Summit Healthcare REIT Inc.
08/12/2026 | Press release | Distributed by Public on 08/12/2026 12:35
Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to numerous risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the U.S. Securities and Exchange Commission (the "SEC") on March 27, 2026.
Overview
As of June 30, 2026, our ownership interests in our seven real estate properties of senior housing facilities was as follows: 100% ownership of three properties and a 95.3% interest in four properties in a consolidated joint venture, Cornerstone Healthcare Partners LLC. As of June 30, 2026, we have a 10% interest in an unconsolidated equity-method investment that holds five properties. As used in this report, the "Company," "we," "us" and "our" refer to Summit Healthcare REIT, Inc. and its consolidated subsidiaries, except where the context otherwise requires.
Our revenues are comprised largely of tenant rental income from our real estate properties, including rents reported on a straight-line basis over the initial term of each tenant lease, resident fees and services and asset management fees resulting from our equity-method investments. We also receive cash distributions from our equity-method investments, which are included in net cash provided by operating activities and net cash provided by investing activities in our condensed consolidated statements of cash flows. Our growth depends, in part, on our ability to continue to raise joint venture equity or other equity, acquire new healthcare properties at attractive prices, negotiate long-term tenant leases with sustainable rental rate escalation terms and control our expenses. Our operations are impacted by property-specific, market-specific, general economic, regulatory and other conditions.
We believe that continued investing in senior housing facilities is accretive to earnings and stockholder value. Senior housing facilities include independent living facilities ("IL"), skilled nursing facilities ("SNF"), assisted living facilities ("AL"), memory care facilities ("MC") and continuing care retirement communities ("CCRC"). Each of these types of facilities focuses on different segments of the senior population. We are also evaluating alternative opportunities in the seniors housing and care sector that we believe will contribute to earnings and shareholder value.
Current Market and Economic Conditions
The U.S. economy continues to expand at a generally solid, though uneven, pace amid persistent inflation, elevated interest rates, and ongoing geopolitical and trade-policy uncertainty. Although inflationary pressures have moderated in certain categories, overall inflation remains above the Federal Reserve's longer-term objective, and borrowing costs remain elevated relative to recent pre-pandemic levels. Financial conditions have remained generally stable, and commercial lending activity has increased modestly; however, lenders continue to maintain disciplined underwriting standards, and capital availability remains selective, particularly for new development and assets with operating challenges. Elevated financing and construction costs, together with lengthy development timelines, continue to constrain new real estate development and are expected to support longer-term supply-demand fundamentals.
In the seniors housing and care sector, operating fundamentals have continued to strengthen, supported by favorable demographic trends, sustained demand and limited new supply. Senior housing occupancy approached 90% during the second quarter of 2026, while inventory growth and construction activity remained near historically low levels. Labor availability has continued to improve from the significant disruptions experienced during and following the pandemic, and employment within nursing and residential care facilities has increased; however, competition for qualified clinical and caregiving personnel remains elevated. Operators also continue to experience cost pressures related to labor, insurance, food, utilities, supplies and regulatory compliance. These pressures have been partially offset by resident and patient rate growth, reimbursement increases and improved operating efficiencies, although operating performance continues to vary by market, operator and level of care.
Recent Developments
The Company's ongoing efforts to simplify its structure and focus on wholly-owned assets have enhanced operational control and financial flexibility. These actions, combined with improving industry fundamentals, position the Company to capitalize on selective investment opportunities and potential capital markets transactions as conditions continue to normalize. While macroeconomic uncertainty remains, the Company believes it is well positioned to benefit from improving industry fundamentals and favorable long-term demographic trends.
During 2025, one of our equity-method investments, Summit Fantasia Holdings II, LLC, sold its two properties resulting in the winding-up of the equity-method investment and we completed the sale of our membership interest in another one of our equity-method investments, Summit Fantasy Pearl Holdings, LLC, resulting in the winding-up of that equity-method investment. Additionally, during the year ended December 31, 2025, our current equity-method investment, SUL JV, sold four properties, resulting in the remaining five properties in the equity-method investment.
As of June 30, 2026 and December 31, 2025, we have an interest in one equity-method investment, SUL JV. See Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements for further information.
