal protective equipment (“PPE”). Since mid-2020, our properties have started lifting certain restrictions in a phased approach, based on both the status of state and local regulations that affect the property as well as the status of any COVID-19 cases at the property. Lifting restrictions at our properties, particularly restrictions related to onsite visitors, while being done in a measured approach in compliance with all state and local regulations, may contribute to an increase in COVID-19 cases.

COVID-19 is having and will likely continue to have an impact on three metrics that are fundamental to our business: occupancy, rental rates and operating expenses.
Occupancy:
Following the COVID-19 outbreak, occupancy at our properties began to decrease materially as move-ins at those properties slowed due to the voluntary restrictions our property managers imposed on move-ins at our properties as discussed above. We do not know the extent of the ultimate impacts that COVID-19 will have on our business, and whether it will fundamentally alter the demand for senior housing in general or in our properties in particular. Ending occupancy in the first quarter of 2021 decreased 160 basis points compared to the fourth quarter of 2020. Occupancy may continue to decline as a result of the pandemic. The timing of a recovery in occupancy is difficult to predict and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur. The impact of COVID-19 may be mitigated by the distribution of the COVID-19 vaccines, but it remains unclear how the vaccine will ultimately impact demand and occupancy. As of the date of this filing, all of our properties have now hosted clinics to administer the COVID-19 vaccine to residents and employees; however, it is too early to determine whether vaccination levels or availability will influence demand and occupancy at our properties.
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The senior housing industry offers a full continuum of care to seniors with product types that range from “mostly housing” (i.e., senior apartments) to “mostly healthcare” (i.e., skilled nursing, hospitals, etc.). We primarily focus on product types at the center of this continuum, namely IL properties. We believe that our focused portfolio of primarily IL properties will allow investors to participate in the positive fundamentals of the senior housing sector. However, according to the U.S. Centers for Disease Control and Prevention (the “CDC”), older adults and people of any age who have serious underlying medical conditions might be at higher risk for severe illness from COVID-19. The CDC guidance also states that people age 65 and older and those living in nursing homes or long-term care facilities are at high-risk for severe illness from COVID-19. While we do not own nursing facilities, the age and other demographics of our residents fall within the CDC guidance. We do not know if or how this will affect seniors’ views on different types of senior living and whether it will alter demand for our types of senior living properties in the future.

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

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

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

Other Recent Developments

Property Transition to Atria Senior Living

In April 2021, we transitioned the management of 21 properties from Holiday to Atria Senior Living (“Atria”). Post-transition, Atria will manage 20% of the properties in the Company’s senior housing properties and Holiday will continue to be our largest property manager, managing 75% of our senior housing properties. During transition periods, we expect to incur integration costs and may experience a temporary disruption in operations which can adversely impact our results of operation.

At-The-Market Common Stock Offering Program

On February 26, 2021, we established an at-the-market equity offering program (the “ATM Program”) through which we may issue and sell, from time to time, up to an aggregate of $100 million of our common stock. Sales of common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as sales agents.

During the three months ended March 31, 2021, we did not issue any shares under the Distribution Agreement.

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MARKET CONSIDERATIONS

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

According to data from the National Investment Center for Seniors Housing and Care (“NIC”) on the 99 Primary and Secondary Markets, occupancy was down 850 basis points year-over-year in the first quarter of 2021, the fourth full quarter impacted by the COVID-19 pandemic. New Senior’s occupancy results outperformed the industry in the first quarter, with same store managed occupancy down 770 basis points year-over-year. Industry occupancy for majority IL facilities was down 750 basis points year-over-year, while industry occupancy for majority AL facilities was down 940 basis points year-over-year.

Industry-wide, new supply levels have continued to trend lower for the past several years. Units under construction represent 4.6% of inventory, and that ratio has decreased 280 basis points from the recent high in the third quarter of 2018. The ratio of IL construction to inventory (4.6%) is slightly lower than the ratio for AL (4.7%).

While supply trends have improved recently, rate growth has continued to decelerate over the past several quarters. Industry rate growth was 1.2% in the first quarter of 2021, down 220 bps from the recent high of 3.4% in the first quarter of 2019. Rate growth for IL facilities (1.4%) was slightly higher than rate growth for AL facilities (0.9%).

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 has continued to impact our business in 2021. The timing of a recovery is difficult to predict, and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur. In recent months we have seen fewer active cases, and increased inquiry and tour volume across our communities, which may be due to the prevalence of vaccination clinics at our communities and high levels of uptake by residents and associates, or may be the result of declining positivity rates in the particular communities in which we operate, or may be due to other factors.
 
