UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 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: 001-33549

Tiptree Inc.

(Exact name of Registrant as Specified in Its Charter)

Maryland	38-3754322
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)		299 Park Avenue	13th Floor	New York	New York	10171
---	---	---	---	---
(Address of Principal Executive Offices)				(Zip Code)

(Registrant’s telephone number, including area code) (212) 446-1400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
common stock, par value $0.001 per share	TIPT	NASDAQ	Capital Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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  x No ¨

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).   Yes x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨                    Accelerated filer x

Non-accelerated filer ¨                    Smaller reporting company ☐

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. ¨

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $226,808,986, based upon the closing sales price of $9.30 per share as reported on the Nasdaq Capital Market. For purposes of this calculation, all of the registrant’s directors and executive officers were deemed to be affiliates of the registrant.

As of March 7, 2022, there were 34,385,602 shares, par value $0.001, of the registrant’s common stock outstanding.

Documents Incorporated by Reference

Certain information in the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relating to the registrant’s 2022 Annual Meeting of Stockholders is incorporated by reference into Part III.

F -1

TIPTREE INC.

Annual Report on Form 10-K

December 31, 2021

Table of Contents

ITEM	Page Number
PART I	4
Item 1. Business	8
Item 1A. Risk Factors	19
Item 1B. Unresolved Staff Comments	45
Item 2. Properties	45
Item 3. Legal Proceedings	45
Item 4. Mine Safety Disclosures	45
PART II	45
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45
Item 6. Reserved.	46
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	76
Item 8. Financial Statements and Supplementary Data	F- 1
Consolidated Balance Sheets for December 31, 2021 and 2020	F- 1
Consolidated Statements of Operations for the three years ended December 31, 2021, 2020 and 2019	F- 2
Consolidated Statements of Comprehensive Income (Loss) for the three years endedDecember 31, 2021, 2020 and 2019	F- 3
Consolidated Statement of Changes in Stockholders’ Equity for the three years endedDecember 31, 2021, 2020 and 2019	F- 4
Consolidated Statements of Cash Flows for the three years endedDecember 31, 2021, 2020 and 2019	F- 5
Notes toConsolidated Financial Statements	F- 6
(1) Organization	F- 6
(2) Summary of Significant Accounting Policies	F- 6
(3) Acquisitions	F- 17
(4) DispositionsandAssets and Liabilities Held for Sale	F- 19
(5) Segment Data	F- 20
(6) Investments	F- 22
(7) Notes and Accounts Receivable, net	F- 28
(8) Reinsurance Receivables	F- 28
(9) Goodwill and Intangible Assets, net	F- 31
(10) Derivative Financial Instruments and Hedging	F- 32
(11) Debt, net	F- 34
(12) Fair Value of Financial Instruments	F- 37
(13) Liability for Unpaid Claims and Claim Adjustment Expenses	F- 44
(14) Revenue from Contracts with Customers	F- 46
(15) Other Assets and Other Liabilities and Accrued Expenses	F- 48
(16) Other Revenue and Other Expenses	F- 48
(17) Stockholders’ Equity	F- 49
(18) Accumulated Other Comprehensive Income (Loss)	F- 50
(19) Stock Based Compensation	F- 51
(20) Income Taxes	F- 56
(21) Commitments and Contingencies	F- 59
(22) Earnings Per Share	F- 60
(23) Related Party Transactions	F- 60
(24) Subsequent Events	F- 61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
Item 9A. Controls and Procedures	56
Item 9B. Other Information	57
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.	57
PART III	57
Item 10. Directors, Executive Officers and Corporate Governance	57
Item 11. Executive Compensation	57
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
Item 13. Certain Relationships and Related Transactions, and Director Independence	57

TIPTREE INC.

Annual Report on Form 10-K

December 31, 2021

Table of Contents

ITEM	Page Number
Item 14. Principal Accountant Fees and Services	57
PART IV	58
Item 15. Exhibits, Financial Statement Schedules	58
Item 16. Form 10-K Summary	61
Signatures	62

Forward-Looking Statements

Except for the historical information included and incorporated by reference in this Annual Report on Form 10-K, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, the closing of the transaction with Warburg Pincus, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements.

Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K and in our other public filings with the SEC.

The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements.

Market and Industry Data

This Annual Report on Form 10-K includes certain market and industry data and statistics, which are based on publicly available information, industry publications and surveys, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the insurance industry and market segments in which we compete. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. In addition, certain information contained in this Form 10-K, including information relating to the proportion of new opportunities we pursue, represents management estimates. While we believe our internal estimates to be reasonable, they have not been verified by any independent sources. Such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the captions “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Summary Risk Factors

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risks include, but are not limited to, the following:

•A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable prices or at all and creates uncertainty in connection with valuing such assets.

•Our investment in Invesque shares is subject to market volatility.

•We operate in highly competitive markets for business opportunities and personnel, which could impede our growth and negatively impact our results of operations.

•Failure to consummate the proposed WP Transaction could have a material adverse impact on our business.

•The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to factors outside of our control.

•Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to establish additional reserves.

•Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks.

•Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements.

•We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no assurance that such capital will be available on a timely basis, on acceptable terms or at all.

•Cybersecurity attacks or information system failures could disrupt our businesses, including our insurance businesses.

•Third-party vendors our insurance subsidiaries rely upon to provide certain business and administrative services on their behalf may not perform as anticipated. These include independent financial institutions, lenders, distribution partners, agents and retailers for distribution of its products and services, and the loss of these distribution sources, or their failure to sell our insurance business’s products and services could be adverse.

•A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales.

•If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to bear increased risks or reduce the level of their underwriting commitments.

•Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under reinsurance contracts.

•New lines of business or new products and services may subject our insurance subsidiaries to additional risks.

•The effects of emerging claim and coverage issues on our insurance subsidiaries’ business are uncertain.

•Our insurance subsidiaries’ international operations expose them to investment, political and economic risks, including foreign currency and credit risk.

•Our insurance subsidiaries’ continued growth depends partly on the continued growth of their business’s customer base.

•Our results of operations have in the past varied quarterly and may not be indicative of our long-term prospects.

•Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity, could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance subsidiaries’ growth and profitability.

•Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to unidentified or unanticipated risk.

•Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful.

•Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to pursue their business strategies.

•Retentions in various lines of business and catastrophic events expose our insurance subsidiaries to potential losses.

•The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business.

•Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the creditworthiness of some of its independent agents and program partners.

•Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they underwrite.

•The insurance industry is cyclical in nature, competition is intense and our insurance business may lose clients or business as a result of consolidation within the financial services industry or otherwise.

•Any failure to protect our insurance subsidiaries’ intellectual property rights could impair their intellectual property, technology platform and brand. In addition, they may be sued for alleged infringement of their proprietary rights.

•Our insurance subsidiaries employ third-party licensed software for use in their business, and the inability to maintain these licenses, errors in the software they license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely affect their business.

•A significant decrease of the market values of our vessels could cause us to incur impairment losses.

•Our vessels may suffer damage and we may face unexpected drydocking costs.

•The operation of dry bulk vessels and product tankers has certain unique operational risks, including piracy.

•Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to such jointly owned investments.

•Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our mortgage business.

•Our mortgage business is highly dependent upon programs administered by GSEs, such as Fannie Mae and Freddie Mac, as well as Ginnie Mae, to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our mortgage business, financial condition and results of operations.

•We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business.

•In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or will originate, if, among other things, our loans fail to meet certain criteria or characteristics.

•We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income.

•We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial condition and results of operations.

•Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our assets, our results of operations and our financial condition.

•Our risk mitigation or hedging strategies could result in our experiencing significant losses.

•The values we record for certain investments and liabilities are based on estimates of fair value made by our management, which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a sale.

•The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements.

•Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend on distributions from our subsidiaries that may be subject to restrictions and income from assets.

•Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests.

•Maryland takeover statutes may prevent a change of our control, which could depress our stock price.

•Our holding company structure with multiple lines of business, may adversely impact the market price of our common stock and our ability to raise equity and debt capital.

•Maintenance of our 1940 Act exemption imposes limits on our operations.

•Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business models and expose them to increased liability.

•Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective.

•Our businesses are subject to risks related to litigation and regulatory actions, including increased compliance costs.

•Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the EU and other jurisdictions.

•We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in other applicable jurisdictions.

•Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability.

Note to Reader

In reading this Annual Report on Form 10-K, references to:

“1940 Act” means the Investment Company Act of 1940, as amended.

“A.M. Best” means A.M. Best Company, Inc.

“CFPB” means the Consumer Financial Protection Bureau.

“CLOs” means collateralized loan obligations.

“Code” means the Internal Revenue Code of 1986, as amended.

“Common Stock” or “Common Shares” means Tiptree’s common stock $0.001 par value per share.

“Corvid Peak” means collectively: Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP Holdings, LLC and Corvid Peak Holdings GP, LLC.

“Defend” means Defend Insurance Group.

“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“EBITDA” means earnings before interest, taxes, depreciation and amortization.

“E&S” means excess and surplus.

“EU” means European Union.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.

“Fortegra” or “The Fortegra Group” means The Fortegra Group, LLC.

“Fortegra Financial” means Fortegra Financial Corporation.

“Fortegra Warranty” mean Fortegra Warranty Holdings, LLC.

“GAAP” means U.S. generally accepted accounting principles.

“GSE” means government-sponsored enterprise.

“Invesque” means Invesque Inc.

“Luxury” or “Luxury Mortgage” means Luxury Mortgage Corp.

“MGAs” means managing general agents.

“NAIC” means the National Association of Insurance Commissioners.

“Operating Company” means Tiptree Operating Company, LLC.

“Reliance” means Reliance First Capital, LLC.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Sky Auto” means Sky Services LLC.

“Smart AutoCare” means the following entities and their subsidiaries operating under the Smart AutoCare brand: SAC Holdings, Inc., Freedom Insurance Company, Ltd., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc. and Accelerated Service Enterprise, LLC.

“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Tiptree Inc. and its consolidated subsidiaries.

“Transition Services Agreement” means the Amended and Restated Transition Services Agreement between Corvid Peak and Tiptree Inc., effective as of January 1, 2019.

“VSC” means vehicle service contracts.

“WP Transaction” means the $200 million strategic investment in Fortegra by Warburg Pincus pursuant to the Securities Purchase Agreement between and among Tiptree, Fortegra and WP Falcon Aggregator, L.P. dated October 11, 2021.

Item 1. Business

OVERVIEW

Our Business

At Tiptree, our mission is to build long-term value by allocating capital to select small and middle market companies across industries. We have a significant track record investing in the insurance and credit-related financial sectors. With proprietary access and a flexible capital base, we seek to uncover compelling investment opportunities and support management teams in unlocking the full value potential of their businesses. This investment philosophy, executed by our experienced leadership, is our hallmark and has delivered consistent risk-adjusted returns to our shareholders since 2007.

We categorize our businesses into: Insurance and Tiptree Capital.

Insurance: Our Insurance segment is a group of companies operating as part of The Fortegra Group (“Fortegra”), which is a leading provider of specialty insurance products and related services. Fortegra designs, markets and underwrites specialty commercial and personal property and casualty insurance products incorporating value-added coverages and services for select target markets or niches. We target markets with specialized areas of demand, including smaller niche lines, and by offering innovative policy features. We believe this approach allows us to compete by offering customized coverage and solutions, rather than competing solely on price. Our products are distributed through a diverse multi-channel delivery system centered around our production underwriting organization and large independent agent network. We use proprietary technology to efficiently and effectively administer business to specialty markets that we believe are underserved by larger, less agile insurers. Our underwriting expertise, strong agent relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities.

Tiptree Capital: We own a diversified group of businesses and investments that are owned and managed separately as Tiptree Capital, and include our Mortgage segment operations. We manage Tiptree Capital with a long-term focus, balancing current cash flow and long-term value appreciation. Today, Tiptree Capital consists primarily of our mortgage origination operations, maritime shipping operations and investments in shares of Invesque.

Our Operating Principles

We acquire controlling interests and invest in businesses that we believe (i) operate in industries with long-term macroeconomic growth opportunities, (ii) have positive and stable cash flows, (iii) offer scalable business models with embedded optionality, and (iv) have strong management teams. We believe that our patient capital approach and long-term outlook enhances the ability for our businesses to grow earnings and cash flows across market cycles.

Underwrite to a Profit. Our principal strategic objective is to continue expanding Fortegra’s operations, particularly the specialty insurance and service contract businesses. Our highest priority is to maintain strong underwriting practices, with attention paid to the insurance disciplines of pricing, underwriting and claims management.

Invest for Long-term Returns. Our financial goals are to generate consistent and growing earnings and cash flow, and to enhance shareholder value as measured by growth in stock price plus dividends paid. We manage Tiptree with a long-term perspective, balancing cash-flowing investments with opportunities for capital appreciation. We focus on targeting investment returns that have a combination of current earnings and long-term capital appreciation, understanding that temporary accounting gains and losses may vary significantly from one period to the next.

Think Like Owners. Efficient deployment of capital is our top priority. We aim to find the best use of capital to create long-term value for our shareholders. We hope to achieve this through a combination of investments in our existing businesses, select acquisitions and monetization opportunities, opportunistic share repurchases and paying a consistent dividend. As of March 7, 2022, directors, officers, employees and related trusts owned 32% of the Company.

As of December 31, 2021, Tiptree and its consolidated subsidiaries had 1,472 employees, 21 of whom were at our corporate headquarters. Corporate employees are responsible for overall strategy, capital allocation and investment decisions, as well as public company reporting and compliance.

Our businesses are subject to regulation as described below. The 1940 Act may limit the types and nature of businesses that we engage in and assets that we may acquire. See “Risk Factors-Risks Related to Regulatory and Legal Matters-Maintenance of our 1940 Act exemption will impose limits on our operations.”

Insurance

Overview

Fortegra is an established, growing and consistently profitable specialty insurer. We focus on niche business lines and fee-oriented services, providing us with a unique combination of insurance, service contract products and related service solutions. Our vertically integrated business model creates an attractive blend of traditional underwriting revenues, unregulated fee revenues and investment income. This differentiated approach has led to robust growth, consistent profitability and high cash flows. The business was founded in 1978 and is headquartered in Jacksonville, Florida.

We target lines of business with lower risk limits and use risk mitigation to limit both aggregation and catastrophic exposures. We believe this focus has allowed us to produce superior underwriting results through a more granular spread of risk. We use proprietary technology to efficiently and effectively administer business to specialty markets that we feel are underserved by larger, less agile insurers. Our underwriting expertise, strong distribution relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities in all market conditions.

We use an agent-focused distribution model, employing a “one-to-many” strategy, which allows us to leverage our high-quality partners and their customer bases. We deliver our insurance products through independent insurance agents. We also partner with agents that are embedded in consumer finance companies, online and regional big box retailers, auto dealers and other companies to deliver our products that complement retail and consumer purchases. We use artificial intelligence (“A.I.”) technology to create a distinct lead generation advantage for our insurance distribution partners and over the past five years have maintained a greater than 95% persistency rate, which represents the annual retention of the number of our producing agents. We align our agents’ economics with their underwriting results via risk-sharing agreements, which we believe has enabled us to better manage uncertainties and deliver more consistent profit margins. Combined with our underwriting expertise and technology-enabled administration, we provide a high-value proposition to our distribution relationships.

Products and Services

U.S. Insurance: Provides niche, specialty insurance products distributed through managing general agents (“MGAs”), wholesale agents, retail agents and brokers. We offer an array of commercial programs with a particular focus on casualty lines. These lines include professional liability, contractual liability, energy, allied health, general liability, directors and officers liability, life sciences, inland marine, contractors equipment, contractors liability, student legal liability, hospitality and business owner policy. We also offer a range of personal lines programs including storage unit contents, manufactured housing, GAP, auto, credit life and disability and collateral insurance products. Additionally, we offer related fee-earning, unregulated products and services, such as captive administration services, program administration and premium financing, to our U.S. Insurance customers. We are active in 50 states in the United States.

•Commercial Lines: Our business is focused on underwriting specialty commercial insurance coverages for agents, retail agents, MGAs, brokers and other program managers that require broad licensure, an “A-” or better A.M. Best rating, and specialized knowledge and expertise to deliver our products. Our commercial lines include a wide array of niche products, including admitted and excess and surplus (“E&S”) lines. With each program, we grant agents and program managers the authority to produce, underwrite and administer policies subject to our pricing and underwriting guidelines. We typically transfer a substantial portion of the underwriting risk to third-party reinsurers for which we are paid a ceding fee. We generally retain between 40-60% of the premium on a net basis.

•Personal Lines: Our personal lines offer a diverse set of specialty products including credit insurance, collateral insurance, non-standard auto and other niche personal lines. Credit insurance products offer consumers and lenders protection from life events that limit a borrower’s ability to make payments on outstanding loan balances. These products offer consumers and lenders the option to protect loan balance repayment in the event of death, involuntary unemployment or disability. Our collateral insurance products are designed to primarily protect the lender from losses to collateral pledged to secure an installment loan. In most instances, these products offer lenders the option to protect collateral from a comprehensive loss due to fire, wind, flood and theft. Additionally, if the collateral is an automobile, the coverage does protect against collision losses.

U.S. Warranty Solutions: Provides consumers with protection from certain covered losses on automobiles, mobile devices, consumer electronics, appliances and furniture in the United States. Our offerings include, but are not limited to, vehicle service contracts, roadside assistance and motor clubs, GAP, automobile dent and ding repair, key replacement, cellular handset protection

and service contracts on other consumer goods. We distribute our products through agents, retailers, auto dealerships and cell-phone carriers. We are active in 50 states in the United States.

Our service contract products and solutions provide consumers with coverage for specific losses to automobiles, recreation vehicles, mobile devices, consumer electronics, appliances and furniture and bedding. These products offer benefits such as replacement, service or repair coverage in the event of mechanical breakdown, accidental damage and water or spill damage. Some of our service contract products are extensions of coverage provided by their original equipment manufacturers. As part of our vertically integrated offering, we provide valuable services to our distribution partners including premium financing, lead generation support, insurance sales, and business process outsourcing.

Europe Warranty Solutions: Provides consumers with protection from certain covered losses on automobiles, mobile devices, consumer electronics, appliances and furniture in the European region. We offer a variety of programs, including GAP, VSCs, automobile dent and ding repair, tire and wheel protection, cellular handset protection, consumer products accidental damage and others. We distribute our programs through MGAs, retail agents and auto dealerships.

Our Competitive Strengths

Focus on Niche, Underserved Specialty Lines with Significant Fee-Based Income

We focus on specialty insurance business and have continued to diversify our revenues. We use three distinct approaches to grow our business: (i) we pursue and acquire agents with select books of business that we believe will maintain risk-appropriate rates; (ii) we seek agents with what we believe is distinct underwriting expertise to select specific niches; and (iii) we target the lines of business we believe are overlooked by the standard markets. For example, we often target the smaller premium-per-risk lines that we believe are highly profitable, have the potential to grow and are underserved by our competitors. We believe we have a unique ability to source small programs that meet our rate, form and risk threshold through our extensive distribution network and A.I. technology.

We believe our underwriting expertise, proprietary technology and deep distribution relationships allow us to serve our specialty markets and capture share. We cross-sell multiple products to our customers through the breadth of our products and solutions, including fee-based services. We believe the combination of a low limits profile, low severity products and attractive fee income provides higher underwriting margin and earnings stability for our business. While low limits and low severity constitute most of our underwritten business, we believe we are agile enough to take advantage of attractive opportunities in challenging market conditions. For the year ended December 31, 2021, Fortegra produced gross written premium and premium equivalents of $2,194 million, an increase from $963 million in 2017, representing a 23% compounded annual growth rate over the past five years.

Track Record of Growth, Profitable Underwriting and Strong Economic Alignment with Our Distribution Network

Consistent underwriting is a function of rate adequacy and risk selection by our specialized agents. While we regularly establish sound actuarial rates similar to our insurance peers, we believe our stringent risk selection requires unique underwriting expertise by our agents and a high degree of specialty underwriting skillsets. After we establish relationships with our targeted agents, we further solidify our alliance by creating additional value for our distribution partners through our technology platform. We believe our A.I. algorithm and machine learning assisted underwriting drives a distinct lead generation advantage for our agents. Using A.I. technology and machine learning, we identify risks that fit into an acceptable profile, enhancing the agent’s efficiency and revenue base while allowing us to experience what we believe is a superior spread of risk and exceptional underwriting results. For the year ended December 31, 2021, our combined ratio was 90.6% and has averaged 91.6% over the past five years.

Scalable, Proprietary Technology, Which Drives Efficiency and Delivers Premium Customer Service

We provide many aspects of insurance, including admitted specialty property-casualty products, E&S line offerings, administration, premium finance and other value-added services. We have a scalable and flexible technology infrastructure, together with highly trained and knowledgeable IT personnel and consultants. These resources allow us to launch new insurance and fee for service programs and expand gross written premiums and premium equivalents volume quickly and seamlessly without significant incremental expenses. Our technology also delivers low-cost, highly automated underwriting and administration services to our partners without substantial up-front investments. This technology-enhanced platform enables us to automate core business processes, reduce our operating costs, increase our operating efficiency and secure high agent retention. We have maintained a 95% persistency rate with our insurance producing agents over the past five years. Our underwriting expertise, strong distribution relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities in

challenging market conditions. Our systems also enable us to provide a high level of service to our distribution partners and customers through technology.

High-Quality, Conservative Balance Sheet with Solid Capitalization and Ratings

We maintain a high quality, S&P “AA+” rated, fixed income investment portfolio. Our investment portfolio’s principal objectives are to preserve capital and surplus, to maintain appropriate liquidity for corporate requirements, to support our strong ratings and to maximize returns. We have a track record of reducing our reinsurance counterparty exposure by partnering with reinsurers that have high-grade credit quality, ensuring high-quality recoverable assets and by effectively using collateral and partnering with producer owned reinsurance companies (“PORCs”). Our financial strength ratings of “A-” (Excellent) (Stable Outlook) from A.M. Best and “A-” (Stable Outlook) from KBRA reflect our adherence to our core values.

Distribution and Marketing

Our products are marketed and sold by agents and distribution partners. Our commercial and personal lines insurance products are marketed through a network of independent insurance agents, retailers, brokers and managing general agencies. Our partners that market and sell service contracts, collateral protection and credit insurance include financial services companies, big-box retailers, furniture stores, automobile dealerships, regional cellular service providers and mobile device service providers. Our service contract offerings are primarily marketed and sourced through insurance intermediaries including third-party administrators (“TPAs”), insurance brokers, MGAs and agents. Our vertically integrated platform also allows us to engage and enter into direct relationships with distributors. In each case, we pay our partners a commission-based fee (or a dealer net equivalent in the case of our service contract and protection product business).

We generally target markets that are niche and specialty in nature, which we believe are underserved by competitors and have high barriers to entry. We focus on establishing quality client relationships and emphasizing customer service. This focus, along with our ability to help clients enhance revenue and reduce costs, has enabled us to develop and maintain numerous long-term client relationships.

A significant portion of our marketing partnership commission agreements are on a variable or retrospective commission basis, which allows us to adjust commissions on the basis of claims experience. Under these types of arrangements, the compensation to our marketing partners is based upon the actual losses incurred compared to premiums earned. We believe these types of contractual arrangements align their economic interests with ours, help us to better manage our risk exposure and deliver more consistent profit margins with respect to these types of arrangements.

Underwriting

Our underwriting team consists of 90 underwriting professionals as of December 31, 2021. Our underwriters are industry veterans with deep knowledge of the specialty products that they underwrite, and they have longstanding relationships with our agents and distribution partners.

We give limited underwriting authority to our MGAs. This means that we give our MGAs quote, bind and policy issuance authority within specifically agreed underwriting guidelines. Our underwriters work with our MGA partners to develop the underwriting guidelines for each program. Exceptions to the underwriting guidelines require approval from a senior underwriter. Our portfolio of risk predominantly consists of business that is low severity and high frequency. Our underwriting team prices the business to a target margin, taking into account anticipated claims and administrative services. We believe our pricing encompasses prudent risk evaluation based on historical data, while remaining commercially competitive and sustainable. We believe our approach to risk selection, pricing and underwriting has contributed to our superior combined ratio, which has averaged 91.6% over the past five years.

Technology

Fortegra is a data driven, technology enabled insurance platform that uses technology to support the business strategy through: (i) the ability to effectively serve small policies in a cost efficient manner; (ii) the ability to generate business leads that fit our risk profile using A.I.; (iii) enhancing underwriting results, improving the experience of our distribution partners; and (iv) the ability to grow our business and add new product lines with minimal incremental expense.

Our integrated, proprietary technology efficiently manages the high volume of policies and claims that result from servicing large numbers of small policyholders and contract holders. Our technology is highly automated, scalable and allows us to operate at a

low cost. We believe this is a significant barrier to entry as many of our competitors have IT systems designed for larger policies, and do not have the ability to service a high volume of small policies in a cost efficient manner.

Through our A.I. algorithm and machine learning assisted underwriting, we provide qualified leads for new business to our agents. We gather proprietary customer performance data, correlated characteristics and macro-economic research to generate an ideal customer profile across our targeted business mixes. We then work with a third-party marketing consultant to translate the ideal customer profiles into a proprietary target customer list that can be shared with our agents. This both enhances the agent’s efficiency and revenue base while allowing us to experience a superior spread of risk.

Our flexible technology platform provides value-added services that we believe creates stronger relationships with our agents. In addition to the A.I. based lead generation service that we provide, our technology platform is connected to our agents and provides them with access to claims, research and reporting portals. We believe our technology makes it easier for agents to do business with us. These value-added services deepen our relationships and contribute to the high persistency rate with our agents.

Our technology infrastructure is scalable and affords us the opportunity to add new agents, distribution partners and services without significant additional expense.

Claims Management

We organize our claims department by lines of business, with specialized teams aligned by the line of business in which they have expertise. Each claims adjuster is trained and experienced in evaluating the coverage applicable to the noticed matter and effectuating an appropriate resolution. When an insured reports a claim, it is immediately directed to the proper unit for handling.

We maintain claims disposition authority for greater than 90% of claims adjudicated within the credit and service contract lines. We maintain claims disposition authority for greater than 70% of claims adjudicated within the property and casualty lines. When necessary, the claims team has access to a panel of expert attorneys, mediators, investigators and independent adjusters who will be retained in connection with litigation or loss inspection. Our claims adjusters work closely with our underwriting team by keeping them apprised of loss trends early in a program’s development. For certain lines of business that have high frequency and low severity, we utilize TPAs to process claims. This allows our claims professionals to focus on more complex claims, and enhances the efficiency of our claims department. Our MGAs do not have claims authority and the TPAs that we use do not have underwriting authority.

Our claims are generally reported and settled quickly, resulting in consistent historical loss development patterns and limited tail risk. We have data systems that allow for the centralization of data and creation of reports, which creates a management reporting tool allowing for the identification of trends within a product, specific jurisdiction or across multiple jurisdictions.

Investments

We invest in asset classes that we believe will maintain liquidity and support capital preservation while producing attractive risk-adjusted returns. Most of these securities are invested in short-duration fixed income securities that are both highly liquid and highly rated. Our fixed maturity securities totaled $767 million and include cash and cash equivalents, available for sale securities, at fair value, exchange traded funds and investment grade securities classified in other investments, had a weighted-average effective duration of 2.6 years, an average S&P rating of AA+, and a book yield of 1.3% as of December 31, 2021. These securities, representing 84% of our total investments, are primarily managed by BlackRock with direction from internal asset management professionals. We internally manage credit risk assets, equities and alternative assets, which represented 16% of total investments as of December 31, 2021. We conduct monthly stress tests and use predictive analytics to manage our investments, which we believe reduces risk to our investment performance. We also maintain an investment committee that meets monthly to ensure our investment objectives remain aligned with our broader strategic and financial objectives.

Risk Management and Reinsurance

Consistent with standard industry practice for most insurance companies, we use reinsurance to manage our underwriting risk and efficiently utilize capital. In our commercial insurance lines, our reinsurers tend to be highly rated, well-capitalized professional third-party reinsurers. We typically contract with third-party reinsurers that have attained an “A-” or better financial strength rating from A.M. Best. Those reinsurers that fall below this threshold are required to post collateral on a funds held basis or with a letter of credit. A significant portion of our distribution partners of credit and service contract insurance products have captive reinsurance companies to assume the insurance risk on the products they deliver. These captive reinsurance companies are known as PORCs and in most instances each PORC assumes almost all of the underwriting risk associated with the insurance products

they deliver. When we use PORCs, consistent with applicable laws and insurance regulations, we act in a fronting and administrative capacity on behalf of each PORC, providing underwriting and claims management services. We receive an administration fee that compensates us for our expenses associated with underwriting and servicing the underlying policies. Because reinsurance does not relieve us of our primary liability to the policyholder, we generally require cash collateral to secure the reinsurance receivable in the event that a PORC is unable to pay the claims it has assumed.

Market Opportunity

Commercial Lines

We underwrite and administer both admitted and E&S business. We believe underwriting business across multiple industries and geographies creates a conducive environment for targeting profitable programs, supporting agents with highly specialized skillsets and focusing on overlooked business lines. Our approach facilitates participation in niche markets when the rate environment presents actionable opportunities. We believe the breadth of our underwriting capacity, services and expertise afford our agents with a platform that meets the entirety of their needs. Our risk-sharing model aligns agents’ economics to their underwriting performance, incentivizing agents to grow while maintaining strict profit margin discipline. Through long-term relationships with our agents and substantial experience in the markets we serve, we believe we operate in an advantageous position against new market entrants, who we believe would find it time-consuming and expensive to compete against or replicate our success. Our commercial lines gross written premiums (including E&S lines) grew to $656.6 million in the year ended December 31, 2021, compared to $469.8 million in the year ended December 31, 2020, an increase of 39.7%.

Personal Lines

We are a leading provider of credit insurance and collateral protection products in the United States and believe we are well positioned to increase our market share both organically and potentially through acquisition. We believe our capabilities and reputation have allowed us to better position ourselves competitively for new business and renewals in the marketplace. We also believe our market position, capabilities and reputation will make us a preferred acquisition partner for smaller competitors that may choose to exit the market or desire a partner with more resources. Our personal lines gross written premiums grew to $781.8 million in the year ended December 31, 2021, compared to $593.9 million in the year ended December 31, 2020, an increase of 31.6%.

U.S. Warranty Solutions

We believe we can significantly increase our market presence in the service contract sector. We entered the service contract market as a natural extension of our insurance products given that it possesses similar attributes and distribution channels. Our service contract gross written premium equivalents grew to $652.1 million in the year ended December 31, 2021, compared to $550.0 million in the year ended December 31, 2020, an increase of 18.6%. We believe the demand from consumers for extended service contracts on products such as automobiles, furniture, mobile phones and electronics will continue to drive long-term growth opportunities.

Europe Warranty Solutions

In 2018, we expanded into Europe where we believe our existing protection solutions and service contract offerings can be successfully distributed while maintaining similar levels of historical underwriting performance. Our European gross written premiums and equivalents grew to $103.6 million in the year ended December 31, 2021, compared to $53.2 million in the year ended December 31, 2020, an increase of 94.6%.

Competition

We operate in several markets, and believe that no single company competes against us in all of our business lines. We may compete with other specialty carriers or program managers within a given program, but no specific insurers can be identified as clear competition across all of our business lines. Within the United States, we compete with specialty insurers like Markel Corporation, RLI Corporation and Clear Blue Insurance Group. We also compete with larger insurance companies that may selectively underwrite specialty or credit lines such as AIG and Allianz SE. Within our U.S. and European Warranty Solutions lines of business, we compete with Assurant, Securian Financial, Great American, Asurion, LLC, AmTrust Financial, SquareTrade Inc., Allianz SE, Helvetia Insurance and AXA SA. These lists are not exhaustive and are constantly evolving as we and our competitors expand coverages.

In general, the insurance markets we operate in are highly competitive. The competition we face is due to a confluence of factors, including product pricing, industry knowledge and expertise, quality of customer service, effectiveness of distribution channels, technology platforms and underwriting processes, the quality of information systems, financial strength ratings, size, breadth of products offered, overall reputation, and other factors. We primarily compete by leveraging our proprietary technological platform, decades of underwriting expertise, robust distribution relationships, data-driven marketing initiatives, our “agent-first” mentality, and best-in-class reputation.

Regulation

We are subject to federal, state, local and foreign regulation and supervision. Our insurance subsidiaries are generally restricted by the insurance laws of their respective domiciles as to the amount of dividends they may pay without the prior approval of the respective regulatory authorities. Generally, the maximum dividend that may be paid by an insurance subsidiary during any year without prior regulatory approval is limited to a stated percentage of that subsidiary’s statutory surplus as of a certain date, or net income of the subsidiary for the preceding year.

Our U.S. insurance company subsidiaries are domiciled in several states, including Arizona, California, Delaware, Georgia, Kentucky and Louisiana. The regulation, supervision and administration by state departments of insurance relate, among other things, to: standards of solvency that must be met and maintained, restrictions on the payment of dividends, changes in control of insurance companies, the licensing of insurers and their agents and other producers, the types of insurance that may be written, privacy practices, the ability to enter and exit certain insurance markets, the nature of and limitations on investments and premium rates, or restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, payment of sales compensation to third parties, approval of policy forms and the regulation of market conduct, including underwriting and claims practices. As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed financial examinations of the books, records, accounts and operations of insurance companies that are domiciled in their states.

Our insurance company subsidiaries are also subject to certain state regulations that define eligible investments and establish diversification requirements and concentration limits among asset classes. Failure to comply with these regulations would cause non-conforming investments to be treated as non-admitted assets in the states in which we are licensed to sell insurance policies for purposes of measuring statutory surplus and, in some instances, would require us to sell those investments. Such investment laws are generally permissive with respect to federal, state and municipal obligations, and more restrictive with respect to corporate obligations, particularly non-investment grade obligations, foreign investment, equity securities and real estate investments. Each insurance company is therefore limited by the investment laws of its state of domicile from making excessive investments in any given security (such as single issuer limitations) or in certain classes or riskier investments (such as aggregate limitation in non-investment grade bonds).

The NAIC provides model insurance laws and regulations for adoption by the states and standardized insurance industry accounting and reporting guidance. However, model insurance laws and regulations only become effective when adopted and enacted by the states, and statutory accounting and reporting principles continue to be established by individual state laws, regulations and permitted practices. The NAIC has adopted a model act with risk-based capital (“RBC”) formulas to be applied to insurance companies to measure the minimum amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. State insurance regulators use RBC standards as a tool to monitor capital adequacy and to determine appropriate actions relating to insurers that show signs of weak or deteriorating conditions. The domiciliary states of our insurance company subsidiaries have adopted laws substantially similar to the NAIC’s RBC model act.

Our insurance holding company is subject to the respective state insurance holding company statutes which may require prior regulatory approval or non-disapproval of material transactions between an insurance company and an affiliate or of an acquisition of control of a domestic insurer and payments of extraordinary dividends or distributions.

Our insurance and service contract businesses are subject to U.S. federal and state regulations governing the protection of personal confidential information and data security, including the Gramm-Leach-Bliley Act, New York Department of Financial Services Cybersecurity Regulation and California Consumer Privacy Act. Our subsidiaries operating in the EU are subject to the General Data Protection Regulation, or the “GDPR,” which regulates data protection for all individuals within the EU.

A portion of our foreign business is conducted via our insurance company in Malta. Malta is a member country of the EU, and we are active in fourteen countries in the EU, plus the United Kingdom. The EU’s executive body, the European Commission, implemented insurance directives and capital adequacy and risk management regulations. EU member countries follow the insurance directives approved by the European Commission. The insurance directives set forth a regulatory regime for the authorization and supervision of insurers, with a minimum set of rules and standards for protecting policyholders across the EU.

These directives give insurers authorized in any one EU country or territory the freedom to conduct insurance business in any other EU country or territory, referred to as passporting. Procedures are in place regarding the notifications and approvals by the home state regulator for passporting. Insurers exercising this freedom continue to be regulated by their home state regulator, although the host state is entitled to impose domestic rules with which passporting insurers are required to follow for their business in the host state, in the interest of the general good. Within this context, our Malta company is authorized and supervised by the Malta Financial Services Authority (“MFSA”) and passports across EU member states.

In addition to the regulation of authorization and distribution, the European Commission established capital adequacy and risk management regulations, called Solvency II, that apply to businesses within the EU. Solvency II includes capital requirements, risk management and corporate governance frameworks, and financial reporting requirements, which are subject to MFSA regulatory oversight.

Even though the United Kingdom exited the EU, United Kingdom insurance regulation generally follows the same insurance directives and Solvency II principles. After Brexit, United Kingdom regulators established the Temporary Permissions Regime, which permits passporting insurers to continue operating in the United Kingdom for up to three years post-Brexit. We are active in and subject to regulation in the United Kingdom. Our Malta company was passporting into the United Kingdom prior to Brexit and registered to operate under the Temporary Permissions Regime until permanent authority is granted by United Kingdom regulators. Aspects of the relationship between the United Kingdom and the EU remain to be negotiated and their relationship will continue to evolve, including with respect to the cross-border provision of products and services and related compliance requirements. Post-transition period changes to the EU and United Kingdom legal, trade and regulatory frameworks, as well as changes to United Kingdom regulatory requirements for insurers operating in that host country, could increase our compliance costs and subject us to operational challenges in the region.

Additionally, a portion of our US and EU business is also ceded to our reinsurance company subsidiary domiciled in Turks and Caicos. Our Turks and Caicos company is subject to Solvency II type of regulation by the domestic regulator.

We are also subject to federal and state laws and regulations related to the administration of insurance products on behalf of other insurers. In order for us to process and administer insurance products of other companies, we are required to maintain licenses of a third-party administrator in the states where those insurance companies operate. We are also subject to the related federal and state privacy laws and must comply with federal and state data protection and privacy laws.

Seasonality

Our financial results historically have been, and we expect to continue to be, affected by seasonal variations. Revenues may fluctuate seasonally based on consumer spending, which has historically been higher in September and December, corresponding to auto-sales events and the back-to-school and holiday seasons. Accordingly, our revenues have historically been higher in the third and fourth quarters than in the first half of the year.

Intellectual Property

We own or license a number of trademarks, patents, trade names, copyrights, service marks, trade secrets and other intellectual property rights that relate to our services and products within the various jurisdictions we operate. Although we believe that these intellectual property rights are, in the aggregate, important to our business, we also believe that our business is not materially dependent upon any particular trademark, trade name, copyright, service mark, license or other intellectual property right. Additionally, our insurance subsidiaries have entered into confidentiality agreements with their clients that impose restrictions on client use of our proprietary software and other intellectual property rights.

Employees

As of December 31, 2021, Fortegra had 778 employees across 15 offices in four countries.

Tiptree Capital

We own a diversified group of investments that are owned and managed separately as Tiptree Capital, and include our Mortgage segment operations. Consistent with our operating principles, we manage Tiptree Capital with a long-term focus, balancing current cash flow and long-term value appreciation.

We expect the investments within Tiptree Capital to change over time as we exit investments and reallocate capital to new investment opportunities. Though we do not have any specific sector focus, historically, the majority of our investments have occurred within four major sectors: asset management, real assets, specialty finance and credit investments.

Tiptree Capital – Mortgage Operations

Our mortgage operations are conducted through Reliance First Capital, LLC. Our mortgage business has been focused on primarily originating and servicing agency-eligible (Federal Housing Administration (“FHA”) and Veterans Administration (“VA”)) and conventional loans that can be transferred to Government National Mortgage Association (“Ginnie Mae”) pools or sold on a servicing-retained or servicing-released basis to Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) or secondary market investors and aggregators. Revenues are primarily generated from gain on sale income, loan fee income, servicing fee income, and net interest income. The growth in our mortgage business is expected primarily to come from increased origination volume, retention of additional mortgage servicing rights, and new products.

Competition

The residential mortgage market is highly competitive. There are a large number of institutions offering these products, including many that operate on a national scale, as well as local savings banks, commercial banks, and other lenders. Many of our competitors are larger and have access to greater financial resources. In addition, many of the largest competitors are banks or are affiliated with banking institutions, the advantages of which include, but are not limited to, having access to financing with more favorable terms, including lower interest rate bank deposits as a favorable source of funding.

Regulation

We are subject to extensive regulation by federal, state and local governmental authorities, including the CFPB, the Federal Trade Commission and various state agencies that license, audit and conduct examinations. Our mortgage operations must comply with a number of federal, state and local consumer protection and privacy laws including laws that apply to loan origination, fair lending, debt collection, use of credit reports, safeguarding of non-public personally identifiable information about customers, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to borrowers.

Employees

At December 31, 2021, our Mortgage operations had 442 employees.

Tiptree Capital - Other

Tiptree Capital - Other currently includes:

•Our investment holdings in the maritime transportation sector, primarily in dry bulk vessels and product tankers that transport commodities, such as coal, grains and clean petroleum products.

•Our share holdings of Invesque, a publicly traded real estate investment company that specializes in health care and senior living property investment throughout North America.

•Our ownership of Corvid Peak, a credit oriented, special situations asset manager.

•Our held for sale mortgage originator, Luxury Mortgage.

Competitive Strengths

The depth and breadth of experience of our management team enables us to source, structure, execute and manage the capital allocated to Tiptree Capital. In addition, in each of our investments, we benefit by partnering with experienced management teams and third-party managers, which we have hired or chosen based on their depth of experience in their respective sectors.

Competition

In the sectors in which Tiptree Capital participates, the markets are highly competitive. There are a large number of competitors offering similar products and services, including many that operate on an international scale, and which are often affiliated with

major multi-national companies. Many of these organizations have substantially more personnel and greater financial and commercial resources than we do. Some of these competitors have proprietary products and distribution capabilities that may make it more difficult for us to compete with them. Some competitors also have greater name recognition, have managed their businesses for longer periods of time, have greater experience over a wider range of products or have other competitive advantages.

Regulation

In the sectors in which Tiptree Capital participates, we are subject to extensive regulation by international, federal, state and local governmental authorities, including the SEC, the Federal Trade Commission, the EU, the UK and various state agencies. Our asset manager is registered with the SEC as an investment advisor and is subject to various federal and state laws and regulations and rules of various securities regulators and exchanges. These laws and regulations primarily are intended to protect clients and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations.

Our investments in maritime transportation are regulated under international conventions, classification societies, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, that mandate safety and environmental protection policies. Government regulation of vessels, particularly environmental regulations, have become more stringent and may require us to incur significant capital expenditures on our vessels. Our international operations and activities also expose us to risks associated with trade and economic sanctions, prohibitions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other penalties. In our international activities, we are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. We operate in countries known to present heightened risks for corruption, and our dry bulk shipping and related operations requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs officials and pilots.

Employees

At December 31, 2021, Tiptree Capital - Other’s combined operations had 231 employees.

Human Capital

The success of our businesses depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about their industry and business. We recruit talent in diverse communities. Tiptree’s seven member board of directors includes two women and one underrepresented minority. Tiptree’s seven person senior management team includes two women and one underrepresented minority. Our talent strategy is focused on employee engagement and investments in programs to support career development, as well as recognizing and rewarding performance. An important element of our talent strategy is succession planning and building leadership at various levels across the organization.

We strive to:

•Provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

•Align executives’ long-term equity compensation with stockholders’ interests by linking realizable pay with earnings and total stockholder return.

•Ensure that annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through their talent management process as part of the annual review procedures and upon internal transfer and/or promotion.

•Ensure that all employees are eligible for health insurance, paid and unpaid leaves, and life and disability/accident coverage as well as access to wellness programs.

The Fortegra Foundation, a non-profit corporation chaired by Fortegra’s Chief Executive Officer, Mr. Richard S. Kahlbaugh, is a 501(c)(3) tax-exempt charity committed to giving back to our communities by lending a helping hand to those in need. We undertake multiple initiatives to support military families and local charities focused on the health and welfare of children and families. We also support clean water initiatives in Africa. Fortegra N.O.W. (Network of Women) is working to ensure equal access to leadership positions in the insurance industry regardless of gender or race. This is being accomplished through

unconscious bias training, mentoring programs, education reimbursement, and policies that support work/life balance and equal pay for equal jobs. This group is led by female executives at Fortegra. The programming and resources provided are available to all Fortegra employees.

At Fortegra, we have developed an education program that assists employees in developing key skills that enable them to perform their jobs and to advance their careers. We also have a Leadership Development Program (“LDP”) that identifies new talent and prepares them for success within the organization. The program hires recent college graduates who will typically rotate through several departments over a two-year period, becoming fully immersed in the insurance company’s business. Our goal for successful LDP participants is to hire them on a full time basis upon completion of the program.

We invest in our employees’ career growth and provide employees with a wide range of training and development opportunities, including face-to-face, virtual and self-directed learning, mentoring, external development opportunities and continuing education required by certain professional organizations.

AVAILABLE INFORMATION

We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available free of charge on our Internet site at www.tiptreeinc.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.

Our Investor Relations Department can be contacted at Tiptree Inc., 299 Park Avenue, 13th Floor, New York, NY, 10171, Attn: Investor Relations, telephone: (212) 446-1400, email: IR@tiptreeinc.com.

Item 1A. Risk Factors

We are subject to certain risks and uncertainties in our business operations which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are not presently known or are currently deemed immaterial may also impair our business, results of operations and financial condition.

Risks Related to our Businesses

A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable prices or at all and creates uncertainty in connection with valuing such assets.

Our assets include equity securities, real estate, dry-bulk vessels and product tankers, non-controlling interests in credit assets and related equity interests which may be illiquid or have limited liquidity. It may be difficult for us to dispose of assets with limited liquidity rapidly, or at favorable prices, if at all. In addition, assets with limited liquidity may be more difficult to value and may be sold at a substantial discount or experience more volatility than more liquid assets. We may not be able to dispose of assets at the carrying value reflected in our financial statements. Our results of operations and cash flows may be materially and adversely affected if our determinations regarding the fair value of our illiquid assets are materially higher than the values ultimately realized upon their disposal.

Our investment in Invesque shares is subject to market volatility.

As of December 31, 2021, we owned 16.98 million shares, or approximately 30%, of Invesque, a real estate investment company that specializes in health care real estate and senior living property investment throughout North America. The value of our Invesque shares is reported at fair market value on a quarterly basis and fluctuates. A loss in the fair market value of our Invesque shares could have a material adverse effect on our financial condition and results of operations. To the extent we determine to sell all or a portion of our Invesque shares, there can be no assurance that we will be able to do so on a timely basis or at acceptable prices.

We operate in highly competitive markets for business opportunities and personnel, which could impede our growth and negatively impact our results of operations.

We operate in highly competitive markets for business opportunities in each of our areas of focus. Many of our competitors have financial, personnel and other resource advantages relative to us and may be better able to react to market conditions. These factors may place us at a competitive disadvantage in successfully competing for future business opportunities and personnel, which could impede our growth and negatively impact our business, financial condition and results of operations.

Our insurance subsidiaries face competition from other specialty insurance companies, standard insurance companies and underwriting agencies, as well as from diversified financial services companies that are larger than we are and that have greater financial, marketing, personnel and other resources than we do. Many of these competitors have more experience and market recognition than our insurance subsidiaries. In addition, it may be difficult or prohibitively expensive for our insurance subsidiaries to implement technology systems and processes that are competitive with the systems and processes of these larger companies.

In particular, competition in the insurance industry is based on many factors, including price of coverage, general reputation and perceived financial strength, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of an underwriting team in the particular lines of insurance they seek to underwrite. In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition.

A number of new, proposed or potential legislative or industry developments could further increase competition in the insurance industry. These developments include:

•an increase in capital raising by companies in the industry, which could result in new entrants to the insurance markets and an excess of capital in the industry; and

•the deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers.

Our insurance subsidiaries may not be able to continue to compete successfully in one or more insurance markets. Increased competition in these markets could result in a change in the supply and demand for insurance, affect our insurance subsidiaries’ ability to price their products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition limits our insurance subsidiaries’ ability to transact business, their results of operations would be adversely affected.

Failure to consummate the proposed WP Transaction could have a material adverse impact on our business, financial condition and results of operations, and if the proposed WP Transaction is consummated, Warburg Pincus may exert substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s shareholders’ interests.

The consummation of the proposed WP Transaction is subject to the satisfaction or waiver of specified closing conditions, including filings with, and approvals from, insurance and other relevant regulatory agencies. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all.

A failed transaction may result in negative publicity and a negative impression of us in the investment community or business community generally. We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed WP Transaction, for which we will have received little or no benefit if the proposed WP Transaction is not completed.

If the WP Transaction is consummated, Warburg Pincus would acquire an approximate 24% ownership in Fortegra on an as converted basis from us and would have contractual consent rights over Fortegra, including but not limited to certain acquisitions or dispositions, a sale or change of control of Fortegra that does not achieve certain thresholds, an initial public offering that does not achieve certain gross proceeds thresholds, incurrence of certain indebtedness, the issuance of equity senior in right to shares of Fortegra common or preferred stock, or amendments to the terms thereof, affiliated or related party transactions and transactions between Fortegra and us, any hiring or firing of certain management of Fortegra, and any material change in the nature of the business conducted by Fortegra. Warburg Pincus would also have pro rata representation on the Fortegra board of directors. As a result of their substantial ownership in Fortegra if the WP transaction in consummated, Warburg Pincus may exert a substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s shareholder’s interests.

We are exposed to risks associated with acquiring or divesting businesses or business operations.

We regularly evaluate strategic acquisition opportunities for growth. Acquired companies and operations may have unforeseen operating difficulties and may require greater than expected financial and other resources. In addition, potential issues associated with acquisitions, including Smart AutoCare, could among other things, include:

•our ability to realize the full extent of the benefits, synergies or cost savings that we expect to realize as a result of the completion of an acquisition within the anticipated time frame, or at all;

•receipt of necessary consents, clearances and approvals in connection with the acquisition;

•diversion of management’s attention from other strategies and objectives;

•motivating, recruiting and retaining executives and key employees; and

•conforming and integrating financial reporting, standards, controls, procedures and policies, business cultures and compensation structures.

If an acquisition is not successfully completed or integrated into our existing operations, our business, results of operations and financial condition could be materially adversely effected.

We have also divested, and may in the future divest, businesses or business operations. Any divestitures may involve a number of risks, including the diversion of management’s attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of the affected business or business operations. Failure to timely complete or to consummate a divestiture may negatively affect the valuation of the affected business or business operations or result in restructuring charges.

We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no assurance that such capital will be available on a timely basis, on acceptable terms or at all.

We may need to raise additional funds or refinance our indebtedness in order to grow our business or fund our strategy or acquisitions. Additional financing may not be available in sufficient amounts, if at all, or on terms acceptable to us and may be dilutive to existing stockholders. Additionally, any securities issued to raise such funds may have rights, preferences and privileges

senior to those of our existing stockholders. We also cannot predict the extent and duration of future economic and market disruptions, the impact of government interventions into the market to address these disruptions and their combined impact on our industries, businesses and our insurance subsidiaries’ investment portfolios. If adequate funds are not available on a timely basis, if at all, or on acceptable terms, our ability to expand, develop or enhance our subsidiaries’ services and products, enter new markets, consummate acquisitions or respond to competitive pressures could be materially limited.

The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to factors outside of our control.

Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease depending on a variety of factors, most of which are outside our control, such as the amount of statutory income or losses generated, changes in equity market levels, the value of fixed-income and equity securities in the subsidiary’s investment portfolio, changes in interest rates and foreign currency exchange rates, as well as changes to the RBC formulas used by insurance regulators. The laws of the various states in which our insurance subsidiaries operate establish insurance departments and other regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some or all of these activities or otherwise fine or penalize our insurance subsidiaries in any jurisdiction in which we operate. Such regulation or compliance could reduce our insurance subsidiaries’ profitability or limit their growth by increasing the costs of compliance, limiting or restricting the products or services they sell, or the methods by which they sell services and products, or subject them to the possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory reserves that our insurance subsidiaries are required to hold could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to establish additional reserves that may materially and adversely affect their business, results of operations and financial condition.

Our insurance subsidiaries maintain reserves to cover their estimated ultimate exposure for claims with respect to reported claims, and incurred, but not reported, claims as of the end of each accounting period. Reserves, whether calculated under GAAP or statutory accounting principles, do not represent an exact calculation of exposure. Instead, they represent our insurance subsidiaries’ best estimates, generally involving actuarial projections, of the ultimate settlement and administration costs for a claim or group of claims, based on our assessment of facts and circumstances known at the time of calculation. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by external factors such as changes in the economic cycle, unemployment, inflation, judicial trends, legislative changes, as well as changes in claims handling procedures. Many of these items are not directly quantifiable, particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of operations of the period in which such estimates are updated. Because the establishment of reserves is an inherently uncertain process involving estimates of future losses, we can give no assurances that ultimate losses will not exceed existing claims reserves. In general, future loss development could require reserves to be increased, which could have a material adverse effect on our insurance subsidiaries’ business, results of operations and financial condition.

Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks.

Our insurance subsidiaries’ results of operations depend significantly on the performance of their investment portfolio. We manage our insurance subsidiaries’ portfolio of investments along with one or more additional advisers. Such investments are subject to general economic conditions and market risks in addition to risks inherent to particular securities and risks relating to the performance of our investment advisers.

Our primary market risk exposures are to changes in interest rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.” In recent years, interest rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure on our insurance subsidiaries’ net investment income, which, in turn, would have a material adverse effect on our profitability. Future increases in interest rates could cause the values of our insurance subsidiaries’ fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our insurance subsidiaries’ portfolio and the amount by which interest rates increase. Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage backed and asset backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.

The value of our insurance subsidiaries’ investment portfolio is also subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities our insurance subsidiaries’ hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities may also have a significant negative effect on the market valuation of such securities.

Such factors could reduce our insurance subsidiaries’ net investment income and result in realized investment losses. Our insurance subsidiaries’ investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities our insurance subsidiaries’ hold in their portfolio does not reflect prices at which actual transactions would occur.

The performance of our insurance subsidiaries’ investments also depends heavily on our skills and those of our insurance subsidiaries’ other investment advisers, in analyzing, selecting and managing the investments. Our insurance subsidiaries’ investment policy establishes investment parameters such as maximum percentages of investment in certain types of securities and minimum levels of credit quality and is designed to manage investment risk. Achievement of our insurance subsidiaries’ investment objectives will depend, in part, on our ability and other investment advisers’ ability to provide competent, attentive and efficient services to our insurance subsidiaries’ portfolio under the terms of the respective investment management agreement and to successfully manage their investment risk. There can be no assurance that, over time, we or our insurance subsidiaries’ other investment advisers will be able to provide services on that basis or that we or they will be able to invest such assets on attractive terms or generate any investment returns for stockholders or avoid investment losses. Our insurance subsidiaries’ investment objectives may not be achieved and results may vary substantially over time. In addition, although we and our insurance subsidiaries’ other investment advisers seek to employ investment strategies that are not correlated with our insurance subsidiaries’ insurance and reinsurance exposures, losses in their investment portfolio may occur at the same time as underwriting losses.

Our insurance subsidiaries’ portfolio is highly dependent on the financial and managerial experience of certain investment professionals associated with our insurance subsidiaries’ investment advisers, none of whom are under any contractual obligation to our insurance subsidiaries to continue to be associated with such investment advisers. The loss of one or more of these individuals could have a material adverse effect on the performance of our insurance subsidiaries’ investment portfolio.

A shift in our insurance subsidiaries’ investment strategy could increase the riskiness of our insurance subsidiaries’ investment portfolio and the volatility of our results, which, in turn, may have a material adverse effect on our profitability.

Our insurance subsidiaries’ investment strategy has historically been largely focused on fixed income securities which are subject to less volatility but also lower returns as compared to certain other asset classes. In the future, our insurance subsidiaries’ investment strategy may include a greater focus on investments in equity securities, which are subject, among other things, to changes in value that may be attributable to market perception of a particular issuer or to general stock market fluctuations that affect all issuers. Investments in equity securities may be more volatile than investments in other asset classes such as fixed income securities. Common stocks generally subject their holders to more risks than preferred stocks and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of the issuer. An increase in the riskiness of our insurance subsidiaries’ investment portfolio could lead to volatility of our results, which, in turn, may have a material adverse effect on our profitability.

Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements.

Our insurance subsidiaries invest the premiums they receive from their insureds until they are needed to pay policyholder claims. Consequently, our insurance subsidiaries seek to manage the duration of their investment portfolio based on the duration of their losses and loss adjustment expenses reserves to ensure sufficient liquidity and avoid having to liquidate investments to fund claims. Risks such as inadequate losses and loss adjustment expenses reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. Our insurance subsidiaries may not be able to sell their investments at favorable prices or at all. Sales could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities.

Cybersecurity attacks, technology breaches or failures of our or our third-party service providers’ information systems could disrupt our various business operations and could result in the loss of critical and personally identifiable information, which could result in the loss of reputation and customers, reduce profitability, subject our businesses to fines, penalties and litigation and have a material adverse effect on our business’s results of operation, financial condition and cash flows.

Tiptree’s businesses are highly dependent upon the effective operation of their information systems and those of their third-party service providers and their ability to collect, use, store, transmit, retrieve and otherwise process personally identifiable information and other data, manage significant databases and expand and upgrade their information systems. Our businesses rely on these systems for a variety of functions, including marketing and selling their products and services, performing their services, managing their operations, processing claims and applications, providing information to customers, performing actuarial analyses and maintaining financial records. Some of these systems may include or rely on third-party systems not located on their premises or under their control. The interruption or loss of their information processing capabilities, or those of their third-party service providers, through cybersecurity attacks, computer hacks, theft, malicious software, phishing, employee error, ransomware, denial-of-service attacks, viruses, worms, other malicious software programs, the loss of stored data, programming errors, the breakdown or malfunctioning of computer equipment or software systems, telecommunications failure or damage caused by weather or natural disasters, catastrophes, terrorist attacks, industrial accidents or any other significant disruptions or security breaches could harm our businesses by hampering their ability to generate revenues and could negatively affect their partner relationships, competitive position and reputation.

In addition, our business’s information systems may be vulnerable to physical or electronic intrusions, computer viruses or other attacks which could disable their information systems and their security measures may not prevent such attacks. There are numerous and evolving risks to cybersecurity and privacy from cyber threat actors, including criminal hackers, state-sponsored intrusions, industrial espionage and employee malfeasance. Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (“IT”) systems and those of our business partners or third-party service providers to sophisticated and targeted measures known as advanced persistent threats. These cyber threat actors are becoming more sophisticated and coordinated in their attempts to access IT systems and data, including the IT systems of cloud providers and third parties with whom our businesses conduct or may conduct business. Although our businesses devote significant resources to prevent, detect, address and mitigate unwanted intrusions and other threats and protect their systems and data, whether such data is housed internally or by external third parties, such internal controls may not be adequate or successful in protecting against all security breaches and cybersecurity attacks, social-engineering attacks, computer break-ins, theft and other improper activity. Our businesses have experienced immaterial cybersecurity incidents and they and their third-party service providers will likely continue to experience cybersecurity incidents of varying degrees. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, our businesses and the third parties with whom they do business may be unable to anticipate these techniques or to implement adequate preventative measures. With the increasing frequency of cyber-related frauds to obtain inappropriate payments and other threats related to cybersecurity attacks, our businesses may find it necessary to expend resources to remediate cyber-related incidents or to enhance and strengthen their cybersecurity. Such remediation efforts may not be successful and could result in interruptions, delays or cessation of service.

Our businesses have also implemented physical, administrative and logical security systems with the intent of maintaining the physical security of their facilities and systems and protecting their and their customers’ confidential and personally identifiable information against unauthorized access through their information systems or by other electronic transmission or through misdirection, theft or loss of data. Despite such efforts, they may be subject to a breach of their security systems that results in unauthorized access to their facilities or the information they are trying to protect. Anyone who is able to circumvent their security measures or those of their third-party service providers and penetrate their information systems could access, view, misappropriate, alter, destroy, misuse or delete any information in such systems, including personally identifiable information and proprietary business information (their own or that of third parties) or compromise of their control networks or other critical systems and infrastructure, resulting in disruptions to their business operations or access to their financial reporting systems. While our businesses have implemented business contingency plans and other reasonable plans to protect their systems, sustained or repeated system failures or service denials could severely limit their ability to write and process new and renewal business, provide customer service or otherwise operate in the ordinary course of business. In addition, most states require that customers be notified if a security breach results in the disclosure of personally identifiable customer information and the trend toward general public notification of such incidents could exacerbate the harm to our companies’ business, financial condition and results of operations. Any failure, interruption or compromise of the security of our business’s information systems or those of their third-party service providers that result in inappropriate disclosure of such information could result in, among other things, significant financial losses, unfavorable publicity and damage to their reputation, governmental inquiry and oversight, difficulty in marketing their services, loss of customers, significant civil and criminal liability related to legal or regulatory violations, litigation and the incurrence of significant technical, legal and other expenses, any of which may have a material adverse effect on their business, results of operations, financial condition and cash flows.

In some cases, our businesses rely on the safeguards put in place by third parties to protect against security threats. These third parties, including vendors that provide products and services for their operations, could also be a source of security risk to them in the event of a failure or a security incident affecting such third parties’ own security systems and infrastructure. Our

business’s network of ecosystem partners could also be a source of vulnerability to the extent their applications interface with our businesses, whether unintentionally or through a malicious backdoor. Our businesses do not review the software code included in third-party integrations in all instances.

Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents and retailers for distribution of its products and services, and the loss of these distribution sources, or their failure to sell our insurance business’s products and services could materially and adversely affect its business, results of operations and financial condition and cash flows.

Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents and retailers to distribute its products and services and its revenue is dependent on the level of business conducted by such distributors as well as the effectiveness of their sales efforts, each of which is beyond our insurance business’s control because such distributors typically do not have any minimum performance or sales requirements. Further, although its contracts with these distributors are typically exclusive, they can be canceled on relatively short notice. Therefore, our insurance business’s growth is dependent, in part, on its ability to identify and attract new distribution relationships and successfully integrate its information systems with those of its new distributors. The impairment of our insurance business’s distribution relationships, the loss of a significant number of its distribution relationships, the failure to establish new distribution relationships, the failure to offer increasingly competitive products, the increase in sales of competitors’ services and products by these distributors or the decline in distributors’ overall business activity or the effectiveness of their sales of our insurance business’s products could materially reduce our insurance business’s sales and revenues and have a material adverse effect on its business, results of operations, financial condition and cash flows.

Our insurance business may lose clients or business as a result of consolidation within the financial services industry or otherwise.

There has been considerable consolidation in the financial services industry, driven primarily by the acquisition of small and mid-size organizations by larger entities. We expect this trend to continue. Our insurance business may lose business or suffer decreased revenues if one or more of its significant clients or distributors consolidate or align themselves with other companies. While our insurance business has not been materially affected by consolidation to date, it may be affected by industry consolidation that occurs in the future, particularly if any of its significant clients are acquired by organizations that already possess the operations, services and products that it provides.

A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales.

Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best and KBRA, as an important means of assessing the financial strength and quality of insurers, including their ability to pay claims. In setting its ratings, A.M. Best and KBRA perform quantitative and qualitative analyses of a company’s balance sheet strength, operating performance and business profile. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation. KBRA’s ratings range from AAA (extremely strong) to R (under regulatory supervision).

Currently, A.M. Best has assigned a financial strength of “A-” (Excellent) (Outlook Stable) and KBRA has assigned a financial strength rating of “A–” (Outlook Stable) to our insurance subsidiaries. A.M. Best and KBRA assign ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best and KBRA periodically review our insurance subsidiaries’ financial strength ratings and may, at their discretion, revise downward or revoke their ratings based primarily on their analyses of our insurance subsidiaries’ balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analyses include:

•if our insurance subsidiaries change their business practices from their organizational business plan in a manner that no longer supports A.M. Best’s or KBRA’s ratings;

•if unfavorable financial, regulatory or market trends affect our insurance subsidiaries, including excess market capacity;

•if our insurance subsidiaries’ losses exceed their loss reserves;

•if our insurance subsidiaries have unresolved issues with government regulators;

•if our insurance subsidiaries are unable to retain their senior management or other key personnel;

•if our insurance subsidiaries’ investment portfolio incurs significant losses; or

•if A.M. Best or KBRA alters its capital adequacy assessment methodology in a manner that would adversely affect our insurance subsidiaries’ ratings.

These and other factors could result in a downgrade of our insurance subsidiaries’ financial strength ratings. A downgrade or withdrawal of our insurance subsidiaries’ ratings could result in any of the following consequences, among others:

•causing our insurance subsidiaries’ current and future distribution partners and insureds to choose other, more highly-rated competitors;

•increasing the cost or reducing the availability of reinsurance to our insurance subsidiaries; or

•severely limiting or preventing our insurance subsidiaries from writing new and renewal insurance contracts.

In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. We can offer no assurance that our insurance subsidiaries’ ratings will remain at their current levels. It is possible that such reviews of our insurance subsidiaries may result in adverse ratings consequences, which could have a material adverse effect on our insurance subsidiaries’ business, results of operations, financial condition and cash flows.

If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to bear increased risks or reduce the level of their underwriting commitments.

Our insurance subsidiaries’ reinsurance facilities are generally subject to annual renewal. They may not be able to maintain their current reinsurance facilities and their customers may not be able to continue to operate their captive reinsurance companies. As a result, even where highly desirable or necessary, they may not be able to obtain other reinsurance facilities in adequate amounts and at favorable rates. If our insurance subsidiaries are unable to renew their expiring facilities or to obtain or structure new reinsurance facilities, either their net exposures would increase or, if they are unwilling to bear an increase in net exposures, they may have to reduce the level of their underwriting commitments. Either of these potential developments could have a material adverse effect on their business, results of operations, financial condition and cash flows.

Our insurance subsidiaries’ failure to accurately pay claims in a timely manner could have a material adverse effect on their business, results of operations, financial condition and cash flows.

Our insurance subsidiaries must accurately and timely evaluate and pay claims that are made under their policies. Many factors affect their ability to pay claims accurately and timely, including the training and experience of their claims representatives, including their distribution partners, the effectiveness of their management, and their ability to develop or select and implement appropriate procedures and systems to support their claims functions and other factors. Their failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine their reputation in the marketplace and have a material adverse effect on their business, financial condition, results of operations and cash flows. In addition, if our insurance subsidiaries do not manage their distribution partners effectively, or if their distribution partners are unable to effectively handle their volume of claims, their ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, our insurance subsidiaries’ business could suffer from decreased quality of claims work which, in turn, could have a material adverse effect on their operating margins.

Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under reinsurance contracts.

Our insurance subsidiaries use reinsurance to reduce the severity and incidence of claims costs, and to provide relief with regard to certain reserves. Under these reinsurance arrangements, other insurers assume a portion of our losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, reinsurance arrangements do not eliminate our obligation to pay claims and we assume credit risk with respect to our ability to recover amounts due from reinsurers. The inability or unwillingness of any reinsurer to meet its financial obligations could negatively affect our business, results of operations, financial condition and cash flows. As credit risk is generally a function of the economy, our insurance subsidiaries face a greater credit risk in an economic downturn. While our insurance subsidiaries attempt to manage credit risks through underwriting guidelines, collateral requirements and other oversight mechanisms, their efforts may not be successful. For example, to reduce such credit risk, our insurance subsidiaries require certain third parties to post collateral for some or all of their

obligations to them. In cases where our insurance subsidiaries receive letters of credit from banks as collateral and one of their counterparties is unable to honor its obligations, our insurance subsidiaries are exposed to the credit risk of the banks that issued the letters of credit.

New lines of business or new products and services may subject our insurance subsidiaries to additional risks.

From time to time, our insurance subsidiaries may implement new lines of business or offer new products and services within existing lines of business. In addition, our insurance subsidiaries will continue to make investments in development and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts. In developing and marketing new lines of business and/or new products or services, our insurance subsidiaries may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. Furthermore, new lines of business and/or new product or service offerings may not gain market acceptance. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our insurance subsidiaries’ IT of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of their system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our insurance subsidiaries’ business, financial condition, results of operations and cash flows.

If our insurance subsidiaries fail to manage future growth effectively, their business, results of operations, financial condition and cash flows would be harmed.

Our insurance subsidiaries have expanded their operations significantly and anticipate that further expansion will be required in order for them to significantly grow their business. In particular, they may require additional capital, systems development and skilled personnel. Their growth has placed and may continue to place increasing and significant demands on their management, operational and financial systems and infrastructure and their other resources. If our insurance subsidiaries do not effectively manage their growth, the quality of their services could suffer, which could harm their business, results of operations, financial condition and cash flows. In order to manage future growth, they may need to hire, integrate and retain highly skilled and motivated employees. Our insurance subsidiaries may not be able to hire new employees quickly enough to meet their needs. If they fail to effectively manage their hiring needs and successfully integrate new hires, their efficiency and their employee morale, productivity and retention could suffer, and their business, results of operations, financial condition and cash flows could be harmed. They may also be required to continue to improve their existing systems for operational and financial management, including their reporting systems, procedures and controls. These improvements may require significant capital expenditures and place increasing demands on their management. They may not be successful in managing or expanding their operations or in maintaining adequate financial and operating systems and controls. If they do not successfully implement any required improvements in these areas, their business, results of operations, financial condition and cash flows could be harmed.

The effects of emerging claim and coverage issues on our insurance subsidiaries’ business are uncertain.

As industry practices and economic, legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may have a material adverse effect on our insurance subsidiaries’ business by either extending coverage beyond their underwriting intent or by increasing the number or size of claims. In some instances, these emerging issues may not become apparent for some time after they have issued the affected insurance policies. As a result, the full extent of liability under their insurance policies may not be known until many years after the policies are issued. In addition, the potential passage of new legislation designed to expand the right to sue, to remove limitations on recovery, to extend the statutes of limitations or otherwise to repeal or weaken tort reforms could have an adverse impact on their business. The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could harm their business and have a material adverse effect on their results of operations.

Our insurance subsidiaries’ international operations expose them to investment, political and economic risks, including foreign currency and credit risk.

Our insurance subsidiaries’ expanding international operations in the United Kingdom, continental Europe and the Asia-Pacific region, expose them to increased investment, political and economic risks, including foreign currency and credit risk. Changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on their business, results of operations, financial condition and cash flows. Their investments in non-U.S.-denominated assets are subject to fluctuations in non-U.S. securities and currency markets, and those markets can be volatile. Non-U.S. currency fluctuations also affect the value of any dividends paid by their non-U.S. subsidiaries to their parent companies in the United States.

Our businesses could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.

The success of our businesses depend on their ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about their industry and business. The pool of talent from which they actively recruit is limited and may fluctuate based on market dynamics specific to their industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for them to retain and recruit key personnel and maintain labor costs at desired levels. Should any of their key executives cease to be employed by them, or if they are unable to retain and attract talented personnel, they may be unable to maintain their current competitive position in the specialized markets in which they operate, which could have a material adverse effect on their results of operations.

Our insurance subsidiaries’ continued growth depends in part on their ability to continue to grow their customer base.

Increasing the customer base of our insurance subsidiaries will depend, to a significant extent, on their ability to effectively expand their sales and marketing activities, as well as their partner ecosystem and other customer referral sources. They may not be able to recruit qualified sales and marketing personnel, train them to perform and achieve an acceptable level of sales production from them on a timely basis or at all. If our insurance subsidiaries are unable to maintain effective sales and marketing activities and maintain and expand their partner network, their ability to attract new customers could be harmed and their business, results of operations, financial condition and cash flows would suffer.

Our insurance subsidiaries may not be able to effectively start up or integrate new program opportunities, and they may invest in new program opportunities or initiatives that are ultimately unsuccessful.

Our insurance subsidiaries’ ability to grow their business depends, in part, on their creation, implementation and acquisition of new insurance programs that are profitable and fit within their business model. New program launches as well as resources to integrate business acquisitions are subject to many obstacles, including ensuring they have sufficient business and systems processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens and planning for internal infrastructure needs. If they cannot accurately assess and overcome these obstacles or they improperly implement new insurance programs, their ability to grow profitably will be impaired. Additionally, they may be unsuccessful in identifying new program opportunities, or they may be unable to develop or market new programs or initiatives in a timely or cost-effective manner. In addition, new programs or initiatives may not achieve the market penetration or price levels necessary for profitability. If they are unable to develop timely enhancements to, and new features for, their existing programs and services or if they are unable to develop new programs and services, their programs and services may become less marketable and less competitive, and their business, results of operations, financial condition and cash flows would be harmed.

If our businesses are unable to maintain a high level of service, their business, results of operations, financial condition and cash flows may be harmed.

One of the key attributes of our various businesses is providing high quality service to their partners and customers. They may be unable to sustain these levels of service, which would harm their reputation and our business. Alternatively, they may only be able to sustain high levels of service by significantly increasing their operating costs, which would materially and adversely affect their results of operations. The level of service they are able to provide depends on their personnel to a significant extent. Their personnel must be well-trained in their processes and able to handle customer calls effectively and efficiently. Any inability of their personnel to meet service level demands, whether due to absenteeism, training, turnover, disruptions at their facilities, including as a result of the COVID-19 pandemic, bad weather, power outages or other reasons, could adversely impact their business. If they are unable to maintain high levels of service performance, their reputation could suffer and their business, results of operations, financial condition and cash flows would be harmed.

Our business’s results of operations have in the past varied from quarter to quarter and may not be indicative of our long-term prospects.

Our business’s results of operations are subject to fluctuation and have historically varied from quarter to quarter. We expect their quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where they operate, the frequency, occurrence or severity of catastrophic or other insured events or otherwise, fluctuating interest rates, claims exceeding their loss reserves, competition in their industry, deviations from expected renewal rates of their existing policies and contracts, adverse investment performance and the cost of reinsurance coverage.

In particular, our insurance subsidiaries seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long-term. In addition, their opportunistic nature may result in fluctuations in gross written premiums from period to period as they concentrate on underwriting contracts that they believe will generate better long-term, rather than short-term, results. Accordingly, their short-term results of operations may not be indicative of their long-term prospects.

The industries in which our businesses operate are cyclical in nature.

The financial performance of the insurance industry has historically fluctuated with periods of lower premium rates and excess underwriting capacity resulting from increased competition (a “soft market”) followed by periods of higher premium rates and reduced underwriting capacity resulting from decreased competition (a “hard market”). Our commercial & personal lines program business is exposed to these hard and soft market cycles. We seek to isolate ourselves from these trends by focusing on smaller risks with lower severities and utilizing reinsurance. Because this market cyclicality is due in large part to the actions of our insurance subsidiaries’ competitors and general economic factors, the timing or duration of changes in the market cycle is unknown. We expect these cyclical patterns will cause our insurance subsidiaries’ revenues and net income to fluctuate, which may cause their results of operations, financial condition and cash flows to be more volatile. We believe that we are currently in the second year of a hardening market.

Furthermore, adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity, could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance subsidiaries’ growth and profitability. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenue, the demand for insurance products is generally adversely affected, which directly affects their premium levels and profitability. Negative economic factors may also affect their ability to receive the appropriate rate for the risk they insure with their policyholders and may adversely affect the number of policies they can write, and their opportunities to underwrite profitable business. In an economic downturn, our insurance subsidiaries’ customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew the policies. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce their underwriting profit to the extent these factors are not reflected in the rates they charge.

The financial performance of the mortgage segment largely depends on the health of the U.S. residential real estate industry, which is seasonal, cyclical, and affected by changes in general economic conditions beyond our control. Economic factors such as increased interest rates, slow economic growth or recessionary conditions, the pace of home price appreciation or the lack of it, changes in household debt levels, and increased unemployment or stagnant or declining wages affect our clients’ income and thus their ability and willingness to make loan payments. National or global events including, but not limited to the COVID-19 pandemic, affect all such macroeconomic conditions. Weak or a significant deterioration in economic conditions reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified potential clients to take out loans. As a result, such economic factors affect loan origination volume.

The dry bulk and product tanker shipping industry is cyclical with high volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels and product tankers has varied widely. Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and changes in the supply of and demand for the major commodities carried by dry bulk vessels internationally and for oil, oil products and chemicals carried by product tankers. Demand is a function of world economic conditions and the consequent requirement for commodities, oil and oil products, production and consumption patterns, as well as events, which interrupt production, trade routes, and consumption. The factors affecting the supply of and demand for vessels are outside of our control and are unpredictable. We may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels profitably. Significant declines in dry bulk or product tanker charter rates could adversely affect our revenues and profitability.

If our insurance subsidiaries are not able to maintain and enhance their brand, their business and results of operations will be harmed. Damage to their reputation and negative publicity could have a material adverse effect on their business, results of operations, financial condition and cash flows.

We believe that maintaining and enhancing our insurance subsidiaries’ brand identity is critical to their relationships with their existing customers and partners and to their ability to attract new customers and partners. They also intend to grow their brand awareness among consumers and potential program partners in order to further expand their reach and attract new customers and program partners. The promotion of their brand in these and other ways may require them to make substantial investments and it is

anticipated that, as their market becomes increasingly competitive, these branding initiatives may become increasingly difficult and expensive. Our insurance subsidiaries’ brand promotion activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses they incur and their results of operations could be harmed. If they do not successfully maintain and enhance their brand, their business may not grow and they could lose their relationships with customers or partners, which would harm their business, results of operations, financial condition and cash flows.

Our insurance subsidiaries may be adversely affected by negative publicity relating to brand and activities. For instance, if their brand receives negative publicity, the number of customers visiting their platforms could decrease, and their cost of acquiring customers could increase as a result of a reduction in the number of consumers coming from their direct customer acquisition channel.

Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to unidentified or unanticipated risk, which could adversely affect their business, results of operations, financial condition or cash flows.

Our businesses have developed and continue to develop enterprise-wide risk management policies and procedures to mitigate risk and loss to which they are exposed. There are, however, inherent limitations to risk management strategies because there may exist, or develop in the future, risks that they have not appropriately anticipated or identified. If their risk management policies and procedures are ineffective, they may suffer unexpected losses and could be materially adversely affected. As their business changes and the markets in which they operate evolve, their risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new products or new business strategies may present risks that are not appropriately identified, monitored or managed. In times of market stress, unanticipated market movements or unanticipated claims experience, the effectiveness of their risk management strategies may be limited, resulting in losses to them. In addition, there can be no assurance that they can effectively review and monitor all risks or that all of their employees will follow their risk management policies and procedures.

Moreover, state legislatures and regulators have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to insurers and within mortgage originators that may pose risk to borrowers. Our insurance and mortgage subsidiaries operate within an enterprise risk management (“ERM”) framework designed to assess and monitor their risks. However, there can be no assurance that they can effectively review and monitor all risks, or that all of their employees will operate within the ERM framework or that their ERM framework will result in their accurately identifying all risks and accurately limiting their exposures based on our business’s assessments.

Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful.

Our insurance subsidiaries’ ability to make scheduled payments on or refinance their debt obligations depends on their financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond their control. They may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on their indebtedness.

If their cash flows and capital resources are insufficient to fund their debt service obligations, they could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter their dividend policy, seek additional debt or equity capital or restructure or refinance their indebtedness. They may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow them to meet their scheduled debt service obligations. The instruments that will govern their indebtedness may restrict their ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict their ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. They may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

Our insurance subsidiaries’ inability to generate sufficient cash flows to satisfy their debt obligations, or to refinance their indebtedness on commercially reasonable terms or at all, may materially adversely affect their business, results of operations, financial condition and cash flows.

Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to pursue their business strategies.

The agreements governing our insurance subsidiaries’ indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on them and may limit their ability to pursue their business strategies or undertake actions that may be in their best interests. The agreements governing their indebtedness include covenants restricting, among other things, their ability to:

•incur or guarantee additional debt;

•incur liens;

•complete mergers, consolidations and dissolutions;

•enter into transactions with affiliates;

•pay dividends or other distributions;

•sell certain of their assets that have been pledged as collateral; and

•undergo a change in control.

A breach of the covenants under the indenture that governs our insurance subsidiaries’ 8.50% Fixed Rate Resetting Junior Subordinated Notes due in October 2057 (the “Notes”) and Amended and Restated Credit Agreement dated as of August 4, 2020 among Fortegra Financial and Lots Intermediate Co., as Borrowers, Fifth Third Bank, National Association, as Administrative Agent and Issuing Lender, Citizens Bank, N.A., as Syndication Agent, and First Horizon Bank, Keybank National Association and Synovus Bank as Co-Documentation Agents could result in an event of default. Such default may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event our insurance subsidiaries’ lenders or noteholders accelerate the repayment of their indebtedness, they and their subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, they may be:

•unable to raise additional debt or equity financing to operate during general economic or business downturns; or

•unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect their ability to grow in accordance with their strategy. In addition, their financial results, substantial indebtedness and credit ratings could materially adversely affect the availability and terms of future financing.

Retentions in various lines of business expose our insurance subsidiaries to potential losses.

Our insurance subsidiaries retain risk for their own account on business underwritten by their insurance subsidiaries. The determination to reduce the amount of reinsurance they purchase, or not to purchase reinsurance for a particular risk, customer segment or category is based on a variety of factors, including market conditions, pricing, availability of reinsurance, their capital levels and their loss history. Such determinations increase their financial exposure to losses associated with such risks, customer segments or categories and, in the event of significant losses associated with such risks, customer segments or categories, could have a material adverse effect on their business, results of operations, financial condition and cash flows.

The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business.

The United Kingdom ceased to be a part of the European Union on December 31, 2020 (which is commonly referred to as “Brexit”). Aspects of the relationship between the United Kingdom and the European Union remain to be negotiated and their relationship will continue to evolve, including with respect to the cross-border provision of products and services and related compliance requirements. The effects of Brexit on our insurance subsidiaries’ business will depend on the manner in which it is implemented and any other relevant agreements between the United Kingdom and the European Union, among other factors. The Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom established the Temporary Permissions Regime, which creates a three year post-Brexit period where companies can continue to operate until their permanent establishment is authorized in the United Kingdom. Fortegra’s Malta based insurance subsidiary registered for the Temporary Permissions Regime and entered into it on December 31, 2020. Because our insurance subsidiaries conduct business in both the United Kingdom and the European Union and because they rely on their Malta insurance subsidiary’s ability to conduct business in the United Kingdom, they face risks associated with the potential uncertainty and disruptions relating to Brexit, including the risk of additional regulatory and other costs and challenges and/or limitations on their ability to sell particular products and services. As a result, the ongoing uncertainty surrounding Brexit could have a material adverse effect on their business (including their European growth plans), results of operations, financial condition and cash flows.

Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the

creditworthiness of some of its independent agents and program partners.

Our insurance business is subject to the credit risk of some of the independent agents and program partners with which it contracts to sell its products and services. Our insurance business typically advances commissions as part of its product offerings. These advances are a percentage of the premiums charged. If our insurance business over-advances such commissions, the agents and program partners may not be able to fulfill their payback obligations, which could have a material adverse effect on our insurance business’s results of operations and financial condition.

Failure of our insurance subsidiaries’ distribution partners to properly market, underwrite or administer policies could adversely affect our insurance subsidiaries.

The marketing, underwriting, claims administration and other administration of policies in connection with our insurance subsidiaries’ issuing carrier services are the responsibility of their distribution partners. Any failure by them to properly handle these functions could result in liability to our insurance subsidiaries. Even though their distribution partners may be required to compensate them for any such liability, there are risks that they do not pay them because such partners become insolvent or otherwise. Any such failures could create regulatory issues or harm our insurance subsidiaries’ reputation, which could have a material adverse effect on their business, results of operations, financial condition and cash flows.

Third-party vendors our businesses rely upon to provide certain business and administrative services on their behalf may not perform as anticipated, which could have an adverse effect on their business, results of operations, financial condition and cash flows.

Our businesses have taken action to reduce coordination costs and take advantage of economies of scale by transitioning multiple functions and services to third-party providers. They periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third parties. If such third-party providers experience disruptions or do not perform as anticipated, or our businesses experience problems with a transition to a third-party provider, they may experience operational difficulties, an inability to meet obligations (including policyholder obligations), a loss of business and increased costs, or suffer other negative consequences, all of which may have a material adverse effect on their business, results of operations, liquidity and cash flows.

Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they underwrite.

Our insurance subsidiaries rely on information provided by insureds or their representatives when underwriting insurance policies. While they may make inquiries to validate or supplement the information provided, they may make underwriting decisions based on incorrect or incomplete information. It is possible that they will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that they insure because of their reliance on inadequate or inaccurate information.

Any failure to protect or enforce our insurance subsidiaries’ intellectual property rights could impair their intellectual property, technology platform and brand. In addition, they may be sued by third parties for alleged infringement of their proprietary rights.

Our insurance subsidiaries’ success and ability to compete depend in part on their intellectual property, which includes their rights in their technology platform and their brand. Our insurance subsidiaries primarily rely on a combination of copyright, trade secret and trademark laws and confidentiality agreements, procedures and contractual provisions with their employees, customers, service providers, partners and other third parties to protect their proprietary or confidential information and intellectual property rights. However, the steps they take to protect their intellectual property may be inadequate and despite their efforts to protect their proprietary rights and intellectual property, unauthorized parties may attempt to copy aspects of their solutions or to obtain and use information that they regard as proprietary, and third parties may attempt to independently develop similar technology. Policing unauthorized use of their technology and intellectual property rights may be difficult and may not be effective. Litigation brought to protect and enforce their intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of their intellectual property. Additionally, their efforts to enforce their intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of their intellectual property rights. Our insurance subsidiaries’ failure to secure, protect, defend and enforce their intellectual property rights could adversely affect their brand and adversely affect their business.

Our insurance subsidiaries’ success also depends in part on them not infringing, misappropriating or otherwise violating the intellectual property rights of others. Their competitors and other third parties may own or claim to own intellectual property

relating to our insurance subsidiaries’ industry and, in the future, may claim that our insurance subsidiaries are infringing, misappropriating or otherwise violating their intellectual property rights, and our insurance subsidiaries may be found to be infringing on such rights. The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. The disposition of any such claims, whether through settlement or licensing discussions or litigation, could cause our insurance subsidiaries to incur significant expenses and, if successfully asserted against them, could require that they pay substantial damages or ongoing royalty payments, prevent them from offering certain of their products and services, require them to change their technology or business practices or require that they comply with other unfavorable terms. Even if our insurance subsidiaries were to prevail in such a dispute, any litigation could be costly and time-consuming, divert the attention of their management and key personnel from their business operations and materially adversely affect their business, financial condition and results of operations.

Our businesses employ third-party licensed software for use in their business, and the inability to maintain these licenses, errors in the software they license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely affect their business.

Our businesses rely on certain third-party software obtained under licenses from other companies and anticipate that they will continue to rely on such third-party software in the future. Although they believe that there are commercially reasonable alternatives to the third-party software they currently license, this may not always be the case, or it may be difficult or costly to replace their existing third-party software. In addition, integration of new third-party software may require significant work and require substantial investment of their time and resources. Our business’s use of additional or alternative third-party software would require them to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all. Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could negatively impact their respective business.

Additionally, some of the software powering our business’s technology systems incorporates software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on their ability to operate their systems. In the event that portions of their proprietary software are determined to be subject to an open source license, they could be required to publicly release the affected portions of their source code or re-engineer all or a portion of their technology systems, each of which could reduce or eliminate the value of their technology systems. Such risk could be difficult or impossible to eliminate and could adversely affect our business’s results of operations, financial condition and cash flows.

A significant decrease of the market values of our vessels could cause us to incur an impairment loss.

We review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the vessels may not be recoverable. Such indicators include declines in the fair market value of vessels, decreases in market charter rates, vessel sale and purchase considerations, fleet utilization, vessels’ useful lives, scrap values, regulatory changes in the dry bulk and product tanker shipping industry or changes in business plans or overall market conditions that may adversely affect cash flows. We may be required to record an impairment charge with respect to our vessels and any such impairment charge may have a material adverse effect on our business, financial condition and results of operations.

Our vessels may suffer damage and we may face unexpected drydocking costs.

If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while a vessel is being repaired and repositioned, as well as the actual cost of these repairs not covered by our insurance, would decrease our earnings and available cash. While we carry insurance on our vessels, that insurance may not be sufficient to cover all or any of the costs or losses for damages to our vessels and we may have to pay drydocking costs not covered by our insurance.

The operation of dry bulk vessels and product tankers has certain unique operational risks.

With a dry bulk vessel, the cargo itself and its interaction with the vessel may create operational risks. By their nature, dry bulk cargoes are often heavy, dense and easily shifted, and they may react badly to water exposure. In addition, dry bulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach while at sea. Breaches of a dry bulk vessel’s hull may lead to the flooding of the vessel’s holds. If a dry bulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we do not adequately maintain our vessels, we may be unable to prevent these events.

In addition, the operation of product tankers has unique operational risks associated with the transportation of oil and chemical products. An oil or chemical spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil or chemicals transported in tankers. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

Acts of piracy on ocean-going vessels occur and may increase in frequency.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Sulu Sea and the Gulf of Guinea, with dry bulk vessels and tankers particularly vulnerable to such attacks. Acts of piracy could result in harm or danger to the crews that man our vessels.

If these piracy attacks occur in regions in which our vessels are deployed that insurers characterized as “war risk” zones or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including the employment of onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold payment until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled to cancel the charter. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and earnings.

Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to such jointly owned investments and could, thereby, have a material adverse effect on our business, results of operations and financial condition and our ability to sell these investments.

Some of our current investments are, and future investments may be, made jointly with other persons or entities when circumstances warrant the use of such structures and we may continue to do so in the future. Our participation in such joint investments is subject to the risks that:

•we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes;

•our partners could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments;

•our partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations as partners, which may require us to infuse our own capital into such venture(s) on behalf of the partner(s) despite other competing uses for such capital;

•our partners may have competing interests in our markets that could create conflict of interest issues;

•any sale or other disposition of our interest in such a venture may require consents which we may not be able to obtain;

•such transactions may also trigger other contractual rights held by a partner, lender or other third-party depending on how the transaction is structured; and

•there may be disagreements as to whether consents and/or approvals are required in connection with the consummation of a particular transaction with a partner, lender and/or other third-party, or whether such transaction triggers other contractual rights held by a partner, lender and/or other third-party, and in either case, those disagreements may result in litigation.

Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our mortgage business.

Changes in interest rates and the level of interest rates are key drivers that impact the volatility of our mortgage loan originations. Due to the unprecedented events surrounding the COVID-19 pandemic along with the associated severe market dislocation, there is an increased degree of uncertainty and unpredictability concerning current interest rates, future interest rates and potential negative interest rates. The historically low interest rate environment over the last several years has created strong demand for mortgages. Increases in interest rates could result in us having lower revenue or profitability. The overwhelming majority of our mortgage loan originations have historically been refinancing existing homeowner’s mortgage loans. With rates at or near historically low levels, we have been able to continue to grow our mortgage loan originations by focusing on refinances. With rising interest rates, we may not be able to continue to do so in the future.

With regard to the portion of our mortgage business that is centered on refinancing existing mortgages, we generally note that the refinance market experiences more significant fluctuations than the purchase market as a result of interest rate changes. Long-term residential mortgage interest rates have been at or near record lows for an extended period, but they may increase in the future. As interest rates rise, refinancing generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages. With regard to our purchase mortgage loan business, higher interest rates may also reduce demand for purchase mortgages as home ownership becomes more expensive. This could adversely affect our mortgage business’s revenues or require our mortgage business to increase marketing expenditures in an attempt to increase or maintain its volume of mortgages. Decreases in interest rates can also adversely affect our mortgage business’s financial condition, the value of its mortgage servicing rights (“MSRs”) portfolio, and its results of operations. With sustained low interest rates, as we have been experiencing, refinancing transactions decline over time, as many clients and potential clients have already taken advantage of the low interest rates.

Changes in interest rates are also a key driver of the performance of our servicing business, particularly because our mortgage business’s portfolio is composed primarily of MSRs related to high-quality loans, the values of which are highly sensitive to changes in interest rates. Historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates. As a result, decreases in interest rates could have a detrimental effect on our mortgage business.

Borrowings under some of our mortgage business’s finance and warehouse facilities are at variable rates of interest, which also expose us to interest rate risk. If interest rates increase, our mortgage business’s debt service obligations on certain of its variable-rate indebtedness will increase even though the amount borrowed remains the same, and net income and cash flows, including cash available for servicing indebtedness, will correspondingly decrease. Our mortgage business currently has entered into, and in the future may continue to enter into, interest rate swaps that involve the exchange of floating for fixed-rate interest payments to reduce interest rate volatility. However, our mortgage business may not maintain interest rate swaps with respect to all of its variable-rate indebtedness, and any such swaps may not fully mitigate its interest rate risk, may prove disadvantageous, or may create additional risks.

In addition, our mortgage business is materially affected by the monetary policies of the U.S. government and its agencies. Our mortgage business is particularly affected by the policies of the U.S. Federal Reserve, which influence interest rates and impact the size of the loan origination market. In 2017, the U.S. Federal Reserve ended its quantitative easing program and started its balance sheet reduction plan. The U.S. Federal Reserve's balance sheet consists of U.S. Treasuries and mortgage backed securities (“MBS”) issued by Fannie Mae, Freddie Mac and Ginnie Mae. To shrink its balance sheet prior to the COVID-19 pandemic, the U.S. Federal Reserve had slowed the pace of MBS purchases to a point at which natural runoff exceeded new purchases, resulting in a net reduction. In response to the COVID-19 pandemic, state and federal authorities took several actions to provide relief to those negatively affected by COVID-19, such as the CARES Act and the Federal Reserve's support of the financial markets. In particular, U.S. Federal Reserve announced programs to increase its purchase of certain MBS products in response to the COVID-19 pandemic's effect on the U.S. economy, and the market for MBS in particular. The lasting results of this policy change by the U.S. Federal Reserve are unknown at this time, as is its duration, but could affect the liquidity of MBS in the future.

Our mortgage business’s MSRs are highly volatile assets with continually changing values, and these changes in value, or inaccuracies in estimates of their value, could adversely affect our mortgage business’s financial condition and results of operations.

The value of our mortgage business’s MSRs is based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuates due to a number of factors. These factors include changes in interest rates; historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates and refinancings. Other market

conditions also affect the number of loans that are refinanced and thus no longer result in cash flows, and the number of loans that become delinquent.

Our mortgage business uses two external valuation firms to fair value its MSR assets. These valuation firms utilize market participant data and actual MSR market trades to value our MSRs for purposes of financial reporting, These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs, and because of the complexity involved with anticipating such variables over the life of the MSR. Even if the general accuracy of their valuation models is validated, valuations are highly dependent upon the reasonableness of their assumptions and the results of the models. If loan delinquencies or prepayment speeds are higher than anticipated or other factors perform worse than modeled, the recorded value of certain of their MSRs may decrease, which could adversely affect their business and financial condition.

Our mortgage business is highly dependent upon programs administered by GSEs, such as Fannie Mae and Freddie Mac, as well as Ginnie Mae, to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our mortgage business, financial condition and results of operations.

There is uncertainty regarding the future of Fannie Mae and Freddie Mac, including with respect to how long they will continue to be in existence, the extent of their roles in the market and what forms they will have. The future roles of Fannie Mae and Freddie Mac could be reduced or eliminated and the nature of their guarantees could be limited or eliminated relative to historical measurements. The elimination or modification of the traditional roles of Fannie Mae or Freddie Mac could adversely affect our mortgage business, financial condition and results of operations. Furthermore, any discontinuation of, or significant reduction in, the operation of these GSEs and Ginnie Mae, or any significant adverse change in the level of activity of these agencies in the primary or secondary mortgage markets or in the underwriting criteria of these agencies could materially and adversely affect our business, financial condition and results of operations.

We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business.

We fund substantially all of the loans which we originate through borrowings under warehouse financing and repurchase facilities. Our borrowings are in turn repaid with the proceeds we receive from selling such loans through whole loan sales.  As we expand our operations, we will require increased financing.

There can be no assurance that such financing will be available on terms reasonably satisfactory to us or at all.  An event of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit-similar to the market conditions experienced in recent years-may increase our cost of funds and make it difficult for us to obtain new, or retain existing, warehouse financing facilities. If we fail to maintain, renew or obtain adequate funding under these warehouse financing facilities or other financing arrangements, or there is a substantial reduction in the size of or increase in the cost of such facilities, we would have to curtail our mortgage loan production activities, which could have a material adverse effect on our business, financial condition and operating results in our mortgage business.

If the value of the collateral underlying certain of our mortgage business’s loan funding facilities decreases, they could be required to satisfy a margin call, and an unanticipated margin call could have a material adverse effect on their liquidity.

Certain of our mortgage business’s loan funding, early buy-out facilities, and MSR-backed facilities are subject to margin calls based on the lender's opinion of the value of the loan collateral securing such financing and certain of their hedges related to newly originated mortgages are also subject to margin calls. A margin call would require our mortgage business to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on their liquidity.

In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or will originate, if, among other things, our loans fail to meet certain criteria or characteristics.

The contracts with purchasers of our whole loans contain provisions that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain provisions that require us to repurchase loans if:

•our representations and warranties concerning loan quality and loan circumstances are inaccurate, including representations concerning the licensing of a mortgage broker;

•we fail to secure adequate mortgage insurance within a certain period after closing;

•a mortgage insurance provider denies coverage; or

•we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic regulatory environment.

We maintain reserves that we believe are appropriate to cover potential loan repurchase or indemnification losses, but there can be no assurance that such reserves will, in fact, be sufficient to cover future repurchase and indemnification claims. If we are required to indemnify or repurchase loans that we originate and sell that result in losses that exceed our reserve, this could adversely affect our business, financial condition and results of operations.

Furthermore, in the ordinary course of our mortgage business, we are subject to claims made against us by borrowers and private investors arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of our employees, officers and agents (including our appraisers), incomplete documentation and our failure to comply with various laws and regulations applicable to our business.

In addition, should the mortgage loans we originate sustain higher levels of delinquencies and/or defaults, we may lose the ability to originate and/or sell FHA loans, or to do so profitably and investors to whom we currently sell our mortgage loans may refuse to continue to do business with us, or may reduce the prices they are willing to purchase our mortgage loans and it may be difficult or impossible to sell any of our mortgage loans in the future. Any of the foregoing risks could adversely affect our business, financial condition and results of operations in our mortgage business.

We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income.

We previously incurred net operating losses. In the event that we experience an “ownership change” within the meaning of Section 382 of the Code, our ability to use those net operating losses to offset taxable income could be subject to an annual limitation. The annual limitation would be equal to a percentage of our equity value at the time the ownership change occurred. In general, such an “ownership change” would occur if the percentage of our stock owned by one or more 5% stockholders (including certain groups or persons acting in concert) were to increase by 50 percentage points during any three-year period. All stockholders that own less than 5% of our stock are treated as a single 5% stockholder. In addition, the Treasury Regulations under Section 382 of the Code contain additional rules the effect of which is to make it more likely that an ownership change could be deemed to occur. Accordingly, our ability to use prior net operating losses to offset future taxable income would be subject to a limitation if we experience an ownership change.

We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial condition and results of operations.

We leverage certain of our assets, including through borrowings, generally through warehouse credit facilities, secured loans, securitizations and other borrowings. A rapid decline in the fair value of our leveraged assets may adversely affect us. Lenders may require us to post additional collateral to support the borrowing. If we cannot post the additional collateral, we may have to rapidly liquidate assets, which we may be unable to do on favorable terms or at all. Even after liquidating assets, we may still be unable to post the required collateral, further harming our liquidity and subjecting us to liability to lenders for the declines in the fair values of the collateral. A reduction in credit availability may adversely affect our business, financial condition and results of operations.

Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our assets, our results of operations and our financial condition.

Some of our assets, including our direct investments, are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk.

Credit risk is the risk that the obligor will be unable to pay scheduled principal and/or interest payments. Defaults by third parties in the payment or performance of their obligations could reduce our income and realized gains or result in the recognition of losses. The fair value of our assets may be materially and adversely affected by increases in interest rates, downgrades in our direct investments and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may cause us to reduce the fair value of our assets.

Interest rate risk is the risk that general interest rates will rise or that the risk spread used in our financings will increase. Although interest rates have been at historically low levels for the last several years, a period of sharply rising interest rates could have an adverse impact on our business by negatively impacting demand for mortgages and increasing our cost of borrowing to finance operations.

In addition, in July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates

LIBOR, announced its intent to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. On March 5, 2021, the ICE Benchmark Administration and the United Kingdom Financial Conduct Authority confirmed that most USD LIBOR tenors will continue to be published through the second quarter of 2023. We have exposure to LIBOR–based contracts within certain of our finance receivables and loans primarily related to commercial automotive loans, corporate finance loans, and mortgage loans, as well as certain investment securities, derivative contracts, and trust preferred securities, among other arrangements. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has recommended the Secured Overnight Finance Rate (SOFR), as an alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. treasury repo market. There can be no assurance that rates linked to SOFR, or associated changes related to the adoption of SOFR, will be as favorable to us as LIBOR and may result in an effective increase in the applicable interest rate on our current or future debt obligations. As a result, the discontinuation of LIBOR or LIBOR–based rates will present risks to our business.

Market risk is the risk that one or more markets to which the assets relate will decline in value, including the possibility that such markets will deteriorate sharply and unpredictably, which will likely impair the market value of the related instruments.

Credit spread risk is the risk that the market value of fixed income investments will change in response to changes in perceived or actual credit risk beyond changes that would be attributable to changes, if any, in interest rates.

Call and redemption risk is the risk that fixed income investments will be called or redeemed prior to maturity at a time when yields on other debt instruments in which the call or redemption proceeds could be invested are lower than the yield on the called or redeemed investments.

Refinancing risk is the risk that we will be unable to refinance some or all of our indebtedness or that any refinancing will not be on terms as favorable as those of our existing indebtedness, which could increase our funding costs, limit our ability to borrow, or result in a sale of the leveraged asset on disadvantageous terms.

Any one of the risks described above may materially and adversely affect the value of our assets, our results of operations and our financial condition.

Our risk mitigation or hedging strategies could result in our experiencing significant losses that may materially adversely affect us.

We may pursue risk mitigation and hedging strategies to seek to reduce our exposure to losses from adverse credit events, interest rate changes, market risk and other risks. These strategies may include short Treasury positions, interest rate swaps, foreign exchange derivatives, credit derivatives, freight forward agreements, fuel oil swaps and other derivative hedging instruments. Since we account for derivatives at fair market value, changes in fair market value are reflected in net income other than derivative hedging instruments which are reflected in accumulated other comprehensive income in stockholders’ equity. Some of these strategies could result in our experiencing significant losses that may materially adversely affect our business, financial condition and results of operations.

The values we record for certain investments and liabilities are based on estimates of fair value made by our management, which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a sale.

Some of our investments and liabilities are not actively traded and the fair value of such investments and liabilities are not readily determinable. Each of these carrying values is based on an estimate of fair value by our management. Management reports the estimated fair value of these investments and liabilities quarterly, which may cause our quarterly operating results to fluctuate. Therefore, our past quarterly results may not be indicative of our performance in future quarters. In addition, because such valuations are inherently uncertain, in some cases based on internal models and unobservable inputs, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments and liabilities existed. As such, we may be unable to realize the carrying value upon a sale of these investments or liabilities.

The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements.

Accounting rules for consolidations, income taxes, business acquisitions, transfers of financial assets and other aspects of our operations are highly complex and require the application of judgment and assumptions by our management. In addition, changes in accounting rules, interpretations or assumptions could materially impact the presentation, disclosure and usability of our

financial statements. For more information see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates”.

Changes in accounting practices and future pronouncements may materially affect our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply with new rules, particularly if we are required to prepare information relating to prior periods for comparative purposes or to otherwise apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, stockholders’ equity and other relevant financial statement line items.

Our insurance subsidiaries are required are required to comply with Statutory Accounting Principles (“SAP”). SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. Whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us is unknown.

Catastrophic events could significantly impact the Company’s businesses.

Unforeseen or catastrophic events, such as severe weather, natural disasters, pandemic, cybersecurity attacks, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s ability to conduct business. Although the Company and its subsidiaries have established disaster recovery plans, there is no guarantee that such plans will allow the Company and its subsidiaries to operate without disruption if such an event was to occur and the occurrence of any such event could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

The global spread of the coronavirus (COVID-19) created significant market volatility and uncertainty and economic disruption. In addition, the impact of COVID-19 and measures to prevent its spread caused, and may continue to cause, substantial disruption to distribution channels, auto dealer partners and contract counterparties, and may limit our access to capital and customers through self-isolation, travel limitations, business restrictions, margin calls, and otherwise. These effects, individually or in the aggregate, could materially adversely impact our businesses, financial condition, operating results, liquidity and cash flows and such adverse impacts may be material to our results of operations and liquidity position. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted at this time.

Acts of war may disrupt international trade, create market volatility in debt, equity and commodities markets and result in import bans, export control regulations, increased costs, and sanctions by governmental authorities. These effects, individually or in the aggregate, could materially adversely impact our businesses, operations, financial condition, operating results, liquidity and cash flows and such adverse impacts may be material to our results of operations and liquidity position.

Whether or to what extent damage that may be caused by natural events, such as wildfires, severe tropical storms and hurricanes, will affect our insurance subsidiaries’ ability to write new insurance policies and reinsurance contracts is unknown, but, to the extent our insurance subsidiaries’ policies are concentrated in the specific geographic areas in which these events occur, any increase in frequency and severity of such events and the total amount of our loss exposure in the impacted areas of such events may adversely affect their business, financial condition and results of operations. In addition, although our insurance subsidiaries have historically had limited exposure to catastrophic risk, claims from catastrophe events could reduce their earnings and cause substantial volatility in their business, financial condition and results of operations for any period. Assessing the risk of loss and damage associated with natural and catastrophic events remains a challenge and might adversely affect their business, results of operations, financial condition and cash flows.

U.S. insurers are required by state and federal law to offer coverage for acts of terrorism in certain commercial lines. The Terrorism Risk Insurance Act, as extended by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) requires commercial property and casualty (“P&C”) insurance companies to offer coverage for acts of terrorism, whether foreign or domestic, and established a federal assistance program through the end of 2020 to help cover claims related to future terrorism-related losses. The likelihood and impact of any terrorist act is unpredictable, and the ultimate impact on our insurance subsidiaries would depend upon the nature, extent, location and timing of such an act. Although our insurance subsidiaries reinsure a portion of the terrorism risk they retain under TRIPRA, such terrorism reinsurance does not provide full coverage for an act stemming from

nuclear, biological or chemical terrorism. To the extent an act of terrorism, whether a domestic or foreign act, is certified by the Secretary of Treasury, our insurance subsidiaries may be covered under TRIPRA of their losses for certain P&C lines of insurance. However, any such coverage would be subject to a mandatory deductible based on 20% of earned premium for the prior year for the covered 2020 of commercial P&C insurance.

Risks Related to our Structure

Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend on distributions from our subsidiaries that may be subject to restrictions and income from assets.

We are a holding company and do not have any significant operations of our own, other than our principal investments. Our ability to meet our obligations will depend on distributions from our subsidiaries and income from assets. The amount of dividends and other distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur. Such restrictions would also affect our ability to pay dividends to stockholders, if and when we choose to do so.

Our insurance business’s Junior Subordinated Notes due 2057 and $200 million revolving credit facility restrict dividends to us based on the leverage ratio of our insurance business and its subsidiaries. Additionally, our regulated insurance company subsidiaries are required to satisfy minimum capital and surplus requirements according to the laws and regulations of the states in which they operate, which regulate the amount of dividends and distributions we receive from them. In general, dividends in excess of prescribed limits are deemed “extraordinary” and require insurance regulatory approval. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. Some states have an additional stipulation that dividends may only be paid out of earned surplus. States also regulate transactions between our insurance company subsidiaries and us or our other subsidiaries, such as those relating to compensation for shared services, and in some instances, require prior approval of such transactions within the holding company structure. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance company subsidiaries to us or our other subsidiaries (such as payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block or otherwise restrict such payments that would otherwise be permitted without prior approval. In addition, there could be future regulatory actions restricting the ability of our insurance company subsidiaries to pay dividends or share services. The primary factor in determining the amount of capital available for potential dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies for our insurance company subsidiaries. Given recent economic events that have affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance company subsidiaries which, in turn, could negatively affect our capital resources.

Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests.

Our charter restricts any person that owns 9.8% or more of our capital stock, other than stockholders approved by applicable state insurance regulators, from voting in excess of 9.8% of our voting securities. This provision is intended to satisfy the requirements of applicable state regulators in connection with insurance laws and regulations that prohibit any person from acquiring control of a regulated insurance company without the prior approval of the insurance regulators. In addition, our charter provides for the classification of our board of directors into three classes, one of which is to be elected each year. Our charter also generally only permits stockholders to act without a meeting by unanimous consent. These provisions may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests.

Maryland takeover statutes may prevent a change of our control, which could depress our stock price.

Maryland law provides that “control shares” of a corporation acquired in a “control share acquisition” will have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. “Control shares” means voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: one-tenth or more but less than one-third; one-third or more but less than a majority; or a majority or more of all voting power. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an

affiliate of an interested stockholder are prohibited for five years after the most recent date on which such stockholder became an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities.

Our bylaws contain a provision exempting from the control share statute any and all acquisitions by any person of our shares of stock. Our board of directors has also adopted a resolution which provides that any business combination between us and any other person is exempted from the provisions of the business combination statute, provided that the business combination is first approved by the board of directors. However, our board of directors may amend or eliminate this provision in our bylaws regarding the control share statute or amend or repeal this resolution regarding the business combination statute. If our board takes such action in the future, the control share and business combination statutes may prevent or discourage others from trying to acquire control of us and increase the difficulty of consummating any offer, including potential acquisitions that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Our holding company structure with multiple lines of business, may adversely impact the market price of our common stock and our ability to raise equity and debt capital.

Tiptree holds and manages multiple lines of business. Analysts, investors and lenders may have difficulty analyzing and valuing a company with multiple lines of business, which could adversely impact the market price of our common stock and our ability to raise equity and debt capital at a holding company level. Moreover, our management is required to make decisions regarding the allocation of capital among the different lines of business, and such decisions could materially and adversely affect our business or one or more of our lines of business.

Risks Related to Regulatory and Legal Matters

Maintenance of our 1940 Act exemption imposes limits on our operations.

We conduct our operations so that we are not required to register as an investment company under the 1940 Act. Therefore, we must limit the types and nature of businesses in which we engage and assets that we acquire. We monitor our compliance with the 1940 Act on an ongoing basis and may be compelled to take or refrain from taking actions, to acquire additional income or loss generating assets or to forgo opportunities that might otherwise be beneficial or advisable, including, but not limited to selling assets that are considered to be investment securities or forgoing the sale of assets that are not investment securities, in order to ensure that we (or a subsidiary) may continue to rely on the applicable exceptions or exemptions. These limitations on our freedom of action could have a material adverse effect on our financial condition and results of operations.

If we fail to maintain an exemption, exception or other exclusion from registration as an investment company, we could, among other things, be required to substantially change the manner in which we conduct our operations either to avoid being required to register as an investment company or to register as an investment company. If we were required to register as an investment company under the 1940 Act, we would become subject to substantial regulation with respect to, among other things, our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and our financial condition and results of operations may be adversely affected. If we did not register despite being required to do so, criminal and civil actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

A change in law, regulation or regulatory enforcement applicable to insurance products could adversely affect our financial condition and results of operations.

A change in state or U.S. federal tax laws could materially affect our insurance businesses. For example, tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017, fundamentally overhauled the U.S. tax system by, among other significant changes, reducing the U.S. corporate income tax rate to 21%. In the context of the taxation of U.S. P&C insurance companies such as our insurance companies, the TCJA also modified the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions to reflect the lower corporate income tax rate, which could have an adverse impact on our insurance subsidiaries. It is possible that other legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on our insurance subsidiaries. Additional regulations or pronouncements interpreting or clarifying provisions of the TCJA have been and will continue to be issued, and such regulations or pronouncements may be different from our insurance subsidiaries’ interpretation and thus adversely affect their results. If, when or in what form such regulations or pronouncements may be provided or finalized, whether such guidance will have a retroactive effect or such regulations’ or pronouncements’ potential impact on our insurance subsidiaries is unknown.

Currently, our insurance business does not collect sales or other related taxes on its services. Whether sales of our insurance business’s services are subject to state sales and use taxes is uncertain, due in part to the nature of its services and the relationships through which its services are offered, as well as changing state laws and interpretations of those laws. One or more states may seek to impose sales or use tax or other tax collection obligations on our insurance business, whether based on sales by our insurance business or its resellers or clients, including for past sales. A successful assertion that our insurance business should be collecting sales or other related taxes on its services could result in substantial tax liabilities for past sales, discourage customers from purchasing its services, discourage clients from offering or billing for its services, or otherwise cause material harm to its business, financial condition and results of operations.

With regard to our insurance business’s payment protection products and financing of VSCs, there are federal and state laws and regulations that govern the disclosures related to the sales of those products. Our insurance business’s ability to offer and administer these products on behalf of their distribution partners is dependent upon their continued ability to sell such products. To the extent that federal or state laws or regulations change to restrict or prohibit the sale of these products, our insurance business’s revenues would be adversely affected. For example, the CFPB’s enforcement actions have resulted in large refunds and civil penalties against financial institutions in connection with their marketing of payment protection and other products. Due to such regulatory actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which may adversely affect our insurance business’s revenues. The full impact of the CFPB’s oversight is unpredictable and continues to evolve. With respect to the P&C insurance policies our insurance business underwrites, federal legislative proposals regarding national catastrophe insurance, if adopted, could reduce the business need for some of the related products that our insurance business provides.

Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business model and expose them to increased liability.

Some of our subsidiaries collect, use, store, transmit, retrieve, retain and otherwise process confidential and personally identifiable information in their information systems in and across multiple jurisdictions, and they are subject to a variety of confidentiality obligations and privacy, data protection and information security laws, regulations, orders and industry standards in the jurisdictions in which they do business. The regulatory environment surrounding information security, data privacy and cybersecurity is evolving and increasingly demanding. A number of our subsidiaries are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personally identifiable and confidential information of their customers and employees. On October 24, 2017, the NAIC adopted an Insurance Data Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The NAIC model law has been adopted by certain states and is under consideration by others. It is not yet known whether or not, and to what extent, states legislatures or insurance regulators where our insurance subsidiaries operate will enact the Insurance Data Security Model Law in whole or in part, or in a modified form. Such enactments, especially if inconsistent between states or with existing laws and regulations, could raise compliance costs or increase the risk of noncompliance, and noncompliance could subject our insurance subsidiaries to regulatory enforcement actions and penalties, as well as reputational harm. Any such events could potentially have an adverse impact on our insurance subsidiaries’ business, results of operations, financial condition and cash flows.

Our insurance and mortgage subsidiaries are subject to the privacy regulations of the Gramm-Leach-Bliley Act of 1999 (the “Gramm-Leach-Bliley Act”), along with its implementing regulations, which restricts certain collection, processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices, provides individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information and imposes requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In addition, on March 1, 2017, new cybersecurity rules took effect for financial institutions, insurers and certain other companies, like our insurance and mortgage subsidiaries, supervised by the NY Department of Financial Services (the “NY DFS Cybersecurity Regulation”). The NY DFS Cybersecurity Regulation imposes significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. Our insurance and mortgage subsidiaries also have contractual obligations to protect confidential and personally identifiable information we obtain from third parties. These obligations generally require them, in accordance with applicable laws, to protect such information to the same extent that they protect their own such information.

Many states in which our insurance and mortgage subsidiaries operate have laws that protect the privacy and security of sensitive and personal information. Certain current or proposed state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, certain of our insurance and mortgage businesses are subject to the California Consumer Privacy Act of 2018 (“CCPA”), which among other things, requires companies covered by the legislation to provide new disclosures to California consumers and afford such consumers new rights of access and

deletion of personal information. Additionally, when it becomes effective on January 1, 2023, our insurance subsidiaries will be subject to the California Privacy Rights Act (“CPRA”), which will significantly expand consumers’ rights under the CCPA. Internationally, many jurisdictions have established their own data security and privacy legal framework with which our insurance subsidiaries operating in such jurisdictions, or their customers, may need to comply, including, but not limited to, the European Union, or EU. The EU has adopted the General Data Protection Regulation, or the GDPR, which contains numerous requirements, robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies.

Because the interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our insurance subsidiaries’ existing data management practices or the features of their services and platform capabilities. Any failure or perceived failure by our insurance subsidiaries, or any third parties with which they do business, to comply with their posted privacy policies, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which they or such third parties are or may become subject, may result in actions or other claims against our insurance subsidiaries by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant fines, penalties or other liabilities. In addition, any such action, particularly to the extent our insurance subsidiaries were found to be guilty of violations or otherwise liable for damages, would damage their reputation and adversely affect their business, financial condition and results of operations.

Compliance with existing and new regulations affecting our business in regulated industries may increase costs and limit our ability to pursue business opportunities.

We are subject to extensive laws and regulations administered and enforced by a number of different federal and state governmental authorities in the industries in which we operate. Regulation of such industries may increase. In the past, there has been significant legislation affecting financial services and insurance, including the Dodd-Frank Act. In addition, we are subject to regulations governing the protection of personal confidential information and data security including the Gramm-Leach-Bliley Act, the GDPR, the NY DFS Cybersecurity Regulation and the CCPA. Accordingly, the impact that any new laws and regulations will have on us is unknown. The costs to comply with these laws and regulations may be substantial and could have a significant negative impact on us and limit our ability to pursue business opportunities. We can give no assurances that with changes to laws and regulations, our businesses can continue to be conducted in each jurisdiction in the manner as we have in the past.

Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease depending on a variety of factors, most of which are outside our insurance subsidiaries’ control, such as the amount of statutory income or losses generated, changes in equity market levels, the value of fixed-income and equity securities in our investment portfolio, changes in interest rates and foreign currency exchange rates, as well as changes to the RBC formulas used by insurance regulators. The laws of the various states in which our insurance businesses operate establish insurance departments and other regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some or all of their activities or otherwise fine or penalize them in any jurisdiction in which they operate. Such regulation or compliance could reduce our insurance business’s profitability or limit their growth by increasing the costs of compliance, limiting or restricting the products or services they sell, or the methods by which they sell their services and products, or subjecting their business to the possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory reserves that our insurance subsidiaries are required to hold could have a material adverse effect on their business, results of operations, financial condition and cash flows.

While the CFPB does not have direct jurisdiction over insurance products, it is possible that regulatory actions taken by the CFPB may affect the sales practices related to these products and thereby potentially affect our insurance business or the clients that it serves. In 2017, the CFPB issued rules under its unfair, deceptive and abusive acts and practices rulemaking authority relating to consumer installment loans, among other things. Such CFPB rules regarding consumer installment loans could adversely impact our insurance business’s volume of insurance products and services and cost structure. Due to such regulatory actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which may adversely affect our insurance business’s revenues.

Due to the highly regulated nature of the residential mortgage industry, our mortgage subsidiaries are required to comply with a wide array of federal, state and local laws and regulations that regulate licensing, allowable fees and loan terms, permissible servicing and debt collection practices, limitations on forced-placed insurance, special consumer protections in connection with default and foreclosure, and protection of confidential, nonpublic consumer information. These laws and regulations are constantly changing and the volume of new or modified laws and regulations has increased in recent years as states and local cities and counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination,

acquisition and servicing activities in those cities and counties. These laws and regulations are complex and vary greatly among different states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. A failure by us or our servicers to comply with applicable laws or regulations could subject our mortgage business and/or our mortgage servicers to lawsuits or governmental actions, which could result in the loss or suspension of our licenses in the applicable jurisdictions where such violations occur and/or monetary fines or changes in our mortgage operations. If we were to determine to change servicers, there is no assurance that we could find servicers that satisfy our requirements or with whom we could enter into agreements on satisfactory terms. Any of these outcomes could materially and adversely affect our mortgage business.

Our dry bulk shipping and product tanker business and the operation of our vessels are regulated under international conventions, classification societies, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, that mandate safety and environmental protection policies. Government regulation of vessels, particularly environmental regulations, have become more stringent and may require us to incur significant capital expenditures on our vessels.

For example, various jurisdictions have regulated management of ballast waters to prevent the introduction of non-indigenous species that are considered invasive which requires us to make changes to the ballast water management plans we currently have in place and to install new equipment on board our vessels. Various jurisdictions have also regulated or are considering the further regulation of greenhouse gases from vessels and emissions of sulfur and nitrogen oxides, which may increase the cost of new vessels and require retrofitting equipment on existing vessels. Effective January 1, 2020, the International Maritime Organization (“IMO”) imposed the IMO 2020 Regulations which require all ships to burn fuel with a maximum sulfur content of 0.5%, which is a significant reduction from the previous threshold of 3.5%. Commencing January 1, 2020, ships are required to remove sulfur from emissions through the use of scrubbers or other emission control equipment, or purchase marine fuel with 0.5% sulfur content, which has led to increased demand for this type of fuel compared to the price we would have paid had the IMO 2020 Regulations not been adopted. Substantially all of the vessels chartered by us do not have scrubbers, which means we are required to purchase low sulfur fuel for our vessels. Our vessels began operating on 0.5% low sulfur fuel in compliance with the IMO 2020 Regulations. As a result of the IMO 2020 Regulations and any future regulations with which we must comply, we may incur substantial additional operating costs.

These requirements can also affect the resale prices or useful lives of our vessels or require reductions in cargo capacity, ship modifications or operational changes or restrictions. Failure to comply with these requirements could lead to decreased availability of, or more costly insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and claims for natural resource, personal injury and property damages in the event that there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under, environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels. In addition, we are subject to the risk that we, our affiliated entities, or our or their respective officers, directors, shore employees, crew on board and agents may take actions determined to be in violation of such environmental regulations and laws and our environmental policies. Any such actual or alleged environmental laws regulations and policies violation, under negligence, willful misconduct or fault, could result in substantial fines, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Events of this nature could have a material adverse effect on our business, financial condition and results of operations.

The CFPB continues to be active in its monitoring of the loan origination and servicing sectors, and its recently issued rules increase our regulatory compliance burden and associated costs.

Our mortgage business is subject to the regulatory, supervisory and examination authority of the CFPB, which has oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including the Truth in Lending Act (“TILA”), the Real Estate Settlement Procedures Act and the Fair Debt Collections Practices Act. The CFPB has issued a number of regulations under the Dodd-Frank Act relating to loan origination and servicing activities, including ability to repay and "Qualified Mortgage" standards and other origination standards and practices.

The CFPB’s examinations have increased, and will likely continue to increase, our mortgage business’s administrative and compliance costs. They could also greatly influence the availability and cost of residential mortgage credit and increase servicing costs and risks. These increased costs of compliance, the effect of these rules on the lending industry and loan servicing, and any failure in our mortgage business’s ability to comply with the new rules by their effective dates, could be detrimental to

their business. The CFPB also issued guidelines on sending examiners to banks and other institutions that service and/or originate mortgages to assess whether consumers' interests are protected.

The CFPB also has broad enforcement powers, and can order, among other things, rescission or reformation of contracts, the refund of moneys or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment of damages or other monetary relief, public notifications regarding violations, limits on activities or functions, remediation of practices, external compliance monitoring and civil money penalties. The CFPB has been active in investigations and enforcement actions and, when necessary, has issued civil money penalties to parties the CFPB determines has violated the laws and regulations it enforces. Our mortgage business’s failure to comply with the federal consumer protection laws, rules and regulations to which they are subject, whether actual or alleged, could expose them to enforcement actions or potential litigation liabilities.

Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective.

Our insurance business is highly dependent on the ability of our insurance subsidiaries to engage on a daily basis in a large number of insurance underwriting, claim processing and investment activities, many of which are highly complex. These activities often are subject to internal guidelines and policies, as well as legal and regulatory standards, including those related to privacy, anti-corruption, anti-bribery and global finance and insurance (“F&I”) matters. The continued expansion into new products and geographic markets has brought about additional requirements. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. If our insurance subsidiaries’ controls are not effective, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage to their reputation.

Our businesses are subject to risks related to litigation and regulatory actions.

Over the last several years, businesses in many areas of the financial services industry have been subject to increasing amounts of regulatory scrutiny. In addition, there has been an increase in litigation involving firms in the financial services industry and public companies generally, some of which have involved new types of legal claims, particularly in the insurance industry. We may be materially and adversely affected by judgments, settlements, fines, penalties, unanticipated costs or other effects of legal and administrative proceedings now pending or that may be instituted in the future, including from investigations by regulatory bodies or administrative agencies. An adverse outcome of any investigation by, or other inquiries from, any such bodies or agencies also could result in non-monetary penalties or sanctions, loss of licenses or approvals, changes in personnel, increased review and scrutiny of us by our clients, counterparties, regulatory authorities, potential litigants, the media and others, any of which could have a material adverse effect on us.

We are involved in various litigation matters from time to time. For example, we are a defendant in Mullins v. Southern Financial Life Insurance Co., a class action lawsuit alleging violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud. This and other such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Our insurance and indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could have a material adverse effect our business, results of operations, financial condition or cash flows.

Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the EU and other jurisdictions.

Our international operations and activities expose us to risks associated with trade and economic sanctions, prohibitions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other penalties.

We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in other applicable jurisdictions.

We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. We operate in countries known to present heightened risks for corruption and our dry bulk shipping and product tankers and related

operations requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs officials and pilots.

Non-compliance with anti-corruption, anti-bribery or anti-money laundering laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation.

Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability.

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. Accordingly, the assessments levied on our insurance subsidiaries may increase as they increase their written premiums. These funds are supported by either assessments or premium surcharges based on incurred losses.

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although our insurance subsidiaries price their insurance to account for their potential obligations under these pooling arrangements, they may not be able to accurately estimate their liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in their profits. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool. The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our insurance subsidiaries’ profitability in any given period or limit the ability to grow their business.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive office is located at 299 Park Avenue, 13th Floor, New York, New York 10171. We and our subsidiaries lease properties throughout the United States and Europe, all of which are used as administrative offices. We believe that the terms of the leases at each of our subsidiaries are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms.

Item 3. Legal Proceedings

Our legal proceedings are discussed under the heading “Litigation” in Note (21) — Commitments and Contingencies in the Notes to the consolidated financial statements in this report.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Tiptree’s common stock is traded on the Nasdaq Capital Market under the ticker symbol “TIPT”.

Holders

As of December 31, 2021, there were 59 common stockholders of record. This number does not include beneficial owners whose shares are held by nominees in street name.

Item 6. Reserved.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in this section as follows:

•Overview

•Results of Operations

•Non-GAAP Measures and Reconciliations

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

OVERVIEW

Tiptree allocates capital to select small and middle market companies with the mission of building long-term value. Established in 2007, we have a significant track record investing in the insurance sector and across a variety of other industries, including mortgage origination, specialty finance and shipping. Our largest operating subsidiary, Fortegra, is a leading provider of specialty insurance products and related services. We also generate earnings from a diverse group of select investments that we refer to as Tiptree Capital, which includes our Mortgage segment and other, non-insurance businesses and assets. We evaluate performance primarily by the comparison of shareholders’ long-term total return on capital, as measured by growth in stock price plus dividends paid, in addition to Adjusted Net Income and Adjusted EBITDA.

Our 2021 highlights include:

Overall:

•Net income of $38.1 million increased from a net loss of $29.2 million in 2020, driven by growth in insurance and shipping operations, in addition to realized and unrealized gains on investments as compared to losses in 2020.

•Adjusted net income of $63.9 million increased 24.2% from $51.4 million in 2020, driven by improvement in insurance and shipping operations. Adjusted return on average equity was 16.5%, as compared to 13.1% in 2020.

•On October 12, 2021, Tiptree announced a $200 million strategic investment in its insurance subsidiary, Fortegra, by Warburg Pincus, a leading global growth investor. The investment will give Warburg Pincus an approximate 24% ownership in Fortegra on an as converted basis and is expected to close in the second quarter 2022, subject to regulatory approvals.

Insurance:

•Gross written premiums and premium equivalents were $2,194.0 million for the year ended December 31, 2021, as compared to $1,666.9 million for the year ended December 31, 2020, up 31.6% as a result of growth in admitted and E&S insurance lines as well as growth in fee-based service contract offerings.

•Total revenues increased 42.4% to $984.1 million, from $691.1 million in 2020, driven by increases in earned premiums, net, service and administrative fees, and net investment income.

•The combined ratio improved to 90.6%, as compared to 91.5% in 2020, driven by the continued scalability of Fortegra’s technology and shared service platform, which improved the expense ratio, while the underwriting ratio remained stable.

•Income before taxes of $69.9 million increased by $42.9 million as compared to $26.9 million in 2020. Return on average equity was 17.1% in 2021 as compared to 8.1% in 2020. The increase in both metrics was driven by revenue growth and an improved combined ratio, in addition to improved returns on investments as compared to the prior year.

•Adjusted net income increased 53.8% to $66.8 million, as compared to $43.4 million in 2020. Adjusted return on average equity was 22.2%, as compared to 15.2% in 2020. The increase in both metrics was driven by revenue growth and an improved combined ratio.

Tiptree Capital:

•Mortgage income before taxes was $28.4 million in 2021, as compared to $31.1 million in 2020, with the decrease driven by a decline in gain on sale margins, partially offset by higher servicing fees and positive fair value adjustments on the mortgage servicing portfolio. Return on average equity was 38.9% in 2021.

•Maritime transportation income before taxes was $11.6 million in 2021, as compared to $1.5 million in 2020, with the increase driven by a rise in dry-bulk charter rates.

Key Trends:

Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth, business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the other factors set forth in Part I, Item 1A in this Form 10-K. Generally, our businesses are positively affected by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and global growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition.

Fortegra generally offers products which have low severity but high frequency loss experiences and are short duration. As a result, the business has historically generated significant fee-based revenues. In general, the types of products Fortegra offers tend to have limited aggregation risk and, thus, limited exposure to catastrophic and residual risk. Underwriting risk is mitigated through a combination of reinsurance and retrospective commission structures with agents, distribution partners and/or third-party reinsurers. To mitigate counterparty risk, Fortegra ensures its distribution partners’ captive reinsurance entities are over-collateralized with highly liquid investments, primarily cash and cash equivalents. Insurance results primarily depend on pricing, underwriting, risk retention and the accuracy of reserves, reinsurance arrangements, returns on invested assets, and policy and contract renewals and run-off. While Fortegra’s insurance operations have historically maintained a relatively stable combined ratio, initiatives to change the business mix along with economic factors could generate different results than the business has historically experienced. We believe there will continue to be growth opportunities to expand Fortegra’s specialty insurance offerings to other niche products and markets.

Fortegra’s investment portfolio includes fixed maturity securities, loans, credit investment funds, and equity securities. Many investments are held at fair value. Changes in fair value for loans, credit investment funds, and equity securities are reported quarterly as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, or market risk, including specific company or industry factors. Our equity holdings are relatively concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value which can result in unrealized gains and losses affecting our results.

The Federal Reserve has signaled that it intends to raise interest rates in the near term. Rising 10-year treasury yields, and the tapering of the Federal Reserve’s purchases of mortgage backed securities, has resulted in increases to mortgage interest rates as well, although those rates still remain at relative historic lows.

Our businesses can also be impacted in various ways by changes in interest rates, which can result in fluctuations in the fair value of investments, revenues associated with floating rate investments, volume and revenues in mortgage operations and interest expenses associated with floating rate debt used to fund operations. Rising interest rates could impact the value of certain fixed maturity securities, with any unrealized losses recorded in equity, and if realized, could impact our results of operations. Offsetting the impact of a rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth can result in higher interest income on investments over time. In declining interest rate environments, the opposite impacts could occur. In addition, certain investments are based on floating interest rates, which has resulted in lower investment income during the recent period of extended low rates. Rising interest rates can also impact the cost of floating interest rate debt obligations, while declining rates can decrease the cost of debt. Our secured revolving and term credit agreements, preferred trust securities and asset-based revolving financing are all floating rate obligations.

Low mortgage rates due to the Federal Reserve intervention in mortgage markets, and rising home prices in certain markets, has resulted in a combination of higher mortgage volumes and margins beginning in the second quarter of 2020 and continuing through 2021, which has been a benefit to our mortgage operations. The recent low interest rate environment also benefits interest cost on debt, although corporate debt remains above current LIBOR rates. There can be no assurance that these positive trends will continue, the reversal of which could have a materially negative impact on our results of operations, and which may only be partially mitigated by the benefit to LIBOR based investments.

Authorities that regulate LIBOR have announced plans to phase out LIBOR, such that LIBOR is expected to cease to exist as a benchmark for floating interest rates. The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for USD-LIBOR. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets as a replacement reference rate. Such uncertainty may result in a sudden or prolonged increase or decrease in reported LIBOR and/or its replacement rate. To address the phase out of LIBOR, the agreements for our debt facilities include a mechanism to replace LIBOR with an alternative reference rate under specified circumstances, whether that replacement is SOFR or another benchmark. If future rates based upon the successor reference

rate are higher than LIBOR rates as currently determined due to illiquidity or other factors, our interest expense could increase.

Common shares of Invesque represent a significant asset on our consolidated balance sheet, both as part of insurance investments and separately in Tiptree Capital. Our investment in Invesque, which operates in the seniors housing, skilled nursing and medical office industries, is carried on our consolidated balance sheet at fair value. In April 2020, in response to the uncertainty in the industry, Invesque suspended its dividend to conserve liquidity. In combination with the impact of the COVID-19 pandemic on occupancy rates, Invesque’s stock declined significantly, which had a material impact on the carrying value of the investment and results of operations in 2020. While their stock price and the value of the investment increased modestly in 2021, any additional declines in the fair value of Invesque’s common stock could have a significant impact on our results of operations and the value of the investment.

The maritime transportation industry is highly competitive and fragmented. Demand for shipping capacity is a function of global economic conditions and the related demand for commodities, production and consumption patterns, and is affected by events which interrupt production, trade routes, and consumption. The shipping industry is cyclical with significant volatility in charter hire rates and profitability, which can change rapidly. General global economic conditions, along with company and industry specific factors, are expected to continue to impact the fair value of our vessels and associated operating results. While there is a current imbalance in supply and demand for shipping capacity, which led to a cyclical high in dry-bulk charter rates, a change in those factors and/or changes in global economic conditions could result in substantially lower charter rates, which could negatively impact our results of operations and the carrying value of our vessels.

RESULTS OF OPERATIONS

The following is a summary of our consolidated financial results for the year ended December 31, 2021, 2020 and 2019. In addition to GAAP results, management uses the Non-GAAP measures Adjusted net income, Adjusted return on average equity, Adjusted EBITDA and book value per share as measurements of operating performance. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and comparison among companies. Management uses Adjusted net income and adjusted return on average equity as part of its capital allocation process and to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting. The Company defines Adjusted EBITDA as GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, plus non-cash fair value adjustments, plus significant non-recurring expenses, and plus unrealized gains (losses) on available for sale securities that are reported in other comprehensive income. Adjusted net income, Adjusted return on average equity and Adjusted EBITDA are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. See “Non-GAAP Reconciliations” for a reconciliation of these measures to their GAAP equivalents.

Selected Key Metrics

($ in thousands, except per share information)	For the Year Ended December 31,
GAAP:		2021			2020			2019
Total revenues		$	1,200,514		$	810,301		$	772,728
Net income (loss) attributable to common stockholders		$	38,132		$	(29,158)		$	18,361
Diluted earnings per share		$	1.09		$	(0.86)		$	0.50
Cash dividends paid per common share		$	0.16		$	0.16		$	0.16
Return on average equity		11.4		%	(6.4)		%	5.0		%
Non-GAAP: (1)
Adjusted net income		$	63,869		$	51,431		$	27,598
Adjusted return on average equity		16.5		%	13.1		%	6.8		%
Adjusted EBITDA		$	100,776		$	4,541		$	68,085
Book value per share		$	11.22		$	10.90		$	11.52

(1)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Revenues

For the year ended December 31, 2021, revenues were $1,200.5 million, which increased $390.2 million, or 48.2% compared to the prior year period, primarily driven by growth in earned premiums, net, and service and administrative fees in the insurance business, increased revenues from our dry-bulk vessels and mortgage servicing portfolio, and net realized and unrealized gains on Invesque and other investments in 2021 compared to losses in 2020.

For the year ended December 31, 2020, revenues were $810.3 million, which increased $37.6 million, or 4.9% compared to the prior year, primarily due to a combination of growth in commercial and service contract lines in our insurance business and revenues associated with our mortgage business. Offsetting these increases were net realized and unrealized losses of $83.6 million for the year ended December 31, 2020, on Invesque and other equity securities.

The table below provides a break down between net realized and unrealized gains and losses from Invesque and other securities which impacted our consolidated results on a pre-tax basis. Many investments are carried at fair value and marked to market through unrealized gains and losses. As a result, we expect earnings relating to these investments to be relatively volatile between periods. Fixed income securities are primarily marked to market through AOCI in stockholders’ equity and do not impact net realized and unrealized gains and losses until they are sold.

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Net realized and unrealized gains (losses)(1)		$	8,885	$	(1,817)	$	12,189
Net realized and unrealized gains (losses) - Invesque		$	3,736	$	(81,813)	$	(1,200)

(1)    Excludes Invesque and Mortgage realized and unrealized gains and losses. The year ended December 31, 2019 includes a $7.6 million gain on sale of our CLO business.

Net Income (Loss) Attributable to common stockholders

For the year ended December 31, 2021, net income attributable to common stockholders was $38.1 million, an increase of $67.3 million from a net loss of $29.2 million for the year ended December 31, 2020, primarily driven by net realized and unrealized gains on Invesque and other investments in 2021 compared to losses in 2020, in addition to growth in Fortegra’s underwriting and fee operations, increased revenues from our mortgage servicing portfolio and improvement in dry-bulk shipping rates.

For the year ended December 31, 2020, net loss attributable to common stockholders was $29.2 million, a decrease of $47.5 million from net income of $18.4 million in 2019. The decrease for the year ended December 31, 2020 was primarily driven by the same factors that impacted revenues in the respective periods.

Adjusted net income & Adjusted return on average equity - Non-GAAP

Adjusted net income for the year ended December 31, 2021 was $63.9 million, an increase of $12.4 million, or 24.2%, from the year ended December 31, 2020. For the year ended December 31, 2021, adjusted return on average equity was 16.5%, as compared to 13.1% at December 31, 2020, with the increase in both metrics driven by improved performance in our insurance and shipping operations.

Adjusted net income for the year ended December 31, 2020 was $51.4 million, an increase of $23.8 million from 2019. The 2020 Adjusted return on average equity was 13.1%, as compared to 6.8% in 2019, with the increase in both metrics driven by improved performance in our insurance and mortgage operations.

Adjusted EBITDA - Non-GAAP

Adjusted EBITDA for the year ended December 31, 2021 was $100.8 million, an increase of $96.2 million from 2020, driven by realized and unrealized gains in 2021 compared to losses in 2020 (primarily Invesque), in addition to the improved operating performance noted above.

Adjusted EBITDA for the year ended December 31, 2020 was $4.5 million, a decrease of $63.5 million from 2019, which was substantially driven by unrealized losses on Invesque and other equity securities.

Book Value per share - Non-GAAP

Total stockholders’ equity was $400.2 million as of December 31, 2021 compared to $373.5 million as of December 31, 2020. In the year ended December 31, 2021, Tiptree returned $8.2 million to stockholders through share repurchases and dividends paid. Book value per share for the period ended December 31, 2021 was $11.22, an increase from book value per

share of $10.90 as of December 31, 2020. The key drivers of the increase over the past four quarters were income per share and the purchase of 0.5 million shares at a discount to book value, partially offset by other comprehensive losses, dividends paid of $0.16 per share, and issuance of shares related to warrants and vested subsidiary equity awards.

Total stockholders’ equity was $373.5 million as of December 31, 2020 compared to $411.4 million as of December 31, 2019. In 2020, Tiptree returned $19.3 million to shareholders through share repurchases and dividends paid. Book value per share for the period ended December 31, 2020 was $10.90, a decrease from book value per share of $11.52 as of December 31, 2019. The key drivers of the reduction from the prior year were losses per share and dividends paid of $0.160 per share. The decrease was partially offset by the purchase of 2.4 million shares.

Results by Segment

We classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations aggregated into Tiptree Capital - Other. Corporate activities include holding company interest expense, corporate employee compensation and benefits, and other expenses, including, but not limited to, public company expenses. Mortgage has been broken out of Tiptree Capital as a reportable segment because for the years ended December 31, 2021 and 2020 it met the quantitative threshold for disclosure. Segments for the year ended December 31, 2019 were conformed to this presentation as of December 31, 2020.

The following tables present the components of Revenue, Income (loss) before taxes and Adjusted net income for the following periods:

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Revenues:
Insurance		$	984,130	$	691,061	$	635,085
Mortgage		111,295		112,165		66,121
Tiptree Capital - other		105,089		7,075		71,522
Corporate		—		—		—
Total revenues		$	1,200,514	$	810,301	$	772,728
Income (loss) before taxes:
Insurance		$	69,857	$	26,948	$	37,030
Mortgage		28,407		31,102		2,959
Tiptree Capital - other		17,210		(61,242)		23,391
Corporate		(50,132)		(35,660)		(34,241)
Total income (loss) before taxes		$	65,342	$	(38,852)	$	29,139
Non-GAAP - Adjusted net income (1):
Insurance		$	66,782	$	43,423	$	32,806
Mortgage		17,434		28,578		3,929
Tiptree Capital - other		10,763		4,497		14,083
Corporate		(31,110)		(25,067)		(23,220)
Total adjusted net income		$	63,869	$	51,431	$	27,598

(1)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Insurance

Our principal operating subsidiary, Fortegra, is a specialty insurance underwriter and service provider, which focuses on niche business mixes and fee-oriented services. Our combination of specialty insurance underwriting, service contract products, and related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting revenues, investment income and unregulated fee revenues. We are an agent-driven business model, distributing our products through independent insurance agents, consumer finance companies, online retailers, auto dealers, and regional big box retailers to deliver products that complement the consumer transaction.

The following tables present the Insurance segment results for the following periods:

Results of Operations - 2021 Compared to 2020

($ in thousands)	For the Year Ended December 31,
	2021			2020			Change		% Change
Revenues:
Earned premiums, net	$	685,552		$	477,991		$	207,561	43.4	%
Service and administrative fees	260,525			186,973			73,552		39.3	%
Ceding commissions	11,784			21,101			(9,317)		(44.2)	%
Net investment income	17,896			9,916			7,980		80.5	%
Net realized and unrealized gains (losses)	(2,006)			(11,944)			9,938		NM %
Other revenue	10,379			7,024			3,355		47.8	%
Total revenues	$	984,130		$	691,061		$	293,069	42.4	%
Expenses:
Net losses and loss adjustment expenses	253,473			178,248			75,225		42.2	%
Member benefit claims	73,539			58,650			14,889		25.4	%
Commission expense	396,683			280,210			116,473		41.6	%
Employee compensation and benefits	76,552			65,089			11,463		17.6	%
Interest expense	17,576			15,487			2,089		13.5	%
Depreciation and amortization	17,223			10,835			6,388		59.0	%
Other expenses	79,227			55,594			23,633		42.5	%
Total expenses	$	914,273		$	664,113		$	250,160	37.7	%
Income (loss) before taxes (1)	$	69,857		$	26,948		$	42,909	159.2	%
Key Performance Metrics:
Gross written premiums and premium equivalents	$	2,194,024		$	1,666,942		$	527,082	31.6	%
Return on average equity	17.1		%	8.1		%
Underwriting ratio	74.7		%	74.6		%
Expense ratio	15.9		%	16.9		%
Combined ratio	90.6		%	91.5		%
Non-GAAP Financial Measures (2):
Adjusted net income	$	66,782		$	43,423		$	23,359	53.8	%
Adjusted return on average equity	22.2		%	15.2		%

(1)    Net income was $48,755 and $22,821 for the years ended December 31, 2021 and 2020, respectively.

(2)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Revenues

Earned Premiums, net

Earned premiums, net represent the earned portion of our gross written premiums, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements, as well as the earned portion of our assumed premiums. Our insurance policies generally have a term of six months to seven years depending on the underlying product and premiums are earned pro rata over the term of the policy. At the end of each reporting period, premiums written but not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy.

Service and Administrative Fees

Service and administrative fees represent the earned portion of our gross written premiums and premium equivalents, which is generated from non-insurance products including auto and consumer goods service contracts, motor club contracts and other services offered as part of our vertically integrated product offerings. Such fees are typically positively correlated with transaction volume and are recognized as revenue when realized and earned. At the end of each reporting period, gross written premiums and premium equivalents written for service contracts not earned are classified as deferred revenue, which are earned in subsequent periods over the remaining term of the policy.

Ceding Commissions and Other Revenue

Ceding commissions and other revenue consists of commissions earned on policies written on behalf of third-party insurance companies with no exposure to the insured risk and certain fees earned in conjunction with underwriting policies. Other revenue also includes the interest income earned on our premium finance product offering.

Net Investment Income

We earn investment income on our portfolio of invested assets. Our invested assets are primarily comprised of fixed maturity securities, and may also include cash and cash equivalents and equity securities. The principal factors that influence net investment income are the size of our investment portfolio, the yield on that portfolio and expenses due to external investment managers.

Net Realized and Unrealized Gains (Losses)

Net realized and unrealized gains (losses) on investments are a function of the difference between the amount received by us on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances for credit losses which are recognized in earnings. In addition, we carry our equity securities at fair value with unrealized gains and losses included in this line.

Revenues – 2021 compared to 2020

For the year ended December 31, 2021, total revenues increased 42.4%, to $984.1 million, as compared to $691.1 million for the year ended December 31, 2020. Earned premiums, net of $685.6 million increased $207.6 million, or 43.4%, driven by growth in commercial and personal lines, including E&S insurance offerings. Service and administrative fees of $260.5 million increased by 39.3%, driven by growth in auto and consumer goods service contract revenues. Ceding commissions of $11.8 million decreased by $9.3 million, or 44.2%, driven by lower ceding fees as less business was ceded in our U.S. Insurance lines. Other revenues increased by $3.4 million, or 47.8%, driven by growth in our premium finance lines.

For the year ended December 31, 2021, net investment income of $17.9 million increased $8.0 million from 2020, driven by increased interest income from growth in fixed income securities and higher dividends on equity securities. Net realized and unrealized losses were $2.0 million, a reduction in losses of $9.9 million, driven by realized and unrealized gains on equity securities in 2021, as compared to losses on equity securities and other investments in 2020.

For the year ended December 31, 2021, 28.7% of our revenues were derived from fees that are not solely dependent upon the underwriting performance of our insurance products, resulting in more diversified and consistent earnings. For the year ended December 31, 2021, 81.7% of our fee-based revenues were generated in non-regulated service companies, with the remainder in our regulated insurance companies.

The combination of unearned premiums and deferred revenues on Fortegra’s balance sheet grew to $1,658.8 million, representing an increase of $399.1 million, or 31.7%, from December 31, 2020 to December 31, 2021 as a result of growth in gross written premiums and premium equivalents, primarily related to admitted and E&S insurance lines as well as auto and consumer goods service contracts.

Expenses

Underwriting and fee expenses under insurance and service contracts include losses and loss adjustment expenses, member benefit claims and commissions expense.

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded and the costs of administering claims for insurance lines. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Loss occurrences in our insurance products are characterized by low severity and high frequency. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements, and original pricing of the product for purposes of the loss ratio in relation to loss emergence over time. Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods.

Member Benefit Claims

Member benefit claims represent the costs of services and replacement devices incurred in auto, consumer goods and roadside service contracts. Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized as expense when incurred.

Commission Expense

Commission expenses reflect commissions we pay retail agents, program administrators and managing general underwriters, net of ceding commissions we receive on business ceded under certain reinsurance contracts. In addition, commission expenses include premium-related taxes. Commission expenses related to each policy we write are deferred and amortized to expense in proportion to the premium earned over the policy life. Commission expense is incurred on most product lines, the majority of which are retrospective commissions paid to agents, distributors and retailers selling our products, including credit insurance policies, auto and consumer goods service contracts and motor club memberships. When claims increase, in most cases our distribution partners bear the risk through a reduction in their retrospective commissions. Commission rates are, in many cases, set by state regulators, such as in credit and collateral protection programs and are also impacted by market conditions and the retention levels of our distribution partners.

Operating and Other Expenses

Operating and other expenses represent the general and administrative expenses of our insurance operations including employee compensation and benefits and other expenses, including, technology costs, office rent, and professional services fees, such as legal, accounting and actuarial services.

Interest Expense

Interest expense consists primarily of interest expense on our corporate revolving debt, our Notes, our preferred trust securities due June 15, 2037 (“Preferred Trust Securities”) and asset-based debt for our premium finance business, which is non-recourse to Fortegra.

Depreciation and Amortization

Depreciation expense is primarily associated with furniture, fixtures and equipment. Amortization expense is primarily associated with purchase accounting amortization including values associated with acquired customer relationships, trade names and internally developed software and technology.

Expenses – 2021 compared to 2020

For the year ended December 31, 2021, net losses and loss adjustment expenses were $253.5 million, member benefit claims were $73.5 million and commission expense was $396.7 million, as compared to $178.2 million, $58.7 million and $280.2 million, respectively, for the year ended December 31, 2020. The increase in net losses and loss adjustment expenses of $75.2 million, or 42.2%, was driven by growth in U.S. Insurance lines and the impact of prior year development of $2.6 million as a result of higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business. The impact of the prior year development increased our ratio of net losses and loss adjustment expenses to earned premiums, net by 0.4%. The increase in member benefit claims of $14.9 million, or 25.4%, was driven by growth in auto and consumer goods service contracts. Commission expense increased by $116.5 million, or 41.6%, in line with growth in earned premiums, net and service and administrative fees.

For the year ended December 31, 2021, employee compensation and benefits were $76.6 million and other expenses were $79.2 million, as compared to $65.1 million and $55.6 million, respectively, for the year ended December 31, 2020. Employee compensation and benefits increased by $11.5 million, or 17.6%, driven by the acquisition of Sky Auto and investments in human capital associated with our growth objectives in E&S and service contract lines. Other expenses increased by $23.6 million, or 42.5%, driven by increased marketing costs aligned with revenue growth in Sky Auto, and increases in premium taxes, which grew in line with earned premiums. Included in other expenses were $2.2 million and $3.4

million for the years ended December 31, 2021 and 2020, respectively, related to non-recurring professional fees associated with preparation of the registration statement for the Fortegra initial public offering which was withdrawn in April 2021, and investment banking and legal expenses associated with the acquisition of Smart AutoCare and Sky Auto in January 2020.

For the year ended December 31, 2021, interest expense was $17.6 million as compared to $15.5 million for the year ended December 31, 2020. The increase in interest expense of $2.1 million, or 13.5%, was driven by increased asset-based borrowings to support growth in our premium finance lines and higher usage of the revolving working capital facility and letters of credit to support net written premium growth.

For the year ended December 31, 2021, depreciation and amortization expense was $17.2 million, including $15.3 million of intangible amortization related to purchase accounting associated with the acquisitions of Sky Auto, Smart AutoCare and Fortegra. For the year ended December 31, 2020, depreciation and amortization expense was $10.8 million including $9.2 million of intangible amortization from purchase accounting related to Smart AutoCare and Fortegra.

The following tables present the Insurance segment results for the following periods:

Results of Operations - 2020 Compared to 2019

($ in thousands)	For the Year Ended December 31,
	2020			2019			Change		% Change
Revenues:
Earned premiums, net	$	477,991		$	499,108		$	(21,117)	(4.2)	%
Service and administrative fees	186,973			106,239			80,734		76.0	%
Ceding commissions	21,101			9,608			11,493		119.6	%
Net investment income	9,916			8,667			1,249		14.4	%
Net realized and unrealized gains (losses)	(11,944)			6,896			(18,840)		NM %
Other revenue	7,024			4,567			2,457		53.8	%
Total revenues	$	691,061		$	635,085		$	55,976	8.8	%
Expenses:
Net losses and loss adjustment expenses	178,248			151,009			27,239		18.0	%
Member benefit claims	58,650			19,672			38,978		198.1	%
Commission expense	280,210			303,057			(22,847)		(7.5)	%
Employee compensation and benefits	65,089			49,789			15,300		30.7	%
Interest expense	15,487			14,766			721		4.9	%
Depreciation and amortization	10,835			9,105			1,730		19.0	%
Other expenses	55,594			50,657			4,937		9.7	%
Total expenses	$	664,113		$	598,055		$	66,058	11.0	%
Income (loss) before taxes (1)	$	26,948		$	37,030		$	(10,082)	(27.2)	%
Key Performance Metrics:
Gross written premiums and premium equivalents	$	1,666,942		$	1,297,042		$	369,900	28.5	%
Return on average equity	8.1		%	10.7		%
Underwriting ratio	74.6		%	76.5		%
Expense ratio	16.9		%	15.9		%
Combined ratio	91.5		%	92.4		%
Non-GAAP Financial Measures (2):
Adjusted net income	$	43,423		$	32,806		$	10,617	32.4	%
Adjusted return on average equity	15.2		%	12.3		%

(1)    Net income was $22,821 and $27,160 for the year ended December 31, 2020 and 2019, respectively.

(2)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Revenues – 2020 compared to 2019

For the year ended December 31, 2020, total revenues increased 8.8%, to $691.1 million, as compared to $635.1 million for the year ended December 31, 2019. Earned premiums, net of $478.0 million decreased $21.1 million, or 4.2%, driven by increased ceding of credit insurance and collateral protection premiums, and increased credit insurance cancellations driven by COVID-19 stimulus payments to consumers. This was partially offset by growth in commercial, service contract and niche personal lines programs. Service and administrative fees of $187.0 million increased by 76.0% driven by our acquisition of Smart AutoCare and growth in service contract revenues. Excluding Smart AutoCare, service and administrative fees increased by 11.7%, driven by growth in our consumer goods and roadside service contracts. Ceding commissions of $21.1 million increased by $11.5 million, or 119.6%, driven by growth in commercial lines and higher fees associated with the increase in ceded premiums in credit insurance and collateral protection programs. Other revenues increased by $2.5 million, or 53.8%, driven by growth in our premium finance lines.

For the year ended December 31, 2020, 31.1% of our revenues were derived from fees that are not solely dependent upon the underwriting performance of our insurance products, resulting in more diversified and consistent earnings. For the year ended December 31, 2020, 79.3% of our fee-based revenues were generated in non-regulated service companies, with the remainder in our regulated insurance companies.

For the year ended December 31, 2020, net investment income was $9.9 million driven by interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $11.9 million, a decline of $18.8

million, driven by realized and unrealized losses on equity securities in 2020, as compared to gains on equity securities and other investments in 2019.

Expenses – 2020 compared to 2019

For the year ended December 31, 2020, net losses and loss adjustment expenses were $178.2 million, member benefit claims were $58.7 million and commission expense was $280.2 million, as compared to $151.0 million, $19.7 million and $303.1 million, respectively, for the year ended December 31, 2019. The increase in net losses and loss adjustment expenses of $27.2 million, or 18.0%, was driven by growth in our U.S. Insurance business and the impact of prior year development of $5.4 million related to higher than expected claims frequency in certain programs associated with a small group of producers. The impact of the prior year development increased our ratio of net losses and loss adjustment expenses to earned premiums, net by 1.1%. The increase in member benefit claims of $39.0 million, or 198.1%, was driven by the acquisition of Smart AutoCare. Commission expense declined by $22.8 million, or 7.5%, driven by a decline in retrospective commission payments, largely offsetting the increase in net losses and loss adjustment expense.

For the year ended December 31, 2020, employee compensation and benefits were $65.1 million and other expenses were $55.6 million, as compared to $49.8 million and $50.7 million, respectively, for the year ended December 31, 2019. Employee compensation and benefits increased by $15.3 million, or 30.7%, driven by the acquisition of Smart AutoCare and investments in human capital associated with our growth objectives in E&S and service contract lines. Other expenses increased by $4.9 million, or 9.7%, driven by increases in acquisition related expenses, and premium taxes, which grew in line with premiums. Included in other expenses were $3.4 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively, related to non-recurring professional fees associated with investment banking and legal expenses for our acquisitions of Smart AutoCare and Sky Auto.

For the year ended December 31, 2020, interest expense was $15.5 million as compared to $14.8 million for the year ended December 31, 2019. The increase in interest expense of $0.7 million, or 4.9%, was driven by higher outstanding asset-based debt for our premium finance business, partially offset by decreases in LIBOR over 2020.

For the year ended December 31, 2020, depreciation and amortization expense was $10.8 million, including $9.2 million of intangible amortization related to purchase accounting associated with the acquisitions of both Smart AutoCare and Fortegra, as compared to $9.1 million and $7.5 million of intangible amortization from purchase accounting related to Fortegra, respectively, for 2019.

Key Performance Metrics

We discuss certain key performance metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.

Gross Written Premiums and Premium Equivalents

Gross written premiums and premium equivalents represent total gross written premiums from insurance policies and service contracts issued, as well as premium finance volumes during a reporting period. They represent the volume of insurance policies written or assumed and service contracts issued during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. Gross written premiums is a volume measure commonly used in the insurance industry to compare sales performance by period. Premium equivalents are used to compare sales performance of service and administrative contract volumes to gross written premiums. Investors also use these measures to compare sales growth among comparable companies, while management uses these measures to evaluate the relative performance of various sales channels.

The below table shows gross written premiums and premium equivalents by business mix for the following periods:

	For the Year Ended December 31,
($ in thousands)	Gross Written Premiums and Premium Equivalents
	2021		2020		2019
U.S. Insurance	$	1,438,393	$	1,063,743	$	965,544
U.S. Warranty Solutions	652,052		549,983		297,289
Europe Warranty Solutions	103,579		53,216		34,209
Total	$	2,194,024	$	1,666,942	$	1,297,042

Total gross written premiums and premium equivalents for the year ended December 31, 2021 were $2.2 billion as compared to $1.7 billion in 2020. The growth of $527.1 million, or 31.6%, is driven by a combination of factors including Fortegra’s growing distribution partner network, expanding admitted and E&S insurance lines, and increasing market penetration in the service contract sector through the acquisitions of Smart AutoCare (January 2020) and Sky Auto (December 2020). Additionally, certain retail-oriented distribution partners were impacted by COVID-19 shutdowns in 2020, providing for a more favorable period over period comparison.

