Griffin-American Healthcare REIT III, Inc. (Form: 10-Q, Received: 11/14/2018 12:58:34)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018



¨	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: 000-55434

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(Exact name of registrant as specified in its charter)



Maryland		46-1749436
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

18191 Von Karman Avenue, Suite 300, Irvine, California		92612
(Address of principal executive offices)		(Zip Code)

(949) 270-9200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

___________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. x Yes ¨ 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). x Yes ¨ No

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



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	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 x No

As of November 9, 2018 , there were 199,553,183 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(A Maryland Corporation)

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	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017	5
Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2018 and 2017	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017	8
Notes to Condensed Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3. Quantitative and Qualitative Disclosures About Market Risk	66
Item 4. Controls and Procedures	69

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	70
Item 1A. Risk Factors	70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3. Defaults Upon Senior Securities	75
Item 4. Mine Safety Disclosures	76
Item 5. Other Information	76
Item 6. Exhibits	76
Signatures	77

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2018 and December 31, 2017

(Unaudited)



	September 30, 2018			December 31, 2017
ASSETS
Real estate investments, net	$	2,210,766,000		$	2,163,258,000
Real estate notes receivable and debt security investment, net	99,813,000			97,988,000
Cash and cash equivalents	34,925,000			33,656,000
Accounts and other receivables, net	121,181,000			117,188,000
Restricted cash	36,369,000			30,487,000
Real estate deposits	2,904,000			3,261,000
Identified intangible assets, net	180,317,000			180,308,000
Goodwill	75,309,000			75,309,000
Other assets, net	110,970,000			99,020,000
Total assets	$	2,872,554,000		$	2,800,475,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	686,954,000		$	613,558,000
Lines of credit and term loans(1)	698,073,000			624,125,000
Accounts payable and accrued liabilities(1)	136,821,000			124,503,000
Accounts payable due to affiliates(1)	1,994,000			2,057,000
Identified intangible liabilities, net	1,192,000			1,568,000
Capital lease obligations(1)	16,057,000			16,193,000
Security deposits, prepaid rent and other liabilities(1)	37,597,000			39,461,000
Total liabilities	1,578,688,000			1,421,465,000

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)	33,397,000			32,435,000

Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 198,503,045 and 199,343,234 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	1,985,000			1,993,000
Additional paid-in capital	1,778,084,000			1,785,872,000
Accumulated deficit	(676,166,000		)	(598,044,000		)
Accumulated other comprehensive loss	(2,345,000		)	(1,971,000		)
Total stockholders’ equity	1,101,558,000			1,187,850,000
Noncontrolling interests (Note 13)	158,911,000			158,725,000
Total equity	1,260,469,000			1,346,575,000
Total liabilities, redeemable noncontrolling interests and equity	$	2,872,554,000		$	2,800,475,000

___________

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)

As of September 30, 2018 and December 31, 2017

(Unaudited)

(1)

Such liabilities of Griffin-American Healthcare REIT III, Inc. as of September 30, 2018 and December 31, 2017 represented liabilities of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries. Griffin-American Healthcare REIT III Holdings, LP is a variable interest entity and a consolidated subsidiary of Griffin-American Healthcare REIT III, Inc. The creditors of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries do not have recourse against Griffin-American Healthcare REIT III, Inc., except for the 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $523,500,000 and $444,000,000 as of September 30, 2018 and December 31, 2017 , respectively, which is guaranteed by Griffin-American Healthcare REIT III, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Resident fees and services	$	251,884,000		$	230,768,000		$	744,859,000		$	682,300,000
Real estate revenue	32,295,000			31,980,000			97,475,000			95,422,000
Total revenues	284,179,000			262,748,000			842,334,000			777,722,000
Expenses:
Property operating expenses	223,665,000			199,047,000			659,295,000			596,099,000
Rental expenses	8,577,000			8,299,000			26,264,000			24,925,000
General and administrative	6,900,000			9,270,000			19,910,000			24,642,000
Acquisition related expenses	(1,102,000		)	71,000			(1,657,000		)	532,000
Depreciation and amortization	23,816,000			27,579,000			70,190,000			88,442,000
Total expenses	261,856,000			244,266,000			774,002,000			734,640,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)	(16,538,000		)	(14,773,000		)	(48,369,000		)	(45,356,000		)
(Loss) gain in fair value of derivative financial instruments	(750,000		)	(59,000		)	(1,127,000		)	44,000
(Loss) gain on dispositions of real estate investments	—			(9,000		)	—			3,370,000
Impairment of real estate investments	—			—			(2,542,000		)	(4,883,000		)
Loss from unconsolidated entity	(1,137,000		)	(1,494,000		)	(3,672,000		)	(3,668,000		)
Foreign currency (loss) gain	(619,000		)	1,384,000			(1,652,000		)	3,697,000
Other income	501,000			210,000			1,020,000			673,000
Income (loss) before income taxes	3,780,000			3,741,000			11,990,000			(3,041,000		)
Income tax benefit	44,000			720,000			941,000			1,498,000
Net income (loss)	3,824,000			4,461,000			12,931,000			(1,543,000		)
Less: net (income) loss attributable to noncontrolling interests	(212,000		)	176,000			(1,224,000		)	6,051,000
Net income attributable to controlling interest	$	3,612,000		$	4,637,000		$	11,707,000		$	4,508,000
Net income per common share attributable to controlling interest — basic and diluted	$	0.02		$	0.02		$	0.06		$	0.02
Weighted average number of common shares outstanding — basic and diluted	199,818,444			198,733,528			200,120,637			197,832,280
Distributions declared per common share	$	0.15		$	0.15		$	0.45		$	0.45

Net income (loss)	$	3,824,000		$	4,461,000		$	12,931,000		$	(1,543,000	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(136,000		)	355,000			(374,000		)	977,000
Total other comprehensive (loss) income	(136,000		)	355,000			(374,000		)	977,000
Comprehensive income (loss)	3,688,000			4,816,000			12,557,000			(566,000		)
Less: comprehensive (income) loss attributable to noncontrolling interests	(212,000		)	176,000			(1,224,000		)	6,051,000
Comprehensive income attributable to controlling interest	$	3,476,000		$	4,992,000		$	11,333,000		$	5,485,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Stockholders’ Equity
	Common Stock
	Number of Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests					Total Equity
BALANCE — December 31, 2017	199,343,234		$	1,993,000		$	1,785,872,000		$	(598,044,000	)	$	(1,971,000	)	$	1,187,850,000		$	158,725,000				$	1,346,575,000
Offering costs — common stock	—		—			(6,000		)	—			—			(6,000		)	—					(6,000		)
Issuance of vested and nonvested restricted common stock	22,500		—			41,000			—			—			41,000			—					41,000
Issuance of common stock under the DRIP	4,902,237		49,000			45,395,000			—			—			45,444,000			—					45,444,000
Amortization of nonvested common stock compensation	—		—			130,000			—			—			130,000			—					130,000
Stock based compensation	—		—			—			—			—			—			585,000					585,000
Repurchase of common stock	(5,764,926	)	(57,000		)	(53,042,000		)	—			—			(53,099,000		)	—					(53,099,000		)
Contribution from noncontrolling interest	—		—			—			—			—			—			4,470,000					4,470,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(5,246,000		)			(5,246,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(585,000		)			(585,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(306,000		)	—			—			(306,000		)	(131,000		)			(437,000		)
Distributions declared	—		—			—			(89,829,000		)	—			(89,829,000		)	—					(89,829,000		)
Net income	—		—			—			11,707,000			—			11,707,000			1,093,000			(1	)	12,800,000
Other comprehensive loss	—		—			—			—			(374,000		)	(374,000		)	—					(374,000		)
BALANCE — September 30, 2018	198,503,045		$	1,985,000		$	1,778,084,000		$	(676,166,000	)	$	(2,345,000	)	$	1,101,558,000		$	158,911,000				$	1,260,469,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Stockholders’ Equity
	Common Stock
	Number of Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests					Total Equity
BALANCE — December 31, 2016	195,780,039		$	1,957,000		$	1,754,160,000		$	(490,298,000	)	$	(3,029,000	)	$	1,262,790,000		$	155,763,000				$	1,418,553,000
Offering costs — common stock	—		—			(10,000		)	—			—			(10,000		)	—					(10,000		)
Issuance of vested and nonvested restricted common stock	22,500		—			40,000			—			—			40,000			—					40,000
Issuance of common stock under the DRIP	5,266,636		53,000			47,400,000			—			—			47,453,000			—					47,453,000
Amortization of nonvested common stock compensation	—		—			131,000			—			—			131,000			—					131,000
Stock based compensation	—		—			—			—			—			—			390,000					390,000
Repurchase of common stock	(2,699,995	)	(27,000		)	(23,995,000		)	—			—			(24,022,000		)	—					(24,022,000		)
Contributions from noncontrolling interest	—		—			—			—			—			—			8,304,000					8,304,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(464,000		)			(464,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(585,000		)			(585,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(939,000		)	—			—			(939,000		)	(402,000		)			(1,341,000		)
Distributions declared	—		—			—			(88,800,000		)	—			(88,800,000		)	—					(88,800,000		)
Net income (loss)	—		—			—			4,508,000			—			4,508,000			(5,438,000		)	(1	)	(930,000		)
Other comprehensive income	—		—			—			—			977,000			977,000			—					977,000
BALANCE — September 30, 2017	198,369,180		$	1,983,000		$	1,776,787,000		$	(574,590,000	)	$	(2,052,000	)	$	1,202,128,000		$	157,568,000				$	1,359,696,000

___________


(1)	For the nine months ended September 30, 2018 and 2017 , amounts exclude $131,000 and $(613,000) , respectively, of net income (loss) attributable to redeemable noncontrolling interests. See Note 12, Redeemable Noncontrolling Interests , for a further discussion.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	12,931,000		$	(1,543,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	70,190,000			88,442,000
Other amortization (including deferred financing costs, above/below-market leases, leasehold interests, debt discount/premium, real estate notes receivable loan costs and debt security investment accretion and closing costs)	3,871,000			4,056,000
Deferred rent	(4,650,000		)	(3,913,000		)
Stock based compensation	585,000			390,000
Stock based compensation — nonvested restricted common stock	171,000			171,000
Loss from unconsolidated entity	3,672,000			3,668,000
Bad debt expense, net	331,000			5,220,000
Gain on real estate dispositions	—			(3,370,000		)
Foreign currency loss (gain)	1,619,000			(3,678,000		)
Loss on extinguishment of mortgage loan payable	—			1,432,000
Change in fair value of contingent consideration	(1,609,000		)	(57,000		)
Change in fair value of derivative financial instruments	1,127,000			(44,000		)
Impairment of real estate investments	2,542,000			4,883,000
Changes in operating assets and liabilities:
Accounts and other receivables	(5,325,000		)	(9,979,000		)
Other assets	(12,072,000		)	(6,501,000		)
Accounts payable and accrued liabilities	3,390,000			8,832,000
Accounts payable due to affiliates	13,000			(79,000		)
Security deposits, prepaid rent and other liabilities	(489,000		)	610,000
Net cash provided by operating activities	76,297,000			88,540,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate investments	(63,984,000		)	(102,241,000		)
Proceeds from real estate dispositions	1,000,000			15,993,000
Principal repayments on real estate notes receivable	—			26,752,000
Investment in unconsolidated entity	(2,000,000		)	(1,250,000		)
Capital expenditures	(41,753,000		)	(25,804,000		)
Real estate and other deposits	(2,815,000		)	(876,000		)
Proceeds from insurance settlements	—			85,000
Net cash used in investing activities	(109,552,000		)	(87,341,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	177,637,000			230,452,000
Payments on mortgage loans payable	(7,539,000		)	(6,110,000		)
Settlements of mortgage loans payable	(94,449,000		)	(100,775,000		)
Borrowings under the lines of credit and term loans	206,664,000			269,473,000
Payments on the lines of credit and term loans	(132,716,000		)	(325,756,000		)
Deferred financing costs	(4,130,000		)	(5,485,000		)
Mortgage loan payable extinguishment costs	—			(493,000		)
Other obligations	(1,000,000		)	9,487,000
Repurchase of common stock	(53,027,000		)	(24,022,000		)