Summit Portfolio Properties
At June 30, 2026, five of our seven properties are 100% leased to the tenants of the related facilities. The other two properties are each 100% leased to an affiliated subsidiary (Pennington Gardens Operations LLC ("Pennington Gardens") and Sundial Operations LLC ("Sundial"), collectively, the "Operated Properties") which are operated directly and earn resident fees and service revenue.
The following table provides summary information (excluding the five properties held by our unconsolidated Equity-Method Investments) regarding these properties as of June 30, 2026:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square |
|
Purchase |
|
|
|
|
Properties |
|
Beds |
|
Footage |
|
Price |
|
|
SNF |
4 |
337 |
109,306 |
|
$ |
31,740,000 |
|||
|
AL or AL/MC |
3 |
221 |
136,765 |
|
25,525,000 |
||||
|
Total Real Estate Properties |
7 |
558 |
246,071 |
|
$ |
57,265,000 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
Property |
|
Location |
|
Date Purchased |
|
Type |
|
Beds |
|
Revenue (1) |
|
|
Sheridan Care Center |
Sheridan, OR |
|
August 3, 2012 |
SNF |
51 |
|
$ |
284,000 |
|||
|
Fernhill Care Center |
Portland, OR |
|
August 3, 2012 |
SNF |
63 |
|
303,000 |
||||
|
Friendship Haven Healthcare and Rehabilitation Center |
Galveston County, TX |
|
September 14, 2012 |
SNF |
150 |
|
706,000 |
||||
|
Pacific Health and Rehabilitation Center |
Tigard, OR |
|
December 24, 2012 |
SNF |
73 |
|
555,000 |
||||
|
Brookstone of Aledo |
Aledo, IL |
|
July 2, 2013 |
AL |
66 |
|
382,000 |
||||
|
Sundial Assisted Living (2) |
Redding, CA |
|
December 18, 2013 |
AL |
65 |
|
- |
||||
|
Pennington Gardens (2) |
Chandler, AZ |
|
July 17, 2017 |
AL/MC |
90 |
|
- |
||||
|
Total |
|
|
|
558 |
|
|
|||||
| (1) | Represents year-to-date rental revenue based on in-place leases, including straight-line rent, through June 30, 2026 and excluding $0.4 million in tenant reimbursement revenue. |
| (2) | Lease revenue due under the intercompany leases are eliminated in consolidation and revenue is reflected in resident fees and services in the accompanying condensed consolidated statements of operations for the Operated Properties. |
Summit Equity-Method Investment Portfolio Properties
Our primary source of capital since 2015 has been institutional funds raised through a joint venture structure and accounted for as equity-method investments; however, in the future, we may raise additional capital through alternative methods if warranted by market conditions or other factors.
Summit Union Life Holdings, LLC
In April 2015, through our operating partnership ("Operating Partnership"), we formed Summit Union Life Holdings, LLC ("SUL JV") with Best Years, LLC ("Best Years"), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and entered into a limited liability company with Best Years with respect to the SUL JV (the "SUL LLC Agreement"). We have a 10% interest in the SUL JV which owns five properties. The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements.
As of June 30, 2026 and December 31, 2025, the balance of our equity-method investment related to the SUL JV was approximately $1.8 million.
Critical Accounting Estimates
There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 27, 2026.