We believe the continued growth in commercial E&S and service contract lines will result in increased gross written premiums and premium equivalents, and therefore growth in unearned premiums and deferred revenues on the balance sheet. The growth in gross written premiums and premium equivalents, combined with higher retention in select products, has resulted in an increase of $399.1 million, or 31.7%, in Fortegra’s unearned premiums and deferred revenue on the balance sheet. As of December 31, 2021, Fortegra’s unearned premiums and deferred revenues were $1,658.8 million, as compared to $1,259.7 million as of December 31, 2020.

Total gross written premiums and premium equivalents for the year ended December 31, 2020 were $1.7 billion as compared to $1.3 billion in 2019. U.S. Insurance lines increased by $98.2 million for the year ended December 31, 2019, or 10.2%, driven by growth in commercial, service contract insurance and collateral protection lines. U.S. Warranty Solutions increased by $252.7 million for the year ended December 31, 2020, or 85.0%, driven primarily by the acquisition of Smart AutoCare and growth in premium finance volumes. Europe Warranty Solutions increased by $19.0 million, or 55.6%, driven by growth in auto and consumer goods service contracts.

The growth in gross written premiums and premium equivalents, combined with higher risk retention in select products, increased unearned premiums and deferred revenue on Fortegra’s balance sheet by $410.4 million, or 48.3%. As of December 31, 2020, Fortegra’s unearned premiums and deferred revenues were $1,259.7 million, as compared to $849.3 million as of December 31, 2019.

Combined Ratio, Underwriting Ratio and Expense Ratio

Combined ratio is an operating measure, which equals the sum of the underwriting ratio and the expense ratio. Underwriting ratio is the ratio of the GAAP line items net losses and loss adjustment expenses, member benefit claims and commission expense to earned premiums, net, service and administrative fees and ceding commissions and other revenue. Expense ratio is the ratio of the GAAP line items employee compensation and benefits and other underwriting, general and administrative expenses to earned premiums, net, service and administrative fees and ceding commissions and other revenue.

A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss. These ratios are commonly used in the insurance industry as a measure of underwriting profitability, excluding earnings on the insurance portfolio. Investors commonly use these measures to compare underwriting performance among companies separate from the performance of the investment portfolio. Management uses these measures to compare the profitability of various products we underwrite as well as profitability among our various agents and sales channels.

The combined ratio was 90.6% for the year ended December 31, 2021, which consisted of an underwriting ratio of 74.7% and an expense ratio of 15.9%, as compared to 91.5%, 74.6% and 16.9%, respectively, for the year ended December 31, 2020. The improvement in the combined ratio year over year is primarily driven by the continued scalability of the technology and shared service platform, decreasing the expense ratio, while maintaining consistent underwriting performance. Our focus on underwriting expertise, A.I. driven lead generation, and technology-enhanced administration improves productivity, lowers administrative costs and results in agent relationships sustained over the long-term.

The combined ratio was 91.5% for the year ended December 31, 2020, which consisted of an underwriting ratio of 74.6% and an expense ratio of 16.9%, as compared to 92.4%, 76.5% and 15.9%, respectively, for the year ended December 31, 2019.

The improvement in the combined ratio and underwriting ratio from 2019 to 2020 was primarily due to the shift in business mix as the result of the growth in commercial and service contract lines, while the increase in the expense ratio was primarily driven by the impact of purchase accounting on the recognition of revenues and expenses associated with our acquisition of Smart AutoCare.

Return on Average Equity

Return on average equity is expressed as the ratio of net income to average stockholders’ equity during the period. Management uses this ratio as a measure of the on-going performance of the totality of the Company’s operations.

Return on average equity was 17.1% for the year ended December 31, 2021, as compared to 8.1%, for the year ended December 31, 2020, with the increase driven by growth in underwriting and fee revenues, improvement in the combined ratio and realized and unrealized gains in 2021, as compared to realized and unrealized losses in 2020.

Return on average equity was 8.1% for the year ended December 31, 2020, as compared to 10.7%, for the year ended December 31, 2019, with the decline driven by realized and unrealized losses in 2020, as compared to realized and unrealized gains in 2019, partially offset by improvement in revenues associated with underwriting activities.

Non-GAAP Financial Measures

Underwriting and Fee Revenues and Underwriting and Fee Margin - Non-GAAP(1)

In order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics – underwriting and fee revenues and underwriting and fee margin. We generally manage our exposure to the risks we underwrite using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our agents (e.g., commissions paid are adjusted based on the actual underlying losses incurred), which mitigate our risk. Period-over-period comparisons of revenues and expenses are often impacted by the agents and their PORC’s choice as to their risk retention appetite, specifically earned premiums, net, service and administration fees, ceding commissions, and other revenue, all components of revenue, and losses and loss adjustment expenses, member benefit claims, and commissions paid to our agents and reinsurers. Generally, when losses are incurred, the risk which is retained by our agents and reinsurers is reflected in a reduction in commissions paid.

Underwriting and fee revenues represents total revenues excluding net investment income, net realized and unrealized gains (losses). See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee revenues to total revenues in accordance with GAAP.

Underwriting and fee margin represents income before taxes excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. We deliver our products and services on a vertically integrated basis to our agents. As such, underwriting and fee margin exclude general and administrative expenses, interest income, depreciation and amortization and other corporate expenses, including income taxes, as these corporate expenses support our vertically integrated delivery model and are not specifically supporting any individual business line. See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee margin to total revenues in accordance with GAAP.

The below table shows underwriting and fee revenues and underwriting and fee margin by business mix for the following periods:

	For the Year Ended December 31,
($ in thousands)	Underwriting and Fee Revenues (1)						Underwriting and Fee Margin (1)
	2021		2020		2019		2021		2020		2019
U.S. Insurance	$	690,154	$	507,537	$	525,554	$	141,258	$	106,763	$	105,492
U.S. Warranty Solutions	230,942		162,900		87,130		90,255		61,722		37,478
Europe Warranty Solutions	47,144		22,652		6,834		13,032		7,496		2,808
Total	$	968,240	$	693,089	$	619,518	$	244,545	$	175,981	$	145,778

(1)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Underwriting and fee revenues were $968.2 million for the year ended December 31, 2021, as compared to $693.1 million,

for the year ended December 31, 2020. Total underwriting and fee revenues were up $275.2 million, or 39.7%, driven by growth in all product lines. U.S. Insurance revenues increased $182.6 million, or 36.0%, driven by growth in E&S commercial, collateral protection and credit insurance lines. The increase in U.S. Warranty Solutions was $68.0 million, or 41.8%, driven by growth in auto, consumer goods, and premium finance. Europe Warranty Solutions increased by $24.5 million, or 108.1%, driven by growth in auto and consumer goods service contracts.

Underwriting and fee margin was $244.5 million for the year ended December 31, 2021 as compared to $176.0 million for the year ended December 31, 2020, representing an increase of $68.6 million, or 39.0%, driven by growth in all product lines. U.S. Insurance grew by $34.5 million, or 32.3%, as the underwriting ratio was consistent year-over-year at 79.5% while revenues increased. U.S. Warranty Solutions increased by $28.5 million, or 46.2%, driven by the growth in revenues and improvement in the underwriting ratio. Europe Warranty Solutions increased by $5.5 million, or 73.9%, driven by growth in auto and consumer goods service contracts in those markets.

Underwriting and fee revenues were $693.1 million for the year ended December 31, 2020, as compared to $619.5 million, for the year ended December 31, 2019. Total underwriting and fee revenues were up $73.6 million, or 11.9%, driven by growth in U.S. and Europe Warranty Solutions, partially offset by a decline in U.S. Insurance. The decrease in U.S. Insurance was $18.0 million, or 3.4%, driven by increased ceded premiums and cancellations from the impacts of stimulus related to COVID-19 in our credit insurance and collateral protection lines. This was partially offset by growth in commercial and niche personal lines. The increase in U.S. Warranty Solutions was $75.8 million, or 87.0%, driven by the acquisition of Smart AutoCare and growth in auto, consumer goods, and premium finance. Europe Warranty Solutions increased by $15.8 million, or 231.5%, driven by growth in auto and consumer goods service contracts.

Underwriting and fee margin was $176.0 million for the year ended December 31, 2020 as compared to $145.8 million for the year ended December 31, 2019. Total underwriting and fee margin was up $30.2 million, or 20.7%, driven by growth in U.S. and Europe Warranty Solutions. U.S. Insurance was flat to prior year as the growth in commercial and niche personal lines offset the impacts of COVID-19 on our credit insurance and collateral protection lines. U.S. Warranty Solutions increased by $24.2 million, or 64.7%, driven by the acquisition of Smart AutoCare and growth in auto, consumer goods, and premium finance lines. Europe Warranty Solutions increased by $4.7 million, or 167.0%, driven by growth in auto and consumer goods service contracts in those markets.

Adjusted Net Income and Adjusted Return on Average Equity

Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting.

Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Management uses both measures to assess the on-going performance of our operations. See “—Non-GAAP Reconciliations” for a reconciliation of adjusted net income and adjusted return on average equity to income before taxes and adjusted return on average equity.

For the year ended December 31, 2021, adjusted net income and adjusted return on average equity were $66.8 million and 22.2%, respectively, as compared to $43.4 million and 15.2%, respectively, for the year ended December 31, 2020. The improvement in metrics was driven by the growth in revenues and improvement in the combined ratio.

For the year ended December 31, 2020, adjusted net income and adjusted return on average equity were $43.4 million and 15.2%, respectively, as compared to $32.8 million and 12.3%, respectively, for the year ended December 31, 2019. The improvement in both of these metrics was driven by the growth in commercial, service contracts and niche personal lines. See “—Non-GAAP Reconciliations” for a reconciliation of adjusted net income and adjusted return on average equity to income before taxes and adjusted return on average equity.

Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments

Our insurance investment portfolio includes investments held in statutory insurance companies and in unregulated entities. The portfolios held in statutory insurance companies are subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on Available for Sale (“AFS”) securities impact AOCI.

Our net investment income includes interest and dividends, net of investment expenses, on our invested assets. We report net realized and unrealized gains and losses on our investments separately from our net investment income.

For the year ended December 31, 2021, net investment income was $17.9 million compared to $9.9 million in 2020 with the increase driven by growth in investments, resulting in incremental interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $2.0 million, a decline of $9.9 million, driven by a reduction in realized and unrealized losses on equity securities from 2020 to 2021.

For the year ended December 31, 2020, net investment income was $9.9 million driven by growth in investments, resulting in incremental interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $11.9 million, a decline of $18.8 million, driven by realized and unrealized losses on equity securities in 2020 (primarily Invesque), as compared to gains on equity securities and other investments in 2019.

Tiptree Capital

Tiptree Capital consists of our Mortgage segment, which includes the operating results of Reliance, our mortgage business, and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments. As of December 31, 2021, Tiptree Capital - Other includes our Invesque shares, maritime transportation operations, and the mortgage operations of Luxury, which is classified as held for sale on the balance sheet.

Mortgage

Through our Mortgage operating subsidiary, Reliance, we originate, sell, securitize and service one-to-four-family, residential mortgage loans, comprised of conforming mortgage loans, Federal Housing Administration (“FHA”), Veterans Administration (“VA”), United States Department of Agriculture (“USDA”), and to a lesser extent, non-agency jumbo prime.

We are an approved seller/servicer for Fannie Mae and Freddie Mac. The Company is also an approved issuer and servicer for Ginnie Mae. The Company originates residential mortgage loans through its retail distribution channel (directly to consumers) in 39 states and the District of Columbia as of December 31, 2021.

The following tables present the Mortgage segment results for the following periods:

Results of Operations

($ in thousands)	For the Year Ended December 31,
		2021			2020			2019
Revenues:
Net realized and unrealized gains (losses)		$	92,307		$	96,590		$	53,815
Other revenue		18,988			15,575			12,306
Total revenues		$	111,295		$	112,165		$	66,121
Expenses:
Employee compensation and benefits		$	56,819		$	58,226		$	42,411
Interest expense		1,168			1,188			1,790
Depreciation and amortization		885			956			809
Other expenses		24,016			20,693			18,152
Total expenses		$	82,888		$	81,063		$	63,162
Income (loss) before taxes		$	28,407		$	31,102		$	2,959
Key Performance Metrics:
Origination volumes		$	1,608,311		$	1,658,126		$	1,142,642
Gain on sale margins		5.6		%	6.3		%	4.7		%
Return on average equity		38.9		%	50.9		%	7.1		%
Non-GAAP Financial Measures (1):
Adjusted net income		$	17,434		$	28,578		$	3,929
Adjusted return on average equity		28.8		%	60.5		%	12.0		%

(1)    See “Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Revenues

Net Realized and Unrealized Gains (Losses)

Net realized and unrealized gains (losses) include gains on sale of mortgage loans and the fair value adjustment in mortgage servicing rights. Gains on the sale of mortgage loans represent the difference between the selling price and carrying value of loans sold and are recognized upon settlement. Such gains also include the changes in fair value of loans held for sale and loan-related hedges and derivatives. We transfer the risk of loss or default to the loan purchaser, however, in some cases we are required to indemnify purchasers for losses related to non-compliance with borrowers’ creditworthiness and collateral requirements. Because of this, we recognize gains on sale net of required indemnification and premium recapture reserves. The fair value adjustment on mortgage servicing rights represents fair value adjustments considering estimated prepayments and other factors associated with changes in interest rates, plus actual run-off in the servicing portfolio. We report these adjustments separate from servicing income and servicing expense.

Other Revenue

Other revenue includes loan origination fees, interest income, and mortgage servicing income. Loan origination fees are earned as mortgage loans are funded. Servicing fees are earned over the life of the loan. Interest income includes interest earned on loans held for sale and interest income on bank balances and short-term investments.

Revenues – 2021 compared to 2020 and 2020 compared to 2019

For the year ended December 31, 2021, $1,608.3 million of loans were funded, compared to $1,658.1 million for 2020, a decrease of $49.8 million, or 3.0%. Origination volumes in 2021 and 2020 were primarily attributed to the lower interest rate environment and home price appreciation in the United States. Gain on sale margins decreased to 5.6% for the year ended December 31, 2021, down approximately 70 basis points from 6.3% for the year ended December 31, 2020. Net realized and unrealized gains for the year ended December 31, 2021 were $92.3 million, compared to $96.6 million for 2020, a decrease of $4.3 million or 4.4%. The primary driver of decreased gain on sale revenues were the decline in volumes and gain on sale margins, partially offset by positive fair value adjustments in mortgage servicing rights of $5.8 million as interest rates increased from the year ended December 31, 2020. Other revenue for the year ended December 31, 2021 was $19.0 million, compared to $15.6 million for 2020, an increase of $3.4 million, or 21.9%, driven primarily by higher servicing fees from an increase in loans serviced. As of December 31, 2021, the mortgage servicing asset recorded in other assets on the balance

sheet was $29.8 million, an increase from $14.8 million as of December 31, 2020.

For the year ended December 31, 2020, $1,658.1 million of loans were funded, compared to $1,142.6 million for 2019, an increase of $515.5 million, or 45.1%. The increase in origination volumes is primarily attributed to the lower interest rate environment and rising home prices in 2020 compared to 2019. Gain on sale margins also increased to 6.3% for the year ended December 31, 2020, up 165 basis points from 4.7% for the year ended December 31, 2019. Net realized and unrealized gains (losses) for the year ended December 31, 2020 were $96.6 million, compared to $53.8 million for 2019, an increase of $42.8 million or 79.5%. The primary drivers of increased gains on sale were increases in origination volumes and gains on sale margins, partially offset by negative fair value adjustments in our mortgage servicing rights of $4.0 million as interest rates declined. Other revenue for the year ended December 31, 2020 was $15.6 million, compared to $12.3 million for 2019, an increase of $3.3 million or 26.8%, driven by increased loan origination volumes and servicing fees. As of December 31, 2020, the mortgage servicing asset recorded in other assets on the balance sheet was $14.8 million, an increase from $8.8 million as of December 31, 2019.

Expenses

Employee Compensation and Benefits

Employee compensation and benefits includes salaries, commissions, benefits, bonuses, other incentive compensation and related taxes for employees. Commissions expense for sales staff generally varies with loan origination volumes.

Interest Expense

Interest expense represents borrowing costs under warehouse and other credit facilities used primarily to fund loan originations. Amortization of deferred financing costs, including commitment fees, is included in interest expense.

Depreciation and Amortization

Depreciation expense is mainly associated with furniture, fixtures and equipment while amortization expense is primarily associated with a trade name and internally developed software.

Other Expenses

Other expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing expense.

Expenses – 2021 compared to 2020 and 2020 compared to 2019

For the year ended December 31, 2021, employee compensation and benefits was $56.8 million, compared to $58.2 million in 2020, a decrease of $1.4 million or 2.4%. This decrease was driven primarily by reduced commissions on lower origination volumes. For the year ended December 31, 2021 and 2020, interest expense and depreciation and amortization expense were both flat, at $1.2 million and $0.9 million, respectively. For the year ended December 31, 2021, other expenses were $24.0 million, compared to $20.7 million in 2020 with the $3.3 million increase driven by increased loan origination expenses, including marketing costs.

For the year ended December 31, 2020, employee compensation and benefits was $58.2 million, compared to $42.4 million in 2019, an increase of $15.8 million or 37.3%. This increase was driven primarily by increased commissions on higher origination volumes, in addition to increased incentive compensation. For the year ended December 31, 2020, interest expense was $1.2 million, compared to $1.8 million in 2019, a decrease of $0.6 million, or 33.3%. This is due to the reduced interest rate environment decreasing our cost of funds, partially offset by higher loan volumes. For the year ended December 31, 2020, depreciation and amortization expense was $1.0 million, compared to $0.8 million for 2019, up $0.2 million, due to purchases of fixed assets. For the year ended December 31, 2020, other expenses were $20.7 million, compared to $18.2 million in 2019, driven by increased loan origination expenses, including marketing costs, and rent.

Income (loss) before taxes

Income before taxes for the year ended December 31, 2021 was $28.4 million, compared to income before taxes of $31.1 million in 2020. The primary driver of the decrease was a decline in margins partially offset by higher servicing fees attributable to the larger servicing portfolio, in addition to positive fair value adjustments on the mortgage servicing rights asset, as compared to 2020.

Income before taxes for the year ended December 31, 2020 was $31.1 million, compared to $3.0 million in 2019. The primary driver of the increase was the increase in revenue noted above, partially offset by higher compensation and other costs associated with the improved financial performance.

Tiptree Capital - Other

The following tables present a summary of Tiptree Capital - Other results for the following periods:

Results of Operations

	For the Year Ended December 31,
($ in thousands)	Total revenue						Income (loss) before taxes
	2021		2020		2019		2021		2020		2019
Senior living (Invesque)	$	3,091	$	(65,123)	$	9,140	$	3,091	$	(65,123)	$	9,140
Maritime transportation	35,562		22,697		16,591		11,635		1,493		1,610
Other (1)	66,436		49,501		45,791		2,484		2,388		12,641
Total	$	105,089	$	7,075	$	71,522	$	17,210	$	(61,242)	$	23,391

(1)    Includes our held for sale mortgage originator (Luxury), asset management, and certain intercompany elimination transactions.

Revenues

Tiptree Capital - Other earns revenues from the following sources: net interest income; revenues on our held for sale mortgage originator; realized and unrealized gains and losses on the Company’s investment holdings (primarily Invesque); and charter revenue from vessels within the Company’s maritime transportation operations.

Revenues for the year ended December 31, 2021 were $105.1 million compared to $7.1 million for 2020. The primary driver of the change in revenues for the year ended December 31, 2021 was unrealized gains on Invesque in 2021 compared to unrealized losses in 2020, partially offset by the suspension of its monthly dividend payment in April 2020, increased dry-bulk charter rates earned by the maritime transportation business, and growth in mortgage gain on sale revenues in the held for sale mortgage originator.

Revenues for the year ended December 31, 2020 were $7.1 million, compared to $71.5 million for 2019. The primary driver of revenues for the year ended December 31, 2020 were unrealized losses of $67.7 million on Invesque and the suspension of its monthly dividend payment, offset by a full year of tanker operations in our maritime transportation business and growth in mortgage gain on sale revenues in our held for sale mortgage originator.

Income (loss) before taxes

The income before taxes from Tiptree Capital - Other for the year ended December 31, 2021 was $17.2 million, compared to a loss before taxes of $61.2 million in 2020. The primary driver of the increase was unrealized gains in 2021 compared to losses in 2020 on our investment in Invesque, in addition to increased income before taxes in our maritime transportation business due to a rise in dry-bulk charter rates.

The loss before taxes from Tiptree Capital - Other for the year ended December 31, 2020 was $61.2 million, compared to income of $23.4 million in 2019. The primary drivers of the decrease were unrealized losses and discontinued dividend income on our investment in Invesque. Non-recurrence of the gain on sale of the management contracts and related assets for the CLOs managed in our asset management business in 2019 also drove the 2020 decline in income before taxes.

Adjusted net income - Non-GAAP(1)

($ in thousands)	Year Ended December 31,
		2021		2020		2019
Senior living (Invesque)		$	—	$	2,001	$	8,004
Maritime transportation		10,713		2,291		1,695
Other		50		205		4,384
Total		$	10,763	$	4,497	$	14,083

(1)    See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

Adjusted net income increased to $10.8 million for the year ended December 31, 2021 compared to $4.5 million in 2020. The increase was driven by improvement in maritime transportation operations from higher dry-bulk charter rates, partially offset by the impact of the discontinuation of the Invesque dividend in April 2020.

Adjusted net income decreased to $4.5 million for the year ended December 31, 2020 compared to $14.1 million in 2019. The key driver of the decrease was the dividend income on our investment in Invesque was discontinued in April 2020. See “— Non-GAAP Reconciliations” for a reconciliation to GAAP net income.

Corporate

The following table presents a summary of corporate results for the following periods:

Results of Operations

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Employee compensation and benefits		$	7,406	$	7,718	$	6,542
Employee incentive compensation expense		20,654		7,477		9,323
Interest expense		10,032		10,016		6,292
Depreciation and amortization		805		807		652
Other expenses		11,235		9,642		11,432
Total expenses		$	50,132	$	35,660	$	34,241

Corporate expenses include expenses of the holding company for interest expense, employee compensation and benefits, and public company and other expenses. Corporate employee compensation and benefits includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses.

Employee compensation and benefits, including incentive compensation expense, was $28.1 million for the year ended December 31, 2021, compared to $15.2 million for 2020, driven by an increase in performance related employee incentive compensation. Of the incentive compensation expense, $8.6 million was related to stock-based compensation expense in 2021 primarily driven by the increase in Tiptree’s stock price, compared to $3.2 million in 2020. Interest expense for the year ended December 31, 2021 and 2020 was $10.0 million. As of December 31, 2021, the outstanding borrowing was $114.1 million, compared to $120.3 million at December 31, 2020. Other expenses of $11.2 million increased by $1.6 million from the year ended December 31, 2020, primarily driven by $2.2 million of non-recurring professional and legal fees associated with preparation of the registration statement for the potential Fortegra initial public offering in 2021 (which registration statement has been withdrawn), compared to $0.8 million of non-recurring debt extinguishment fees associated with the refinancing of the corporate credit facility and acquisition-related legal fees in the prior year.

Employee compensation and benefits, including incentive compensation expense, was $15.2 million for the year ended December 31, 2020 compared to $15.9 million for 2019, driven primarily by a reduction in employee incentive compensation. Interest expense for the year ended December 31, 2020 was $10.0 million, up from $6.3 million in 2019, driven by a higher average outstanding balance during 2020 associated with our acquisition of Smart AutoCare in January 2020. As of December 31, 2020, the outstanding borrowing was $120.3 million, compared to $68.2 million at December 31, 2019.

Provision for Income Taxes

The total income tax expense of $21.3 million for the year ended December 31, 2021, and the total income tax benefit of $13.6 million for the year ended December 31, 2020 and total income tax expense of $9.0 million for the year ended December 31, 2019 are reflected as components of net income (loss).

For the year ended December 31, 2021, the Company’s effective tax rate was equal to 32.6%. The effective rate for the year ended December 31, 2021 was higher than the U.S. statutory income tax rate of 21.0% primarily from the impact of state taxes and non-deductible compensation, partially offset by the effect of stock based compensation. For the year ended December 31, 2020, the Company’s effective tax rate was equal to 35.1%. The effective rate for the year ended December 31, 2020 was higher than the U.S. federal statutory income tax rate of 21.0%, primarily from the impact of expected refunds arising from the CARES Act. For the year ended December 31, 2019, the Company’s effective tax rate was equal to 31.0%. The effective rate for the year ended December 31, 2019 was higher than the U.S. federal statutory income tax rate of 21.0%, primarily from the impact of the non-recurring return-to-provision, as well as ongoing state and foreign taxes.

On March 27, 2020, the CARES Act was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses. During the year ended December 31, 2020, the Company recorded a $7.3 million tax benefit related to the ability to carry back net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $16.8 million and increase to our current receivable of $24.1 million.

Balance Sheet Information

Tiptree’s total assets were $3,599.1 million as of December 31, 2021, compared to $2,995.8 million as of December 31, 2020. The $603.4 million increase in assets is primarily attributable to the growth in the Insurance segment.

Total stockholders’ equity was $400.2 million as of December 31, 2021, compared to $373.5 million as of December 31, 2020, primarily driven by net income for year ended December 31, 2021, partially offset by dividends. As of December 31, 2021, there were 34,124,153 shares of common stock outstanding as compared to 32,682,462 as of December 31, 2020.

The following table is a summary of certain balance sheet information:

	As of December 31, 2021
			Tiptree Capital
($ in thousands)	Insurance		Mortgage		Other		Corporate		Total
Total assets	$	3,002,152	$	201,134	$	384,564	$	11,297	$	3,599,147
Corporate debt	$	162,160	$	—	$	—	$	114,063	$	276,223
Asset based debt	42,310		72,518		13,600		—		128,428
Tiptree Inc. stockholders’ equity	$	292,865	$	59,237	$	117,984	$	(87,132)	$	382,954
Non-controlling interests - Other	11,066		1,169		3,930		1,062		17,227
Total stockholders’ equity	$	303,931	$	60,406	$	121,914	$	(86,070)	$	400,181

NON-GAAP MEASURES AND RECONCILIATIONS

Non-GAAP Reconciliations

In addition to GAAP results, management uses the non-GAAP financial measures underwriting and fee revenues and underwriting and fee margin in order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners. We also use the non-GAAP financial measures adjusted net income, adjusted return on average equity and Adjusted EBITDA as measures of operating performance and as part of our resource and capital allocation process, to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and to compare relative performance among comparable companies. Adjusted net income, adjusted return on average equity, Adjusted EBITDA, underwriting and fee revenues and underwriting and fee margin are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for earned premiums, net income or any other measure derived in accordance with GAAP.

Underwriting and Fee Revenues and Underwriting and Fee Margin — Non-GAAP (Insurance only)

The following tables present revenue and expenses by business mix. We generally manage exposure to underwriting risks written by using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid are adjusted based on the actual underlying losses incurred), which mitigates Fortegra’s risk. Period-over-period comparisons of revenues and expenses are often impacted by the PORCs and distribution partners’ choice as to whether to retain risk, specifically service and administration fees and ceding commissions, both components of revenue, and policy and contract benefits and commissions paid to our partners and reinsurers. Generally, when losses are incurred, the risk which is retained by our partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics underwriting and fee revenues and underwriting and fee margin.

Underwriting and Fee Revenues — Non-GAAP

We define underwriting and fee revenues as total revenues from the Insurance segment excluding net investment income and net realized and unrealized gains (losses). Underwriting and fee revenues represents revenues generated by underwriting and fee-based operations and allows us to evaluate the Company’s underwriting performance without regard to investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP, and other companies may define underwriting and fee revenues differently.

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Total revenues		$	984,130	$	691,061	$	635,085
Less: Net investment income		(17,896)		(9,916)		(8,667)
Less: Net realized and unrealized gains (losses)		2,006		11,944		(6,896)
Underwriting and fee revenues		$	968,240	$	693,089	$	619,522

Underwriting and Fee Margin — Non-GAAP

We define underwriting and fee margin as income before taxes from the Insurance segment, excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. Underwriting and fee margin represents the underwriting performance of our underwriting and fee-based lines. As such, underwriting and fee margin excludes general administrative expenses, interest expense, depreciation and amortization and other corporate expenses as those expenses support the vertically integrated business model and not any individual component of the Company’s business mix. We use this metric as we believe it gives our management and other users of our financial information useful insight into the specific performance of our underlying business mix. Underwriting and fee margin should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define underwriting and fee margin differently.

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Income (loss) before income taxes		$	69,857	$	26,948	$	37,030
Less: Net investment income		(17,896)		(9,916)		(8,667)
Less: Net realized and unrealized gains (losses)		2,006		11,944		(6,896)
Plus: Depreciation and amortization		17,223		10,835		9,105
Plus: Interest expense		17,576		15,487		14,766
Plus: Employee compensation and benefits		76,552		65,089		49,789
Plus: Other expenses		79,227		55,594		50,657
Underwriting and fee margin		$	244,545	$	175,981	$	145,784

Adjusted Net Income — Non-GAAP

We define adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. We use adjusted net income as an internal operating performance measure in the

management of business as part of our capital allocation process. We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently.

We present adjustments for amortization associated with acquired intangible assets. The intangible assets were recorded as part of purchase accounting in connection with Tiptree’s acquisition of Fortegra Financial in 2014, Defend in 2019, and Smart AutoCare and Sky Auto in 2020. The intangible assets acquired contribute to overall revenue generation, and the respective purchase accounting adjustments will continue to occur in future periods until such intangible assets are fully amortized in accordance with the respective amortization periods required by GAAP.

Adjusted Return on Average Equity — Non-GAAP

We define adjusted return on average equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “—Adjusted Net Income—Non-GAAP” above. We use adjusted return on average equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently.

	For the Year Ended December 31, 2021
				Tiptree Capital
($ in thousands)	Insurance			Mortgage			Other			Corporate		Total
Income (loss) before taxes	$	69,857		$	28,407		$	17,210		$	(50,132)	$	65,342
Less: Income tax (benefit) expense	(18,438)			(4,882)			(1,992)			4,021		(21,291)
Less: Net realized and unrealized gains (losses)	(3,732)			(5,798)			(3,091)			—		(12,621)
Plus: Intangibles amortization (1)	15,329			—			—			—		15,329
Plus: Stock-based compensation expense	2,006			331			213			8,581		11,131
Plus: Non-recurring expenses	2,158			—			938			2,171		5,267
Plus: Non-cash fair value adjustments	—			—			(3,170)			—		(3,170)
Less: Tax on adjustments	(398)			(624)			655			4,249		3,882
Adjusted net income	$	66,782		$	17,434		$	10,763		$	(31,110)	$	63,869
Adjusted net income	$	66,782		$	17,434		$	10,763		$	(31,110)	$	63,869
Average stockholders’ equity	300,820			60,433			113,717			(88,111)		386,859
Adjusted return on average equity	22.2		%	28.8		%	9.5		%	NM%		16.5		%
	For the Year Ended December 31, 2020
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				Tiptree Capital
($ in thousands)	Insurance			Mortgage			Other			Corporate		Total
Income (loss) before taxes	$	26,948		$	31,102		$	(61,242)		$	(35,660)	$	(38,852)
Less: Income tax (benefit) expense	(3,725)			(7,066)			13,624			10,794		13,627
Less: Net realized and unrealized gains (losses)	13,804			4,018			67,668			—		85,490
Plus: Intangibles amortization (1)	9,213			—			—			—		9,213
Plus: Stock-based compensation expense	2,287			2,482			174			3,172		8,115
Plus: Non-recurring expenses	3,418			—			624			758		4,800
Plus: Non-cash fair value adjustments	—			—			(2,141)			—		(2,141)
Less: Tax on adjustments	(8,522)			(1,958)			(14,210)			(4,131)		(28,821)
Adjusted net income	$	43,423		$	28,578		$	4,497		$	(25,067)	$	51,431
Adjusted net income	$	43,423		$	28,578		$	4,497		$	(25,067)	$	51,431
Average stockholders’ equity	285,760			47,202			138,606			(79,092)		392,476
Adjusted return on average equity	15.2		%	60.5		%	3.2		%	NM%		13.1		%
	For the Year Ended December 31, 2019
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				Tiptree Capital
($ in thousands)	Insurance			Mortgage			Other			Corporate		Total
Income (loss) before taxes	$	37,030		$	2,959		$	23,391		$	(34,241)	$	29,139
Less: Income tax (benefit) expense	(8,455)			(640)			(4,457)			4,535		(9,017)
Less: Net realized and unrealized gains (losses)	(6,896)			2,056			(6,148)			—		(10,988)
Plus: Intangibles amortization (1)	7,510			—			—			—		7,510
Plus: Stock-based compensation expense	2,891			170			—			3,299		6,360
Plus: Non-recurring expenses	1,975			—			202			2,079		4,256
Plus: Non-cash fair value adjustments	—			—			(153)			—		(153)
Less: Tax on adjustments	(1,249)			(616)			1,248			1,108		491
Adjusted net income	$	32,806		$	3,929		$	14,083		$	(23,220)	$	27,598
Adjusted net income	$	32,806		$	3,929		$	14,083		$	(23,220)	$	27,598
Average stockholders’ equity	266,397			32,785			161,133			(54,978)		405,337
Adjusted return on average equity	12.3		%	12.0		%	8.7		%	NM%		6.8		%

The footnotes below correspond to the tables above, under “—Adjusted Net Income - Non-GAAP and “—Adjusted Return on Average Equity - Non-GAAP”.

(1) Specifically associated with acquisition purchase accounting. See Note (3) Acquisitions.

Adjusted EBITDA - Non-GAAP

The Company defines Adjusted EBITDA as GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, plus non-cash fair value adjustments, plus significant non-recurring expenses, and plus unrealized gains (losses) on available for sale securities reported in other comprehensive income. Adjusted EBITDA is used to determine incentive compensation for the Company’s executive officers. Adjusted EBITDA is not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income.

($ in thousands)	For the Year Ended December 31,
		2021		2020		2019
Net income (loss) attributable to common stockholders		$	38,132	$	(29,158)	$	18,361
Add: net (loss) income attributable to non-controlling interests		5,919		3,933		1,761
Corporate debt related interest expense(1)		24,426		23,322		19,754
Consolidated provision (benefit) for income taxes		21,291		(13,627)		9,017
Depreciation and amortization		24,437		17,268		13,083
Non-cash fair value adjustments(2)		(7,945)		(7,122)		(3,156)
Non-recurring expenses(3)		5,267		4,800		4,257
Unrealized gains (losses) on AFS securities		(10,751)		5,125		5,008
Adjusted EBITDA		$	100,776	$	4,541	$	68,085
(1)	Corporate debt interest expense includes interest expense from secured corporate credit agreements, junior subordinated notes and preferred trust securities. Interest expense associated with asset-specific debt is not added-back for Adjusted EBITDA.
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(2)	For maritime transportation operations, depreciation and amortization is deducted as a reduction in the value of the vessel.
(3)	Acquisition, start-up and disposition costs, including debt extinguishment, legal, taxes, banker fees and other costs.

Book Value per share - Non-GAAP

Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares.

($ in thousands, except per share information)	As of December 31,
	2021		2020		2019
Total stockholders’ equity	$	400,181	$	373,538	$	411,415
Less: Non-controlling interests	17,227		17,394		13,353
Total stockholders’ equity, net of non-controlling interests	$	382,954	$	356,144	$	398,062
Total common shares outstanding	34,124		32,682		34,563
Book value per share	$	11.22	$	10.90	$	11.52

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries, including income from our investment portfolio and sales of assets and investments. We intend to use our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs. In February 2020, we refinanced our existing facility with Fortress, extending the maturity to February 2025 and increasing the principal amount to $125 million, generating approximately $53 million of cash after repaying the existing facility and expenses. A portion of those funds were invested in Fortegra to fund growth, with the remainder used to provide additional liquidity. As a condition to the closing of the WP Transaction, we will assign the Fortress credit facility to Fortegra who will use proceeds from the WP Transaction to payoff all of the unpaid principal balance of the Fortress credit facility. In addition, on or prior to the closing of the WP Transaction, Fortegra will have certain of its subsidiaries repay $30.0 million principal balance of aggregate intercompany promissory notes to Tiptree Holdings LLC, plus accrued interest.

Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in agreements for the strategic investment by Warburg Pincus in Fortegra, our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect our cash and cash equivalents and distributions from operating subsidiaries, our subsidiaries’ access to financing, and sales of investments to be adequate to fund our operations for at least the next 12 months, as well as the long term.

As of December 31, 2021, cash and cash equivalents, excluding restricted cash, were $175.7 million, compared to $136.9 million at December 31, 2020, an increase of $38.8 million primarily as a result of additional gross written premium and premium equivalents at Fortegra.

Our mortgage business relies on short term uncommitted sources of financing as a part of their normal course of operations. To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note (11) Debt, net in the notes to consolidated financial statements, for additional information regarding our mortgage warehouse borrowings.

We believe that cash flow from operations will provide sufficient capital to continue to grow the business and fund interest on the outstanding debt, capital expenditures and other general corporate needs over the next several years. As we continue to expand our business, including by any acquisitions we may make, we may, in the future, require additional working capital for increased costs.

For purposes of determining enterprise value and Adjusted EBITDA, we consider corporate credit agreements and preferred trust securities, which we refer to as corporate debt, as corporate financing and associated interest expense is added back. The below table outlines this amount by debt outstanding and interest expense at the insurance company and corporate level.

Corporate Debt

($ in thousands)	Corporate Debt Outstanding<br><br>as of December 31,						Interest Expense for the<br><br>year ended December 31,
	2021		2020		2019			2021		2020		2019
Insurance	$	162,160	$	160,000	$	185,000		$	14,232	$	13,305	$	13,390
Corporate	114,063		120,313		68,210			10,193		10,017		6,292
Total	$	276,223	$	280,313	$	253,210		$	24,425	$	23,322	$	19,682

As of December 31, 2021, the credit facility with Fortress carries a rate of LIBOR (with a minimum LIBOR rate of 1.0%), plus a margin of 6.75% per annum. The agreement requires quarterly principal payments of approximately $1.56 million. See Note (11) Debt, net in the notes to consolidated financial statements for details.

On August 4, 2020, Fortegra entered into an Amended and Restated Credit Agreement by and among Fortegra and its wholly-owned subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of

Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing lender (the “Fortegra Credit Agreement”). The Fortegra Credit Agreement provides for a $200.0 million revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $17.5 million for swing loans, and matures on August 4, 2023.

Consolidated Comparison of Cash Flows

($ in thousands)	For the Year Ended December 31,
Total cash provided by (used in):	2021		2020		2019
Net cash (used in) provided by:
Operating activities	$	204,316	$	140,169	$	23,742
Investing activities	(273,759)		(123,491)		(8,327)
Financing activities	73,735		31,749		36,928
Net increase (decrease) in cash, cash equivalents and restricted cash	$	4,292	$	48,427	$	52,343

Operating Activities

Cash provided by operating activities was $204.3 million for the year ended December 31, 2021. In 2021, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), proceeds from mortgage loans outpacing originations and growth in insurance company unearned premiums and net deferred revenues, partially offset by increases in deferred acquisition costs and reinsurance receivables.

Cash provided by operating activities was $140.2 million for the year ended December 31, 2020. In 2020, the primary sources of cash from operating activities included proceeds from mortgage loans outpacing originations, offset by increases in notes and accounts receivable and decreases in unearned premiums from our insurance operations.

Cash provided by operating activities was $23.7 million for the year ended December 31, 2019. In 2019, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), increases in unearned premiums, reinsurance payables, and deferred revenues, offset by increases in notes and accounts receivable and reinsurance receivables related to growth in our insurance operations.

Investing Activities

Cash used in investing activities was $273.8 million for the year ended December 31, 2021. In 2021, the primary use of cash from investing activities was the purchase of investments outpacing proceeds from the sales of investments in our insurance investment portfolio, and the issuance of notes receivable outpacing proceeds.

Cash used in investing activities was $123.5 million for the year ended year ended December 31, 2020. In 2020, the primary use of cash from investing activities was the purchase of investments outpacing proceeds from the sales of investments in our insurance investment portfolio and the issuance of notes receivables outpacing proceeds. This was partially offset by proceeds received in connection with the acquisition of Smart AutoCare.

Cash used in investing activities was $8.3 million for the year ended December 31, 2019. In 2019, the primary use of cash from investing activities was the issuance of notes receivables outpacing proceeds. This was offset by proceeds associated with a contingent earn-out from our sale of Care, proceeds from the sale of our Telos business, and sales and maturities of investments in excess of purchases in our insurance investment portfolio.

Financing Activities

Cash provided by financing activities was $73.7 million for the year ended December 31, 2021. In 2021, proceeds from borrowings exceeded principal repayments on mortgage warehouse facilities and asset-based debt supporting our premium finance operations in the insurance business, partially offset by net redemptions of non-controlling interest of $3.5 million, the repurchase of the Company’s common stock and other changes in additional paid-in capital of $8.1 million and the payment of $5.3 million in dividends.

Cash provided by financing activities was $31.7 million for the year ended December 31, 2020. In 2020, our new borrowings exceeded our principal paydowns, primarily from increased borrowings on our secured term credit agreement and our secured corporate revolving credit agreement in our insurance operations, partially offset by decreased borrowings on our mortgage

warehouse facilities. Net cash provided by increased borrowings was offset by the repurchase of $13.9 million of the Company’s common stock and the payment of $5.6 million in dividends.

Cash provided by financing activities was $36.9 million for the year ended December 31, 2019. In 2019, our new borrowings exceeded our principal repayments primarily from increased borrowings on our mortgage warehouse facilities due to increased volume in our mortgage business, increased borrowing on our secured corporate credit agreement in our insurance business to support growth, and a vessel backed term loan, offset by the repayment of asset based borrowings in our credit loan fund, held within our insurance investment portfolio. Net cash provided by increased borrowings was partially offset by the repurchase of $9.1 million of the Company’s common stock and the payment of $5.5 million in dividends.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s significant accounting policies are described in Note (2) Summary of Significant Accounting Policies. As disclosed in Note (2), the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.

The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Impairment

Goodwill and Intangible Assets, net

The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. At both December 31, 2021 and 2020, we had two reporting units for goodwill impairment testing, of which the fair value substantially exceeded carrying value as of that date. See Note (9) Goodwill and Intangible Assets, net.

Reserves

Unpaid claims are reserve estimates that are established in accordance with GAAP using generally accepted actuarial methods. Credit life and accidental death and destruction (AD&D) unpaid claims reserves include claims in the course of settlement and incurred but not reported (IBNR) claims. Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other Fortegra product lines, unpaid claims reserves are bulk reserves and are entirely IBNR. The Company uses a number of algorithms in establishing its unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, target loss ratios, in-force amounts, unearned premium reserves, industry recognized morbidity tables or a combination of these factors.

In arriving at the unpaid claims reserves, the Company conducts an actuarial analysis on a basis gross of reinsurance. The same estimates used as a basis in calculating the gross unpaid claims reserves are then used as the basis for calculating the net unpaid claims reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key assumption underlying these analyses. Our claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. From the anticipated loss development patterns, a variety of actuarial loss projection techniques are employed, such as the chain ladder method, the Bornhuetter-Ferguson method and expected loss ratio method.

The unpaid claims reserves represent the Company’s best estimates, generally involving actuarial projections at a given time. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims reserves in the periods presented.

During the years ended December 31, 2021, 2020, and 2019, the Company experienced an increase in prior year development of $2.6 million, $5.4 million, and $5.2 million, respectively. In 2021, the $2.6 million increase in prior year development is

primarily due to higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business. In 2020, the $5.4 million increase was due to higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business, of which $2.2 million related to our non-standard auto business. The underlying cause of the 2020 prior year development was the result of a subset of risk where the loss ratio pegs used in our year end actuarial determination was low given the ultimate frequency that emerged. In 2019, the entire $5.2 million increase related to our non-standard auto business. The underlying cause of this development was higher than expected claim frequency. The non-standard programs which contributed to the prior year development in both 2020 and 2019, one active program which was new in 2018 and two programs in run-off, experienced loss emergence in excess of levels contemplated when originally pricing the products. The Company responded to this emergence by filing for increased rates for the one underperforming active program and non-renewing all business for the two programs in run-off.

Management considers the prior year development for all three years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. Earned premiums, net in 2021 were $685.6 million and net losses and loss adjustment expenses were $253.5 million, which resulted to a loss ratio of 37.0%. Without the $2.6 million prior year development, the calendar year loss ratio would have been approximately 0.4% lower. For comparison, the 2020 and 2019 loss ratios were 37.2% and 30.3%, respectively. In general, the Company's loss ratio results have been predictable and consistent over time. In 2021, the $2.6 million prior year development represented only 3.7% of pretax income of our insurance business of $69.9 million, and 3.1% of the opening net liability for losses and loss adjustment expense of $83.9 million in the same year. Actuarial estimates are subject to estimation variability, and while management uses its best judgment in establishing the estimate of required unpaid claims, different assumptions and variables could lead to significantly different unpaid claims estimates. The variability in these estimates can, and have in the past, been significant to pretax income.

We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings.

Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

While management has used its best judgment in establishing the estimate of required unpaid claims, different assumptions and variables could lead to significantly different unpaid claims estimates. The determination of best estimates is affected by many factors, including but not limited to:

•the quality and applicability of historical data,

•current and future economic conditions,

•trends in loss frequencies and severities for various causes of loss,

•changes in claims reporting patterns,

•claims settlement patterns and timing,

•regulatory, legislative and judicial decisions,

•morbidity patterns, and

•the attitudes of claimants towards settlements.

The adequacy of our unpaid claims reserves will be impacted by future trends that impact these factors. Two key measures of loss activity are loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls, changes in economic activity and weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.

If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be different than management’s estimate. Based on our actuarial analysis, we have determined that an aggregate change that is greater than 5% in loss frequency and loss severity is not reasonably likely given the Company’s low limit underwriting and low severity philosophies. The effect of higher and lower levels of loss frequency and severity on our ultimate costs for claims occurring in 2021 would be as follows:

Accident Year 2021 Sensitivity TestChange in Loss & Frequency & Severity on Ultimate
( in thousands)
Scenario		Change
5% higher	263	$	12,515
3% higher	258	$	7,509
1% higher	253	$	2,503
Base scenario	250	$	—
1% lower	248	$	(2,503)
3% lower	243	$	(7,509)
5% lower	238	$	(12,515)

All values are in US Dollars.

Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

Deferred Acquisition Costs

The Company defers certain costs of acquiring new and renewal insurance policies, and other products as follows:

Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not occurred. These capitalized costs are amortized as the related premium is earned.

Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred. These capitalized costs are amortized as the related service and administrative fees are earned.

The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2021, 2020 and 2019.

Amortization of deferred acquisition costs was $375.1 million, $265.8 million and $287.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Revenue Recognition

The Company earns revenues from a variety of sources:

Earned Premiums, net

Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company's reinsurers, including PORCs, earned in the same manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer.

Service and Administrative Fees

The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned. Revenues from contracts with customers were $258.6 million, $163.6 million and $89.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, and include auto and consumer goods service contracts, motor clubs, other service and administrative fees, vessel related revenue and management fee income. See Note (14) Revenue from Contracts with Customers for more

detailed disclosure regarding these revenues.

Service fee revenue is recognized as the services are performed. Administrative fee revenue includes the administration of premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and auto and consumer goods service contracts. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts, vehicle service contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other actuarial methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in earnings in the period that includes the enactment date. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting guidance requires these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner.

The Company establishes valuation allowances for deferred tax assets when, in its judgment, it concludes that it is more likely than not that the deferred tax assets will not be realized. These judgments are based on projections of future income, including tax-planning strategies, by individual tax jurisdictions. Changes in economic conditions and the competitive environment may impact the accuracy of the Company’s projections. On a quarterly basis, the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to the Company’s valuation allowance is appropriate.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note (2) Summary of Significant Accounting Policies, in the accompanying consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to interest rate risk related to borrowings in various businesses. These risks result primarily from changes in LIBOR rates and the spread over LIBOR rates related to the credit risks of our businesses.

For fixed rate debt, interest rate fluctuations generally affect the fair value of our liabilities, but do not impact our earnings. 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 could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of maturity or refinancing may lower our overall interest expense. As of December 31, 2021, the Company had $125 million of general purpose fixed rate debt outstanding maturing in 2057.

For general purpose floating rate debt, interest rate fluctuations primarily affect interest expense and cash flows. If market interest rates rise, our earnings could be adversely affected by an increase in interest expense. In contrast, lower interest rates may reduce our interest expense and improve our earnings, except to the extent that our borrowings are subject to interest rate floors. The floating interest rate risk of asset based financing is generally offset as the financing and the purchased financial asset are generally subject to the same interest rate risk. For floating rate risk of other asset based financing such as borrowings to finance acquisitions of real estate, we generally hedge our exposure to the variability of the benchmark index with an interest rate swap.

As of December 31, 2021, we had $114.1 million of general purpose floating rate debt with a weighted average rate of 7.75%. A 100 basis point change in interest rates would increase interest expense by $0.2 million and decrease interest expense by an insignificant amount (including the effect of applicable minimum interest rates) on an annualized basis. As of December 31, 2020, we had $120.3 million of general purpose floating rate debt with a weighted average rate of 7.2%.

Our consolidated results include investments in bonds, loans or other interest bearing instruments. The fair values of such investments fluctuate in response to changes in market interest rates. Increases and decreases in interest rates generally translate into decreases and increases in fair values of these instruments. Some of these investments bear a floating rate of interest which subjects the Company to cash flow risk based upon changes in the underlying interest rate index. As noted above in the discussion of risks related to floating rate borrowings, the Company mitigates a significant amount of our floating rate risk by matching the funding of such investments with borrowings based upon the same interest rate index. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

As of December 31, 2021, we had $658.8 million invested in interest bearing instruments, which represents 72% of the total investment portfolio. The estimated effects of a hypothetical increase in interest rates of 100 bps would result in a decrease to the fair value of the portfolio by $20.0 million. As of December 31, 2020, we had $510.0 million invested in interest bearing instruments, which represented 63% of the total investment portfolio. The estimated effects of a hypothetical increase in interest rates of 100 bps would result in a decrease to the fair value of the portfolio by $14.2 million.

Credit Risk

We are exposed to credit risk in the form of available for sale securities, investments in loans, and other investments as follows:

($ in thousands)	As of December 31,
	2021		2020
Available for sale securities, at fair value (1)
Obligations of state and political subdivisions	$	58,660	$	44,350
Corporate securities	144,877		94,941
Asset backed securities	17,447		36,192
Certificates of deposit	2,696		1,355
Obligations of foreign governments	2,590		3,992
Loans, at fair value(2)
Corporate loans	7,099		7,795
Other investments(3)
Corporate bonds, at fair value	38,965		105,777
Debentures	21,057		17,703
Trade Claims	19,737		—
Other	216		802
Total	$	313,344	$	312,907

(1)    The Company also holds investments in U.S. Treasury securities and obligations of U.S. government authorities and agencies of $351.2 million and $196.3 million as of December 31, 2021 and 2020, respectively. These investments do not represent a credit risk and are excluded.

(2)    The Company also holds investments in mortgage loans held for sale of $98.5 million and $82.9 million as of December 31, 2021 and 2020, respectively. These investments do not represent a credit risk and are excluded.

(3)    The Company also holds other investments of $88.7 million and $95.4 million as of December 31, 2021 and 2020, respectively, primarily comprised of vessels. These investments do not represent a credit risk and are excluded.

Credit risk within the Company’s investments represents the exposure to the adverse changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries, and countries. As of December 31, 2021 and 2020, 72% and 62%, respectively, of the investments subject to credit risk had investment grade ratings. A widening of credit spreads by 100 bps for the investments subject to credit risk would result in a decrease of $6.3 million and $5.9 million to the fair value of the portfolio as of December 31, 2021 and 2020, respectively.

In addition, our mortgage business also underwrites mortgage loans for the purpose of selling them into the secondary market. Due to the relatively short holding period, the credit risk associated with mortgage loans held for sale is not expected to be significant.

See Note (6) Investments to the consolidated financial statements for more information regarding our investments in loans by type.

Market Risk

We are primarily exposed to market risk related to the following investments:

($ in thousands)	As of December 31, 2021						As of December 31, 2020
	Insurance		Tiptree Capital - Other		Total		Insurance		Tiptree Capital - Other		Total
Invesque	$	6,015	$	28,799	$	34,814	$	5,370	$	25,708	$	31,078
Fixed income exchange traded fund	53,154		—		53,154		63,875		—		63,875
Other equity securities	50,515		—		50,515		28,885		—		28,885
Total equity securities	$	109,684	$	28,799	$	138,483	$	98,130	$	25,708	$	123,838

A 10% increase or decrease in the fair value of such investments would result in $13.8 million and $12.3 million of unrealized gains and losses as of December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, we owned 17.0 million shares of common stock, respectively, or approximately 31%, of Invesque, a real estate investment company that specializes in health care real estate and senior living property investment throughout North America. The value of our Invesque shares is reported at fair market value on a quarterly basis. Invesque historically paid monthly dividends until April 2020, when dividends were discontinued. A loss in the fair market value of

our Invesque shares or a reduction or discontinuation in the dividends paid on our Invesque shares could have a material adverse effect on our financial condition and results of operations. As of December 31, 2021 and 2020, the fair value of the Invesque shares was based on the market price.

See “Risk Factors — Risks Related to our Business - Our investment in Invesque shares is subject to market volatility and the risk that Invesque changes its dividend policy”.

Counterparty Risk

We are subject to counterparty risk to the extent that we engage in derivative activities for hedging or other purposes. As of December 31, 2021 and 2020, the total fair value of derivative assets subject to counterparty risk, including the effect of any legal right of offset, totaled $8.2 million and $11.5 million, respectively. We generally manage our counterparty risk to derivative counterparties by entering into contracts with counterparties of high credit quality.

Total reinsurance receivables were $880.8 million and $728.0 million as of December 31, 2021 and 2020, respectively. Of those amounts, $533.6 million and $442.2 million, respectively, related to contracts with third-party captives in which we hold collateral or receive letters of credit in excess of the reinsurance receivables. The remainder is held with high quality reinsurers, substantially all of which have a rating of A or better by A.M. Best. As of December 31, 2021, the non-affiliated reinsurers from whom our insurance business has the largest reinsurance receivable balances represented $126.1 million, or 14.3% of the total, and included: Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), Canada Life International Reinsurance (Bermuda) Corporation (A.M. Best Rating: A+ rated), and Canada Life Assurance Company (A.M. Best Rating: A+ rated). The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit. As of December 31, 2021, the Company does not believe there is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization.

We were also exposed to counterparty risk of approximately $157.9 million and $131.8 million as of December 31, 2021 and 2020, respectively, related to our retrospective commission arrangements; associated risks are offset by the Company’s contractual ability to withhold future commissions against the retrospective balances. In addition, we are exposed to counterparty risk of approximately $89.8 million and $62.1 million as of December 31, 2021 and 2020, respectively, related to our premium financing business. The risk associated with such arrangements is mitigated by the fact that we have the contractual ability to cancel the insurance policy and have premiums refunded to us by the insurer in the event of a counterparty default.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)	F- 2
Consolidated Balance Sheets as of December 31, 2021 and 2020	F- 1
Consolidated Statements of Operations for the years ended December 31, 2021, 2020and 2019	F- 2
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020and 2019	F- 3
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020and 2019	F- 4
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020and 2019	F- 5
Notes to Consolidated Financial Statements	F- 6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Tiptree Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements

Critical Audit Matter Description

Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates. The Company estimates policy liabilities and unpaid claims reserves by applying a variety of generally accepted actuarial methods to historical loss development patterns, which require numerous assumptions and significant judgment.

We identified policy liabilities and unpaid claims as a critical audit matter because of the significant estimates and assumptions management made in forecasting ultimate losses. This critical audit matter required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to policy liabilities and unpaid claims included the following, among others:

•We tested the design and operating effectiveness of controls over policy liabilities and unpaid claims, including those related to the estimation and management’s review of the estimates as well as the selection of underlying assumptions.

•We tested the design and operating effectiveness of controls over the completeness and accuracy of the premium and claim data utilized by management and their third-party actuaries.

•We evaluated the methods and assumptions used by the Company to estimate the policy liabilities and unpaid claims reserves through the following procedures:

◦With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims reserves based on historical and industry claim development factors.

◦With assistance from our actuarial specialists, we performed retrospective procedures comparing actual loss development with expected loss development to assess the reasonableness of assumptions used, including consideration of potential bias, in the estimation of policy liabilities and unpaid claims.

◦We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test that the inputs to the actuarial estimates were complete and accurate.

/s/Deloitte & Touche LLP

New York, New York

March 11, 2022

We have served as the Company's auditor since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Tiptree Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 11, 2022 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/Deloitte & Touche LLP

New York, New York

March 11, 2022

TIPTREE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share data)

	As of December 31,
	2021		2020
Assets:
Investments:
Available for sale securities, at fair value, net of allowance for credit losses	$	577,448	$	377,133
Loans, at fair value	105,583		90,732
Equity securities	138,483		123,838
Other investments	168,656		219,701
Total investments	990,170		811,404
Cash and cash equivalents	175,718		136,920
Restricted cash	19,368		58,355
Notes and accounts receivable, net	454,369		370,452
Reinsurance receivables	880,836		728,009
Deferred acquisition costs	379,373		229,430
Goodwill	179,103		179,236
Intangible assets, net	122,758		138,215
Other assets	146,844		162,034
Assets held for sale	250,608		181,705
Total assets	$	3,599,147	$	2,995,760
Liabilities and Stockholders’ Equity
Liabilities:
Debt, net	$	393,349	$	366,246
Unearned premiums	1,123,952		860,690
Policy liabilities and unpaid claims	331,703		233,438
Deferred revenue	534,863		399,211
Reinsurance payable	265,569		224,660
Other liabilities and accrued expenses	306,536		362,865
Liabilities held for sale	242,994		175,112
Total liabilities	$	3,198,966	$	2,622,222
Stockholders’ Equity:
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding	$	—	$	—
Common stock: $0.001 par value, 200,000,000 shares authorized, 34,124,153 and 32,682,462 shares issued and outstanding, respectively	34		33
Additional paid-in capital	317,459		315,014
Accumulated other comprehensive income (loss), net of tax	(2,685)		5,674
Retained earnings	68,146		35,423
Total Tiptree Inc. stockholders’ equity	382,954		356,144
Non-controlling interests	17,227		17,394
Total stockholders’ equity	400,181		373,538
Total liabilities and stockholders’ equity	$	3,599,147	$	2,995,760

See accompanying notes to consolidated financial statements.

F-1

TIPTREE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except share data)

	For the Year Ended December 31,
		2021		2020		2019
Revenues:
Earned premiums, net		$	685,552	$	477,991	$	499,108
Service and administrative fees		260,525		186,973		106,239
Ceding commissions		11,784		21,101		9,608
Net investment income		17,896		9,916		14,017
Net realized and unrealized gains (losses)		151,350		62,410		83,868
Other revenue		73,407		51,910		59,888
Total revenues		1,200,514		810,301		772,728
Expenses:
Policy and contract benefits		327,012		236,898		170,681
Commission expense		396,683		280,210		303,057
Employee compensation and benefits		207,322		172,737		129,479
Interest expense		37,674		32,582		27,059
Depreciation and amortization		24,437		17,578		13,569
Other expenses		142,044		109,148		99,744
Total expenses		1,135,172		849,153		743,589
Income (loss) before taxes		65,342		(38,852)		29,139
Less: provision (benefit) for income taxes		21,291		(13,627)		9,017
Net income (loss)		44,051		(25,225)		20,122
Less: net income (loss) attributable to non-controlling interests		5,919		3,933		1,761
Net income (loss) attributable to common stockholders		$	38,132	$	(29,158)	$	18,361
Net income (loss) per common share:
Basic earnings per share		$	1.13	$	(0.86)	$	0.52
Diluted earnings per share		$	1.09	$	(0.86)	$	0.50
Weighted average number of common shares:
Basic		33,223,792		33,859,775		34,578,292
Diluted		33,688,256		33,859,775		34,578,292
Dividends declared per common share		$	0.16	$	0.16	$	0.16

See accompanying notes to consolidated financial statements.

F-2

TIPTREE INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	For the Year Ended December 31,
		2021		2020		2019
Net income (loss)		$	44,051	$	(25,225)	$	20,122
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during the period		(10,112)		5,653		6,320
Related (provision) benefit for income taxes		2,223		(1,289)		(1,409)
Reclassification of (gains) losses included in net income (loss)		(638)		(528)		(1,312)
Related (provision) benefit for income taxes		139		113		280
Unrealized gains (losses) on available for sale securities, net of tax		(8,388)		3,949		3,879
Other comprehensive income (loss), net of tax		(8,388)		3,949		3,879
Comprehensive income (loss)		35,663		(21,276)		24,001
Less: comprehensive income (loss) attributable to non-controlling interests		$	5,890	3,948		1,785
Comprehensive income (loss) attributable to common stockholders		$	29,773	$	(25,224)	$	22,216

See accompanying notes to consolidated financial statements.

F-3

TIPTREE INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except shares)

	Common stock
	Number of shares	Par value		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total<br>Tiptree Inc. stockholders’ equity		Non-controlling interests		Total stockholders' equity
Balance at December 31, 2018	35,870,348	$	36	$	331,892	$	(2,058)	$	57,231	$	387,101	$	12,158	$	399,259
Adoption of accounting standard (1)	—	—		—		(99)		99		—		—		—
Amortization of share-based incentive compensation	—	—		3,145		—		—		3,145		2,917		6,062
Vesting of share-based incentive compensation(2)	164,935	—		187		—		—		187		(2,483)		(2,296)
Shares purchased under stock purchase plan	(1,472,730)	(1)		(9,084)		—		—		(9,085)		—		(9,085)
Non-controlling interest contributions	—	—		—		—		—		—		61		61
Non-controlling interest distributions	—	—		—		—		—		—		(3,585)		(3,585)
Net change in non-controlling<br>interest	—	—		—		—		—		—		2,500		2,500
Dividends declared	—	—		—		—		(5,502)		(5,502)		—		(5,502)
Other comprehensive income (loss), net of tax	—	—		—		3,855		—		3,855		24		3,879
Net income (loss)	—	—		—		—		18,361		18,361		1,761		20,122
Balance at December 31, 2019	34,562,553	$	35	$	326,140	$	1,698	$	70,189	$	398,062	$	13,353	$	411,415
Adoption of accounting standard (3)	—	—		—		42		(42)		—		—		—
Amortization of share-based incentive compensation	—	—		3,441		—		—		3,441		4,130		7,571
Vesting of share-based incentive compensation(2)	504,195	—		100		—		—		100		(2,223)		(2,123)
Shares purchased under stock purchase plan	(2,384,286)	(2)		(13,887)		—		—		(13,889)		—		(13,889)
Non-controlling interest contributions										—				—
Non-controlling interest distributions	—	—		(645)		—		—		(645)		(1,389)		(2,034)
Net change in non-controlling interest	—	—		(135)		—		—		(135)		(425)		(560)
Dividends declared	—	—		—		—		(5,566)		(5,566)		—		(5,566)
Other comprehensive income (loss), net of tax	—	—		—		3,934		—		3,934		15		3,949
Net income (loss)	—	—		—		—		(29,158)		(29,158)		3,933		(25,225)
Balance at December 31, 2020	32,682,462	$	33	$	315,014	$	5,674	$	35,423	$	356,144	$	17,394	$	373,538
Amortization of share-based incentive compensation	—	—		2,331		—		—		2,331		1,725		4,056
Vesting of share-based incentive compensation	596,601	—		3,563		—		—		3,563		(4,816)		(1,253)
Shares issued in exchange for vested subsidiary awards (4)	1,166,307	2		105		—		—		107		(1,565)		(1,458)
Shares purchased under stock purchase plan	(528,662)	(1)		(2,881)		—		—		(2,882)		—		(2,882)
Shares issued upon exercise of warrants	207,445	—		—		—		—		—		—		—
Repurchase of vested subsidiary awards	—	—		(770)		—		—		(770)		(309)		(1,079)
Non-controlling interest contributions	—	—		—		—		—		—		100		100
Non-controlling interest distributions	—	—		—		—		—		—		(1,095)		(1,095)
Net change in non-controlling<br>interest	—	—		97		—		—		97		(97)		—
Dividends declared	—	—		—		—		(5,409)		(5,409)		—		(5,409)
Other comprehensive income (loss), net of tax	—	—		—		(8,359)		—		(8,359)		(29)		(8,388)
Net income (loss)	—	—		—		—		38,132		38,132		5,919		44,051
Balance at December 31, 2021	34,124,153	$	34	$	317,459	$	(2,685)	$	68,146	$	382,954	$	17,227	$	400,181

(1) Amounts reclassified due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies.

(2) Includes subsidiary RSU exchanges. See Note (19) Stock Based Compensation.

(3) Amounts reclassified due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies.

(4) Exchange included $1,458 in cash.

See accompanying notes to consolidated financial statements.

F-4

TIPTREE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

	For the Year Ended December 31,
	2021		2020		2019
Operating Activities:
Net income (loss) attributable to common stockholders	$	38,132	$	(29,158)	$	18,361
Net income (loss) attributable to non-controlling interests	5,919		3,933		1,761
Net income (loss)	44,051		(25,225)		20,122
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Net realized and unrealized (gains) losses	(151,350)		(62,410)		(83,868)
Net (gain) loss on sale of businesses	1,928		4,428		(7,598)
Non-cash compensation expense	11,130		8,117		6,363
Amortization/accretion of premiums and discounts	2,947		2,229		1,161
Depreciation and amortization expense	24,437		17,578		13,569
Non-cash lease expense	8,924		7,374		7,568
Deferred provision (benefit) for income taxes	17,730		10,733		6,815
Amortization of deferred financing costs	1,607		1,015		714
Other	291		(333)		1,381
Changes in operating assets and liabilities:
Mortgage loans originated for sale	(3,884,533)		(3,064,003)		(2,048,228)
Proceeds from the sale of mortgage loans originated for sale	3,925,984		3,152,104		2,043,097
(Increase) decrease in notes and accounts receivable	(54,378)		(48,527)		(33,085)
(Increase) decrease in reinsurance receivables	(152,827)		(116,839)		(119,482)
(Increase) decrease in deferred acquisition costs	(149,943)		(62,937)		3,570
(Increase) decrease in other assets	(7,065)		(22,417)		269
Increase (decrease) in unearned premiums	263,262		105,697		155,549
Increase (decrease) in policy liabilities and unpaid claims	98,265		33,968		12,773
Increase (decrease) in deferred revenue	135,652		122,042		16,397
Increase (decrease) in reinsurance payable	40,909		53,716		26,272
Increase (decrease) in other liabilities and accrued expenses	27,295		23,859		383
Net cash provided by (used in) operating activities	204,316		140,169		23,742
Investing Activities:
Purchases of investments	(1,430,879)		(1,494,688)		(389,206)
Proceeds from sales and maturities of investments	1,172,044		1,400,229		394,331
Proceeds from the sale of real estate and other assets	8,604		2,981		11,857
Purchases of property, plant and equipment	(2,764)		(6,694)		(8,519)
Proceeds from the sale of businesses	125		500		18,329
Proceeds from notes receivable	56,055		41,582		36,690
Issuance of notes receivable	(77,077)		(62,088)		(67,176)
Business and asset acquisitions, net of cash, restricted cash and deposits (1)	133		(5,313)		(4,633)
Net cash provided by (used in) investing activities	(273,759)		(123,491)		(8,327)
Financing Activities:
Dividends paid	(5,409)		(5,566)		(5,502)
Net non-controlling interest (redemptions) contributions	(3,532)		(2,134)		(3,524)
Payment of debt issuance costs	(114)		(4,571)		(586)
Proceeds from borrowings and mortgage notes payable	4,084,299		3,379,688		2,237,329
Principal paydowns of borrowings and mortgage notes payable	(3,993,364)		(3,321,779)		(2,181,704)
Repurchases of common stock and other changes in additional paid-in capital	(8,145)		(13,889)		(9,085)
Net cash provided by (used in) financing activities	73,735		31,749		36,928
Net increase (decrease) in cash, cash equivalents and restricted cash	4,292		48,427		52,343
Cash, cash equivalents and restricted cash – beginning of period	195,275		144,590		96,524
Cash, cash equivalents and restricted cash – beginning of period - held for sale	4,879		7,137		2,860
Cash, cash equivalents and restricted cash – end of period	204,446		200,154		151,727
Less: Reclassification of cash to assets held for sale	9,360		4,879		7,137
Cash, cash equivalents and restricted cash – end of period	$	195,086	$	195,275	$	144,590
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest expense	$	36,885	$	29,538	$	26,224
Cash (received) paid during the period for income taxes	$	2,079	$	1,066	$	3,301
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Right of use asset obtained in exchange for lease liability	$	4,281	$	9,989	$	33,558
Equity securities acquired as part of a dividend reinvestment plan	$	—	$	953	$	—
Acquired real estate properties through, or in lieu of, foreclosure of the related loan	$	—	$	—	$	2,596
Shares issued in exchange for vested subsidiary awards	$	107	$	—	$	—
Acquisition of non-controlling interest	$	—	$	—	$	2,500
	As of December 31,
Reconciliation of cash, cash equivalents and restricted cash	2021		2020		2019
Cash and cash equivalents	$	175,718	$	136,920	$	133,117
Restricted cash	19,368		58,355		11,473
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	195,086	$	195,275	$	144,590

(1)    Changes in balance sheet balances due to acquisitions have been netted down in the respective line items. See Note (3) Acquisitions for additional information.

See accompanying notes to consolidated financial statements.

F-5

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(1) Organization

Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. We classify our business into two reportable segments: Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital.

(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company.

Non-controlling interests on the consolidated financial statements represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been

eliminated.

Reclassifications

As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of the following significant items:

•Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives

•Value of acquired assets and liabilities;

•Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives;

•Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims;

•Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and administration fees, and loan origination fees;

•Deferred acquisition costs

•The realization of deferred tax assets, and recognition and measurement of uncertain tax positions;

•Vessel valuations, residual value of vessels and the useful lives of vessels; and

•Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial statements

Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.

Business Combination Accounting

The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated

F-6

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other expense in the consolidated statements of operations. Acquisition and transaction costs are expensed as incurred.

In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of valuation studies applicable to the business combination.

Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets.

Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

The results of operations of a business that has either been disposed of or are classified as held for sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceases the recording of depreciation and amortization on assets transferred.

Accounting policies specific to our dispositions, assets and liabilities held for sale and discontinued operations are described in more detail in (4) Dispositions and Assets and Liabilities Held for Sale.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

•Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at Level 2 are valued based on one or more of the following:

a) Quoted prices for similar assets or liabilities in active markets;

b) Quoted prices for identical or similar assets or liabilities in nonactive markets;

c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;

d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

•Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within

F-7

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

which the fair value measurement in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Tiptree’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the instrument. From time to time, Tiptree’s assets and liabilities will transfer between one level to another level. It is Tiptree’s policy to recognize transfers between different levels at the end of each reporting period.

Tiptree utilizes both observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. For broker quotes, quotes are obtained from sources recognized to be market participants. Unobservable inputs may include expected cash flow streams, default rates, supply and demand considerations and market volatility.

Fair Value Option

In addition to the financial instruments that the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected.

Derivative Financial Instruments and Hedging

From time to time, derivative instruments are used in the overall strategy to manage exposure to market risks primarily related to fluctuations in interest rates. As a matter of policy, derivatives are not used for speculative purposes. Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on the consolidated balance sheets.

Derivative Instruments Designated as Cash Flow Hedging Instruments

The Company uses cash flow hedges from time to time to reduce the exposure to variability of cash flows from floating rate borrowings. If a derivative instrument meets certain cash flow hedge accounting criteria, it is recorded on the consolidated balance sheet at its fair value, as either an asset or a liability, with offsetting changes in fair value recognized in AOCI. The effective portion of the changes in fair value of derivatives are reported in AOCI and amounts previously recorded in AOCI are recognized in earnings in the period in which the hedged transaction affects earnings. Any ineffective portions of the change in fair value of the derivative are recognized in current earnings.

Stock Based Compensation

The Company accounts for share‑based compensation issued to employees, directors, and affiliates of the Company using the current fair value based methodology.

The Company initially measures the cost of all share-based compensation incentive awards at fair value on the date of grant, whether accounted for as an equity or liability award. The compensation cost is recognized over the required service period, generally defined as the vesting period using the straight-line method. When the share-based compensation awards are accounted for as equity awards, the compensation cost is charged to expense with a corresponding credit to additional paid-in capital. If the share-based compensation awards are accounted for as liability awards, their fair value is remeasured at each reporting period, with the compensation cost charged to expense with a corresponding credit to other liabilities.

Grants of subsidiary restricted stock units (RSUs) exchangeable into common stock of the Company are accounted for as equity based upon their expected settlement method. The Company recognizes the cost of such awards over the vesting period using the straight-line method and uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs. Compensation expense will be recognized to the extent that it is probable that the performance condition will be achieved. The Company reassesses the probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period.

F-8

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Income Taxes

Deferred tax assets and liabilities are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are established for future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to reverse. A valuation allowance is established when necessary to reduce a deferred tax asset to the amount expected to be realized. Several of the Company’s subsidiaries file state tax returns on a standalone basis. Two of our subsidiaries file federal and state tax returns on a stand-alone basis, one of which is held for sale. These U.S. federal and state income tax returns, when filed, will be subject to examination by the Internal Revenue Service and state departments of revenue. See Note (20) Income Taxes.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. The Company’s provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold. The Company’s policy is to account for interest as a component of interest expense and penalties as a component of other expenses.

Earnings Per Share

The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and footnotes thereto. Basic earnings per Common Share (Basic EPS) excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, which includes vested RSUs, for the period. Diluted earnings per Common Share (Diluted EPS) reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares where such exercise or conversion would result in a lower earnings per share amount.

The Company calculates EPS using the two-class method, which is an earnings allocation formula that determines EPS for common shares and participating securities. Unvested RSUs contain non-forfeitable rights to distributions or distribution equivalents (whether paid or unpaid) and are participating securities that are included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive distributions. The participating securities do not have a contractual obligation to absorb losses and are only allocated in periods where there is income.

See Note (22) Earnings Per Share, for EPS computations.

Investments

The Company records all investment transactions on a trade‑date basis. Realized gains (losses) are determined using the specific-identification method. The Company classifies its investments in debt securities as available for sale or held-to-maturity based on the Company’s intent and ability to hold the debt security to maturity. The Company did not have any held-to-maturity securities at December 31, 2020 and 2019.

Available for Sale Securities, at Fair Value (AFS)

AFS are securities that are not classified as trading or held-to-maturity and are intended to be held for indefinite periods of time. AFS securities include those debt securities that management may sell as part of its asset/liability management strategy or in response to changes in interest rates, resultant prepayment risk or other factors. AFS securities are held at fair value on the consolidated balance sheet with changes in fair value including non-credit related losses, net of related tax effects, recorded in the AOCI component of stockholders’ equity in the period of change. Upon the disposition of an AFS security, the Company reclassifies the gain or loss on the security from AOCI to net realized and unrealized gains (losses) on the consolidated statements of operations.

For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of

F-9

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.

Subsequent activity related to the credit loss component (e.g. write-offs, recoveries) is recognized as part of the allowance for credit losses on AFS securities. For AFS securities which have an expectation of zero risk of nonpayment of the amortized cost basis (e.g. U.S. Treasury securities or agency securities), the expected credit loss is zero.

Loans, at Fair Value

Loans, at fair value is substantially comprised of (i) corporate loans and (ii) loans originated by the Company’s mortgage finance business. Changes in their fair value are reported within net realized and unrealized gains (losses) in our consolidated statements of operations.

Corporate Loans

Corporate loans are comprised of middle market loans and bank loans which are carried at fair value. In general, the fair value is obtained from an independent pricing service which provides coverage of secondary market participants. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of loans based on internal models and other unobservable inputs.

Mortgage Loans Held for Sale

Mortgage loans held for sale represent loans originated and held until sold to secondary market investors. Such loans are typically warehoused for a period after origination or purchase before sale into the secondary market. Loans are sold either servicing released, or in select instances, servicing retained into the secondary loan market. The Company has elected to measure all mortgage loans held for sale at fair value. These loans are considered sold when the Company surrenders control to the purchaser. The gains or losses on sales of such loans, net of any accrual for standard representations and warranties, are reported in operating results as a component of net realized and unrealized gains (losses) in the consolidated statements of operations in the period when the sale occurs.

Equity Securities

Equity securities are investments consisting of equity securities that are purchased principally for the purpose of selling them in the near term. Changes in fair value are recorded in net realized and unrealized gains (losses) on investments on the consolidated statements of operations in the period of change.

Other Investments

Vessels, net

Investments in vessels, net are carried at cost (inclusive of capitalized acquisition costs, where applicable) less accumulated depreciation. Subsequent expenditures are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are expensed as incurred. Vessels acquired are recognized at their fair value as of the date of the acquisition.

Depreciation is computed using the straight-line method over the vessel’s estimated remaining useful life, after considering the estimated salvage value. A vessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap rate. Vessels are depreciated from the date of their acquisition through their remaining estimated useful life.

Vessels are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable. Potential impairment indicators are primarily based upon a comparison of the market value of a vessel to its carrying value. Market values are based upon quoted prices from industry-recognized sources. The Company evaluates market quotes of vessels for reasonableness by comparison to available market transactions or internal valuation models. An impairment charge would be recognized if the estimated undiscounted future net cash flows expected to result from the operation and subsequent disposal of the vessel are less than the vessel’s carrying amount.

F-10

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The Company’s estimate of future revenue is based upon time charter equivalent (TCE) rates using current market rates. The Company uses average historical rates for periods beyond those for which rates are available. Estimated cash flows are net of brokerage and address commissions, vessel operating expenses, and estimated costs of drydocking and include an inflation factor, as appropriate. The projected undiscounted future cash flows are comprised of the net of these inflows and outflows, plus an estimated salvage value.

As of December 31, 2021, the appraised values and undiscounted future cash flows were both higher than the carrying amount of each of the vessels in the Company’s fleet and, as such, no loss on impairment was recognized.

Cash and Cash Equivalents

The Company considers all highly liquid investments of sufficient credit quality purchased with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of U.S. denominated cash on hand, cash held in banks and investments in money market funds.

Restricted Cash

The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers, fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions. Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings.

Notes and Accounts Receivable, Net

Notes Receivable, Net

The Company’s notes receivable, net includes receivables related to the insurance business for its premium financing programs.

The Company accrues interest income on its notes receivable based on the contractual terms of the respective note. The Company monitors all notes receivable for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. In addition to allowances for bad debt for specific notes receivable, a general provision for bad debt is estimated for the Company’s notes receivable based on history. Account balances are generally charged against the allowance when the Company believes it is probable that the note receivable will not be recovered and has exhausted its contractual and legal remedies.

Generally, receivables overdue more than 120 days are written off when the Company determines it has exhausted reasonable collection efforts and remedies, see Note (7) Notes and Accounts Receivable, net.