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
Repurchase of stock warrants and redeemable noncontrolling interests	$	(306,000	)	$	(204,000	)
Payments under capital leases	(5,329,000		)	(4,995,000		)
Contributions from noncontrolling interest	4,470,000			8,304,000
Distributions to noncontrolling interests	(5,243,000		)	(460,000		)
Contributions from redeemable noncontrolling interests	535,000			975,000
Distributions to redeemable noncontrolling interests	(497,000		)	(384,000		)
Security deposits	97,000			131,000
Payment of offering costs	(6,000		)	(10,000		)
Distributions paid	(44,702,000		)	(41,526,000		)
Net cash provided by financing activities	40,459,000			8,602,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	7,204,000		$	9,801,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(53,000		)	132,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	64,143,000			55,677,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	71,294,000		$	65,610,000

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period	$	33,656,000		$	29,123,000
Restricted cash at beginning of period	30,487,000			26,554,000
Cash, cash equivalents and restricted cash at beginning of period	$	64,143,000		$	55,677,000

Cash and cash equivalents at end of period	$	34,925,000		$	35,876,000
Restricted cash at end of period	36,369,000			29,734,000
Cash, cash equivalents and restricted cash at end of period	$	71,294,000		$	65,610,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest (including interest on capital leases)	$	43,016,000		$	46,117,000
Income taxes	$	764,000		$	432,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Investing Activities:
Accrued capital expenditures	$	15,162,000		$	6,163,000
Capital expenditures from capital leases	$	5,194,000		$	5,039,000
Settlement of receivable for investment in unconsolidated entity	$	—		$	1,000,000
Tenant improvement overage	$	1,014,000		$	257,000
Exercise purchase options — attributable to intangible asset	$	—		$	11,454,000
Disposition of real estate investment	$	—		$	2,400,000
Reduction of capital lease obligations, net	$	—		$	27,483,000
The following represents the increase (decrease) in certain assets and liabilities in connection with our acquisitions and dispositions of real estate investments:
Other receivables	$	—		$	3,155,000
Other assets, net	$	(1,587,000	)	$	1,972,000
Accounts payable and accrued liabilities	$	47,000		$	1,967,000
Prepaid rent and other liabilities	$	223,000		$	2,257,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)



	Nine Months Ended September 30,
	2018		2017
Financing Activities:
Issuance of common stock under the DRIP	$	45,444,000	$	47,453,000
Distributions declared but not paid	$	9,875,000	$	9,830,000
Payable to transfer agent	$	72,000	$	—
Reclassification of noncontrolling interests to mezzanine equity	$	585,000	$	585,000
Accrued deferred financing costs	$	—	$	87,000
Settlement of mortgage loan payable	$	—	$	2,040,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended September 30, 2018 and 2017

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.

1. Organization and Description of Business

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013 . We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014 , and we intend to continue to qualify to be taxed as a REIT.

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we offered to the public up to $1,900,000,000 in shares of our common stock. As of April 22, 2015, the deregistration date of our initial offering, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000 , excluding shares of our common stock issued pursuant to our distribution reinvestment plan, or the DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the DRIP, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the United States Securities and Exchange Commission, or SEC, upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion. As of September 30, 2018 , a total of $216,614,000 in distributions were reinvested and 23,309,252 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

We conduct substantially all of our operations through Griffin-Am erican Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one -year term, subject to successive one -year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2018 and expires on February 26, 2019. O ur advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, or our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our a dvisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony Capital or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of September 30, 2018 , we owned and/or operated 97 properties, comprising 101 buildings, and 111 integrated senior health campuses including completed development projects, or approximately 13,132,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,933,369,000 . In addition, as of September 30, 2018 , we had invested $90,878,000 in real estate-related investments, net of principal repayments.

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2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our accompanying condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.

Basis of Presentation

Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries in which we have control, as well as any variable interest entities, or VIEs, in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation , or ASC Topic 810.

We operate and intend to co ntinue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We ar e the sole general partner of our operating partnership, and as of September 30, 2018 and December 31, 2017 , we owned greater than a 99.99% general partnership interest therein. As of September 30, 2018 and December 31, 2017 , our advisor owned less than a 0.01% limited partnership interest in our operating partnership.

Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.

Use of Estimates

The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

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Revenue Recognition

Resident fees and services

Prior to January 1, 2018, we recognized resident fees and services revenue in accordance with ASC Topic 605, Revenue Recognition , or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC Topic 606 did not have a material impact on the measurement nor on the recognition of resident fees and services revenue as of January 1, 2018; therefore, no cumulative adjustment has been made to the opening balance of retained earnings at the beginning of 2018.

A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), other healthcare facilities, and others and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, we bill the patients, third-party payors and other healthcare facilities several days after the services are performed. Revenue is recognized as performance obligations are satisfied.

Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campuses receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.

Because all of its performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The performance obligations for these contracts are generally completed within months of the end of the reporting period.

We determine the transaction price based on standard charges for goods and services provided, reduced, where applicable, by contractual adjustments provided to third-party payors, implicit price concessions provided to uninsured patients, and estimates of goods to be returned. We also determine the estimates of contractual adjustments based on Medicare and Medicaid pricing tables and historical experience. We determine the estimate of implicit price concessions based on the historical collection experience with each class of payor.

Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:


•	Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.

•

Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates. In the state of Indiana, we participate in an Upper Payment Limit program, or IGT, with various county hospital partners, which provides supplemental Medicaid payments to skilled nursing facilities that are licensed to non-state, government-owned entities such as county hospital districts. We have operational responsibility through management agreements for facilities retained by the county hospital districts including this IGT.

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•	Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various healthcare organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.

Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigations. Adjustments arising from a change in the transaction price were not significant for the three and nine months ended September 30, 2018 .

In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption of ASC Topic 606 on our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2018 were as follows:



	Three Months Ended September 30, 2018							Nine Months Ended September 30, 2018
	As Reported		Balances Without Adoption of ASC Topic 606		Effect of Change (Lower)/Higher			As Reported		Balances Without Adoption of ASC Topic 606		Effect of Change Lower
Resident fees and services	$	251,884,000	$	253,397,000	$	(1,513,000	)	$	744,859,000	$	749,860,000	$	(5,001,000	)
Property operating expenses	$	223,665,000	$	223,586,000	$	79,000		$	659,295,000	$	659,395,000	$	(100,000	)
General and administrative	$	6,900,000	$	8,533,000	$	(1,633,000	)	$	19,910,000	$	24,761,000	$	(4,851,000	)
Net income	$	3,824,000	$	3,783,000	$	41,000		$	12,931,000	$	12,981,000	$	(50,000	)

In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption of ASC Topic 606 on our condensed consolidated balance sheet as of September 30, 2018 was as follows:



	As Reported			Balances Without Adoption of ASC Topic 606			Effect of Change Higher/(Lower)
Assets
Other assets, net	$	110,970,000		$	110,870,000		$	100,000
Liabilities
Accounts payable and accrued liabilities	$	136,821,000		$	136,671,000		$	150,000
Equity
Accumulated deficit	$	(676,166,000	)	$	(676,116,000	)	$	(50,000	)

The change in reported balances is primarily based on the fact that substantially all of the amounts recorded to bad debt expense pursuant to our previous accounting policy in accordance with ASC Topic 605 are now recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions pursuant to the new revenue standard, ASC Topic 606.

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Disaggregation of Resident Fees and Services Revenue

We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. This distinction is discussed in further detail below. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following table disaggregates our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time:



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Point in Time		Over Time		Total		Point in Time		Over Time		Total
Integrated senior health campuses	$	46,525,000	$	189,080,000	$	235,605,000	$	136,347,000	$	559,840,000	$	696,187,000
Senior housing — RIDEA(1)	835,000		15,444,000		16,279,000		2,332,000		46,340,000		48,672,000
Total resident fees and services	$	47,360,000	$	204,524,000	$	251,884,000	$	138,679,000	$	606,180,000	$	744,859,000

The following table disaggregates our resident fees and services revenue by payor class:



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Integrated Senior Health Campuses		Senior Housing — RIDEA(1)		Total		Integrated Senior Health Campuses		Senior Housing — RIDEA(1)		Total
Medicare	$	75,530,000	$	—	$	75,530,000	$	208,524,000	$	—	$	208,524,000
Medicaid	43,101,000		11,000		43,112,000		124,320,000		14,000		124,334,000
Private and other payors	116,974,000		16,268,000		133,242,000		363,343,000		48,658,000		412,001,000
Total resident fees and services	$	235,605,000	$	16,279,000	$	251,884,000	$	696,187,000	$	48,672,000	$	744,859,000

___________

(1)

This includes fees for basic housing and assisted living care. We record revenue when services are rendered on the date services are provided at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.

Accounts Receivable, Net — Resident Fees and Services

The beginning and ending balances of accounts receivable, net — resident fees and services are as follows:



	Medicare		Medicaid			Private and Other Payors		Total
Beginning balance — January 1, 2018	$	29,979,000	$	15,640,000		$	35,706,000	$	81,325,000
Ending balance — September 30, 2018	31,501,000		15,257,000			42,346,000		89,104,000
Increase/(decrease)	$	1,522,000	$	(383,000	)	$	6,640,000	$	7,779,000

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Deferred Revenue — Resident Fees and Services

The beginning and ending balances of deferred revenue — resident fees and services, all of which relates to private and other payors, are as follows:



	Total
Beginning balance — January 1, 2018	$	9,801,000
Ending balance — September 30, 2018	10,765,000
Increase	$	964,000

All amounts included in the beginning balance of deferred revenue — resident fees and services at January 1, 2018 were recognized as revenue during the nine months ended September 30, 2018 .

Financing Component

We have elected the practical expedient allowed under FASB ASC 606-10-32-18 and, therefore, we do not adjust the promised amount of consideration from patients and third-party payors for the effects of a significant financing component due to our expectation that the period between the time the service is provided to a patient and the time that the patient or a third-party payor pays for that service will be one year or less.

Contract Costs

We have applied the practical expedient provided by FASB ASC 340-40-25-4 and, therefore, all incremental customer contract acquisition costs are expensed as they are incurred since the amortization period of the asset that we otherwise would have recognized is one year or less in duration.

Accounts Payable and Accrued Liabilities

As of September 30, 2018 and December 31, 2017 , accounts payable and accrued liabilities primarily includes insurance payables of $29,651,000 and $27,208,000 , respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $25,940,000 and $23,737,000 , respectively, accrued property taxes of $16,962,000 and $13,406,000 , respectively, accrued capital expenditures to unaffiliated third parties of $15,124,000 and $5,988,000 , respectively, and accrued distributions of $9,875,000 and $10,192,000 , respectively.

Statement of Cash Flows

For the nine months ended September 30, 2017 , amounts totaling $495,102,000 have been removed from borrowings under the lines of credit and term loans and payments on the lines of credit and term loans compared to amounts previously presented. There was no net change in previously disclosed net cash provided by financing activities.