RESULTS OF OPERATIONS
 
Segment Overview
 
Our primary business is investing in senior housing properties. We currently operate and report results in one reportable segment, Senior Housing Properties. Prior to the fourth quarter of 2020, we had two reportable segments (Managed IL Properties and Other Properties). Due to the AL/MC Disposition which resulted in the sale of all but one of the assets in the Other Properties segment, we changed the composition of our reportable segments to be in line with the financial information reviewed and used by the chief operating decision maker to make operating decisions, assess performance, develop strategy and allocate capital resources. Accordingly, all prior period segment information has been reclassified to conform to the current period presentation.

Net Operating Income

Net operating income (“NOI”) and Cash NOI are non-U.S. generally accepted accounting principles (“GAAP”) financial measures used to evaluate the performance of our properties. We consider NOI and Cash NOI important supplemental measures used to evaluate the operating performance of our properties because they allow investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. We define NOI as total revenues less property level operating expenses, which include property management fees and travel cost reimbursements. We define Cash NOI as NOI excluding the effects of straight-line rental revenue, amortization of above/ below market lease intangibles and the amortization of deferred community fees and other, which includes the net change in deferred community fees and other rent discounts or incentives.
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Our Senior Housing Properties segment is primarily comprised of independent living senior housing properties that are operated by property managers to which we pay a management fee. We also own one CCRC leased on a long-term basis, and our tenant is typically responsible for bearing property-related expenses including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing property performance. In deciding how to allocate resources and assess performance, our chief operating decision maker regularly evaluates the performance of our reportable segment on the basis of NOI and Cash NOI.

Same Store

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

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Three months ended March 31, 2021 compared to three months ended March 31, 2020

The following table presents same store and total portfolio results as of and for the three months ended March 31, 2021 and 2020, and a reconciliation of our NOI to net income (loss):
Three Months Ended March 31,Increase (Decrease)
(dollars in thousands)20212020AmountPercentage
Resident fees and services$78,113 $85,007 $(6,894)(8.1)%
Rental revenue1,583 1,583 — — %
Less: Property operating expense49,448 51,065 (1,617)(3.2)%
Total NOI30,248 35,525 (5,277)(14.9)%
Straight-line rental revenue(95)(134)39 (29.1)%
Amortization of deferred community fees and other(696)(304)(392)128.9 %
Cash NOI29,457 35,087 (5,630)(16.0)%
Addback adjustments (A)
791 438 353 80.6 %
Expenses
Depreciation and amortization15,889 17,536 (1,647)(9.4)%
Interest expense14,353 17,219 (2,866)(16.6)%
General and administrative expense6,275 5,846 429 7.3 %
Acquisition, transaction and integration expense393 133 260 195.5 %
Loss on extinguishment of debt— 5,884 (5,884)NM
Other expense (income)615 (105)720 NM
Total expenses37,525 46,513 (8,988)(19.3)%
Loss before income taxes(7,277)(10,988)3,711 33.8 %
Income tax expense34 60 (26)(43.3)%
Loss from continuing operations(7,311)(11,048)3,737 33.8 %
Discontinued Operations:
Gain on sale of real estate— 19,992 (19,992)NM
Loss from discontinued operations— (3,107)3,107 NM
Discontinued operations, net— 16,885 (16,885)NM
Net income (loss)(7,311)5,837 (13,148)NM
Deemed dividend on redeemable preferred stock(296)(598)302 (50.5)%
Net income (loss) attributable to common stockholders$(7,607)$5,239 $(12,846)NM
Total properties as of the period ended103103
Average available beds12,43812,439
__________
NM – Not meaningful
(A) Represents straight-line rental revenue and amortization of deferred community fees and other adjustments to Cash NOI.

Resident fees and services
 
Same store and total resident fees and services decreased $6.9 million. This decrease is primarily attributable to a decrease in occupancy, partially offset by an increase in average rental rates.

Rental revenue

Rental revenue relates to rents from our triple net lease property. Same store and total rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, 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.
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Property operating expense
 
Same store and total property operating expense decreased $1.6 million. This decrease is primarily due to lower labor-related costs and supply costs.
 
NOI
 
Same store NOI and total portfolio NOI decreased $5.3 million. See above for the variance explanations.

Cash NOI

Same store and total Cash NOI decreased $5.6 million. This is primarily due to less community fees collected from residents and lower NOI. See above for variance explanations.

