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Annual Report Table of Contents ANNUAL 2017 REPORT We are pleased with the balanced senior housing and healthcare portfolio that we have developed since our initial investment in 2013, which is diversified by investment type, asset class and geographical location, among other factors, and stands to benefit from compelling long-term demographic trends. To Our Stockholders, On behalf of your board of directors and management In light of these challenges, the Company took a number team, we at NorthStar Healthcare Income, Inc. (NorthStar of actions designed to strengthen its capital structure and Healthcare or the Company) are pleased to share with you bolster its near-term liquidity position. Specifically, the an update on the Company’s progress during 2017 and its Company reduced its distribution rate from an annualized objectives for 2018. rate of $0.675 per share to $0.3375 per share, and made changes to its share redemption program in an effort to Our sponsor, Colony NorthStar, Inc. (NYSE: CLNS), formed preserve and deploy capital in a way that is better aligned as a result of the mergers of NorthStar Asset Management with the long-term interests of stockholders. In addition, the Group Inc., NorthStar Realty Finance Corp. and Colony Company restructured its advisory agreement, reducing Capital, Inc. in January 2017, is now one of the largest the fees payable to the advisor while also improving the publicly traded, diversified commercial real estate owners alignment with the stockholders by converting a portion of and asset managers, with approximately $43 billion of the fees to stock rather than cash consideration. assets under management as of December 31, 2017, including Colony NorthStar’s balance sheet investments Going into 2018, with a stronger capital structure resulting and third party managed investments. from these and other changes, we are focused on opportunities to enhance our operations and liquidity, while During 2017, NorthStar Healthcare completed continuing to actively manage our portfolio. Our objectives approximately $372.4 million in investment activity, for 2018 include actively managing our diversified portfolio, including new acquisitions and capital expenditures pursuing strategic capital expenditure and development throughout our existing portfolio, and, as a result, invested opportunities, taking advantage of select opportunities substantially all of the proceeds from our initial and to reposition or dispose of assets and executing on our follow-on public offerings. As of December 31, 2017, operator transition plan to stabilize our portfolio. NorthStar Healthcare had built a $3.6 billion portfolio, including interests, either directly or through Although 2017 was a challenging year for NorthStar unconsolidated joint ventures, in over 650 healthcare Healthcare, we continue to believe in the compelling properties. We are pleased with the balanced senior long-term demographics and other market dynamics of housing and healthcare portfolio that we have developed the healthcare industry, as well as the long-term value of since our initial investment in 2013, which is diversified by our diverse portfolio. We are also committed to pursuing investment type, asset class and geographical location, our stated investment objectives: to pay attractive cash among other factors, and stands to benefit from compelling distributions, to preserve and protect stockholder capital long-term demographic trends. and to seek capital appreciation in our portfolio. At the same time, 2017 was a challenging year for the We appreciate your investment and continued confidence Company. Our operating performance was impacted by in Colony NorthStar, Inc. and NorthStar Healthcare and look industry headwinds, including declines in occupancy forward to the year ahead. and rates and expense pressures driven by tightening labor markets and statutory wage increases. Recent changes in government reimbursement, national and Sincerely, regional economic conditions and expenses associated with government investigations and legal actions also continued to negatively affect skilled nursing operators. In addition, the Company transitioned several portfolios to new operators during 2017, which resulted in disruption Ronald J. Jeanneault and elevated expenses that put further pressure on the Chief Executive Officer & President Company’s operating performance. As a result of these factors, among other things, NorthStar Healthcare’s board of directors approved a new estimated net asset value per share of $8.50 per share as of June 30, 2017, which reflects a decrease of approximately 7% on the prior year’s Robert C. Gatenio estimated net asset value per share of $9.10. Executive Chairman NORTHSTAR HEALTHCARE INCOME, INC. 2017 ANNUAL REPORT TABLE OF CONTENTS Page Other Financial Information.......................................................................................................................... ii Forward Looking Statements ........................................................................................................................ iii Business......................................................................................................................................................... 1 Market for Registrant’s Common Equity and Related Stockholder Matters................................................. 16 Selected Financial Data ................................................................................................................................. 20 Management’s Discussion and Analysis of Financial Condition and Results of Operations........................ 21 Quantitative and Qualitative Disclosures About Market Risk ...................................................................... 45 Controls and Procedures................................................................................................................................ 47 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 48 Financial Statements and Supplementary Data ............................................................................................. F-1 Upon written request, we will provide, without charge, a copy of our Annual Report on Form 10-K, including the financial statements and financial statement schedules required to be filed therewith. All such requests should be submitted to NorthStar Healthcare Income, Inc., 590 Madison Avenue, 34th Floor, New York, New York 10022, Attn: General Counsel. i OTHER FINANCIAL INFORMATION Information included in this annual report to stockholders (this “Annual Report”) was excerpted from our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the U.S. Securities and Exchange Commission (the ‘‘SEC’’) on April 2, 2018 (the ‘‘2017 Form 10-K’’). Certain portions of the 2017 Form 10-K were not reprinted for inclusion in this Annual Report in accordance with SEC regulations. The 2017 Form 10-K may be viewed in its entirety on our website at NorthStarHealthcareReit.com. References herein to Parts or Items are references to such sections of the 2017 Form 10-K. For information regarding the independent directors’ report on the fairness of all transactions involving us, our directors, our advisor, our sponsor and any affiliate of such parties, please see “Certain Relationships and Related Transactions” of our 2018 proxy statement. ii FORWARD-LOOKING STATEMENTS This Annual Report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to our ability to make distributions to our stockholders, our reliance on our advisor and our sponsor, the operating performance of our investments, our financing needs, the effects of our current strategies and investment activities and our ability to effectively deploy capital. Our ability to predict results or the actual effect of 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 and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements. These factors include, but are not limited to: • adverse economic conditions and the impact on the real estate industry, including healthcare real estate; • the impact of economic conditions on the operators/tenants of the real property that we own as well as on borrowers of the debt we originate and acquire;
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