Recently Issued or Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases , or ASU 2016-02, which amends the guidance on accounting for leases, including extensive amendments to the disclosure requirements. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02 from a lessor perspective, the guidance will require bifurcation of lease revenues into lease components and non-lease components and to separately recognize and disclose non-lease components that are executory in nature. Lease components will continue to be recognized on a straight-line basis over the lease term and certain non-lease components may be accounted for under the new revenue recognition guidance in ASC Topic 606. In addition, ASU 2016-02 provides a practical expedient that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) the lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. We plan to elect this practical expedient.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases , or ASU 2018-10, and ASU 2018-11, Leases (Topic 842) Targeted Improvements , or ASU 2018-11, which update the guidance on accounting for leases under ASU 2016-02. ASU 2018-10 was issued to increase stockholders’ awareness of narrow aspects of the guidance

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issued in the amendments and to expedite the improvements under ASU 2016-02. ASU 2018-11 provides (a) an alternative transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, in addition to the modified retrospective transition method prescribed by ASU 2016-02, which requires application of the new leases standard at the beginning of the earliest period presented in the financial statements for comparative purposes; and (b) a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. We plan to elect this practical expedient and transition method. We completed a preliminary assessment of predominance for our medical office buildings, senior housing, skilled nursing facilities and hospitals segments and, effective upon the adoption of ASU 2016-02 (codified under ASC Topic 842), we expect to recognize revenue from these segments under ASC Topic 842. We are still in the process of completing our preliminary assessment related to senior housing — RIDEA. We plan to finalize our assessment for all segments during the fourth quarter of 2018.

ASU 2016-02, ASU 2018-10 and ASU 2018-11 are effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. As a result of the adoption of the new leases standard on January 1, 2019, we: (i) will recognize all of our operating leases for which we are the lessee, including facilities leases and ground leases, on our consolidated balance sheets; and (ii) may be required to increase our revenue and expense for the amount of real estate taxes and insurance paid by our tenants under triple-net leases; however, we are still evaluating the complete impact of the adoption of the new leases standard and its related expedients, in addition to the transition method, on January 1, 2019 to our consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted after December 15, 2018. We do not expect the adoption of ASU 2016-13 on January 1, 2020 to have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income , or ASU 2018-02, which amends the reclassification requirements from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, or the Tax Act. Under ASU 2018-02, an entity will be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2018-02 on January 1, 2019 to have a material impact on our consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, Amendments to the SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 , or ASU 2018-05, which updates the income tax accounting in GAAP to reflect the SEC’s interpretive guidance with regards to the Tax Act. We adopted ASU 2018-05 in March 2018, which did not have a material impact on our consolidated financial statements. See Note 16, Income Taxes , for a further discussion.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements in ASC Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. ASU 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are currently evaluating this guidance to determine the impact of ASU 2018-13 on our disclosures.

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3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of September 30, 2018 and December 31, 2017 :



	September 30, 2018			December 31, 2017
Building, improvements and construction in process	$	2,139,126,000		$	2,058,312,000
Land and improvements	185,902,000			177,999,000
Furniture, fixtures and equipment	119,447,000			99,897,000
	2,444,475,000			2,336,208,000
Less: accumulated depreciation	(233,709,000		)	(172,950,000		)
	$	2,210,766,000		$	2,163,258,000

Depreciation expense for the three months ended September 30, 2018 and 2017 was $20,636,000 and $20,611,000 , respectively. Depreciation expense for the nine months ended September 30, 2018 and 2017 was $61,323,000 and $61,453,000 , respectively. No impairment charges were recognized for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 , we determined that one of our medical office buildings was impaired and recognized an impairment charge of $2,542,000 , which reduced the total carrying value of such investment to $7,387,000 . The fair value of such medical office building was based upon a discounted cash flow analysis where the most significant inputs were market rents, lease absorption rate, capitalization rate and discount rate, and such inputs were considered Level 3 measurements within the fair value hierarchy. For the nine months ended September 30, 2017 , we recognized an aggregate impairment charge of $4,883,000 related to two integrated senior health campuses, which reduced the total carrying value of such investments to $990,000 . In July 2017, we disposed of one such integrated senior health campus and, as of September 30, 2017 , the fair value of the other integrated senior health campus was based on its projected sales price, which was considered a Level 2 measurement within the fair value hierarchy.

For the three months ended September 30, 2018 , we incurred capital expenditures of $20,416,000 on our integrated senior health campuses, $2,047,000 on our medical office buildings, $768,000 on our senior housing — RIDEA facilities, and $10,000 on our hospitals. We did not incur any capital expenditures on our senior housing facilities or skilled nursing facilities for the three months ended September 30, 2018 .

For the nine months ended September 30, 2018 , we incurred capital expenditures of $48,282,000 on our integrated senior health campuses, $5,590,000 on our medical office buildings, $1,283,000 on our senior housing — RIDEA facilities, $459,000 on our skilled nursing facilities and $57,000 on our hospitals. We did not incur any capital expenditures on our senior housing facilities for the nine months ended September 30, 2018 .

Acquisitions of Real Estate Investments

2018 Acquisitions of Real Estate Investments

For the nine months ended September 30, 2018 , using cash on hand and debt financing, we completed the acquisition of one building from an unaffiliated third party, which we added to our existing North Carolina ALF Portfolio. The other five buildings in North Carolina ALF Portfolio were acquired in January 2015, June 2015 and January 2017. The following is a summary of our property acquisition for the nine months ended September 30, 2018 :

Acquisition(1)

Location

Type

Date

Acquired

Contract

Purchase Price

Lines of Credit

and

Term Loans(2)

Acquisition

Fee(3)

North Carolina ALF Portfolio

Matthews, NC

Senior Housing

08/30/18

15,000,000

13,500,000

338,000

___________


(1)	We own 100% of our property acquired in 2018 .


(2)	Represents a borrowing under the 2016 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loans , at the time of acquisition.


(3)	Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our property, an acquisition fee of 2.25% of the contract purchase price of such property.

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In addition to the property acquisition discussed above, on April 17, 2018, we purchased land as part of our existing Southern Illinois MOB Portfolio for a contract purchase price of $300,000 and paid a 2.25% acquisition fee to our advisor of approximately $7,000 , plus closing costs.

2018 Acquisition of Previously Leased Real Estate Investments

For the nine months ended September 30, 2018 , we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, acquired a portfolio of four previously leased real estate investments located in Kentucky, Michigan and Ohio. The following is a summary of such acquisition for the nine months ended September 30, 2018 , which is included in our integrated senior health campuses segment:



Locations	Date Acquired	Contract Purchase Price		Mortgage Loan Payable(1)		Acquisition Fee(2)
Lexington, KY; Novi and Romeo, MI; and Fremont, OH	07/20/18	$	47,455,000	$	47,500,000	$	723,000

___________


(1)	Represents the principal balance of the mortgage loan payable placed on the properties at the time of acquisition.


(2)	Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the portion of the contract purchase price of the properties attributed to our ownership interest of approximately 67.7% in the Trilogy subsidiary that acquired the properties.

For the nine months ended September 30, 2018 , we accounted for our property acquisitions, including our acquisition of previously leased real estate investments, as asset acquisitions. We incurred closing costs and direct acquisition related expenses of $2,936,000 for such property acquisitions, which were capitalized in accordance with ASU 2017-01, Clarifying the Definition of a Business , or ASU 2017-01. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our property acquisitions in 2018 based on their relative fair values:



	2018 Property Acquisitions
Building and improvements	$	49,759,000
Land	7,725,000
In-place leases	6,894,000
Certificates of need	1,313,000
Total assets acquired	$	65,691,000

Completed Developments and/or Expansions in 2018

For the nine months ended September 30, 2018 , we incurred $3,834,000 to expand our integrated senior health campuses, which is included in real estate investments, net, in our accompanying condensed consolidated balance sheets.

4. Real Estate Notes Receivable and Debt Security Investment, Net

The following is a summary of our notes receivable and debt security investment, including unamortized loan and closing costs, net as of September 30, 2018 and December 31, 2017 :



						Balance
	Origination Date	Maturity Date	Contractual Interest Rate(1)	Maximum Advances Available		September 30, 2018		December 31, 2017
Mezzanine Fixed Rate Notes(2)(3)	02/04/15	12/09/19	6.75%	$	28,650,000	$	28,650,000	$	28,650,000
Mezzanine Floating Rate Notes(2)(3)	02/04/15	12/09/18	8.39%	$	31,567,000	1,799,000		1,799,000
Debt security investment(4)	10/15/15	08/25/25	4.24%	N/A		67,648,000		65,638,000
						98,097,000		96,087,000
Unamortized loan and closing costs, net						1,716,000		1,901,000
						$	99,813,000	$	97,988,000

___________

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(1)	Represents the per annum interest rate in effect as of September 30, 2018 .

(2)

The Mezzanine Fixed Rate Notes and the Mezzanine Floating Rate Notes, or collectively, the Mezzanine Notes, evidence interests in a portion of a mezzanine loan that is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such owners are themselves owned indirectly by a non-wholly owned subsidiary of Colony Capital. In November 2018, the borrower repaid the Mezzanine Floating Rate Notes in full.


(3)	Balance represents the original principal balance, decreased by any subsequent principal paydowns. The Mezzanine Notes only require monthly interest payments and are subject to certain prepayment restrictions if repaid before the respective maturity dates.

(4)

The commercial mortgage-backed debt security, or debt security, bears an interest rate on the stated principal amount thereof equal to 4.24% per annum, the terms of which security provide for monthly interest-only payments. The debt security matures on August 25, 2025 at a stated amount of $93,433,000 , resulting in an anticipated yield-to-maturity of 10.0% per annum. The debt security was issued by an unaffiliated mortgage trust and represents a 10.0% beneficial ownership interest in such mortgage trust. The debt security is subordinate to all other interests in the mortgage trust and is not guaranteed by a government-sponsored entity. As of September 30, 2018 and December 31, 2017 , the net carrying amount with accretion was $69,198,000 and $67,275,000 , respectively. We classify our debt security investment as held-to-maturity and we have not recorded any unrealized holding gains or losses on such investment.

The following table reflects the changes in the carrying amount of real estate notes receivable and debt security investment, net for the nine months ended September 30, 2018 and 2017 :



	Nine Months Ended September 30,
	2018			2017
Beginning balance	$	97,988,000		$	101,117,000
Additions:
Accretion on debt security	2,010,000			1,821,000
Deductions:
Principal repayments on real estate notes receivable	—			(2,641,000		)
Amortization of loan and closing costs	(185,000		)	(164,000		)
Ending balance	$	99,813,000		$	100,133,000

For the three and nine months ended September 30, 2018 and 2017 , we did no t record any impairment losses on our real estate notes receivable and debt security investment. Amortization expense of loan and closing costs for the three months ended September 30, 2018 and 2017 was $64,000 and $57,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , was $185,000 and $164,000 , respectively, which was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of September 30, 2018 and December 31, 2017 :



	September 30, 2018		December 31, 2017
Amortized intangible assets:
In-place leases, net of accumulated amortization of $22,544,000 and $25,967,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 9.6 years and 10.2 years as of September 30, 2018 and December 31, 2017, respectively)	$	49,131,000	$	50,520,000
Leasehold interests, net of accumulated amortization of $512,000 and $407,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 53.9 years and 54.6 years as of September 30, 2018 and December 31, 2017, respectively)	7,382,000		7,487,000
Customer relationships, net of accumulated amortization of $149,000 and $37,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 19.0 years and 19.8 years as of September 30, 2018 and December 31, 2017, respectively)	2,691,000		2,803,000
Above-market leases, net of accumulated amortization of $2,807,000 and $3,335,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 5.2 years as of both September 30, 2018 and December 31, 2017)	2,259,000		3,026,000
Internally developed technology and software, net of accumulated amortization of $94,000 and $23,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 4.0 years and 4.8 years as of September 30, 2018 and December 31, 2017, respectively)	376,000		447,000
Unamortized intangible assets:
Certificates of need	85,773,000		83,320,000
Trade names	30,787,000		30,787,000
Purchase option asset(1)	1,918,000		1,918,000
	$	180,317,000	$	180,308,000

___________

(1)

Under one of our integrated senior health campus leases, in which we are the lessee, we have the right to acquire the property at a date in the future and at our option. We estimated the fair value of this purchase option asset by discounting the difference between the property’s acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible asset over the term of the lease, but rather adjust the recognized value of the asset upon purchase.