Results of Operations
Our results of operations are described below:
Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
||||
|
|
|
June 30, |
|
|
|
||||
|
|
|
2026 |
|
2025 |
|
$ Change |
|||
|
Total rental revenues |
|
$ |
1,297,000 |
|
$ |
1,331,000 |
|
$ |
(34,000) |
|
Property operating costs |
|
|
(301,000) |
|
|
(356,000) |
|
|
55,000 |
|
Resident fees and services income |
|
1,939,000 |
|
|
1,880,000 |
|
|
59,000 |
|
|
Resident costs |
|
(1,450,000) |
|
|
(1,433,000) |
|
|
(17,000) |
|
|
Net operating income (1) |
|
1,485,000 |
|
|
1,422,000 |
|
|
63,000 |
|
|
Asset management fees |
|
24,000 |
|
|
39,000 |
|
|
(15,000) |
|
|
General and administrative |
|
(1,097,000) |
|
|
(826,000) |
|
|
(271,000) |
|
|
Depreciation and amortization |
|
(365,000) |
|
|
(361,000) |
|
|
(4,000) |
|
|
Income from equity-method investees |
|
|
50,000 |
|
|
224,000 |
|
|
(174,000) |
|
Other income |
|
|
198,000 |
|
|
279,000 |
|
|
(81,000) |
|
Interest expense |
|
(458,000) |
|
|
(469,000) |
|
|
11,000 |
|
|
Net (loss) income |
|
(163,000) |
|
|
308,000 |
|
|
(471,000) |
|
|
Noncontrolling interests' share in income |
|
(25,000) |
|
|
(24,000) |
|
|
(1,000) |
|
|
Net (loss) income applicable to common stockholders |
$ |
(188,000) |
|
$ |
284,000 |
|
$ |
(472,000) |
|
| (1) | Net operating income ("NOI") is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, resident fees and services revenue less property operating and resident costs. NOI excludes asset management fees, general and administrative expense, depreciation and amortization, income (loss) from equity-method investees, impairment and gains of real estate properties, other income, and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT's real estate at the property level on an unleveraged basis. We use NOI to assist in making decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it |
| does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI. |
Total rental revenues for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Resident fees and services income are generated from the Operated Properties. Property operating costs include insurance and property taxes, and resident costs are related to the Operated Properties. Net operating income increased approximately $0.1 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to an increase in NOI from the Operated Properties.
The increase in general and administrative of approximately $0.3 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 is primarily due to an increase in legal fees associated with the Best Years litigation. See Note 8 to the accompanying Notes to Consolidated Financial Statements for further information.
The decrease in income from equity-method investees for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 of approximately $0.2 million is primarily related to the reduction in the number of properties (six) in the equity-method investments in 2026 compared to 2025.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|||||
|
|
|
June 30, |
|
|
|||||
|
|
|
2026 |
|
2025 |
|
$Change |
|||
|
Total rental revenues |
|
$ |
2,595,000 |
|
$ |
2,654,000 |
|
$ |
(59,000) |
|
Property operating costs |
|
(648,000) |
|
(723,000) |
|
75,000 |
|||
|
Resident fees and services income |
|
3,658,000 |
|
3,799,000 |
|
(141,000) |
|||
|
Resident costs |
|
(2,842,000) |
|
(2,897,000) |
|
55,000 |
|||
|
Net operating income (1) |
|
2,763,000 |
|
2,833,000 |
|
(70,000) |
|||
|
Asset management fees |
|
48,000 |
|
65,000 |
|
(17,000) |
|||
|
General and administrative |
|
(2,942,000) |
|
(2,048,000) |
|
(894,000) |
|||
|
Depreciation and amortization |
|
(732,000) |
|
(720,000) |
|
(12,000) |
|||
|
Income from equity-method investees |
|
95,000 |
|
176,000 |
|
(81,000) |
|||
|
Other income |
|
353,000 |
|
536,000 |
|
(183,000) |
|||
|
Interest expense |
|
(919,000) |
|
(940,000) |
|
21,000 |
|||
|
Net loss |
|
(1,334,000) |
|
(98,000) |
|
(1,236,000) |
|||
|
Noncontrolling interests' share in income |
|
(48,000) |
|
(48,000) |
|
- |
|||
|
Net loss applicable to common stockholders |
|
$ |
(1,382,000) |
|
$ |
(146,000) |
|
$ |
(1,236,000) |
Total rental revenues for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Resident fees and services income are generated from the Operated Properties. Property operating costs include insurance, and property taxes, and resident costs are related to the Operated Properties. Net operating income decreased approximately $0.1 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to a decrease in NOI from the Operated Properties
The increase in general and administrative of approximately $0.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 is primarily due to an increase in legal fees associated with the Best Years litigation. See Note 8 to the accompanying Notes to Condensed Consolidated Financial Statements for further information.
The decrease in income from equity-method investees of approximately $0.1 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 is primarily related to the reduction in the number of properties in the equity-method investments in 2026 compared to 2025.
The decrease in other income of approximately $0.2 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 is primarily due to lower interest rates and the reduction in invested cash.
Liquidity and Capital Resources
As of June 30, 2026, we had approximately $22.7 million in cash and cash equivalents on hand. Based on current conditions, we believe that we have sufficient capital resources to sustain operations for a period of more than 12 months from the date of this report.