Expenses

Depreciation and amortization

Depreciation and amortization decreased $1.6 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of March 31, 2020.

Interest expense
 
Interest expense decreased $2.9 million primarily due to a lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the three months ended March 31, 2021 and 2020 were 3.82% and 4.36%, respectively.

General and administrative expense
 
General and administrative expense increased $0.4 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees after the three months ended March 31, 2020.

Acquisition, transaction and integration expense
 
Acquisition, transaction and integration expense increased $0.3 million primarily due to integration costs associated with the transition of 21 assets to Atria Senior Living which closed in April 2021.

Loss on extinguishment of debt

Loss on extinguishment of debt decreased $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 in February 2020.

Other expense

Other expense increased by $0.7 million. This is primarily due to damage remediation costs relating to a significant winter storm in Texas in February 2021 and higher casualty related charges in the first quarter of 2021.

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.

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Discontinued operations, net

In February 2020, we completed the sale of the AL/MC Portfolio Disposition which resulted in a gain on sale of real estate of $20.0 million. This gain was partially offset by a loss from discontinued operation of $3.1 million which reflects the operations of the properties sold.

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, 2021, we had approximately $24.7 million in liquidity, consisting of unrestricted cash and cash equivalents. A portion of this amount is held in operating accounts used to fund expenses at our managed properties and, therefore, may not be available for distribution to stockholders.

On February 26, 2021, we established an at-the-market equity offering program (the “ATM Program”) through which we may issue and sell, from time to time, up to an aggregate of $100 million of our common stock. Sales of the common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as sales agents.

During the three months ended March 31, 2021, we did not issue any shares under the Distribution Agreement.

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, including the availability under the ATM Program. Our cash flows from operating activities are primarily driven by (i) resident fees and services received from residents of our managed properties and (ii) rental revenues from the tenant of our triple net lease property, less (iii) operating expenses (primarily property operating expense of our managed properties, general and administrative expenses, professional fees, insurance and taxes) and (iv) interest payments on our debt. Our principal uses of liquidity are the expenses included in cash flows from operating activities, plus capital expenditures, principal payments on debt, and distributions to our stockholders.

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

Our cash flows from operating activities, less capital expenditures and principal payments, have historically been less than the amount of distributions to our stockholders. We have in the past funded the shortfall using cash on hand. In light of the impacts of COVID-19, the board of directors reduced our quarterly cash dividend on shares of our common stock for the first quarter of 2020 by 50% to $0.065 per share. The board of directors maintained the same dividend level for the remainder of 2020 and effective May 3, 2021 the board declared a cash dividend on shares of the Company’s common stock for the first quarter of 2021 of $0.065 per share. The board of directors believes the dividend reduction in 2020 is the most prudent course of action and it continues to monitor our financial performance and liquidity. The board of directors will continue to re-evaluate the level of future dividends. There can be no assurance that we will pay cash dividends in an amount consistent with prior quarters. Any difference between the amount of any future dividend and the amount of dividends in prior quarters could be material, and there can be no assurance that our board of directors will declare any dividend at all.

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

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

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

As noted elsewhere in this Quarterly Report on Form 10-Q, the impacts of the COVID-19 pandemic will affect the Company’s liquidity in various ways, including among other things by further impairing our ability to access the capital markets, by reducing our revenues due to decreased occupancy at our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver.

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, 2021, we were in compliance with all such covenants.

Capital Expenditures

We anticipate that capital expenditures will be funded through operating cash flows from our senior housing properties. Capital expenditures, net of insurance proceeds for the managed properties were $2.5 million for the three months ended March 31, 2021. As landlord, we did not incur any capital expenditures for the CCRC leased to the tenant for the three months ended March 31, 2021. After the onset of the pandemic in March 2020, we temporarily halted all elective capital expenditure projects and limited projects to those deemed essential. In summer 2020, we resumed elective capital expenditure projects that could be completed safely.

With respect to our CCRC under a triple net lease arrangement, the terms of this arrangement require the tenant to fund all necessary capital expenditures in order to maintain and improve the applicable property. To the extent that our tenant is unwilling or unable to fund these capital expenditure obligations under the existing lease arrangement, we may fund capital expenditures with additional borrowings or cash flow from the operations of the senior housing properties. We may also provide corresponding loans or advances to our tenant which would increase the rent payable to us. For further information regarding capital expenditures related to our triple net lease property, see “Contractual Obligations” below and “Note 15 – Commitments and Contingencies” to our consolidated financial statements.