Amortization expense for the three months ended September 30, 2018 and 2017 was $3,227,000 and $7,205,000 , respectively, which included $210,000 and $329,000 , respectively, of amortization recorded against real estate revenue for above-market leases and $34,000 and $35,000 , respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Amortization expense for the nine months ended September 30, 2018 and 2017 was $9,204,000 and $27,761,000 , respectively, which included $766,000 and $1,056,000 , respectively, of amortization recorded against real estate revenue for above-market leases and $105,000 and $106,000 , respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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The aggregate weighted average remaining life of the identified intangible assets was 15.1 years and 15.5 years as of September 30, 2018 and December 31, 2017 , respectively. As of September 30, 2018 , estimated amortization expense of the identified intangible assets for the three months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2018	$	3,500,000
2019	10,211,000
2020	6,142,000
2021	5,569,000
2022	4,849,000
Thereafter	31,568,000
	$	61,839,000

6. Other Assets, Net

Other assets, net consisted of the following as of September 30, 2018 and December 31, 2017 :



	September 30, 2018		December 31, 2017
Prepaid expenses, deposits and other assets	$	31,908,000	$	21,796,000
Deferred rent receivables	22,418,000		17,458,000
Inventory	16,790,000		19,311,000
Investment in unconsolidated entity(1)	15,586,000		17,259,000
Deferred tax assets, net(2)	8,594,000		6,882,000
Lease commissions, net of accumulated amortization of $1,080,000 and $606,000 as of September 30, 2018 and December 31, 2017, respectively	8,110,000		5,426,000
Lease inducement, net of accumulated amortization of $702,000 and $439,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 12.3 years and 13.0 years as of September 30, 2018 and December 31, 2017, respectively)	4,298,000		4,561,000
Deferred financing costs, net of accumulated amortization of $11,428,000 and $7,850,000 as of September 30, 2018 and December 31, 2017, respectively(3)	3,266,000		6,327,000
	$	110,970,000	$	99,020,000

___________


(1)	Represents our investment in RHS Partners, LLC, or RHS, a privately-held company that operates 16 integrated senior health campuses. Our effective ownership of RHS is 33.8% as of both September 30, 2018 and December 31, 2017 .


(2)	See Note 16, Income Taxes , for a further discussion.


(3)	In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs , or ASU 2015-03, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements , or ASU 2015-15, deferred financing costs, net only include costs related to our lines of credit and term loans.

Amortization expense of lease commissions for the three months ended September 30, 2018 and 2017 was $197,000 and $127,000 , respectively, and for the nine months ended September 30, 2018 and 2017 was $534,000 and $306,000 , respectively. Amortization expense of lease inducement for both the three months ended September 30, 2018 and 2017 was $88,000 and for both the nine months ended September 30, 2018 and 2017 was $263,000 . Amortization expense of lease inducement is recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Amortization expense of deferred financing costs of our lines of credit and term loans for the three months ended September 30, 2018 and 2017 was $981,000 and $978,000 , respectively, and for the nine months ended September 30, 2018 and 2017 was $3,578,000 and $2,828,000 , respectively. Amortization expense of deferred financing costs related to our lines of

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credit and term loans is recorded to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

As of September 30, 2018 , we had a receivable of $2,705,000 due from RHS, which is included in other assets, net, in our accompanying condensed consolidated balance sheet. The following is summarized financial information of RHS:



	September 30, 2018		December 31, 2017
Balance Sheet Data:
Total assets	$	47,473,000	$	48,176,000
Total liabilities	$	24,037,000	$	21,395,000



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Statement of Operations Data:
Revenues	$	32,346,000		$	32,305,000		$	96,516,000		$	96,018,000
Expenses	34,622,000			35,292,000			103,861,000			103,353,000
Net loss	$	(2,276,000	)	$	(2,987,000	)	$	(7,345,000	)	$	(7,335,000	)

7. Mortgage Loans Payable, Net

Mortgage loans payable were $711,978,000 ( $686,954,000 , including discount/premium and deferred financing costs, net) and $636,329,000 ( $613,558,000 , including discount/premium and deferred financing costs, net) as of September 30, 2018 and December 31, 2017 , respectively. As of September 30, 2018 , we had 57 fixed-rate and five variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.07% per annum based on interest rates in effect as of September 30, 2018 and a weighted average effective interest rate of 3.94% . As of December 31, 2017 , we had 47 fixed-rate and four variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 7.57% per annum based on interest rates in effect as of December 31, 2017 and a weighted average effective interest rate of 4.02% . We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ratio, leverage ratio and reporting requirements.

Mortgage loans payable, net consisted of the following as of September 30, 2018 and December 31, 2017 :



	September 30, 2018			December 31, 2017
Total fixed-rate debt	$	626,628,000		$	526,503,000
Total variable-rate debt	85,350,000			109,826,000
Total fixed- and variable-rate debt	711,978,000			636,329,000
Less: deferred financing costs, net(1)	(8,908,000		)	(6,290,000		)
Add: premium	752,000			1,176,000
Less: discount	(16,868,000		)	(17,657,000		)
Mortgage loans payable, net	$	686,954,000		$	613,558,000

___________


(1)	In accordance with ASU 2015-03 and ASU 2015-15, deferred financing costs, net only include costs related to our mortgage loans payable.

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The following table reflects the changes in the carrying amount of mortgage loans payable, net for the nine months ended September 30, 2018 and 2017 :



	Nine Months Ended September 30,
	2018			2017
Beginning balance	$	613,558,000		$	495,717,000
Additions:
Borrowings on mortgage loans payable	177,637,000			230,452,000
Amortization of deferred financing costs	995,000			2,060,000
Amortization of discount/premium on mortgage loans payable	365,000			858,000
Deductions:
Scheduled principal payments on mortgage loans payable	(7,539,000		)	(6,110,000		)
Settlements of mortgage loans payable	(94,449,000		)	(102,815,000		)
Deferred financing costs	(3,613,000		)	(4,816,000		)
Ending balance	$	686,954,000		$	615,346,000

As of September 30, 2018 , the principal payments due on our mortgage loans payable for the three months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter were as follows:



Year	Amount
2018	$	2,793,000
2019	11,611,000
2020	82,849,000
2021	37,387,000
2022	61,083,000
Thereafter	516,255,000
	$	711,978,000

8. Lines of Credit and Term Loans

2016 Corporate Line of Credit

On February 3, 2016, we, through certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, N.A., or Bank of America, as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, National Association, or KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000 , or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000 , or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Line of Credit. Pursuant to the terms of the 2016 Corporate Credit Agreement, we may borrow up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The 2016 Corporate Line of Credit matures on February 3, 2019 , and we have the right to extend the maturity date for one 12 -month period during the term of the 2016 Corporate Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee. On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and separate term notes, or the Term Notes, with each of Bank of America, KeyBank and a syndicate of other banks.

The maximum principal amount of the 2016 Corporate Line of Credit can be increased by up to $500,000,000 , for a total principal amount of $1,000,000,000 , subject to: (i) the terms of the 2016 Corporate Credit Agreement; and (ii) such additional financing being offered and provided by existing lenders or new lenders under the 2016 Corporate Credit Agreement. On August 3, 2017, we entered into a First Amendment, Waiver and Commitment Increase Agreement, or the Amendment, with Bank of America, KeyBank, and the lenders named therein, to amend the 2016 Corporate Credit Agreement. The material terms of the Amendment provide for: (i) an increase in the 2016 Corporate Term Loan Facility in an amount equal to $50,000,000 ; (ii) the establishment of an additional capitalization rate of 8.75% for any Real Property Asset, as defined in the 2016 Corporate

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Credit Agreement, with mixed uses consisting of both assisted living and independent living properties and skilled nursing facilities, but specifically excluding medical office buildings and life science buildings; (iii) a revision to the definition of Term Loan Commitment, as defined in the 2016 Corporate Credit Agreement, to reflect the increase in the 2016 Corporate Term Loan Facility and specify that the aggregate principal amount of the Term Loan Commitments of all of the Term Loan Lenders, as defined in the 2016 Corporate Credit Agreement, as in effect on the effective date of the Amendment is $250,000,000 ; (iv) an agreement by each Term Loan Lender severally, but not jointly, to fund its pro rata share of the Initial Term Loan, as defined in the Amendment, and Incremental Term Loan, as defined in the Amendment, subject to the terms and conditions set forth in the Amendment; (v) the obligation of the Credit Parties, as defined in the 2016 Corporate Credit Agreement, to cause the Consolidated Secured Leverage Ratio, as defined in the 2016 Corporate Credit Agreement, as of the end of any fiscal quarter, to be equal to or less than 40.0% ; (vi) the Lenders’ waiver of the notice requirement regarding the change in name and form of organization of certain subsidiary guarantors, as set forth in the Amendment; and (vii) the addition of Bank of the West, or New Lender, as a party to the 2016 Corporate Credit Agreement and a Term Loan Lender and Lender, as defined in the 2016 Corporate Credit Agreement, and New Lender’s agreement to be bound by all terms, provisions and conditions applicable to Lenders contained in the 2016 Corporate Credit Agreement. As a result of the Amendment, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was increased to $550,000,000 .

Until such time as we or our operating partnership have obtained two investment grade ratings from any of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and/or Fitch Ratings, loans under the 2016 Corporate Line of Credit bear interest at per annum rates equal to, at our option, either: (i)(a) the Eurodollar Rate, as defined in the 2016 Corporate Credit Agreement, as amended, plus (b) in the case of revolving loans, a margin ranging from 1.55% to 2.20% per annum based on our and our consolidated subsidiaries’ consolidated leverage ratio and in the case of term loans, a margin ranging from 1.50% to 2.10% per annum based on our and our consolidated subsidiaries’ consolidated leverage ratio; or (ii)(a) the greatest of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 0.50% per annum, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum and (4) 0.00% , plus (b) in the case of revolving loans, a margin ranging from 0.55% to 1.20% per annum based on our consolidated leverage ratio and in the case of term loans, a margin ranging from 0.50% to 1.10% per annum based on our consolidated leverage ratio.

After such time as we or our operating partnership have obtained two investment grade ratings from any of Moody’s Investors Service, Inc., Standard & Poor’s Rating Services and/or Fitch Ratings and submitted a written election to the administrative agent, loans under the 2016 Corporate Line of Credit shall bear interest at per annum rates equal to, at the option of our operating partnership, either: (i)(a) the Eurodollar Rate, as defined in the 2016 Corporate Credit Agreement, as amended, plus (b) in the case of revolving loans, a margin ranging from 0.925% to 1.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 1.00% to 1.95% per annum based on our or our operating partnership’s debt ratings; or (ii)(a) the greatest of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 0.50% per annum, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum and (4) 0.00% , plus (b) in the case of revolving loans, a margin ranging from 0.00% to 0.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 0.00% to 0.95% per annum based on our or our operating partnership’s debt ratings. Accrued interest under the 2016 Corporate Credit Agreement, as amended, is payable monthly.

We are required to pay a fee on the unused portion of the lenders’ commitments under the 2016 Corporate Revolving Credit Facility in an amount equal to 0.30% per annum on the actual average daily unused portion of the available commitments if the average daily amount of actual usage is less than 50.0% and in an amount equal to 0.20% per annum on the actual average daily unused portion of the available commitments if the actual average daily usage is greater than 50.0% . Such fee is payable quarterly in arrears. We are also required to pay a fee on the unused portion of the lenders’ commitments under the 2016 Corporate Term Loan Facility in an amount equal to: (i) 0.25% per annum multiplied by (ii) the actual daily amount of the unused Term Loan Commitments, as defined in the 2016 Corporate Credit Agreement, as amended, during the period for which payment is made. The unused fee on the 2016 Corporate Term Loan Facility is payable quarterly in arrears.