Accounts and Premiums Receivable, Net

Accounts and premiums receivable, net are primarily trade receivables from the insurance business that are carried at their approximate fair value. Accounts and premiums receivable from the Company’s insurance business consist primarily of advance commissions and agents' balances in course of collection and billed but not collected policy premiums, presented net of the allowance for doubtful accounts. For policy premiums that have been billed but not collected, the Company records a receivable on its consolidated balance sheets for the full amount of the premium billed, with a corresponding liability, net of its commission, to insurance carriers. The Company earns interest on the premium cash during the period of time between receipt of the funds and payment of these funds to insurance carriers. The Company maintains an allowance for doubtful accounts based on an estimate of uncollectible accounts.

Retrospective commissions receivable, Trust receivables and Other receivables

Retrospective commissions receivable, trust receivables and other receivables are primarily trade receivables from the insurance business that are carried net of allowance at their approximate fair value.

Reinsurance Receivables

F-11

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Through the insurance business, the Company has various reinsurance agreements in place whereby the amount of risk in excess of its retention goals is reinsured by unrelated domestic and foreign insurance companies. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. Reinsurance receivables are based upon estimates and are reported on the consolidated balance sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. Management continually monitors the financial condition and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible. Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets. Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts.

Deferred Acquisition Costs

The Company defers certain costs of acquiring new and renewal insurance policies and other products as follows within the Company’s insurance business. Amortization of deferred acquisition costs was $375,052, $265,781 and $287,834 for the years ended December 31, 2021, 2020 and 2019, respectively.

Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not occurred. These capitalized costs are amortized as the related premium is earned.

Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred. These capitalized costs are amortized as the related service and administrative fees are earned.

The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2021, 2020 and 2019.

Goodwill and Intangible Assets, net

The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets are amortized over their estimated useful lives principally using a pattern of economic benefit for customer relationships and a straight-line method for other intangible assets. Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The Company carries intangible assets, which represent customer and agent relationships, trade names, insurance licenses (certificates of authority granted by individual state departments of insurance), the value of in-force insurance policies acquired, software acquired or internally developed and fishing licenses. Management has deemed the insurance licenses to have an indefinite useful life. Costs incurred to renew or maintain insurance licenses are recorded as operating costs in the period in which they arise. See Note (9) Goodwill and Intangible Assets, net.

Other Assets

Other assets primarily consist of mortgage servicing rights, loans eligible for repurchase, right of use assets, prepaid expenses, and furniture, fixtures and equipment, net. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.

Mortgage Servicing Rights

Mortgage servicing rights represent the fair value of the right to service the underlying mortgage loans. The estimated fair value is provided by a third-party valuation service and represents the price that a willing buyer would currently pay for the Company’s mortgage servicing rights. Changes in fair value are recorded in net realized and unrealized gains (losses) on the consolidated statements of operations in the period of change.

Debt, net

F-12

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Debt is carried on the consolidated balance sheets at an amount equal to the unpaid principal balance, net of any remaining unamortized discount or premium and direct and any incremental costs attributable to issuance. Discounts, premiums and direct and incremental costs are amortized as a component of interest expense in the consolidated statements of operations over the life of the debt. See Note (11) Debt, net.

Unearned Premiums

Premiums written are earned over the life of the respective policy using the Rule of 78's, pro rata, or other actuarial methods as appropriate for the type of business. Unearned premiums represent the portion of premiums that will be earned in the future. A premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income. As of December 31, 2021 and 2020, no deficiency reserves were recorded.

Policy Liabilities and Unpaid Claims

Policyholder account balances relate to investment-type individual annuity contracts in the accumulation phase. Policyholder account balances are carried at accumulated account values, which consist of deposits received, plus interest credited, less withdrawals and assessments. Minimum guaranteed interest credited to these contracts ranges from 3.0% to 4.0%.

The Company’s claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. The Company’s actuaries apply a variety of generally accepted actuarial methods to the historical loss development patterns, to derive cumulative development factors. These cumulative development factors are applied to reported losses for each accident quarter to compute ultimate losses. The indicated required reserve is the difference between the ultimate losses and the reported losses. The actuarial methods used include but are not limited to the chain ladder method, the Bornhuetter-Ferguson method, and the expected loss ratio method. The actuarial analyses are performed on a basis gross of ceded reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account the impact of reinsurance. The Company has not made any changes to its methodologies for determining claim reserves in the periods presented.

Credit life and accidental death and dismemberment (AD&D) unpaid claims reserves include claims in the course of settlement and incurred but not reported (IBNR). Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other product lines, unpaid claims reserves include case reserves for reported claims and bulk reserves for IBNR claims. The Company uses a number of algorithms in establishing its unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, reported incurred losses, target loss ratios, and in-force amounts or a combination of these factors.

Anticipated future loss development patterns form a key assumption underlying these analyses. Generally, unpaid claims reserves, and associated incurred losses, are impacted by loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity may include changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation, economic conditions, morbidity patterns and the attitudes of claimants towards settlements.

The unpaid claims reserves represent the Company’s best estimates at a given time, based on the projections and analyses discussed above. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims reserves in the periods presented.

In accordance with applicable statutory insurance company regulations, the Company’s recorded unpaid claims reserves are evaluated by appointed independent third-party actuaries, who perform this function in compliance with the Standards of Practice and Codes of Conduct of the American Academy of Actuaries. The independent actuaries perform their actuarial analyses annually and prepare opinions, statements, and reports documenting their determinations. For December 31, 2021 and 2020, our appointed independent third-party actuaries found the Company’s reserves to be adequate.

F-13

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Deferred Revenue

Deferred revenues represent the portion of income that will be earned in the future attributable to motor club memberships, mobile device protection plans, and other non-insurance service contracts that are earned over the respective contract periods using the Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. A deficiency reserve would be recorded if anticipated contract benefits, deferred acquisition costs and contract service costs exceed the recorded deferred revenues and anticipated investment income. As of December 31, 2021 and 2020, no deficiency reserves were recorded.

Other Liabilities and Accrued Expenses

Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.

Revenue Recognition

The Company earns revenues from a variety of sources:

Earned Premiums, Net

Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company’s reinsurers, including producer owned reinsurance companies (PORCs), earned in the same manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer.

Service and Administrative Fees

The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned.

Service Fees. Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Collateral tracking fee income is recognized when the service is performed and billed. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable. During the years ended December 31, 2021, 2020 and 2019, respectively, the Company did not incur a loss with respect to a specific significant service fee contract.

Administrative Fees. Administrative fee revenue includes the administration of premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and service contract products. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts, auto and consumer goods service contracts, and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other actuarial methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.

Ceding Commissions

Ceding commissions earned under reinsurance agreements are based on contractual formulas that take into account, in part, underwriting performance and investment returns experienced by the assuming companies. As experience changes, adjustments to the ceding commissions are reflected in the period incurred and are based on the claim experience of the related policy. The adjustment is calculated by adding the earned premium and investment income from the assets held in

F-14

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

trust for the Company’s benefit less earned commissions, incurred claims and the reinsurer's fee for the coverage.

Vessel Related Revenue

The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and at a specified daily charter rate. Charter revenues are recognized as earned on a straight-line basis over the term of the charter as service is provided.

Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to services to be rendered after the balance sheet date. Vessel related revenue is recorded in other investment income as a part of other revenue.

Policy and Contract Benefits

Member Benefit Claims

Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized as expense when incurred.

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance contract claims, net of amounts ceded. Net losses include actual claims paid and the change in unpaid claim reserves.

Commissions Payable and Expense

Commissions are paid to distributors and retailers selling credit insurance policies, motor club memberships, mobile device protection, and vehicle service contracts, and are generally deferred and expensed in proportion to the earning of related revenue. Credit insurance commission rates, in many instances, are set by state regulators and are also impacted by market conditions. In certain instances, credit insurance commissions are subject to retrospective adjustment based on the profitability of the related policies. Under these retrospective commission arrangements, the producer of the credit insurance policies receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the costs associated with those policies, which includes the Company’s administrative fees, claims, reserves, and premium taxes. The Company analyzes the retrospective commission calculation periodically for each producer and, based on the analysis associated with each such producer, the Company records a liability for any positive net retrospective commission earned and due to the producer or, conversely, records a receivable, net of allowance, for amounts due from such producer for instances where the net result of the retrospective commission calculation is negative. Commissions payable are included in other liabilities and accrued expenses.

Recent Accounting Standards

Recently Adopted Accounting Pronouncements

F-15

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Standard	Description	Adoption Date	Impact on Financial Statements
2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods.	January 1, 2021	The standard makes changes to areas of tax accounting for transactions and situations<br>which do not currently apply to the Company’s activity, so the adoption of the standard does<br>not currently impact the Company’s financial<br>statements.
2016-13 Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	Topic 326 amended guidance on reporting credit losses for assets held on an amortized cost basis and AFS debt securities. For assets held on an amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in previous GAAP and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For AFS debt securities, credit losses should be measured in a manner similar to previous GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. Changes in the allowance account are recorded in the period of change as a credit loss expense or reversal of credit loss expense. The measurement of credit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost.	January 1, 2020	The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements.
2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement	The amendments in this update require additions, modifications and elimination to the fair value measurement disclosure. The objective of these disclosure requirements is to provide users of financial statements with information about assets and liabilities measured at fair value:<br><br>(a) The valuation techniques and inputs that a reporting entity uses to arrive at its measures of fair value, including judgments and assumptions that the entity makes,<br><br>(b) The uncertainty in the fair value measurements as of the reporting date, and<br><br>(c) How changes in fair value measurements affect an entity’s performance and cash flows.	January 1, 2020	The retrospective adoption of this standard resulted in additional disclosures related to inputs of Level 3 investments. This adoption resulted in an immaterial impact to the Company’s consolidated financial statements. See Note (12) Fair Value of Financial Instruments.
2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	The amendments in this update allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this update affect any entity that is required to apply the provisions of Topic 220 and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.	January 1, 2019	The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements.
2016-02 Leases (Topic 842)	This new standard introduced a new lessee model that brings substantially all leases onto the balance sheet. In addition, while the new guidance retains most of the principles of the previous existing lessor model in GAAP, it aligns many of those principles with ASC 606, Revenue From Contracts With Customers.	January 1, 2019	The adoption of this guidance (practical expedient) resulted in the Company recognizing a right of use asset of $32,052 as part of other assets and a lease liability of $33,558 as part of other liabilities and accrued expenses in the consolidated balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance for its operating lease agreements at January 1, 2019.

F-16

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Recently Issued Accounting Pronouncements, Not Yet Adopted

Standard	Description	Adoption Date	Impact on Financial Statements
2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met.	The standard is effective for all entities as of March 12, 2020, through December 31, 2022. The Company is evaluating their option to adopt the guidance when it is applicable.	The Company is currently evaluating the effect on its consolidated financial statements.

(3) Acquisitions

Acquisition of Smart AutoCare

On January 3, 2020, a subsidiary of the Company acquired (the Acquisition) all of the equity interests of Accelerated Service Enterprise LLC., SAC Holdings Inc., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc., Freedom Insurance Company, Ltd. (Freedom), SAC Admin, Inc., SAC Insurance Company, Inc., Smart AutoCare, Inc. and Smart AutoCare Administration Solutions, Inc. (together Smart AutoCare), pursuant to the Equity Interest Purchase Agreement (as amended, the Purchase Agreement) between Fortegra Warranty Holdings, LLC. (Buyer) and Peter Masi (Seller), dated as of December 16, 2019. Concurrent with the Acquisition, Freedom terminated reinsurance agreements with affiliates of Seller (the Commutation Transaction).

Tiptree paid Seller $111,804, net of working capital true-ups, in cash at closing, $8,250 of which was held in an escrow account to satisfy indemnity claims and was released on August 3, 2021. Simultaneously, pursuant to the Commutation Transaction, affiliates of Seller paid Freedom $102,000 in cash. The Purchase Agreement also provides for an earn out of up to $50,000 in cash based on Smart AutoCare achieving specified performance metrics measured on the 4-year and 6-year anniversary of closing (Reserve Based Earn-Out Amount) and an additional earn out of up to $30,000 payable in cash or Tiptree common stock based on Smart AutoCare achieving other certain specified performance metrics measured on the 4-year anniversary of closing (Profits Based Earn-Out Amount). In addition, the purchase price will be subject to a true-up following the 6-year anniversary of the closing (Underwriting Profitability True-Up) based on the adequacy of certain legacy reserves, offset by certain earnings on new business. Fortegra Warranty may hold back all or a portion of any Reserve Based Earn-Out Amounts until final determination of the legacy reserves used to calculate the Underwriting Profitability True-Up if in Tiptree’s reasonable opinion such amount may be needed to offset a deficiency in such legacy reserves. In addition, if the deficiency in the legacy reserves used to calculate the Underwriting Profitability True-Up is greater than the aggregate amount owing to Seller for the Reserve-Based Earn-Out Amount and Profits-Based Earn-Out Amount, Seller shall pay Tiptree an amount equal to the lesser of such difference and $10,000.

Smart AutoCare’s results are included in the Company’s Insurance segment. The financial results of Smart AutoCare have been included in the Company’s results as of the acquisition date.

The fair value of assets acquired and liabilities assumed represent the allocation as our evaluation of facts and circumstances available as of the acquisition date. The allocation of the purchase price to the intangible assets is based on fair value estimates and have been reviewed by management. The allocation of the purchase price has been finalized and all measurement period adjustments have been recorded.

Management’s allocation of the purchase price to the net assets acquired resulted in the recording of finite-lived intangible assets valued at $93,700, with an estimated amortization period of 5 to 13.5 years and will be tax deductible over a 15 year period. The residual amount of the purchase price after the allocation to net assets acquired and identifiable intangibles of $60,346 has been allocated to goodwill. This goodwill is included in the Insurance segment. It is expected that $21,127 of this goodwill will be tax deductible over a 15 year period.

F-17

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The following table presents the determination of the acquisition date fair value amounts for the identifiable assets acquired, liabilities assumed, and goodwill recorded in connection with the Acquisition, in accordance with the acquisition method of accounting:

	As of<br>January 3,<br>2020
Assets:
Investments:
Available for sale securities, at fair value	$	110
Total investments	110
Cash and cash equivalents	120,934
Restricted cash	764
Notes and accounts receivable, net	6,214
Reinsurance receivables	71,337
Intangible assets, net	93,700
Other assets	34,053
Total assets	$	327,112
Liabilities:
Policy liabilities and unpaid claims	$	55,151
Deferred revenue	182,568
Reinsurance payable	27,075
Other liabilities and accrued expenses	10,860
Total liabilities	275,654
Net assets acquired	51,458
Goodwill	60,346
	$	111,804
Acquisition costs	$	3,539

Supplemental pro forma results of operations have not been presented for the Acquisition as they are not material in relation to the Company’s reported results.

The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and the range of their estimated amortization period:

Intangible Assets	Weighted Average Amortization Period<br>(in Years)	Value as of acquisition date
Customer relationships	7.2	$	86,000
Software licensing	5.0	600
Trade names	13.5	7,100
Total acquired finite-lived intangible assets	7.7	$	93,700

Acquisition of Sky Auto

On December 31, 2020, a subsidiary in our insurance business acquired all of the equity interests in Sky Auto for total net cash consideration of approximately $25,200. Sky Auto markets vehicle service contracts to consumers within the United States.

Identifiable assets acquired were primarily made up of goodwill and intangible assets. Management’s allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of $19,867 and $5,340. The tax basis in goodwill and intangible assets is equal to the GAAP values provided above. The acquired goodwill and intangibles will be amortized over a period of 15 years for tax purposes. See Note (9) Goodwill and Intangible Assets, net.

F-18

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

On July 1, 2019, a subsidiary in our insurance business acquired a majority interest in Ingenasys, Ltd., the parent holding company of Defend Insurance Group (Defend), for total net cash consideration of approximately $4,600. Defend is an automotive finance and insurance provider and insurance administrator operating in the Czech Republic, Poland, Hungary, Slovakia, and the UK. Identifiable assets acquired were primarily made up of goodwill and intangible assets. See Note (9) Goodwill and Intangible Assets, net.

(4) Dispositions and Assets and Liabilities Held for Sale

Dispositions

On April 26, 2019, the Company completed the sale of the management contracts and related assets for the CLOs managed by Telos Asset Management, LLC (Telos). The pre-tax gain on sale for the year ended December 31, 2019 was $7,598, which is included in other revenue. See (16) Other Revenue and Other Expenses. The sale did not meet the requirements to be classified as a discontinued operation.

The sale agreement also contains a provision which provides for contingent consideration if the Telos business achieves specific performance metrics. This contingent consideration represents a gain contingency, and the Company will not recognize any additional gain unless such consideration is realized.

Assets and Liabilities Held for Sale

The Company has entered into a definitive agreement to sell Luxury, and it is classified as held for sale at December 31, 2021 and December 31, 2020. The agreement did not meet the requirements to be classified as a discontinued operation. The following table presents detail of Luxury’s assets and liabilities held for sale in the consolidated balance sheets for the following periods:

	As of
	December 31,<br>2021		December 31, 2020
Assets:
Investments:
Loans, at fair value	$	236,810	$	164,802
Other investments	2,071		4,345
Total investments	238,881		169,147
Cash, cash equivalents and restricted cash	9,360		4,879
Notes and accounts receivable, net	157		1,760
Other assets	2,210		5,919
Assets held for sale	$	250,608	$	181,705
Liabilities:
Debt, net	$	227,973	$	162,072
Other liabilities and accrued expenses (1)	15,021		13,040
Liabilities held for sale	$	242,994	$	175,112

(1)    Includes deferred tax liabilities of $659 and $939 as of December 31, 2021 and December 31, 2020, respectively.

During the year ended December 31, 2021 and December 31, 2020, the Company recorded an impairment of $1,928 and $4,428, respectively, related to assets and liabilities held for sale. See Note (16) Other Revenue and Other Expenses. No impairment related to assets and liabilities held for sale was recorded for the year ended December 31, 2019.

Luxury has a total borrowing capacity at December 31, 2021 of $299,500. As of December 31, 2021 and 2020, a total of $227,973 and $162,072, respectively, was outstanding under such financing agreements.

F-19

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(5) Segment Data

Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. Tiptree’s principal operating subsidiary, The Fortegra Group, LLC and its subsidiaries (Fortegra), is a leading provider of specialty insurance, service contract products and related service solutions. Based on the ASC 280 quantitative analysis performed as of December 31, 2021, our reportable segments are Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable operating segments and other business activities, as Tiptree Capital. Corporate activities include holding company interest expense, employee compensation and benefits, and other expenses.

Our reportable segments’ income or loss is reported before income taxes and non-controlling interests. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired. Intercompany transactions are eliminated.

Descriptions of our Insurance reportable segment and Tiptree Capital, including our Mortgage reportable segment, are as follows:

Insurance operations are conducted through Fortegra, which includes Fortegra Financial Corporation and Fortegra Warranty. Fortegra is a leading provider of specialty insurance products and related services. Fortegra designs, markets and underwrites specialty commercial and personal property and casualty insurance products incorporating value-added coverages and services for select target markets or niches. Fortegra’s products and services include niche commercial and personal lines, service contracts, and other insurance services.

Tiptree Capital:

Mortgage operations are conducted through Reliance. The Company’s mortgage origination business originates loans for sale to institutional investors, including GSEs and FHA/VA and services loans on behalf of Fannie Mae, Freddie Mac, and Ginnie Mae.

Other includes our maritime shipping operations, asset management, other investments (including our Invesque shares), and our held-for-sale mortgage operations (Luxury Mortgage).

The tables below present the components of revenue, expense, income (loss) before taxes, and assets for our reportable segments as well as Tiptree Capital - Other for the following periods:

	For the Year Ended December 31, 2021
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Total revenues	$	984,130	$	111,295	$	105,089	$	1,200,514
Total expenses	(914,273)		(82,888)		(87,879)		(1,085,040)
Corporate expenses	—		—		—		(50,132)
Income (loss) before taxes	$	69,857	$	28,407	$	17,210	$	65,342
Less: provision (benefit) for income taxes							21,291
Net income (loss)							$	44,051
Less: net income (loss) attributable to non-controlling interests							5,919
Net income (loss) attributable to common stockholders							$	38,132

F-20

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	For the Year Ended December 31, 2020
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Total revenues	$	691,061	$	112,165	$	7,075	$	810,301
Total expenses	(664,113)		(81,063)		(68,317)		(813,493)
Corporate expenses	—		—		—		(35,660)
Income (loss) before taxes	$	26,948	$	31,102	$	(61,242)	$	(38,852)
Less: provision (benefit) for income taxes							(13,627)
Net income (loss)							$	(25,225)
Less: net income (loss) attributable to non-controlling interests							3,933
Net income (loss) attributable to common stockholders							$	(29,158)
	For the Year Ended December 31, 2019
---	---	---	---	---	---	---	---	---
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Total revenues	$	635,085	$	66,121	$	71,522	$	772,728
Total expenses	(598,055)		(63,162)		(48,131)		(709,348)
Corporate expenses	—		—		—		(34,241)
Income (loss) before taxes	$	37,030	$	2,959	$	23,391	$	29,139
Less: provision (benefit) for income taxes							9,017
Net income (loss)							$	20,122
Less: net income (loss) attributable to non-controlling interests							1,761
Net income (loss) attributable to common stockholders							$	18,361

The Company conducts its operations primarily in the U.S. with 7.2%, 5.2%, and 2.9% of total revenues generated overseas for the years ended December 31, 2021, 2020 and 2019 respectively.

The following table presents the reportable segments and Tiptree Capital - Other assets for the following periods:

	As of December 31, 2021										As of December 31, 2020
			Tiptree Capital										Tiptree Capital
	Insurance		Mortgage		Other		Corporate		Total		Insurance		Mortgage		Other		Corporate		Total
Total assets	$	3,002,152	$	201,134	$	384,564	$	11,297	$	3,599,147	$	2,452,798	$	217,138	$	302,068	$	23,756	$	2,995,760

F-21

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(6) Investments

The following table presents the Company's investments related to insurance operations and other Tiptree investing activities, measured at fair value as of the following periods:

	As of December 31, 2021
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Available for sale securities, at fair value, net of allowance for credit losses	$	577,448	$	—	$	—	$	577,448
Loans, at fair value	7,099		98,484		—		105,583
Equity securities	109,684		—		28,799		138,483
Other investments	79,975		7,981		80,700		168,656
Total investments	$	774,206	$	106,465	$	109,499	$	990,170			As of December 31, 2020
---	---	---	---	---	---	---	---	---
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Available for sale securities, at fair value, net of allowance for credit losses	$	377,133	$	—	$	—	$	377,133
Loans, at fair value	7,795		82,937		—		90,732
Equity securities	98,130		—		25,708		123,838
Other investments	125,833		9,439		84,429		219,701
Total investments	$	608,891	$	92,376	$	110,137	$	811,404

Available for Sale Securities, at fair value

All of the Company’s investments in Available for Sale Securities, at fair value, net of allowance for credit losses (AFS securities) as of December 31, 2021 and December 31, 2020 are held by subsidiaries in the insurance segment. The following tables present the Company's investments in AFS securities:

	As of December 31, 2021
	Amortized cost		Allowance for Credit Losses(1)		Gross<br>unrealized gains		Gross<br>unrealized losses		Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	352,288	$	—	$	2,087	$	(3,197)	$	351,178
Obligations of state and political subdivisions	57,923		—		1,050		(313)		58,660
Corporate securities	145,997		(241)		517		(1,396)		144,877
Asset backed securities	19,511		—		82		(2,146)		17,447
Certificates of deposit	2,696		—		—		—		2,696
Obligations of foreign governments	2,649		(4)		3		(58)		2,590
Total	$	581,064	$	(245)	$	3,739	$	(7,110)	$	577,448
	As of December 31, 2020
	Amortized cost		Allowance for Credit Losses(1)		Gross<br>unrealized gains		Gross<br>unrealized losses		Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	191,116	$	—	$	5,245	$	(58)	$	196,303
Obligations of state and political subdivisions	42,583		—		1,768		(1)		44,350
Corporate securities	92,761		—		2,181		(1)		94,941
Asset backed securities	37,975		—		316		(2,099)		36,192
Certificates of deposit	1,355		—		—		—		1,355
Obligations of foreign governments	3,961		—		31		—		3,992
Total	$	369,751	$	—	$	9,541	$	(2,159)	$	377,133

(1) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in net realized and unrealized gains (losses) as a credit loss on AFS securities. Amount excludes unrealized losses relating to non-credit factors.

F-22

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The amortized cost and fair values of AFS securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of
	December 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	41,033	$	41,150	$	30,306	$	30,602
Due after one year through five years	269,487		268,537		149,378		153,406
Due after five years through ten years	52,561		52,000		26,621		27,479
Due after ten years	198,472		198,314		125,471		129,454
Asset backed securities	19,511		17,447		37,975		36,192
Total	$	581,064	$	577,448	$	369,751	$	377,133

The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities have been in a continuous unrealized loss position for less than twelve months, and twelve months or greater and do not have an allowance for credit losses:

	As of December 31, 2021
	Less Than or Equal to One Year					More Than One Year
	Fair value		Gross<br>unrealized losses		# of Securities(1)	Fair value		Gross unrealized losses		# of Securities(1)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	216,378	$	(2,827)	324	$	11,920	$	(370)	47
Obligations of state and political subdivisions	17,190		(275)		64	1,152		(38)		5
Corporate securities	99,434		(1,159)		326	9,722		(237)		45
Asset backed securities	7,454		(84)		38	2,316		(2,062)		5
Certificates of deposit	1,339		—		2	—		—		—
Obligations of foreign governments	2,278		(58)		8	—		—		—
Total	$	344,073	$	(4,403)	762	$	25,110	$	(2,707)	102
	As of December 31, 2020
	Less Than or Equal to One Year					More Than One Year
	Fair value		Gross<br>unrealized losses		# of Securities(1)	Fair value		Gross unrealized losses		# of Securities(1)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	15,323	$	(58)	41	$	2	$	—	2
Obligations of state and political subdivisions	379		(1)		5	—		—		—
Corporate securities	901		(1)		3	—		—		—
Asset backed securities	—		—		—	18,927		(2,099)		9
Total	$	16,603	$	(60)	49	$	18,929	$	(2,099)	11

(1)    Presented in whole numbers.

Management believes that it is more likely than not that the Company will be able to hold the fixed maturity AFS securities that were in an unrealized loss position as of December 31, 2021 until full recovery of their amortized cost basis.

F-23

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The table below presents a roll-forward of the activity in the allowance for credit losses on AFS securities by type as of December 31, 2021:

	Obligations of state and political subdivisions		Corporate securities		Asset backed securities		Obligations of foreign governments		Total
Balance at December 31, 2019	$	—	$	—	$	—	$	—	$	—
Increase in the allowance for the initial adoption of ASU 2016-13	(1)		(50)		(2)		—		(53)
Reduction in credit losses due to AFS securities sold during the year	—		3		—		—		3
Gains from recoveries of amounts previously written off	1		47		2		—		50
Balance at December 31, 2020	$	—	$	—	$	—	$	—	$	—
Balance at December 31, 2020	$	—	$	—	$	—	$	—	$	—
(Increase) in allowance for credit losses	—		(296)		—		(6)		(302)
Reduction in credit losses due to AFS securities sold during the year	—		3		—		1		4
Gains from recoveries of amounts previously written off	—		52		—		1		53
Balance at December 31, 2021	$	—	$	(241)	$	—	$	(4)	$	(245)

The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment management company, in determining its lifetime expected credit losses on AFS securities. This includes determining the present value of expected future cash flows discounted at the book yield of the security.

The table below presents the amount of gains from recoveries (credit losses) on AFS securities recorded by the Company for the following period:

	For the Year Ended December 31,
		2021		2020
Net gains from recoveries (credit losses) on AFS securities		$	(245)	$	53

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company cannot remove or replace investments in regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable. The following table presents the Company's restricted investments included in the Company's AFS securities:

	As of December 31,
	2021		2020
Fair value of restricted investments in trust pursuant to reinsurance agreements	$	42,471	$	44,349
Fair value of restricted investments for special deposits required by state insurance departments	7,189		9,447
Total fair value of restricted investments	$	49,660	$	53,796

The following table presents additional information on the Company’s AFS securities:

	For the Year Ended December 31,
	2021		2020		2019
Purchases of AFS securities	$	368,913	$	158,357	$	253,415
Proceeds from maturities, calls and prepayments of AFS securities	$	68,923	$	84,923	$	36,459
Gross proceeds from sales of AFS securities	$	86,981	$	35,603	$	170,495

F-24

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The following table presents the gross realized gains and gross realized losses from sales and redemptions of AFS securities:

	For the Year Ended December 31,
		2021		2020		2019
Gross realized gains		$	661	$	594	$	1,558
Gross realized (losses)		(23)		(66)		(246)
Total net realized gains (losses) from investment sales and redemptions		$	638	528		1,312

Loans, at fair value

The following table presents the Company’s investments in loans measured at fair value and the Company’s investments in loans measured at fair value pledged as collateral:

	As of December 31, 2021								As of December 31, 2020
	Fair value		Unpaid principal balance (UPB)		Fair value exceeds / (below) UPB		Pledged as Collateral		Fair value		Unpaid principal balance (UPB)		Fair value exceeds / (below) UPB		Pledged as Collateral
Insurance:
Corporate loans (1)	$	7,099	$	10,156	$	(3,057)	$	—	$	7,795	$	12,281	$	(4,486)	$	—
Mortgage:
Mortgage loans held for sale (2)	98,484		95,264		3,220		95,542		82,937		78,590		4,347		81,630
Total loans, at fair value	$	105,583	$	105,420	$	163	$	95,542	$	90,732	$	90,871	$	(139)	$	81,630

(1)    The cost basis of Corporate loans was approximately $9,094 and $11,282 at December 31, 2021 and December 31, 2020, respectively.

(2)    As of December 31, 2021 and December 31, 2020, there was one mortgage loan held for sale and two mortgage loans held for sale that were 90 days or more past due, respectively, with a fair value of $136 and $534, respectively.

Equity Securities

Equity securities consist mainly of publicly traded common and preferred stocks and fixed income exchange traded funds. Included within the equity securities balance are 17.0 million shares of Invesque as of December 31, 2021 and December 31, 2020, for which the Company has elected to apply the fair value option. The following table presents information on the cost and fair value of the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods:

	As of December 31, 2021
	Insurance				Tiptree Capital - Other				Total
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Invesque	$	23,339	$	6,015	$	111,491	$	28,799	$	134,830	$	34,814
Fixed income exchange traded fund	52,176		53,154		—		—		52,176		53,154
Other equity securities	49,664		50,515		—		—		49,664		50,515
Total equity securities	$	125,179	$	109,684	$	111,491	$	28,799	$	236,670	$	138,483
	As of December 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---
	Insurance				Tiptree Capital - Other				Total
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Invesque	$	23,339	$	5,370	$	111,491	$	25,708	$	134,830	$	31,078
Fixed income exchange traded fund	62,438		63,875		—		—		62,438		63,875
Other equity securities	38,069		28,885		—		—		38,069		28,885
Total equity securities	$	123,846	$	98,130	$	111,491	$	25,708	$	235,337	$	123,838

F-25

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Other Investments

The following table contains information regarding the Company’s other investments as of the following periods:

	As of December 31, 2021
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Corporate bonds, at fair value (1)	$	38,965	$	—	$	—	$	38,965
Vessels, net (2)	—		—		79,368		79,368
Debentures	21,057		—		—		21,057
Trade claims	19,737		—		—		19,737
Other	216		7,981		1,332		9,529
Total other investments	$	79,975	$	7,981	$	80,700	$	168,656
	As of December 31, 2020
---	---	---	---	---	---	---	---	---
			Tiptree Capital
	Insurance		Mortgage		Other		Total
Corporate bonds, at fair value (1)	$	105,777	$	—	$	—	$	105,777
Vessels, net (2)	—		—		83,028		83,028
Debentures	17,703		—		—		17,703
Other	2,353		9,439		1,401		13,193
Total other investments	$	125,833	$	9,439	$	84,429	$	219,701

(1)    The cost basis of corporate bonds was $36,436 and $97,284 as of December 31, 2021 and December 31, 2020, respectively.

(2)     Net of accumulated depreciation of $13,059 and $8,372 as of December 31, 2021 and December 31, 2020, respectively.

Net Investment Income - Insurance

Net investment income represents investment income and expense from investments related to insurance operations as disclosed within net investment income on the consolidated statements of operations. The following table presents the components of net investment income by source of income:

	For the Year Ended December 31,
		2021		2020		2019
Interest:
AFS securities		$	7,153	$	7,685	$	8,404
Loans, at fair value		802		801		3,284
Other investments		5,792		4,245		1,218
Dividends from equity securities		7,355		1,482		2,813
Other		—		8		—
Subtotal		21,102		14,221		15,719
Less: investment expenses		3,206		4,305		1,702
Net investment income		$	17,896	$	9,916	$	14,017

Other Investment Income - Tiptree Capital

Other investment income represents other revenue from other Tiptree non-insurance activities as disclosed within other revenue on the consolidated statements of operations, see Note (16) Other Revenue and Other Expenses. The following tables present the components of other investment income by type:

F-26

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	For the Year Ended December 31,
		2021		2020		2019
Interest:
Loans, at fair value (1)		$	7,184	$	5,617	$	6,206
Other		—		—		269
Dividends from equity securities		—		2,533		10,132
Loan fee income		21,834		17,900		12,631
Vessel related revenue		35,562		22,697		16,747
Other investment income		$	64,580	$	48,747	$	45,985

(1)    Primarily relates to Loans, at fair value classified as Held for Sale. See Note (4) Dispositions and Assets and Liabilities Held for Sale.

Net Realized and Unrealized Gains (Losses)

The following table presents the components of net realized and unrealized gains (losses) recorded on the consolidated statements of operations. Net unrealized gains (losses) on AFS securities are included within other comprehensive income (loss) (OCI), net of tax, and, as such, are not included in this table. Net realized and unrealized gains (losses) on non-investment related financial assets and liabilities are included below:

	For the Year Ended December 31,
		2021		2020		2019
Net realized gains (losses)
Insurance:
Reclass of unrealized gains (losses) on AFS securities from OCI		$	638	$	528	$	1,312
Net gains from recoveries (credit losses) on AFS securities		(245)		53		—
Net realized gains (losses) on loans		(389)		(945)		2,100
Net realized gains (losses) on equity securities		(10,434)		(24,586)		947
Net realized gains (losses) on corporate bonds		3,917		7,299		279
Other		1,346		2,511		39
Tiptree Capital
Mortgage:
Net realized gains (losses) on loans		91,538		111,725		52,617
Other		2,165		(10,314)		—
Other:
Net realized gains (losses) on loans (1)		61,312		40,466		23,403
Other		1,632		(4,713)		(260)
Total net realized gains (losses)		151,480		122,024		80,437
Net unrealized gains (losses)
Insurance:
Net change in unrealized gains (losses) on loans		1,330		(1,461)		(3,899)
Net unrealized gains (losses) on equity securities held at period end		12,445		(22,793)		7,621
Reclass of unrealized (gains) losses from prior periods for equity securities sold		(814)		17,290		(807)
Other		(9,800)		10,162		(697)
Tiptree Capital
Mortgage:
Net change in unrealized gains (losses) on loans		(1,127)		1,270		840
Other		(268)		(6,093)		357
Other:
Net change in unrealized gains (losses) on loans (1)		815		2,185		983
Net unrealized gains (losses) on equity securities held at period end		3,090		(67,656)		(992)
Other		(5,801)		7,482		25
Total net unrealized gains (losses)		(130)		(59,614)		3,431
Total net realized and unrealized gains (losses)		$	151,350	$	62,410	$	83,868

(1)    Relates to Loans, at fair value classified as Held for Sale. See Note (4) Dispositions and Assets and Liabilities Held for Sale.

F-27

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(7) Notes and Accounts Receivable, net

The following table presents the total notes and accounts receivable, net:

	As of December 31,
	2021		2020
Accounts and premiums receivable, net	$	137,082	$	95,269
Retrospective commissions receivable	157,853		131,760
Notes receivable, net - premium financing program	89,788		62,075
Trust receivables	41,889		54,393
Other receivables	27,757		26,955
Total notes and accounts receivable, net	$	454,369	$	370,452

The following table presents the total valuation allowance and bad debt expense for the following periods:

	Valuation allowance				Bad Debt Expense
	As of December 31,				For the Year Ended December 31,
	2021		2020		2021		2020		2019
Notes receivable, net - premium financing program (1)	$	123	$	101	$	274	$	223	$	175
Accounts and premiums receivable, net	$	120	$	169	$	33	$	28	$	36

(1)    As of December 31, 2021 and December 31, 2020, there were $1,311 and $215 in balances classified as 90 days plus past due, respectively.

(8) Reinsurance Receivables

The following table presents the effect of reinsurance on premiums written and earned by our insurance business for the following periods:

	Direct amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount - assumed to net
As of December 31, 2021
Life insurance in force	$	5,921,446	$	3,068,761	$	—	$	2,852,685
For the Year ended December 31, 2021
Premiums written:
Life insurance	$	91,865	$	46,920	$	808	$	45,753	1.8	%
Accident and health insurance	146,256		100,717		5,790		51,329		11.3	%
Property and liability insurance	1,141,979		558,471		214,150		797,658		26.8	%
Total premiums written	$	1,380,100	$	706,108	$	220,748	$	894,740	24.7	%
Premiums earned:
Life insurance	$	74,151	$	39,881	$	1,194	$	35,464	3.4	%
Accident and health insurance	126,501		85,457		7,219		48,263		15.0	%
Property and liability insurance	902,439		504,785		204,171		601,825		33.9	%
Total premiums earned	$	1,103,091	$	630,123	$	212,584	$	685,552	31.0	%
As of December 31, 2020
Life insurance in force	$	5,153,151	$	2,985,196	$	—	$	2,167,955
For the Year Ended December 31, 2020
Premiums written:
Life insurance	$	69,704	$	39,761	$	1,550	$	31,493	4.9	%
Accident and health insurance	117,235		78,233		12,696		51,698		24.6	%
Property and liability insurance	825,845		509,818		144,332		460,359		31.4	%
Total premiums written	$	1,012,784	$	627,812	$	158,578	$	543,550	29.2	%

F-28

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	Direct amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount - assumed to net
Premiums earned:
Life insurance	$	68,637	$	37,194	$	1,437	$	32,880	4.4	%
Accident and health insurance	118,183		78,365		11,599		51,417		22.6	%
Property and liability insurance	691,310		405,469		107,853		393,694		27.4	%
Total premiums earned	$	878,130	$	521,028	$	120,889	$	477,991	25.3	%
As of December 31, 2019
Life insurance in force	$	5,176,056	$	2,884,009	$	—	$	2,292,047
For the Year Ended December 31, 2019
Premiums written:
Life insurance	$	75,060	$	40,555	$	1,692	$	36,197	4.7	%
Accident and health insurance	133,514		87,447		3,201		49,268		6.5	%
Property and liability insurance	709,515		350,093		92,246		451,668		20.4	%
Total premiums written	918,089		478,095		97,139		537,133		18.1	%
Premiums earned:
Life insurance	68,282		35,929		1,607		33,960		4.7	%
Accident and health insurance	123,182		82,660		3,165		43,687		7.2	%
Property and liability insurance	597,852		242,180		65,789		421,461		15.6	%
Total premiums earned	$	789,316	$	360,769	$	70,561	$	499,108	14.1	%

The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses (LAE) incurred:

	Direct amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount - assumed to net
For the Year ended December 31, 2021
Losses and LAE Incurred
Life insurance	$	59,526	$	34,030	$	869	$	26,365	3.3	%
Accident and health insurance	21,509		18,091		2,225		5,643		39.4	%
Property and liability insurance	354,308		239,678		106,835		221,465		48.2	%
Total losses and LAE incurred	435,343		291,799		109,929		253,473		43.4	%
	Member benefit claims (1)						73,539
	Total policy and contract benefits						$	327,012

F-29

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	Direct amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount - assumed to net
For the Year Ended December 31, 2020
Losses and LAE Incurred
Life insurance	$	46,268	$	27,292	$	645	$	19,621	3.3	%
Accident and health insurance	18,354		15,715		7,032		9,671		72.7	%
Property and liability insurance	282,906		182,115		48,165		148,956		32.3	%
Total losses and LAE incurred	347,528		225,122		55,842		178,248		31.3	%
	Member benefit claims (1)						58,650
	Total policy and contract benefits						$	236,898
For the Year Ended December 31, 2019
Losses and LAE Incurred
Life insurance	$	38,306	$	22,607	$	443	$	16,142	2.7	%
Accident and health insurance	18,832		15,022		362		4,172		8.7	%
Property and liability insurance	225,200		147,290		52,785		130,695		40.4	%
Total losses and LAE incurred	282,338		184,919		53,590		151,009		35.5	%
	Member benefit claims (1)						19,672
	Total policy and contract benefits						$	170,681

(1)    Member benefit claims are not covered by reinsurance.

The following table presents the components of the reinsurance receivables:

	As of December 31,
	2021		2020
Prepaid reinsurance premiums:
Life insurance (1)	$	73,478	$	70,066
Accident and health insurance (1)	81,521		66,261
Property and liability insurance	479,091		423,868
Total	634,090		560,195
Ceded claim reserves:
Life insurance	3,928		4,133
Accident and health insurance	12,239		11,118
Property and liability insurance	148,962		98,092
Total ceded claim reserves recoverable	165,129		113,343
Other reinsurance settlements recoverable	81,617		54,471
Reinsurance receivables	$	880,836	$	728,009

(1)    Including policyholder account balances ceded.

The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from non-affiliated reinsurers:

	As of
	December 31, 2021
Total of the three largest receivable balances from non-affiliated reinsurers	$	126,089

As of December 31, 2021, the non-affiliated reinsurers from whom our insurance business has the largest receivable balances were: Allianz Global Corporate & Specialty SE (A. M. Best Rating: A+ rated), Canada Life International Reinsurance (Bermuda) Corporation (A. M. Best Rating: A+ rated), and Canada Life Assurance Company (A. M. Best Rating: A+ rated). The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit. As of December 31, 2021, the Company does not believe there is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization.

F-30

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(9) Goodwill and Intangible Assets, net

The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by operating segment and/or reporting unit, as appropriate:

	As of December 31, 2021			As of December 31, 2020
Finite-Lived Intangible Assets:		Insurance		Other		Total		Insurance		Other		Total
Customer relationships		$	143,300	$	—	$	143,300	$	143,300	$	—	$	143,300
Accumulated amortization		(45,997)		—		(45,997)		(32,263)		—		(32,263)
Trade names		14,750		800		15,550		14,750		800		15,550
Accumulated amortization		(5,633)		(520)		(6,153)		(4,382)		(440)		(4,822)
Software licensing		9,300		640		9,940		9,300		640		9,940
Accumulated amortization		(8,790)		(594)		(9,384)		(8,650)		(503)		(9,153)
Insurance policies and contracts acquired		36,500		—		36,500		36,500		—		36,500
Accumulated amortization		(36,320)		—		(36,320)		(36,238)		—		(36,238)
Other		640		—		640		640		—		640
Accumulated amortization		(203)		—		(203)		—		—		—
Total finite-lived intangible assets		107,547		326		107,873		122,957		497		123,454
Indefinite-Lived Intangible Assets: (1)
Insurance licensing agreements		13,761		—		13,761		13,761		—		13,761
Other		—		1,124		1,124		—		1,000		1,000
Total indefinite-lived intangible assets		13,761		1,124		14,885		13,761		1,000		14,761
Total intangible assets, net		$	121,308	$	1,450	$	122,758	$	136,718	$	1,497	$	138,215
Goodwill		177,395		1,708		179,103		177,528		1,708		179,236
Total goodwill and intangible assets, net		$	298,703	$	3,158	$	301,861	$	314,246	$	3,205	$	317,451

(1)    Impairment tests are performed at least annually on indefinite-lived intangible assets.

Goodwill

The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to impairment related charges:

			Tiptree Capital
	Insurance		Other		Total
Balance at December 31, 2019	97,439		1,708		99,147
Goodwill acquired (1)	84,476		—		84,476
Purchase accounting adjustments (2)	(4,387)		—		(4,387)
Balance at December 31, 2020	$	177,528	$	1,708	$	179,236
Purchase accounting adjustment (2)	(133)		—		(133)
Balance at December 31, 2021	$	177,395	$	1,708	$	179,103
Accumulated impairments	$	—	$	699	$	699

(1) Relates to acquisitions in in our insurance business as of December 31, 2020. See Note (3) Acquisitions.

(2) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of acquisitions in our insurance business as of January 3, 2020 and December 31, 2020.

The Company conducts annual impairment tests of its goodwill as of October 1. For the years ended December 31, 2021, 2020 and 2019, no impairments were recorded on the Company’s goodwill.

Intangible Assets, net

The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation adjustments made for acquisitions, as well as any reduction attributable to impairment-related charges:

F-31

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	Insurance		Other		Total
Balance at December 31, 2019	$	47,305	$	669	$	47,974
Intangible assets acquired (1)	99,040		1,000		100,040
Purchase accounting adjustment (2)	(300)		—		(300)
Less: amortization expense	(9,327)		(172)		(9,499)
Balance at December 31, 2020	$	136,718	$	1,497	$	138,215
Intangibles acquired	—		124		124
Less: amortization expense	(15,410)		(171)		(15,581)
Balance at December 31, 2021	$	121,308	$	1,450	$	122,758

(1) Relates to acquisitions in in our insurance business as of December 31, 2020. See Note (3) Acquisitions.

(2) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of acquisitions in our insurance business as of July 1, 2019.

The following table presents the amortization expense on finite-lived intangible assets for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Amortization expense on intangible assets		$	15,581	$	9,499	$	7,897

For the years ended December 31, 2021, 2020 and 2019, no impairments were recorded on the Company’s intangible assets.

The following table presents the amortization expense on finite-lived intangible assets for the next five years and thereafter by operating segment and/or reporting unit, as appropriate:

	As of December 31, 2021
	Insurance		Other		Total
2022	$	15,848	$	126	$	15,974
2023	15,031		80		15,111
2024	13,344		80		13,424
2025	11,229		40		11,269
2026	9,003		—		9,003
2027 and thereafter	43,092		—		43,092
Total	$	107,547	$	326	$	107,873

(10) Derivative Financial Instruments and Hedging

The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk and interest rate risk. In addition, the Company is also subject to additional counterparty risk should its counterparties fail to meet the contract terms. The derivative financial instruments are reported in other investments. Derivative liabilities are reported within other liabilities and accrued expenses.

Derivatives, at fair value

Interest Rate Lock Commitments

The Company enters into interest rate lock commitments (IRLCs) with customers in connection with its mortgage banking activities to fund residential mortgage loans with certain terms at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value typically resulting in recognition of a gain when the Company enters into IRLCs. In estimating the fair value of an IRLC, the Company assigns a probability that the loan commitment will be exercised and the loan will be funded (“pull through”). The fair value of the commitments is derived from the fair value of related mortgage loans, net of estimated costs to complete. Outstanding IRLCs expose the Company to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To manage this risk, the Company utilizes forward delivery contracts and to be announced (TBA) mortgage backed securities to economically hedge the risk of potential changes in the value of the loans that would

F-32

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

result from the commitments.

Forward Delivery Contracts and TBA Mortgage Backed Securities

The Company enters into forward delivery contracts with loan aggregators and other investors as one of the tools to manage the interest rate risk associated with IRLCs and loans held for sale. In addition, the Company enters into TBA mortgage backed securities which facilitate hedging and funding by allowing the Company to prearrange prices for mortgages that are in the process of originating. The Company utilizes these hedging instruments for Agency (Fannie Mae and Freddie Mac) and FHA/VA (Ginnie Mae) eligible IRLCs.

The following table presents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk:

	As of December 31, 2021						As of December 31, 2020
	Notional<br>values		Asset <br>derivatives		Liability<br>derivatives		Notional<br>values		Asset <br>derivatives		Liability<br>derivatives
Interest rate lock commitments	$	268,878	$	7,514	$	—	$	219,929	$	9,207	$	—
Forward delivery contracts	56,593		204		59		35,979		—		22
TBA mortgage backed securities	316,000		262		425		291,000		232		1,508
Other	9,232		216		1,657		3,058		2,090		560
Total	$	650,703	$	8,196	$	2,141	$	549,966	$	11,529	$	2,090

F-33

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(11) Debt, net

The following table presents the balance of the Company’s debt obligations, net of discounts and deferred financing costs for our corporate and asset based debt. Asset based debt is generally recourse only to specific assets and related cash flows.

	As of December 31, 2021
Corporate debt	Insurance		Other		Corporate		Total
Secured revolving credit agreements (1)	$	2,160	$	—	$	—	$	2,160
Secured term credit agreements (LIBOR + 6.75%)(2)	—		—		114,063		114,063
Preferred trust securities (LIBOR + 4.10%)	35,000		—		—		35,000
8.50% Junior subordinated notes	125,000		—		—		125,000
Total corporate debt	162,160		—		114,063		276,223
Asset based debt (3)
Asset based revolving financing (LIBOR + 2.75%)	42,310		—		—		42,310
Residential mortgage warehouse borrowings (LIBOR + 1.88% to 3.00%) (2)(3)	—		72,518		—		72,518
Vessel backed term loan (LIBOR + 4.75%)	—		13,600		—		13,600
Total asset based debt	42,310		86,118		—		128,428
Total debt, face value	204,470		86,118		114,063		404,651
Unamortized discount, net	—		—		(1,458)		(1,458)
Unamortized deferred financing costs	(8,474)		(1,069)		(301)		(9,844)
Total debt, net	$	195,996	$	85,049	$	112,304	$	393,349
	As of December 31, 2020
Corporate debt	Insurance		Other		Corporate		Total
Secured revolving credit agreements (1)	$	—	$	—	$	—	$	—
Secured term credit agreements (LIBOR + 6.75%)(2)	—		—		120,313		120,313
Preferred trust securities (LIBOR + 4.10%)	35,000		—		—		35,000
8.50% Junior subordinated notes	125,000		—		—		125,000
Total corporate debt	160,000		—		120,313		280,313
Asset based debt (3)
Asset based revolving financing (LIBOR + 2.75%)	27,510		—		—		27,510
Residential mortgage warehouse borrowings (LIBOR + 1.88% to 3.00%) (2)(3)	—		55,994		—		55,994
Vessel backed term loan (LIBOR + 4.75%)	—		15,800		—		15,800
Total asset based debt	27,510		71,794		—		99,304
Total debt, face value	187,510		71,794		120,313		379,617
Unamortized discount, net	—		—		(2,035)		(2,035)
Unamortized deferred financing costs	(9,537)		(5)		(1,794)		(11,336)
Total debt, net	$	177,973	$	71,789	$	116,484	$	366,246

(1)    The secured revolving credit agreements provide a two rate structure at the Company’s discretion; Prime +1.25% for swing loans and LIBOR + 2.25%.

(2)    Includes LIBOR floor of 1.00%.

(3)    The weighted average coupon rate for residential mortgage warehouse borrowings was 2.76% and 2.75% at December 31, 2021 and December 31, 2020, respectively. Includes LIBOR floor ranging from 0.50% to 1.00%

The following table presents the amount of interest expense the Company incurred on its debt for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Total Interest expense - corporate debt		24,425		$	23,322	$	19,682
Total Interest expense - asset based debt		13,018		9,260		7,377
Interest expense on debt		$	37,443	$	32,582	$	27,059

F-34

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The following table presents the contractual principal payments and future maturities of the unpaid principal balance on the Company’s debt for the following periods:

	As of
	December 31, 2021
2022	$	80,968
2023	52,920
2024	15,450
2025	95,313
2026	—
2027 and thereafter	160,000
Total	$	404,651

The following narrative is a summary of certain terms of our debt agreements for the year ended December 31, 2021:

Corporate Debt

Secured Revolving Credit Agreements

As of December 31, 2021 and December 31, 2020, a total of $2,160 and $0, respectively, was outstanding under the revolving line of credit in our insurance business. The maximum borrowing capacity under the agreements as of December 31, 2021 is $200,000.

On August 4, 2020, Fortegra entered into an Amended and Restated Credit Agreement by and among Fortegra Financial and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing lender (the Fortegra Credit Agreement). The Fortegra Credit Agreement provides for a $200,000 revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $17,500 for swing loans and matures on August 4, 2023. The Fortegra Credit Agreement replaced the $30,000 revolving line of credit with the Fifth Third Bank (the “Working Capital Facility”).

Secured Term Credit Agreement

On February 21, 2020, the Operating Company borrowed $125,000 under a new credit agreement (Credit Agreement) with Fortress Credit Corp. (Fortress). The proceeds were used to repay the Company’s prior credit agreement with Fortress, with a balance of $68,210 as of December 31, 2019, and for working capital and general corporate purposes. Pursuant to an Amendment, Assumption and Consent Agreement, dated July 17, 2020 by and among Tiptree, certain of its subsidiaries and Fortress, Tiptree Holdings LLC (Tiptree Holdings) became the borrower under the Credit Agreement, dated as of February 21, 2020, by and among Tiptree, certain of its subsidiaries and Fortress. The Credit Agreement will mature on February 21, 2025, with principal amounts of the loans to be repaid in consecutive quarterly installments. Loans under the Credit Agreement bear interest at a variable rate per annum equal to LIBOR (with a minimum LIBOR rate of 1.00%), plus a margin of 6.75% per annum. The obligations under the Credit Agreement are secured by liens on substantially all of the assets of Tiptree Holdings and guaranteed by the Company and Tiptree Holdings’ direct wholly owned first tier subsidiaries (Guarantors).

The Credit Agreement contains various customary affirmative and negative covenants of the Company, Tiptree Holdings and the other Guarantors (subject to customary exceptions), including, but not limited to, limitations on indebtedness, liens, investments and acquisitions, negative pledges, junior payments, conduct of business, transactions with affiliates, dispositions of assets, prepayment of certain indebtedness and limits on guarantees by subsidiaries of Tiptree Holdings’ and the Guarantors’ indebtedness. The Credit Agreement also contains a financial covenant which limits corporate leverage as defined by its Corporate Leverage Ratio (as defined in the Credit Agreement).

The Credit Agreement also contains customary mandatory repayment provisions (subject to customary exceptions) and requires that net cash proceeds from the sale by Tiptree and certain of its subsidiaries of capital stock of Invesque be applied to prepay loans until the outstanding principal amount of loans is $62,500, with remaining proceeds subject to reinvestment rights. Prepayments, whether mandatory or voluntary, reduce future scheduled amortization payments in the order they come

F-35

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

due. The Credit Agreement also requires the payment of a prepayment fee upon a repricing transaction or equity issuance consummated after the closing date, or the sale of Fortegra, or any of its material subsidiaries. As of December 31, 2021, a total of $114,063 was outstanding under this agreement. The maximum borrowing capacity on this agreement is $114,063.

Junior Subordinated Notes

A subsidiary in our insurance business issued $125,000 of 8.50% Fixed Rate Resetting Junior Subordinated Notes due October 2057. Substantially all of the net proceeds were used to repay the existing secured credit agreement, which was terminated thereafter. The notes are unsecured obligations of the subsidiary and rank in right of payment and upon liquidation, junior to all of the subsidiary’s current and future senior indebtedness. The notes are not obligations of or guaranteed by any subsidiaries of the subsidiary, or any other Tiptree entities. So long as no event of default has occurred and is continuing, all or part of the interest payments on the notes can be deferred on one or more occasions for up to five consecutive years per deferral period. This credit agreement contains customary financial covenants that require, among other items, maximum leverage and limitations on restricted payments under certain circumstances.

Preferred Trust Securities

A subsidiary in our insurance business has $35,000 of preferred trust securities due June 15, 2037. Interest is payable quarterly at an interest rate of LIBOR plus 4.10%. The Company may redeem the preferred trust securities, in whole or in part, at a price equal to the full outstanding principal amount of such preferred trust securities outstanding plus accrued and unpaid interest.

Asset Based Debt

Asset Backed Revolving Financing

On October 16, 2020, subsidiaries in our insurance business entered into a three year $75,000 secured credit agreement, which replaced the individual agreements in its premium finance and service contract finance businesses. The borrowers can select from various borrowing and rate options under the agreement, as well the option to convert certain borrowings to term loans, if no default or event of default exists. The agreement extends up to $20,000 for our premium finance business and up to $55,000 for our service contract finance business, and is secured by substantially all of the assets of the borrowers. The obligations under the agreement are non-recourse to Fortegra and its subsidiaries (other than borrowers and their subsidiaries). As of December 31, 2021, a total of $42,310 was outstanding under the borrowing.

Residential Mortgage Warehouse Borrowings

In March 2021, the $60,000 warehouse line of credit was renewed and the maturity date was extended from April 2021 to April 2022. In July 2021, the $50,000 warehouse line of credit was renewed and the maturity date was extended from August 2021 to August 2022.

In April 2020, a subsidiary in our mortgage business renewed the $60,000 warehouse line of credit, extending the maturity date to April 2021 and establishing a LIBOR floor of 1.0%. Additionally, during March 2020, another warehouse line maturing in August 2020 temporarily raised the maximum borrowing capacity to $65,000, returning to a maximum borrowing capacity of $50,000 in May 2020 and establishing a LIBOR floor of 0.50%. In August 2020, the $50,000 warehouse line of credit was extended to August 2021, and established a LIBOR floor of 0.50% to 1.00%. As of December 31, 2021 and December 31, 2020, a total of $72,518 and $55,994, respectively, was outstanding under such financing agreements.

F-36

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Vessel Backed Term Loan

On November 28, 2019, subsidiaries in our shipping business entered into a $18,000 term loan facility. Amounts borrowed under the facility are not allowed to be reborrowed. The borrowing has a maturity date of November 28, 2024 and a rate of LIBOR plus 4.75%, with quarterly principal payments of $550. This facility is secured by liens on 2.00 of our vessels as well as the assets of the borrowing entities and their parent guarantor. This credit agreement contains customary financial covenants that require, among other items, minimum liquidity, positive working capital, minimum required security coverage ratio of 150%, and the existence of a maintenance reserve account funded on a quarterly basis prior to anticipated scheduled drydocking costs. As of December 31, 2021, a total of $13,600 was outstanding under the borrowing.

As of December 31, 2021, the Company is in compliance with the representations and covenants for its outstanding debt or has obtained waivers for any events of non-compliance.

(12) Fair Value of Financial Instruments

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note (2) Summary of Significant Accounting Policies which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.

F-37

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Available for Sale Securities, at fair value

The fair values of AFS securities are based on prices provided by an independent pricing service and a third-party investment manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager by analyzing the investment manager-provided pricing report.

The following details the methods and assumptions used to estimate the fair value of each class of AFS securities and the applicable level each security falls within the fair value hierarchy:

U.S. Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third-party investment manager. The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy.

Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.

Equity Securities

The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks are based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 in the fair value hierarchy.

Loans, at fair value

Corporate Loans: These loans are comprised of middle market loans and bank loans and are generally classified under either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices which include those provided from pricing vendors which provide coverage of secondary market participants, where available. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of loans based on internal models and other unobservable inputs.

Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.

Derivative Assets and Liabilities

Derivatives are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these commitments generally fall under Level 3 in the fair value hierarchy. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy.

Corporate Bonds

Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

F-38

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Trade Claims

Trade claims represent unsecured claims of bankrupt companies and are generally classified under Level 3 in the fair value hierarchy. The fair value is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs are intended to reflect the assumptions a market participant would use in pricing the asset or liability.

Securities Sold, Not Yet Purchased

Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

Mortgage Servicing Rights

Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed.

The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring basis:

F-39

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	As of December 31, 2021
	Quoted prices in active markets <br>Level 1		Other significant<br> observable inputs <br> Level 2		Significant unobservable inputs<br>Level 3		Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	351,178	$	—	$	351,178
Obligations of state and political subdivisions	—		58,660		—		58,660
Obligations of foreign governments	—		2,590		—		2,590
Certificates of deposit	2,696		—		—		2,696
Asset backed securities	—		16,832		615		17,447
Corporate securities	—		144,877		—		144,877
Total available for sale securities, at fair value	2,696		574,137		615		577,448
Loans, at fair value:
Corporate loans	—		5,002		2,097		7,099
Mortgage loans held for sale	—		98,484		—		98,484
Total loans, at fair value	—		103,486		2,097		105,583
Equity securities:
Invesque	34,814		—		—		34,814
Fixed income ETFs	53,154		—		—		53,154
Other equity securities	49,309		—		1,206		50,515
Total equity securities	137,277		—		1,206		138,483
Other investments, at fair value:
Corporate bonds	—		38,965		—		38,965
Derivative assets	113		569		7,514		8,196
Trade claims	—		—		19,737		19,737
CLOs	—		—		441		441
Total other investments, at fair value	113		39,534		27,692		67,339
Mortgage servicing rights (1)	—		—		29,833		29,833
Total	$	140,086	$	717,157	$	61,443	$	918,686
Liabilities: (2)
Securities sold, not yet purchased	$	242	$	—	$	—	$	242
Derivative liabilities	—		2,141		—		2,141
Contingent consideration payable	—		—		200		200
Total	$	242	$	2,141	$	200	$	2,583

(1)    Included in other assets.

(2)    Included in other liabilities and accrued expenses.

F-40

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	As of December 31, 2020
	Quoted<br>prices in<br>active<br>markets <br>Level 1		Other significant<br> observable inputs <br> Level 2		Significant unobservable inputs<br>Level 3		Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	196,303	$	—	$	196,303
Obligations of state and political subdivisions	—		44,350		—		44,350
Obligations of foreign governments	—		3,992		—		3,992
Certificates of deposit	1,355		—		—		1,355
Asset backed securities	—		35,334		858		36,192
Corporate securities	—		94,941		—		94,941
Total available for sale securities, at fair value	1,355		374,920		858		377,133
Loans, at fair value:
Corporate loans	—		—		7,795		7,795
Mortgage loans held for sale	—		82,937		—		82,937
Total loans, at fair value	—		82,937		7,795		90,732
Equity securities:
Invesque	31,078		—		—		31,078
Fixed income ETFs	63,875		—		—		63,875
Other equity securities	28,850		—		35		28,885
Total equity securities	123,803		—		35		123,838
Other investments, at fair value:
Corporate bonds	—		105,777		—		105,777
Derivative assets	2,090		232		9,207		11,529
CLOs	—		—		802		802
Total other investments, at fair value	2,090		106,009		10,009		118,108
Mortgage servicing rights (1)	—		—		14,758		14,758
Total	$	127,248	$	563,866	$	33,455	$	724,569
Liabilities: (2)
Securities sold, not yet purchased	$	16,479	$	30,158	$	—	$	46,637
Derivative liabilities	—		2,090		—		2,090
Contingent consideration payable	—		—		200		200
Total	$	16,479	$	32,248	$	200	$	48,927
(1) Included in other assets.<br><br>(2) Included in other liabilities and accrued expenses.

F-41

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.

The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:

	2021		2020
Balance at January 1,	$	33,455	$	32,470
Net realized and unrealized gains or losses included in:
Earnings	14,206		2,253
OCI	(243)		(329)
Origination of IRLCs	109,330		120,267
Purchases	24,956		3,862
Sales	(9,238)		(6,672)
Conversions to mortgage loans held for sale	(111,023)		(118,396)
Balance at December 31,	$	61,443	$	33,455
Changes in unrealized gains (losses) included in earnings related to assets still held at period end	$	(2,421)	$	(7,978)
Changes in unrealized gains (losses) included in OCI related to assets still held at period end	$	(243)	$	(329)

The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities.

	As of December 31,
	2021			2020			Valuation technique			Unobservable input(s) (1)
Assets	Fair Value										Range				Range
IRLCs	$	7,514		$	9,207		Internal model			Pull through rate		95%		66%		95%	68%
Mortgage servicing rights	29,833			14,758			External model			Discount rate		12%		9%		13%	11%
			Cost to service					65	to		80		to		90
			Prepayment speed					5%	to		100%		to		60%
Trade claims	19,737			—			Internal model			Plan projected recovery rate		18%		17%			N/A
Total	$	57,084		$	23,965
Liabilities
Contingent consideration payable - Smart AutoCare	$	200		$	200		Cash Flow Model			Forecast Cash EBITDA		30,000		N/A		30,000	N/A
						Actuarial Analysis
Total	$	200		$	200

All values are in US Dollars.

(1)    Unobservable inputs were weighted by the relative fair value of the instruments.

F-42

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:

	As of December 31, 2021					As of December 31, 2020
	Level within<br>fair value<br>hierarchy	Fair value		Carrying value		Level within<br>fair value<br>hierarchy	Fair value		Carrying value
Assets:
Debentures (1)	2	$	21,057	$	21,057	2	$	17,703	$	17,703
Notes receivable, net	2	89,788		89,788		2	62,075		62,075
Total assets		$	110,845	$	110,845		$	79,778	$	79,778
Liabilities:
Debt, net	3	$	419,599	$	403,193	3	$	392,951	$	377,582
Total liabilities		$	419,599	$	403,193		$	392,951	$	377,582

(1)    Included in other investments.

Debentures: Since interest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts.

Notes Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.

Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes is determined based on dealer quotes. Categorized under Level 3 in the fair value hierarchy.

Additionally, the following financial assets and liabilities on the consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized under Level 1 in the fair value hierarchy.

Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.

Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short term nature. Categorized under Level 2 in the fair value hierarchy.

F-43

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(13) Liability for Unpaid Claims and Claim Adjustment Expenses

Roll forward of Claim Liability

The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short duration contracts for the following periods:

	2021		2020
Policy liabilities and unpaid claims balance as of January 1,	$	233,438	$	144,384
Less: liabilities of policy-holder account balances, gross	(5,419)		(11,589)
Less: non-insurance warranty benefit claim liabilities	(30,664)		(85)
Gross liabilities for unpaid losses and loss adjustment expenses	197,355		132,710
Less: reinsurance recoverable on unpaid losses - short duration	(113,163)		(88,599)
Less: other lines, gross	(247)		(230)
Net balance as of January 1, short duration	83,945		43,881
Incurred (short duration) related to:
Current year	250,300		172,007
Prior years	2,606		5,443
Total incurred	252,906		177,450
Paid (short duration) related to:
Current year	174,334		127,721
Prior years	8,105		9,665
Total paid	182,439		137,386
Net balance as of December 31, short duration	154,412		83,945
Plus: reinsurance recoverable on unpaid losses - short duration	165,129		113,163
Plus: other lines, gross	576		247
Gross liabilities for unpaid losses and loss adjustment expenses	320,117		197,355
Plus: liabilities of policy-holder account balances, gross	801		5,419
Plus: non-insurance warranty benefit claim liabilities	10,785		30,664
Policy liabilities and unpaid claims balance as of December 31,	$	331,703	$	233,438

The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member benefit claims:

	For the Year Ended December 31,
		2021		2020		2019
Short duration incurred		$	252,906	$	177,450	$	150,094
Other lines incurred		(284)		27		184
Unallocated loss adjustment expenses		851		771		731
Total losses incurred		$	253,473	$	178,248	$	151,009

During the year ended December 31, 2021, the Company experienced an increase in prior year development of $2,606, primarily as a result of higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business.

During the year ended December 31, 2020, the Company experienced an increase in prior year development of $5,443, primarily as a result of higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business. The underlying cause of this development was the result of a subset of risk where the loss ratio pegs used in our year end actuarial determination was low given the ultimate frequency that emerged.

During the year ended December 31, 2019, the Company experienced an increase in prior year development of $5,169, primarily in our non-standard auto business. The underlying cause of this development was higher than expected claim frequency.

F-44

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Management considers the prior year development for each of these years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings. The prior year development in 2021, 2020, and 2019 of $2,606, $5,443 and $5,169, respectively, represented 3.7%, 20.2% and 13.9% of pretax income of our insurance business of $69,857, $26,948 and $37,030 in each year, and 3.1%, 12.4% and 18.7% of the opening net liability for losses and loss adjustment expenses of $83,945, $43,881 and $27,615, as of January 1 of each year.

Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represent the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

Incurred and Paid Development

The following table presents information about incurred and paid loss development and average claim duration as of December 31, 2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated count of unreported claims. The number of claims is measured by claim event. The Company considers a claim that does not result in a liability as a claim closed without payment. In 2020 and 2021, timing effects related to the COVID 19 pandemic impacted claim activity and, consequently, the duration of paid claims relative to incurred losses. We believe these impacts are temporary and do not reflect a long term fundamental change in duration or the relationship between paid claims and incurred losses.

Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance													As of December 31, 2021
	For the Years Ended December 31,													Total of IBNR Liabilities Plus Expected Development of Reported Claims		Cumulative Number of Reported Claims
Accident Year	2016<br>(Unaudited)		2017<br>(Unaudited)		2018<br>(Unaudited)		2019<br>(Unaudited)		2020<br>(Unaudited)		2021
2016	$	84,178	$	87,290	$	87,993	$	88,615	$	89,629	$	89,981		$	39	257
2017			103,306		104,898		105,601		105,787		106,446			$	—	326
2018					129,352		133,225		133,158		134,392			$	17,195	399
2019							144,925		149,166		151,772			$	8,852	403
2020									172,007		169,706			$	30,661	330
2021											250,300			59,994		473
									Total		$	902,597
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2016<br>(Unaudited)		2017<br>(Unaudited)		2018<br>(Unaudited)		2019<br>(Unaudited)		2020<br>(Unaudited)		2021
2016	62,989		$	84,185	$	86,531	$	88,482	$	88,976	$	89,474
2017			84,493		102,620		105,075		105,852		106,402
2018					105,740		112,619		114,490		115,407
2019							122,348		128,787		132,747
2020									127,721		129,832
2021											174,334
									Total		$	748,196
All outstanding liabilities before 2016, net of reinsurance									11
Liabilities for loss and loss adjustment expenses, net of reinsurance									$	154,412

F-45

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Duration

The following table presents supplementary information about average historical claims duration as of December 31, 2021 for short duration contracts:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Years	1	2	3	4	5	6
Short duration	75.6%	10.3%	2.2%	1.2%	0.5%	0.6%

Reconciliation of Reserves to Balance Sheet

The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims:

	As of <br>December 31, 2021
Net outstanding liabilities:
Short duration	$	154,412
Insurance lines other than short duration	576
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance	154,988
Reinsurance recoverable on unpaid losses and loss adjustment expenses:
Short duration	165,129
Total reinsurance recoverable on unpaid losses and loss adjustment expenses	165,129
Total gross liability for unpaid losses and loss adjustment expenses	320,117
Liabilities of policy-holder account balances, gross	801
Non-insurance warranty benefit claim liabilities	10,785
Total policy liabilities and unpaid claims	$	331,703

(14) Revenue from Contracts with Customers

The Company’s revenues from insurance and contractual and liability insurance operations are primarily accounted for under Financial Services-Insurance (Topic 944) that are not within the scope of Revenue for Contracts with Customers (Topic 606). The Company’s remaining revenues that are within the scope of Topic 606 are primarily comprised of revenues from contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided for premiums, claims and reinsurance processing revenues, vehicle service contracts, vessel related revenue and revenues for household goods and appliances service contracts (collectively, remaining contracts).

The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Service and Administrative Fees:
Service contract revenue		$	163,583	$	98,574	$	27,597
Motor club revenue		41,634		36,159		36,076
Vessel related revenue		35,562		22,697		16,747
Management fee income		—		—		1,267
Other		17,784		6,127		7,317
Revenue from contracts with customers		$	258,563	$	163,557	$	89,004

Service and Administrative Fees

F-46

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable.

Administrative fee revenue includes the administration of premium associated with our producers and PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and auto and consumer goods service contracts. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.

We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at December 31, 2021.

The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.

Vessel Related Revenue

The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and at a specified daily charter rate. Charter revenues are recognized as earned on the straight-line basis over the term of the charter as service is provided.

Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to services to be rendered after the balance sheet date.

The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the following period:

	January 1, 2021						December 31, 2021
	Beginning balance		Additions		Amortization		Ending balance
Deferred acquisition costs
Service and Administrative Fees:
Service contract revenue	$	48,734	$	94,717	$	33,231	$	110,220
Motor club revenue	13,081		38,831		32,488		19,424
Total	$	61,815	$	133,548	$	65,719	$	129,644		Deferred revenue
---	---	---	---	---	---	---	---	---
Service and Administrative Fees:
Service contract revenue	$	348,391	$	285,591	$	163,583	$	470,399
Motor club revenue	16,969		49,535		41,634		24,870
Total	$	365,360	$	335,126	$	205,217	$	495,269

For the periods presented, no write-offs for unrecoverable deferred acquisition costs and deferred revenue were recognized.

F-47

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(15) Other Assets and Other Liabilities and Accrued Expenses

Other Assets

The following table presents the components of other assets as reported in the consolidated balance sheets:

	As of December 31,
	2021		2020
Loans eligible for repurchase	$	36,732	$	70,593
Mortgage servicing rights	29,833		14,758
Right of use asset - Operating leases (1)	23,870		27,291
Income tax receivable	19,824		19,513
Furniture, fixtures and equipment, net	14,878		15,798
Prepaid expenses	10,722		8,159
Other	10,985		5,922
Total other assets	$	146,844	$	162,034

(1)    See Note (21) Commitments and Contingencies for additional information.

The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Depreciation expense related to furniture, fixtures and equipment		$	3,621	$	3,257	$	2,753

Other Liabilities and Accrued Expenses

The following table presents the components of other liabilities and accrued expenses as reported in the consolidated balance sheets:

	As of December 31,
	2021		2020
Accounts payable and accrued expenses	$	149,816	$	106,142
Loans eligible for repurchase liability	36,732		70,593
Deferred tax liabilities, net	40,049		24,183
Operating lease liability (1)	29,396		32,914
Due to brokers	10,763		45,047
Commissions payable	20,412		18,678
Securities sold, not yet purchased	242		46,637
Other	19,126		18,671
Total other liabilities and accrued expenses	$	306,536	$	362,865

(1)    See Note (21) Commitments and Contingencies for additional information.

(16) Other Revenue and Other Expenses

Other Revenue

The following table presents the components of other revenue as reported in the consolidated statement of operations. Other revenue is primarily generated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table.

	For the Year Ended December 31,
		2021		2020		2019
Other investment income (1)		$	64,580	$	48,747	$	45,985
Gain (loss) on sale of businesses (2)		(1,928)		(4,428)		7,598
Management fee income		—		—		1,267
Other (3)		10,755		7,591		5,038
Total other revenue		$	73,407	$	51,910	$	59,888

(1)    See Note (6) Investments for the components of Other investment income.

F-48

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(2)    Relates to the impairment of Luxury. See Note (4) Dispositions and Assets and Liabilities Held for Sale.

(3)    Includes $10,384, $7,025, and $4,566 for the years ended December 31, 2021, 2020 and 2019, respectively, related to Insurance.

Other Expenses

The following table presents the components of other expenses as reported in the consolidated statement of operations:

	For the Year Ended December 31,
		2021		2020		2019
General and administrative		$	36,654	$	22,295	$	18,563
Professional fees		27,285		20,711		20,820
Premium taxes		20,196		15,824		15,205
Mortgage origination expenses		17,451		14,603		12,200
Rent and related		17,009		14,074		12,642
Operating expenses from vessels		13,797		13,210		9,781
Loss on extinguishment of debt		—		353		1,241
Other		9,652		8,078		9,292
Total other expenses		$	142,044	$	109,148	$	99,744

(17) Stockholders’ Equity

Stock Repurchases

The Board of Directors authorized the Company to make repurchases of up to $20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. The following table presents the Company’s stock repurchase activity and remaining authorization.

	For the Year Ended<br>December 31, 2021
	Number of shares purchased	Weighted average price per share
Share repurchase plan	528,662	$	5.45
Remaining repurchase authorization		$	13,669

Warrants

In April 2021, warrants were exercised for 207,445 shares of Tiptree common stock. As of December 31, 2021, there were warrants for 2,021,506 shares of Tiptree common stock outstanding at an exercise price of $6.97.

Dividends

The Company declared cash dividends per share for the following periods presented below:

	For the Year Ended December 31,
	2021		2020		2019
First quarter	$	0.04	$	0.04	$	0.04
Second quarter	0.04		0.04		0.04
Third quarter	0.04		0.04		0.04
Fourth quarter(1)	0.04		0.04		0.04
Total cash dividends declared	$	0.16	$	0.16	$	0.16

(1)    See Note (24) Subsequent Events for when the dividend was declared.

Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions

The Company’s U.S. insurance subsidiaries prepare financial statements in accordance with Statutory Accounting Principles

F-49

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(SAP) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (the NAIC) as well as state laws, regulations and administrative rules.

Statutory Capital and Surplus

The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required

by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as

of December 31, 2021 and December 31, 2020.

	As of December 31,
	2021		2020
Combined statutory capital and surplus of the Company's insurance company subsidiaries	$	286,015	$	202,710
Required minimum statutory capital and surplus	$	75,750	$	64,950

Under the National Association of Insurance Commissioners Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's U.S. domiciled insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of December 31, 2021.

The following table presents the statutory net income of the Company’s U.S. domiciled statutory insurance companies for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Net income of statutory insurance companies		$	33,999	$	19,647	$	8,444

The Company also has a foreign insurance subsidiary that is not subject to SAP. The statutory capital and surplus amounts and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP.

Statutory Dividends

The Company’s U.S. domiciled insurance company subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance department of the applicable state of domicile. The Company eliminates all dividends from its subsidiaries in the consolidated financial statements. There were no dividends paid to the Company by its U.S. domiciled insurance company subsidiaries for the years ended December 31, 2021 and 2020.

The following table presents the combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the following periods:

					As of December 31,
					2021	2020
Amount available for ordinary dividends of the Company's insurance company subsidiaries	$	18,519	$	13,418

At December 31, 2021, the maximum amount of dividends that our U.S. domiciled regulated insurance company subsidiaries could pay under applicable laws and regulations without regulatory approval was approximately $18,519. The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought.

(18) Accumulated Other Comprehensive Income (Loss)

The following table presents the activity of AFS securities in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods:

F-50

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

	Total AOCI		Amount attributable to non-controlling interests		Total AOCI to Tiptree Inc.
Balance at December 31, 2018	$	(2,069)	$	11	$	(2,058)
Other comprehensive income (losses) before reclassifications	4,911		(24)		4,887
Amounts reclassified from AOCI	(1,032)		—		(1,032)
OCI	3,879		(24)		3,855
Adoption of accounting standard (1)	(99)		—		(99)
Balance at December 31, 2019	$	1,711	$	(13)	$	1,698
Other comprehensive income (losses) before reclassifications	4,364		(15)		4,349
Amounts reclassified from AOCI	(415)				(415)
OCI	3,949		(15)		3,934
Adoption of accounting standard (1)	42		—		42
Balance at December 31, 2020	$	5,702	$	(28)	$	5,674
Other comprehensive income (losses) before reclassifications	(7,889)		29		(7,860)
Amounts reclassified from AOCI	(499)		—		(499)
OCI	(8,388)		29		(8,359)
Balance at December 31, 2021	$	(2,686)	$	1	$	(2,685)

(1)    Amounts reclassified to retained earnings due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies.