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Cash Flows
 
The following table provides a summary of our cash flows:
Three Months Ended March 31,Increase (Decrease)
(dollars in thousands)20212020Amount
Net cash provided by (used in)
Operating activities$(432)$(4,241)$3,809 
Investing activities(2,463)371,018 (373,481)
Financing activities(8,766)(282,173)273,407 
Net increase (decrease) in cash, cash equivalents and restricted cash(11,661)84,604 (96,265)
Cash, cash equivalents and restricted cash, beginning of period53,795 63,829 (10,034)
Cash, cash equivalents and restricted cash, end of period$42,134 $148,433 $(106,299)

Operating activities
 
Net cash used in operating activities was $0.4 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively. The period-over-period increase of $3.8 million was primarily due to a decrease in interest expense as a result of lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods.

Investing activities
 
Net cash used in investing activities was $2.5 million and net cash provided by investing activities was $371.0 million for the three months ended March 31, 2021 and 2020, respectively. The period-over-period decrease of $373.5 million was due to net proceeds received in February 2020 from the AL/MC Portfolio Disposition of $375.0 million.
 
Financing activities
 
Net cash used in financing activities was $8.8 million and $282.2 million for the three months ended March 31, 2021 and 2020, respectively. The period-over-period increase of $273.4 million was primarily due to repayments of debt in conjunction with the AL/MC Portfolio Disposition, debt refinancings of $576.1 million offset by proceeds from the 2020 Freddie Financing of $270.0 million.

REIT Compliance Requirements
 
We are organized and conduct our operations to qualify as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains. We intend to pay dividends greater than all of our REIT taxable income to holders of our common stock in 2021, 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 partial 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 additional 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.

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OFF-BALANCE SHEET ARRANGEMENTS
 
As of March 31, 2021, 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.

CONTRACTUAL OBLIGATIONS

As of March 31, 2021, we had the following material contractual obligations, including estimates of interest payments on our floating rate debt (dollars in thousands):
Period from
April 1, 2021 to December 31, 2021
2022 (D)
202320242025ThereafterTotal
Principal payments$7,135 $19,125 $19,841 $24,186 $21,518 $22,777 $114,582 
Balloon payments— 48,419 — — 1,098,238 238,759 1,385,416 
Subtotal7,135 67,544 19,841 24,186 1,119,756 261,536 1,499,998 
Redeemable preferred stock20,000 — — — — — 20,000 
Interest & redeemable preferred stock dividend (A)(B)
34,930 43,712 42,611 42,046 35,230 24,153 222,682 
Leases484 515 472 240 305 2,024 
Total obligations (C)
$62,549 $111,771 $62,924 $66,472 $1,154,994 $285,994 $1,744,704 
(A)Estimated interest payments on floating rate debt are calculated using LIBOR rates in effect at March 31, 2021 and may not be indicative of actual payments. Actual payments may vary significantly due to LIBOR fluctuations. See “Note 8 – Debt, Net” to the consolidated financial statements for further information about interest rates.
(B)Includes obligations to pay dividends of $0.9 million in 2021 on the Series A redeemable preferred stock.
(C)Total obligations include an estimate of interest payments on floating rate debt, see Note A above.
(D)The Company has two 1-year extension options to defer the balloon payment; the second extension requires the payment of a nominal extension fee.

In addition to our contractual obligations, we are a party to property management agreements with property managers. See “Note 15 – Commitments and Contingencies” to the consolidated financial statements for information related to our capital improvement and repair commitments.
 
NON-GAAP FINANCIAL MEASURES
 
A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not excluded from or included in the most directly comparable GAAP measure. We consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance for management and investors. GAAP accounting for real estate assets assumes that the value of real estate assets diminishes predictably over time, even though real estate values historically have risen or fallen with market conditions. As a result, many industry investors look to non-GAAP financial measures for supplemental information about real estate companies.

You should not consider non-GAAP measures as alternatives to GAAP net (loss) income, which is an indicator of our financial performance, or as alternatives to GAAP cash flow from operating activities, which is a liquidity measure. Additionally, non-GAAP measures are not intended to be a measure of our ability to satisfy our debt and other cash requirements. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP measures in conjunction with GAAP net (loss) 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.