The 2016 Corporate Credit Agreement, as amended, contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness.

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As of September 30, 2018 and December 31, 2017 , our aggregate borrowing capacity under the 2016 Corporate Line of Credit was $550,000,000 . As of September 30, 2018 and December 31, 2017 , borrowings outstanding under the 2016 Corporate Line of Credit totaled $523,500,000 and $444,000,000 , respectively, and the weighted average interest rate on such borrowings outstanding was 4.08% and 3.23% per annum, respectively.

Trilogy PropCo Line of Credit

On December 1, 2015, in connection with the acquisition of Trilogy, our majority-owned subsidiary, we, through Trilogy PropCo Finance, LLC, a Delaware limited liability company and an indirect subsidiary of Trilogy, or Trilogy PropCo Parent, and certain of its subsidiaries, or the Trilogy PropCo Co-Borrowers, and, together with Trilogy PropCo Parent, the Trilogy PropCo Borrowers, entered into a loan agreement, or the Trilogy PropCo Credit Agreement, with KeyBank, as administrative agent; Regions Bank, as syndication agent; and a syndicate of other banks, as lenders, to obtain a line of credit with an aggregate maximum principal amount of $300,000,000 , or the Trilogy PropCo Line of Credit.

On December 1, 2015, we also entered into separate revolving notes with each of KeyBank and Regions Bank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Trilogy PropCo Credit Agreement. The proceeds of the loans made under the Trilogy PropCo Line of Credit may be used for working capital, capital expenditures, acquisition of properties and fee interests in leasehold properties and general corporate purposes. The Trilogy PropCo Line of Credit has a four -year term, maturing on December 1, 2019, unless extended for a one -year period subject to satisfaction of certain conditions, including payment of an extension fee, or otherwise terminated in accordance with the terms thereunder. Availability of the total commitment under the Trilogy PropCo Line of Credit is subject to a borrowing base based on, among other things, the appraised value of certain real estate and villa units constructed on such real estate.

In addition to paying interest on the outstanding principal under the Trilogy PropCo Line of Credit, the Trilogy PropCo Borrowers are required to pay an unused fee to the lenders in respect of the unutilized commitments at a rate equal to an initial rate of 0.25% per annum, subject to adjustment depending on usage. Outstanding amounts under the Trilogy PropCo Line of Credit may be prepaid, in whole or in part, at any time, without penalty or premium, subject to customary breakage costs. The Trilogy PropCo Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including incurrence of debt and limitations on secured recourse indebtedness.

Provided that no default or event of default has occurred and subject to certain terms and conditions set forth in the Trilogy PropCo Credit Agreement, the Trilogy PropCo Borrowers had the option, at any time and from time to time, before the maturity date, to request an increase of the total maximum principal amount by $100,000,000 to $400,000,000 . On October 27, 2017, we entered into an amendment to the Trilogy PropCo Credit Agreement, or the Trilogy PropCo Amendment, with KeyBank, as administrative agent, and a syndicate of other banks, as lenders, to amend the terms of the Trilogy PropCo Credit Agreement. The material terms of the Trilogy PropCo Amendment provide for: (i) a reduction of the total commitment under the Trilogy PropCo Line of Credit from $300,000,000 to $250,000,000 ; (ii) a revision to the definition of applicable margin, pursuant to which the Trilogy PropCo Line of Credit bears interest at a floating rate based on an adjusted London Interbank Offered Rate, or LIBOR, plus an applicable margin of 4.00% per annum or an alternate base rate plus an applicable margin of 3.00% per annum, at the Trilogy PropCo Borrowers’ option; and (iii) the Trilogy PropCo Borrowers’ obligation to pay to KeyBank the unused fee that has accrued with respect to the portion of the total commitment being reduced.

Our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $250,000,000 as of September 30, 2018 and December 31, 2017 . As of September 30, 2018 and December 31, 2017 , borrowings outstanding under the Trilogy PropCo Line of Credit totaled $159,518,000 and $179,376,000 , respectively, and the weighted average interest rate on such borrowings outstanding was 6.16% and 5.39% per annum, respectively.

Trilogy OpCo Line of Credit

On March 21, 2016, we, through Trilogy Healthcare Holdings, Inc., a Delaware corporation and a direct subsidiary of Trilogy, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, or Wells Fargo, N.A., as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. The Trilogy OpCo Line of Credit is secured primarily by residents’ receivables of the Trilogy OpCo Borrowers. The terms of the Trilogy OpCo Credit Agreement provided for a one -time increase during the term of the agreement by up to $18,000,000 , for a maximum principal amount of $60,000,000 , subject to certain conditions.

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In April 2016, we entered into an amendment to the Trilogy OpCo Credit Agreement to increase the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000 . In April 2018, we further amended the Trilogy OpCo Credit Agreement, or the Trilogy OpCo Amendment. The material terms of the Trilogy OpCo Amendment provide for: (i) a reduction in the aggregate maximum principal amount from $60,000,000 to $25,000,000 ; (ii) a reduced floating interest rate based on LIBOR, plus an applicable margin of 2.75% per annum, for LIBOR Rate Loans, as defined in the agreement, or an alternate base rate plus an applicable margin of 1.75% per annum, for Base Rate Loans, as defined in the agreement, at the Trilogy OpCo Borrowers’ option; (iii) a reduced letter of credit fee of 2.75% per annum times the undrawn amount of outstanding letters of credit; and (iv) an updated maturity date of April 27, 2021 . Accrued interest under the Trilogy OpCo Line of Credit is payable monthly.

In addition to paying interest on the outstanding principal under the Trilogy OpCo Line of Credit, the Trilogy OpCo Borrowers are required to pay an unused fee in an amount equal to 0.50% per annum times the average monthly unutilized commitment. The unused fee is payable monthly in arrears, commencing on the first day of each month from and after the closing date up to the first day of the month prior to the date on which the obligations are paid in full. If the commitment is terminated prior to the second anniversary of the closing date, a prepayment premium of 1.00% of the total commitment applies.

The Trilogy OpCo Credit Agreement, as amended, contains customary events of default, covenants and other terms, including, among other things, restrictions on the payment of dividends and other distributions, incurrence of indebtedness, creation of liens and transactions with affiliates. Availability of the total commitment under the Trilogy OpCo Line of Credit is subject to a borrowing base based on, among other things, the eligible accounts receivable outstanding of the Trilogy OpCo Borrowers.

As of September 30, 2018 and December 31, 2017 , our aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $25,000,000 and $60,000,000 , respectively, subject to certain terms and conditions. As of September 30, 2018 and December 31, 2017 , borrowings outstanding under the Trilogy OpCo Line of Credit totaled $15,055,000 and $749,000 , respectively, and the weighted average interest rate on such borrowings outstanding was 4.89% and 5.84% per annum, respectively.

9. Derivative Financial Instruments

Consistent with ASC Topic 815, Derivatives and Hedging , or ASC Topic 815, we record derivative financial instruments in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. ASC Topic 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item or items or to be deferred in other comprehensive income (loss).

The following table lists the derivative financial instruments held by us as of September 30, 2018 and December 31, 2017 :



						Fair Value
Instrument	Notional Amount		Index	Interest Rate	Maturity Date	September 30, 2018		December 31, 2017
Swap	$	140,000,000	one month LIBOR	0.82%	02/03/19	$	746,000	$	1,486,000
Swap	60,000,000		one month LIBOR	0.78%	02/03/19	327,000		661,000
Swap	50,000,000		one month LIBOR	1.39%	02/03/19	166,000		219,000
	$	250,000,000				$	1,239,000	$	2,366,000

As of September 30, 2018 and December 31, 2017 , none of our derivative financial instruments were designated as hedges. Derivative financial instruments not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in gain (loss) in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss). For the three months ended September 30, 2018 and 2017 , we recorded $(750,000) and $(59,000) , respectively, and for the nine months ended September 30, 2018 and 2017 , we recorded $(1,127,000) and $44,000 , respectively, as an (increase) decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss) related to the change in the fair value of our derivative financial instruments.

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See Note 15, Fair Value Measurements , for a further discussion of the fair value of our derivative financial instruments.

10. Identified Intangible Liabilities, Net

As of September 30, 2018 and December 31, 2017 , identified intangible liabilities consisted of below-market leases of $1,192,000 and $1,568,000 , respectively, net of accumulated amortization of $1,142,000 and $1,135,000 , respectively. Amortization expense of below-market leases for the three months ended September 30, 2018 and 2017 was $107,000 and $146,000 , respectively, and for the nine months ended September 30, 2018 and 2017 was $376,000 and $518,000 , respectively. Amortization expense of below-market leases is recorded to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

The weighted average remaining life of below-market leases was 4.6 years and 4.8 years as of September 30, 2018 and December 31, 2017 , respectively. As of September 30, 2018 , estimated amortization expense of below-market leases for the three months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2018	$	106,000
2019	392,000
2020	263,000
2021	146,000
2022	97,000
Thereafter	188,000
	$	1,192,000

11. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental Matters

We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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12. Redeemable Noncontrolling Interests

On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreeme nt on February 26, 2014, Griffin-American Advisor became our advisor. As of September 30, 2018 and December 31, 2017 , we owned greater than a 99.99% general partnership interest in our operating partnership, and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as a redeemable noncontrolling interest and is presented outside of permanent equity in our accompanying condensed consolidated balance sheets. See Note 14, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 14, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.

On December 1, 2015, we, through Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings, in which we indirectly hold a 70.0% ownership interest, pursuant to an equity purchase agreement with Trilogy and other seller parties thereto, completed the acquisition of approximately 96.7% of the outstanding equity interests of Trilogy. Pursuant to the equity purchase agreement, at the closing of the acquisition, certain members of Trilogy’s pre-closing management retained a portion of the outstanding equity interests of Trilogy held by such members of Trilogy’s pre-closing management, representing in the aggregate approximately 3.3% of the outstanding equity interests of Trilogy. The noncontrolling interests held by Trilogy’s pre-closing management have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets. As of September 30, 2018 , Trilogy REIT Holdings and certain members of Trilogy’s pre-closing management owned approximately 96.7% and 3.3% of Trilogy, respectively.

We record the carrying amount of redeemable noncontrolling interests at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interests consisted of the following for the nine months ended September 30, 2018 and 2017 :



	Nine Months Ended September 30,
	2018			2017
Beginning balance	$	32,435,000		$	31,507,000
Additions	535,000			975,000
Reclassification from equity	585,000			585,000
Distributions	(497,000		)	(384,000		)
Repurchase of redeemable noncontrolling interest	(229,000		)	(59,000		)
Fair value adjustment to redemption value	437,000			1,341,000
Net income (loss) attributable to redeemable noncontrolling interests	131,000			(613,000		)
Ending balance	$	33,397,000		$	33,352,000

13. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of September 30, 2018 and December 31, 2017 , no shares of preferred stock were issued and outstanding.

Common Stock

Our charter authorizes us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share. On January 15, 2013, our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership. On March 12, 2015, we terminated the primary portion of our initial offering. We continued to offer shares of our common stock in our initial offering pursuant to the DRIP, until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015.

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On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering.