The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the consolidated statement of operations for the following periods:

	For the Year Ended December 31,					Affected line item in consolidated statements of operations
Components of AOCI		2021		2020			2019
Unrealized gains (losses) on available for sale securities		$	638	$	528	$	1,312	Net realized and unrealized gains (losses)
Related tax (expense) benefit		(139)		(113)		(280)		Provision for income tax
Net of tax		$	499	$	415	$	1,032

(19) Stock Based Compensation

Equity Plans

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock:

F-51

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

2017 Equity Plan	Number of shares (1)
Available for issuance as of December 31, 2018	5,474,214
RSU and option awards granted	(702,264)
Forfeited	8,318
Exchanged for vested subsidiary awards	(14,405)
Available for issuance as of December 31, 2019	4,765,863
RSU, stock and option awards granted	(977,446)
Available for issuance as of December 31, 2020	3,788,417
RSU, stock and option awards granted	(61,713)
PRSU awards vested	(215,583)
Exchanged for vested subsidiary awards	(1,166,307)
Available for issuance as of December 31, 2021	2,344,814

(1)    Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.

Restricted Stock Units and Stock Awards

Tiptree Corporate Incentive Plans

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs vest and become non-forfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

Stock Awards - Directors’ Compensation

The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested.

The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated:

	Number of shares issuable	Weighted average grant date fair value
Unvested units as of December 31, 2018	676,630	$	6.27
Granted	476,449	6.25
Vested	(186,152)	6.44
Forfeited	(8,318)	6.10
Unvested units as of December 31, 2019	958,609	$	6.23
Granted	552,169	7.04
Vested	(557,633)	6.54
Unvested units as of December 31, 2020	953,145	$	6.52
Granted	61,713	7.81
Vested	(415,846)	6.62
Unvested units as of December 31, 2021	599,012	$	6.59

The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:

	For the Year Ended December 31,				For the Year Ended December 31,
Granted	2021	2020	2019	Vested	2021	2020	2019
Directors	61,713	82,912	48,076	Directors	61,713	82,912	48,076
Employees (1)	—	469,257	428,373	Employees	354,133	474,721	138,076
Total Granted	61,713	552,169	476,449	Total Vested	415,846	557,633	186,152
				Taxes	(34,828)	(53,438)	(35,622)
				Exchanged	—	—	14,405
				Net Vested	381,018	504,195	164,935

F-52

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(1)    Includes 256,619 and 307,148 shares that vest ratably over three years and 212,638 and 112,907 shares that cliff vest in February 2023 and 2022 for the years ended December 31, 2020 and 2019, respectively.

Tiptree Senior Management Incentive Plan

On August 4, 2021, a total of 3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the Company’s senior management. The PRSUs have a 10-year term and are subject to the recipient’s continuous service and a market requirement. A portion of the PRSUs will generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $15 to $60, adjusted for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on the second, fourth, sixth, eighth and tenth anniversaries of the grant date.

In November 2021, the first tranche of the PRSUs vested, resulting in a net issuance of 215,583 shares of Tiptree common stock. As of December 31, 2021, 3,266,667 PRSUs are unvested. The below table illustrates the aggregate number of PRSUs that will vest upon the achievement of each Tiptree share price target. Such price targets will be adjusted down for cumulative dividends paid by the Company since grant (e.g., the next share price target is $19.92 as adjusted for cumulative dividends paid to date).

Tiptree Share Price Target	Number of PRSUs that Vest
$20	466,667
$30	700,000
$45	933,333
$60	1,166,667

Upon vesting, the Company will issue shares or if shares are not available under the 2017 Equity Plan, then the Company may in its sole discretion instead deliver cash equal to the fair market value of the underlying shares. As of December 31, 2021, the Company does not have sufficient shares available in the 2017 Equity Plan to settle the PRSUs awarded; as such, the PRSUs are classified as liability awards and will be remeasured at each reporting date until the date of settlement, and expensed using the straight-line method over the requisite service period.

The fair value of the PRSUs are estimated on the date of grant and at each subsequent reporting date using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. The historical volatility is computed based on historical daily returns of the Company’s stock price simulated over the performance period using a lookback period of 10 years. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the reporting date. The current quarterly dividend rates in effect as of the reporting date are used to calculate a spot dividend yield for use in the model.

The following table presents the assumptions used to remeasure the fair value of the PRSUs as of December 31, 2021, which were granted in 2021 and classified as liability awards.

Valuation Input	For the Year Ended December 31, 2021
		Assumption	Average
Historical volatility		37.69%	35.51%
Risk-free rate		1.48%	1.41%
Dividend yield		1.18%	1.32%
Cost of equity		10.45%	10.07%
Expected term (years)		7	9

Subsidiary Incentive Plans

Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, such vested awards may be exchanged

F-53

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

at fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in cash.

The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:

	Grant date fair value of equity shares issuable
Unvested balance as of December 31, 2018	$	8,710
Granted	—
Vested	(4,991)
Performance assumption adjustment	560
Unvested balance as of December 31, 2019	$	4,279
Granted	1,108
Vested	(4,237)
Performance assumption adjustment	3,155
Unvested balance as of December 31, 2020	$	4,305
Granted	1,278
Vested	(3,472)
Performance assumption adjustment	123
Unvested balance as of December 31, 2021	$	2,234

The net vested balance of subsidiary awards eligible for exchange as of December 31, 2021 translates to 1,423,604 shares of Tiptree common stock.

Stock Option Awards

Tiptree Corporate Incentive Plans

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five year anniversaries of the grant date. The market requirement is the Company's 20-day volume weighted average per share trading price plus actual cash dividends paid following issuance of the option that exceeds the book value on the option grant date. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. There were no options granted during the year ended December 31, 2021. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively.

During the year ended December 31, 2021, book value targets for all outstanding options were achieved.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.

F-54

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

There were no stock option awards granted in 2021. The following table presents the assumptions used to estimate the fair values of the stock options granted in 2020.

Valuation Input (1)	For the Year Ended December 31, 2020
		Assumption	Average
Historical volatility		27.60%	N/A
Risk-free rate		1.51%	N/A
Dividend yield		2.20%	N/A
Expected term (years)			7.0

(1) Not applicable for the year ended December 31, 2021 as there were no new grants during the period.

The following table presents the Company's stock option activity for the current period:

	Options outstanding	Weighted average exercise price (in dollars per stock option)		Weighted average grant date value (in dollars per stock option)		Options exercisable
Balance, December 31, 2020	1,715,619	$	6.49	$	2.29	—
Balance, December 31, 2021	1,715,619	$	6.49	$	2.29	712,542
Weighted average remaining contractual term at December 31, 2021 (in years)	6.1

Stock Based Compensation Expense

The following table presents total stock based compensation expense and the related income tax benefit recognized on the consolidated statements of operations:

	For the Year Ended December 31,
		2021		2020		2019
Employee compensation and benefits (1)		$	10,665	$	7,571	$	6,062
Director compensation		465		546		301
Income tax benefit		(2,338)		(1,705)		(1,374)
Net stock based compensation expense		$	8,792	$	6,412	$	4,989

(1) Includes $6,609 related to liability awards recorded in other liabilities as of December 31, 2021.

Additional information on total non-vested stock based compensation is as follows:

	As of December 31, 2021
	Stock options		Restricted stock awards and RSUs		Performance Restricted Stock Units
Unrecognized compensation cost related to non-vested awards	$	231	$	2,143	$	18,491
Weighted - average recognition period (in years)	1.03		0.64		1.14

F-55

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(20) Income Taxes

The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss):

	For the Year Ended December 31,
	2021		2020		2019
Current provision (benefit) for income taxes:
Federal	$	1,393	$	(26,273)	$	991
State	1,330		1,692		386
Foreign	838		221		825
Total current provision (benefit) for income taxes	3,561		(24,360)		2,202
Deferred provision (benefit) for income taxes:
Federal	13,819		10,415		6,502
State	4,435		697		335
Foreign	(524)		(379)		(22)
Total deferred provision (benefit) for income taxes	17,730		10,733		6,815
Total provision (benefit) for income taxes	$	21,291	$	(13,627)	$	9,017

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses. During the year ended December 31, 2020, the Company recorded a $7,293 tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $16,795 and an increase to our current receivable of $24,088. The Company continues to assess the potential tax impacts of this legislation on its financial position and results of operations.

The U.S. federal rate is before the consideration of rate reconciling items. A reconciliation of the expected federal provision (benefit) for income taxes on income using the federal statutory income tax rate to the actual provision (benefit) for income taxes and resulting effective income tax rate is as follows for the periods indicated below:

	For the Year Ended December 31,
	2021			2020			2019
Income (loss) before income taxes	$	65,342		$	(38,852)		$	29,139
Federal statutory income tax rate	21.0		%	21.0		%	21.0		%
Expected federal provision (benefit) for income taxes at the federal statutory income tax rate	13,721			(8,159)			6,119
Effect of state provision (benefit) for income taxes, net of federal benefit	4,550			1,929			549
Effect of non-deductible compensation	4,518			769			105
Effect of CARES Act refund claims	—			(7,293)			—
Effect of foreign operations	(541)			(938)			440
Effect of stock-based compensation	(1,642)			(676)			(398)
Effect of return-to-accrual	154			330			1,524
Effect of other items	531			411			678
Tax (benefit) on income	$	21,291		$	(13,627)		$	9,017
Effective tax rate	32.6		%	35.1		%	31.0		%

For the year ended December 31, 2021, the Company’s effective tax rate on income was equal to 32.6%. The effective tax rate for the year ended December 31, 2021 is higher than the U.S. statutory income tax rate of 21.0% primarily from the impact of state taxes and non-deductible compensation, partially offset by the effect of stock based compensation.

For the year ended December 31, 2020, the Company’s effective tax rate on income from was equal to 35.1%. The effective tax rate for the year ended December 31, 2020 is higher than the U.S. statutory income tax rate of 21.0% primarily from the impact of expected refunds arising from the CARES Act.

F-56

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

For the year ended December 31, 2019, the Company’s effective tax rate on losses from was equal to 31.0%. The effective tax rate for the year ended December 31, 2019 is higher than the U.S. statutory income tax rate of 21.0% primarily due to the return-to-provision, as well as ongoing state and foreign taxes.

The table below presents the components of the Company’s net deferred tax assets and liabilities as of the respective balance sheet dates:

		2020
Deferred tax assets:
Net operating loss carryforwards	39,047	$	26,404
Unrealized losses		25,527
Accrued expenses		3,560
Unearned premiums		25,626
Deferred revenue		7,042
Other deferred tax assets		7,091
Total deferred tax assets		95,250
Less: Valuation allowance		(6,871)
Total net deferred tax assets		88,379
Deferred tax liabilities:
Property		2,697
Unrealized gains		17,968
Other deferred tax liabilities		4,057
Deferred acquisition cost		47,061
Advanced commissions		30,977
Intangibles		10,741
Total deferred tax liabilities		113,501
Net deferred tax liability (1)	40,708	$	25,122
(1) Includes 659 and 939 classified as held for sale as of December 31, 2021 and December 31, 2020, respectively. See Note (4) Dispositions and Assets and Liabilities Held for Sale.

All values are in US Dollars.

As of January 2016, Tiptree has established a U.S. federal consolidated income tax group and as such files on a consolidated basis, with certain exceptions such as a Fortegra life insurance company and Luxury. Tiptree consolidated, and certain subsidiaries on a separate basis, file returns in various state jurisdictions, and as such may have state tax obligations. Additionally, as needed the Company will take all necessary steps to comply with any income tax withholding requirements.

F-57

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

As of December 31, 2021, the Company had total U.S. Federal net operating loss carryforwards (NOLs) of $117,098. The following table presents the U.S. Federal NOLs by tax year of expiration:

	As of<br><br>December 31, 2021
Tax Year of Expiration
2026	$	—
2027	—
2028	359
2029	—
2030	—
2031	—
2032	—
2033	—
2034	—
2035	491
2036	39,862
2037	907
2038	—
2039	—
2040	—
2041	42,869
Indefinite	32,610
Total	$	117,098

In addition to the U.S. Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $14,399 as of December 31, 2021. Valuation allowances of $8,563 have been established for primarily state deferred tax assets, which are primarily state NOLs, since management has concluded it is more likely than not they will expire unutilized based on existing positive and negative evidence. Management believes it is more likely than not the remaining NOLs and deferred tax assets will be utilized prior to their expiration dates.

As of December 31, 2021, the consolidated valuation allowance for Tiptree was $8,563. In 2021, the Company recorded a net increase in its valuation allowances equal to $1,692, compared to a net increase in its valuation allowance of $1,910 in 2020.

As of December 31, 2021 and 2020, the Company had no material unrecognized tax benefits or accrued interest and penalties. Federal tax years 2017 and onward are open for examination as of December 31, 2021.

F-58

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

(21) Commitments and Contingencies

Operating Leases

All leases are office space leases and are classified as operating leases that expire through 2031. Some of our office leases include the option to extend for up to 5 years or less at management’s discretion. Such extension options were not included in the measurement of the lease liability. Below is a summary of our right of use asset and lease liability as of December 31, 2021:

	As of
	December 31,<br>2021
Right of use asset - Operating leases	$	23,870
Operating lease liability	$	29,396
Weighted-average remaining lease term (years)	6.8
Weighted-average discount rate (1)	7.5		%

(1)    Discount rate was determined by applying available market rates to lease obligations based upon their term.

As of December 31, 2021, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows:

	As of
	December 31,<br>2021
2022	$	8,266
2023	7,495
2024	6,513
2025	5,785
2026	5,350
2027 and thereafter	13,468
Total minimum payments	46,877
Less: liabilities held for sale	829
Less: present value adjustment	16,652
Total	$	29,396

The following table presents rent expense for the Company’s office leases recorded on the consolidated statements of operations for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Rent expense for office leases (1)		$	8,924	$	7,374	$	8,612

(1)     Includes lease expense of $609 and $509 for the year ended December 31, 2021 and 2020, respectively, for assets held for sale.

Litigation

The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006, in the Pike County Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is whether the coverage period of certain credit disability and life insurance policies issued in Kentucky were limited by the term of the associated loan. The action alleges violations of the Kentucky Consumer Protection Act and certain insurance statutes, common law fraud and breach of contract and the covenant of good faith and fair dealing. Plaintiffs seek compensatory and punitive damages, attorneys’ fees and interest.

In July 2021, the court entered an Order granting Plaintiffs’ Motion for Partial Summary Judgment as to certain disability policies, ruling that if a class member became disabled during the coverage period, benefits could extend beyond the coverage period until the associated loan was paid off. The Company intends to challenge the court’s ruling. In February

F-59

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

2022, a hearing was held on competing motions for partial summary judgment on the principal claims. A hearing for Plaintiffs’ Motion for Sanctions for Spoliation of Evidence is scheduled for June 9, 2022. The court has not yet ruled on the pending motions. No additional hearings are scheduled and a trial date has not been set.

The Company considers such litigation customary in the insurance industry. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible.

The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on the Company’s financial position.

(22) Earnings Per Share

The Company calculates basic net income per share of common stock (common share) based on the weighted average number of common shares outstanding, which includes vested corporate RSUs. Unvested corporate RSUs have a non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method under which the income available to common stockholders is allocated to the unvested corporate RSUs.

Diluted net income attributable to common stockholders includes the effect of unvested subsidiaries’ RSUs, when dilutive. The assumed exercise of all potentially dilutive instruments is included in the diluted net income per common share calculation, if dilutive.

The following table presents a reconciliation of basic and diluted net income per common share for the following periods:

	For the Year Ended December 31,
		2021		2020		2019
Net income (loss)		$	44,051	$	(25,225)	$	20,122
Less:
Net income (loss) attributable to non-controlling interests		5,919		3,933		1,761
Net income allocated to participating securities		703		—		472
Net income (loss) attributable to Tiptree Inc. common shares - basic		37,429		(29,158)		17,889
Effect of Dilutive Securities:
Securities of subsidiaries		(780)		—		(723)
Adjustments to income relating to exchangeable interests, net of tax		9		—		—
Net income (loss) attributable to Tiptree Inc. common shares - diluted		$	36,658	$	(29,158)	$	17,166
Weighted average number of shares of common stock outstanding - basic		33,223,792		33,859,775		34,578,292
Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations		464,464		—		—
Weighted average number of shares of common stock outstanding - diluted		33,688,256		33,859,775		34,578,292
Basic net income (loss) attributable to common shares		$	1.13	$	(0.86)	$	0.52
Diluted net income (loss) attributable to common shares		$	1.09	$	(0.86)	$	0.50

(23) Related Party Transactions

Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman. The Company is invested in a fund managed by Corvid Peak (the “Corvid Peak Fund”) and Corvid Peak manages investment portfolio accounts of Fortegra and certain of its subsidiaries under an investment advisory agreement (the “IAA”). With respect to the Corvid Peak Fund and IAA, the Company incurred $1,988, $2,792 and $1,006 of management and incentive fees for the years ended December 31, 2021, 2020 and 2019, respectively. Beginning January 1,

F-60

TIPTREE INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021

(in thousands, except share data)

2021, Tiptree has been allocated 10.2% of certain profits interests earned by Corvid Peak with an additional 10.2% interest for each of the next consecutive four years. As of January 1, 2022, Tiptree’s percentage interest was 21.95% (including interests acquired from former Corvid Peak equity holders). For the year ended December 31, 2021, the Company recognized a $81 loss of allocated profit/loss interest that has been recorded in other revenue in the consolidated statements of operations.

Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another. Payments under the Transition Services Agreement in the years ended December 31, 2021, 2020 and 2019 were not material.

Pursuant to a Partner Emeritus Agreement, Tiptree agreed to provide Mr. Inayatullah, a greater than 5% stockholder of the Company, office space and support services, and reimburse Mr. Inayatullah for a portion of benefit expenses in exchange for advice and other consulting services as requested by the Company’s Executive Committee. Transactions related to the Partner Emeritus Agreement in the years ended December 31, 2021 and 2020 were not material.

(24) Subsequent Events

On March 8, 2022, the Company’s board of directors declared a quarterly cash dividend of $0.04 per share to holders of common stock with a record date of March 21, 2022, and a payment date of March 28, 2022.

F-61

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

(a)     Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Executive Chairman, Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of December 31, 2021. Based upon that evaluation, the Company’s Executive Chairman, Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2021.

The Company is committed to maintaining a strong internal control environment which is accompanied by management’s ongoing focus on processes and related controls to achieve accurate and reliable financial reporting. However, all systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(b)     Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.

If the Company identifies any material weaknesses, the COSO Framework does not allow the Company to conclude that our internal control over financial reporting is effective. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Based upon its assessment, management concluded that the Company’s internal control over financial reporting as of December 31, 2021 was effective using the COSO Framework.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm that audited the Company’s consolidated financial statements as of and for the year ended December 31, 2021, as stated in their report, included in Item 8 of this Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

(c)     Changes in Internal Control over Financial Reporting

There were no changes in 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 three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information concerning our executive officers is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Information with respect to our directors and the nomination process is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Information regarding our audit committee and our audit committee financial experts is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Information required by Item 405 of Regulation S-K is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Item 11. Executive Compensation

Information with respect to executive compensation is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information with respect to such contractual relationships and independence is incorporated herein by reference to the information in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

Information with respect to principal accounting fees and services and pre-approval policies are incorporated herein by reference to information included in the Proxy Statement for the Company’s 2022 Annual Meeting of Stockholders.

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as a part of this Form 10-K:
(a)(1) All Financial Statements
Index to Financial Statements:	Page
Consolidated Balance Sheets as of December 31, 2021 and 2020	F- 1
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019	F- 2
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019	F- 3
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019	F- 4
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019	F- 5
Notes to Consolidated Financial Statements	F- 6

(a)(2) Financial Statement Schedules

Schedule II—“Financial Information of Registrant”, is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements and notes thereto contained in Item 8—“Financial Statements and Supplementary Data.”

The financial statements of Invesque Inc. required by Rule 3-09 of Regulation S-X will be provided as Exhibit 99.1 to this report.

All other financial statements and financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instruction, are not material or are not applicable and, therefore, have been omitted.

(a)(3) Exhibits

Exhibit No.	Description
3.1	Fifth Articles of Amendment and Restatement of the Registrant, effective June 6, 2018 (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on June 7, 2018 and herein incorporated by reference).
3.2	Fourth Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on January 4, 2017 and herein incorporated by reference).
3.3	Articles Supplementary of the Registrant, dated December 29, 2014 (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on December 29, 2014 and herein incorporated by reference).
4.1	Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-A/A (File No. 001-33549), filed on June 7, 2018 and herein incorporated by reference.
4.2	Form of Warrant to Purchase Common Stock (Expiring June 30, 2022) (previously filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 10, 2018 and herein incorporated by reference).
4.3	Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934(previously filed as Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference).
10.1	Registrant’s 2017 Omnibus Incentive Plan (previously filed as Exhibit 10.1 to the Registrant’s Form S-8 Registration Statement (File No. 333-218827), filed on June 19, 2017 and herein incorporated by reference).**
Exhibit No.	Description
---	---
10.2	Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan (previously filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference)**
10.3	Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (annual vesting) (previously filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference). **
10.4	Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (cliff vesting) (previously filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 14, 2018 and herein incorporated by reference). **
10.5	Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (previously filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference) .**
10.6	Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (annual vesting)(previously filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference).**
10.7	Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (for 2020 and beyond) (cliff vesting) (previously filed as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12, 2020 and herein incorporated by reference).**
10.8	Form of Performance Restricted Stock Unit Agreement (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on August 4, 2021 and herein incorporated by reference).**
10.9	Form of Indemnification Agreement (previously filed as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-11, as amended (File No. 333-141634), filed on June 7, 2007 and herein incorporated by reference).
10.10	Amended and Restated Transition Services Agreement between Tricadia Holdings, L.P. and Tiptree Inc., dated as of February 15, 2019 (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on April 22, 2019 and herein incorporated by reference).
10.11	Credit Agreement, dated as of February 21, 2020, between Tiptree Inc., Tiptree Operating Company, LLC, Fortress Credit Corp. as Administrative Agent, Collateral Agent and Lead Arranger, and the lenders party thereto. (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed February 21, 2020 and herein incorporated by reference).
10.12	Amended and Restated Credit Agreement, dated as of August 4, 2020 by and among Fortegra Financial Corporation (“Fortegra”) and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing lender (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed August 5, 2020 and herein incorporated by reference).
10.13	Credit Agreement, dated as of October 16, 2020 by and among South Bay Financial Corporation, South Bay Funding LLC, the lenders from time to time party thereto and Fifth Third Bank, National Association as the administrative agent (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed October 21, 2020 and herein incorporated by reference).
10.14	Equity Interest Purchase Agreement, dated December 16, 2019, by and among Tiptree Warranty Holdings, LLC and Peter Masi (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on December 17, 2019 and herein incorporated by reference).
10.15	First Amendment to the Equity Interest Purchase Agreement, effective November 3, 2021, by and among Fortegra Warranty Holdings, LLC and Peter Masi (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-33549) filed on November 3, 2021 and herein incorporated by reference).
10.16	Amendment to Partner Emeritus Agreement, effective January 1,2022,by and between Tiptree Inc. and Arif Inayatullah (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on January3, 2022and herein incorporated by reference).
10.17	Securities Purchase Agreement between and among Tiptree Inc., The Fortegra Group, Inc. and WP Falcon Aggregator, L.P. dated October 11, 2021 (previously filed as Exhibit 10.1 tothe Registrant’s Current Report onForm 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
Exhibit No.	Description
---	---
10.18	Form of Warrant to Purchase Common Stock (previously filed as Exhibit 10.2 tothe Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
10.19	Form of Investor Additional Warrants to Purchase Common Stock (previously filed as Exhibit 10.3 tothe Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
10.20	Form of Tiptree Additional Warrants to Purchase Common Stock (previously filed as Exhibit 10.4 tothe Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
10.21	Form of Certificate of Designation of Series A Preferred Stock (previously filed as Exhibit 10.5 tothe Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
10.22	Form of Stockholders Agreement between and among Tiptree Holdings LLC, The Fortegra Group Inc. and WP Falcon Aggregator, L.P. (previously filed as Exhibit 10.6 to Form 8-K (File No. 001-33549) filed onthe Registrant’s Current Report on October 12, 2021and herein incorporated by reference).
10.23	Form of Registration Rights Agreement between and among Tiptree Holdings LLC, The Fortegra Group Inc., WP Falcon Aggregator, L.P. and the other holders set forth therein (previously filed as Exhibit 10.7 tothe Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on October 12, 2021and herein incorporated by reference).
10.24	Investment Advisory Agreement by and among Tiptree Inc., The Fortegra Group, LLC and subsidiaries and Corvid Peak Capital Management, LLC effective as of May 3, 2021 and July 1, 2021 (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-33549) filed on August 4, 2021 and herein incorporated by reference).
10.25	Executive Employment Agreement by and among Tiptree Inc. and Randy Maultsby, dated as of July 14, 2021 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on July 14, 2021 and herein incorporated by reference).**
21.1	Subsidiaries of the Registrant (filed herewith).
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith).
23.2	Consent of KPMG LLP, Independent Auditors of Invesque Inc. (filed herewith).
31.1	Certification of Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.3	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.3	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
99.1	Consolidated Financial Statements of Invesque Inc. as at December 31, 2021 and 2020 (filed herewith).
99.2	Consolidated Financial Statements of Invesque Inc. as at December 31, 2020 and 2019 (filed herewith).
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*
Exhibit No.	Description
---	---
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
104	Cover page from Tiptree Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in iXBRL (included in Exhibit 101).

* Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (audited) for December 31, 2021 and December 31, 2020, (ii) the Consolidated Statements of Operations (audited) for the years ended December 31, 2021, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income (Loss) (audited) for the years ended December 31, 2021, 2020 and 2019, (iv) the Consolidated Statements of Changes in Stockholders’ Equity (audited) for the years ended December 31, 2021, 2020 and 2019, (v) the Consolidated Statements of Cash Flows (audited) for the years ended December 31, 2021, 2020 and 2019 and (vi) the Notes to the Consolidated Financial Statements (audited).

** Denotes a management contract or compensatory plan, contract or arrangement.

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Tiptree Inc.
Date:	March 11, 2022	By:/s/ Jonathan Ilany
		Jonathan Ilany
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ Jonathan Ilany<br><br>Jonathan Ilany	Chief Executive Officer and Director (Principal Executive Officer)	March 11, 2022
/s/ Sandra Bell<br><br>Sandra Bell	Chief Financial Officer (Principal Financial Officer and<br>Principal Accounting Officer)	March 11, 2022
/s/ Michael G. Barnes<br><br>Michael G. Barnes	Executive Chairman and Director	March 11, 2022
/s/ Randy S. Maultsby<br><br>Randy S. Maultsby	President and Director	March 11, 2022
/s/ Paul M. Friedman<br><br>Paul M. Friedman	Director	March 11, 2022
/s/ Lesley Goldwasser <br>Lesley Goldwasser	Director	March 11, 2022
/s/ Bradley E. Smith<br><br>Bradley E. Smith	Director	March 11, 2022
/s/ Dominique Mielle<br>Dominique Mielle	Director	March 11, 2022

Schedule II — Condensed Financial Information of Registrant

TIPTREE INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME
(All amounts in thousands)	For the Year Ended December 31,
	2021		2020		2019
Revenues
Interest income	$	259	$	223	$	—
Other revenue	67		232		—
Total revenues	326		455		—
Expenses
Employee compensation and benefits	28,060		15,195		—
Interest expense	—		4,681		—
Professional fees	6,656		4,476		—
Rent and facilities	1,993		2,094		—
General and administrative	1,254		1,259		—
Depreciation and amortization	805		807		—
Loss on extinguishment of debt	—		353		—
Other expenses	1,305		1,513		3
Total expenses	40,073		30,378		3
Equity in earnings (losses) of subsidiaries, net of tax (1)	73,164		(24,855)		18,364
Income (loss) before taxes	33,417		(54,778)		18,361
Less: provision (benefit) for income taxes	(4,715)		(25,620)		—
Net income (loss) attributable to Tiptree Inc. common stockholders	$	38,132	$	(29,158)	$	18,361

(1) Eliminated in consolidation.

TIPTREE INC.
PARENT COMPANY ONLY CONDENSED BALANCE SHEETS
(All amounts in thousands, except share data)	As of December 31,
	2021		2020
Assets
Investment in subsidiaries (1)	$	370,632	$	337,951
Cash and cash equivalents	2,456		712
Notes and accounts receivable, net	2,897		2,622
Intercompany receivables, net (1)	—		—
Income taxes receivable	15,968		15,590
Deferred tax assets	20,830		44,161
Other assets	14,100		15,332
Total assets	$	426,883	$	416,368
Liabilities and Stockholders’ Equity
Liabilities
Deferred tax liabilities	$	—	$	23,889
Operating lease liability	11,319		12,241
Intercompany payables, net (1)	7,136		9,861
Accrued expenses	18,731		7,490
Other liabilities	6,743		6,743
Total liabilities	$	43,929	$	60,224
Stockholders' Equity
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding	$	—	$	—
Common stock: $0.001 par value, 200,000,000 shares authorized, 34,124,153 and 32,682,462 shares issued and outstanding, respectively	34		33
Additional paid-in capital	317,459		315,014
Accumulated other comprehensive income (loss), net of tax	(2,685)		5,674
Retained earnings	68,146		35,423
Total stockholders’ equity	382,954		356,144
Total liabilities and stockholders' equity	$	426,883	$	416,368

(1) Eliminated in consolidation.

TIPTREE INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS
(All amounts in thousands)	For the Year Ended December 31,
	2021		2020		2019
Operating Activities:
Net income (loss) attributable to Tiptree Inc. common stockholders	$	38,132	$	(29,158)	$	18,361
Adjustments to reconcile net income to net cash provided by operating activities
Equity in earnings of subsidiaries(1)	(73,164)		24,855		(18,364)
Depreciation expense	805		807		—
Deferred provision (benefit) for income taxes	(528)		(15,815)		—
Non-cash lease expense	1,843		1,660		—
Non-cash compensation expense	8,580		3,110		—
Amortization of deferred financing costs	—		172		—
Changes in operating assets and liabilities
Net changes in other operating assets and liabilities	5,412		1,264		(583)
Net cash provided by (used in) operating activities	(18,920)		(13,105)		(586)
Investing Activities:
Proceeds from the sale of businesses	125		—		—
Proceeds from notes receivable	169		—		—
Issuance of notes receivable	(432)		—		—
Asset acquisitions due to merger with Operating Co.	—		488		—
Net cash flows provided by (used in) provided by investing activities	(138)		488		—
Financing Activities:
Distributions from subsidiaries (1)	30,996		35,092		14,587
Dividends paid	(5,409)		(5,565)		(5,502)
Repurchases of common stock	(2,882)		(13,889)		(9,085)
Subsidiary RSU exchanges	(1,458)		(2,034)		—
Cash paid in connection with the vesting of units	(445)		(362)		—
Net cash provided by (used in) financing activities	20,802		13,242		—
Net increase (decrease) in cash and cash equivalents	1,744		625		(586)
Cash and cash equivalents at beginning of period	712		87		673
Cash and cash equivalents at end of period	$	2,456	$	712	$	87
Cash (received) paid for income taxes	$	61	$	(166)	$	2,168

(1) Eliminated in consolidation.

Note 1. Basis of Presentation

Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate our capital across our insurance operations and other investments. We classify our business into two reportable segments: Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital.

Pursuant to the terms discussed in Note—(11) Debt, net in the notes to consolidated financial statements, a secured corporate credit agreement of a subsidiary of Tiptree restricts that subsidiary’s ability to pay or make any dividend or distribution to Tiptree Inc. In addition, certain other subsidiaries’ activities are regulated, or subject to specific restriction on transfers as a result of financing arrangements. As a result of these restrictions, these condensed financial statements of the Registrant have been prepared in accordance with Rule 12-04 of Regulation S-X, as restricted net assets of the Company's subsidiaries (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the Company's consolidated net assets as of December 31, 2021.

For the period ending December 31, 2019, the Company was a holding company without any operations of its own. On July 17, 2020, Operating Company merged into Tiptree, with Tiptree as the surviving entity (the Reorganization). In connection with the Reorganization, Operating Company contributed substantially all of its assets to Caroline Holdings LLC, a wholly owned subsidiary of Operating Company, which was renamed Tiptree Holdings LLC. Prior to the Reorganization, the Company was

allocated itemized expenses of $2,000 related to operating as a public company from Operating Company for the six months ended June 30, 2020.

These condensed financial statements have been prepared on a "parent-only" basis. Under a parent-only presentation, the Parent Company's investments in subsidiaries are presented under the equity method of accounting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed financial information should be read in conjunction with the Tiptree Inc. consolidated financial statements and related Notes thereto.

Note 2. Dividends Received

The Company received distributions of $30,996, $35,092 and $14,587 for the years ended December 31, 2021, 2020 and 2019, respectively.

Document

EXHIBIT 21.1

Subsidiaries of Tiptree Inc.

Name(1)	Jurisdiction of Incorporation or Organization
4Warranty Corporation	Florida
Fortegra Financial Corporation	Delaware
Insurance Company of the South	Georgia
Life of the South Insurance Company	Georgia
LOTSolutions, Inc.	Georgia
Luxury Mortgage Corp.	Delaware (67.5% owned)
Lyndon Southern Insurance Company	Delaware
Ownershield, Inc.	Texas
Reliance First Capital, LLC	Delaware (97.16% owned)
Response Indemnity Company of California	California
Tiptree Holdings LLC (fka Caroline Holdings LLC)	Delaware

(1) As of December 31, 2021. Subsidiaries are 100% owned unless otherwise noted.

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EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-257468 on Form S-3, and Registration Statement Nos. 333-192501 and 333-218827 on Form S-8 of our reports dated March 11, 2022, relating to the consolidated financial statements and financial statement schedule of Tiptree Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2021.

/s/ Deloitte & Touche LLP

New York, New York

March 11, 2022

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EXHIBIT 23.2

KPMG LLP

Bay Adelaide Centre

333 Bay Street, Suite 4600

Toronto, ON M5H 2S5

Canada

Tel 416-777-8500

Fax 416-777-8818

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors of Invesque Inc.,

We consent to the inclusion in the annual report on Form 10-K for the year ended December 31, 2021 of Tiptree Inc. of our independent auditors' report dated March 11, 2021 on the consolidated statement of financial position of Invesque Inc. as of December 31, 2020, the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders' equity, and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information (the consolidated financial statements).

We also consent to the incorporation by reference of such report in the following registration statements of Tiptree Inc.:

1.Registration Statement - Form S-3 - File No. 333-257468

2.Registration Statement - Form S-8 - File No. 333-218827

3.Registration Statement - Form S-8 - File No. 333-192501

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

March 11, 2022

Toronto, Canada

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

KPMG Canada provides services to KPMG LLP.

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EXHIBIT 31.1

CERTIFICATIONS

I, Michael Barnes, certify that:

| 1. | I have reviewed this Annual Report on Form 10-K of Tiptree Inc.; | | --- | --- || 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | | --- | --- || 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | | --- | --- || 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | | --- | --- || (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | | --- | --- || (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | | --- | --- || (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | | --- | --- || (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | | --- | --- || 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | | --- | --- || (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | | --- | --- || (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | | --- | --- | | Date: | March 11, 2022 | /s/ Michael Barnes | | --- | --- | --- | | | | Michael Barnes | | | | Executive Chairman |

Document

EXHIBIT 31.2

CERTIFICATIONS

I, Jonathan Ilany, certify that:

| 1. | I have reviewed this Annual Report on Form 10-K of Tiptree Inc.; | | --- | --- || 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | | --- | --- || 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | | --- | --- || 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | | --- | --- || (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | | --- | --- || (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | | --- | --- || (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | | --- | --- || (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | | --- | --- || 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | | --- | --- || (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | | --- | --- || (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | | --- | --- | | Date: | March 11, 2022 | /s/ Jonathan Ilany | | --- | --- | --- | | | | Jonathan Ilany | | | | Chief Executive Officer |

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EXHIBIT 31.3

CERTIFICATIONS

I, Sandra Bell, certify that:

| 1. | I have reviewed this Annual Report on Form 10-K of Tiptree Inc.; | | --- | --- || 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | | --- | --- || 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | | --- | --- || 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | | --- | --- || (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | | --- | --- || (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | | --- | --- || (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | | --- | --- || (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | | --- | --- || 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | | --- | --- || (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | | --- | --- || (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | | --- | --- | | Date: | March 11, 2022 | /s/ Sandra Bell | | --- | --- | --- | | | | Sandra Bell | | | | Chief Financial Officer |

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EXHIBIT 32.1

Certification Pursuant to Section 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Tiptree Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Barnes, the Executive Chairman of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that;

(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael Barnes
Michael Barnes
Executive Chairman

Date: March 11, 2022

Document

EXHIBIT 32.2

Certification Pursuant to Section 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Tiptree Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan Ilany, the Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that;

(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jonathan Ilany
Jonathan Ilany
Chief Executive Officer

Date: March 11, 2022

Document

EXHIBIT 32.3

Certification Pursuant to Section 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Tiptree Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandra Bell, the Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that;

(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sandra Bell
Sandra Bell
Chief Financial Officer

Date: March 11, 2022

Document

EXHIBIT 99.1

Consolidated Financial Statements

(Expressed in U.S. dollars)

INVESQUE INC.

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

KPMG LLP

Bay Adelaide Centre

333 Bay Street, Suite 4600

Toronto ON M5H 2S5

Canada

Tel 416-777-8500

Fax 416-777-8818

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Invesque Inc.,

We have audited the accompanying consolidated financial statements of lnvesque Inc. and its subsidiaries, which comprise the consolidated statement of financial position as of December 31, 2020, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Page 2

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of lnvesque Inc. and its subsidiaries as of December 31, 2020 and their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

March 11, 2021

INVESQUE INC.

Consolidated Statements of Financial Position

(Expressed in thousands of U.S. dollars)

		December 31, 2021	December 31, 2020
Assets		Unaudited
Current assets:
	Cash	$    19,369	$    34,133
	Tenant and other receivables	5,593	14,934
	Property tax receivables	12,892	12,754
	Loans receivable (note 3)	1,635	1,799
	Assets held for sale (note 6)	21,307	2,144
	Other (note 4)	15,753	9,069
		76,549	74,833
Non-current assets:
	Loans receivable (note 3)	20,060	16,904
	Derivative instruments (note 10)	3,388	4,814
	Investment in joint ventures (note 7)	50,440	65,258
	Investment properties (note 5)	716,344	882,019
	Property, plant and equipment, net (note 6)	432,001	451,825
	Other non-current assets (note 4)	2,229	2,771
		1,224,462	1,423,591
Total assets		$    1,301,011	$    1,498,424
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$    17,356	$    17,715
	Accrued real estate taxes	13,671	14,518
	Credit facilities (note 8)	795	10,000
	Mortgages payable (note 9)	34,876	30,622
	Convertible debentures (note 11)	19,678	—
	Derivative instruments (note 10)	895	491
	Other current liabilities (note 13)	3,787	4,975
		91,058	78,321
Non-current liabilities:
	Credit facilities (note 8)	596,471	650,596
	Mortgages payable (note 9)	178,947	268,842
	Convertible debentures (note 11)	62,979	92,411
	Commonwealth preferred unit liability (note 12)	66,239	65,797
	Derivative instruments (note 10)	10,439	28,478
	Other non-current liabilities (note 13)	8,328	16,241
	Non-controlling interest liability	293	4,409
		923,696	1,126,774
Total liabilities		1,014,754	1,205,095
Shareholders' equity:
	Common share capital (note 15)	512,004	509,203
	Equity settled deferred shares	1,781	2,328
	Preferred share capital (note 15)	85,389	85,389
	Contributed surplus	400	400
	Equity component of convertible instruments	6,370	3,764
	Cumulative deficit	(321,267)	(309,032)
	Accumulated other comprehensive income	1,580	1,277
Total shareholders' equity		286,257	293,329
Commitments and contingencies (note 24)
Subsequent events (notes 11, 12, 30)
Total liabilities and shareholders' equity		$    1,301,011	$    1,498,424

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in thousands of U.S. dollars, except per share amounts)

		Year ended December 31, 2021	Year ended December 31, 2020
Revenue:		Unaudited
	Rental (note 17)	$    82,652	$    90,112
	Resident rental and related revenue (note 17)	120,152	120,407
	Lease revenue from joint ventures (note 7)	3,529	3,118
	Other revenue	4,117	3,750
		210,450	217,387
Other income (note 1)		3,730	3,415
Expenses (income):
	Direct property operating expenses (note 18)	102,768	95,505
	Depreciation and amortization expense (note 6)	22,152	48,569
	Finance costs from operations (note 19)	50,221	49,801
	Real estate tax expense	16,715	13,488
	General and administrative expenses (note 20)	20,142	20,539
	Transaction costs for business combination	—	170
	Allowance for credit losses on loans and interest receivable (note 19)	1,196	23,546
	Change in non-controlling interest liability (note 19)	(379)	316
	Change in fair value of investment properties - IFRIC 21	(1,226)	(57)
	Change in fair value of investment properties (note 5)	22,152	100,388
	Impairment of property, plant and equipment (note 6)	1,100	—
	Change in fair value of financial instruments (note 19)	(21,860)	19,084
	Change in fair value of contingent consideration (note 19)	(258)	5,510
	Loss (gain) on sale of property, plant and equipment	(1,214)	162
		211,509	377,021
Loss from joint ventures (note 7)		(14,906)	(34,729)
Loss before income taxes		(12,235)	(190,948)
Income tax recovery:
	Deferred (note 23)	—	6,944
Net loss		$    (12,235)	$    (184,004)
Other comprehensive income :
Items to be reclassified to net income in subsequent periods
	Unrealized gain on translation of foreign operations	303	1,072
Total comprehensive loss		$    (11,932)	$    (182,932)
Loss per share (note 16):
	Basic and diluted	$    (0.22)	$    (3.30)

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Changes in Shareholders' Equity

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Common share capital	Equity settled deferred shares	Preferred share capital	Contributed surplus	Equity component of convertible instruments	Cumulative deficit	Accumulated other comprehensive income (loss)	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Balance, January 1, 2021	$    509,203	$    2,328	$    85,389	$    400	$    3,764	$    (309,032)	$    1,277	$    293,329
Net loss	—	—	—	—	—	(12,235)	—	(12,235)
Other comprehensive income	—	—	—	—	—	—	303	303
Common shares issued on settlement of deferred share incentive plan (note 15)	637	—	—	—	—	—	—	637
Amortization of equity settled deferred shares (note 21)	—	(31)	—	—	—	—	—	(31)
Equity component of convertible debentures (note 11)	1,648	—	—	—	2,606	—	—	4,254
Common shares issued for equity settled deferred shares (note 15 and 21)	516	(516)	—	—	—	—	—	—
Balance, December 31, 2021	$    512,004	$    1,781	$    85,389	$    400	$    6,370	$    (321,267)	$    1,580	$    286,257
	Common share capital	Equity settled deferred shares	Preferred share capital	Contributed surplus	Equity component of convertible instruments	Cumulative deficit	Accumulated other comprehensive income (loss)	Total
---	---	---	---	---	---	---	---	---
Balance, January 1, 2020	$    504,561	$    733	$    85,389	$    400	$    3,764	$    (114,908)	$    205	$    480,144
Net loss	—	—	—	—	—	(184,004)	—	(184,004)
Other comprehensive income	—	—	—	—	—	—	1,072	1,072
Common shares issued, on settlement of deferred share incentive plan	1,078	—	—	—	—	—	—	1,078
Common shares issued under the Company's dividend reinvestment plan	3,498	—	—	—	—	—	—	3,498
Dividends declared on common shares	—	—	—	—	—	(10,120)	—	(10,120)
Common Shares purchased under NCIB	(148)	—	—	—	—	—	—	(148)
Amortization of equity settled deferred shares	—	1,809	—	—	—	—	—	1,809
Common shares issued for equity settled deferred shares (note 15 and 21)	214	(214)	—	—	—	—	—	—
Balance, December 31, 2020	$    509,203	$    2,328	$    85,389	$    400	$    3,764	$    (309,032)	$    1,277	$    293,329

See accompanying notes to condensed consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

			Year ended December 31, 2021	Year ended December 31, 2020
Cash flows from operating activities:			Unaudited
	Net loss		$    (12,235)	$    (184,004)
	Items not involving cash:
		Fair value adjustment of investment properties (note 5)	22,152	100,388
		Fair value adjustment of financial instruments (note 19)	(21,860)	19,084
		Impairment of property, plant and equipment (note 6)	1,100	—
		Depreciation and amortization expense (note 6)	22,152	48,569
		Allowance for credit losses on loans and interest receivable (note 19)	1,196	23,546
		Straight-line rent (note 17)	(6,189)	(6,394)
		Amortization of tenant inducements (note 17)	447	385
		Finance costs from operations (note 19)	50,221	49,801
		Change in non-controlling interest liability (note 19)	(379)	316
		Change in fair value of contingent consideration (note 19)	(258)	5,510
		Loss (gain) on sale of property, plant and equipment (note 6)	(1,214)	162
		Loss from joint ventures (note 7)	14,906	34,729
		Deferred income tax (note 23)	—	(6,944)
	Interest paid		(45,882)	(49,712)
	Interest income received		643	1,056
	Debt extinguishment costs paid		(1,016)	—
	Change in non-cash operating working capital:
		Tenant and other receivables	(7,034)	(12,344)
		Accounts payable and accrued liabilities	(42)	(835)
		Unearned revenue	(622)	1,257
		Other assets	1,378	(2,150)
		Other liabilities	(408)	1,308
		Accrued real estate taxes	1,624	1,362
	Net cash provided by operating activities		$    18,680	$    25,090
Cash flows from financing activities:
	Proceeds from credit facilities (note 14)		$    58,953	$    33,000
	Payments on credit facilities (note 14)		(124,311)	(21,250)
	Debt issuance costs paid		(648)	(1,599)
	Proceeds from mortgages payable (note 14)		17,135	16,682
	Payments of mortgages payable (note 14)		(103,761)	(22,487)
	Dividends paid to common shareholders		—	(9,976)
	Payment for repurchase of common shares		—	(148)
	Cash used in financing activities		$    (152,632)	$    (5,778)
Cash flows from investing activities:
	Additions to investment properties		$    144	$    (8,390)
	Dispositions of investment properties (note 5)		112,960	—
	Additions to property, plant and equipment		(7,575)	(11,269)
	Dispositions of property, plant and equipment		—	15,563
	Dispositions of assets held for sale		3,247	—
	Acquisition of interest in joint venture		—	(476)
	Disposition of interest in joint venture		—	1,447
	Cash balance acquired in business combination		—	2,081
	Distributions from joint ventures		16,083	3,803
	Contributions to joint ventures		(4,283)	(1,855)
	Distributions to non-controlling interest partners		(2,709)	(534)
	Contributions from non-controlling interest partners		235	—
	Proceeds from income support agreement		—	63
	Payments to previous owner of Care		(126)	—
	Repayment of loans receivable		1,212	4,105
	Earnout payment pursuant to Commonwealth purchase agreement		—	(1,555)
	Cash provided by investing activities		$    119,188	$    2,983
Increase (decrease) in cash and cash equivalents			(14,764)	22,295
Cash and cash equivalents, beginning of period			34,133	11,838
Cash and cash equivalents, end of period			$    19,369	$    34,133

See accompanying notes to condensed consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

Invesque Inc. (the "Company") was incorporated on May 31, 2007 under the Business Corporations Act (Ontario). Effective April 4, 2016, the Company changed its name from "Kingsway Arms Retirement Residences Inc." to "Mainstreet Health Investments Inc." and continued under the laws of the Province of British Columbia. Effective January 3, 2018, the Company changed its name from "Mainstreet Health Investments Inc." to "Invesque Inc.". The Company's registered office is 2500 - 700 W Georgia Street, Vancouver, British Columbia V7Y 1B3.

The Company currently owns a portfolio of North American income generating properties across the health care spectrum. The Company's portfolio includes investments in independent living, assisted living, memory care, skilled nursing, transitional care and medical office properties, which are operated primarily under long-term leases and joint venture arrangements with operating partners. The Company's portfolio also includes investments in owner occupied seniors housing properties in which Invesque owns the real estate and provides management services through its subsidiary management company, Commonwealth Senior Living.

At December 31, 2021, the Company owns interests in a portfolio of 103 health care and senior living properties comprised of 53 consolidated investment properties, 35 consolidated owner occupied properties, interests in 12 properties held through joint arrangements, and 3 properties held for sale.

1.    Basis of preparation:

(a) Liquidity Assessment

A novel strain of coronavirus causing the disease known as COVID-19 has spread throughout the world, including across the United States and Canada, causing the World Health Organization to declare the COVID-19 outbreak a pandemic in March 2020. In an attempt to contain the spread and impact of the pandemic, authorities throughout the United States and Canada have implemented measures such as travel bans and restrictions, stay-at-home orders, social distancing guidelines and limitations on other business activity. The pandemic has resulted in a significant economic downturn in the United States, Canada and globally, and has also led to disruptions and volatility in capital markets throughout 2021. These trends are likely to continue into 2022.

The pandemic has had an impact on results and operations of the Company, including decreased occupancy, delays in collections from tenants, and increased operating expenses. The Company announced on April 10, 2020 that it suspended the dividend for all common shares beginning from April 1, 2020 until further notice.

The Company expects that the pandemic could continue to have a negative effect on its results of operations, financial position and cash flows, particularly if negative economic and public health conditions in the United States and Canada persist for a continued and significant period of time. The ultimate impact of the pandemic on the Company's financial results will depend on future developments, which are uncertain. This includes, among other factors, the duration and severity of the pandemic as well as negative economic conditions arising therefrom, the impact of the pandemic on occupancy rates in the Company's communities, the volume of COVID-19 patients cared for across the portfolio, and the impact of government actions on the seniors housing industry and broader economy, including through existing and future stimulus efforts. The impact of COVID-19 has been partially offset to date by certain government stimulus programs which have helped to offset COVID-19 related expenses and compensate for lost revenues, but the Company is not able to provide assurance that such programs may continue to be available in the future. For the year ended December 31, 2021, the Company recognized $3,730, of other income related to government grants funded through programs designed to assist seniors housing operators who have experienced both lost revenue and increased expenses during the COVID-19 pandemic (year ended December 31, 2020 - $3,415). For

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

the year ended December 31, 2021, the Company recognized $1,243 in income from joint ventures related to the Company's share of government grants recognized at the joint venture properties for COVID-19 pandemic relief (year ended December 31, 2020 - $1,294).

Liquidity risk is the risk that an entity is unable to fund its assets or meet its obligations as they come due. Liquidity risk is managed in part through cash forecasting (note 1(f) and 27). While there are uncertainties in assessing future liquidity requirements under normal operating conditions, the stressed conditions caused by COVID-19 have introduced increased uncertainties. The Company monitors forecasts of liquidity requirements to ensure it has the ability to meet operational needs by maintaining sufficient availability of the combination of cash and credit facility capacity, and to ensure the Company will meet its financial covenants related to debt agreements. Such forecasting involves a significant degree of judgment which takes into consideration current and projected macroeconomic conditions, the Company's cash collection efforts, debt financing and refinancing plans, and covenant compliance required under the terms of debt agreements. There is a risk that such liquidity forecasts may not be achieved and that currently available debt financing may no longer be available to the Company at terms and conditions that are favorable, or at all.

As a result of the events and conditions associated with COVID-19, the Company has amended certain terms of various financing arrangements having conducted an assessment of its liquidity. The Company believes that it has sufficient available liquidity to meet its minimum obligations as they come due and to comply with financial covenants in its credit facilities, as amended, for a period of at least 12 months from December 31, 2021. Further, the Company has assessed that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. In making this significant judgment, the Company has prepared a cash flow forecast with the most significant assumptions in the preparation of such forecast being the ability of its most significant tenant, Symcare, to meet its projected rental obligations to the Company and the continued availability of financing.

In response to a severe downside scenario, management has the ability to take the following mitigating actions to reduce costs, optimize the Company's cash flow and preserve liquidity:

(i)utilizing available cash to pay down debts,

(ii)sell certain properties and use the proceeds to buy down debt,

(iii)exercise the Company's right to convert its convertible debentures into common shares,

(iv)reducing non-essential capital expenditures.

(b) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were approved by the Board of Directors of the Company and authorized for issuance on March 11, 2022.

(c)     Basis of measurement:

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

These consolidated financial statements have been prepared on a historical cost basis, except for investment properties, derivative financial instruments, deferred shares and loan commitment liability, which are measured at fair value through profit and loss ("FVTPL").

(d)    Principles of consolidation:

(i)Transactions eliminated on consolidation:

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of December 31, 2021, including Invesque International Holdings Inc., Invesque US Holdings Inc., Invesque Holdings, LP, Foxhound Holdings, LLC and project specific limited partnerships. All intercompany transactions and balances are eliminated on consolidation.

(ii)Joint arrangements:

A joint venture is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

A joint operation is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.

These consolidated financial statements include the Company's proportionate share of each of the assets, liabilities, revenue and expenses of joint operations on a line-by-line basis. Joint ventures are included in the Company's consolidated financial statements as investments using the equity method, whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the net assets. The Company's share of joint venture profit or loss is included in the consolidated statements of income (loss) and comprehensive income (loss).

(e)    Functional and presentation currency:

The consolidated financial statements are presented in U.S. dollars, which is the functional and presentational currency of the Company.

Assets and liabilities of operations having a functional currency other than the U.S. dollar are translated at the rate of exchange at the consolidated statement of financial position dates. Revenue and expenses are translated at average rates for the year, unless exchange rates fluctuated significantly during the year, in which case the exchange rates at the dates of the transaction are used. Gains or losses on translating a foreign operation are included in other comprehensive income ("OCI") as a component of equity.

Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions. Foreign currency denominated monetary assets and liabilities are translated using the prevailing rate of exchange at the consolidated statement of financial position dates. Gains and losses on translation of monetary items are recognized as general and administrative expenses in the consolidated statements of income (loss) and comprehensive income (loss).

(f)    Use of estimation and uncertainty:

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending December 31, 2021 are as follows:

(i)Investment properties:

The significant assumptions used when determining the fair value of investment properties in use are capitalization rates and stabilized future cash flows. The capitalization rate applied is reflective of the characteristics, location and market of each investment property. The stabilized future cash flows of each investment property are based upon rental income from current leases and assumptions about market rent from future leases reflecting current conditions, less future cash outflows relating to such current and future leases.

Management determines fair value internally utilizing internal financial information, external market data and capitalization rates provided by independent industry experts. As part of Management’s internal valuation program, the Company also considers external valuations performed by independent national real estate valuation firms for a cross-section of properties that represent different geographical locations across the Company’s portfolio and updates, as deemed necessary, the valuation models to reflect current market data.

(ii)Accounting for convertible debentures:

On issuance, management estimates the allocation of the debt and equity components of convertible debentures. The liability allocation is based upon the fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component.

(iii)Accounting for Commonwealth preferred unit liability:

Management estimates the allocation of the debt and equity components of Commonwealth preferred unit liability. The liability allocation is based upon the fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component.

(iv)Loans receivable:

In determining the amount of expected credit losses, the entity's significant assumptions include the assessment of probability of default and loss given default. The determination takes into account different factors and varies by nature of investment.

The Company considers reasonable and supportable information that is relevant and available without undue cost or effort. Management considers past events, current market conditions and reasonable forward-looking

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

supportable information about future economic conditions. In assessing information about possible future economic conditions, management utilized multiple economic scenarios including a base case, which represents the most probable outcome and is consistent with management's view of the financial asset. In considering the lifetime of a loan, the contractual period of the loan, including prepayment, extension and other options is generally used.

The estimation of expected credit losses also includes assumptions about local real estate market conditions, availability and terms of financing, underlying value of the security and various other factors. These assumptions are limited by the availability of reliable comparable market data, economic uncertainty and the uncertainty of future events.

(v)Impairment of property, plant and equipment:

The Company makes a determination at each reporting date if any events have occurred that would indicate property, plant and equipment may be impaired. If impairment indicators exist, management estimates the assets' recoverable amount in order to determine whether an impairment loss should be recognized.

(vi)Other:

Estimates are also made in the determination of the fair value of financial instruments and include assumptions and estimates regarding future interest rates, the relative creditworthiness of the Company to its counterparties, the credit risk of the Company's counterparties, the estimated future cash flows and discount rates.

(g)    Critical judgments:

Judgments made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:

(i)Accounting for leases as lessor:

The Company uses judgment regarding the present value of lease payments, the fair value of assets and the determination of the lease term in assessing the classification of its leases as operating leases, in particular with long-term leases in single operator properties. The Company has determined that all of its leases are operating leases.

(ii)Accounting for acquisitions:

Management must assess whether an acquisition should be accounted for as an asset purchase or business combination. This assessment impacts the accounting treatment of transaction costs, the allocation of the costs associated with the acquisition and whether or not goodwill should be recognized.

(iii)Componentization of property, plant and equipment:

The Company uses judgment regarding the value allocated to various components of property, plant and equipment upon acquisition.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

(iv)Loans receivable:

The Company uses significant judgment in the evaluation of changes in credit risk to determine the staging of the loans receivable. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which would require an increase or decrease in the allowance for ECLs.

(v)Liquidity:

Assessing whether events or conditions represent the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern, including the estimation of future cash flows.

2.    Significant accounting policies:

(a)Cash and cash equivalents:

Cash and cash equivalents consists of cash on hand and highly liquid marketable investments with an original maturity of 90 days or less at their date of purchase and are stated at cost, which approximates fair value. As at December 31, 2021 and 2020, there were no cash equivalents.

(b)Investment properties:

Investment properties consist of investment properties in use and investment properties under development. Investment properties are held to earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business. On acquisition, investment properties are initially recorded at cost, including transaction costs. Subsequent to initial recognition, the Company uses the fair value model to account for investment properties under International Accounting Standard ("IAS") 40, Investment Property. Under the fair value model, investment properties are recorded at fair value, which is determined based on available market evidence, at the statement of financial position date. Related fair value gains and losses are recorded in income and comprehensive income for the period in the period in which they arise.

Subsequent capital expenditures are added to the carrying value of the investment properties only when it is probable that future economic benefits will flow to the property and the cost can be measured reliably.

Properties under development include those properties, or components thereof, that will undergo activities that will take a substantial period of time to prepare the properties for their intended use as income properties. Borrowing costs related to development properties are capitalized to the costs of the projects. Properties under development are also adjusted to fair value at each consolidated statement of financial position date with fair value adjustments recognized in income.

Investment property is classified as held for sale when the property is available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of investment properties, its sale is highly probable and expected to be completed with one year. Investment property is derecognized when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

(c)Property, plant, and equipment:

Property, plant, and equipment includes land; buildings; and furniture, fixtures and equipment ("FFE"), which are measured at cost less accumulated depreciation and accumulated impairment losses.

Significant parts of the buildings are accounted for as separate components of the property, based on management's judgment of what components constitute a significant cost in relation to the total cost of an asset and whether these components have similar or dissimilar patterns of consumption and useful lives for purposes of calculating depreciation and amortization. Significant components include structure, roof, electrical/HVAC systems, windows and doors, and exterior landscaping. The cost of replacing a major component of a building is recognized in the carrying amount of the building if it is probable that the future economic benefits embodied within the component will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. The costs of ongoing repairs and maintenance of the properties are recognized in profit or loss as incurred.

Depreciation is recorded in profit or loss on a straight-line basis over the useful lives of the assets. Estimated useful lives were determined based on current facts and past experience, and take into consideration the anticipated physical life of the asset and current and forecasted demand. The rates and methods used are reviewed annually at year end to ensure they continue to be appropriate, and are also reviewed in conjunction with impairment testing. The following are the estimated maximum useful lives of existing property, plant, and equipment:

Components:
	Building - Structure	39 years
	Building - Roof	25 years
	Building - Electrical/HVAC systems	25 years
	Building - Windows and doors	15 years
	Building - Exterior landscaping	15 years
	Furniture, fixtures, and equipment	5 years

Gains/losses on disposition of property, plant, and equipment are recognized in profit or loss in accordance with the requirements for determining when a performance obligation is satisfied under IFRS 15, Revenue from Contracts with Customers ("IFRS 15").

The value associated with in-place resident contracts, which represents the avoided cost of originating the acquired resident contracts plus the value of the avoided loss of net resident revenue over the estimated lease-up period of the acquired property, is amortized over the expected term of the resident occupancy. Resident contracts are recorded as a component of buildings.

(d)Impairment of property, plant, and equipment:

The carrying amount of the Company's property, plant, and equipment is assessed at each reporting date to determine if any events have occurred that would indicate the assets may be impaired. If any such indication exists, then the asset's recoverable amount is estimated and an impairment loss is recognized immediately in profit or loss for the

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the higher of (a) fair value less costs to sell, and (b) value in use. The determination of recoverable amounts can be significantly impacted by estimates related to current market valuations, current and future economic conditions in the geographical markets of the assets, and management's strategic plans within each of its markets.

(e)Assets held for sale:

Assets, or disposal groups comprising assets and liabilities, are categorized as held-for-sale where the asset or disposal group is available for sale in its present condition, and the sale is highly probable. For this purpose, a sale is highly probable if management is committed to a plan to achieve the sale; there is an active program to dispose of the assets of the disposal group; the asset or disposal group is being actively marketed at a reasonable price; the sale is anticipated to be completed within one year from the date of classification; and it is unlikely there will be changes to the plan. Immediately before classification as held-for-sale, the assets, or components of the disposal group are remeasured in accordance with the Company’s accounting policies, and are subsequently measured at the lower of their carrying amount and fair value less costs of disposal. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss until the completion of sale.

(f)Fair value measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

(i)    in the principal market for the asset or liability; or

(ii)    in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability assuming that market participants act in their economic best interests.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is not observable.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

For assets and liabilities that are recognized in the consolidated financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

(g)Financial instruments:

Financial instruments are generally measured at fair value on initial recognition. The classification and measurement of financial assets consists of the following categories: (i) measured at amortized cost, (ii) FVTPL, or (iii) fair value through other comprehensive income (''FVTOCI''). Financial assets classified at amortized cost are measured using the effective interest method. Financial assets classified as FVTPL are measured at fair value with gains and losses recognized in the consolidated statements of income (loss) and comprehensive income (loss). Financial assets classified as FVTOCI are measured at fair value with gains or losses recognized through other comprehensive income (loss), except for gains and losses pertaining to impairment or foreign exchange recognized through profit or loss.

The classification and measurement of financial liabilities consists of the following categories: (i) measured at amortized cost and (ii) FVTPL. Financial liabilities classified at amortized cost are measured using the effective interest method. Financial liabilities classified as FVTPL are measured at fair value with changes in fair value attributable to changes in the credit risk of the liability presented in other comprehensive income, and the remaining amount of change in fair value presented in the consolidated statements of income (loss) and comprehensive income (loss).

The following summarizes the Company's classification of financial instruments:

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

Financial assets and liabilities	Measurement
Cash	Amortized cost
Restricted cash	Amortized cost
Tenant and other receivables	Amortized cost
Security deposits and costs related to future acquisitions	Amortized cost
Income support receivable	Amortized cost
Escrow deposits held by lender	Amortized cost
Bond assets	Amortized cost
Loans receivable	Amortized cost/FVTPL
Derivative instruments	FVTPL
Accounts payable and accrued liabilities	Amortized cost
Accrued real estate taxes	Amortized cost
Dividends payable	Amortized cost
Security deposits received from tenants	Amortized cost
Escrows collected from tenants	Amortized cost
Loan commitment liability	FVTPL
Exchangeable Units liability	Amortized cost
Contingent consideration liabilities	FVTPL
Mortgages payable	Amortized cost
Credit facilities	Amortized cost
Convertible debentures	Amortized cost
Commonwealth preferred unit liability	Amortized cost

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The Company derecognizes a financial liability when, and only when, the Company’s obligations are discharged, canceled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized through profit or loss.

The Company adopted the practical expedient to determine expected credit losses ("ECL") on tenant and other receivables using a provision matrix based on historical credit loss experiences adjusted for current and forecasted future economic conditions to estimate lifetime ECL. Impairment losses are recorded in the consolidated statements of income (loss) and comprehensive income (loss) with the carrying amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts.

Transaction costs other than those related to financial instruments classified as FVTPL, which are expensed as incurred, are capitalized to the carrying amount of the instrument and amortized using the effective interest method. These costs include discounts or premiums relating to assumed debt, fees and commissions paid to agents, brokers, advisers, lenders and insurers, transfer taxes and duties.

The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

discounts estimated future cash payments through the expected life of the financial asset or liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

i.Convertible debentures:

The convertible debentures are compound financial instruments as they contain both a liability and an equity component.

At the date of issuance, the liability component of convertible debentures is recognized at its estimated fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the convertible debenture is measured at amortized cost using the effective interest rate method. The equity component is not remeasured subsequent to initial recognition and will be transferred to share capital when the conversion option is exercised, or, if unexercised, at maturity. Interest, losses and gains relating to the financial liability are recognized in income and comprehensive income.

ii.Commonwealth preferred unit liability

The Commonwealth preferred unit liability is a compound financial instrument as it contains both a liability and an equity component.

At the date of issuance, the liability component of Commonwealth preferred unit liability is recognized at its estimated fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the Commonwealth preferred unit liability is measured at amortized cost using the effective interest rate method. The equity component is not remeasured subsequent to initial recognition and will be transferred to share capital when the conversion option is exercised, or, if unexercised, at maturity. Interest, losses and gains relating to the financial liability are recognized in income and comprehensive income.

iii.Impairment of financial assets:

The Company recognizes loss allowances for ECL on financial assets measured at amortized cost, unfunded loan commitments and financial guarantee contracts. The Company applies a three-stage approach to measure allowance for credit losses. The loss allowance for performing loans which have not experienced a significant increase in credit risk since initial recognition (Stage 1) is equal to twelve months of expected credit losses. The loss allowance for loans which have experienced a significant increase in credit risk since initial recognition (Stage 2) or are credit impaired (Stage 3) equals lifetime expected credit losses.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The determination of a significant increase in credit risk takes into account different factors and varies by nature of investment. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due or certain criteria are met which are specific to the individual borrower based on judgment. The Company considers a financial asset to be credit impaired when the borrower is more than 90 days past due and when there is objective evidence that there has been a deterioration of credit quality to the extent the Company no longer has reasonable assurance as to the timely collection of the full amount of principal and interest or when the Company has commenced enforcement remedies available to it under its contractual agreements.

Measurement of ECL's

Loss allowances for ECLs are probability-weighted estimates of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive) and incorporate significant assumptions including the probability of default as well as the estimated loss given default. ECLs are discounted at the effective interest rate of the financial asset.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considering when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

The determination of ECLs of a collateralized impaired loan reflects the expected realization of the underlying security, net of expected costs and any amounts legally required to be paid to the borrower.

When determining the allowance for ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. Management considers past events, current market conditions and reasonable forward-looking supportable information about future economic conditions. In assessing information about possible future economic conditions, management utilized multiple economic scenarios including a base case, which represents the most probable outcome and is consistent with management's view of the financial asset. In considering the lifetime of a loan, the contractual period of the loan, including prepayment, extension and other options is generally used.

The estimation of ECLs also includes assumptions about local real estate market conditions, availability and terms of financing, underlying value of the security and various other factors. These assumptions are limited by the availability of reliable comparable market data, economic uncertainty and the uncertainty of future events. Accordingly, by their nature, estimates of impairment are subjective and may not necessarily be comparable to the actual outcome. Should the underlying assumptions change, the estimated future cash flows could vary.

iv.Derivative instruments:

The Company uses derivative financial instruments to manage interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

Derivative financial instruments, including embedded derivatives that must be separately accounted for, are initially valued at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized immediately in income and comprehensive income.

(h)Non-controlling interest liability

The Company records third-party interests in the net assets of consolidated entities which do not qualify to be classified as equity as non-controlling interest liabilities. Such interests are initially recognized at fair value and are subsequently measured at amortized cost, with any changes recorded as change in non-controlling interest liability in the consolidated statements of income (loss) and comprehensive income (loss).

(i)Revenue recognition:

The Company accounts for its leases as operating leases given that it has retained substantially all of the risk and benefits of ownership

i.Lease revenue from third party operators and commercial tenants:

The Company earns revenue from tenants from various sources consisting of rent earned under lease agreements, property tax and operating cost recoveries and other incidental income. Revenue from lease components is recognized on a straight-line basis over the lease term and includes the recovery of property taxes and insurance. Revenue recognition commences when a tenant has the right to use the premises and is recognized pursuant to the terms of the lease agreement. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are deferred.

Revenue related to the services component of the Company’s leases is accounted for in accordance with IFRS 15. These services consist primarily of utilities, cleaning and property maintenance costs for which the revenue is recognized over time, typically as the costs are incurred, which is when the services are provided.

ii.Resident Leases

The Company charges for the rental of accommodation and care services provided to residents. Base rent amounts are allocated to lease components based on relative stand-alone selling prices. The stand-alone selling prices of the rental component is determined using an adjusted market assessment approach and the stand-alone selling price of the care services components are determined using both adjusted market assessment and expected cost plus a margin approaches.

Revenue from rental components is recognized on a straight-line basis over the lease term. Revenue recognition commences when a resident has the right to use the property and revenue is recognized pursuant to the terms of the lease agreement. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are deferred.

Revenue related to the care service components of the Company’s leases is accounted for in accordance with IFRS 15. These services consist primarily of the provision of meals, nursing services, housekeeping and

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

laundry services, programs, amenities and the recovery of utilities and property maintenance costs and are recognized over time, typically on a monthly basis, which is when the services are provided. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are recorded as contract liabilities.

iii.Lease revenue from joint ventures:

The Company earns revenue under lease arrangements with operating entities which are jointly owned with Autumnwood Lifestyles Inc. ("Autumnwood") (note 8). The leases are accounted for as operating leases and lease revenue is recognized on a straight-line basis over the term of the underlying leases.

(j)Government grants

Government grants that become receivable as compensation for lost revenue and increased expenses are recognized when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. The grants are recorded as other income in the consolidated statements of income (loss) and comprehensive income (loss).

(k)Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in IFRS 16.

i.As a lessee:

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property, the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term and is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized costs using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company presents the right-of-use assets in property, plant and equipment and lease liabilities are recorded separately on the balance sheet as "lease obligations".

ii.Short-term leases and leases of low value assets:

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. the Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

iii.As a lessor:

At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. The Company has determined that when it acts as a lessor, its leases do not transfer substantially all of the risks and rewards incidental to ownership of the underlying assets and as a result they are classified as operating leases.

If an arrangement contains lease and non-lease components, the Company applies IFRS 15 to allocate the consideration in the contract.

The Company recognizes lease payments received under operating leases as income on straight-line basis over the lease term.

(l)Employee benefits:

i.Short-term benefits:

Short-term employee benefit obligations, including vacation and bonus payments, are measured on an undiscounted basis and are expensed as the related service is provided. Liabilities are recognized for the amounts expected to be paid within 12 months as the Company has an obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Short-term employee benefits are recorded in accounts payable and other liabilities.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

ii.Share-based payment plans:

The Company maintains a Deferred Share Incentive Plan (note 22) for its employees and directors. Cash-settled shares are fair-valued and changes in the amount payable are recognized through profit or loss with a corresponding change in liabilities. The awards are fair-valued on the basis of the share price at each reporting period and at the settlement date and the change in fair value on the amortized share-based compensation expense is recognized as compensation expense.

Equity-settled shares are amortized as share-based compensation expense with a corresponding change in equity. The awards are valued based on the grant date fair value.

(m)Levies:

In accordance with IFRS Interpretations Committee ("IFRIC") 21, Levies ("IFRIC 21"), for its properties located in the United States, the Company recognizes the full amount of annual property tax liabilities at the point in time when the realty tax obligation is imposed. For properties located in Canada, property tax liabilities are recognized on a monthly basis.

(n)Income taxes:

Income tax expense comprises current and deferred tax. Tax is recognized in profit or loss except to the extent it relates to a business combination, or items recognized directly in equity or other comprehensive income.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustments to tax payable or receivable in respect of previous years. It is measured using rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

(i)Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

(ii)Temporary differences related to investments in subsidiaries and associates to the extent that the Company is able to control the timing of reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

(iii)Taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable income will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amounts of its assets and liabilities.

Deferred tax assets and liabilities are offset only if certain criteria are met.

Judgement is required to assess the interpretation of tax legislation when recognizing and measuring current and deferred tax assets and liabilities. The impact of different interpretations and applications could potentially be material. The Company recognizes a tax benefit from an uncertain tax position when it is probable that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. If it is not probable that the uncertain tax treatment will be accepted, the tax uncertainty is measured based on the most likely amount of expected value, depending on whichever method better predicts the resolution of the uncertainty.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Management's estimate of future taxable profits and the recognition of deferred tax assets are reviewed at each reporting date and deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(o)IFRS amendments adopted in 2021:

(i)In August 2020, the IASB issued Interest Rate Benchmark Reform ("IBOR") Reform and the Effects on Financial Reporting – Phase II (amendments to IFRS 9, IFRS 7, IAS 39 – Financial Instruments: Recognition and Measurement ("IAS 39"), IFRS 4 – Insurance Contracts ("IFRS 4") and IFRS 16 – Leases ("IFRS 16")). The objective of the second phase of the IASB's project was to assist entities in providing useful information about the effects of the transition to alternative benchmark rates and support preparers in applying the requirements of the IFRS Standards when changes are made to contractual cash flows or hedging relationships as a result of the transition to an alternative benchmark interest rate. The amendments affect the basis for determining the contractual cash flows as a result of benchmark interest rate reform, hedge accounting and disclosures.

The amendments were adopted by the Company when they became effective on January 1, 2021. The adoption standard did not have a material impact on the Company's consolidated financial statements.

(p)IFRS standards and amendments issued but not yet effective:

(i)Amendments to IAS 1, Presentation of financial statements

On January 23, 2020, the IASB issued amendments to IAS 1, Presentation of financial statements (“IAS 1”) to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted.

For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The Company intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when the standard becomes effective.

(ii)Amendments to IAS 8, Accounting policies, changes in accounting estimates and errors (“IAS 8”) regarding the definition of Accounting Estimates

On February 12, 2021, the IASB issued amendments to IAS 8 to assist entities to distinguish between accounting policies and accounting estimates. The amendments apply to annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy.

The Company intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when the standard becomes effective.

(iii)Amendments to IAS 1, Disclosure Initiative

On February 12, 2021, the IASB issued Disclosure Initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements). The amendments help entities provide useful accounting policy disclosures. The key amendments include requiring entities to disclose their material accounting policies rather than their significant accounting policies, clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company’s financial statements.

The Company intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when the standard becomes effective.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

3.    Loans receivable:

Loans receivable issued as at December 31, 2021 and December 31, 2020 are detailed in the table below:

Debtor	Loan Type	December 31, 2021	December 31, 2020	Maturity<br><br>Date (1)	Current Interest Rate	PIK Interest Rate
		Unaudited
Mainstreet Investment Company, LLC	Interest-only loan	$    3,932	3,932	December 22, 2018	8.5    %	1.5    %
Autumnwood Lifestyles Inc.	Revolving credit facility	1,187	1,178	October 31, 2018 (3)	8.0    %	—    %
Symcare ML, LLC	Loan receivable	—	7,295	December 31, 2033	5.0    %	—    %
Premier Senior Living, LLC (6)	Loan receivable	—	725	August 16, 2025	9.4    %	—    %
Ellipsis Real Estate Partners	Loan receivable	951	951	May 4, 2028	—    %	10.0    %
Ellipsis Real Estate Partners	Loan receivable	1,331	1,338	September 14, 2028	—    %	10.0    %
Symcare ML, LLC	Loan receivable	—	15,000	December 31, 2033	5.0    %	5.0    %
Hillcrest Millard, LLC	Loan receivable	529	503	January 1, 2028	—    %	5.0    %
Hillcrest Firethorn, LLC	Loan receivable	496	472	November 1, 2027	—    %	5.0    %
Bridgemoor Transitional Care Operations, LLC (5)	Loan receivable	1,872	1,872	June 5, 2035	—    %	—    %
MOC Webster, LLC	Loan receivable	—	576	June 5, 2035	—    %	—    %
RHS Propco Mooresville, LLC	Loan receivable	5,000	5,000	July 1, 2024	8.5    %	—    %
Memory Care America LLC	Loan receivable	57	1,198	January 1, 2024	8.5    %	—    %
Ellipsis Real Estate Partners LLC (9)	Mezzanine loan	475	474	October 1, 2022	2.5    %	7.5    %
Blue Bell Senior Holdings, LLC (7)	Loan receivable	490	490	March 1, 2024	5.9    %	—    %
PSL Care GP LLC	Loan receivable	450	450	(8)	3.5    %	—    %
Symcare ML, LLC	Loan receivable	7,404	—	December 31, 2035	—    %	1.0    %
Premier Senior Living, LLC (10)	Loan receivable	862	—	October 1, 2023	8.0    %	—    %
Accrued current and long term interest		745	3,122
Allowance for losses on loans receivable		(6,329)	(28,241)
Carrying value of loans recorded at amortized cost		$    19,452	16,335
Javelina Ventures, LLC	Loan receivable - FVTPL	2,243	2,368	(4)	—    %	5.0    %
Carrying value of loans receivable		21,695	18,703
Less current portion		1,635	1,799
Long term portion		$    20,060	16,904
(1) Mezzanine loans are due at the time of sale of the property if sale occurs earlier than the stated maturity date.
(2) Loan assumed through acquisition on February 1, 2018. Loan was originally issued by Care PSL Holdings LLC on August 16, 2013.
(3) Maturity date is the later of October 31, 2018 or the completion of the expansion projects at the Marina Point and Red Oak Facilities. The projects are not yet complete.
(4) The repayment of this loan is pursuant to Javelina Ventures Operating Agreement in which net available cash from operations will be used to repay the principal and accrued interest on this loan.
(5) This loan was issued to MOC Fort Worth, LLC; MOC Round Rock, LLC; MOC San Antonio II, LLC; MOC Webster, LLC; and Bridgemoor Transitional Care Operations, LLC.
(6) This loan was issued to Park Terrace Operating, LLC; Seneca Lake Terrace Operating, LLC; and Premier Senior Living, LLC.
(7) Maturity date is the earlier of March 1, 2024, the date that the existing debt secured by the property is refinanced, or upon termination of the management agreement.
(8) No stated maturity date for loan receivable. Principal of loan is repaid when distributions are made from the joint venture operated by Phoenix Senior Living.
(9) This loan was funded for the development of a memory care facility in Wyoming, MI.
(10) This loan was issued to Park Terrace Operating, LLC and Seneca Lake Terrace Operating, LLC.

All values are in US Dollars.

$10,358 of the loans outstanding and $15 of the accrued current and long term interest as at December 31, 2021 in the table above are made to current tenant operators. Of these amounts, $2,065 has been reserved as uncollectible. $27,641 of the

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

loans outstanding and $2,438 of the accrued current and long term interest as at December 31, 2020 in the table above are made to then current tenant operators. Of these amounts, $23,964 has been reserved as uncollectible.