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

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

Normalized FFO, as defined below, measures the financial performance of our portfolio of assets excluding items that, although incidental to, are not reflective of the day-to-day operating performance of our portfolio of assets. We believe that Normalized FFO is useful because it facilitates the evaluation of our portfolio’s operating performance (i) between periods on a consistent 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 to affiliate 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 rental revenue; (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)20212020
Net income (loss) attributable to common stockholders$(7,607)$5,239 
Depreciation and amortization15,889 17,536 
Gain on sale of real estate— (19,992)
FFO8,282 2,783 
Acquisition, transaction and integration expense393 1,170 
Loss on extinguishment of debt— 9,486 
Compensation expense related to transition awards325 390 
Other expense (income) (A)
615 (294)
Normalized FFO9,615 13,535 
Straight line rental revenue(95)(134)
Amortization of equity-based compensation expense1,760 1,106 
Amortization of deferred financing costs957 906 
Amortization of deferred community fees and other(696)(1,314)
Adjusted FFO$11,541 $14,099 
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(A) Primarily includes 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 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)20212020
Net income (loss) attributable to common stockholders$(7,607)$5,239 
Depreciation and amortization15,889 17,536 
Deemed dividend on redeemable preferred stock296 598 
Gain on sale of real estate— (19,992)
Acquisition, transaction and integration expense393 1,170 
Loss on extinguishment of debt— 9,486 
Compensation expense related to transition awards325 390 
Other expense (income) (A)
615 (294)
Amortization of equity-based compensation expense1,760 1,106 
Interest expense14,353 18,580 
Income tax expense34 59 
Adjusted EBITDA$26,058 $33,878 
(A) Primarily includes 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 the accounting policies described below, 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 below to materially change in the future.

Other than critical accounting policies mentioned in “Note 2 – Summary of Significant Accounting Policies” of our consolidated financial statements, there were no material changes to our critical accounting policies disclosed in our Form 10-K for the year ended December 31, 2020.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

Interest Rate Risk

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

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

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

In August 2020, we entered into an interest rate swap with a notional amount of $270.0 million that matures in September 2025 and in May 2019, we entered into an interest rate swap with a notional amount of $350.0 million that matures in May 2022. These swaps effectively convert LIBOR-based floating-rate debt to fixed-rate debt, thus reducing the impact of interest-rate changes on future interest expense. After considering the effect of the interest rate swap, $419.1 million of our floating rate debt with an average coupon rate of 2.50% would be subject to interest rate fluctuations. As a result, a 100 basis point increase in interest rates would increase annual interest expense by $4.2 million. However, a 100 basis point decrease in interest rates would also increase annual interest expense by $2.7 million due to the impact of LIBOR floors included in certain debt agreements.

The table below sets forth the outstanding face amount of our debt subject to LIBOR fluctuations after incorporating the impact of the interest rate swap discussed above, excluding debt associated with assets classified as discontinued operations:
Outstanding Face Amount
(dollars in thousands)March 31, 2021December 31, 2020
Floating Rate$419,137 $419,316 
Fixed Rate1,080,861 1,082,808 
Total$1,499,998 $1,502,124 

LIBOR was initially expected to be phased out at the end of calendar year 2021. However, regulators have announced they intend to cease the publication of U.S. dollar LIBOR rates for the most common tenors (overnight and one, three, six, and 12 months) in June 2023. Despite any continued publication of U.S. dollar LIBOR through June 2023, these same regulators emphasized that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. A portion of our debt, which includes certain mortgage loans and our revolving credit facility, is required to pay interest at floating rates based on LIBOR. We also hold derivatives (interest rate swaps) indexed to LIBOR as hedging instruments, as described above. In the event that LIBOR is phased out, the interest rate for our floating rate debt and the swap rate for our interest rate swaps will be based on an alternative floating rate as specified in the applicable debt instrument or agreement, or as otherwise agreed upon between us and our lenders. Certain of our newer loans and financial instruments have alternative LIBOR provisions, which generally give our lenders substantial flexibility in setting alternative rates if and when LIBOR is discontinued. We expect that the provisions of our other debt agreements relating to the calculation of interest will likely be amended, and over the past year we have been working with our lenders in the ordinary course to manage transition efforts to be prepared for this phase-out. We do not know what standard, if any, will replace LIBOR if it is phased out. Currently we cannot estimate the overall impact of the phase-out of LIBOR on our current debt agreements, although it is possible that an alternative variable rate could be higher or more volatile, which could raise our borrowing costs.
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Liquidity Risk

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

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


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

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are and may 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
 
There have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None. 

ITEM 4. MINE SAFETY DISCLOSURES

None.
 
ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS
 
Exhibits filed with this Form 10-Q:
101.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 5, 2021
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