Through September 30, 2018 , we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial offering and 25,257,815 shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering. We also repurchased 11,812,590 shares of our common stock under our share repurchase plan and granted an aggregate of 105,000 shares of our restricted common stock to our independent directors through September 30, 2018 . As of September 30, 2018 and December 31, 2017 , we had 198,503,045 and 199,343,234 shares of our common stock issued and outstanding, respectively.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the nine months ended September 30, 2018 and 2017 :



	Nine Months Ended September 30,
	2018			2017
Beginning balance — foreign currency translation adjustments	$	(1,971,000	)	$	(3,029,000	)
Net change in current period	(374,000		)	977,000
Ending balance — foreign currency translation adjustments	$	(2,345,000	)	$	(2,052,000	)

Noncontrolling Interests

As of September 30, 2018 and December 31, 2017 , Trilogy REIT Holdings owned approximately 96.7% of Trilogy. We are the indirect owner of a 70.0% interest in Trilogy REIT Holdings pursuant to a joint venture agreement, or the Trilogy JV Agreement, with an indirect, wholly-owned subsidiary of NorthStar Healthcare Income, Inc., or NHI. We serve as the sole manager of Trilogy REIT Holdings. Prior to October 1, 2018, NHI was the indirect owner of the remaining 30.0% interest in Trilogy REIT Holdings. On October 1, 2018, we entered into an amended and restated joint venture agreement, or the Amended Trilogy JV Agreement, with the other members of Trilogy REIT Holdings. See Note 20, Subsequent Event , for a further discussion. As of September 30, 2018 and December 31, 2017 , 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with the acquisition and operation of Trilogy, profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and an independent director of Trilogy, both unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests consist of time-based or performance-based commitments. The time-based Profit Interests were measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five -year period. We amortize the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). The performance-based Profit Interests are subject to a performance commitment and vest upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their grant date fair value and immediately expensed. The performance-based Profit Interests are subject to fair value measurements until vesting occurs with changes to fair value recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Stock compensation expense related to Profit Interests for both the three months ended September 30, 2018 and 2017 was $195,000 and for the nine months ended September 30, 2018 and 2017 , was $585,000 and $390,000 , respectively.

There were no canceled, expired or exercised Profit Interests during the nine months ended September 30, 2018 and 2017 . The nonvested awards are presented as noncontrolling interests and are re-classified to redeemable noncontrolling interests upon vesting as they have redemption features outside of our control similar to the common stock units held by Trilogy’s pre-closing management once vested. See Note 12, Redeemable Noncontrolling Interests , for a further discussion.

On January 6, 2016, one of our consolidated subsidiaries issued non-voting preferred shares of beneficial interests to qualified investors for total proceeds of $125,000 . These preferred shares of beneficial interests are entitled to receive cumulative preferential cash dividends at the rate of 12.5% per annum. In accordance with ASC Topic 810, we classify the value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying condensed consolidated balance sheets and the dividends of the preferred shares of beneficial interests as net loss attributable to

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noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

In addition, as of September 30, 2018 and December 31, 2017 , we owned an 86.0% interest in a consolidated limited liability company that owns Lakeview IN Medical Plaza, which we acquired on January 21, 2016. As such, 14.0% of the net earnings of Lakeview IN Medical Plaza were allocated to noncontrolling interests for the three and nine months ended September 30, 2018 and 2017 .

Distribution Reinvestment Plan

We adopted the DRIP that allowed stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our initial offering, subject to certain conditions. We had registered and reserved $35,000,000 in shares of our common stock for sale pursuant to the DRIP in our initial offering at an offering price of $9.50 per share, which we terminated on April 22, 2015. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering.

Effective October 5, 2016, the Amended and Restated DRIP amended the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated value of one share of our common stock, as approved and established by our board. The Amended and Restated DRIP became effective with the distribution payment to stockholders paid in the month of November 2016. In all other material respects, the terms of the Secondary DRIP Offering remain unchanged by the Amended and Restated DRIP.

On October 4, 2017, our board approved and established an updated estimated per share NAV of our common stock of $9.27 . Accordingly, commencing with the distribution payment to stockholders paid in the month of November 2017, shares of our common stock issued pursuant to the Amended and Restated DRIP were issued at $9.27 per share. On October 3, 2018, our board approved and established an updated estimated per share NAV of our common stock of $9.37 . Accordingly, commencing with the distribution payment to stockholders paid in the month of November 2018, shares of our common stock issued pursuant to the Amended and Restated DRIP were or will be issued at $9.37 per share until such time as our board determines a new estimated per share NAV.

For the three months ended September 30, 2018 and 2017 , $14,995,000 and $15,826,000 , respectively, in distributions were reinvested that resulted in 1,617,584 and 1,756,466 shares of our common stock, respectively, being issued pursuant to the Secondary DRIP Offering. For the nine months ended September 30, 2018 and 2017 , $45,444,000 and $47,453,000 , respectively, in distributions were reinvested that resulted in 4,902,237 and 5,266,636 shares of our common stock, respectively, being issued pursuant to the Secondary DRIP Offering.

As of September 30, 2018 and December 31, 2017 , a total of $235,125,000 and $189,681,000 , respectively, in distributions were reinvested that resulted in 25,257,815 and 20,355,578 shares of our common stock, respectively, being issued pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

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Share Repurchase Plan

Our board has approved a share repurchase plan. Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. Subject to the availability of the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period as follows: first, pro rata as to repurchases sought upon a stockholder’s death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

All repurchases will be subject to a one -year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Further, all share repurchases will be repurchased following a one -year holding period at a price between 92.5% and 100% of each stockholder’s repurchase amount, depending on the period of time their shares have been held. Until October 4, 2016, the repurchase amount for shares repurchased under our share repurchase plan was equal to the lesser of the amount a stockholder paid for their shares of our common stock or the most recent per share offering price. However, if shares of our common stock were repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price was no less than 100% of the price paid to acquire the shares of our common stock from us.

Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount, as such term is defined in our share repurchase plan, as amended, is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, commencing with the share repurchase requests submitted during the fourth quarter 2016, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

On October 4, 2017, our board approved and established an updated estimated per share NAV of our common stock of $9.27 . Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2017, the updated estimated per share NAV of $9.27 served as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than $9.27 per share in our initial offering. On October 3, 2018, our board approved and established an updated estimated per share NAV of our common stock of $9.37 . Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2018, the updated estimated per share NAV of $9.37 served or will serve as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than $9.37 per share in our initial offering, until such time as our board determines a new estimated per share NAV.

For the three months ended September 30, 2018 and 2017 , we received share repurchase requests and repurchased 1,994,354 and 1,039,450 shares of our common stock, respectively, for an aggregate of $18,399,000 and $9,317,000 , respectively, at an average repurchase price of $9.23 and $8.96 per share, respectively. For the nine months ended September 30, 2018 and 2017 , we received share repurchase requests and repurchased 5,764,926 and 2,699,995 shares of our common stock, respectively, for an aggregate of $53,099,000 and $24,022,000 , respectively, at an average repurchase price of $9.21 and $8.90 per share, respectively.

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As of September 30, 2018 and December 31, 2017 , we received share repurchase requests and repurchased 11,812,590 and 6,047,664 shares of our common stock, respectively, for an aggregate of $108,457,000 and $55,358,000 , respectively, at an average repurchase price of $9.18 and $9.15 per share, respectively. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

2013 Incentive Plan

We adopted the 2013 Incentive Plan, or our incentive plan, pursuant to which our board or a committee of our independent directors may make grants of options, shares of our common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares.

For the three and nine months ended September 30, 2018 , we granted an aggregate of 15,000 and 22,500 shares, respectively, of our restricted common stock, at a weighted average grant date fair value of $9.27 per share, to our independent directors in connection with their re-election to our board or in consideration for their past services rendered. Such shares vest as to 20.0% of the shares on the date of grant and on each of the first four anniversaries of the grant date. For the three months ended September 30, 2018 and 2017 , we recognized stock compensation expense related to the director grants of $72,000 and $71,000 , respectively, and for both the nine months ended September 30, 2018 and 2017 , we recognized stock compensation expense related to the director grants of $171,000 . Such stock compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

14. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings; however, we are not affiliated with Griffin Capital, our dealer manager, Colony Capital or Mr. Flaherty. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. Our board, including a majority of our independent directors, has reviewed the material transactions between our affiliates and us during the three and nine months ended September 30, 2018 . Set forth below is a description of the transactions with affiliates. We believe that we have executed all of the transactions set forth below on terms that are fair and reasonable to us and on terms no less favorable to us than those available from unaffiliated third parties. In the aggregate, for the three months ended September 30, 2018 and 2017 , we incurred $6,705,000 and $5,544,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $18,357,000 and $17,931,000 , respectively, in fees and expenses to our affiliates as detailed below.

Acquisition and Development Stage

Acquisition Fee

We pay our advisor or its affiliates an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.00% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Since January 31, 2015, acquisition fees are and have been paid in cash. Our advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our initial offering including acquisitions completed after the termination of the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.

For the three months ended September 30, 2018 and 2017 , we incurred $1,069,000 and $67,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $1,076,000 and $1,700,000 , respectively, in acquisition fees to our advisor. Acquisition fees in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805, Business Combinations , or ASC Topic 805, are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01 or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

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Development Fee

In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.

For the three and nine months ended September 30, 2018 , we incurred $24,000 and $69,000 , respectively, in development fees to our advisor or its affiliates. For the three and nine months ended September 30, 2017 , we did no t incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets, which are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees, total development costs, real estate commissions or other fees paid to unaffiliated third parties will not exceed, in the aggregate, 6.0% of the contract purchase price or real estate-related investments, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three and nine months ended September 30, 2018 and 2017 , such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our property acquisitions or real estate-related investments.

For the three and nine months ended September 30, 2018 and 2017 , we did not incur any acquisition expenses to our advisor or its affiliates. Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805 are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01 or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

Operational Stage

Asset Management Fee

We pay our advisor or its affiliates a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan.

For the three months ended September 30, 2018 and 2017 , we incurred $4,873,000 and $4,713,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $14,438,000 and $14,054,000 , respectively, in asset management fees to our advisor or its affiliates. Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third-party property manager. We pay our advisor or its affiliates a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a property management oversight fee of 1.0% of the gross monthly cash receipts of any stand-alone, single-tenant, net leased property; (ii) a property management oversight fee of 1.5% of the gross monthly cash receipts of any property that is not a stand-alone, single-tenant, net leased property and for which our advisor or its affiliates provide oversight of a third party that performs the duties of a property manager with respect to such property; or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant, net leased property

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and for which our advisor or its affiliates will directly serve as the property manager without sub-contracting such duties to a third party.

For the three months ended September 30, 2018 and 2017 , we incurred $617,000 and $589,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $1,811,000 and $1,761,000 , respectively, in property management fees to our advisor or its affiliates. Property management fees are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Lease Fees

We pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm’s-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of the gross revenues generated during the initial term of the lease.

For the three months ended September 30, 2018 and 2017 , we incurred $36,000 and $102,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $764,000 and $222,000 , respectively, in lease fees to our advisor or its affiliates. Lease fees are capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended September 30, 2018 and 2017 , we incurred $38,000 and $20,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , we incurred $52,000 and $38,000 , respectively, in construction management fees to our advisor or its affiliates.

Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or are expensed and included in our accompanying condensed consolidated statements of operations and comprehensive income (loss), as applicable.

Operating Expenses

We reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement; or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determined that such excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient.

Our operating expenses as a percentage of average invested assets and as a percentage of net income were 0.9% and 18.4% , respectively, for the 12 months ended September 30, 2018 ; therefore, our operating expenses did not exceed the aforementioned limitation.

For the three months ended September 30, 2018 and 2017 , our advisor or its affiliates incurred operating expenses on our behalf of $48,000 and $53,000 , respectively, and for the nine months ended September 30, 2018 and 2017 , incurred $147,000 and $156,000 , respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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Compensation for Additional Services

We pay our advisor and its affiliates for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the three and nine months ended September 30, 2018 and 2017 , our advisor and its affiliates were not compensated for any additional services.

Liquidity Stage

Disposition Fees

For services relating to the sale of one or more properties, we pay our advisor or its affiliates a disposition fee of up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated third parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price.