On July 31, 2019, the Company entered into a new loan with MCA Memory Care America, LLC ("MCA") in the amount of $2,934. The loan balance represented outstanding rents owed, the remaining balance of a previously issued loan receivable and outstanding interest thereon. Through December 31, 2021, the Company has received repayment on this loan receivable of $3,363 (2020 - $1,868) consistent with the terms outlined in the loan agreement.

On July 17, 2020, the Company received $750 as repayment of a portion of the principal of the mezzanine loan to Ellipsis Real Estate Partners LLC. On the same date, the loan was amended and the annual interest rate was reduced to 10%.

Loans receivable and associated allowance for losses on loans receivable accounted for at amortized cost as at December 31, 2021 are as follows:

	Stage 1	Stage 2	Stage 3	Total
	Unaudited	Unaudited	Unaudited	Unaudited
Loans receivable, net of loan fees	$    18,725	$    1,195	$    5,861	$    25,781
Allowance for losses on loans receivable	(276)	(237)	(5,816)	(6,329)
Loans receivable, net of allowances	$    18,449	$    958	$    45	$    19,452

Loans receivable and associated allowance for losses on loans receivable accounted for at amortized cost as at December 31, 2020 are as follows:

	Stage 1	Stage 2	Stage 3	Total
Loans receivable, net of loan fees	$    11,079	$    1,186	$    32,311	$    44,576
Allowance for losses on loans receivable	(127)	(236)	(27,878)	(28,241)
Loans receivable, net of allowances	$    10,952	$    950	$    4,433	$    16,335

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The changes in the gross loans receivable balance during the period ended December 31, 2021 are shown in the following table:

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

	Stage 1	Stage 2	Stage 3	Total
Total loans receivable as at December 31, 2019 - Unaudited	$    38,476	$    —	$    6,725	$    45,201
Loans receivable
Transfer to/(from)
Stage 1	(25,052)	25,052	—	—
Stage 2	—	(23,897)	23,897	—
Stage 3	—	—	—	—
	$    13,424	$    1,155	$    30,622	$    45,201
Issuances	1,431	—	3,280	4,711
Repayments	(3,776)	—	(329)	(4,105)
Currency Translation	—	31	—	31
Write off of loans receivable	—	—	(1,262)	(1,262)
Total loans receivable as at December 31, 2020	$    11,079	$    1,186	$    32,311	$    44,576
Loans receivable
Transfer to/(from)
Stage 1	(733)	733	—	—
Stage 2	—	—	—	—
Stage 3	—	—	—	—
	$    10,346	$    1,919	$    32,311	$    44,576
Issuances	542	48	265	855
Repayments	(36)	—	(1,151)	(1,187)
Currency translation	—	9	—	9
Fair value changes	195	—	—	195
Contribution to joint venture	—	—	(842)	(842)
Non-cash settlement	7,678	(781)	(24,722)	(17,825)
Total loans receivable as at December 31, 2021 - Unaudited	$    18,725	$    1,195	$    5,861	$    25,781

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

The changes in the allowance for credit losses during the period ended December 31, 2021 are shown in the following table:

	Stage 1	Stage 2	Stage 3	Total
Total allowance for credit losses as at December 31, 2019 - Unaudited	$    421	$    —	$    5,494	$    5,915
Allowance for credit losses
Remeasurement	—	226	23,452	23,678
Transfer to/(from)
Stage 1	(269)	269	—	—
Stage 2	—	(259)	259	—
Stage 3	—	—	—	—
Total allowance for credit losses	$    152	$    236	$    29,205	$    29,593
Issuances	13	—	—	13
Repayments	(38)	—	(65)	(103)
Write off of loan receivable and allowance	—	—	(1,262)	(1,262)
Total allowance for credit losses as at December 31, 2020	$    127	$    236	$    27,878	$    28,241
Allowance for credit losses
Remeasurement	—	133	263	396
Transfer to/(from)
Stage 1	(7)	7	—	—
Stage 2	—	—	—	—
Stage 3	—	—	—	—
	$    120	$    376	$    28,141	$    28,637
Issuances	9	—	265	274
Repayments	—	—	(193)	(193)
Currency translation	—	1	—	1
Contribution to joint venture	—	—	(842)	(842)
Non-cash settlement	147	(140)	(21,555)	(21,548)
Total allowance for credit losses as at December 31, 2021 - Unaudited	$    276	$    237	$    5,816	$    6,329

For the year ended December 31, 2021, a loss of $1,196 (year ended December 31, 2020 - $23,546 loss) was recorded as change in allowance for credit losses on loans and interest receivable in the consolidated statements of loss and comprehensive loss. For the year ended December 31, 2021 a loss of $474 (year ended December 31, 2020 - NIL) was recorded as a change in fair value of financial instruments in the consolidated statements of loss and comprehensive loss for the change in fair value of the loan to Javelina Ventures, LLC.

On June 1, 2021, a subsidiary of the Company entered into a loan agreement with the tenant operator of the Symphony Portfolio ("Symcare") for a principal amount of $17,000 in satisfaction of all remaining balances owed by Symcare including the $7,295 loan entered into on October 20, 2017 and accrued interest thereon, the $15,000 loan entered into on December 26, 2018 and accrued interest thereon, and $10,969 of outstanding rent receivable offset by the release of the

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

$7,000 security deposit on the previous master lease with Symcare. The new loan matures on December 31, 2035 and earns interest at an annual rate of 1.0% which accrues to the balance of the loan until maturity ("PIK Interest"). Upon issuance, the loan was measured at its fair value using a market discount rate, and is recorded at amortized cost of $7,404 at December 31, 2021.

INVESQUE INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31 2021 with comparative information for the year ended December 31, 2020

4.    Other assets:

Other assets are as follows:

	December 31, 2021	December 31, 2020
	Unaudited
Prepaid expense	$    2,124	$    2,330
Security deposits and costs related to future acquisitions	125	682
Escrow deposits held by lenders	4,605	5,251
Right-of-use assets	1,470	1,889
Bond assets	760	881
Receivable from Jaguarundi Ventures, LP (note 7)	7,802	—
Other	1,096	807
	$    17,982	$    11,840
Current	$    15,753	$    9,069
Non-current	2,229	2,771
	$    17,982	$    11,840

Escrow deposits held by lenders includes amounts held for use in payment of real estate taxes, property insurance and replacement reserves.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

5.    Investment properties:

(a) Investment properties:

	Number of Properties	Amount
Balance, December 31, 2019 - Unaudited	69	$    969,634
Acquisitions of income properties	1	8,202
Transfer to property, plant and equipment (note 6)	(1)	(9,869)
Capital expenditures	—	668
Capital expenditures related to investment property under development	—	4,323
Increase in straight-line rents	—	6,394
Fair value adjustment	—	(100,388)
Amortization of tenant inducements	—	(385)
Translation of foreign operations	—	3,440
Balance, December 31, 2020	69	$    882,019
Contribution of investment property to joint venture (note 7)	(1)	(17,100)
Transfer to property, plant and equipment (note 6)	(2)	(19,846)
Capital expenditures	—	968
Sale of income properties	(13)	(114,318)
Increase in straight-line rents	—	6,189
Fair value adjustment	—	(22,152)
Amortization of tenant inducements	—	(447)
Translation of foreign operations	—	1,031
Balance, December 31, 2021 - Unaudited	53	$    716,344
Investment properties in use		$    698,307
Property under development		18,037
Balance, December 31, 2021 - Unaudited		$    716,344

At December 31, 2021, the Company used an internal valuation process to value its investment properties. Third party appraisers are engaged to prepare valuations on a portion of the portfolio annually such that one third of the portfolio is valued externally each year, and every property in the portfolio is valued externally at least once every five years. Management considers the external valuations for a cross-section of properties that represent different geographical locations across the Company's portfolio and updates, as deemed necessary, the valuation models to reflect current market data.

Acquired investment properties are initially measured at cost, including directly attributable acquisition costs, when the transactions are deemed to be asset acquisitions. Acquisition costs related to business combinations are expensed in the period incurred. Subsequent to initial recognition, investment properties are measured at fair value, determined based on available market evidence. The Company uses alternative valuation methods such as the direct capitalized income approach or discounted cash flow projections (Level 3 inputs). The fair value of investment properties reflects rental income from current leases and assumptions about rental income from future leases in light of current market conditions. When a loan is

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

arranged with a tenant at a below market rate, the estimated fair value of the discount is recognized as a tenant inducement at the time the loan commitment is made.

Capital expenditures include costs related to expansion projects at two buildings in Canada that are jointly owned. The Company has committed to fund its share of the projects as the expansions are completed.

On May 6, 2020, the Company contributed a previously triple-net leased property to a subsidiary partially owned by Phoenix Senior Living (note 6).

The Company continues to review market capitalization, discount and terminal capitalization rates as well as its future cash flow projections and the valuation of its properties in light of the COVID-19 pandemic. The carrying value for the Company’s investment properties reflects its best estimate for the highest and best use as at December 31, 2021. It is not possible to forecast with certainty the duration and full scope of the economic impact of COVID-19 and other consequential changes it will have on the Company’s business and operations, both in the short term and in the long term. In a long term scenario, certain aspects of the Company’s business and operations that could potentially be impacted include rental income, occupancy, turnover, future demand, and market rents, which all ultimately impact the underlying valuation of investment properties.

The following table summarizes the significant unobservable inputs in determining fair value:

Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurements
Capitalization rates	There is an inverse relationship between the capitalization rates and the fair value; in other words, the higher the capitalization rate, the lower the estimated fair value.
Stabilized future cash flows	There is a direct relationship between the stabilized future cash flows and the fair value; in other words, the higher the stabilized future cash flows, the higher the estimated fair value.

The capitalization rates used in determining fair value of investment properties measured as at December 31, 2021 and December 31, 2020 are set out in the following table:

	December 31, 2021	December 31, 2020
	Unaudited
Capitalization rate - range	7.00% - 10.25%	5.85% - 9.00%
Capitalization rate - weighted average	8.09%	8.06%

The fair value of investment properties is most sensitive to changes in capitalization rates and stabilized future cash flows. Changes in the capitalization rates and stabilized future cash flows would result in the following changes in the fair value of the Company's investment properties:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	December 31, 2021	December 31, 2020
	Unaudited
Investment property valued using direct capitalization income approach	$    524,148	$    617,931
Investment property valued using discounted cash flow projection	$    59,449	$    139,727
Investment property valued using other methods	$    132,747	$    124,361
Capitalization rate:
25-basis point increase	$    (15,880)	$    (18,727)
25-basis point decrease	$    16,917	$    19,945

As at December 31, 2021, a 1% increase in stabilized future cash flows would result in a portfolio fair value increase of $5,241. A 1% decrease in stabilized future cash flows would result in a portfolio fair value decrease of $5,241. A 1% increase in stabilized future cash flows coupled with a 0.25% decrease in capitalization rates would result in a portfolio fair value increase of $22,328. A 1% decrease in stabilized future cash flows coupled with a 0.25% increase in capitalization rates would result in a portfolio fair value decrease of $20,963.

As at December 31, 2020, a 1% increase in stabilized future cash flows would result in a portfolio fair value increase of $6,179. A 1% decrease in stabilized future cash flows would result in a portfolio fair value decrease of $6,179. A 1% increase in stabilized future cash flows coupled with a 0.25% decrease in capitalization rates would result in a portfolio fair value increase of $26,324. A 1% decrease in stabilized future cash flows coupled with a 0.25% increase in capitalization rates would result in a portfolio fair value decrease of $24,719.

(b) Asset dispositions - year ended December 31, 2021 - Unaudited

	Chesterton, IN	Symcare	Inspirit	Saber	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Number of consolidated properties disposed:	(1)	(3)	(4)	(5)	(13)
Net assets disposed:
Investment properties	$    (19,982)	$    (55,283)	$    (36,388)	$    (2,665)	$    (114,318)
Working capital balances	5	—	90	—	95
Non-controlling interest liability	—	—	1,263	—	1,263
	$    (19,977)	$    (55,283)	$    (35,035)	$    (2,665)	$    (112,960)
Consideration received:
Cash	(19,977)	(55,283)	(35,035)	(2,665)	(112,960)
	$    (19,977)	$    (55,283)	$    (35,035)	$    (2,665)	$    (112,960)

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

On April 30, 2021, the Company sold a property located in Chesterton, IN to the operator Symphony for a sale price of $20,000 before closing costs. The consideration was paid in cash which was used to repay the $14,448 mortgage secured by the property.

On June 1, 2021, the Company sold three properties located in Chicago, IL to the operator Symphony for a sale price of $55,500 before closing costs. The consideration was paid in the form of $55,283 cash. The cash was used to pay down the Credit Facility.

On July 1, 2021, the Company sold its interest in four investment properties to the operator Inspirit for a sale price of $35,500. The Company used the proceeds to repay the $23,626 mortgage secured by the properties.

On October 6, 2021, the Company sold five properties in Pennsylvania for a total consideration of $2,600 before closing costs, received in the form of cash.

On October 24, 2021, the Company entered an agreement whereby it has transitioned operations of 2 properties in New York. In conjunction with the lease transition, the Company transferred the related investment property to property, plant and equipment. The properties were previously triple-net leased to Premier Senior Living ("Premier"), and as of the lease transition date are managed by Hearth Senior Living ("Hearth") under a management agreement.

(c) Asset acquisitions - year ended December 31, 2020

	Rogers, AR
Number of consolidated properties acquired:	1
Net assets acquired:
Investment properties	$    8,202
Working capital balances	50
	$    8,252
Consideration paid/funded:
Cash	3,399
Proceeds from mortgage payable, net of fees	4,853
	$    8,252

On November 17, 2020, The Company acquired a memory care facility leased to an operator located in Rogers, AR for a contractual purchase price of $8,150 plus transaction costs. The Company entered into a new mortgage secured by the property to fund $4,920 of the purchase price and funded the remainder of the purchase with cash on hand.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

6.    Property, plant and equipment, net:

(a) Property, plant and equipment, net:

Property, plant and equipment consists of the following as at December 31, 2021:

	Land	Buildings	Furniture, fixtures and equipment	Properties under development	Total
Cost
Balance, December 31, 2019 - Unaudited	$    28,002	$    435,958	$    9,563	$    937	$    474,460
Additions	—	2,584	2,216	6,469	11,269
Disposals	—	—	(63)	—	(63)
Transfers to joint venture	(316)	(11,336)	(226)	—	(11,878)
Transfer from investment property	488	9,182	199	—	9,869
Acquisition of Royal JV	1,232	23,184	607	—	25,023
Acquisition of Fayetteville	524	9,843	505	—	10,872
Acquisition of Albany operations	—	—	259	—	259
Sale of Tampa	(143)	(2,707)	(29)	—	(2,879)
Asset transferred to held for sale	(960)	(1,420)	(188)	—	(2,568)
Balance, December 31, 2020	$    28,827	$    465,288	$    12,843	$    7,406	$    514,364
Additions	—	3,562	3,528	717	7,807
Disposals	—	(135)	—	—	(135)
Transfers	—	7,723	—	(7,723)	—
Assets contributed to joint venture	(2,600)	—	—	—	(2,600)
Transfer from investment property (note 5)	200	18,890	560	—	19,650
Assets transferred to held for sale	(306)	(20,834)	(586)	—	(21,726)
Balance, December 31, 2021 - Unaudited	$    26,121	$    474,494	$    16,345	$    400	$    517,360
Accumulated depreciation
Balance, December 31, 2019 - Unaudited	—	13,930	588	—	14,518
Depreciation and amortization	—	46,322	2,247	—	48,569
Disposals	—	—	(3)	—	(3)
Transfers to joint venture	—	(111)	(10)	—	(121)
Asset transferred to held for sale	—	(397)	(27)	—	(424)
Balance, December 31, 2020	$    —	$    59,744	$    2,795	$    —	$    62,539
Depreciation and amortization	—	20,629	1,523	—	22,152
Disposals	—	(13)	—	—	(13)
Impairment	—	1,100	—	—	1,100
Assets transferred to held for sale	—	(395)	(24)	—	(419)
Balance, December 31, 2021 - Unaudited	$    —	$    81,065	$    4,294	$    —	$    85,359
Property, plant and equipment, net balance, December 31, 2020	$    28,827	$    405,544	$    10,048	$    7,406	$    451,825
Property, plant and equipment, net balance, December 31, 2021 - Unaudited	$    26,121	$    393,429	$    12,051	$    400	$    432,001

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

(b) Dispositions and transfers - year ended December 31, 2021 - Unaudited

	Richmond, VA	Parker,<br><br>CO	Total
	Unaudited	Unaudited	Unaudited
Properties	(1)	—	(1)
Land	$    —	$    2,600	$    2,600
Property, plant and equipment	(2,152)	—	(2,152)
	$    (2,152)	$    2,600	$    448
Consideration paid (received):
Gain on sale of property	1,282	—	1,282
Cash proceeds received, net	(3,434)	—	(3,434)
Contributed to joint venture	—	2,600	2,600
	$    (2,152)	$    2,600	$    448

On June 14, 2021, the Company entered into a joint venture for the development of a seniors housing property in Parker, Colorado ("Terra Bluffs"). The Company contributed land valued at $2,600 and $3,002 of cash to the joint venture in exchange for a 73.6% ownership interest.

On October 27, 2021, the Company sold a property in Richmond, VA which was previously recorded as held for sale for total consideration of $3,500 before closing costs, received in the form of cash.

(c) Acquisitions - year ended December 31, 2020

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Royal	Fayetteville	Albany operations	Total
Properties	5	1	—	6
Property, plant and equipment	$    25,023	$    10,872	$    259	$    36,154
Cash balance acquired	1,388	625	68	2,081
Working capital balances	(147)	(101)	(327)	(575)
Mortgages assumed	(22,822)	(6,848)	—	(29,670)
	$    3,442	$    4,548	$    —	$    7,990
Consideration paid:
Fair value of previously held interest	3,442	4,072	—	7,514
Cash paid	—	476	—	476
	$    3,442	$    4,548	$    —	$    7,990

On May 6, 2020 the Company acquired 100% of Royal Senior Living’s ("Royal") interest in five joint venture properties in which the Company already had a majority ownership interest ("Royal JV"). Simultaneous with this transaction, management of four of these properties was transitioned to Phoenix Senior Living (“Phoenix") and combined with two assets in the Company’s portfolio already managed by Phoenix. On May 6, 2020 the Company acquired the minority partner's interest in one of these properties, Fayetteville, for $476.

The Company owns a controlling 90% interest in the entity that owns and operates the six assets, and as a result they have been consolidated following this transaction. The Company received total consideration of $1,126 from Phoenix for their buy-in to the entity, of which $650 was received in cash and $476 in a note to an affiliate of Phoenix for the remaining portion of their 10% ownership in the entity. $26 of the note has been repaid as of December 31, 2020.

(d) Dispositions and transfers - year ended December 31, 2020

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Arlington Sale	Glassboro to Joint Venture	Tampa Sale	Total
Properties	(1)	(1)	(1)	(3)
Property, plant and equipment	$    (12,201)	$    (11,757)	$    (2,879)	$    (26,837)
Working capital balances	67	(57)	(121)	(111)
	$    (12,134)	$    (11,814)	$    (3,000)	$    (26,948)
Consideration paid (received):
Equity contributed to joint venture	—	(3,016)	—	(3,016)
Gain (loss) on sale of property	(221)	103	—	(118)
Note issued to joint venture partner	—	(490)	—	(490)
Repayment/contribution of mortgages payable	(8,000)	(8,411)	—	(16,411)
Cash proceeds received, net	(3,913)	—	(3,000)	(6,913)
	$    (12,134)	$    (11,814)	$    (3,000)	$    (26,948)

On February 28, 2020, the Company sold a seniors housing property located in Arlington, TX for a sale price of $12,450 before closing costs. This property was previously recorded as held for sale. The consideration was paid in the form of an $8,000 repayment of the mortgage secured by the property and $3,900 of cash.

On February 21, 2020, the Company entered into a joint venture agreement with the operator Heritage Senior Living ("Heritage") for a property in Glassboro, NJ. Heritage operates the property pursuant to a management agreement. The Company sold 10% of its interest in the property and operations for $490, satisfied through a promissory note earning 5.91% annual interest. The promissory note matures at the earlier of March 1, 2024, the date that the existing debt secured by the property is refinanced, or upon termination of the management agreement.

The remaining asset in the former five property Royal JV, a seniors housing community in Tampa, FL, was non-strategic for the Company, and was sold to a third party on May 11, 2020 for $3,290 less transaction costs.

(e) Assets held for sale

The following table summarizes the significant assets held for sale on December 31, 2021 and 2020:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

		December 31, 2021	December 31, 2020
Assets:		Unaudited
	Property, plant and equipment, net	21,307	$    2,144
		$    21,307	$    2,144

In June 2020 the Company ceased operations in and listed for sale a property located in Richmond, VA. The Company successfully transitioned all residents from this property into new locations in order to prepare the building for sale. On October 27, 2021, the Company sold the property for total consideration of $3,500 before closing costs, received in the form of cash.

In June 2021 the Company ceased operations in and listed for sale a property located in Port Royal, SC. The Company has successfully transitioned all residents from this property into new locations in order to prepare the building for sale. The assets are classified as held for sale on the consolidated statement of financial position at December 31, 2021.

On November 15, 2021, the Company entered into a purchase and sale agreement to sell two properties in New York. These properties were previously transferred to property, plant and equipment on October 24, 2021. The assets are classified as held for sale on the consolidated statement of financial position at December 31, 2021.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

7.    Joint arrangements:

As at December 31, 2021, the following are the Company's joint arrangements:

Joint arrangement	Number of properties	Location	Company ownership	Consolidation type
Invesque-Autumnwood Landlord	4	Canada	50    %	Joint operation (1)
Invesque-Autumnwood Operator	—	Canada	50    %	Joint venture (2)
Calamar	2	United States	75    %	Joint venture (3)
Heritage JV	3	United States	80    %	Joint venture (3)
Heritage Newtown	1	United States	80    %	Joint venture (3)
Heritage Harleysville	1	United States	90    %	Joint venture (3)
Heritage Glassboro	1	United States	90    %	Joint venture (3)
Jaguarundi	4	United States	66    %	Joint venture (4)
Terra Bluffs	1	United States	72    %	Joint venture (3)
(1) The Company directly holds its interest in the real estate joint operation.
(2) These joint venture arrangements have been structured through separate legal entities and lease the properties from the joint operation landlord.
(3) These joint venture arrangements have been structured through separate legal entities. The joint venture owns an interest in separate legal entities which own the real estate and operations.
(4) The joint venture owns an interest in separate legal entities which own the real estate and leases the properties to third party operators.

The Company has entered into a number of joint arrangements for the purpose of jointly owning and operating certain of its seniors housing investments as detailed in the table above.

The Company and Autumnwood each owns a 50% direct beneficial interest in the real estate assets of the Invesque-Autumnwood Landlord entity and are jointly obligated for the related mortgages for a portfolio of four properties which are accounted for as joint operations and are accounted for under the proportionate consolidation method. The Company's 50% interest in the operations of these properties is held through separate legal entities (collectively referred to as "Invesque-Autumnwood Operators"), which under IFRS 11, Joint arrangements, are accounted for as joint ventures using the equity method. Invesque-Autumnwood Operators have leased the real estate from the landlords under their respective lease agreements. These leases are for three-year periods, with six automatic renewals every third anniversary for a total of 21 years. The Company's share of the landlords' lease receipts, $3,529 for the year ended December 31, 2021 (year ended December 31, 2020 - $3,118), is reported as lease revenue from joint ventures. Invesque-Autumnwood Operators lease expense is included in the share of loss from joint ventures in the consolidated statements of loss and comprehensive loss.

The Company has an interest in eight seniors housing and care properties in the United States in which it also owns an interest in the operations at those properties through joint arrangements. In these joint arrangements, the Company owns an interest in the real estate and operations through separate legal entities at each of the properties and has management agreements in place to provide for the day to day operations resulting in joint control of the interests. Each of these joint arrangements are accounted for as joint ventures using the equity method and the Company's share of net income is included in loss from joint ventures in the consolidated statements of loss and comprehensive loss.

On June 5, 2019, the Company contributed eight investment properties to Jaguarundi Ventures, LP, a joint venture formed with Magnetar Financial LLC (collectively, "Magnetar"), a related party. The Company received $23,000 from its joint

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

venture partner in the arrangement in exchange for a 39.49% interest in the joint venture. The properties contributed had an investment property value of $161,047 and total mortgage indebtedness of $102,692. On October 29, 2021, the Company contributed an additional investment property located in Webster, Texas to the joint venture in exchange for an increase in its joint venture ownership interest to 65.83%. On November 16, 2021 Jaguarundi Ventures, LP sold a five property portfolio for a total sale price of $93,000. Proceeds from the sale were used in part to repay $67,489 in existing mortgage debt on the properties that were sold. The Company provides a guarantee on the outstanding mortgage balances of the Jaguarundi Ventures, LP in exchange for a fee equal to 15 basis points on the amount guaranteed. The Company earns an asset management fee of 25 basis points based on gross asset value. For the year ended December 31, 2021, the Company has earned guaranty fees of $59 (year ended December 31, 2020 - $60) and management fees of $403 (year ended December 31, 2020 - $403) from Jaguarundi Ventures, LP included in other revenue in the consolidated statements of loss and comprehensive loss.

On May 6, 2020 the Company acquired 100% of Royal Senior Living’s ("Royal") interest in five joint venture properties in which the Company already had a majority ownership interest ("Royal JV") (Note 7).

In addition to the five-asset Royal joint venture referenced above, the Company also had a single-asset joint venture with Royal which owned a seniors housing community in Eatonton, GA ("Royal Eatonton"). Royal purchased the Company’s 65% ownership interest in the community on May 6, 2020. Cash proceeds to the Company for this sale were $1,447. Following this transaction, the Company and Royal no longer have any shared interests in joint arrangements.

On June 14, 2021, the Company entered into a joint venture for the development of a seniors housing property in Parker, Colorado ("Terra Bluffs"). The Company contributed land valued at $2,600 and $3,002 of cash to the joint venture in exchange for a 73.6% ownership interest. The project has property under development of $10,676 at 100% ownership as of December 31, 2021. The remaining portion of the project will be funded through draws on construction loans at the joint venture.

The following tables summarize the information about the Company's investment in joint ventures, which have been accounted for under the equity method:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Cash contributions to joint ventures	$    4,283	$    1,855
Distributions received from joint ventures	$    16,083	$    3,803

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	December 31, 2021		December 31, 2020
	Net assets	Company share of net assets	Net assets	Company share of net assets
	Unaudited	Unaudited
Cash	$    14,833	$    10,893	$    5,480	$    4,152
Tenant and other receivables	3,015	1,749	3,204	1,765
Other	693	927	923	839
Current assets	18,541	13,569	9,607	6,756
Investment properties	211,320	156,135	292,526	204,399
Property, plant and equipment, net	25,706	18,549	26,317	19,044
Loans receivable	3,882	55	3,885	55
Other non-current assets	495	373	481	362
Total assets	$    259,944	$    188,681	$    332,816	$    230,616
Accounts payable and accrued liabilities	$    11,575	$    8,881	$    6,753	$    4,787
Unearned revenue	655	532	712	585
Mortgages payable - current	32,804	22,532	25,332	17,311
Current liabilities	45,034	31,945	32,797	22,683
Mortgages payable - non-current	117,542	94,416	187,120	135,298
Construction loan	4,805	3,458	—	—
Loan commitment liability	—	—	416	252
Derivative instruments	2,426	1,996	7,249	5,615
Payable to Invesque	7,802	5,136	—	—
Other non-current liabilities	1,821	1,290	2,286	1,510
Total liabilities	$    179,430	$    138,241	$    229,868	$    165,358
Net assets	$    80,514	$    50,440	$    102,948	$    65,258

On October 29, 2021, the Company contributed an additional investment property located in Webster, Texas to the joint venture in exchange for an increase in its joint venture ownership interest to 65.83%. The Webster, Texas property is pledged against the Company's Credit Facility and the Jaguarundi Ventures, LP has recorded the $7,802 obligation to the Company for the Webster, Texas property's share of the Company's Credit Facility debt.

As at December 31, 2021, a joint arrangement with respect to one property currently undergoing renovations did not meet certain debt service coverage ratio requirements under the terms of a mortgage agreement secured by the property. As the joint arrangement did not have an unconditional right to defer settlement of the mortgage for at least twelve months as at December 31, 2021, the $9,186 outstanding loan balance has been classified as a current liability of the joint arrangement as at December 31, 2021.

As at December 31, 2021, a joint arrangement with respect to one property held in Jaguarundi Ventures, LP did not meet certain debt covenant requirements under the terms of a mortgage agreement secured by the property. As the joint arrangement did not have an unconditional right to defer settlement of the mortgage for at least twelve months as at

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

December 31, 2021, the $13,569 outstanding loan balance has been classified as a current liability of the joint arrangement as at December 31, 2021.

	Year ended December 31, 2021		Year ended December 31, 2020
	Net loss	Company share of net loss	Net loss	Company share of net loss
	Unaudited	Unaudited
Revenue	$    57,765	$    34,086	$    65,249	$    40,457
Other income	1,511	1,243	1,582	1,294
Property operating expense	(40,032)	(22,417)	(43,259)	(25,536)
Depreciation expense	(725)	(543)	(724)	(546)
Finance costs	(9,472)	(6,818)	(9,294)	(6,591)
Real estate tax expense	(1,480)	(902)	(1,609)	(974)
General and administrative expenses	(6,453)	(3,980)	(3,272)	(1,974)
Allowance for credit losses on loans and interest receivable	(954)	(577)	(14,800)	(11,957)
Change in fair value of financial instruments	3,965	3,112	(4,622)	(3,603)
Change in fair value of investment properties	(21,363)	(18,110)	(33,830)	(25,299)
Net income (loss), prior to distributions to owners	$    (17,238)	$    (14,906)	$    (44,579)	$    (34,729)

Related party transactions occur between the Company and its joint ventures. These related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to between the parties. Except as disclosed elsewhere in these consolidated financial statements, the related party balances are included in other receivables, loans receivable, accounts payable, loan commitment liabilities, and lease revenue from joint ventures.

The following table summarizes information about the gross balance of mortgages payable at the joint ventures:

	December 31, 2020
Mortgages at fixed rates:
Mortgages (principal) (1)	$    170,814
Interest rates	3.99% to 4.98%
Weighted average interest rate	4.30    %
Mortgages at variable rates:
Mortgages (principal)	$    42,635
Interest rates	LIBOR plus 2.40% to LIBOR plus 3.00%
Weighted average interest rate	3.88    %
Blended weighted average rate	4.22    %
(1) Includes 89,231 of variable rate mortgages that are fixed with interest rate swaps (December 31, 2020 - 114,589).

All values are in US Dollars.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

The following tables summarize the information about the Company's investment in Jaguarundi Ventures, LP, which have been accounted for under the equity method and included in tables above. Jaguarundi Ventures, LP is shown separately below due to significance of the interest in the joint venture. The joint venture was formed on June 5, 2019. During the year ended December 31, 2021, the Company has not made cash contributions to Jaguarundi Ventures, LP (year ended December 31, 2020 - $1,428). During the year ended December 31, 2021, the Company received cash distributions of $14,543 from Jaguarundi Ventures, LP (year ended December 31, 2020 - NIL).

	December 31, 2021		December 31, 2020
	Net assets	Company share of net assets	Net assets	Company share of net assets
	Unaudited	Unaudited
Cash	$    8,054	$    5,365	$    1,658	$    1,003
Tenant and other receivables	1,175	773	1,602	969
Other	—	—	110	68
Current assets	9,229	6,138	3,370	2,040
Investment properties	52,000	34,232	143,785	86,999
Loans receivable	24	16	—	—
Total assets	$    61,253	$    40,386	$    147,155	$    89,039
Accounts payable and accrued liabilities	$    1,317	$    867	$    1,918	$    1,160
Mortgages payable - current	23,086	15,198	15,227	9,214
Current liabilities	24,403	16,065	17,145	10,374
Mortgages payable - non-current	14,497	9,543	84,149	50,916
Loan commitment liability	—	—	416	252
Payable to Invesque	7,802	5,136
Derivative instruments	—	—	1,602	969
Other non-current liabilities	1,250	823	1,700	1,029
Total liabilities	$    47,952	$    31,567	$    105,012	$    63,540
Net assets	$    13,301	$    8,819	$    42,143	$    25,499

The Company provides a guarantee on the outstanding mortgage balances of the Jaguarundi Ventures, LP in exchange for a fee equal to 15 basis points on the amount guaranteed. As of December 31, 2021, the outstanding mortgages balance of Jaguarundi Ventures, LP is $37,586 (December 31, 2020 - $99,376). As of December 31, 2021, the value of the properties that collateralize the mortgages is $52,000 (December 31, 2020 - $143,785) and is sufficient to support the mortgage values.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Year ended December 31, 2021		Year ended December 31, 2020
	Net income (loss)	Company share of net income (loss)	Net income (loss)	Company share of net income (loss)
	Unaudited	Unaudited
Revenue	$    13,921	$    8,431	$    14,423	$    8,638
Finance costs	(4,578)	(2,823)	(3,859)	(2,182)
Real estate tax expense	(1,480)	(902)	(1,609)	(974)
General and administrative expenses	(6,461)	(3,984)	(3,318)	(2,008)
Allowance for credit losses on loans and interest receivable	(954)	(577)	(14,800)	(11,956)
Change in fair value of financial instruments	744	462	(942)	(570)
Change in fair value of investment properties	(16,911)	(11,315)	(19,294)	(11,585)
Net income (loss), prior to distributions to owners	$    (15,719)	$    (10,708)	$    (29,399)	$    (20,637)

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

8.    Credit facilities:

The credit facilities are recorded net of loan fees, which are capitalized when paid, and amortized into finance cost over the terms of the related loans using the effective interest rate method.

	December 31, 2020
Credit Facility Term (1) (5)	200,000
Credit Facility Revolver (2) (5)	190,500
MOB Facility denominated portion	21,286
MOB Facility CAD denominated portion (1) (3)	66,904
Magnetar Facility	10,000
Commonwealth Facility (4) (5)	176,000
Finance costs, net	(4,094)
Carrying value	660,596
Less current portion	10,000
Long-term portion	650,596
(1) This facility is fixed with an interest rate swap.
(2) 75,000 of this facility is fixed with interest rate swaps.
(3) This facility is denominated in Canadian dollars with a principal amount of CAD85,202.
(4) 176,000 of this facility is fixed with interest rate swaps.
(5) Upon the upcoming transition from LIBOR in 2023, this credit facility will migrate to an elective alternative benchmark of either Term SOFR and a related benchmark adjustment, Daily Simple SOFR and a related benchmark adjustment or an alternative benchmark based on future legislative or then-market benchmark replacement determinations.

All values are in US Dollars.

On December 20, 2018, the Company entered into an agreement for an unsecured credit facility (the "Credit Facility") with a $400,000 capacity. The Credit Facility is comprised of a $200,000 term loan and a $200,000 revolving line of credit. The term loan has a maturity date of December 20, 2023, while the revolving line of credit has a maturity date of December 20, 2022, with a one year extension option, subject to lender approval. On December 31, 2021, the maturity date of the revolving line of credit was extended to December 20, 2023. The Credit Facility bears interest at a rate of LIBOR plus an applicable margin based on the Company's consolidated leverage ratio, with an option to use a rate based on Base Rate, as defined in the agreement, plus an applicable margin.

The borrowing capacity of the Credit Facility is based on the undepreciated book value of an unencumbered pool of assets. Per the agreement, the Company's leverage could not exceed 62.5% through December 31, 2019, reducing to 60% thereafter. The agreement also provides for the Company's leverage to increase to 65% for two quarters following any material acquisition (the "surge period"). Per the agreement, the fixed charge ratio shall not be less than 1.75 to 1.0. On November 7, 2019, the Company amended the terms of the Credit Facility to extend the surge provision period following a material acquisition for both the maximum consolidated total leverage ratio covenant and unencumbered pool leverage covenant. The maximum consolidated total leverage ratio covenant can increase to 65% for four quarters starting with the third quarter of 2019. The unencumbered pool leverage ratio may increase to 65% for two quarters starting with the third quarter of 2019, reducing to 62.5% for two quarters after that, and reducing back to 60% thereafter. The Company's acquisition of Commonwealth is considered a material acquisition under the terms of the Credit Facility.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

On November 4, 2020, the Company entered into an agreement to modify the Credit Facility, in which the facility will be permanently converted to a facility secured by pledges of equity in the special purposes entities which own the properties making up a borrowing base. The minimum fixed charge coverage ratio covenant will permanently decrease from 1.75 to 1.60. Per the agreement, the Company was granted a surge period effective with the quarterly reporting period ended September 30, 2020 through June 30, 2021. During the surge period, the consolidated leverage ratio covenant was increased from 60% to 65%, the advance rate increased from 60% to 65% of the borrowing base, the applicable margin for LIBOR loans increased 15 basis points, and the implied interest rate used to calculate the debt service coverage amount decreased from 6.0% to 5.75%. Per the agreement, the surge period ended June 30, 2021. On December 31, 2021, the Company entered into an agreement to modify the Credit Facility, in which the maturity date for the revolving line of credit was permanently extended from December 20, 2022 to December 20, 2023. The minimum fixed charge coverage ratio covenant was permanently decreased from 1.60x to 1.50x. Per the agreement, the Company also agreed to an ongoing $25,000 liquidity requirement as well as a limitation on gross dividends that can be declared during 2022 and 2023. These changes are effective with the reporting period ended December 31, 2021.

On May 1, 2018, a wholly owned subsidiary of the Company entered into a secured credit facility ("MOB Facility") for the purpose of funding the acquisition of 14 medical office buildings. The facility has maximum commitment amounts of CAD$90,060, with a borrowing rate of the BA Rate plus 220 basis points, and a US Dollar commitment of $22,515, with a borrowing rate of LIBOR plus 220 basis points. The facility provides for interest-only payments through its maturity date of May 1, 2023. Per the terms of the agreement, CAD$4,858 and USD$1,228 are reserved for the construction of tenant improvements and the payment of leasing commissions for leases entered into after the closing of the transaction. On May 1, 2018, in conjunction with the acquisition, the Company drew CAD$85,202 and USD$16,647. The facility also included an allocation of USD$4,460 for the acquisition of an additional medical office property in Williamsville, New York. On June 28, 2018, the Company amended the terms of the agreement to increase the borrowing capacity for the Williamsville, New York property to USD$6,572. The company drew a total of USD$6,572 in conjunction with the closing of the Williamsville asset on July 9, 2018. On December 31, 2018, the Company repaid USD$1,933 on the facility. On September 21, 2020, the Company entered into an amendment to the MOB Facility that reset certain loan covenant levels. Pursuant to the terms of the amendment, during a test period beginning June 30, 2020, the Company's debt yield covenant level was reduced to 5.75% (which increases to 8.00% at December 31, 2021).

On July 26, 2019, the Company entered into a credit agreement with Magnetar for a principal amount of $30,000, annual interest rate of 8.5%, and an initial maturity of one year with a one year extension option ("Magnetar Facility"). On December 5, 2019, the Company repaid $15,000 on the facility. On June 5, 2020, the Company gave notice of intent to exercise the one year extension option and per the Magnetar Facility credit agreement the interest rate increased to 9.0%. On June 16, 2020, the Company repaid $5,000 on the Magnetar Facility. On June 22, 2021, the Company used cash on hand to repay the $10,000 remaining Magnetar Facility.

On August 1, 2019, a wholly owned subsidiary of the Company entered into a secured credit facility ("Commonwealth Facility") for the purpose of funding the acquisition of Commonwealth Tranche I. The $176,000 new debt secured by 16 properties has a maturity date of August 1, 2024, with 2 available extension options. It bears interest at a rate of LIBOR plus 215 basis points. The agreement also provides for an accordion feature that would extend the capacity of the loan by an additional $50,000 subject to certain terms and conditions provided for in the agreement. Pursuant to the terms of the Commonwealth Facility, the Company is required to maintain a debt yield of 8.0% (which increases to 8.75% at September 30, 2021) as well as a Debt Service Coverage Ratio of 1.25. On August 11, 2021, the Company entered into an amendment of the Commonwealth Facility whereby the required debt yield was modified to be 8.0% for the trailing six month period ended December 31, 2021; 8.0% for the trailing nine month period ending March 31, 2022; 8.25% for the trailing twelve month period ending June 30, 2022; 8.5% for the trailing twelve month period ending September 30, 2022;

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

8.75% for the trailing twelve month period ending December 31, 2022; and 9.0% for each trailing twelve month test period thereafter.

On January 17, 2020, the Company entered into an amendment to the Commonwealth Facility that established a $10,000 capital improvements holdback ("Holdback"). The Holdback provides funding to the Company for reimbursement of capital improvements made to the properties encumbered by the Commonwealth Facility. The amendment allows the Company to be reimbursed for 65% of capital improvement costs incurred. On January 26, 2021, the Company drew $4,453 from the Holdback for reimbursement of expenses incurred for adding additional units to the Abingdon, South Boston and Front Royal properties.

Future principal repayments of the credit facilities are as follows:

	Aggregate principal<br><br>payments
	Unaudited
2022	$    795
2023	421,854
2024	177,182
2025	—
2026	—
Thereafter	—
Total	$    599,831

9.    Mortgages payable:

Mortgages payable consist of the following as at December 31, 2021:

	December 31, 2021	December 31, 2020
	Unaudited
Mortgages payable	$    210,410	$    296,881
Mark-to-market adjustment, net	4,847	4,958
Finance costs, net	(1,434)	(2,375)
Carrying value	$    213,823	$    299,464
Less current portion	34,876	30,622
Long-term portion	$    178,947	$    268,842

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

Mortgages payable are collateralized by investment properties and property, plant and equipment with a value of $324,565 at December 31, 2021. Maturity dates on mortgages payable range from 2022 to 2054, and the weighted average years to maturity is 6.30 years at December 31, 2021.

Mortgages payable are collateralized by investment properties and property, plant and equipment with a value of $461,200 at December 31, 2020. Maturity dates on mortgages payable range from 2021 to 2054, and the weighted average years to maturity is 7.93 years at December 31, 2020.

Future principal payments on the mortgages payable as at December 31, 2021 are as follows:

	Regular principal payments	Principal due on maturity	Total principal payments	% of total principal payments
	Unaudited	Unaudited	Unaudited	Unaudited
2022	$    3,951	$    30,926	$    34,877	16    %
2023	3,584	48,754	52,338	25    %
2024	2,816	37,511	40,327	19    %
2025	1,484	23,438	24,922	12    %
2026	1,367	—	1,367	1    %
Thereafter	26,887	29,692	56,579	27    %
	$    40,089	$    170,321	$    210,410	100    %
	December 31, 2020
---	---
Mortgages at fixed rates:
Mortgages (principal) (1)	$    240,429
Interest rates	2.55% to 6.15%
Weighted average interest rate	4.33    %
Mortgages at variable rates:
Mortgages (principal)	$    56,452
Interest rates	LIBOR plus 2.45% to LIBOR plus 2.75% with a 1% LIBOR Floor
Weighted average interest rate	3.53    %
Blended weighted average rate	4.18    %
(1) Includes 35,142 of variable rate mortgages that are fixed with interest rate swaps (December 31, 2020 - 67,069).

All values are in US Dollars.

Upon the upcoming transition from LIBOR in 2023, $17,135 of the Company's variable rate mortgages fixed through an interest rate swap will see the underlying variable rate migrate to an elective alternative benchmark of either Term SOFR and a related benchmark adjustment, Daily Simple SOFR and a related benchmark adjustment or an alternative benchmark

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

based on future legislative or then-market benchmark replacement determinations. The remaining $18,007 of variable rate mortgage fixed through an interest rate swap will not be impacted by the LIBOR transition.

Upon the upcoming transition from LIBOR in 2023, $10,197 of the Company's variable rate mortgages will see the underlying variable rate migrate to an elective alternative benchmark of either Term SOFR and a related benchmark adjustment, Daily Simple SOFR and a related benchmark adjustment or an alternative benchmark based on future legislative or then-market benchmark replacement determinations. The remaining $44,916 of variable rate mortgage fixed through an interest rate swap will not be impacted by the LIBOR transition.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

10.    Derivative financial instruments:

(a) Derivative swaps:

Derivative swaps as at December 31, 2021 are detailed in the table below:

			Asset (liability) balance
Swap	Fixed rate	Notional amount	December 31, 2021	December 31, 2020	December 31, 2020
			Unaudited
Credit Facility Term (3)	LIBOR fixed at 2.11%	$    200,000	$    (5,475)	(11,945)	$    (7,479)
Credit Facility Revolver (3)	LIBOR fixed at 2.57%	25,000	(927)	(1,860)	(841)
Credit Facility Revolver	LIBOR fixed at 2.11%	50,000	(870)	(1,996)	(1,135)
Red Oak Swap (1)	Interest rate fixed at 2.17%	3,990	14	(13)	16
Winchester Swap	Interest rate fixed at 4.54%	—	—	(76)	(74)
MOB Facility Swap (2)	Banker's Acceptance fixed at 2.12%	67,404	(876)	(2,561)	(2,127)
Grand Brook Swap	Interest rate fixed at 5.98%	—	—	(402)	73
Commonwealth Swap (3)	LIBOR fixed at 1.69%	176,000	(3,302)	(9,375)	(8,535)
Constant Care Swap	Interest rate fixed at 4.21%	—	—	(641)	(705)
Oak Ridge Swap	LIBOR fixed at 0.66%	14,011	(25)	(100)	(100)
Charlottesville Swap (3)	LIBOR fixed at 0.56%	17,135	127	—	—
	Carrying value		$    (11,334)	(28,969)	$    (20,907)
			(895)	(491)
			$    (10,439)	(28,478)
(1) The swap has a notional amount of CAD5,044.
(2) The swap is for a fixed amount of CAD85,202.
(3) Upon the upcoming transition from LIBOR in 2023, this interest rate swap agreement will migrate to an elective alternative benchmark of either Term SOFR and a related benchmark adjustment, Daily Simple SOFR and a related benchmark adjustment or an alternative benchmark based on future legislative or then-market benchmark replacement determinations.

All values are in US Dollars.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

(b) Prepayment embedded derivatives:

Certain mortgages payable contain prepayment options that represent embedded derivatives that require bifurcation from the host contract. The prepayment options are measured at fair value, with changes in the fair value being recognized as change in fair value of financial instruments in the consolidated statements of loss and comprehensive loss.

The fair value of the prepayment embedded derivatives has been determined using a LIBOR based interest rate swap options ("swaptions") as a proxy. The swaptions were structured to mirror the financial conventions of the respective loans, including payment periods, accrual basis, principal amortization, prepayment dates and prepayment premiums. The swaptions were structured as fixed receiver with a strike rate set on market as of the date of the loan agreement with exercise premiums to match the underlying loans plus a cost of refinancing upon exercise. The resulting swaption price would represent a proxy for the value of the prepayment rights embedded in the underlying loans. The fair values determined are based on significant other observable inputs (Level 2). As at December 31, 2021, the prepayment embedded derivative assets have a fair value of $3,388 (2020 - $4,814). For the year ended December 31, 2021, a fair value loss of $1,426 (year ended December 31, 2020 - $1,823 gain), was recorded in the consolidated statements of loss and comprehensive loss.

11.    Convertible debentures:

(a) 2016 Convertible Debentures

On December 16, 2016, the Company issued $45,000 aggregate principal amount of convertible unsecured subordinated debentures (the "2016 Convertible Debentures"). The 2016 Convertible Debentures are due on January 31, 2022 and bear interest at an annual rate of 5.00% payable semi-annually in arrears on July 31 and January 31 of each year.

The 2016 Convertible Debentures were convertible into common shares of the Company at the option of the holder at a conversion price of $11.00 per common share at any time prior to the earlier of January 31, 2022 and the last business day immediately preceding the date specified by the Company for redemption. On or after January 31, 2020 and prior to January 31, 2021, the 2016 Convertible Debentures were redeemable by the Company in whole or in part at a price equal to the principal amount thereof plus accrued and unpaid interest provided that the volume weighted average trading price of the common shares on the Toronto Stock Exchange for the 20 consecutive trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On or after January 31, 2021, and prior to the maturity date, the 2016 Convertible Debentures were redeemable by the Company in whole at any time or in part from time to time, at a price equal to the principal amount thereof plus accrued interest.

On November 15, 2021, a meeting of holders of the 2016 Convertible Debentures was held whereby the holders of 2016 Convertible Debentures ("2016 Debentureholders") approved proposed amendments to the 2016 Convertible Debentures. The approved amendments include the following changes to the 2016 Convertible Debentures:

1.Increase the interest rate from 5.00% to 7.00%, effective January 31, 2022.

2.Decrease the conversion price from $11.00 to $5.00 per share.

3.Extension of the maturity date from January 31, 2022 to January 31, 2025.

4.Approval of the redemption of $20,000 of the principal amount of the 2016 Convertible Debentures as of the close of business on January 31, 2022.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

As a result of the substantive modification of the terms of the 2016 Convertible Debentures, on the date of modification the amortized cost of the previously recorded liability was derecognized for an amount equal to its fair value, resulting in a gain of $7,200. The previously recorded equity component of the 2016 Convertible Debentures was transferred to share capital, and the fair value of the liability and equity components of the modified convertible debentures were recorded.

On January 31, 2022 (the “Redemption Date”), the Company redeemed $20,000 of the principal amount of the 2016 Convertible Debentures outstanding plus accrued and unpaid interest (at 5.00%) thereon. In accordance with the Debenture Amendments, the interest rate on the remaining 2016 Convertible Debentures was increased to 7.00% effective January 31, 2022.

Upon redemption or maturity, the Company may satisfy its obligations with respect to the convertible debentures in cash or the issuance of common shares based on 95% of the Current Market Price on the Redemption Date or Maturity Date, respectively.

As at December 31, 2021, the 2016 Convertible Debentures are comprised of the following:

	December 31, 2021	December 31, 2020
	Unaudited
Issued	$    44,975	$    44,975
Issue costs, net of amortization and accretion of equity component	(409)	802
Mark to market adjustment, net	(6,552)	—
Equity component, excluding issue costs and taxes	(4,254)	(1,648)
2016 Convertible Debentures	$    33,760	$    44,129
Current	$    19,678	$    —
Non-current	14,082	$    44,129
2016 Convertible Debentures	$    33,760	$    44,129

Interest costs related to the 2016 Convertible Debentures are recorded in financing costs using the effective interest rate method.

(b) 2018 Convertible Debentures

On August 24, 2018, the Company issued $50,000 aggregate principal amount of convertible unsecured subordinated debentures (the "2018 Convertible Debentures"). The 2018 Convertible Debentures are due on September 30, 2023 and bear interest at an annual rate of 6.00% payable semi-annually in arrears on March 31 and September 30 of each year commencing on March 31, 2019.

The 2018 Convertible Debentures are convertible into common shares of the Company at the option of the holder at a conversion price of $10.70 per common share. The debentures will not be redeemable prior to September 30, 2021. On or after September 30, 2021, and prior to September 30, 2022, the 2018 Convertible Debentures may be redeemed in whole or in part from time to time at the Company’s option, at a price equal to their principal amount plus accrued

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

and unpaid interest, provided that the volume weighted average trading price of the common shares on the Toronto Stock Exchange for the 20 consecutive trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On or after September 30, 2022, and prior to the maturity date, the 2018 Convertible Debentures may be redeemed by the Company, in whole at any time or in part from time to time, at a price equal to the principal amount thereof plus accrued and unpaid interest.

Upon redemption or maturity, the Company may satisfy its obligations with respect to the convertible debentures in cash or the issuance of common shares based on 95% of the Current Market Price on the Redemption Date or Maturity Date, respectively.

As at December 31, 2021, the 2018 Convertible Debentures are comprised of the following:

	December 31, 2021	December 31, 2020
	Unaudited
Issued	$    50,000	$    50,000
Issue costs, net of amortization and accretion of equity component	(367)	(982)
Equity component, excluding issue costs and taxes	(736)	(736)
2018 Convertible Debentures	$    48,897	$    48,282

Interest costs related to the 2018 Convertible Debentures are recorded in financing costs using the effective interest rate method.

12.    Commonwealth preferred unit liability:

On August 1, 2019, the Company issued $53,587 in preferred interests of the acquiring subsidiary to fund the purchase of Commonwealth Tranche I. The preferred interests are exchangeable by holders into common shares of the Company at a fixed exchange price of $9.75 per common share. The preferred interests have an initial dividend rate of 6.50% per annum, with annual escalators beginning August 1, 2023, and a liquidation value equal to their unreturned initial capital contribution and any accrued and unpaid dividends. These dividends are included in finance costs from operations in the consolidated statements of income and comprehensive income. Under certain circumstances, the Company will have the right to redeem the preferred interests at its discretion for an amount specified in the operating agreement.

On December 23, 2019, the Company issued $12,093 in preferred interests of the acquiring subsidiary to fund the purchase of the Commonwealth Tranche II.

On October 1, 2020, the Company issued $1,701 in preferred interests to fund the earnout payment pursuant to the Commonwealth purchase agreement (note 24).

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

As at December 31, 2021 the Commonwealth preferred unit liability is comprised of the following:

	December 31, 2021	December 31, 2020
	Unaudited
Issued	$    67,381	$    67,381
Equity component, net of accretion	(1,142)	(1,584)
Commonwealth preferred unit liability	$    66,239	$    65,797

On January 4, 2022 the Company redeemed $10,000 of the outstanding Commonwealth preferred interest.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

13.    Other liabilities:

Other liabilities are as follows:

	December 31, 2021	December 31, 2020
	Unaudited
Deferred shares liability (note 21)	$    903	$    875
Security deposits received from tenants	1,796	8,576
Escrows collected from tenant	1,519	1,816
Unearned revenue	2,051	2,674
Liability to previous owner of Care	—	126
Lease liability	1,470	1,890
Loan commitment liability (note 24)	—	115
Exchangeable units liability	2,049	2,049
Earnout payable (note 24)	1,996	2,254
Other	331	841
	$    12,115	$    21,216
Current	$    3,787	$    4,975
Non-current	8,328	16,241
	$    12,115	$    21,216

On June 1, 2021, in conjunction with the sale of three properties to the tenant operator Symphony and a new loan agreement with the operator, the Company entered into an agreement to extinguish the $7,000 security deposit liability in settlement of past rents due from Symphony.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

14.    Reconciliation of changes in liabilities arising from financing activities:

	Credit facilities	Mortgages payable	Convertible debentures	Commonwealth preferred unit liability	Total
Balance, December 31, 2019 - Unaudited	$    646,959	$    275,467	$    91,049	$    63,654	$    1,077,129
Proceeds from financing	33,000	16,682	—	—	49,682
Repayments	(21,250)	(17,375)	—	—	(38,625)
Scheduled principal payments	—	(5,112)	—	—	(5,112)
Mortgage contributed to joint venture (note 7)	—	(8,411)	—	—	(8,411)
Mortgages assumed from joint venture (note 7)	—	29,670	—	—	29,670
Mortgages assumed through acquisition of investment property (note 6)	—	4,853	—	—	4,853
Commonwealth preferred units issued (note 7)	—	—	—	1,701	1,701
Mark to market adjustments made to mortgages assumed through acquisition of property, plant and equipment	—	2,991	—	—	2,991
Financing costs paid	(996)	(603)	—	—	(1,599)
Amortizing of financing costs, mark to market adjustments, and accretion of equity components	1,577	337	1,362	442	3,718
Changes in foreign currency rates	1,306	965	—	—	2,271
Balance, December 31, 2020	$    660,596	$    299,464	$    92,411	$    65,797	$    1,118,268
Proceeds from financing	58,953	17,135	—	—	76,088
Repayments	(124,311)	(98,738)	—	—	(223,049)
Scheduled principal payments	—	(5,023)	—	—	(5,023)
Financing costs paid	—	(206)	(442)	—	(648)
Amortizing of financing costs, mark to market adjustments, and accretion of equity components	1,531	1,052	(5,058)	442	(2,033)
Equity component of convertible debentures	—	—	(4,254)	—	(4,254)
Changes in foreign currency rates	497	139	—	—	636
Balance, December 31, 2021 - Unaudited	$    597,266	$    213,823	$    82,657	$    66,239	$    959,985

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

15.    Share capital:

(a) Common shares:

The following number and value of common shares were issued and outstanding as at December 31, 2021:

	Common shares	Carrying value
Balance, December 31, 2019 - Unaudited	54,633,482	$    504,561
Issued on settlement of Deferred Share Incentive Plan	335,709	1,078
Issued on settlement of equity settled Deferred Shares	31,203	214
Issued pursuant to the Company's dividend reinvestment plan	931,602	3,498
Shares acquired under NCIB	(54,500)	(148)
Balance, December 31, 2020	55,877,496	$    509,203
Issued on settlement of Deferred Share Incentive Plan	282,200	637
Issued on settlement of equity settled Deferred Shares	76,596	516
Balance, December 31, 2021 - Unaudited	56,236,292	$    510,356

(i)On November 15, 2019 the Toronto Stock Exchange ("TSX") approved the Company's notice of intention to renew its normal course issuer bid ("NCIB") for a portion of its common shares. Pursuant to the notice, the Company is authorized to acquire up to a maximum of 2,723,835 of its common shares, or approximately 5% of the Company’s 54,476,694 outstanding common shares as of November 1, 2019, for cancellation over the following 12 months. Purchases under the NCIB will be made through the facilities of the TSX or through a Canadian alternative trading system and in accordance with applicable regulatory requirements at a price per share equal to the market at the time of acquisition. The number of shares that can be purchased pursuant to the NCIB is subject to a daily maximum of 10,927 shares, subject to the Company’s ability to make one block purchase of shares per calendar week that exceeds such limits. Any shares purchased under the NCIB will be canceled upon purchase. During the year ended December 31, 2020, the Company acquired 54,500 common shares.

(ii)On December 15, 2021 the Toronto Stock Exchange ("TSX") approved the Company's notice of intention to make a normal course issuer bid ("NCIB") for a portion of its common shares. Pursuant to the notice, the Company is authorized to acquire up to a maximum of 2,811,814 of its common shares, or approximately 5% of the Company’s 56,236,292 outstanding common shares as of December 15, 2021, for cancellation over the following 12 months. Purchases under the NCIB will be made through the facilities of the TSX or through a Canadian alternative trading system and in accordance with applicable regulatory requirements at a price per share equal to the market at the time of acquisition. The number of shares that can be purchased pursuant to the NCIB is subject to a daily maximum of 6,584 shares, subject to the Company’s ability to make one block purchase of shares per calendar week that exceeds such limits. Any shares purchased under the NCIB will be canceled upon purchase. During the year ended December 31, 2021, the Company did not acquire any common shares.

(iii)On April 10, 2020, the Company announced the suspension of its dividend for all common shareholders from April 1, 2020 until further notice. For the year ended December 31, 2020, the Company declared dividends

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

payable on common shares of $10,120. Of the $10,120 dividends declared in the year ended December 31, 2020, $2,868 was satisfied in the form of shares issued through the dividend reinvestment plan.

(b) Preferred shares:

The following number and value of preferred shares were issued and outstanding as at December 31, 2021:

	Preferred shares	Carrying value
Balance, December 31, 2020 and December 31, 2021 (Unaudited)	9,098,598	$    85,389

The Company entered into subscription agreements in 2017 and 2018 in respect of the issuance of class A convertible preferred shares ("Preferred Shares") to certain funds managed by Magnetar, a significant shareholder of the Company, funded in 3 series. The purpose of the transaction was to raise proceeds to be used for the repayment of debt, general working capital purposes and to fund future acquisitions. The Company issued 7,560,137 preferred shares for aggregate gross proceeds of $71,500.

The Preferred Shares issued during series 1, 2, and 3 are non-voting and are initially convertible into common shares of the Company on a one-for-one basis at the option of the holder based on an initial liquidation preference and a conversion price of $9.75. The Preferred Shares were issued at a price per share equal to the initial liquidation preference of $9.75, subject to a 3% discount. Following issuance, the liquidation preference of the Preferred Shares will accrete at a rate of 5.65% per annum, compounded quarterly, increasing the number of common shares into which each Preferred Share is convertible at the fixed rate, and is subject to further adjustments in certain circumstances. In certain circumstances, the Company may redeem the Preferred Shares for an amount equal to their liquidation preference and may also require the conversion of the Preferred Shares. If the Preferred Shares are redeemed or mandatorily converted in the first year following issuance, the liquidation preference of such shares will include a 4% premium to the initial liquidation preference. This premium will be reduced by 1% per year in respect of redemptions or mandatory conversions in the second, third or fourth years following issuance.

On July 23, 2019, the Company entered into subscription agreements in respect of the issuance of Class A convertible preferred shares to Magnetar for aggregate gross proceeds of $14,550. On August 27, 2019 the fourth series funded resulted in the issuance of 1,538,461 Class A Series 4 Preferred Shares.

The Series 4 Preferred Shares will be convertible into common shares at a conversion price of $9.75. The other terms of the Series 4 Preferred Shares will be substantially similar to the terms of the Company's Class A convertible preferred shares that are currently outstanding, except that the liquidation preference of the Series 4 Preferred Shares will accrete at a rate of 9.80% for the first 24 months following the issuance of the Series 4 Preferred Shares and 12.25% thereafter; the prepayment penalty on liquidation, mandatory conversion and redemption will be 1% of the initial liquidation amount if the applicable event occurs within the first six months after issuance and 0.5% of the initial liquidation amount if the applicable event occurs between 6 months and one year following the issuance; and the Series 4 Preferred Shares will contain a limitation on converting to common shares, without prior approval of the Toronto Stock Exchange, if such conversion would result in the issuance of common shares equal to or exceeding 10% of the common shares outstanding on the date the Series 4 Preferred Shares are issued.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

As at December 31, 2021, the preferred shares are convertible into 11,346,122 (December 31, 2020 - 10,654,257) common shares of the Company .

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

16.    Earnings (loss) per share:

Basic income per share is calculated using the weighted average number of shares outstanding during the period. The calculation of diluted income per share, is calculated using the "if-converted" method and to the extent the conversion is dilutive, assumes all convertible securities have been converted at the beginning of the period, or at the time of issuance, if later, and any charges or returns on the convertible securities, on an after-tax basis, are removed from net earnings. The outstanding convertible debentures, unvested deferred shares, exchangeable units, preferred shares and Commonwealth preferred units, if exercised, would be anti-dilutive to net income per share. Accordingly their potential exercise has been ignored in calculating the diluted net income per share.

The following table reconciles the numerator and denominator of the basic and diluted earnings per share computation:

Net loss:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Net loss for basic and diluted net loss per share	$    (12,235)	$    (184,004)

Denominator for basic and diluted net loss per share:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Weighted average number of shares, including fully vested deferred shares: Basic and diluted	56,312,407	55,699,307

Net loss per share:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Basic and diluted	$    (0.22)	$    (3.30)

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

17.    Revenue:

(a) Rental Revenue:

Rental revenue consists of the following:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Contractual rental revenue	$    58,734	$    68,436
Straight-line rent adjustments	6,189	6,394
Amortization of tenant inducements	(447)	(385)
Property tax recoveries	14,748	12,705
Revenue from services - CAM recoveries (1)	3,428	2,962
	$    82,652	$    90,112
(1) Represents property services element in accordance with IFRS 15

The Company is scheduled to receive rental income from operators of its seniors housing and care properties under the provisions of long term non-cancellable operating leases, generally with lease terms of 10 to 15 years, with provisions for lease extensions at the option of the tenants. These leases are triple-net and include renewal options and rent escalation clauses.

The Company is also scheduled to receive rental income from tenants of the medical office building portfolio. These leases include provisions for recovery of real estate taxes, insurance and costs associated with common area maintenance ("CAM").

The tenant Symcare previously operated a portfolio of 15 properties and paid rent pursuant to a master lease. During the year ended December 31, 2021, three properties included in the master lease were sold and four were transitioned to a new operator. On June 1, 2021, a subsidiary of the Company entered into a new master lease with the remaining eight properties. For the year ended December 31, 2021, rental revenue from this tenant comprised approximately 34% (year ended December 31, 2020 - 43%), of the Company's consolidated rental revenue for the period.

Future minimum rentals to be received as of December 31, 2021 and December 31, 2020 are as follows:

	As of December 31, 2021	As of December 31, 2020
	Unaudited
Less than 1 year	$    50,267	$    69,031
Between 1 and 5 years	196,945	272,230
More than 5 years	350,597	514,544
	$    597,809	$    855,805

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

Future minimum rentals as of December 31, 2021 in the above table attributable to Symcare represent approximately 38% (December 31, 2020 - 50%) of the total.

(b) Resident rental and related revenue:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Resident revenue	$    63,513	$    56,250
Service revenue (1)	56,639	64,157
	$    120,152	$    120,407
(1) Represents property services element in accordance with IFRS 15

18.    Direct property operating expenses:

Direct property operating expenses consist of the following:

	Year ended December 31, 2021			Year ended December 31, 2020
	Owner occupied properties	Medical office buildings	Total	Owner occupied properties	Medical office buildings	Total
	Unaudited	Unaudited	Unaudited
Repairs and maintenance	$    2,794	$    1,641	$    4,435	$    2,436	$    1,649	$    4,085
Utilities	3,972	1,499	5,471	3,709	1,381	5,090
Property management fees	—	584	584	—	536	536
Compensation and benefits	60,762	—	60,762	59,279	—	59,279
Other services and supplies	6,546	1,130	7,676	6,680	994	7,674
Real estate taxes	2,517	—	2,517	2,272	—	2,272
Other	19,994	1,329	21,323	15,668	901	16,569
	$    96,585	$    6,183	$    102,768	$    90,044	$    5,461	$    95,505

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

19.    Finance costs:

Finance costs consist of the following:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Interest expense on credit facilities	$    16,106	$    20,496
Interest expense on mortgages payable	9,474	11,121
Interest expense on convertible debentures	5,249	5,248
Distributions on exchangeable units	—	62
Dividends on Commonwealth preferred units	4,388	4,376
Amortization and accretion expense	5,290	3,997
Interest rate swap payments (receipts)	10,277	7,747
Debt extinguishment costs	1,016	—
Write-off of deferred financing costs from refinancing	—	67
Amortization of mark-to-market debt adjustments	(111)	(330)
Interest income from loans receivable (note 3)	(1,468)	(2,983)
Finance costs from operations	$    50,221	$    49,801
Allowance for credit losses on loans and interest receivable (note 3)	1,196	23,546
Change in fair value of financial instruments (note 3, 10 and 11)	(21,860)	19,084
Change in fair value of contingent consideration (note 24)	(258)	5,510
Change in non-controlling interest liability in respect of the above	(261)	316
Total finance costs	$    29,038	$    98,257

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

20.    General and administrative:

General and administrative costs consist of the following:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Compensation and benefits	$    11,412	$    11,432
Asset management and administrative fees	7	235
Professional fees	3,854	3,474
Deferred share compensation expense	794	1,066
Bad debt expense	1,139	1,838
Other	2,936	2,494
	$    20,142	$    20,539

For the year ended December 31, 2021, $7,128 (year ended December 31, 2020 - $6,699) of general and administrative costs were incurred at the Commonwealth management company. For the year ended December 31, 2020, the Company incurred severance expense of $394.

21.    Deferred share incentive plan:

On May 25, 2016, the shareholders of the Company voted on and approved a deferred share incentive plan (the "Deferred Share Incentive Plan").

Each director of the Company is given the right to participate in the Deferred Share Incentive Plan. Directors who elect to participate shall receive a portion of their fees earned for service on the Board (the "Elected Amount") in the form of deferred shares in lieu of cash ("Individual Contributed Deferred Shares"). In addition, the Deferred Share Incentive Plan provides that the Company, in certain instances, will match 100% of the elected amount for each director such that the aggregate number of deferred shares issued to each such director annually shall be equal in value to two times the elected amount for such director ("Company Contributed Deferred Shares").

Under the Deferred Share Incentive Plan, deferred shares may be granted from time to time to participants in the Deferred Share Incentive Plan at the discretion of the Board of Directors or the Compensation, Governance and Nominating Committee ("Discretionary Deferred Shares")

Wherever cash dividends are paid on the common shares, additional deferred shares are credited to the participant's account. The number of such additional deferred shares is calculated by multiplying the aggregate number of deferred shares held on the relevant dividend record date by the amount of the dividend paid by the Company on each common share, and dividing the result by the market value of the common shares on the dividend date.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

Individual Contributed Deferred Shares vest immediately upon grant. Company Contributed Deferred Shares, which are granted only to directors, generally vest in three equal installments on the first three anniversary dates of the grant.

Discretionary Deferred Shares may also be granted to participants and, where vesting is not specified in connection with the grant, such Discretionary Deferred Shares will vest in three equal installments on the first three anniversaries of the date of grant.

Additional deferred shares credited to a participant's account in connection with cash dividends vest on the same schedule as their corresponding Deferred Shares and are considered issued on the same date as the deferred shares in respect of which they were credited.

At December 31, 2021, the number of deferred shares granted and outstanding and vested are as follows:

	Granted/<br><br>Outstanding	Fully Vested
As at December 31, 2019 - Unaudited	897,726	108,186
Discretionary Deferred Shares	257,955	335,595
Equity Settled Deferred Shares	375,733	34,998
Individual Contributed Deferred Shares (vested immediately)	78,648	78,648
Company Contributed Deferred Shares	78,648	24,718
Shares issued upon vesting of deferred shares	(366,912)	(366,912)
Shares settled for cash pursuant to the plan terms	(4,255)	(4,255)
As at December 31, 2020	1,317,543	210,978
Discretionary Deferred Shares	129,120	177,922
Equity Settled Deferred Shares	—	76,596
Individual Contributed Deferred Shares (vested immediately)	76,928	76,928
Company Contributed Deferred Shares	29,304	87,531
Shares forfeited	(112,000)	—
Shares issued upon vesting of deferred shares	(358,796)	(358,796)
Shares settled for cash pursuant to the plan terms	(59,019)	(59,019)
As at December 31, 2021 - Unaudited	1,023,080	212,140

For the year ended December 31, 2021, the Company recognized and $794 of expense related to deferred shares in the consolidated statements of loss and comprehensive loss (year ended December 31, 2020 - $1,066 expense). A deferred share liability of $903 (2020 - $875) is included in other non-current liabilities in the consolidated statements of financial position as at December 31, 2021.

On January 24, 2020, the Company granted 344,310 deferred shares that are considered to be equity settled, as the participants of this grant have waived their rights to receive settlement in cash pursuant to the plan. During the year ended December 31, 2021, the Company recognized expense recovery of $31 (year ended December 31, 2020 - $1,809 expense) of equity settled deferred shares.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

During the year ended December 31, 2021, the Company did not grant dividends on deferred shares (year ended December 31, 2020 - 64,266 shares).

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

22.    Related party transactions:

Related party transactions in addition to those disclosed elsewhere in these consolidated financial statements are as follows:

On June 5, 2019, the Company formed a joint venture, Jaguarundi Ventures, LP, with Magnetar. The Company contributed 8 properties to a newly formed joint venture and received $23,000 from Magnetar in exchange for a 39.49% interest in the joint venture. On October 29, 2021, the Company contributed an additional investment property located in Webster, Texas to the joint venture resulting in a decrease in Magnetar's joint venture ownership interest to 34.17%.

On July 26, 2019, the Company entered into a credit agreement with Magnetar for a principal amount of $30,000, annual interest rate of 8.5%, and an initial maturity of one year with a one year extension option. On December 5, 2019, the Company repaid $15,000 on the facility. On June 5, 2020, the Company gave notice of intent to exercise the one year extension option and per the credit agreement the interest rate will increase to 9.0%. On June 16, 2020, the Company repaid $5,000 on the facility. On June 22, 2021, the company repaid the remaining $10,000 on the facility. For the year ended December 31, 2021, the Company expensed $430 of interest related to this credit facility in the consolidated statements of loss and comprehensive loss (year ended December 31, 2020 - $1,067).

23.    Income taxes:

The income tax recovery in the consolidated statements of loss and comprehensive loss differs from that expected by applying the combined federal, provincial and state income tax rates of 26.5% (2020 - 26.5%). The differences for the year ended December 31, 2021 and 2020 are as follows:

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Net loss before income taxes	$    (12,235)	$    (190,948)
Income tax expense (recovery) at Canadian tax rate	(3,242)	(50,601)
Non-deductible expenses	1,970	5,211
Difference in tax rate in foreign jurisdiction	(118)	(2,038)
Unrecognized tax losses	1,390	40,484
Income tax recovery	$    —	$    (6,944)

The Company has certain subsidiaries in the United States and Canada that are subject to tax on their taxable income. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	December 31, 2021	December 31, 2020
	Unaudited
Deferred tax assets:
Tax losses	$    32,106	$    26,759
Financing costs	—	281
Investment properties and property, plant and equipment	2,313	—
Derivative instruments	970	5,126
Other	12,010	10,762
	$    47,399	$    42,928
Deferred tax liabilities:
Investment properties and property, plant and equipment	—	517
Convertible debentures	1,823	216
Other	1,699	1,699
Deferred tax liabilities	$    3,522	$    2,432
Deferred tax assets not recognized	$    (43,877)	$    (40,496)
Net deferred tax liability	$    —	$    —

The gross movement in deferred tax is as follows:

	Year ended December 31,
	2021	2020
	Unaudited
Deferred tax asset (liability), beginning balance	$    —	$    (6,944)
Deferred tax recovery	—	6,944
Deferred tax asset (liability), ending balance	$    —	$    —

At December 31, 2021, U.S. subsidiaries had accumulated net operating losses available for carryforward for U.S. income tax purposes of $77,620 (2020 - $73,629). The pre-2021 accumulated net operating losses of $73,629 will expire in 2039. The state net operating losses will expire in 2030. The Company and its Canadian subsidiary have losses in Canada for income tax purposes amounting to $29,447 that expire between 2036 and 2041. The Company has non-capital losses amounting to $107,067 at December 31, 2021 (2020 - $98,014) for which no deferred tax asset has been recognized as it is not probable that future taxable profits will be available against which the Company can use the benefits therefrom.

24.    Commitments and contingencies:

There are risks which arise from the joint arrangements, including the willingness of the other partners to contribute or withdraw funds and a change in creditworthiness of the partner. As a result, there may be a requirement by the Company to contribute cash into the operating partnerships.

On December 31, 2018, the Company entered into an operating agreement with Javelina Ventures, LLC in which the Company will share in 5% of the net available cash flows from operations. Concurrently, the Company entered into an

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

agreement to guarantee a total of $5,000 of the mortgages on the properties operated by Javelina Ventures, LLC. The Company earns an annual guaranty fee of $225 until the loans have been repaid or the guaranty is released. The Company has not recorded any balance in the financial statements associated with this commitment.

On June 5, 2019, the Company entered into agreements to fund future loans to tenants of the Jaguarundi Ventures, LP joint venture. On October 1, 2019, the Company amended the agreements to increase the future loan commitments to the tenants. On February 18, 2020, the Company amended the agreements to further increase the future loan commitments to the tenants. As at December 31, 2020, the Company was committed to fund an additional $380 pursuant to these agreements. As at December 31, 2020, the Company has recorded an associated loan commitment liability representing the fair value of these commitments, which were made at interest rates below market value. The Company provides a guarantee on the outstanding mortgage balances of the Jaguarundi Ventures, LP in exchange for a fee equal to 15 basis points on the amount guaranteed (note 7). As of December 31, 2021, the value of the properties that collateralize the mortgages is $52,000 (December 31, 2020 - $143,785) and is sufficient to support the mortgage values.

Pursuant to the Commonwealth purchase agreement, the Company may be required to fund one or more earnout payments relating to six communities that had not yet reached stabilization at the time of acquisition by the Company. These earnout payments are only payable in the event specific occupancy and EBITDAR thresholds have been satisfied, and must be met prior to the third anniversary of closing at which time the earnout payment obligation will cease to exist. The earnout payments, when funded, will consist of a combination of cash and additional preferred interests. During the year ended December 31, 2020, given the performance of one of the six communities, the Company recorded an expense related to the increase in the fair value of contingent consideration in the amount of $3,256, which was paid through the issuance of $1,701 of Commonwealth preferred units and $1,555 of cash on hand. As at December 31, 2021, the Company has recorded a liability of $1,996 (December 31, 2020 - $2,254 liability) in the financial statements associated with this commitment relating to the remaining five communities based on the weighted average probability of earnout payments owed using estimated future results at the properties. For the year ended December 31, 2021, the Company has incurred $(258) of expense related to the change in fair value of contingent consideration related to this liability in the consolidated statements of loss and comprehensive loss (year ended December 31, 2020 - $5,510 expense).

On May 6, 2020, the Company entered into a limited partnership agreement with the operator Phoenix. Pursuant to this agreement, if the management agreement with Phoenix is terminated without cause, Phoenix has the right to cause the Company to purchase all of its interest in the partnership. The Company has not recorded any balance in the consolidated financial statements associated with this commitment.

25.    Capital management:

The Company's objectives when managing capital are to ensure sufficient liquidity to pursue its organic growth combined with strategic acquisitions, and to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations.

The capital of the Company consists of mortgages payable, the credit facilities, convertible debentures, Commonwealth preferred unit liability, preferred shares and common shares.

The Company sets the amount of capital in proportion to risk and manages the capital structure and makes adjustments to it in light of changes to economic conditions and the risk characteristics of the underlying assets, as well as with consideration of externally imposed capital requirements. In managing its capital structure, the Company monitors performance throughout the period to ensure working capital requirements are funded from operations, available cash on

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

deposit and available financing. The Company may make changes to its capital structure in order to support the broader corporate strategy or in light of economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue equity or new debt, issue new debt with different characteristics to replace existing debt, or reduce the amount of existing debt.

The real estate industry is capital-intensive by nature. As a result, debt capital is an important aspect in managing the business. In addition, financial leverage is used to enhance terms from purchased real estate. The Company actively monitors debt maturities and available debt financing options.

Under the terms of the Company's credit facilities, the Company is required to meet certain financial and non-financial covenants that are customary for the nature and phase of the Company's current business structure.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

26.    Fair value measurement:

The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated statements of financial position is as follows:

	December 31, 2021			December 31, 2020
	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
	Unaudited	Unaudited	Unaudited
Derivative asset	$    —	$    3,388	$    —	$    —	$    4,814	$    —
Investment properties	—	—	716,344	—	—	882,019
Loans receivable	—	—	2,243	—	—	2,368
Loan commitment liability	—	—	—	—	115	—
Derivative liability	—	11,587	—	—	28,969	—
Deferred share liability	—	903	—	—	875	—
Earnout payable	—	—	1,996	—	—	2,254

For the assets and liabilities measured at fair value as at December 31, 2021, there were no transfers between Level 1, Level 2 and Level 3 levels during the period. For changes in fair value measurements of investment properties included in Level 3 of the fair value hierarchy, refer to note 4 for details. The fair values of the derivative instruments represents estimates at a specific point in time using financial models, based on interest rates that reflect current market conditions, the credit quality of counterparties and interest rate curves. Fair value measurements of derivative instruments were estimated using Level 2 inputs. Fair value of deferred share liability represents the value of the units if converted using the market price of the Company's common shares.