Going forward, we expect our primary sources of cash to be rental revenues and equity-method investment distributions. In addition, we may increase cash through the sale of additional properties, which may result in the deconsolidation of properties we already own, or borrowing against currently-owned properties. For the foreseeable future, we expect our primary uses of cash to be for funding future acquisitions, operating expenses, interest expense on outstanding indebtedness and the repayment of principal on loans payable. We may also incur expenditures for renovations of our existing properties, making our facilities more appealing in their market.
All our debt obligations are long-term, fixed rate U.S. Department of Housing and Urban Development ("HUD")-insured loans that mature between 2039 and 2055. Our liquidity will increase if cash from operations exceeds expenses, we receive net proceeds from the sale of whole or partial interest in a property or properties, or refinancing results in excess loan proceeds. Our liquidity will decrease as proceeds are expended in connection with our acquisitions and operation of properties. In regard to our Operated Properties, our intent is to stabilize the operations of the facilities and market them for sale due to the significantly reduced willingness of AL manager/operators to execute long-term triple-net leases.
Credit Facilities and Loan Agreements
As of June 30, 2026, we had debt obligations of approximately $40.8 million, the outstanding balance by lender is as follows:
| ● | Capital One Multifamily Finance, LLC (HUD-insured) - approximately $9.5 million maturing September 2053 |
| ● | Lument Capital (formerly ORIX Real Estate Capital, LLC) (HUD-insured) - approximately $31.3 million maturing from September 2039 through April 2055 |
| ● | CIBC Bank, USA-Master Letter of Credit Agreement for $1.0 million (none outstanding) - cancelled in July 2026 |
Distributions
On April 15, 2025, the Company declared a cash dividend of $0.045 per share (approximately $1.0 million) to shareholders of record as of April 17, 2025, which was paid on April 30, 2025. No distributions were declared or paid during the six months ended June 30, 2026.
Funds from Operations ("FFO")
FFO is a non-GAAP supplemental financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes real estate depreciation and amortization, gains and losses from property dispositions, impairments and extraordinary items, and as a result, when compared period to period, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be
considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
The following is the reconciliation from net income (loss) applicable to common stockholders, the most direct comparable financial measure calculated and presented with GAAP, to FFO for the three and six months ended June 30, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
|
Net (loss) income applicable to common stockholders (GAAP) |
|
$ |
(188,000) |
|
$ |
284,000 |
|
$ |
(1,382,000) |
|
$ |
(146,000) |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
338,000 |
|
|
338,000 |
|
677,000 |
|
675,000 |
|
|||
|
Depreciation and amortization related to non-controlling interests |
|
(8,000) |
|
|
(8,000) |
|
(16,000) |
|
(16,000) |
|
|||
|
Depreciation related to Equity-Method Investments |
|
24,000 |
|
|
47,000 |
|
48,000 |
|
143,000 |
|
|||
|
Impairment on properties in Equity-Method Investments (included in income from Equity-Method Investments) |
|
|
- |
|
|
395,000 |
|
|
- |
|
|
395,000 |
|
|
Gain on sale of properties in Equity-Method Investments (included in income from Equity-Method Investments) |
|
|
- |
|
|
(357,000) |
|
|
- |
|
|
(357,000) |
|
|
Funds provided by (used in) operations (FFO) applicable to common stockholders |
|
$ |
166,000 |
|
$ |
699,000 |
|
|
(673,000) |
|
$ |
694,000 |
|
|
Weighted-average number of common shares outstanding - basic |
|
|
23,027,978 |
|
|
23,027,978 |
|
|
23,027,978 |
|
|
23,027,978 |
|
|
FFO per weighted average common shares - basic |
|
$ |
0.01 |
|
$ |
0.03 |
|
$ |
(0.03) |
|
$ |
0.03 |
|
|
Weighted-average number of common shares outstanding - diluted |
|
23,070,522 |
|
23,073,690 |
|
23,070,522 |
|
23,073,690 |
|
||||
|
FFO per weighted average common shares - diluted |
|
$ |
0.01 |
|
$ |
0.03 |
|
$ |
(0.03) |
|
$ |
0.03 |
|
Subsequent Events
See Note 11 to the accompanying Notes to Condensed Consolidated Financial Statements.
Summit Healthcare REIT Inc. published this content on August 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 12, 2026 at 18:35 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]