For the three and nine months ended September 30, 2018 , we did not incur any disposition fees to our advisor or its affiliates. For the three months ended September 30, 2017 , we disposed of one integrated senior health campus. For the nine months ended September 30, 2017 , we disposed of two integrated senior health campuses and one land parcel within our integrated senior health campus segment. Our advisor agreed to waive the disposition fees related to such dispositions during 2017 that may otherwise have been due to our advisor pursuant to the Advisory Agreement. Our advisor did not receive any additional securities, shares of our stock or any other form of consideration or any repayment as a result of the waiver of such disposition fee.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

In the event of liquidation, we will pay our advisor a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the remaining net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of: (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan); plus (ii) an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three and nine months ended September 30, 2018 and 2017 , we did not pay any such distributions to our advisor.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor’s limited partnership units, we will pay our advisor a distribution equal to 15.0% of the amount by which: (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be paid depend upon the market value of our outstanding stock at the time of listing, among other factors. For the three and nine months ended September 30, 2018 and 2017 , we did not pay any such distributions to our advisor.

Subordinated Distribution Upon Termination

Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to 15.0% of the amount, if any, by which: (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In

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addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.

As of September 30, 2018 and 2017 , we did not have any liability related to the subordinated distribution upon termination.

Accounts Payable Due to Affiliates

The following amounts were outstanding to our affiliates as of September 30, 2018 and December 31, 2017 :



Fee	September 30, 2018		December 31, 2017
Asset and property management fees	$	1,833,000	$	1,783,000
Acquisition fees	79,000		115,000
Construction management fees	38,000		14,000
Lease commissions	34,000		31,000
Operating expenses	10,000		10,000
Development fees	—		104,000
	$	1,994,000	$	2,057,000

15. Fair Value Measurements

Assets and Liabilities Reported at Fair Value

The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 , aggregated by the level in the fair value hierarchy within which those measurements fall:



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instruments	$	—	$	1,239,000	$	—	$	1,239,000
Contingent consideration receivable	—		—		—		—
Total assets at fair value	$	—	$	1,239,000	$	—	$	1,239,000
Liabilities:
Contingent consideration obligations	$	—	$	—	$	3,498,000	$	3,498,000
Warrants	—		—		1,078,000		1,078,000
Total liabilities at fair value	$	—	$	—	$	4,576,000	$	4,576,000

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The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 , aggregated by the level in the fair value hierarchy within which those measurements fall:



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instruments	$	—	$	2,366,000	$	—	$	2,366,000
Contingent consideration receivable	—		—		—		—
Total assets at fair value	$	—	$	2,366,000	$	—	$	2,366,000
Liabilities:
Contingent consideration obligations	$	—	$	—	$	5,107,000	$	5,107,000
Warrants	—		—		1,155,000		1,155,000
Total liabilities at fair value	$	—	$	—	$	6,262,000	$	6,262,000

There were no transfers into or out of fair value measurement levels during the nine months ended September 30, 2018 and 2017 .

Derivative Financial Instruments

We use interest rate swaps and interest rate caps to manage interest rate risk associated with variable-rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, as well as option volatility. The fair values of interest rate swaps are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures , or ASC Topic 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of September 30, 2018 , we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Contingent Consideration

Asset

As of September 30, 2018 , we have not recorded any contingent consideration receivables. In connection with our acquisition of Mt. Juliet TN MOB in March 2015, there was a contingent consideration receivable in the range of $0 up to a maximum of $634,000 as of the acquisition date. We would have received payment of contingent consideration in the event that a tenant occupying 6,611 square feet of GLA terminated their lease prior to March 31, 2018, and to the extent there was a shortfall in rent from such tenant. As of March 31, 2018, such tenant was current on all rental payments and the lease expired with no amounts due to us. In addition, we were to receive payment of contingent consideration in the event a replacement tenant was not found as of the expiration of the lease of the above mentioned tenant prior to March 31, 2018. As of March 31, 2018, a replacement tenant was not found and, as such, we received consideration of $45,000 in May 2018.

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Liabilities

As of September 30, 2018 and December 31, 2017 , we have accrued $3,498,000 and $5,107,000 , respectively, of contingent consideration obligations in connection with our acquisitions of two senior housing facilities within North Carolina ALF Portfolio in January and June 2015. Such obligations are included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets and are paid upon various conditions being met, including our tenants achieving certain operating performance metrics. In particular, the amounts will be paid based upon the computation in the lease agreement and receipt of notification within three years after the applicable acquisition date that the tenant has increased its earnings before interest, taxes, depreciation and rent cost, or EBITDAR, as defined in the lease agreement, for the preceding three months. Effective January 2018, the lease agreement was amended to extend the contingent consideration payout period to four years from the original three years for the two facilities with other terms of the amendment remaining consistent with the original lease agreement. There is no minimum required payment, but the total maximum payment is capped at $20,318,000 for the two senior housing facilities and is also limited by the tenant’s ability to increase its EBITDAR. Any payment made will result in an increase in the monthly rent charged to the tenant and additional rental revenue to us. As of September 30, 2018 , we estimate that we will pay the contingent consideration of $3,498,000 for these two facilities within North Carolina ALF Portfolio.

Warrants

As of September 30, 2018 and December 31, 2017 , we have recorded $1,078,000 and $1,155,000 , respectively, related to warrants in Trilogy common units held by certain members of Trilogy’s pre-closing management, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Once exercised, these warrants have redemption features similar to the common units held by members of Trilogy’s pre-closing management. See Note 12, Redeemable Noncontrolling Interests , for a further discussion. As of September 30, 2018 and December 31, 2017 , the carrying value is a reasonable estimate of fair value.

Financial Instruments Disclosed at Fair Value

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC Topic 820.

Our accompanying condensed consolidated balance sheets include the following financial instruments: real estate notes receivable, debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits, accounts payable and accrued liabilities, accounts payable due to affiliates, mortgage loans payable and borrowings under our lines of credit and term loans.

We consider the carrying values of cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. The fair value of accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable. The fair values of the other financial instruments are classified in Level 2 of the fair value hierarchy.

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The fair value of our real estate notes receivable and debt security investment are estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair value of our mortgage loans payable and our lines of credit and term loans are estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our real estate notes receivable, debt security investment, mortgage loans payable and lines of credit and term loans are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of September 30, 2018 and December 31, 2017 were as follows:



	September 30, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Real estate notes receivable	$	30,615,000	$	30,615,000	$	30,713,000	$	31,414,000
Debt security investment	$	69,198,000	$	93,396,000	$	67,275,000	$	94,202,000
Financial Liabilities:
Mortgage loans payable	$	686,954,000	$	617,388,000	$	613,558,000	$	570,918,000
Lines of credit and term loans	$	694,807,000	$	697,953,000	$	617,798,000	$	624,102,000

16. Income Taxes

As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. We have elected to treat certain of our consolidated subsidiaries as taxable REIT subsidiaries, or TRSs, pursuant to the Code. TRSs may participate in services that would otherwise be considered impermissible for REITs and are subject to federal and state income tax at regular corporate tax rates.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35.0% to 21.0%, eliminating the corporate alternative minimum tax and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 .

We adopted ASU 2018-05 which allows us to record provisional amounts during the period of enactment. Any change to the provisional amounts will be recorded as an adjustment to the provision for income taxes in the period the amounts are determined. The measurement period ends when we have obtained, prepared and analyzed the information necessary to finalize the provision, but cannot extend beyond one year of the enactment date.

The components of income (loss) before taxes for the three and nine months ended September 30, 2018 and 2017 were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Domestic	$	3,926,000		$	3,875,000		$	12,248,000		$	(2,318,000	)
Foreign	(146,000		)	(134,000		)	(258,000		)	(723,000		)
Income (loss) before income taxes	$	3,780,000		$	3,741,000		$	11,990,000		$	(3,041,000	)

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The components of income tax benefit for the three and nine months ended September 30, 2018 and 2017 were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Federal deferred	$	(1,291,000	)	$	(1,996,000	)	$	(3,769,000	)	$	(5,478,000	)
State deferred	(270,000		)	(200,000		)	(773,000		)	(549,000		)
State current	4,000			—			4,000			—
Foreign deferred	—			—			—			(61,000		)
Foreign current	387,000			90,000			568,000			239,000
Valuation allowances	1,126,000			1,386,000			3,029,000			4,351,000
	$	(44,000	)	$	(720,000	)	$	(941,000	)	$	(1,498,000	)

Current Income Tax

Federal and state income taxes are generally a function of the level of income recognized by our TRSs. Foreign income taxes are generally a function of our income on our real estate and real estate-related investments located in the United Kingdom, or UK, and Isle of Man.

Deferred Taxes

Deferred income tax is generally a function of the period’s temporary differences (primarily basis differences between tax and financial reporting for real estate assets and equity investments) and generation of tax net operating losses that may be realized in future periods depending on sufficient taxable income.

We apply the rules under ASC 740-10, Accounting for Uncertainty in Income Taxes, for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of September 30, 2018 and December 31, 2017 , we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of September 30, 2018 and December 31, 2017 , our valuation allowance substantially reserves the net deferred tax assets due to inherent uncertainty of future income. We will continue to monitor industry and economic conditions, and our ability to generate taxable income based on our business plan and available tax planning strategies, which would allow us to utilize the tax benefits of the net deferred tax assets and thereby allow us to reverse all, or a portion of, our valuation allowance in the future.

17. Segment Reporting

ASC Topic 280, Segment Reporting , establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we established a new reportable business segment at such time. As of September 30, 2018 , we evaluated our business and made resource allocations based on six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

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Our medical office buildings are typically leased to multiple tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). In addition, our medical office buildings segment includes the Mezzanine Notes. Our hospital investments are primarily single-tenant properties that lease the facilities to unaffiliated tenants under triple-net and generally master leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. Our skilled nursing facilities and senior housing facilities are similarly structured as our hospital investments. In addition, our senior housing segment includes our debt security investment. Our senior housing — RIDEA properties include senior housing facilities that are owned and operated utilizing a RIDEA structure. Our integrated senior health campuses include a range of assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses.

We evaluate performance based upon segment net operating income. We define segment net operating income as total revenues, less property operating expenses and rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related expenses, interest expense, gain (loss) on disposition of real estate investments, impairment of real estate investments, foreign currency gain (loss), other income (expense), loss from unconsolidated entity and income tax benefit (expense) for each segment. We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment net operating income serves as an appropriate supplemental performance measure to net income (loss) because it allows investors and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis.

Interest expense, depreciation and amortization and other expenses not attributable to individual properties are not allocated to individual segments for purposes of assessing segment performance. Non-segment assets primarily consist of corporate assets including cash and cash equivalents, other receivables, deferred financing costs, interest rate swap assets and other assets not attributable to individual properties.