Fair value of financial instruments:

The carrying amounts and fair values of financial instruments as shown in the consolidated statements of financial position are shown in the table below. The table below excludes cash, restricted cash, tenant and other receivables, security deposits and costs related to future acquisitions, income support receivable, escrow deposits held by lenders, accounts payable and accrued liabilities, accrued real estate taxes, security deposits, escrows collected from tenant, and dividend payable, as the carrying amounts of these assets and liabilities are a reasonable approximation of fair value due to their short term nature. The table also excludes security deposits received from tenants as the carrying amount is a reasonable approximation of fair value.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	December 31, 2021		December 31, 2020
	Carrying Value	Fair Value	Carrying Value	Fair Value
	Unaudited	Unaudited
Financial assets:
Loans receivable	$    21,695	$    21,728	$    18,703	$    18,768
Derivative instruments	3,388	3,388	4,814	4,814
Bond assets	760	760	881	881
Financial liabilities:
Mortgages payable	213,823	215,257	299,464	301,839
Credit facilities	597,266	599,831	660,596	664,690
Derivative instruments	11,334	11,334	28,969	28,969
Convertible debentures	82,657	83,077	92,411	58,784
Commonwealth preferred unit liability	66,239	66,239	65,797	65,797
Earnout payable	1,996	1,996	2,254	2,254
Loan commitment liability	—	—	115	115
Exchangeable Units liability	2,049	672	2,049	600

Fair value represents management's estimates of the fair market value at a given point in time, which may not reflect fair value in the future. These calculations are subjective and require estimation, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The following summarizes the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the table above.

i.Loans receivable

The fair value of loans receivable is determined by the discounted cash flow method using applicable inputs such as prevailing interest rates, contractual rates and discounts. Fair value measurements of these instruments were estimated using Level 3 inputs. The carrying values of short term loans generally approximate their fair values.

ii.Derivative instruments

The fair values of the derivative instruments represents estimates at a specific point in time using financial models, based on interest rates that reflect current market conditions, the credit quality of counterparties and interest rate curves. Fair value measurements of derivative instruments were estimated using Level 2 inputs.

iii.Bond assets

The fair value of bond assets is determined by the discounted cash flow method using applicable inputs such as discount rates and fixed payment schedules. Fair value measurements of these instruments were estimated using Level 3 inputs. The carrying values of bond assets approximate their fair values.

iv.Mortgages payable and credit facility

The fair values of these instruments are estimates made at a specific point in time, based on relevant market information. These estimates are based on quoted market prices for the same or similar issues or on the current rates

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

offered to the Company for similar financial instruments subject to similar risk and maturities. Fair value measurements of these instruments were estimated using Level 2 inputs. The carrying values of short-term and variable rate debt generally approximate their fair values.

v.Convertible debentures

The Company determined the fair value of the convertible debentures using quoted market prices which are considered Level 1 inputs.

vi.Commonwealth preferred unit liability

The fair value of the Commonwealth preferred unit liability is determined by the discounted cash flow method using applicable inputs such as market interest rates and contractual rates. Fair value measurements of these instruments were estimated using Level 3 inputs.

vii. Loan commitment liability

The fair value of the loan commitment liability is determined by the discounted cash flow method using applicable inputs such as market interest rates and contractual rates. Fair value measurements of these instruments were estimated using Level 3 inputs.

viii.Exchangeable Unit liability

The Company determined the fair value of the Exchangeable Unit liability using quoted market prices of the Company's common shares which are considered Level 2 inputs.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

27. Financial risk management:

The Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance.

Management has updated its risk management policies and strategies for the current risks due to COVID-19.

(i)Market risk

Foreign currency risk:

Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. A portion of the Company's operations are located in Canada, resulting in the Company being subject to foreign currency fluctuations which may impact its financial position and results. In order to mitigate the risk, the Company's borrowings on Canadian assets are also denominated in Canadian dollars to act as a natural hedge. In addition, Canadian dollar revenue was predominantly naturally hedged by Canadian dollar expenditures such as corporate professional fees, interest expense and administrative expenditures.

Interest rate risk:

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk on loans receivable because all of the loans earn interest at fixed rates.

The Company is exposed to interest rate risk on the credit facilities and certain mortgages payable, which bear interest at variable rates. To manage interest rate risk, the Company entered into swap agreements which effectively fixes interest on a portion of its variable rate debt. It may also enter into additional derivative financial instruments from time to time to mitigate interest rate risk. At December 31, 2021, 84.9% (December 31, 2020 - 81.7%) of our interest was of fixed rate, including the impact of in-place swaps. To limit exposure to the risk of higher interest rates at renewal, the Company spreads the maturities of its fixed-rate, long-term debt over time.

The Company's remaining financial instruments have no exposure to interest rate risk due to their short-term nature.

At December 31, 2021, the Company's interest-bearing financial instruments were as follows:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	December 31, 2020
Fixed-rate financial liabilities (1)	$    861,053
Variable-rate financial liabilities	$    191,418
(1) Includes 551,396 of variable rate mortgages that are fixed with interest rate swaps.

All values are in US Dollars.

As at December 31, 2021, an increase/decrease of 100-basis-points in interest rates, assuming all other variables are constant, would result in a $1,365 (2020 - $1,927) change in the Company's finance costs over the next twelve months.

(ii)Credit risk:

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. The Company is exposed to credit risk on all financial assets and its exposure is generally limited to the carrying amount on the consolidated statement of financial position. The Company is exposed to credit risk arising from the possibility that a borrower may be unable to fulfill their contractual obligations. In the event that borrowers are not able to meet commitments, the Company could suffer a loss of either interest or principal or both. The Company actively manages its affairs to minimize its credit risk through careful selection and assessment of its credit parties and collateral based on knowledge obtained through means such as due diligence carried out in respect of leasing transactions to new operators. Despite these measures the Company increased its allowance for credit losses on loans and interest receivable due to the effects that the COVID-19 pandemic has had on borrowers' cash flows. The Company also manages credit risk related to its cash balances by selection of reputable banking institutions.

(iii)Liquidity risk:

The Company’s principal liquidity needs arise from working capital requirements, debt servicing and repayment obligations, planned funding of property improvements, leasing costs, and property development and acquisition funding requirements.

Liquidity risk arises from the possibility of not having sufficient debt, cash and equity capital available to the Company to fund its growth program and refinance or meet its payment obligations as they arise.

The Company is subject to the liquidity risk that it will not be able to meet its financial obligations as they come due. Although a portion of the cash flow generated by the investment properties is devoted to servicing outstanding debt and the convertible debentures, there can be no assurance that the Company will continue to generate sufficient cash flow from operations to meet its covenant requirements as well as its interest payments and principal repayment obligations upon an applicable maturity date. If the Company is unable to meet its covenant requirements, principal

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

or interest repayment obligations, it could be required to renegotiate such payments, issue additional equity or debt, or obtain other financing. The failure to make or renegotiate interest or principal payments, issue additional equity or debt, or obtain other financing could have a material effect on the Company's financial condition and results of operations. The Company manages its liquidity risk through cash and debt management. The Company plans to address scheduled interest payments through operating cash flows and significant principal maturities through a combination of debt and equity financing.

The following are the contractual maturities of the Company's financial liabilities as at December 31, 2021, including expected interest payments where applicable:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Total	2022	2023	2024	2025	2026	Thereafter
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Credit facilities principal	$    599,831	$    795	$    421,854	$    177,182	$    —	$    —	$    —
Mortgages payable principal	210,410	34,877	52,338	40,327	24,922	1,367	56,579
Convertible debentures principal	94,975	20,000	50,000	—	24,975	—	—
Commonwealth preferred unit liability principal (1)	67,381	—	—	67,381	—	—	—
Total principal	$    972,597	$    55,672	$    524,192	$    284,890	$    49,897	$    1,367	$    56,579
Percentage of total	100.0    %	5.8    %	53.9    %	29.3    %	5.1    %	0.1    %	5.8    %
Credit facilities interest	$    47,838	$    23,306	$    20,621	$    3,911	$    —	$    —	$    —
Mortgages payable interest	37,202	7,146	5,486	3,914	2,463	2,163	16,030
Convertible debentures interest	12,365	4,995	4,748	1,748	874	—	—
Commonwealth preferred unit liability interest	12,753	4,404	4,574	3,775	—	—	—
Accounts payable and accrued liabilities	17,356	17,356	—	—	—	—	—
Accrued real estate taxes	13,671	13,671	—	—	—	—	—
Other current liabilities	3,787	3,787	—	—	—	—	—
Other non-current liabilities	8,328	3,188	619	436	126	—	3,959
Total other commitments	$    153,300	$    77,853	$    36,048	$    13,784	$    3,463	$    2,163	$    19,989
Total commitments	$    1,125,897	$    133,525	$    560,240	$    298,674	$    53,360	$    3,530	$    76,568
(1) The liability has no stated maturity date. It is the Company's expectation that the liability will be repaid in 2024.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

The following are the contractual maturities of the Company's financial liabilities as at December 31, 2020, including expected interest payments where applicable:

	Total	2021	2022	2023	2024	2025	Thereafter
Credit facilities principal	$    664,690	$    10,000	$    190,500	$    288,190	$    176,000	$    —	$    —
Mortgages payable principal	296,881	30,622	33,765	88,913	24,529	30,078	88,974
Convertible debentures principal	94,975	—	44,975	50,000	—	—	—
Commonwealth preferred unit liability principal (1)	67,381	—	—	—	67,381	—	—
Total principal	1,123,927	40,622	269,240	427,103	267,910	30,078	88,974
Percentage of total	100.0    %	3.6    %	24.0    %	38.0    %	23.8    %	2.7    %	7.9    %
Credit facilities interest	76,740	27,126	25,941	16,896	6,777		—
Mortgages payable interest	78,386	11,672	10,316	8,110	5,264	4,615	38,409
Convertible debentures interest	12,373	5,249	4,124	3,000	—	—	—
Commonwealth preferred unit liability interest	17,157	4,404	4,404	4,574	3,775		—
Accounts payable and accrued liabilities	17,715	17,715	—	—	—	—	—
Accrued real estate taxes	14,518	14,518	—	—	—	—	—
Other current liabilities	4,975	4,975	—	—	—	—	—
Other non-current liabilities	16,241	2,481	2,086	535	386	126	10,627
Loan commitments	380	380	—	—	—	—	—
Total other commitments	238,485	88,520	46,871	33,115	16,202	4,741	49,036
Total commitments	$    1,362,412	$    129,142	$    316,111	$    460,218	$    284,112	$    34,819	$    138,010
(1) The liability has no stated maturity date. It is the Company's expectation that the liability will be repaid in 2024.

28. Key management personnel compensation:

The remuneration of key management personnel of the Company for years ended December 31, 2021 and 2020 is set forth in the table below.

	Year ended December 31, 2021	Year ended December 31, 2020
	Unaudited
Officers and directors compensation	$    2,633	$    2,111
Share based compensation	615	2,909
	$    3,248	$    5,020

During 2021, the Company's Board of Directors approved a long term incentive compensation package for the Company's key management personnel aimed at rewarding management for driving shareholder value through a combination of common share price appreciation and net asset value per share growth. This program represents long-term incentive

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

compensation for both 2021 and 2022 and will be re-measured at December 31, 2023 and December 31, 2024. The Company has recognized $0 in the consolidated statements of loss and comprehensive loss for the 12 months ended December 31, 2021, representing the fair value of the program based upon the current relevant metric levels and the likelihood of achieving the targets.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

29. Segments:

The Company’s current portfolio includes investments in assisted living, independent living, memory care, transitional care, long-term care, and medical office properties. The Company's senior housing and care investments in assisted living, independent living, memory care, transitional care and long-term care share similar characteristics and are generally leased to operators on a long-term, triple-net lease basis. In some instances the Company has an interest in both the property and operations in joint ventures and joint arrangements with the operating partner at the facility. The Company considers these investments to be one reportable operating segment. The Company has investments in 15 medical office buildings ("Medical office buildings"). This multi-tenant medical office portfolio has different characteristics that are evaluated by management, and is considered to be a separate reportable operating segment. Through the acquisition of Commonwealth and the transition of the Greenfield assets, the Company has investments in 35 properties and a management company that operates 29 of those properties ("owner occupied property"). Management considers this another reportable operating segment.

The following tables show net loss by reportable segment for the years ended December 31, 2021 and 2020:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Year ended December 31, 2021
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Rental revenue	$    69,647	$    —	$    13,005	$    —	$    82,652
Resident rental and related revenue	—	120,152	—	—	120,152
Lease revenue from joint ventures	3,529	—	—	—	3,529
Other revenue	56	2,060	1,299	702	4,117
Other income	—	3,730	—	—	3,730
Direct property operating expenses	—	(96,586)	(6,182)	—	(102,768)
Depreciation and amortization expense	—	(22,060)	—	(92)	(22,152)
Finance cost from operations	(21,850)	(18,093)	(3,768)	(6,510)	(50,221)
Real estate tax expense	(14,541)	—	(2,174)	—	(16,715)
General and administrative expenses	(1,256)	(7,130)	(130)	(11,626)	(20,142)
Allowance for credit losses on loans and interest receivable	(959)	—	—	(237)	(1,196)
Changes in non-controlling interest liability	113	266	—	—	379
Change in fair value of investment properties - IFRIC 21	1,226	—	—	—	1,226
Change in fair value of investment properties	(12,667)	—	(9,485)	—	(22,152)
Change in fair value of financial instruments	780	4,521	1,724	14,835	21,860
Change in fair value of contingent consideration	—	—	—	258	258
Gain on sale of property, plant and equipment	—	1,200	—	14	1,214
Impairment of property, plant and equipment	—	(1,100)	—	—	(1,100)
Loss from joint ventures	(14,906)	—	—	—	(14,906)
Net income (loss)	$    9,172	$    (13,040)	$    (5,711)	$    (2,656)	$    (12,235)
Expenditures for non-current assets:
Capital additions	—	7,807	968	—	8,775

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	Year ended December 31, 2020
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
Rental revenue	$    77,457	$    —	$    12,655	$    —	$    90,112
Resident rental and related revenue	—	120,407	—	—	120,407
Lease revenue from joint ventures	3,118	—	—	—	3,118
Other revenue	—	1,769	1,114	867	3,750
Other income	—	3,415	—	—	3,415
Direct property operating expenses	—	(90,044)	(5,461)	—	(95,505)
Depreciation and amortization expense	—	(48,476)	—	(93)	(48,569)
Finance cost from operations	(22,810)	(17,484)	(3,646)	(5,861)	(49,801)
Real estate tax expense	(11,389)	—	(2,099)	—	(13,488)
General and administrative expenses	(1,992)	(6,699)	(307)	(11,541)	(20,539)
Transaction costs for business combination	—	(34)	—	(136)	(170)
Allowance for credit losses on loans and interest receivable	(518)	—	—	(23,028)	(23,546)
Changes in non-controlling interest liability	(168)	(148)	—	—	(316)
Change in fair value of investment properties - IFRIC 21	57	—	—	—	57
Change in fair value of investment properties	(78,648)	—	(21,740)	—	(100,388)
Change in fair value of financial instruments	(690)	(6,712)	(2,127)	(9,555)	(19,084)
Change in fair value of contingent consideration	—	—	—	(5,510)	(5,510)
Loss on sale of property, plant and equipment	—	58	—	(220)	(162)
Loss from joint ventures	(34,729)	—	—	—	(34,729)
Income tax recovery	—	—	—	6,944	6,944
Net loss	$    (70,312)	$    (43,948)	$    (21,611)	$    (48,133)	$    (184,004)
Expenditures for non-current assets:
Acquisition of properties	$    8,202	$    36,154	$    —	$    —	$    44,356
Capital additions	4,360	11,269	631	—	16,260

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

The following tables show assets and liabilities by reportable segment as at December 31, 2021 and 2020:

	As at December 31, 2021
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Investment properties	$    601,633	$    —	$    114,711	$    —	$    716,344
Property, plant and equipment, net	—	431,672	—	329	432,001
Investment in joint ventures	50,440	—	—	—	50,440
Loans receivable	2,074	—	—	19,621	21,695
Other assets	13,414	43,801	5,563	17,753	80,531
Total assets	$    667,561	$    475,473	$    120,274	$    37,703	$    1,301,011
Mortgages payable	$    72,587	$    141,236	$    —	$    —	$    213,823
Credit facilities	329,650	179,369	88,247	—	597,266
Convertible debentures	—	—	—	82,657	82,657
Commonwealth preferred unit liability	—	66,239	—	—	66,239
Non-controlling interest liability	—	293	—	—	293
Other liabilities	15,078	17,472	2,573	19,353	54,476
Total liabilities	$    417,315	$    404,609	$    90,820	$    102,010	$    1,014,754

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

	As at December 31, 2020
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
Investment properties	$    759,628	$    —	$    122,391	$    —	$    882,019
Property, plant and equipment, net	—	448,912	—	2,913	451,825
Investment in joint ventures	65,258	—	—	—	65,258
Loans receivable	6,669	—	—	12,034	18,703
Other assets	24,014	27,464	6,712	22,429	80,619
Total assets	$    855,569	$    476,376	$    129,103	$    37,376	$    1,498,424
Mortgages payable	$    158,715	$    140,749	$    —	$    —	$    299,464
Credit facilities	388,715	174,465	87,416	10,000	660,596
Convertible debentures	—	—	—	92,411	92,411
Commonwealth preferred unit liability	—	65,797	—	—	65,797
Non-controlling interest liability	3,373	1,036	—	—	4,409
Other liabilities	25,897	24,302	4,964	27,255	82,418
Total liabilities	$    576,700	$    406,349	$    92,380	$    129,666	$    1,205,095

In measuring performance, the Company does not distinguish or group its properties on a geographical basis. Management has applied judgment by aggregating its properties into four reportable segments for disclosure purposes. The Company's Chief Executive Officer is the chief decision maker and regularly reviews performance on an individual property basis and on the basis of the Company's reportable operating segments.

At December 31, 2021, $1,047,134 of the Company's non-current assets, excluding financial instruments, are located in the United States (2020 - $1,246,928) and $153,880 are located in Canada (2020 - $154,945). During the year ended December 31, 2021, the Company generated $194,438 (year ended December 31, 2020 - $202,508), of its revenues, excluding other revenue, from properties located in the United States and $11,895 (year ended December 31, 2020 - $11,129) of its revenues from properties located in Canada.

30. Subsequent events:

On February 1, 2022, the Company acquired a memory care facility located in Grand Rapids, MI for a contractual purchase price of $12,470 plus transaction costs. The purchase was made with cash on hand and the property was added to the borrowing base of the Credit Facility upon acquisition.

On March 1, 2022, the Company closed on the sale of a non-core seniors housing community in Harrisburg, Pennsylvania to Windsor. The community was sold for $5,500, and proceeds were used to further reduce existing indebtedness. The community was previously managed by Greenfield Senior Living and operational management was transitioned to Commonwealth in 2019, and was considered non-core to the Commonwealth operational platform.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2021 with comparative information for the year ended December 31, 2020

85

Document

EXHIBIT 99.2

Consolidated Financial Statements

(Expressed in U.S. dollars)

INVESQUE INC.

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

INVESQUE INC.

Consolidated Statements of Financial Position

(Expressed in thousands of U.S. dollars)

		December 31, 2020	December 31, 2019
			(Adjusted - note 3)
Assets			Unaudited
Current assets:
	Cash	$    34,133	$    11,838
	Tenant and other receivables	14,934	6,937
	Property tax receivables	12,754	11,020
	Loans receivable (note 4)	1,799	4,249
	Assets held for sale (note 7)	2,144	12,201
	Other (note 5)	9,069	6,184
		74,833	52,429
Non-current assets:
	Loans receivable (note 4)	16,904	37,405
	Derivative instruments (note 11)	4,814	64
	Investment in joint ventures (note 8)	65,258	107,994
	Investment properties (note 6)	882,019	969,634
	Property, plant and equipment, net (note 7)	451,825	459,942
	Other non-current assets (note 5)	2,771	3,270
		1,423,591	1,578,309
Total assets		$    1,498,424	$    1,630,738
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$    17,715	$    18,885
	Accrued real estate taxes	14,518	13,066
	Dividends payable	—	3,354
	Credit facilities (note 9)	10,000	14,569
	Mortgages payable (note 10)	30,622	43,024
	Derivative instruments (note 11)	491	—
	Other current liabilities (note 14)	4,975	3,015
		78,321	95,913
Non-current liabilities:
	Credit facilities (note 9)	650,596	632,390
	Mortgages payable (note 10)	268,842	232,443
	Convertible debentures (note 12)	92,411	91,049
	Commonwealth preferred unit liability (note 13)	65,797	63,654
	Derivative instruments (note 11)	28,478	7,966
	Deferred tax liability (note 24)	—	6,944
	Other non-current liabilities (note 14)	16,241	16,736
	Non-controlling interest liability	4,409	3,499
		1,126,774	1,054,681
Total liabilities		1,205,095	1,150,594
Shareholders' equity:
	Common share capital (note 16)	509,203	504,561
	Equity settled deferred shares	2,328	733
	Preferred share capital (note 16)	85,389	85,389
	Contributed surplus	400	400
	Equity component of convertible instruments	3,764	3,764
	Cumulative deficit	(309,032)	(114,908)
	Accumulated other comprehensive income	1,277	205
Total shareholders' equity		293,329	480,144
Commitments and contingencies (notes 7 and 25)
Subsequent events (note 9)
Total liabilities and shareholders' equity		$    1,498,424	$    1,630,738

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Expressed in thousands of U.S. dollars, except per share amounts)

		Year ended December 31, 2020	Year ended December 31, 2019
Revenue:			Unaudited
	Rental (note 18)	$    90,112	$    103,198
	Resident rental and related revenue (note 18)	120,407	38,467
	Lease revenue from joint ventures (note 8)	3,118	3,024
	Other revenue	3,750	3,718
		217,387	148,407
Other income (note 1)		3,415	—
Expenses (income):
	Direct property operating expenses (note 19)	95,505	33,533
	Depreciation and amortization expense	48,569	14,440
	Finance costs from operations (note 20)	49,801	41,633
	Real estate tax expense	13,488	15,844
	General and administrative expenses (note 21)	20,539	18,092
	Transaction costs for business combination	170	5,898
	Diligence costs for transactions not pursued	—	633
	Allowance for credit losses on loans and interest receivable (note 20)	23,546	1,003
	Change in non-controlling interest liability (note 20)	316	504
	Change in fair value of investment properties - IFRIC 21	(57)	29
	Change in fair value of investment properties (note 6)	100,388	6,046
	Change in fair value of financial instruments (note 20)	19,084	9,379
	Change in fair value of contingent consideration (note 20)	5,510	—
	Loss on sale of property, plant and equipment (note 7)	162	—
		377,021	147,034
Loss from joint ventures (note 8)		(34,729)	(6,799)
Loss before income taxes		(190,948)	(5,426)
Income tax recovery:
	Deferred (note 24)	6,944	67
Net loss		$    (184,004)	$    (5,359)
Other comprehensive income :
Items to be reclassified to net income in subsequent periods
	Unrealized gain on translation of foreign operations	1,072	3,294
Total comprehensive loss		$    (182,932)	$    (2,065)
Loss per share (note 17):
	Basic and diluted	$    (3.30)	$    (0.10)

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Consolidated Statements of Changes in Shareholders' Equity

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Common share capital	Equity settled deferred shares	Preferred share capital	Contributed surplus	Equity component of convertible instruments	Cumulative deficit	Accumulated other comprehensive income (loss)	Total
Balance, January 1, 2020	$    504,561	$    733	$    85,389	$    400	$    3,764	$    (114,908)	$    205	$    480,144
Net loss	—	—	—	—	—	(184,004)	—	(184,004)
Other comprehensive loss	—	—	—	—	—	—	1,072	1,072
Common shares issued, net of issuance costs (note 16)	1,078	—	—	—	—	—	—	1,078
Common shares issued under the Company's dividend reinvestment plan (note 16)	3,498	—	—	—	—	—	—	3,498
Dividends declared on common shares	—	—	—	—	—	(10,120)	—	(10,120)
Common shares purchased under NCIB (note 16)	(148)	—	—	—	—	—	—	(148)
Amortization of equity settled deferred shares (note 22)	—	1,809	—	—	—	—	—	1,809
Common shares issued for equity settled deferred share (note 16 and 22)	214	(214)	—	—	—	—	—	—
Balance, December 31, 2020	$    509,203	$    2,328	$    85,389	$    400	$    3,764	$    (309,032)	$    1,277	$    293,329

INVESQUE INC.

Consolidated Statements of Changes in Shareholders' Equity

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Common share capital	Equity settled deferred shares	Preferred share capital	Contributed surplus	Equity component of convertible instruments	Cumulative deficit	Accumulated other comprehensive income (loss)	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Balance, January 1, 2019	$    493,165	$    —	$    71,106	$    400	$    1,671	$    (69,785)	$    (3,089)	$    493,468
Net income	—	—	—	—	—	(5,359)	—	(5,359)
Other comprehensive income	—	—	—	—	—	—	3,294	3,294
Common shares issued, net of issuance costs (note 16)	4,878	—	—	—	—	—	—	4,878
Preferred shares issued, net of issuance costs (note 16)	—	—	14,283	—	—	—	—	14,283
Equity component of Commonwealth preferred units	—		—	—	2,093	—	—	2,093
Common shares issued under the Company's dividend reinvestment plan	7,023	—	—	—	—	—	—	7,023
Dividends declared on common shares	—	—	—	—	—	(39,764)	—	(39,764)
Common Shares purchased under NCIB (note 16)	(530)	—	—	—	—	—	—	(530)
Amortization of equity settled deferred shares (note 22)	—	733	—	—	—	—	—	733
Common shares issued through conversion of convertible debentures (note 16)	25	—	—	—	—	—	—	25
Balance, December 31, 2019	$    504,561	$    733	$    85,389	$    400	$    3,764	$    (114,908)	$    205	$    480,144

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

			Year ended December 31, 2020	Year ended December 31, 2019
				(Adjusted - note 3)
Cash flows from operating activities:				Unaudited
	Net loss		$    (184,004)	$    (5,359)
	Items not involving cash:
		Fair value adjustment of investment properties (note 6)	100,388	6,046
		Fair value adjustment of financial instruments (note 20)	19,084	9,379
		Depreciation and amortization expense (note 7)	48,569	14,440
		Allowance for credit losses on loans and interest receivable (note 20)	23,546	1,003
		Straight-line rent (note 18)	(6,394)	(8,964)
		Amortization of tenant inducements (note 18)	385	158
		Finance costs from operations (note 20)	49,801	41,633
		Change in non-controlling interest liability (note 20)	316	504
		Change in fair value of contingent consideration (note 7)	5,510	—
		Loss on sale of property, plant and equipment (note 7)	162	—
		Loss from joint ventures (note 8)	34,729	6,799
		Deferred income tax (note 24)	(6,944)	(67)
	Interest paid		(49,712)	(39,411)
	Interest income received		1,056	694
	Change in non-cash operating working capital:
		Tenant and other receivables	(12,344)	(16,066)
		Accounts payable and accrued liabilities	(835)	268
		Unearned revenue	1,257	(227)
		Other assets	(2,150)	702
		Other liabilities	1,308	3,390
		Accrued real estate taxes	1,362	1,248
	Net cash provided by operating activities		$    25,090	$    16,170
Cash flows from financing activities:
	Proceeds from credit facilities (note 15)		$    33,000	$    370,350
	Payments on credit facilities (note 15)		(21,250)	(63,990)
	Debt issuance costs paid (note 15)		(1,599)	(3,206)
	Proceeds from mortgages payable (note 15)		16,682	39,489
	Payments of mortgages payable (note 15)		(22,487)	(45,594)
	Proceeds from settlement of interest rate swap		—	104
	Dividends paid to common shareholders		(9,976)	(32,509)
	Payment for repurchase of common shares		(148)	(530)
	Proceeds from issuance of preferred share capital		—	14,550
	Cash provided by (used in) financing activities		$    (5,778)	$    278,664
Cash flows from investing activities:
	Additions to investment properties		$    (8,390)	$    (93,002)
	Dispositions of investment properties		—	9,887
	Additions to property, plant and equipment		(11,269)	(235,433)
	Dispositions of property, plant and equipment		15,563	—
	Acquisition of interest in joint venture (note 7)		(476)	—
	Disposition of interest in joint venture		1,447	—
	Cash balance acquired in business combination (note 7)		2,081	—
	Distributions from joint ventures		3,803	5,897
	Contributions to joint ventures		(1,855)	(14,391)
	Distributions to non-controlling interest partners		(534)	(152)
	Proceeds from income support agreement		63	283
	Payments to previous owner of Care		—	(9,676)
	Issuance of loans receivable		—	(1,222)
	Repayment of loans receivable		4,105	4,835
	Proceeds from sale of interest in assets to joint venture partner		—	23,000
	Earnout payment pursuant to Commonwealth purchase agreement		(1,555)	—
	Cash provided by (used in) investing activities		$    2,983	$    (309,974)
Increase (decrease) in cash and cash equivalents			22,295	(15,140)
Cash and cash equivalents, beginning of period			11,838	26,978
Cash and cash equivalents, end of period			$    34,133	$    11,838

See accompanying notes to consolidated financial statements.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Invesque Inc. (the "Company") was incorporated on May 31, 2007 under the Business Corporations Act (Ontario). Effective April 4, 2016, the Company changed its name from "Kingsway Arms Retirement Residences Inc." to "Mainstreet Health Investments Inc." and continued under the laws of the Province of British Columbia. Effective January 3, 2018, the Company changed its name from "Mainstreet Health Investments Inc." to "Invesque Inc.". The Company's registered office is 2500 - 700 W Georgia Street, Vancouver, British Columbia V7Y 1B3.

The Company currently owns a portfolio of North American income generating properties across the health care spectrum. The Company's portfolio includes investments in independent living, assisted living, memory care, skilled nursing, transitional care and medical office properties, which are operated primarily under long-term leases and joint venture arrangements with operating partners. The Company's portfolio also includes investments in owner occupied seniors housing properties in which Invesque owns the real estate and provides management services through its subsidiary management company, Commonwealth Senior Living.

At December 31, 2020, the Company owns interests in a portfolio of 122 health care and senior living properties comprised of 69 consolidated investment properties, 36 consolidated owner occupied properties, interests in 16 properties held through joint arrangements, and one property held for sale.

1.    Basis of preparation:

(a)    Liquidity Assessment

A novel strain of coronavirus causing the disease known as COVID-19 has spread throughout the world, including across the United States and Canada, causing the World Health Organization to declare the COVID-19 outbreak a pandemic in March 2020. In an attempt to contain the spread and impact of the pandemic, authorities throughout the United States and Canada have implemented measures such as travel bans and restrictions, stay-at-home orders, social distancing guidelines and limitations on other business activity. The pandemic has resulted in a significant economic downturn in the United States, Canada and globally, and has also led to disruptions and volatility in capital markets. These trends are likely to continue into 2021 and potentially beyond.

The pandemic has had an impact on results and operations of the Company, including decreased occupancy, delays in collections from tenants, and increased operating expenses. The Company announced on April 10, 2020 that it suspended the dividend for all common shares beginning from April 1, 2020 until further notice.

The Company expects that the pandemic could continue to have a negative effect on its results of operations, financial position and cash flows, particularly if negative economic and public health conditions in the United States and Canada persist for a significant period of time. The ultimate impact of the pandemic on the Company's financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence. This includes, among other factors, the duration and severity of the pandemic as well as negative economic conditions arising therefrom, the impact of the pandemic on occupancy rates in the Company's communities, the volume of COVID-19 patients cared for across the portfolio, and the impact of government actions on the seniors housing industry and broader economy, including through existing and future stimulus efforts. The impact of COVID-19 has been partially offset to date by certain government stimulus programs which have helped to offset COVID-19 related expenses and compensate for lost revenues, but the Company is not able to provide assurance that such programs may continue to be available in the future. For the year ended December 31, 2020, the Company recognized $3,415 of other income related to government grants funded through programs designed to assist seniors housing operators who have

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

experienced both lost revenue and increased expenses during the COVID-19 pandemic. For the year ended December 31, 2020, the Company recognized $1,294 of income from joint ventures related to the Company's share of government grants recognized at the joint venture properties for COVID-19 pandemic relief.

Liquidity risk is the risk that an entity is unable to fund its assets or meet its obligations as they come due. Liquidity risk is managed in part through cash forecasting (note 1(f) and note 28). While there are uncertainties in assessing future liquidity requirements under normal operating conditions, the stressed conditions caused by COVID-19 have introduced increased uncertainties. The Company monitors forecasts of liquidity requirements to ensure it has the ability to meet operational needs by maintaining sufficient availability of the combination of cash and credit facility capacity, and to ensure the Company will meet its financial covenants related to debt agreements. Such forecasting involves a significant degree of judgment which takes into consideration current and projected macroeconomic conditions, the Company's cash collection efforts, debt financing and refinancing plans, and covenant compliance required under the terms of debt agreements. There is a risk that such liquidity forecasts may not be achieved and that currently available debt financing may no longer be available to the Company at terms and conditions that are favorable, or at all.

As a result of the events and conditions associated with COVID-19, the Company has amended certain terms of various financing arrangements having conducted an assessment of its liquidity. The Company believes that it has sufficient available liquidity to meet its minimum obligations as they come due and to comply with financial covenants in its credit facilities, as amended, for a period of at least 12 months from December 31, 2020. Further, the Company has assessed that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. In making this significant judgment, the Company has prepared a cash flow forecast with the most significant assumptions in the preparation of such forecast being the ability of its most significant tenant, Symcare, to meet its projected rental obligations to the Company and the continued availability of financing.

In response to a severe downside scenario, management has the ability to take the following mitigating actions to reduce costs, optimize the Company's cash flow and preserve liquidity:

(i)utilizing available cash to pay down debts,

(ii)sell certain properties and use the proceeds to buy down debt,

(iii)exercise the Company's right to convert its convertible debentures into common shares,

(iv)satisfying the $10,000 Magnetar Facility (defined below) through the issuance of common shares,

(v)reducing non-essential capital expenditures.

(b) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were approved by the Board of Directors of the Company and authorized for issuance on March 11, 2021.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

(c)     Basis of measurement:

These consolidated financial statements have been prepared on a historical cost basis, except for investment properties, derivative financial instruments, deferred shares and loan commitment liability, which are measured at fair value through profit and loss ("FVTPL").

(d)    Principles of consolidation:

(i)Transactions eliminated on consolidation:

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of December 31, 2020, including Invesque International Holdings Inc., Invesque US Holdings Inc., Invesque Holdings, LP, Foxhound Holdings, LLC and project specific limited partnerships. All intercompany transactions and balances are eliminated on consolidation.

(ii)Joint arrangements:

A joint venture is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

A joint operation is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.

These consolidated financial statements include the Company's proportionate share of each of the assets, liabilities, revenue and expenses of joint operations on a line-by-line basis. Joint ventures are included in the Company's consolidated financial statements as investments using the equity method, whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the net assets. The Company's share of joint venture profit or loss is included in the consolidated statements of income (loss) and comprehensive income (loss).

(e)    Functional and presentation currency:

The consolidated financial statements are presented in U.S. dollars, which is the functional and presentational currency of the Company.

Assets and liabilities of operations having a functional currency other than the U.S. dollar are translated at the rate of exchange at the consolidated statement of financial position dates. Revenue and expenses are translated at average rates for the year, unless exchange rates fluctuated significantly during the year, in which case the exchange rates at the dates of the transaction are used. Gains or losses on translating a foreign operation are included in other comprehensive income ("OCI") as a component of equity.

Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions. Foreign currency denominated monetary assets and liabilities are translated using the prevailing rate of exchange at the consolidated statement of financial position dates. Gains and losses on translation of monetary

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

items are recognized as general and administrative expenses in the consolidated statements of income (loss) and comprehensive income (loss).

(f)    Use of estimation and uncertainty:

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending December 31, 2020 are as follows:

(i)Investment properties:

The significant assumptions used when determining the fair value of investment properties in use are capitalization rates and stabilized future cash flows. The capitalization rate applied is reflective of the characteristics, location and market of each investment property. The stabilized future cash flows of each investment property are based upon rental income from current leases and assumptions about market rent from future leases reflecting current conditions, less future cash outflows relating to such current and future leases.

Management determines fair value internally utilizing internal financial information, external market data and capitalization rates provided by independent industry experts. As part of Management’s internal valuation program, the Company also considers external valuations performed by independent national real estate valuation firms for a cross-section of properties that represent different geographical locations across the Company’s portfolio and updates, as deemed necessary, the valuation models to reflect current market data.

(ii)Accounting for convertible debentures:

On issuance, management estimates the allocation of the debt and equity components of convertible debentures. The liability allocation is based upon the fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component.

(iii)Accounting for Commonwealth preferred unit liability:

Management estimates the allocation of the debt and equity components of Commonwealth preferred unit liability. The liability allocation is based upon the fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component.

(iv)Loans receivable:

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

In determining the amount of expected credit losses, the entity's significant assumptions include the assessment of probability of default and loss given default. The determination takes into account different factors and varies by nature of investment.

The Company considers reasonable and supportable information that is relevant and available without undue cost or effort. Management considers past events, current market conditions and reasonable forward-looking supportable information about future economic conditions. In assessing information about possible future economic conditions, management utilized multiple economic scenarios including a base case, which represents the most probable outcome and is consistent with management's view of the financial asset. In considering the lifetime of a loan, the contractual period of the loan, including prepayment, extension and other options is generally used.

The estimation of expected credit losses also includes assumptions about local real estate market conditions, availability and terms of financing, underlying value of the security and various other factors. These assumptions are limited by the availability of reliable comparable market data, economic uncertainty and the uncertainty of future events.

(v)Impairment of property, plant and equipment:

The Company makes a determination at each reporting date if any events have occurred that would indicate property, plant and equipment may be impaired. If impairment indicators exist, management estimates the assets' recoverable amount in order to determine whether an impairment loss should be recognized.

(vi)Other:

Estimates are also made in the determination of the fair value of financial instruments and include assumptions and estimates regarding future interest rates, the relative creditworthiness of the Company to its counterparties, the credit risk of the Company's counterparties, the estimated future cash flows and discount rates.

(g)    Critical judgments:

Judgments made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:

(i)Accounting for leases as lessor:

The Company uses judgment regarding the present value of lease payments, the fair value of assets and the determination of the lease term in assessing the classification of its leases as operating leases, in particular with long-term leases in single operator properties. The Company has determined that all of its leases are operating leases.

(ii)Accounting for acquisitions:

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Management must assess whether an acquisition should be accounted for as an asset purchase or business combination. This assessment impacts the accounting treatment of transaction costs, the allocation of the costs associated with the acquisition and whether or not goodwill should be recognized.

(iii)Componentization of property, plant and equipment:

The Company uses judgment regarding the value allocated to various components of property, plant and equipment upon acquisition.

(iv)Loans receivable:

The Company uses significant judgment in the evaluation of changes in credit risk to determine the staging of the loans receivable. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which would require an increase or decrease in the allowance for ECLs.

(v)Liquidity:

Assessing whether events or conditions represent the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern, including the estimation of future cash flows

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

2.    Significant accounting policies:

(a)Cash and cash equivalents:

Cash and cash equivalents consists of cash on hand and highly liquid marketable investments with an original maturity of 90 days or less at their date of purchase and are stated at cost, which approximates fair value. As at December 31, 2020 and 2019, there were no cash equivalents.

(b)Investment properties:

Investment properties consist of investment properties in use and investment properties under development. Investment properties are held to earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business. On acquisition, investment properties are initially recorded at cost, including transaction costs. Subsequent to initial recognition, the Company uses the fair value model to account for investment properties under International Accounting Standard ("IAS") 40, Investment Property. Under the fair value model, investment properties are recorded at fair value, which is determined based on available market evidence, at the statement of financial position date. Related fair value gains and losses are recorded in income and comprehensive income for the period in the period in which they arise.

Subsequent capital expenditures are added to the carrying value of the investment properties only when it is probable that future economic benefits will flow to the property and the cost can be measured reliably.

Properties under development include those properties, or components thereof, that will undergo activities that will take a substantial period of time to prepare the properties for their intended use as income properties. Borrowing costs related to development properties are capitalized to the costs of the projects. Properties under development are also adjusted to fair value at each consolidated statement of financial position date with fair value adjustments recognized in income.

Investment property is classified as held for sale when the property is available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of investment properties, its sale is highly probable and expected to be completed with one year. Investment property is derecognized when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal.

(c)Property, plant, and equipment:

Property, plant, and equipment includes land; buildings; and furniture, fixtures and equipment ("FFE"), which are measured at cost less accumulated depreciation and accumulated impairment losses.

Significant parts of the buildings are accounted for as separate components of the property, based on management's judgment of what components constitute a significant cost in relation to the total cost of an asset and whether these components have similar or dissimilar patterns of consumption and useful lives for purposes of calculating depreciation and amortization. Significant components include structure, roof, electrical/HVAC systems, windows and doors, and exterior landscaping. The cost of replacing a major component of a building is recognized in the carrying amount of the building if it is probable that the future economic benefits embodied within the component will flow to

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. The costs of ongoing repairs and maintenance of the properties are recognized in profit or loss as incurred.

Depreciation is recorded in profit or loss on a straight-line basis over the useful lives of the assets. Estimated useful lives were determined based on current facts and past experience, and take into consideration the anticipated physical life of the asset and current and forecasted demand. The rates and methods used are reviewed annually at year end to ensure they continue to be appropriate, and are also reviewed in conjunction with impairment testing. The following are the estimated maximum useful lives of existing property, plant, and equipment:

Components:
	Building - Structure	39 years
	Building - Roof	25 years
	Building - Electrical/HVAC systems	25 years
	Building - Windows and doors	15 years
	Building - Exterior landscaping	15 years
	Furniture, fixtures, and equipment	5 years

Gains/losses on disposition of property, plant, and equipment are recognized in profit or loss in accordance with the requirements for determining when a performance obligation is satisfied under IFRS 15, Revenue from Contracts with Customers ("IFRS 15").

The value associated with in-place resident contracts, which represents the avoided cost of originating the acquired resident contracts plus the value of the avoided loss of net resident revenue over the estimated lease-up period of the acquired property, is amortized over the expected term of the resident occupancy. Resident contracts are recorded as a component of buildings.

(d)Impairment of property, plant, and equipment:

The carrying amount of the Company's property, plant, and equipment is assessed at each reporting date to determine if any events have occurred that would indicate the assets may be impaired. If any such indication exists, then the asset's recoverable amount is estimated and an impairment loss is recognized immediately in profit or loss for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the higher of (a) fair value less costs to sell, and (b) value in use. The determination of recoverable amounts can be significantly impacted by estimates related to current market valuations, current and future economic conditions in the geographical markets of the assets, and management's strategic plans within each of its markets.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

(e)Assets held for sale:

Assets, or disposal groups comprising assets and liabilities, are categorized as held-for-sale where the asset or disposal group is available for sale in its present condition, and the sale is highly probable. For this purpose, a sale is highly probable if management is committed to a plan to achieve the sale; there is an active program to dispose of the assets of the disposal group; the asset or disposal group is being actively marketed at a reasonable price; the sale is anticipated to be completed within one year from the date of classification; and it is unlikely there will be changes to the plan. Immediately before classification as held-for-sale, the assets, or components of the disposal group are remeasured in accordance with the Company’s accounting policies, and are subsequently measured at the lower of their carrying amount and fair value less costs of disposal. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss until the completion of sale.

(f)Fair value measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

(i)    in the principal market for the asset or liability; or

(ii)    in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability assuming that market participants act in their economic best interests.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is not observable.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

For assets and liabilities that are recognized in the consolidated financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

(g)Financial instruments:

Financial instruments are generally measured at fair value on initial recognition. The classification and measurement of financial assets consists of the following categories: (i) measured at amortized cost, (ii) FVTPL, or (iii) fair value through other comprehensive income (''FVTOCI''). Financial assets classified at amortized cost are measured using the effective interest method. Financial assets classified as FVTPL are measured at fair value with gains and losses recognized in the consolidated statements of income (loss) and comprehensive income (loss). Financial assets classified as FVTOCI are measured at fair value with gains or losses recognized through other comprehensive income (loss), except for gains and losses pertaining to impairment or foreign exchange recognized through profit or loss.

The classification and measurement of financial liabilities consists of the following categories: (i) measured at amortized cost and (ii) FVTPL. Financial liabilities classified at amortized cost are measured using the effective interest method. Financial liabilities classified as FVTPL are measured at fair value with changes in fair value attributable to changes in the credit risk of the liability presented in other comprehensive income, and the remaining amount of change in fair value presented in the consolidated statements of income (loss) and comprehensive income (loss).

The following summarizes the Company's classification of financial instruments:

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Financial assets and liabilities	Measurement
Cash	Amortized cost
Restricted cash	Amortized cost
Tenant and other receivables	Amortized cost
Security deposits and costs related to future acquisitions	Amortized cost
Income support receivable	Amortized cost
Escrow deposits held by lender	Amortized cost
Bond assets	Amortized cost
Loans receivable	Amortized cost/FVTPL
Derivative instruments	FVTPL
Accounts payable and accrued liabilities	Amortized cost
Accrued real estate taxes	Amortized cost
Dividends payable	Amortized cost
Security deposits received from tenants	Amortized cost
Escrows collected from tenants	Amortized cost
Loan commitment liability	FVTPL
Exchangeable Units liability	Amortized cost
Contingent consideration liabilities	FVTPL
Mortgages payable	Amortized cost
Credit facilities	Amortized cost
Convertible debentures	Amortized cost
Commonwealth preferred unit liability	Amortized cost

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The Company derecognizes a financial liability when, and only when, the Company’s obligations are discharged, canceled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized through profit or loss.

The Company adopted the practical expedient to determine expected credit losses ("ECL") on tenant and other receivables using a provision matrix based on historical credit loss experiences adjusted for current and forecasted future economic conditions to estimate lifetime ECL. Impairment losses are recorded in the consolidated statements of income (loss) and comprehensive income (loss) with the carrying amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts.

Transaction costs other than those related to financial instruments classified as FVTPL, which are expensed as incurred, are capitalized to the carrying amount of the instrument and amortized using the effective interest method. These costs include discounts or premiums relating to assumed debt, fees and commissions paid to agents, brokers, advisers, lenders and insurers, transfer taxes and duties.

The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

discounts estimated future cash payments through the expected life of the financial asset or liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

i.Convertible debentures:

The convertible debentures are compound financial instruments as they contain both a liability and an equity component.

At the date of issuance, the liability component of convertible debentures is recognized at its estimated fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the convertible debenture is measured at amortized cost using the effective interest rate method. The equity component is not remeasured subsequent to initial recognition and will be transferred to share capital when the conversion option is exercised, or, if unexercised, at maturity. Interest, losses and gains relating to the financial liability are recognized in income and comprehensive income.

ii.Commonwealth preferred unit liability

The Commonwealth preferred unit liability is a compound financial instrument as it contains both a liability and an equity component.

At the date of issuance, the liability component of Commonwealth preferred unit liability is recognized at its estimated fair value of a similar liability that does not have an equity conversion option and the residual is allocated to the equity component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the Commonwealth preferred unit liability is measured at amortized cost using the effective interest rate method. The equity component is not remeasured subsequent to initial recognition and will be transferred to share capital when the conversion option is exercised, or, if unexercised, at maturity. Interest, losses and gains relating to the financial liability are recognized in income and comprehensive income.

iii.Impairment of financial assets:

The Company recognizes loss allowances for ECL on financial assets measured at amortized cost, unfunded loan commitments and financial guarantee contracts. The Company applies a three-stage approach to measure allowance for credit losses. The loss allowance for performing loans which have not experienced a significant increase in credit risk since initial recognition (Stage 1) is equal to twelve months of expected credit losses. The loss allowance for loans which have experienced a significant increase in credit risk since initial recognition (Stage 2) or are credit impaired (Stage 3) equals lifetime expected credit losses.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

The determination of a significant increase in credit risk takes into account different factors and varies by nature of investment. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due or certain criteria are met which are specific to the individual borrower based on judgment. The Company considers a financial asset to be credit impaired when the borrower is more than 90 days past due and when there is objective evidence that there has been a deterioration of credit quality to the extent the Company no longer has reasonable assurance as to the timely collection of the full amount of principal and interest or when the Company has commenced enforcement remedies available to it under its contractual agreements.

Measurement of ECL's

Loss allowances for ECLs are probability-weighted estimates of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive) and incorporate significant assumptions including the probability of default as well as the estimated loss given default. ECLs are discounted at the effective interest rate of the financial asset.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considering when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

The determination of ECLs of a collateralized impaired loan reflects the expected realization of the underlying security, net of expected costs and any amounts legally required to be paid to the borrower.

When determining the allowance for ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. Management considers past events, current market conditions and reasonable forward-looking supportable information about future economic conditions. In assessing information about possible future economic conditions, management utilized multiple economic scenarios including a base case, which represents the most probable outcome and is consistent with management's view of the financial asset. In considering the lifetime of a loan, the contractual period of the loan, including prepayment, extension and other options is generally used.

The estimation of ECLs also includes assumptions about local real estate market conditions, availability and terms of financing, underlying value of the security and various other factors. These assumptions are limited by the availability of reliable comparable market data, economic uncertainty and the uncertainty of future events. Accordingly, by their nature, estimates of impairment are subjective and may not necessarily be comparable to the actual outcome. Should the underlying assumptions change, the estimated future cash flows could vary.

iv.Derivative instruments:

The Company uses derivative financial instruments to manage interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Derivative financial instruments, including embedded derivatives that must be separately accounted for, are initially valued at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized immediately in income and comprehensive income.

(h)Non-controlling interest liability

The Company records third-party interests in the net assets of consolidated entities which do not qualify to be classified as equity as non-controlling interest liabilities. Such interests are initially recognized at fair value and are subsequently measured at amortized cost, with any changes recorded as change in non-controlling interest liability in the consolidated statements of income (loss) and comprehensive income (loss).

(i)Revenue recognition:

The Company accounts for its leases as operating leases given that it has retained substantially all of the risk and benefits of ownership

i.Lease revenue from third party operators and commercial tenants:

The Company earns revenue from tenants from various sources consisting of rent earned under lease agreements, property tax and operating cost recoveries and other incidental income. Revenue from lease components is recognized on a straight-line basis over the lease term and includes the recovery of property taxes and insurance. Revenue recognition commences when a tenant has the right to use the premises and is recognized pursuant to the terms of the lease agreement. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are deferred.

Revenue related to the services component of the Company’s leases is accounted for in accordance with IFRS 15. These services consist primarily of utilities, cleaning and property maintenance costs for which the revenue is recognized over time, typically as the costs are incurred, which is when the services are provided.

ii.Resident Leases

The Company charges for the rental of accommodation and care services provided to residents. Base rent amounts are allocated to lease components based on relative stand-alone selling prices. The stand-alone selling prices of the rental component is determined using an adjusted market assessment approach and the stand-alone selling price of the care services components are determined using both adjusted market assessment and expected cost plus a margin approaches.

Revenue from rental components is recognized on a straight-line basis over the lease term. Revenue recognition commences when a resident has the right to use the property and revenue is recognized pursuant to the terms of the lease agreement. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are deferred.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Revenue related to the care service components of the Company’s leases is accounted for in accordance with IFRS 15. These services consist primarily of the provision of meals, nursing services, housekeeping and laundry services, programs, amenities and the recovery of utilities and property maintenance costs and are recognized over time, typically on a monthly basis, which is when the services are provided. Payments are due at the beginning of each month and any payments made in advance of scheduled due dates are recorded as contract liabilities.

iii.Lease revenue from joint ventures:

The Company earns revenue under lease arrangements with operating entities which are jointly owned with Autumnwood Lifestyles Inc. ("Autumnwood") (note 8). The leases are accounted for as operating leases and lease revenue is recognized on a straight-line basis over the term of the underlying leases.

(j)Government grants

Government grants that become receivable as compensation for lost revenue and increased expenses are recognized when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. The grants are recorded as other income in the consolidated statements of income (loss) and comprehensive income (loss).

(k)Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in IFRS 16.

i.As a lessee:

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property, the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term and is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate, which was a weighted average rate of 7.5%.

The lease liability is measured at amortized costs using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company presents the right-of-use assets in property, plant and equipment and lease liabilities are recorded separately on the balance sheet as "lease obligations".

ii.Short-term leases and leases of low value assets:

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. the Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

iii.As a lessor:

At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. The Company has determined that when it acts as a lessor, its leases do not transfer substantially all of the risks and rewards incidental to ownership of the underlying assets and as a result they are classified as operating leases.

If an arrangement contains lease and non-lease components, the Company applies IFRS 15 to allocate the consideration in the contract.

The Company recognizes lease payments received under operating leases as income on straight-line basis over the lease term.

(l)Employee benefits:

i.Short-term benefits:

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Short-term employee benefit obligations, including vacation and bonus payments, are measured on an undiscounted basis and are expensed as the related service is provided. Liabilities are recognized for the amounts expected to be paid within 12 months as the Company has an obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Short-term employee benefits are recorded in accounts payable and other liabilities.

ii.Share-based payment plans:

The Company maintains a Deferred Share Incentive Plan (note 22) for its employees and directors. Cash-settled shares are fair-valued and changes in the amount payable are recognized through profit or loss with a corresponding change in liabilities. The awards are fair-valued on the basis of the share price at each reporting period and at the settlement date and the change in fair value on the amortized share-based compensation expense is recognized as compensation expense.

Equity-settled shares are amortized as share-based compensation expense with a corresponding change in equity. The awards are valued based on the grant date fair value.

(m)Levies:

In accordance with IFRS Interpretations Committee ("IFRIC") 21, Levies ("IFRIC 21"), for its properties located in the United States, the Company recognizes the full amount of annual property tax liabilities at the point in time when the realty tax obligation is imposed. For properties located in Canada, property tax liabilities are recognized on a monthly basis.

(n)Income taxes:

Income tax expense comprises current and deferred tax. Tax is recognized in profit or loss except to the extent it relates to a business combination, or items recognized directly in equity or other comprehensive income.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustments to tax payable or receivable in respect of previous years. It is measured using rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

(i)Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

(ii)Temporary differences related to investments in subsidiaries and associates to the extent that the Company is able to control the timing of reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

(iii)Taxable temporary differences arising on the initial recognition of goodwill.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable income will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amounts of its assets and liabilities.

Deferred tax assets and liabilities are offset only if certain criteria are met.

Judgement is required to assess the interpretation of tax legislation when recognizing and measuring current and deferred tax assets and liabilities. The impact of different interpretations and applications could potentially be material. The Company recognizes a tax benefit from an uncertain tax position when it is probable that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. If it is not probable that the uncertain tax treatment will be accepted, the tax uncertainty is measured based on the most likely amount of expected value, depending on whichever method better predicts the resolution of the uncertainty.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Management's estimate of future taxable profits and the recognition of deferred tax assets are reviewed at each reporting date and deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(o)IFRS amendments adopted in 2020:

(i)IFRS 3 Business Combinations

On October 22, 2018, the IASB issued amendments to IFRS 3, Business Combinations ("IFRS 3") that seek to clarify whether a transaction is to be accounted for as an asset acquisition or a business combination. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2020. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment focuses on the existence of a substantive process. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

(p)IFRS standards and amendments issued but not yet effective:

(i)Application of Interest Rate Benchmark Reform ("IBOR")

In August 2020, the IASB issued IBOR Reform and the Effects on Financial Reporting – Phase II (amendments to IFRS 9, IFRS 7, IAS 39 – Financial Instruments: Recognition and Measurement ("IAS 39"), IFRS 4 – Insurance Contracts ("IFRS 4") and IFRS 16 – Leases ("IFRS 16")). The objective of the second phase of the IASB's project was to assist entities in providing useful information about the effects of the

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

transition to alternative benchmark rates and support preparers in applying the requirements of the IFRS Standards when changes are made to contractual cash flows or hedging relationships as a result of the transition to an alternative benchmark interest rate. The amendments affect the basis for determining the contractual cash flows as a result of benchmark interest rate reform, hedge accounting and disclosures.

The amendments are effective for annual periods beginning on or after January 1, 2021 with early application permitted and include retrospective application with reinstatement of hedge relationships. The Company is currently in the process of assessing the impact of adopting the amendments in Phase II on its consolidated financial statements.

(ii)Amendments to IAS 1, Presentation of financial statements

On January 23, 2020, the IASB issued amendments to IAS 1, Presentation of financial statements (“IAS 1”) to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted.

For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period.

The Company intends to adopt the amendments in its consolidated financial statements beginning on January 1, 2023, when the standard becomes effective.

3. Prior Year Adjustment:

During the year ended December 31, 2020, management determined that certain amounts previously recognized as loans receivable should have been classified as an investment in joint ventures and that amounts previously recognized as other receivables should have been classified as loans receivable. As a result the consolidated financial statements have been adjusted as at December 31, 2019 to correct for this immaterial error as follows:

	December 31, 2019	Adjustment	December 31, 2019
	(As reported)		(As adjusted)
	Unaudited	Unaudited	Unaudited
Statement of Financial Position
Tenant and other receivables	$    7,073	$    (136)	$    6,937
Loans receivable - current	4,113	136	4,249
Loans receivable - non-current	44,789	(7,384)	37,405
Other non-current assets	4,559	(1,289)	3,270
Investment in joint ventures	99,321	8,673	107,994

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

	Year ended December 31, 2019	Adjustment	Year ended December 31, 2019
	(As reported)		(As adjusted)
	Unaudited	Unaudited	Unaudited
Statement of Cash Flows
Issuance of loans receivable	$    (13,116)	$    11,894	$    (1,222)
Contributions to joint ventures	(2,497)	(11,894)	(14,391)

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

4.    Loans receivable:

Loans receivable issued as at December 31, 2020 and December 31, 2019 are detailed in the table below:

Debtor	Loan Type	December 31, 2020	December 31, 2019 (Adjusted note 3)	Maturity<br><br>Date (1)	Current Interest Rate	PIK Interest Rate
			Unaudited
MS-SW Mezzanine Fund, LLC	Mezzanine loan	$    —	1,267	September 1, 2020	10.5    %	4.0    %
Mainstreet Investment Company, LLC	Interest-only loan	3,932	3,932	December 22, 2018	8.5    %	1.5    %
Autumnwood Lifestyles Inc.	Revolving credit facility	1,178	1,155	October 31, 2018 (3)	8.0    %	—    %
Symcare ML, LLC	Loan receivable	7,295	7,295	December 31, 2033	5.0    %	—    %
Premier Senior Living, LLC (6)	Loan receivable	725	700	August 16, 2025	9.4    %	—    %
Ellipsis Real Estate Partners	Loan receivable	951	951	May 4, 2028	—    %	10.0    %
Ellipsis Real Estate Partners	Loan receivable	1,338	1,341	September 14, 2028	—    %	10.0    %
Symcare ML, LLC	Loan receivable	15,000	13,530	December 31, 2033	5.0    %	5.0    %
YAL Borrower LLC	Interest-only loan	—	1,000	December 30, 2020	5.0    %	—    %
YAL Borrower LLC	Loan receivable	—	2,000	December 30, 2020	5.0    %	—    %
Hillcrest Millard, LLC	Loan receivable	503	480	January 1, 2028	—    %	5.0    %
Hillcrest Firethorn, LLC	Loan receivable	472	449	November 1, 2027	—    %	5.0    %
Bridgemoor Transitional Care Operations, LLC (5)	Loan receivable	1,872	1,738	June 5, 2035	—    %	—    %
MOC Webster, LLC	Loan receivable	576	189	June 5, 2035	—    %	—    %
RHS Propco Mooresville, LLC	Loan receivable	5,000	5,000	July 1, 2024	8.5    %	—    %
Memory Care America LLC	Loan receivable	1,198	1,526	January 1, 2024	8.5    %	—    %
Ellipsis Real Estate Partners LLC (9)	Mezzanine loan	474	1,223	October 1, 2022	2.5    %	7.5    %
Blue Bell Senior Holdings, LLC (7)	Loan receivable	490	—	March 1, 2024	5.9    %	—    %
PSL Care GP LLC	Loan receivable	450	—	(8)	3.5    %	—    %
Accrued current and long term interest		3,122	1,425
Allowance for losses on loans receivable		(28,241)	(5,915)
Carrying value of loans recorded at amortized cost		$    16,335	39,286
Javelina Ventures, LLC	Loan receivable - FVTPL	2,368	2,368	(4)	—    %	5.0    %
Carrying value of loans receivable		18,703	41,654
Less current portion		1,799	4,249
Long-term portion		$    16,904	37,405
(1) Mezzanine loans are due at the time of sale of the property if sale occurs earlier than the stated maturity date.
(2) Loan assumed through acquisition on February 1, 2018. Loan was originally issued by Care PSL Holdings LLC on August 16, 2013.
(3) Maturity date is the later of October 31, 2018 or the completion of the expansion projects at the Marina Point and Red Oak Facilities. The projects are not yet complete.
(4) The repayment of this loan is pursuant to Javelina Ventures Operating Agreement in which net available cash from operations will be used to repay the principal and accrued interest on this loan.
(5) This loan was issued to MOC Fort Worth, LLC; MOC Round Rock, LLC; MOC San Antonio II, LLC; MOC Webster, LLC; and Bridgemoor Transitional Care Operations, LLC.
(6) This loan was issued to Park Terrace Operating, LLC; Seneca Lake Terrace Operating, LLC; and Premier Senior Living, LLC.
(7) Maturity date is the earlier of March 1, 2024, the date that the existing debt secured by the property is refinanced, or upon termination of the management agreement.
(8) No stated maturity date for loan receivable. Principal of loan is repaid when distributions are made from the Phoenix JV(note 7).
(9) This loan was funded for the development of a memory care facility in Wyoming, MI.

All values are in US Dollars.

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

$27,641 of the loans outstanding and $2,438 of the accrued current and long term interest as at December 31, 2020 in the table above are made to current tenant operators. Of these amounts, $23,964 has been reserved as uncollectible.

On March 26, 2018, a subsidiary of the Company entered into a loan agreement with the tenant operator of the Symphony Portfolio ("Symcare") for a principal amount of $3,659 with provisions for an additional $2,000 line of credit. The loan earns 5.00% annual interest, of which a portion is payable at a current pay rate on a monthly basis ("Current Interest"), with the remaining portion of interest accruing until the earlier of the loan's maturity or prepayment ("PIK Interest"). The maturity date of the loan is June 30, 2019. On June 29, 2018, the loan was amended to extend the line of credit to $2,122. On July 31, 2018, the loan was amended to increase the total borrowing capacity to $6,401. On August 31, 2018, the loan was amended to increase the total borrowing capacity to $7,522. On June 21, 2019 the loan was amended and the maturity date was extended to December 31, 2033.

On December 26, 2018, a subsidiary of the Company entered into a loan agreement with Symcare with a total capacity of $15,000 and a maturity date of January 1, 2033. As at December 31, 2020, Symcare had drawn $15,000 on this loan (December 31, 2019 - $13,530). The loan earned 10% interest accruing to the balance of the loan through December 1, 2019. Through and including December 1, 2022, half of the interest will accrue to the loan balance with the remaining portion payable at a current pay rate on a monthly basis. Commencing January 1, 2023 the full amount of monthly interest payments shall be paid each month.

On July 31, 2019, the Company entered into a new loan with MCA Memory Care America, LLC ("MCA") in the amount of $2,934. The loan balance represented outstanding rents owed, the remaining balance of a previously issued loan receivable and outstanding interest thereon. Through December 31, 2020, the Company has received repayment on this loan receivable of $1,868 consistent with the terms outlined in the loan agreement.

On July 17, 2020, the Company received $750 as repayment of a portion of the principal of the mezzanine loan to Ellipsis Real Estate Partners LLC. On the same date, the loan was amended and the annual interest rate was reduced to 10%.

Loans receivable and associated allowance for losses on loans receivable accounted for at amortized cost as at December 31, 2020 are as follows:

	Stage 1	Stage 2	Stage 3	Total
Loans receivable, net of loan fees	$    11,079	$    1,186	$    32,311	$    44,576
Allowance for losses on loans receivable	(127)	(236)	(27,878)	(28,241)
Loans receivable, net of allowances	$    10,952	$    950	$    4,433	$    16,335

Loans receivable and associated allowance for losses on loans receivable accounted for at amortized cost as at December 31, 2019 are as follows:

	Stage 1	Stage 2	Stage 3	Total
	Unaudited	Unaudited	Unaudited	Unaudited
Loans receivable, net of loan fees	$    38,476	$    —	$    6,725	$    45,201
Allowance for losses on loans receivable	(421)	—	(5,494)	(5,915)
Loans receivable, net of allowances	$    38,055	$    —	$    1,231	$    39,286

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

The changes in the gross loans receivable balance during the period ended December 31, 2020 are shown in the following table:

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

	Stage 1	Stage 2	Stage 3	Total
Total loans receivable as at December 31, 2018 - Unaudited	$    27,173	$    1,556	$    11,893	$    40,622
Loans receivable
Transfer to/(from)
Stage 1	(300)	—	300	—
Stage 2	—	(1,556)	1,556	—
Stage 3	—	—	—	—
	$    26,873	$    —	$    13,749	$    40,622
Issuances	16,633	—	2,824	19,457
Repayments	(3,282)	—	(1,500)	(4,782)
Non-cash settlement	(1,748)	—	(2,913)	(4,661)
Write off of loans receivable	—	—	(5,435)	(5,435)
Total loans receivable as at December 31, 2019 - Unaudited	$    38,476	$    —	$    6,725	$    45,201
Loans receivable
Transfer to/(from)
Stage 1	(25,052)	25,052	—	—
Stage 2	—	(23,897)	23,897	—
Stage 3	—	—	—	—
	$    13,424	$    1,155	$    30,622	$    45,201
Issuances	1,431	—	3,280	4,711
Repayments	(3,776)	—	(329)	(4,105)
Currency Translation	—	31	—	31
Write off of loans receivable	—	—	(1,262)	(1,262)
Total loans receivable as at December 31, 2020	$    11,079	$    1,186	$    32,311	$    44,576

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

The changes in the allowance for credit losses during the period ended December 31, 2020 are shown in the following table:

	Stage 1	Stage 2	Stage 3	Total
Total allowance for credit losses as at December 31, 2018 - Unaudited	$    293	$    78	$    9,970	$    10,341
Allowance for credit losses
Remeasurement	—	—	998	998
Transfer to/(from)
Stage 1	(3)	—	3	—
Stage 2	—	(76)	76	—
Stage 3	—	—	—	—
Total allowance for credit losses - Unaudited	$    290	$    2	$    11,047	$    11,339
Issuances	181	—	—	181
Repayments/settlements	(50)	(2)	(1,952)	(2,004)
Write off of loan receivable and allowance	—	—	(3,601)	(3,601)
Total allowance for credit losses as at December 31, 2019 - Unaudited	$    421	$    —	$    5,494	$    5,915
Allowance for credit losses
Remeasurement	—	226	23,452	23,678
Transfer to/(from)
Stage 1	(269)	269	—	—
Stage 2	—	(259)	259	—
Stage 3	—	—	—	—
	$    152	$    236	$    29,205	$    29,593
Issuances	13	—	—	13
Repayments	(38)	—	(65)	(103)
Write off of loan receivable and allowance	—	—	(1,262)	(1,262)
Total allowance for credit losses as at December 31, 2020	$    127	$    236	$    27,878	$    28,241

For the year ended December 31, 2020, a loss of $23,546 (year ended December 31, 2019 - $1,003) was recorded in the consolidated statements of income (loss) and comprehensive income (loss).

INVESQUE INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year ended December 31, 2020 with comparative information for year ended December 31, 2019

5.    Other assets:

Other assets are as follows:

	December 31, 2020	December 31, 2019
		(Adjusted - note 3)
		Unaudited
Prepaid expense	$    2,330	$    1,906
Security deposits and costs related to future acquisitions	682	159
Escrow deposits held by lenders	5,251	3,038
Right-of-use assets	1,889	2,199
Bond assets	881	1,071
Other	807	1,081
	$    11,840	$    9,454
Current	$    9,069	$    6,184
Non-current	2,771	3,270
	$    11,840	$    9,454

Escrow deposits held by lenders includes amounts held for use in payment of real estate taxes, property insurance and replacement reserves.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

6.    Investment properties:

	Number of Properties	Amount
Balance, December 31, 2018 - Unaudited	80	$    1,115,530
Acquisitions of income properties	7	89,421
Sale of income property	(1)	(14,991)
Acquisition of control over a property previously owned through a joint venture	1	13,082
Contribution of investment properties to joint venture (note 8)	(8)	(161,047)
Transfer to property, plant and equipment (note 7)	(10)	(100,232)
Capital expenditures	—	1,934
Capital expenditures related to investment property under development	—	7,188
Increase in straight-line rents	—	8,964
Fair value adjustment	—	(6,046)
Tenant inducements	—	8,337
Amortization of tenant inducements	—	(158)
Translation of foreign operations	—	7,652
Balance, December 31, 2019 - Unaudited	69	$    969,634
Acquisitions of income properties	1	8,202
Transfer to property, plant and equipment (note 7)	(1)	(9,869)
Capital expenditures	—	668
Capital expenditures related to investment property under development	—	4,323
Increase in straight-line rents	—	6,394
Fair value adjustment	—	(100,388)
Amortization of tenant inducements	—	(385)
Translation of foreign operations	—	3,440
Balance, December 31, 2020	69	$    882,019
Investment properties in use		$    863,658
Property under development		18,361
Balance, December 31, 2020		$    882,019

At December 31, 2020, the Company used an internal valuation process to value its investment properties. Third party appraisers are engaged to prepare valuations on a portion of the portfolio annually such that one third of the portfolio is valued externally each year, and every property in the portfolio is valued externally at least once every five years. Management considers the external valuations for a cross-section of properties that represent different geographical locations across the Company's portfolio and updates, as deemed necessary, the valuation models to reflect current market data.

Acquired investment properties are initially measured at cost, including directly attributable acquisition costs, when the transactions are deemed to be asset acquisitions. Acquisition costs related to business combinations are expensed in the period incurred. Subsequent to initial recognition, investment properties are measured at fair value, determined based on

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

available market evidence. The Company uses alternative valuation methods such as the direct capitalized income approach or discounted cash flow projections (Level 3 inputs). The fair value of investment properties reflects rental income from current leases and assumptions about rental income from future leases in light of current market conditions. When a loan is arranged with a tenant at a below market rate, the estimated fair value of the discount is recognized as a tenant inducement at the time the loan commitment is made.

Capital expenditures include costs related to expansion projects at two buildings in Canada that are jointly owned. The Company has committed to fund its share of the projects as the expansions are completed.

On April 1, 2019, the Company exchanged its majority ownership interest in the operations of a property previously owned through a joint venture located in Lansdale, PA for the partner's minority ownership interest in the real estate of the property resulting in the acquisition of control over the real estate. The transaction resulted in the consolidation of investment property of $13,082 and assumption of mortgages payable of $9,743. On October 1, 2019, the Company acquired the operations pursuant to the transaction described below. As of the date of the acquisition of the property's operations it met the criteria of owner occupied property, and its corresponding assets were reclassified as property, plant and equipment.

On June 29, 2019, the Company entered an agreement with Greenfield Senior Living ("Greenfield") whereby the Company has acquired 100% of Greenfield's interests in 13 properties in which the Company previously had an ownership interest. Ten of these properties were previously triple-net leased to Greenfield and the Company has acquired Greenfield's interest in the operations at each property. Three of these properties were previously held in a joint arrangement in which the Company owned an 80% interest in both the real estate and the operations of each property. As of the date of each property's transition, it met the criteria of owner occupied property, and its corresponding assets were reclassified as property, plant and equipment.

On May 6, 2020, the Company contributed a previously triple-net leased property to a subsidiary partially owned by Phoenix Senior Living (note 7).

The Company is also continuing to review market capitalization, discount and terminal capitalization rates as well as its future cash flow projections and the valuation of its properties in light of the COVID-19 pandemic. The carrying value for the Company’s investment properties reflects its best estimate for the highest and best use as at December 31, 2020. It is not possible to forecast with certainty the duration and full scope of the economic impact of COVID-19 and other consequential changes it will have on the Company’s business and operations, both in the short term and in the long term. In a long term scenario, certain aspects of the Company’s business and operations that could potentially be impacted include rental income, occupancy, turnover, future demand, and market rents, which all ultimately impact the underlying valuation of investment properties.

Th following table summarizes the significant unobservable inputs in determining fair value:

Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurements
Capitalization rates	There is an inverse relationship between the capitalization rates and the fair value; in other words, the higher the capitalization rate, the lower the estimated fair value.
Stabilized future cash flows	There is a direct relationship between the stabilized future cash flows and the fair value; in other words, the higher the stabilized future cash flows, the higher the estimated fair value.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The capitalization rates used in determining fair value of investment properties measured as at December 31, 2020 and December 31, 2019 are set out in the following table:

	December 31, 2020	December 31, 2019
		Unaudited
Capitalization rate - range	5.85% - 9.00%	6.50% - 8.75%
Capitalization rate - weighted average	8.06%	7.89%

The fair value of investment properties is most sensitive to changes in capitalization rates and stabilized future cash flows. Changes in the capitalization rates and stabilized future cash flows would result in the following changes in the fair value of the Company's investment properties:

	December 31, 2020	December 31, 2019
		Unaudited
Investment property valued using direct capitalization income approach	$    617,931	$    793,724
Investment property valued using discounted cash flow projection	$    139,727	$    162,501
Investment property valued using other methods	$    124,361	$    13,409
Capitalization rate:
25-basis point increase	$    (18,727)	$    (24,519)
25-basis point decrease	$    19,945	$    26,146

In addition, a 1% increase in stabilized future cash flows would result in a portfolio fair value increase of $6,179. A 1% decrease in stabilized future cash flows would result in a portfolio fair value decrease of $6,179. A 1% increase in stabilized future cash flows coupled with a 0.25% decrease in capitalization rates would result in a portfolio fair value increase of

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

$26,324. A 1% decrease in stabilized future cash flows coupled with a 0.25% increase in capitalization rates would result in a portfolio fair value decrease of $24,719.

(a) Asset acquisitions - year ended December 31, 2020

	Rogers, AR
Number of consolidated properties acquired:	1
Net assets acquired:
Investment properties	$    8,202
Working capital balances	50
	$    8,252
Consideration paid/funded:
Cash	3,399
Proceeds from mortgage payable, net of fees	4,853
	$    8,252

On November 17, 2020, The Company acquired a memory care facility leased to an operator located in Rogers, AR for a contractual purchase price of $8,150 plus transaction costs. The Company entered into a new mortgage secured by the property to fund $4,920 of the purchase price and funded the remainder of the purchase with cash on hand.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

(b) Asset acquisitions and dispositions - year ended December 31, 2019 - Unaudited

	Allen, TX	Symcare Properties	Mooresville, IN	Constant Care	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Number of consolidated properties acquired (disposed):	1	3	(1)	3	6
Net assets acquired (disposed):
Investment properties	$    8,136	$    51,323	$    (14,991)	$    29,962	$    74,430
Working capital balances	—	(586)	104	—	(482)
	$    8,136	$    50,737	$    (14,887)	$    29,962	$    73,948
Consideration paid/funded (received):
Cash	2,445	46,937	(9,887)	25,613	65,108
Proceeds from mortgage payable, net of fees	5,591	—	—	—	5,591
Deposit applied against purchase price	100	—	—	—	100
Common shares issued	—	3,800	—	—	3,800
Loans issued to buyer	—	—	(5,000)	—	(5,000)
Issuance of Exchangeable Units	—	—	—	2,049	2,049
Repayment of loan receivable principal and accrued interest	—	—	—	2,300	2,300
	$    8,136	$    50,737	$    (14,887)	$    29,962	$    73,948

i)On January 16, 2019, the Company acquired a memory care facility leased to an operator located in Allen, TX for a contractual purchase price of $8,100 plus transaction costs. The Company entered into a new mortgage secured by the property to fund $5,693 of the purchase price and funded the remainder of the purchase with cash on hand.

ii)On March 15, 2019, the Company acquired a skilled nursing property located in Oswego, IL from Symcare for a contractual purchase price of $22,000 plus transaction costs funded with cash on hand. The original master lease with the Symcare operator was amended to include this new building.

iii)On April 30, 2019, the Company acquired two skilled nursing properties located in Chicago, IL and Glendale, WI from Symcare for a total contractual purchase price of $30,000 plus transaction costs. The transaction was funded by the issuance of 555,556 common shares and cash on hand. The original master lease with the Symcare operator was amended to include these new buildings.

iv)On June 28, 2019, the Company sold its interest in a property located in Mooresville, IN for total consideration of $15,000, less transaction costs. The consideration was paid in the form of cash and a $5,000 loan receivable issued to the buyer of the property. The loan receivable earns annual interest of 8.5% and matures on July 1, 2024.

v)On August 30, 2019, the Company purchased three memory care facilities located in Fishers, IN; Greenwood, IN; and Zionsville, IN for a total contractual purchase price of $30,786, plus transaction costs. The transaction was

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

funded by the repayment of $2,300 of outstanding loans receivable principal and accrued interest, issuance of $2,049 in Class B LP units with the right to exchange units into common shares of the Company at the option of the unit holder ("Exchangeable Units"), and cash on hand.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

7.    Property, plant and equipment, net:

(a) Property, plant and equipment, net:

Property, plant and equipment consists of the following as at December 31, 2020 and 2019:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Land	Buildings	Furniture, fixtures and equipment	Properties under development	Total
Cost
Balance, December 31, 2018 - Unaudited	$    —	$    —	$    585	$    —	$    585
Additions through business combinations - Commonwealth	18,034	321,491	5,221	893	345,639
Additions through business combinations - Greenfield	5,024	28,228	3,178	—	36,430
Additions through settlement of loans receivable	2,500	—	—	—	2,500
Additions	—	640	591	44	1,275
Transfers from investment property	6,004	93,782	446	—	100,232
Assets transferred to held for sale	(3,560)	(8,183)	(458)	—	(12,201)
Balance, December 31, 2019 - Unaudited	$    28,002	$    435,958	$    9,563	$    937	$    474,460
Additions	—	2,584	2,216	6,469	11,269
Disposals	—	—	(63)	—	(63)
Transfers to joint venture	(316)	(11,336)	(226)	—	(11,878)
Transfer from investment property	488	9,182	199	—	9,869
Acquisition of Royal JV	1,232	23,184	607	—	25,023
Acquisition of Fayetteville	524	9,843	505	—	10,872
Acquisition of Albany operations	—	—	259	—	259
Sale of Tampa	(143)	(2,707)	(29)	—	(2,879)
Asset transferred to held for sale	(960)	(1,420)	(188)	—	(2,568)
Balance, December 31, 2020	$    28,827	$    465,288	$    12,843	$    7,406	$    514,364
Accumulated depreciation
Balance, December 31, 2018 - Unaudited	—	—	78	—	78
Depreciation and amortization	—	13,930	510		14,440
Balance, December 31, 2019 - Unaudited	$    —	$    13,930	$    588	$    —	$    14,518
Depreciation and amortization	—	46,322	2,247	—	48,569
Disposals	—	—	(3)	—	(3)
Transfers to joint venture	—	(111)	(10)	—	(121)
Asset transferred to held for sale	—	(397)	(27)	—	(424)
Balance, December 31, 2020	$    —	$    59,744	$    2,795	$    —	$    62,539
Property, plant and equipment, net balance, December 31, 2019 - Unaudited	$    28,002	$    422,028	$    8,975	$    937	$    459,942
Property, plant and equipment, net balance, December, 2020	$    28,827	$    405,544	$    10,048	$    7,406	$    451,825

(b) Acquisitions - year ended December 31, 2020

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Royal	Fayetteville	Albany operations	Total
Properties	5	1	—	6
Property, plant and equipment	$    25,023	$    10,872	$    259	$    36,154
Cash balance acquired	1,388	625	68	2,081
Working capital balances	(147)	(101)	(327)	(575)
Mortgages assumed	(22,822)	(6,848)	—	(29,670)
	$    3,442	$    4,548	$    —	$    7,990
Consideration paid:
Fair value of previously held interest	3,442	4,072	—	7,514
Cash paid	—	476	—	476
	$    3,442	$    4,548	$    —	$    7,990

On May 6, 2020 the Company acquired 100% of Royal Senior Living’s ("Royal") interest in five joint venture properties in which the Company already had a majority ownership interest ("Royal JV"). Simultaneous with this transaction, management of four of these properties was transitioned to Phoenix Senior Living (“Phoenix") and combined with two assets in the Company’s portfolio already managed by Phoenix. On May 6, 2020 the Company acquired the minority partner's interest in one of these properties, Fayetteville, for $476.

The Company owns a controlling 90% interest in the entity that owns and operates the six assets, and as a result they have been consolidated following this transaction. The Company received total consideration of $1,126 from Phoenix for their buy-in to the entity, of which $650 was received in cash and $476 in a note to an affiliate of Phoenix for the remaining portion of their 10% ownership in the entity. $26 of the note has been repaid as of December 31, 2020.

(c) Dispositions and transfers - year ended December 31, 2020

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Arlington Sale	Glassboro to Joint Venture	Tampa Sale	Total
Properties	(1)	(1)	(1)	(3)
Property, plant and equipment	$    (12,201)	$    (11,757)	$    (2,879)	$    (26,837)
Working capital balances	67	(57)	(121)	(111)
	$    (12,134)	$    (11,814)	$    (3,000)	$    (26,948)
Consideration paid (received):
Equity contributed to joint venture	—	(3,016)	—	(3,016)
Gain (loss) on sale of property	(221)	103	—	(118)
Note issued to joint venture partner	—	(490)	—	(490)
Repayment/contribution of mortgages payable	(8,000)	(8,411)	—	(16,411)
Cash proceeds received, net	(3,913)	—	(3,000)	(6,913)
	$    (12,134)	$    (11,814)	$    (3,000)	$    (26,948)

On February 28, 2020, the Company sold a seniors housing property located in Arlington, TX for a sale price of $12,450 before closing costs. This property was previously recorded as held for sale. The consideration was paid in the form of an $8,000 repayment of the mortgage secured by the property and $3,900 of cash.

On February 21, 2020, the Company entered into a joint venture agreement with the operator Heritage Senior Living ("Heritage") for a property in Glassboro, NJ. Heritage operates the property pursuant to a management agreement. The Company sold 10% of its interest in the property and operations for $490, satisfied through a promissory note earning 5.91% annual interest. The promissory note matures at the earlier of March 1, 2024, the date that the existing debt secured by the property is refinanced, or upon termination of the management agreement.

The remaining asset in the former five property Royal JV, a seniors housing community in Tampa, FL, was non-strategic for the Company, and was sold to a third party on May 11, 2020 for $3,290 less transaction costs.

(d) Acquisitions - the year ending December 31, 2019 - Unaudited

The following table summarizes the allocation of the purchase price to each major category of assets acquired and liabilities assumed at the date of acquisition and the major categories of consideration transferred for acquisitions which were accounted for as business combinations under IFRS 3. The Company finalized the purchase price during the three months ended March 31, 2020.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Commonwealth Tranche I	Commonwealth Tranche II	Greenfield Transition	Total
	Unaudited	Unaudited	Unaudited	Unaudited
Properties Acquired	17	3	13	33
Property, plant and equipment	$    286,695	$    58,051	$    36,430	$    381,176
Construction in progress	893	—	—	893
Assumption of mortgages payable	(9,523)	(34,475)	(22,522)	(66,520)
Prepayment embedded derivatives	—	2,991	—	2,991
Mark to market debt adjustments	(278)	(5,867)	—	(6,145)
Working capital balances	(2,964)	1,010	559	(1,395)
Previous interest in joint venture	—	—	(9,863)	(9,863)
	$    274,823	$    21,710	$    4,604	$    301,137
Consideration paid:
Issuance of preferred units	53,587	12,093	—	65,680
Proceeds from Commonwealth Facility	174,069	—	—	174,069
Satisfaction of rent receivable	—	—	1,522	1,522
Cash on hand	47,167	9,617	3,082	59,866
	$    274,823	$    21,710	$    4,604	$    301,137

On August 1, 2019, a wholly owned subsidiary of the Company closed on the first tranche of the purchase of Commonwealth Senior Living, LLC ("Commonwealth"). The first tranche of the acquisition includes 17 private pay seniors housing properties in addition to the Commonwealth management company (collectively, "Commonwealth Tranche I"). The Commonwealth management company operates all 17 properties purchased.

The total contractual purchase price for Commonwealth Tranche I was $285,357 for property, plant and equipment and $893 for construction in progress related to development projects ongoing at certain properties in the portfolio, subject to working capital adjustments and transaction costs. The acquisition was funded through $176,000 in new debt secured by 16 of the properties, the assumption of $9,523 in debt secured by one of the properties, the issuance of $53,587 of preferred interests in the Company's acquiring subsidiary entity and cash on hand.

On December 23, 2019, a wholly owned subsidiary of the Company closed on the second tranche of the purchase of Commonwealth which included the acquisition of 3 private pay seniors housing properties (collectively, "Commonwealth Tranche II"). The 3 properties are operated by the Commonwealth management company. The total contractual purchase price of Commonwealth Tranche II was $55,000. The acquisition was funded through the assumption of $34,475 in debt secured by the properties, the issuance of $12,093 of preferred interests in the Company's acquiring subsidiary entity and cash on hand. For the year ended December 31, 2019, the consolidated statements of income (loss) and comprehensive income (loss) includes transaction costs of $4,556 related to the acquisition of Commonwealth.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

For the year ended December 31, 2019, the Commonwealth portfolio has contributed revenue of $29,180 and net loss of $12,092. Had the acquisition of the Commonwealth portfolio taken place on January 1, 2019, revenue for the Company for the year ended December 31, 2019 would have been $199,220 and net loss for the Company would have been $19,409.

Pursuant to the Commonwealth purchase agreement, the Company may be required to fund one or more earnout payments relating to six communities that had not yet reached stabilization at the time of acquisition by the Company. These earnout payments are only payable in the event specific occupancy and earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") thresholds have been satisfied, and must be met prior to the third anniversary of closing at which time the earnout payment obligation will cease to exist. The earnout payments, when funded, will consist of a combination of cash and additional preferred interests. At this time, given the performance of one of the six communities, the Company has recorded an expense related to the increase in the fair value of contingent consideration in the consolidated statements of income (loss) and comprehensive income (loss) in the amount of $3,256, which was paid through the issuance of $1,701 of Commonwealth preferred units and $1,555 of cash on hand. The Company has recorded a liability of $2,254 in the financial statements associated with this commitment relating to the remaining five communities based on the weighted average probably of earnout payments owed using estimated future results at the properties.

On June 29, 2019, the Company entered into an agreement with Greenfield Senior Living ("Greenfield") whereby the Company would acquire 100% of Greenfield's interests in 13 properties in which the Company already has an ownership interest ("Greenfield Transition"). Ten of these properties were previously triple-net leased to Greenfield and the Company acquired Greenfield's interest in the operations at each property. The remaining three properties were previously held in a joint venture and were managed by Greenfield.

On September 3, 2019, three properties that were previously triple-net leased to Greenfield transitioned operations to a subsidiary of the Company. During October of 2019, seven properties that were previously triple-net leased to Greenfield transitioned operations. As of the date of these transitions, the assets were determined to be owner occupied property, and the corresponding assets are classified as property, plant and equipment.

On August 2, 2019, a property that was previously held in a joint venture and managed by Greenfield transitioned operations to the management of Commonwealth, a subsidiary of the Company. On October 1, 2019, a property that was previously held in a joint venture and managed by Greenfield transitioned operations to the management of Commonwealth. As of the date of this transition, the assets were determined to be owner occupied property, and the corresponding assets are classified as property, plant and equipment.

As of December 31, 2019, the Company completed the Greenfield Transition and acquired Greenfield's ownership interest in 13 properties which included Greenfield's 100% interest in operations at 10 properties as well as Greenfield's 20% interest in both the real estate and operations at 3 additional properties. The Company previously owned the real estate of the 10 properties in which it acquired operations and had leased the properties to Greenfield under a triple net lease. The Company previously owned 80% of the other 3 properties and accounted for its interests in these as investments in joint ventures (note 8). Upon completion of this transaction, the Company owns a 100% interest in both the real estate and operations of the 3 properties. Since these acquisitions were completed in steps, the Company remeasured its original interests to fair value. The total contractual purchase price of the Greenfield Transition was $4,708 which was funded through satisfaction of outstanding rent receivable of $1,522 owed by

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

Greenfield and cash on hand. For the year ended December 31, 2019, the consolidated statements of income (loss) and comprehensive income (loss) includes transaction costs of $1,342 related to the Greenfield Transition.

For the year ended December 31, 2019, the Greenfield transitioned ownership has contributed revenue of $6,542 and net loss of $942. Had the Greenfield transition taken place on January 1, 2019, revenue for the Company for the year ended December 31, 2019 would have been $165,186 and net loss for the Company would have been $8,403.

(e) Assets held for sale

The following table summarizes the significant assets held for sale on December 31, 2020 and 2019:

		December 31, 2020	December 31, 2019
			Unaudited
Assets:
	Property, plant and equipment, net	$    2,144	$    12,201
		$    2,144	$    12,201

On November 27, 2019, the Company entered into a definitive agreement to sell a seniors housing property located in Arlington, TX. This property was the remaining property from the joint venture with Greenfield that transitioned full ownership to a subsidiary of the Company and still remained under the operations of Greenfield. The sale price was $12,450 before closing costs and was settled in cash. On February 28, 2020 the transaction was completed.

In June 2020 the Company ceased operations in and listed for sale a property located in Richmond, VA. The Company has successfully transitioned all residents from this property into new locations in order to prepare the building for sale. The assets are classified as held for sale on the consolidated statement of financial position at December 31, 2020.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

8.    Joint arrangements:

As at December 31, 2020, the following are the Company's joint arrangements:

Joint arrangement	Number of properties	Location	Company ownership	Consolidation type
Invesque-Autumnwood Landlord	4	Canada	50    %	Joint operation (1)
Invesque-Autumnwood Operator	—	Canada	50    %	Joint venture (2)
Calamar	2	United States	75    %	Joint venture (3)
Heritage JV	3	United States	80    %	Joint venture (3)
Heritage Newtown	1	United States	80    %	Joint venture (3)
Heritage Harleysville	1	United States	90    %	Joint venture (3)
Heritage Glassboro	1	United States	90    %	Joint venture (3)
Jaguarundi	8	United States	61    %	Joint venture (4)

(1) The Company directly holds its interest in the real estate joint operation.

(2) These joint venture arrangements have been structured through separate legal entities and lease the properties from the joint operation landlord.

(3) These joint venture arrangements have been structured through separate legal entities. The joint venture owns an interest in separate legal entities which own the real estate and operations.

(4) The joint venture owns an interest in separate legal entities which own the real estate and leases the properties to third party operators.

The Company has entered into a number of joint arrangements for the purpose of jointly owning and operating certain of its seniors housing investments as detailed in the table above.

On April 1, 2019, the Company exchanged its majority ownership interest in the operations of a property previously owned through a joint venture located in Lansdale, PA for the partner's minority ownership interest in the real estate of the property resulting in the acquisition of control over the real estate.

During the year ended December 31, 2019, the Company acquired the joint venture partner's ownership of the three properties previously held in the Greenfield JV. Through the Greenfield Transition transaction, the wholly owned assets were determined to be owner occupied property, and the corresponding assets are classified as property, plant and equipment.

The Company and Autumnwood each owns a 50% direct beneficial interest in the real estate assets of the Invesque-Autumnwood Landlord entity and are jointly obligated for the related mortgages for a portfolio of four properties which are accounted for as joint operations and are accounted for under the proportionate consolidation method. The Company's 50% interest in the operations of these properties is held through separate legal entities (collectively referred to as "Invesque-Autumnwood Operators"), which under IFRS 11, Joint arrangements, are accounted for as joint ventures using the equity method. Invesque-Autumnwood Operators have leased the real estate from the landlords under their respective lease agreements. These leases are for three-year periods, with six automatic renewals every third anniversary for a total of 21 years. The Company's share of the landlords' lease receipts, $3,118 for the year ended December 31, 2020 (year ended December 31, 2019 - $3,024), is reported as lease revenue from joint ventures. Invesque-Autumnwood Operators lease

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

expense is included in the share of income from joint ventures in the consolidated statements of income (loss) and comprehensive income (loss).

The Company has an interest in eight seniors housing and care properties in the United States in which it also owns an interest in the operations at those properties through joint arrangements. In these joint arrangements, the Company owns an interest in the real estate and operations through separate legal entities at each of the properties and has management agreements in place to provide for the day to day operations resulting in joint control of the interests. Each of these joint arrangements are accounted for as joint ventures using the equity method and the Company's share of net income is included in income from joint ventures in the consolidated statements of income (loss) and comprehensive income (loss).

On June 5, 2019, the Company contributed eight investment properties to Jaguarundi Ventures, LP, a joint venture formed with Magnetar Financial LLC (collectively, "Magnetar"), a related party. The Company received $23,000 from its joint venture partner in the arrangement in exchange for a 39.49% interest in the joint venture. The properties contributed had an investment property value of $161,047 and total mortgage indebtedness of $102,692. The Company provides a guarantee on the outstanding mortgage balances of the joint venture in exchange for a fee equal to 15 basis points on the amount guaranteed. The Company earns an asset management fee of 25 basis points based on gross asset value. For the year ended December 31, 2020, the Company has earned guaranty fees of $60 (year ended December 31, 2019 - $39) and management fees of $403 (year ended December 31, 2019 - $229) from Jaguarundi Ventures included in other revenue in the consolidated statements of income (loss) and comprehensive income (loss).

On May 6, 2020 the Company acquired 100% of Royal Senior Living’s ("Royal") interest in five joint venture properties in which the Company already had a majority ownership interest ("Royal JV") (Note 7).

In addition to the five-asset Royal joint venture referenced above, the Company also had a single-asset joint venture with Royal which owned a seniors housing community in Eatonton, GA ("Royal Eatonton"). Royal purchased the Company’s 65% ownership interest in the community on May 6, 2020. Cash proceeds to the Company for this sale were $1,447. Following this transaction, the Company and Royal no longer have any shared interests in joint arrangements.

The following tables summarize the information about the Company's investment in joint ventures, which have been accounted for under the equity method:

	Year ended December 31, 2020	Year ended December 31, 2019
		(Adjusted - note 3)
		Unaudited
Cash contributions to joint ventures	$    1,855	$    14,391
Distributions received from joint ventures	$    3,803	$    5,897

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2020		December 31, 2019
	Net assets	Company share of net assets	Net assets	Company share of net assets
			(Adjusted - note 3)	(Adjusted - note 3)
			Unaudited	Unaudited
Cash	$    5,480	$    4,152	$    8,288	$    5,959
Tenant and other receivables	3,204	1,765	5,192	3,374
Other	923	839	1,032	793
Current assets	9,607	6,756	14,512	10,126
Investment properties	292,526	204,399	361,970	256,945
Property, plant and equipment, net	26,317	19,044	26,878	19,567
Loans receivable	3,885	55	13,978	9,010
Other non-current assets	481	362	1,107	927
Total assets	$    332,816	$    230,616	$    418,445	$    296,575
Accounts payable and accrued liabilities	$    6,753	$    4,787	$    7,578	$    5,441
Unearned revenue	712	585	724	560
Mortgages payable - current	25,332	17,311	29,424	21,207
Current liabilities	32,797	22,683	37,726	27,208
Mortgages payable - non-current	187,120	135,298	217,627	156,853
Loan commitment liability	416	252	2,359	1,478
Derivative instruments	7,249	5,615	2,627	2,012
Other non-current liabilities	2,286	1,510	1,702	1,030
Total liabilities	$    229,868	$    165,358	$    262,041	$    188,581
Net assets	$    102,948	$    65,258	$    156,404	$    107,994

Loan commitment liability represents the fair value of commitments made by the Company to issue loans at rates below market value.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Year ended December 31, 2020		Year ended December 31, 2019
	Net income (loss)	Company share of net income (loss)	Net income (loss)	Company share of net income (loss)
			Unaudited	Unaudited
Revenue	$    65,249	$    40,457	$    78,954	$    52,564
Other income	1,582	1,294	—	—
Property operating expense	(43,259)	(25,536)	(56,013)	(36,097)
Depreciation expense	(724)	(546)	(1,326)	(995)
Finance costs	(9,294)	(6,591)	(10,762)	(8,048)
Real estate tax expense	(1,609)	(974)	(1,021)	(618)
General and administrative expenses	(3,272)	(1,974)	(515)	(352)
Allowance for credit losses on loans and interest receivable	(14,800)	(11,957)	—	—
Change in fair value of financial instruments	(4,622)	(3,603)	(3,010)	(2,465)
Change in fair value of investment properties	(33,830)	(25,299)	(16,272)	(10,788)
Net loss, prior to distributions to owners	$    (44,579)	$    (34,729)	$    (9,965)	$    (6,799)

Related party transactions occur between the Company and its joint ventures. These related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to between the parties. Except as disclosed elsewhere in these consolidated financial statements, the related party balances are included in accounts payable, other receivables, loans receivable, and lease revenue from joint ventures.

The following table summarizes information about the gross balance of mortgages payable at the joint ventures:

	December 31, 2019
	Unaudited
Mortgages at fixed rates:
Mortgages (principal) (1)	$    163,307
Interest rates	3.99% to 4.98%
Weighted average interest rate	4.33    %
Mortgages at variable rates:
Mortgages (principal)	$    84,745
Interest rates	LIBOR plus 2.40% to LIBOR plus 3.00%
Weighted average interest rate	4.56    %
Blended weighted average rate	4.41    %
(1) Includes 114,589 of variable rate mortgages that are fixed with interest rate swaps.

All values are in US Dollars.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The following tables summarize the information about the Company's investment in Jaguarundi Ventures, LP, which have been accounted for under the equity method and included in tables above. Jaguarundi Ventures, LP is shown separately below due to significance of the interest in the joint venture. The joint venture was formed on June 5, 2019. During the year ended December 31, 2020, the Company has made cash contributions of $1,428 to Jaguarundi Ventures, LP (year ended December 31, 2019 - $11,894). During the year ended December 31, 2020, the Company has not received any distributions from Jaguarundi Ventures, LP (year ended December 31, 2019 - NIL).

	December 31, 2020		December 31, 2019
	Net assets	Company share of net assets	Net assets	Company share of net assets
			(Adjusted - note 3)	(Adjusted - note 3)
			Unaudited	Unaudited
Cash	$    1,658	$    1,003	$    3,936	$    2,382
Tenant and other receivables	1,602	969	1,620	980
Other	110	68	—	—
Current assets	3,370	2,040	5,556	3,362
Investment properties	143,785	86,999	162,660	98,420
Loans receivable	—	—	10,120	8,972
Total assets	$    147,155	$    89,039	$    178,336	$    110,754
Accounts payable and accrued liabilities	$    1,918	$    1,160	$    2,154	$    1,303
Unearned revenue	—	—	82	50
Mortgages payable - current	15,227	9,214	2,122	1,284
Current liabilities	17,145	10,374	4,358	2,637
Mortgages payable - non-current	84,149	50,916	99,542	60,229
Loan commitment liability	416	252	2,359	1,428
Derivative instruments	1,602	969	659	399
Other non-current liabilities	1,700	1,029	1,700	1,029
Total liabilities	$    105,012	$    63,540	$    108,618	$    65,722
Net assets	$    42,143	$    25,499	$    69,718	$    45,032

The Company provides a guarantee on the outstanding mortgage balances of the Jaguarundi Ventures, LP in exchange for a fee equal to 15 basis points on the amount guaranteed. As of December 31, 2020, the outstanding mortgages balance of Jaguarundi Ventures, LP is $99,376. As of December 31, 2020, the value of the properties that collateralize the mortgages is $143,785 and is sufficient to support the mortgage values.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Year ended December 31, 2020		Year ended December 31, 2019
	Net income (loss)	Company share of net income (loss)	Net income (loss)	Company share of net income (loss)
			Unaudited	Unaudited
Revenue	$    14,423	$    8,638	$    8,417	$    5,048
Finance costs	(3,859)	(2,182)	(2,847)	(1,723)
Real estate tax expense	(1,609)	(974)	(1,021)	(618)
General and administrative expenses	(3,318)	(2,008)	(515)	(352)
Allowance for credit losses on loans and interest receivable	(14,800)	(11,956)	—	—
Change in fair value of financial instruments	(942)	(570)	(126)	(76)
Change in fair value of investment properties	(19,294)	(11,585)	(5,621)	(4,219)
Net loss, prior to distributions to owners	$    (29,399)	$    (20,637)	$    (1,713)	$    (1,940)

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

9.    Credit facilities:

The credit facilities are recorded net of loan fees, which are capitalized when paid, and amortized into finance cost over the terms of the related loans using the effective interest rate method.

	December 31, 2019
	Unaudited
Credit Facility Term (1)	200,000
Credit Facility Revolver (3)	173,750
MOB Facility denominated portion	21,286
MOB Facility CAD denominated portion (1) (2)	65,589
Magnetar Facility	15,000
Commonwealth Facility (1)	176,000
Finance costs, net	(4,666)
Carrying value	646,959
Less current portion	14,569
Long-term portion	632,390
(1) This facility is fixed with an interest rate swap.
(2) This facility is denominated in Canadian dollars with a principal amount of CAD85,202.
(3) 75,000 of this facility is fixed with interest rate swaps.

All values are in US Dollars.

On December 20, 2018 the Company entered into an agreement for an unsecured credit facility (the "Credit Facility") with a $400,000 capacity. The Credit Facility is comprised of a $200,000 term loan and a $200,000 revolving line of credit. The term loan has a maturity date of December 20, 2023, while the revolving line of credit has a maturity date of December 20, 2022, with a one year extension option, subject to lender approval. The Credit Facility bears interest at a rate of LIBOR plus an applicable margin based on the Company's consolidated leverage ratio, with an option to use a rate based on Base Rate, as defined in the agreement, plus an applicable margin.

The borrowing capacity of the Credit Facility is based on the undepreciated book value of an unencumbered pool of assets. Per the agreement, the Company's leverage could not exceed 62.5% through December 31, 2019, reducing to 60% thereafter. The agreement also provides for the Company's leverage to increase to 65% for two quarters following any material acquisition (the "surge period"). Per the agreement, the fixed charge ratio shall not be less than 1.75 to 1.0. On November 7, 2019, the Company amended the terms of the Credit Facility to extend the surge provision period following a material acquisition for both the maximum consolidated total leverage ratio covenant and unencumbered pool leverage covenant. The maximum consolidated total leverage ratio covenant can increase to 65% for four quarters starting with the third quarter of 2019. The unencumbered pool leverage ratio may increase to 65% for two quarters starting with the third quarter of 2019, reducing to 62.5% for two quarters after that, and reducing back to 60% thereafter. The Company's acquisition of Commonwealth is considered a material acquisition under the terms of the Credit Facility.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

On November 4, 2020, the Company entered into an agreement to modify the Credit Facility, in which the facility will be permanently converted to a facility secured by pledges of equity in the special purposes entities which own the properties making up a borrowing base. The minimum fixed charge coverage ratio covenant will permanently decrease from 1.75 to 1.60. Per the agreement, the Company will be granted a surge period effective with the quarterly reporting period ended September 30, 2020 through June 30, 2021. During the surge period, the consolidated leverage ratio covenant will be increased from 60% to 65%, the advance rate will increase from 60% to 65% of the borrowing base, the applicable margin for LIBOR loans will increase 15 basis points, and the implied interest rate used to calculate the debt service coverage amount will decrease from 6.0% to 5.75%.

The table below shows the applicable margins at each leverage ratio during the surge period, which includes a 15 basis point increase:

Level	Consolidated Leverage Ratio	Applicable Margin for Revolving Credit LIBOR Loans	Applicable Margin for LIBOR Loans that are Term Loans
1	Less than 40%	1.75    %	1.70    %
2	Equal to or greater than 40% but less than 45%	1.90    %	1.85    %
3	Equal to or greater than 45% but less than 50%	2.05    %	2.00    %
4	Equal to or greater than 50% but less than 55%	2.20    %	2.15    %
5	Equal to or greater than 55% but less than 60%	2.35    %	2.30    %
6	Equal to or greater than 60% but less than 65%	2.60    %	2.55    %

On May 1, 2018, a wholly owned subsidiary of the Company entered into a secured credit facility ("MOB Facility") for the purpose of funding the acquisition of 14 medical office buildings. The facility has maximum commitment amounts of CAD$90,060, with a borrowing rate of the BA Rate plus 220 basis points, and a US Dollar commitment of $22,515, with a borrowing rate of LIBOR plus 220 basis points. The facility provides for interest-only payments through its maturity date of May 1, 2023. Per the terms of the agreement, CAD$4,858 and USD$1,228 are reserved for the construction of tenant improvements and the payment of leasing commissions for leases entered into after the closing of the transaction. On May 1, 2018, in conjunction with the acquisition, the Company drew CAD$85,202 and USD$16,647. The facility also included an allocation of USD$4,460 for the acquisition of an additional medical office property in Williamsville, New York. On June 28, 2018, the Company amended the terms of the agreement to increase the borrowing capacity for the Williamsville, New York property to USD$6,572. The company drew a total of USD$6,572 in conjunction with the closing of the Williamsville asset on July 9, 2018. On December 31, 2018, the Company repaid USD$1,933 on the facility. On September 21, 2020, the Company entered into an amendment to the MOB Facility that reset certain loan covenant levels. Pursuant to the terms of the amendment, during a test period beginning June 30, 2020, the Company's debt yield covenant level was reduced to 5.75% (which increases to 8.00% at December 31, 2021).

On July 26, 2019, the Company entered into a credit agreement with Magnetar for a principal amount of $30,000, annual interest rate of 8.5%, and an initial maturity of one year with a one year extension option. On December 5, 2019, the Company repaid $15,000 on the facility. On June 5, 2020, the Company gave notice of intent to exercise the one year extension option and per the Magnetar Facility credit agreement the interest rate increased to 9.0%. On June 16, 2020, the Company repaid $5,000 on the Magnetar Facility.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

On August 1, 2019, a wholly owned subsidiary of the Company entered into a secured credit facility ("Commonwealth Facility") for the purpose of funding the acquisition of Commonwealth Tranche I. The $176,000 new debt secured by 16 properties has a maturity date of August 1, 2024, with 2 available extension options. It bears interest at a rate of LIBOR plus 215 basis points. The agreement also provides for an accordion feature that would extend the capacity of the loan by an additional $50,000 subject to certain terms and conditions provided for in the agreement. Pursuant to the terms of the Commonwealth Facility, the Company is required to maintain a debt yield of 8.0% (which increases to 8.75% at September 30, 2021) as well as a Debt Service Coverage Ratio of 1.25.

On January 17, 2020, the Company entered into an amendment to the Commonwealth Facility that established a $10,000 capital improvements holdback ("Holdback"). The Holdback provides funding to the Company for reimbursement of capital improvements made to the properties encumbered by the Commonwealth Facility. The amendment allows the Company to be reimbursed for 65% of capital improvement costs incurred. On January 26, 2021, the Company drew $4,453 from the Holdback for reimbursement of expenses incurred for adding additional units to the Abingdon, South Boston and Front Royal properties.

Future principal repayments of the credit facilities are as follows:

	Aggregate principal<br><br>payments
2021	$    10,000
2022	190,500
2023	288,190
2024	176,000
2025	—
Thereafter	—
Total	$    664,690

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

10.    Mortgages payable:

Mortgages payable consist of the following as at December 31, 2020:

	December 31, 2020	December 31, 2019
		Unaudited
Mortgages payable	$    296,881	$    275,083
Mark-to-market adjustment, net	4,958	2,297
Finance costs, net	(2,375)	(1,913)
Carrying value	$    299,464	$    275,467
Less current portion	30,622	43,024
Long-term portion	$    268,842	$    232,443

Mortgages payable are collateralized by investment properties and property, plant and equipment with a value of $461,200 at December 31, 2020. Maturity dates on mortgages payable range from 2021 to 2054, and the weighted average years to maturity is 7.93 years at December 31, 2020.

Future principal payments on the mortgages payable as at December 31, 2020 are as follows:

	Regular principal payments	Principal due on maturity	Total principal payments	% of total principal payments
2021	$    6,417	$    24,205	$    30,622	10    %
2022	6,396	27,369	33,765	11    %
2023	5,478	83,435	88,913	30    %
2024	3,831	20,698	24,529	8    %
2025	2,637	27,441	30,078	10    %
Thereafter	47,678	41,296	88,974	31    %
	$    72,437	$    224,444	$    296,881	100    %

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2019
	Unaudited
Mortgages at fixed rates:
Mortgages (principal) (1)	$    241,451
Interest rates	2.55% to 6.96%
Weighted average interest rate	4.76    %
Mortgages at variable rates:
Mortgages (principal)	$    33,632
Interest rates	LIBOR plus 3.20% to Canada Prime Rate plus 1.25%
Weighted average interest rate	5.02    %
Blended weighted average rate	4.79    %
(1) Includes 67,069 of variable rate mortgages that are fixed with interest rate swaps.

All values are in US Dollars.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

11.    Derivative financial instruments:

(a) Derivative swaps:

Derivative swaps as at December 31, 2020 are detailed in the table below:

			Asset (liability) balance
Swap	Fixed rate	Notional amount	December 31, 2020	December 31, 2019	December 31, 2019
				Unaudited	Unaudited
Credit Facility Term	LIBOR fixed at 2.11%	$    200,000	$    (11,945)	(4,466)	$    (5,655)
Credit Facility Revolver	LIBOR fixed at 2.57%	25,000	(1,860)	(1,019)	(856)
Credit Facility Revolver	LIBOR fixed at 2.11%	50,000	(1,996)	(861)	(861)
Leawood Swap (3)	Interest rate fixed at 4.55%	13,136	—	—	(407)
Topeka Swap (3)	Interest rate fixed at 4.55%	12,477	—	—	(387)
Red Oak Swap (1)	Interest rate fixed at 3.77%	4,105	(13)	(27)	(10)
Park Terrace Swap	LIBOR fixed at 2.42%	—	—	—	(4)
Seneca Lake Swap	LIBOR fixed at 2.42%	—	—	—	(4)
Winchester Swap	Interest rate fixed at 4.54%	6,327	(76)	(2)	(159)
Calhoun Swap	LIBOR fixed at 1.75%	—	—	—	(3)
MOB Facility Swap (2)	Banker's Acceptance fixed at 2.12%	66,904	(2,561)	(276)	(127)
Grand Brook Swap	Interest rate fixed at 5.98%	15,429	(402)	(475)	(130)
Commonwealth Swap	LIBOR fixed at 1.69%	176,000	(9,375)	(840)	(840)
Constant Care Swap	Interest rate fixed at 4.21%	26,972	(641)	64	64
Oak Ridge Swap	LIBOR fixed at 0.66%	14,236	(100)	—	—
	Carrying value		$    (28,969)	(7,902)	$    (9,379)
			(491)	—
			$    (28,478)	(7,902)
	Derivative instruments (Asset)		$    —	64
	Derivative instruments (Liability)		(28,969)	(7,966)
			$    (28,969)	(7,902)
1) The swap has a notional amount of CAD5,228.
2) The swap is for a fixed amount of CAD85,202.
3) These properties were contributed to a joint venture on June 5, 2019.

All values are in US Dollars.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

(b) Prepayment embedded derivatives:

Certain mortgages payable contain prepayment options that represent embedded derivatives that require bifurcation from the host contract. The prepayment options are measured at fair value, with changes in the fair value being recognized as change in fair value of financial instruments in the consolidated statements of income (loss) and comprehensive income (loss).

The fair value of the prepayment embedded derivatives has been determined using a LIBOR based interest rate swap options ("swaptions") as a proxy. The swaptions were structured to mirror the financial conventions of the respective loans, including payment periods, accrual basis, principal amortization, prepayment dates and prepayment premiums. The swaptions were structured as fixed receiver with a strike rate set on market as of the date of the loan agreement with exercise premiums to match the underlying loans plus a cost of refinancing upon exercise. The resulting swaption price would represent a proxy for the value of the prepayment rights embedded in the underlying loans. The fair values determined are based on significant other observable inputs (Level 2). As at December 31, 2020, the prepayment embedded derivative assets have a fair value of $4,814 (2019 - NIL). For the year ended December 31, 2020, a fair value gain of $1,823 (year ended December 31, 2019 - NIL), was recorded in the consolidated statements of income (loss) and comprehensive income (loss).

12.    Convertible debentures:

(a) 2016 Convertible Debentures

On December 16, 2016, the Company issued $45,000 aggregate principal amount of convertible unsecured subordinated debentures (the "2016 Convertible Debentures"). The 2016 Convertible Debentures are due on January 31, 2022 and bear interest at an annual rate of 5.00% payable semi-annually in arrears on July 31 and January 31 of each year.

The 2016 Convertible Debentures are convertible into common shares of the Company at the option of the holder at a conversion price of $11.00 per common share at any time prior to the earlier of January 31, 2022 and the last business day immediately preceding the date specified by the Company for redemption. On or after January 31, 2020 and prior to January 31, 2021, the 2016 Convertible Debentures may be redeemed by the Company in whole or in part at a price equal to the principal amount thereof plus accrued and unpaid interest provided that the volume weighted average trading price of the common shares on the Toronto Stock Exchange for the 20 consecutive trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On or after January 31, 2021, and prior to the maturity date, the 2016 Convertible Debentures may be redeemed by the Company in whole at any time or in part from time to time, at a price equal to the principal amount thereof plus accrued interest.

Upon redemption or maturity, the Company may satisfy its obligations with respect to the convertible debentures in cash or the issuance of common shares based on 95% of the Current Market Price on the Redemption Date or Maturity Date, respectively.

As at December 31, 2020, the 2016 Convertible Debentures are comprised of the following:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2020	December 31, 2019
		Unaudited
Issued	$    44,975	$    44,975
Issue costs, net of amortization and accretion of equity component	802	45
Equity component, excluding issue costs and taxes	(1,648)	(1,648)
2016 Convertible Debentures	$    44,129	$    43,372

Interest costs related to the 2016 Convertible Debentures are recorded in financing costs using the effective interest rate method.

On May 6, 2019, $25 of 2016 Convertible Debentures were converted into 2,272 common shares.

(b) 2018 Convertible Debentures

On August 24, 2018, the Company issued $50,000 aggregate principal amount of convertible unsecured subordinated debentures (the "2018 Convertible Debentures"). The 2018 Convertible Debentures are due on September 30, 2023 and bear interest at an annual rate of 6.00% payable semi-annually in arrears on March 31 and September 30 of each year commencing on March 31, 2019.

The 2018 Convertible Debentures are convertible into common shares of the Company at the option of the holder at a conversion price of $10.70 per common share. The debentures will not be redeemable prior to September 30, 2021. On or after September 30, 2021, and prior to September 30, 2022, the 2018 Convertible Debentures may be redeemed in whole or in part from time to time at the Company’s option, at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares on the Toronto Stock Exchange for the 20 consecutive trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On or after September 30, 2022, and prior to the maturity date, the 2018 Convertible Debentures may be redeemed by the Company, in whole at any time or in part from time to time, at a price equal to the principal amount thereof plus accrued and unpaid interest.

Upon redemption or maturity, the Company may satisfy its obligations with respect to the convertible debentures in cash or the issuance of common shares based on 95% of the Current Market Price on the Redemption Date or Maturity Date, respectively.

As at December 31, 2020, the 2018 Convertible Debentures are comprised of the following:

	December 31, 2020	December 31, 2019
		Unaudited
Issued	$    50,000	$    50,000
Issue costs, net of amortization and accretion of equity component	(982)	(1,587)
Equity component, excluding issue costs and taxes	(736)	(736)
2018 Convertible Debentures	$    48,282	$    47,677

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

Interest costs related to the 2018 Convertible Debentures are recorded in financing costs using the effective interest rate method.

13.    Commonwealth preferred unit liability:

On August 1, 2019, the Company issued $53,587 in preferred interests of the acquiring subsidiary to fund the purchase of Commonwealth Tranche I. The preferred interests are exchangeable by holders into common shares of the Company at a fixed exchange price of $9.75 per common share. The preferred interests have an initial dividend rate of 6.50% per annum, with annual escalators beginning August 1, 2023, and a liquidation value equal to their unreturned initial capital contribution and any accrued and unpaid dividends. These dividends are included in finance costs from operations in the consolidated statements of income and comprehensive income. Under certain circumstances, the Company will have the right to redeem the preferred interests at its discretion for an amount specified in the operating agreement.

On December 23, 2019, the Company issued $12,093 in preferred interests of the acquiring subsidiary to fund the purchase of the Commonwealth Tranche II.

On October 1, 2020, the Company issued $1,701 in preferred interests to fund the earnout payment pursuant to the Commonwealth purchase agreement (note 7).

As at December 31, 2020 the Commonwealth preferred unit liability is comprised of the following:

	December 31, 2020	December 31, 2019
		Unaudited
Issued	$    67,381	$    65,680
Equity component, net of accretion	(1,584)	(2,026)
Commonwealth preferred unit liability	$    65,797	$    63,654

14.    Other liabilities:

Other liabilities are as follows:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2020	December 31, 2019
		Unaudited
Deferred shares liability (note 22)	$    875	$    2,597
Security deposits received from tenants	8,576	8,573
Escrows collected from tenant	1,816	944
Unearned revenue	2,674	1,426
Liability to previous owner of Care	126	632
Lease liability	1,890	2,199
Loan commitment liability (note 25)	115	979
Exchangeable units liability	2,049	2,049
Earnout payable (note 7 and 25)	2,254	—
Other	841	352
	$    21,216	$    19,751
Current	$    4,975	$    3,015
Non-current	16,241	16,736
	$    21,216	$    19,751

Loan commitment liability represents the fair value of commitments made by the Company to issue loans at rates below market value.

On August 30, 2019, the Company issued 327,869 Class B LP units with the right to exchange units into common shares at the option of the unit holder ("Exchangeable Units"). The shares were issued to fund $2,049 of the consideration paid for the three purchased properties located in Indiana. The Exchangeable Units are entitled to receive distributions equal to those provided to common share holders. These distributions are included in finance costs from operations in the consolidated statement of income (loss) and comprehensive income (loss).

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

15.    Reconciliation of changes in liabilities arising from financing activities:

	Credit facilities	Mortgages payable	Convertible debentures	Commonwealth preferred unit liability	Total
Balance, December 31, 2018 - Unaudited	$    338,140	$    303,330	$    89,745	$    —	$    731,215
Proceeds from financing	370,350	39,489	—	—	409,839
Repayments	(63,990)	(40,635)	—	—	(104,625)
Scheduled principal payments	—	(4,959)	—	—	(4,959)
Mortgages contributed to joint venture (note 8)	—	(102,692)	—	—	(102,692)
Mortgages assumed on acquisition of control over properties previously owned through a joint venture	—	32,265	—	—	32,265
Mortgages assumed through acquisition of property, plant, and equipment (note 7)	—	47,152	—	—	47,152
Commonwealth preferred units issued	—	—	—	65,680	65,680
Equity component of Commonwealth preferred unit liability	—	—	—	(2,093)	(2,093)
Financing costs paid	(1,952)	(979)	—	—	(2,931)
Amortizing of financing costs and mark to market adjustments	1,311	1,259	1,329	67	3,966
Changes in foreign currency rates	3,100	1,237	—	—	4,337
Conversion of convertible debentures into common shares	—	—	(25)	—	(25)
Balance, December 31, 2019 - Unaudited	$    646,959	$    275,467	$    91,049	$    63,654	$    1,077,129
Proceeds from financing	33,000	16,682	—	—	49,682
Repayments	(21,250)	(17,375)	—	—	(38,625)
Scheduled principal payments	—	(5,112)	—	—	(5,112)
Mortgage contributed to joint venture (note 7)	—	(8,411)	—	—	(8,411)
Mortgages assumed from joint venture (note 7)	—	29,670	—	—	29,670
Mortgages assumed through acquisition of investment property (note 6)	—	4,853	—	—	4,853
Commonwealth preferred units issued (note 7)	—	—	—	1,701	1,701
Mark to market adjustments made to mortgages assumed through acquisition of property, plant and equipment	—	2,991	—	—	2,991
Financing costs paid	(996)	(603)	—	—	(1,599)
Amortizing of financing costs, mark to market adjustments, and accretion of equity components	1,577	337	1,362	442	3,718
Changes in foreign currency rates	1,306	965	—	—	2,271
Balance, December 31, 2020	$    660,596	$    299,464	$    92,411	$    65,797	$    1,118,268

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

16.    Share capital:

(a) Common shares:

The following number and value of common shares were issued and outstanding as at December 31, 2020:

	Common shares	Carrying value
Balance, December 31, 2018 - Unaudited	52,933,851	$    493,165
Issued as consideration for acquisition of Symcare properties	555,556	3,800
Issued on settlement of Deferred Share Incentive Plan	150,912	1,078
Issued pursuant to the Company's dividend reinvestment plan	1,070,518	7,023
Shares acquired under NCIB	(79,627)	(530)
Issued through conversion of convertible debentures	2,272	25
Balance, December 31, 2019 - Unaudited	54,633,482	$    504,561
Issued on settlement of Deferred Share Incentive Plan	335,709	1,078
Issued on settlement of equity settled Deferred Shares	31,203	214
Issued pursuant to the Company's dividend reinvestment plan	931,602	3,498
Shares acquired under NCIB	(54,500)	(148)
Balance, December 31, 2020	55,877,496	$    509,203

(i)On November 15, 2019 the Toronto Stock Exchange ("TSX") approved the Company's notice of intention to renew its normal course issuer bid ("NCIB") for a portion of its common shares. Pursuant to the notice, the Company is authorized to acquire up to a maximum of 2,723,835 of its common shares, or approximately 5% of the Company’s 54,476,694 outstanding common shares as of November 1, 2019, for cancellation over the following 12 months. Purchases under the NCIB will be made through the facilities of the TSX or through a Canadian alternative trading system and in accordance with applicable regulatory requirements at a price per share equal to the market at the time of acquisition. The number of shares that can be purchased pursuant to the NCIB is subject to a daily maximum of 10,927 shares, subject to the Company’s ability to make one block purchase of shares per calendar week that exceeds such limits. Any shares purchased under the NCIB will be canceled upon purchase. During the year ended December 31, 2020, the Company acquired 54,500 shares.

(ii)For the year ended December 31, 2020, the Company declared dividends payable on common shares of $10,120 (2019 - $39,764). Of the $10,120 dividends declared in the year ended December 31, 2020, $2,868 was satisfied in the form of shares issued through the dividend reinvestment plan (2019 - $7,687).

(iii)On April 10, 2020, the Company announced the suspension of its dividend for all common shareholders from April 1, 2020 until further notice.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

(b) Preferred shares:

The following number and value of preferred shares were issued and outstanding as at December 31, 2020:

	Preferred shares	Carrying value
Balance, December 31, 2018 - Unaudited	7,560,137	$    71,106
Issued Series 4 preferred shares	1,538,461	14,283
Balance, December 31, 2019 and December 31, 2020	9,098,598	$    85,389

The Company entered into subscription agreements in 2017 and 2018 in respect of the issuance of class A convertible preferred shares ("Preferred Shares") to certain funds managed by Magnetar, a significant shareholder of the Company, funded in 3 series. The purpose of the transaction was to raise proceeds to be used for the repayment of debt, general working capital purposes and to fund future acquisitions. The Company issued 7,560,137 preferred shares for aggregate gross proceeds of $71,500.

The Preferred Shares issued during series 1, 2, and 3 are non-voting and are initially convertible into common shares of the Company on a one-for-one basis at the option of the holder based on an initial liquidation preference and a conversion price of $9.75. The Preferred Shares were issued at a price per share equal to the initial liquidation preference of $9.75, subject to a 3% discount. Following issuance, the liquidation preference of the Preferred Shares will accrete at a rate of 5.65% per annum, compounded quarterly, increasing the number of common shares into which each Preferred Share is convertible at the fixed rate, and is subject to further adjustments in certain circumstances. In certain circumstances, the Company may redeem the Preferred Shares for an amount equal to their liquidation preference and may also require the conversion of the Preferred Shares. If the Preferred Shares are redeemed or mandatorily converted in the first year following issuance, the liquidation preference of such shares will include a 4% premium to the initial liquidation preference. This premium will be reduced by 1% per year in respect of redemptions or mandatory conversions in the second, third or fourth years following issuance.

On July 23, 2019, the Company entered into subscription agreements in respect of the issuance of Class A convertible preferred shares to Magnetar for aggregate gross proceeds of $14,550. On August 27, 2019 the fourth series funded resulted in the issuance of 1,538,461 Class A Series 4 Preferred Shares.

The Series 4 Preferred Shares will be convertible into common shares at a conversion price of $9.75. The other terms of the Series 4 Preferred Shares will be substantially similar to the terms of the Company's Class A convertible preferred shares that are currently outstanding, except that the liquidation preference of the Series 4 Preferred Shares will accrete at a rate of 9.80% for the first 24 months following the issuance of the Series 4 Preferred Shares and 12.25% thereafter; the prepayment penalty on liquidation, mandatory conversion and redemption will be 1% of the initial liquidation amount if the applicable event occurs within the first six months after issuance and 0.5% of the initial liquidation amount if the applicable event occurs between 6 months and one year following the issuance; and the Series 4 Preferred Shares will contain a limitation on converting to common shares, without prior approval of the Toronto Stock Exchange, if such conversion would result in the issuance of common shares equal to or exceeding 10% of the common shares outstanding on the date the Series 4 Preferred Shares are issued.

As at December 31, 2020, the preferred shares are convertible into 10,654,257 common shares of the Company.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

17.    Earnings (loss) per share:

Basic income per share is calculated using the weighted average number of shares outstanding during the period. The calculation of diluted income per share, is calculated using the "if-converted" method and to the extent the conversion is dilutive, assumes all convertible securities have been converted at the beginning of the period, or at the time of issuance, if later, and any charges or returns on the convertible securities, on an after-tax basis, are removed from net earnings. The outstanding convertible debentures, unvested deferred shares, exchangeable units, preferred shares and Commonwealth preferred units, if exercised, would be anti-dilutive to net income per share. Accordingly their potential exercise has been ignored in calculating the diluted net income per share.

The following table reconciles the numerator and denominator of the basic and diluted earnings per share computation:

Net loss:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Net loss for basic and diluted net loss per share	$    (184,004)	$    (5,359)

Denominator for basic and diluted net loss per share:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Weighted average number of shares, including fully vested deferred shares: Basic and diluted	55,699,307	53,989,904

Net loss per share:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Basic and diluted	$    (3.30)	$    (0.10)

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

18.    Revenue:

(a) Rental Revenue:

Rental revenue consists of the following:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Contractual rental revenue	$    68,436	$    75,950
Straight-line rent adjustments	6,394	8,964
Amortization of tenant inducements	(385)	(158)
Property tax recoveries	12,705	15,243
Revenue from services - CAM recoveries (1)	2,962	3,199
	$    90,112	$    103,198
(1) Represents property services element in accordance with IFRS 15

The Company is scheduled to receive rental income from operators of its seniors housing and care properties under the provisions of long term non-cancellable operating leases, generally with lease terms of 10 to 15 years, with provisions for lease extensions at the option of the tenants. These leases are triple-net and include renewal options and rent escalation clauses.

The Company is also scheduled to receive rental income from tenants of the medical office building portfolio. These leases include provisions for recovery of real estate taxes, insurance and costs associated with common area maintenance ("CAM").

The tenant Symcare operates a portfolio of 15 properties and pays rent pursuant to a master lease. For the year ended December 31, 2020, rental revenue from this tenant comprised approximately 43% (year ended December 31, 2019 - 38%), of the Company's consolidated rental revenue for the period.

Future minimum rentals to be received as of December 31, 2020 are as follows:

Less than 1 year	$    69,031
Between 1 and 5 years	272,230
More than 5 years	514,544
	$    855,805

Future minimum rentals in the above table attributable to Symcare represent approximately 50% of the total.

(b) Resident rental and related revenue:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Resident revenue	$    56,250	$    16,210
Service revenue (1)	64,157	22,257
	$    120,407	$    38,467
(1) Represents property services element in accordance with IFRS 15

19.    Direct property operating expenses:

Direct property operating expenses consist of the following:

	Year ended December 31, 2020			Year ended December 31, 2019
	Owner occupied properties	Medical office buildings	Total	Owner occupied properties	Medical office buildings	Total
				Unaudited	Unaudited	Unaudited
Repairs and maintenance	$    2,436	$    1,649	$    4,085	$    763	$    1,539	$    2,302
Utilities	3,709	1,381	5,090	1,163	1,369	2,532
Property management fees	—	536	536	—	574	574
Compensation and benefits	59,279	—	59,279	19,226	—	19,226
Other services and supplies	6,680	994	7,674	2,562	1,022	3,584
Real estate taxes	2,272	—	2,272	715	—	715
Other	15,668	901	16,569	3,782	818	4,600
	$    90,044	$    5,461	$    95,505	$    28,211	$    5,322	$    33,533

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

20.    Finance costs:

Finance costs consist of the following:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Interest expense on credit facilities	$    20,496	$    22,665
Interest expense on mortgages payable	11,121	11,922
Interest expense on convertible debentures	5,248	5,249
Distributions on exchangeable units	62	80
Dividends on Commonwealth preferred units	4,376	1,475
Amortization and accretion expense	3,997	3,882
Interest rate swap payments (receipts)	7,747	(86)
Write-off of deferred financing costs from refinancing	67	82
Amortization of mark-to-market debt adjustments	(330)	25
Interest income from loans receivable (note 4)	(2,983)	(3,661)
Finance costs from operations	$    49,801	$    41,633
Allowance for credit losses on loans and interest receivable (note 4)	23,546	1,003
Change in non-controlling interest liability	316	504
Change in fair value of financial instruments (note 11)	19,084	9,379
Change in fair value of contingent consideration (note 7)	5,510	—
Total finance costs	$    98,257	$    52,519

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

21.    General and administrative:

General and administrative costs consist of the following:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Compensation and benefits	$    11,432	$    9,067
Asset management and administrative fees	235	499
Professional fees	3,474	3,090
Deferred share compensation expense	1,066	2,653
Bad debt expense	1,838	—
Other	2,494	2,783
	$    20,539	$    18,092

For the year ended December 31, 2020, $6,699 (year ended December 31, 2019 - $2,843) of general and administrative costs were incurred at the Commonwealth management company. For the year ended December 31, 2020, the Company has incurred severance expense of $394 (year ended December 31, 2019 - NIL).

22.    Deferred share incentive plan:

On May 25, 2016, the shareholders of the Company voted on and approved a deferred share incentive plan (the "Deferred Share Incentive Plan").

Each director of the Company is given the right to participate in the Deferred Share Incentive Plan. Directors who elect to participate shall receive a portion of their fees earned for service on the Board (the "Elected Amount") in the form of deferred shares in lieu of cash ("Individual Contributed Deferred Shares"). In addition, the Deferred Share Incentive Plan provides that the Company shall match 100% of the elected amount for each director such that the aggregate number of deferred shares issued to each such director annually shall be equal in value to two times the elected amount for such director ("Company Contributed Deferred Shares").

Under the Deferred Share Incentive Plan, deferred shares may be granted from time to time to participants in the Deferred Share Incentive Plan at the discretion of the Board of Directors or the Compensation, Governance and Nominating Committee ("Discretionary Deferred Shares")

Wherever cash dividends are paid on the common shares, additional deferred shares are credited to the participant's account. The number of such additional deferred shares is calculated by multiplying the aggregate number of deferred shares held on the relevant dividend record date by the amount of the dividend paid by the Company on each common share, and dividing the result by the market value of the common shares on the dividend date.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

Individual Contributed Deferred Shares vest immediately upon grant. Company Contributed Deferred Shares, which are granted only to directors, generally vest in three equal installments on the first three anniversary dates of the grant.

Discretionary Deferred Shares may also be granted to participants and, where vesting is not specified in connection with the grant, such Discretionary Deferred Shares will vest on the second anniversary of the date of grant.

Additional deferred shares credited to a participant's account in connection with cash dividends vest on the same schedule as their corresponding Deferred Shares and are considered issued on the same date as the deferred shares in respect of which they were credited.

At the meeting of shareholders held on May 16, 2018, shareholders approved an amendment to the Deferred Share Incentive Plan to increase the maximum number of common shares available for issuance under the Deferred Share Incentive Plan to 4,000,000.

At December 31, 2020, the number of deferred shares granted and outstanding and vested are as follows:

	Granted/<br><br>Outstanding	Fully Vested
As at December 31, 2018 - Unaudited	375,279	92,244
Discretionary Deferred Shares granted	621,917	95,526
Individual Contributed Deferred Shares (vested immediately)	41,289	41,289
Company Contributed Deferred Shares	28,995	30,039
Shares forfeited	(18,842)	—
Shares issued upon vesting of deferred shares	(150,912)	(150,912)
As at December 31, 2019 - Unaudited	897,726	108,186
Discretionary Deferred Shares	257,955	335,595
Equity Settled Deferred Shares	375,733	34,998
Individual Contributed Deferred Shares (vested immediately)	78,648	78,648
Company Contributed Deferred Shares	78,648	24,718
Shares issued upon vesting of deferred shares	(366,912)	(366,912)
Shares settled for cash pursuant to the plan terms	(4,255)	(4,255)
As at December 31, 2020	1,317,543	210,978

For the year ended December 31, 2020, the expense recognized in the consolidated statements of income (loss) and comprehensive income (loss) related to deferred shares was $1,066 (year ended December 31, 2019 - $2,653). A deferred share liability of $875 (2019 - $2,597) is included in other non-current liabilities in the consolidated statements of financial position as at December 31, 2020.

On January 24, 2020, the Company granted 344,310 deferred shares that are considered to be equity settled, as the participants of this grant have waived their rights to receive settlement in cash pursuant to the plan. During the year ended December 31, 2020, the Company amortized $1,809 (year ended December 31, 2019 - $733) of equity settled deferred shares.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The table above includes dividends granted during the year ended December 31, 2020 of 64,266 shares (2019 - 72,585 shares).

23.    Related party transactions:

Related party transactions in addition to those disclosed elsewhere in these consolidated financial statements are as follows:

The Company entered into subscription agreements in 2017, 2018 and 2019 in respect of the issuance of class A convertible preferred shares to certain funds managed by Magnetar, a significant shareholder of the Company, funded in multiple series. The purpose of the transaction was to raise proceeds to be used for the repayment of debt, general working capital purposes and to fund future acquisitions. The Company issued 9,098,598 preferred shares for aggregate gross proceeds of $86,050.

On June 5, 2019, the Company formed a joint venture, Jaguarundi Ventures, LP, with Magnetar. The Company contributed 8 properties to a newly formed joint venture and received $23,000 from Magnetar in exchange for a 39.49% interest in the joint venture.

On July 26, 2019, the Company entered into a credit agreement with Magnetar for a principal amount of $30,000, annual interest rate of 8.5%, and an initial maturity of one year with a one year extension option. On December 5, 2019, the Company repaid $15,000 on the facility. On June 5, 2020, the Company gave notice of intent to exercise the one year extension option and per the credit agreement the interest rate will increase to 9.0%. On June 16, 2020, the Company repaid $5,000 on the facility.

24.    Income taxes:

The income tax recovery in the consolidated statements of income (loss) and comprehensive income (loss) differs from that expected by applying the combined federal, provincial and state income tax rates of 26.5% (2019 - 26.5%). The differences for the years ended December 31, 2020 and 2019 are as follows:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Net loss before income taxes	$    (190,948)	$    (5,426)
Income tax recovery at Canadian tax rate	(50,601)	(1,438)
Non-deductible expenses	5,211	1,443
Difference in tax rate in foreign jurisdiction	(2,038)	(19)
Unrecognized tax losses	40,484	(53)
Income tax recovery	$    (6,944)	$    (67)

The Company has certain subsidiaries in the United States and Canada that are subject to tax on their taxable income. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2020	December 31, 2019
		Unaudited
Deferred tax assets:
Tax losses	$    26,759	$    19,756
Financing costs	281	952
Derivative instruments	5,126	2,378
Other	10,762	2,703
	$    42,928	$    25,789
Deferred tax liabilities:
Investment properties and property, plant and equipment	517	30,691
Convertible debentures	216	343
Other	1,699	1,699
Deferred tax liabilities	$    2,432	$    32,733
Deferred tax assets not recognized	$    (40,496)	$    —
Net deferred tax liability	$    —	$    (6,944)

The gross movement in deferred tax is as follows:

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Deferred tax liability, beginning balance	$    (6,944)	$    (7,011)
Deferred tax recovery	6,944	67
Deferred tax liability, ending balance	$    —	$    (6,944)

At December 31, 2020, U.S. subsidiaries had accumulated net operating losses available for carryforward for U.S. income tax purposes of $73,629 (2019 - $51,965). The pre-2020 accumulated net operating losses of $51,965 will expire in 2038. The state net operating losses will expire in 2029. The Company and its Canadian subsidiary have losses in Canada for income tax purposes amounting to $24,385 that expire between 2036 and 2039. The Company has non-capital losses amounting to $98,014 at December 31, 2020 (2019 - $2,129) for which no deferred tax asset has been recognized as it is not probable that future taxable profits will be available against which the Company can use the benefits therefrom.

25.    Commitments and contingencies:

Pursuant to the Chesterton lease agreement and satisfaction of certain conditions, the tenant has an option prior to the end of the fifth year of the lease to increase rent to a level supported by certain metrics as identified in the lease agreement. In consideration for the exercise of such option, the Company is required to pay the tenant an amount equal to the capitalized value of the rent increase using a pre-determined capitalization rate. If such option is exercised, the tenant's rent is also

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

increased by an amount equal to the consideration paid multiplied by the capitalization rate. The Company has not recorded any balance in the consolidated financial statements associated with this commitment.

There are risks which arise from the joint arrangements, including the willingness of the other partners to contribute or withdraw funds and a change in creditworthiness of the partner. As a result, there may be a requirement by the Company to contribute cash into the operating partnerships.

On December 31, 2018, the Company entered into an operating agreement with Javelina Ventures, LLC in which the Company will share in 5% of the net available cash flows from operations. Concurrently, the Company entered into an agreement to guarantee a total of $5,000 of the mortgages on the properties operated by Javelina Ventures, LLC. The Company earns an annual guaranty fee of $225 until the loans have been repaid or the guaranty is released. The Company has not recorded any balance in the financial statements associated with this commitment.

On June 5, 2019, the Company entered into agreements to fund future loans to tenants of the Jaguarundi Ventures, LP joint venture. On October 1, 2019, the Company amended the agreements to increase the future loan commitments to the tenants. On February 18, 2020, the Company amended the agreements to further increase the future loan commitments to the tenants. As at December 31, 2020, the Company is committed to fund an additional $380 pursuant to these agreements. The Company has recorded an associated loan commitment liability representing the fair value of these commitments, which were made at interest rates below market value. The Company provides a guarantee on the outstanding mortgage balances of the Jaguarundi Ventures, LP in exchange for a fee equal to 15 basis points on the amount guaranteed (note 8). As of December 31, 2020, the value of the properties that collateralize the mortgages is $143,785 and is sufficient to support the mortgage values.

Pursuant to the Commonwealth purchase agreement, the Company may be required to fund one or more earnout payments relating to six communities that had not yet reached stabilization at the time of acquisition by the Company. These earnout payments are only payable in the event specific occupancy and EBITDAR thresholds have been satisfied, and must be met prior to the third anniversary of closing at which time the earnout payment obligation will cease to exist. The earnout payments, when funded, will consist of a combination of cash and additional preferred interests. At this time, given the performance of one of the six communities, the Company has recorded an expense related to the increase in the fair value of contingent consideration in the amount of $3,256, which was paid through the issuance of $1,701 of Commonwealth preferred units and $1,555 of cash on hand. The Company has recorded a liability of $2,254 in the financial statements associated with this commitment relating to the remaining five communities based on the weighted average probably of earnout payments owed using estimated future results at the properties.

On May 6, 2020, the Company entered into a limited partnership agreement with the operator Phoenix. Pursuant to this agreement, if the management agreement with Phoenix is terminated without cause, Phoenix has the right to cause the Company to purchase all of its interest in the partnership. The Company has not recorded any balance in the consolidated financial statements associated with this commitment.

26.    Capital management:

The Company's objectives when managing capital are to ensure sufficient liquidity to pursue its organic growth combined with strategic acquisitions, and to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The capital of the Company consists of mortgages payable, the credit facilities, convertible debentures, Commonwealth preferred unit liability, preferred shares and common shares.

The Company sets the amount of capital in proportion to risk and manages the capital structure and makes adjustments to it in light of changes to economic conditions and the risk characteristics of the underlying assets, as well as with consideration of externally imposed capital requirements. In managing its capital structure, the Company monitors performance throughout the period to ensure working capital requirements are funded from operations, available cash on deposit and available financing. The Company may make changes to its capital structure in order to support the broader corporate strategy or in light of economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue equity or new debt, issue new debt with different characteristics to replace existing debt, or reduce the amount of existing debt.

The real estate industry is capital-intensive by nature. As a result, debt capital is an important aspect in managing the business. In addition, financial leverage is used to enhance terms from purchased real estate. The Company actively monitors debt maturities and available debt financing options.

Under the terms of the Company's credit facilities, the Company is required to meet certain financial and non-financial covenants that are customary for the nature and phase of the Company's current business structure.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

27.    Fair value measurement:

The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated statements of financial position is as follows:

	December 31, 2020			December 31, 2019
	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
				Unaudited	Unaudited	Unaudited
Derivative asset	$    —	$    4,814	$    —	$    —	$    64	$    —
Investment properties	—	—	882,019	—	—	969,634
Loans receivable	—	—	2,368	—	—	2,368
Loan commitment liability	—	115	—	—	979	—
Derivative liability	—	28,969	—	—	7,966	—
Deferred share liability	—	875	—	—	2,597	—

For the assets and liabilities measured at fair value as at December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3 levels during the period. For changes in fair value measurements of investment properties included in Level 3 of the fair value hierarchy, refer to note 6 for details. The fair values of the derivative instruments represents estimates at a specific point in time using financial models, based on interest rates that reflect current market conditions, the credit quality of counterparties and interest rate curves. Fair value measurements of derivative instruments were estimated using Level 2 inputs. Fair value of deferred share liability represents the value of the units if converted using the market price of the Company's common shares.

Fair value of financial instruments:

The carrying amounts and fair values of financial instruments as shown in the consolidated statements of financial position are shown in the table below. The table below excludes cash, restricted cash, tenant and other receivables, security deposits and costs related to future acquisitions, income support receivable, escrow deposits held by lenders, accounts payable and accrued liabilities, accrued real estate taxes, construction payable, liabilities to previous owner of Care, escrows collected from tenant, and dividend payable, as the carrying amounts of these assets and liabilities are a reasonable approximation of fair value due to their short term nature. The table also excludes security deposits received from tenants as the carrying amount is a reasonable approximation of fair value.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	December 31, 2020		December 31, 2019
	Carrying Value	Fair Value	Carrying Value	Fair Value
			Unaudited	Unaudited
Financial assets:
Loans receivable	$    18,703	$    18,768	$    48,902	$    48,947
Derivative instruments	4,814	4,814	64	64
Bond assets	881	881	1,071	1,071
Financial liabilities:
Mortgages payable	299,464	301,839	275,467	275,083
Credit facilities	660,596	664,690	646,959	651,625
Derivative instruments	28,969	28,969	7,966	7,966
Convertible debentures	92,411	58,784	91,049	86,441
Commonwealth preferred unit liability	65,797	65,797	63,654	63,654
Loan commitment liability	115	115	979	979
Exchangeable Units liability	2,049	600	2,049	2,207

Fair value represents management's estimates of the fair market value at a given point in time, which may not reflect fair value in the future. These calculations are subjective and require estimation, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The following summarizes the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the table above.

i.Loans receivable

The fair value of loans receivable is determined by the discounted cash flow method using applicable inputs such as prevailing interest rates, contractual rates and discounts. Fair value measurements of these instruments were estimated using Level 3 inputs. The carrying values of short term loans generally approximate their fair values.

ii.Derivative instruments

The fair values of the derivative instruments represents estimates at a specific point in time using financial models, based on interest rates that reflect current market conditions, the credit quality of counterparties and interest rate curves. Fair value measurements of derivative instruments were estimated using Level 2 inputs.

iii.Bond assets

The fair value of bond assets is determined by the discounted cash flow method using applicable inputs such as discount rates and fixed payment schedules. Fair value measurements of these instruments were estimated using Level 3 inputs. The carrying values of bond assets approximate their fair values.

iv.Mortgages payable and credit facility

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The fair values of these instruments are estimates made at a specific point in time, based on relevant market information. These estimates are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for similar financial instruments subject to similar risk and maturities. Fair value measurements of these instruments were estimated using Level 2 inputs. The carrying values of short-term and variable rate debt generally approximate their fair values.

v.Convertible debentures

The Company determined the fair value of the convertible debentures using quoted market prices which are considered Level 1 inputs.

vi.Commonwealth preferred unit liability

The fair value of the Commonwealth preferred unit liability is determined by the discounted cash flow method using applicable inputs such as market interest rates and contractual rates. Fair value measurements of these instruments were estimated using Level 3 inputs.

vii. Loan commitment liability

The fair value of the loan commitment liability is determined by the discounted cash flow method using applicable inputs such as market interest rates and contractual rates. Fair value measurements of these instruments were estimated using Level 3 inputs.

viii.Exchangeable Unit liability

The Company determined the fair value of the Exchangeable Unit liability using quoted market prices of the Company's common shares which are considered Level 2 inputs.

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

28. Financial risk management:

The Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance.

Management has updated its risk management policies and strategies for the current risks due to COVID-19.

(i)Market risk

Foreign currency risk:

Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. A portion of the Company's operations are located in Canada, resulting in the Company being subject to foreign currency fluctuations which may impact its financial position and results. In order to mitigate the risk, the Company's borrowings on Canadian assets are also denominated in Canadian dollars to act as a natural hedge. In addition, Canadian dollar revenue was predominantly naturally hedged by Canadian dollar expenditures such as corporate professional fees, interest expense and administrative expenditures.

Interest rate risk:

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk on loans receivable because all of the loans earn interest at fixed rates.

The Company is exposed to interest rate risk on the credit facilities and certain mortgages payable, which bear interest at variable rates. To manage interest rate risk, the Company entered into swap agreements which effectively fixes interest on a portion of its variable rate debt. It may also enter into additional derivative financial instruments from time to time to mitigate interest rate risk. At December 31, 2020, 81.7% of our interest was of fixed rate, including the impact of in-place swaps. To limit exposure to the risk of higher interest rates at renewal, the Company spreads the maturities of its fixed-rate, long-term debt over time.

The Company's remaining financial instruments have no exposure to interest rate risk due to their short-term nature.

At December 31, 2020, the Company's interest-bearing financial instruments were as follows:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Carrying Amount
	December 31, 2020	December 31, 2019
		Unaudited
Fixed-rate financial liabilities	$    861,053	$    860,650
Variable-rate financial liabilities	$    191,418	$    152,825

As at December 31, 2020, an increase/decrease of 100-basis-points in interest rates, assuming all other variables are constant, would result in a $1,927 (2019 - $1,537) change in the Company's finance costs over the next twelve months.

(ii)Credit risk:

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. The Company is exposed to credit risk on all financial assets and its exposure is generally limited to the carrying amount on the consolidated statement of financial position. The Company is exposed to credit risk arising from the possibility that a borrower may be unable to fulfill their contractual obligations. In the event that borrowers are not able to meet commitments, the Company could suffer a loss of either interest or principal or both. The Company actively manages its affairs to minimize its credit risk through careful selection and assessment of its credit parties and collateral based on knowledge obtained through means such as due diligence carried out in respect of leasing transactions to new operators. Despite these measures the Company increased its allowance for credit losses on loans and interest receivable due to the effects that the COVID-19 pandemic has had on borrowers' cash flows. The Company also manages credit risk related to its cash balances by selection of reputable banking institutions.

(iii)Liquidity risk:

The Company’s principal liquidity needs arise from working capital requirements, debt servicing and repayment obligations, planned funding of property improvements, leasing costs, and property development and acquisition funding requirements.

Liquidity risk arises from the possibility of not having sufficient debt, cash and equity capital available to the Company to fund its growth program and refinance or meet its payment obligations as they arise.

The Company is subject to the liquidity risk that it will not be able to meet its financial obligations as they come due. Although a portion of the cash flow generated by the investment properties is devoted to servicing outstanding debt and the convertible debentures, there can be no assurance that the Company will continue to generate sufficient cash flow from operations to meet interest payments and principal repayment obligations upon an applicable maturity date. If the Company is unable to meet principal or interest repayment obligations, it could be required to renegotiate such payments, issue additional equity or debt, or obtain other financing. The failure to make or renegotiate interest or principal payments, issue additional equity or debt, or obtain other financing could have a material effect on the Company's financial condition and results of operations. The Company manages its liquidity

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

risk through cash and debt management. The Company plans to address scheduled interest payments through operating cash flows and significant principal maturities through a combination of debt and equity financing.

The following are the contractual maturities of the Company's financial liabilities as at December 31, 2020, including expected interest payments where applicable:

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Total	2021	2022	2023	2024	2025	Thereafter
Credit facilities principal	$    664,690	$    10,000	$    190,500	$    288,190	$    176,000	$    —	$    —
Mortgages payable principal	296,881	30,622	33,765	88,913	24,529	30,078	88,974
Convertible debentures principal	94,975	—	44,975	50,000	—	—	—
Commonwealth preferred unit liability principal (1)	67,381	—	—	—	67,381	—	—
Total principal	1,123,927	40,622	269,240	427,103	267,910	30,078	88,974
Percentage of total	100.0    %	3.6    %	24.0    %	38.0    %	23.8    %	2.7    %	7.9    %
Credit facilities interest	76,740	27,126	25,941	16,896	6,777		—
Mortgages payable interest	78,386	11,672	10,316	8,110	5,264	4,615	38,409
Convertible debentures interest	12,373	5,249	4,124	3,000	—	—	—
Commonwealth preferred unit liability interest	17,157	4,404	4,404	4,574	3,775		—
Accounts payable and accrued liabilities	17,715	17,715	—	—	—	—	—
Accrued real estate taxes	14,518	14,518	—	—	—	—	—
Other current liabilities	4,975	4,975	—	—	—	—	—
Other non-current liabilities	16,241	2,481	2,086	535	386	126	10,627
Loan commitments	380	380	—	—	—	—	—
Total other commitments	238,485	88,520	46,871	33,115	16,202	4,741	49,036
Total commitments	$    1,362,412	$    129,142	$    316,111	$    460,218	$    284,112	$    34,819	$    138,010
(1) The liability has no stated maturity date. It is the Company's expectation that the liability will be repaid in 2024.

29. Key management personnel compensation:

The remuneration of key management personnel of the Company for years ended December 31, 2020 and 2019 is set forth in the table below.

	Year ended December 31, 2020	Year ended December 31, 2019
		Unaudited
Officers and directors compensation	$    2,111	$    2,684
Share based compensation	2,909	2,490
	$    5,020	$    5,174

30. Segments:

The Company’s current portfolio includes investments in assisted living, independent living, memory care, transitional care, long-term care, and medical office properties. The Company's senior housing and care investments in assisted living, independent living, memory care, transitional care and long-term care share similar characteristics and are generally leased to operators on a long-term, triple-net lease basis. In some instances the Company has an interest in both the property and

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

operations in joint ventures and joint arrangements with the operating partner at the facility. The Company considers these investments to be one reportable operating segment. The Company has investments in 15 medical office buildings ("Medical office buildings"). This multi-tenant medical office portfolio has different characteristics that are evaluated by management, and is considered to be a separate reportable operating segment. Through the acquisition of Commonwealth and the transition of the Greenfield assets, the Company has investments in 36 properties and a management company that operates 29 of those properties ("owner occupied property"). Management considers this another reportable operating segment.

The following tables show net income (loss) by reportable segment for the years ended December 31, 2020 and 2019:

	Year ended December 31, 2020
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
Rental revenue	$    77,457	$    —	$    12,655	$    —	$    90,112
Resident rental and related revenue	—	120,407	—	—	120,407
Lease revenue from joint ventures	3,118	—	—	—	3,118
Other revenue	—	1,769	1,114	867	3,750
Other income	—	3,415	—	—	3,415
Direct property operating expenses	—	(90,044)	(5,461)	—	(95,505)
Depreciation and amortization expense	—	(48,476)	—	(93)	(48,569)
Finance cost from operations	(22,810)	(17,484)	(3,646)	(5,861)	(49,801)
Real estate tax expense	(11,389)	—	(2,099)	—	(13,488)
General and administrative expenses	(1,992)	(6,699)	(307)	(11,541)	(20,539)
Transaction costs for business combination	—	(34)	—	(136)	(170)
Allowance for credit losses on loans and interest receivable	(518)	—	—	(23,028)	(23,546)
Changes in non-controlling interest liability	(168)	(148)	—	—	(316)
Change in fair value of investment properties - IFRIC 21	57	—	—	—	57
Change in fair value of investment properties	(78,648)	—	(21,740)	—	(100,388)
Change in fair value of financial instruments	(690)	(6,712)	(2,127)	(9,555)	(19,084)
Change in fair value of contingent consideration	—	—	—	(5,510)	(5,510)
Loss on sale of property, plant and equipment	—	58	—	(220)	(162)
Loss from joint ventures	(34,729)	—	—	—	(34,729)
Income tax recovery	—	—	—	6,944	6,944
Net loss	$    (70,312)	$    (43,948)	$    (21,611)	$    (48,133)	$    (184,004)
Expenditures for non-current assets:
Acquisition of properties	$    8,202	$    36,154	$    —	$    —	$    44,356
Capital additions	4,360	11,269	631	—	16,260

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	Year ended December 31, 2019
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Rental revenue	$    89,944	$    —	$    13,254	$    —	$    103,198
Resident renal and related revenue	—	38,467	—	—	38,467
Lease revenue from joint ventures	3,024	—	—	—	3,024
Other income	14	874	1,792	1,038	3,718
Direct property operating expenses	—	(28,211)	(5,322)	—	(33,533)
Depreciation and amortization expense	—	(14,349)	—	(91)	(14,440)
Finance cost from operations	(26,593)	(5,836)	(4,066)	(5,138)	(41,633)
Real estate tax expense	(13,637)	—	(2,207)	—	(15,844)
General and administrative expenses	(420)	(2,843)	(535)	(14,294)	(18,092)
Transaction costs for business combination	—	—	—	(5,898)	(5,898)
Diligence costs for transactions not pursued	—	—	—	(633)	(633)
Allowance for credit losses on loans and interest receivable	(55)	—	—	(948)	(1,003)
Changes in non-controlling interest liability	(378)	(126)	—	—	(504)
Change in fair value of investment properties - IFRIC 21	(29)	—	—	—	(29)
Change in fair value of investment properties	(1,179)	—	(4,867)	—	(6,046)
Change in fair value of financial instruments	(1,040)	(840)	(127)	(7,372)	(9,379)
Loss from joint ventures	(6,799)	—	—	—	(6,799)
Income tax recovery	—	—	—	67	67
Net loss	$    42,852	$    (12,864)	$    (2,078)	$    (33,269)	$    (5,359)
Expenditures for non-current assets:
Acquisition of properties	$    89,421	$    347,870	$    —	$    —	$    437,291
Capital additions	7,546	1,275	1,576	—	10,397

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

The following tables show assets and liabilities by reportable segment as at December 31, 2020 and 2019:

	As at December 31, 2020
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
Investment properties	$    759,628	$    —	$    122,391	$    —	$    882,019
Property, plant and equipment, net	—	448,912	—	2,913	451,825
Investment in joint ventures	65,258	—	—	—	65,258
Loans receivable	6,669	—	—	12,034	18,703
Other assets	24,014	27,464	6,712	22,429	80,619
Total assets	$    855,569	$    476,376	$    129,103	$    37,376	$    1,498,424
Mortgages payable	$    158,715	$    140,749	$    —	$    —	$    299,464
Credit facilities	388,715	174,465	87,416	10,000	660,596
Convertible debentures	—	—	—	92,411	92,411
Commonwealth preferred unit liability	—	65,797	—	—	65,797
Non-controlling interest liability	3,373	1,036	—	—	4,409
Other liabilities	25,897	24,302	4,964	27,255	82,418
Total liabilities	$    576,700	$    406,349	$    92,380	$    129,666	$    1,205,095

INVESQUE INC.

Notes to Consolidated Financial Statements

(Expressed in thousands of U.S. dollars unless otherwise noted, except share and per share amounts)

Year ended December 31, 2020 with comparative information for the year ended December 31, 2019

	As at December 31, 2019
	Seniors housing and care investment properties	Owner occupied properties	Medical office buildings	Corporate/other	Total
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Investment properties	$    828,150	$    —	$    141,484	$    —	$    969,634
Property, plant and equipment, net	—	456,936	—	3,006	459,942
Investment in joint ventures	107,994	—	—	—	107,994
Loans receivable	9,759	—	—	31,895	41,654
Other assets	18,141	24,381	1,726	7,266	51,514
Total assets	$    964,044	$    481,317	$    143,210	$    42,167	$    1,630,738
Mortgages payable	$    151,279	$    124,188	$    —	$    —	$    275,467
Credit facilities	386,778	174,230	85,951	—	646,959
Convertible debentures	—	—	—	91,049	91,049
Commonwealth preferred unit liability	—	63,654	—	—	63,654
Non-controlling interest liability	3,376	123	—	—	3,499
Other liabilities	25,875	12,839	2,465	28,787	69,966
Total liabilities	$    567,308	$    375,034	$    88,416	$    119,836	$    1,150,594

In measuring performance, the Company does not distinguish or group its properties on a geographical basis. Management has applied judgment by aggregating its properties into four reportable segments for disclosure purposes. The Company's Chief Executive Officer is the chief decision maker and regularly reviews performance on an individual property basis and on the basis of the Company's reportable operating segments.

At December 31, 2020, $1,246,928 of the Company's non-current assets, excluding financial instruments, are located in the United States (2019 - $1,371,173) and $154,945 are located in Canada (2019 - $162,283). During the year ended December 31, 2020, the Company generated $202,508, (year ended December 31, 2019 - $133,104), of its revenues, excluding other revenue, from properties located in the United States and $11,129 (year ended December 31, 2019 - $11,585) of its revenues from properties located in Canada.

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