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Summary information for the reportable segments during the three and nine months ended September 30, 2018 and 2017 was as follows:



	Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Three Months Ended September 30, 2018
Revenues:
Resident fees and services	$	235,605,000	$	16,279,000	$	—	$	—	$	—	$	—	$	251,884,000
Real estate revenue	—		—		20,029,000		5,472,000		3,716,000		3,078,000		32,295,000
Total revenues	235,605,000		16,279,000		20,029,000		5,472,000		3,716,000		3,078,000		284,179,000
Expenses:
Property operating expenses	212,519,000		11,146,000		—		—		—		—		223,665,000
Rental expenses	—		—		7,577,000		211,000		391,000		398,000		8,577,000
Segment net operating income	$	23,086,000	$	5,133,000	$	12,452,000	$	5,261,000	$	3,325,000	$	2,680,000	$	51,937,000
Expenses:
General and administrative													$	6,900,000
Acquisition related expenses													(1,102,000		)
Depreciation and amortization													23,816,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(16,538,000		)
Loss in fair value of derivative financial instruments													(750,000		)
Loss from unconsolidated entity													(1,137,000		)
Foreign currency loss													(619,000		)
Other income													501,000
Income before income taxes													3,780,000
Income tax benefit													44,000
Net income													$	3,824,000

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	Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Three Months Ended September 30, 2017
Revenues:
Resident fees and services	$	214,555,000	$	16,213,000	$	—	$	—	$	—	$	—	$	230,768,000
Real estate revenue	—		—		19,971,000		5,270,000		3,775,000		2,964,000		31,980,000
Total revenues	214,555,000		16,213,000		19,971,000		5,270,000		3,775,000		2,964,000		262,748,000
Expenses:
Property operating expenses	188,224,000		10,823,000		—		—		—		—		199,047,000
Rental expenses	—		—		7,343,000		166,000		415,000		375,000		8,299,000
Segment net operating income	$	26,331,000	$	5,390,000	$	12,628,000	$	5,104,000	$	3,360,000	$	2,589,000	$	55,402,000
Expenses:
General and administrative													$	9,270,000
Acquisition related expenses													71,000
Depreciation and amortization													27,579,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)													(14,773,000		)
Loss in fair value of derivative financial instruments													(59,000		)
Loss on dispositions of real estate investments													(9,000		)
Loss from unconsolidated entity													(1,494,000		)
Foreign currency gain													1,384,000
Other income													210,000
Income before income taxes													3,741,000
Income tax benefit													720,000
Net income													$	4,461,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



	Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Nine Months Ended September 30, 2018
Revenues:
Resident fees and services	$	696,187,000	$	48,672,000	$	—	$	—	$	—	$	—	$	744,859,000
Real estate revenue	—		—		60,316,000		16,265,000		11,183,000		9,711,000		97,475,000
Total revenues	696,187,000		48,672,000		60,316,000		16,265,000		11,183,000		9,711,000		842,334,000
Expenses:
Property operating expenses	626,091,000		33,204,000		—		—		—		—		659,295,000
Rental expenses	—		—		23,255,000		583,000		1,207,000		1,219,000		26,264,000
Segment net operating income	$	70,096,000	$	15,468,000	$	37,061,000	$	15,682,000	$	9,976,000	$	8,492,000	$	156,775,000
Expenses:
General and administrative													$	19,910,000
Acquisition related expenses													(1,657,000		)
Depreciation and amortization													70,190,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(48,369,000		)
Loss in fair value of derivative financial instruments													(1,127,000		)
Impairment of real estate investments													(2,542,000		)
Loss from unconsolidated entity													(3,672,000		)
Foreign currency loss													(1,652,000		)
Other income													1,020,000
Income before income taxes													11,990,000
Income tax benefit													941,000
Net income													$	12,931,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



	Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Nine Months Ended September 30, 2017
Revenues:
Resident fees and services	$	634,252,000	$	48,048,000	$	—	$	—	$	—	$	—	$	682,300,000
Real estate revenue	—		—		58,879,000		15,598,000		11,228,000		9,717,000		95,422,000
Total revenues	634,252,000		48,048,000		58,879,000		15,598,000		11,228,000		9,717,000		777,722,000
Expenses:
Property operating expenses	563,592,000		32,507,000		—		—		—		—		596,099,000
Rental expenses	—		—		22,068,000		501,000		1,204,000		1,152,000		24,925,000
Segment net operating income	$	70,660,000	$	15,541,000	$	36,811,000	$	15,097,000	$	10,024,000	$	8,565,000	$	156,698,000
Expenses:
General and administrative													$	24,642,000
Acquisition related expenses													532,000
Depreciation and amortization													88,442,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)													(45,356,000		)
Gain in fair value of derivative financial instruments													44,000
Gain on dispositions of real estate investments													3,370,000
Impairment of real estate investments													(4,883,000		)
Loss from unconsolidated entity													(3,668,000		)
Foreign currency gain													3,697,000
Other income													673,000
Loss before income taxes													(3,041,000		)
Income tax benefit													1,498,000
Net loss													$	(1,543,000	)

Total assets by reportable segment as of September 30, 2018 and December 31, 2017 were as follows:



	September 30, 2018		December 31, 2017
Integrated senior health campuses	$	1,447,243,000	$	1,366,245,000
Medical office buildings	653,967,000		662,959,000
Senior housing — RIDEA	273,893,000		279,388,000
Senior housing	244,497,000		231,559,000
Skilled nursing facilities	128,882,000		129,359,000
Hospitals	119,632,000		123,431,000
Other	4,440,000		7,534,000
	$	2,872,554,000	$	2,800,475,000

As of both September 30, 2018 and December 31, 2017 , goodwill of $75,309,000 was allocated to integrated senior health campuses and no other segments had goodwill.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Our portfolio of properties and other investments are located in the United States, Isle of Man and the UK. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for our operations for the periods presented:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Revenues:
United States	$	282,977,000	$	261,551,000	$	838,603,000	$	774,230,000
International	1,202,000		1,197,000		3,731,000		3,492,000
	$	284,179,000	$	262,748,000	$	842,334,000	$	777,722,000

The following is a summary of real estate investments, net by geographic regions as of September 30, 2018 and December 31, 2017 :



	September 30, 2018		December 31, 2017
Real estate investments, net:
United States	$	2,160,641,000	$	2,110,280,000
International	50,125,000		52,978,000
	$	2,210,766,000	$	2,163,258,000

18. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily real estate notes receivable and debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash and real estate deposits. We are exposed to credit risk with respect to the real estate notes receivable and debt security investment, but we believe collection of the outstanding amount is probable. We believe that the risk is further mitigated as the real estate notes receivable are secured by property and there is a guarantee of completion agreement executed between the parent company of the borrowers and us. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of September 30, 2018 and December 31, 2017 , we had cash and cash equivalents in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants and security deposits are obtained at the time of property acquisition and upon lease execution.

Based on leases in effect as of September 30, 2018 , properties in one state in the United States accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income. Properties located in Indiana accounted for 35.3% of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Based on leases in effect as of September 30, 2018 , our six reportable business segments, integrated senior health campuses, medical office buildings, senior housing — RIDEA, senior housing, skilled nursing facilities and hospitals accounted for 46.3% , 27.8% , 9.9% , 6.5% , 5.6% and 3.9% , respectively, of our total property portfolio’s annualized base rent or annualized net operating income. As of September 30, 2018 , none of our tenants at our properties accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income, which is based on contractual base rent from leases in effect inclusive of our senior housing — RIDEA facilities and integrated senior health campuses operations as of September 30, 2018 .

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

19. Per Share Data

We report earnings (loss) per share pursuant to ASC Topic 260, Earnings per Share . Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $7,000 for both the three months ended September 30, 2018 and 2017 , and $20,000 and $19,000 , respectively, for the nine months ended September 30, 2018 and 2017 . Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock. As of September 30, 2018 and 2017 , there were 47,500 and 46,000 nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of September 30, 2018 and 2017 , there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

20. Subsequent Event

Amended Trilogy JV Agreement

On October 1, 2018, we entered into the Amended Trilogy JV Agreement as a result of the purchase by an indirect, wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., or GAHR IV JV Member, of 6.0% of the total membership interests in Trilogy REIT Holdings from a wholly-owned subsidiary of NHI. Both Griffin-American Healthcare REIT IV, Inc. and us are sponsored by American Healthcare Investors. Therefore, effective October 1, 2018, NHI and GAHR IV JV Member indirectly own a 24.0% and 6.0% membership interest, respectively, in Trilogy REIT Holdings.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 2017 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 16, 2018 . Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of September 30, 2018 and December 31, 2017 , together with our results of operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017 .

Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical factual statements are “forward-looking statements.” Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” “seek” and any other comparable and derivative terms or the negatives thereof. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest and foreign currency exchange rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States, or GAAP, policies or guidelines applicable to REITs; the availability of financing; and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview and Background

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 , and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013 . We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a REIT under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, to our accompanying condensed consolidated financial statements for a further discussion. As of September 30, 2018 , a total of $216,614,000 in distributions were reinvested and 23,309,252 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

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On October 3, 2018, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share net asset value, or NAV, of our common stock of $9.37. We provide the updated estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2018. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs , issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC. We intend to continue to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 4, 2018 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updated estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one -year term, subject to successive one -year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2018 and expires on February 26, 2019. Our advisor uses its best efforts, subject to the oversight, review and approval of our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, Colony Capital, or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

Critical Accounting Policies

The complete listing of our Critical Accounting Policies was previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018 , and there have been no material changes to our Critical Accounting Policies as disclosed therein, except as noted below.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018 .

Revenue Recognition

Resident fees and services

Prior to January 1, 2018, we recognized resident fees and services revenue in accordance with Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition , or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an

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arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campus receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.

Because all of its performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in Financial Accounting Standards Board, or FASB, ASC 606-10-50-14(a) and, therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The performance obligations for these contracts are generally completed within months of the end of the reporting period.

Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:


•	Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.

•


•	Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.

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authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.

Substantially all of the amounts recorded to bad debt expense pursuant to our previous accounting policy in accordance with ASC Topic 605 are now recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions pursuant to the new revenue standard, ASC Topic 606.

Disaggregation of Resident Fees and Services Revenue

We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Financing Component

Contract Costs

Recently Issued or Adopted Accounting Pronouncements

For a discussion of recently issued or adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Issued or Adopted Accounting Pronouncements, to our accompanying condensed consolidated financial statements.

Factors Which May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q and those Risk Factors previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018 .

Revenues

The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations at the then existing rental rates. Negative trends in one or more of these factors could adversely affect our revenue in future periods.

Scheduled Lease Expirations

Excluding our senior housing — RIDEA facilities and our integrated senior health campuses, as of September 30, 2018 , our properties were 92.5% leased and during the remainder of 2018 , 1.4% of the leased GLA is scheduled to expire. For the three months ended September 30, 2018 , our senior housing — RIDEA facilities and integrated senior health campuses were 84.5% and 83.8% leased, respectively. For the nine months ended September 30, 2018 , our senior housing — RIDEA facilities and integrated senior health campuses were 84.8% and 84.2% leased, respectively. Substantially all of our leases with residents at such properties are for a term of one year or less. Our leasing strategy focuses on negotiating renewals for leases scheduled

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to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.

As of September 30, 2018 , our remaining weighted average lease term was 8.5 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2018 and 2017

Our primary sources of revenue include rent and resident fees and services from our properties. Our primary expenses include property operating expenses and rental expenses. In general, we expect amounts related to our portfolio of operating properties to increase in the future based on a full year of operations of newly acquired investments as well as the result of any additional real estate and real estate-related investments we may acquire or develop.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of September 30, 2018 , we operated through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Except where otherwise noted, the changes in our results of operations for 2018 as compared to 2017 are primarily due to the growth in our pharmaceutical and rehabilitation businesses within our integrated senior health campuses segment, as well as the development and expansion of our integrated senior health campuses. As of September 30, 2018 and 2017 , we owned and/or operated the following types of properties:



	September 30,
	2018					2017
	Number of Buildings/ Campuses	Aggregate Contract Purchase Price		Leased %		Number of Buildings/ Campuses	Aggregate Contract Purchase Price		Leased %
Integrated senior health campuses	111	$	1,493,028,000	(1	)	107	$	1,417,074,000	(1	)
Medical office buildings	64	664,135,000		89.3	%	63	659,095,000		92.3	%
Senior housing	15	188,391,000		100	%	14	173,391,000		100	%
Senior housing — RIDEA	13	320,035,000		(2	)	13	320,035,000		(2	)
Skilled nursing facilities	7	128,000,000		100	%	7	128,000,000		100	%
Hospitals	2	139,780,000		100	%	2	139,780,000		100	%
Total/weighted average(3)	212	$	2,933,369,000	92.5	%	206	$	2,837,375,000	94.6	%

___________


(1)	For the three and nine months ended September 30, 2018 , the leased percentage for the resident units of our integrated senior health campuses was 83.8% and 84.2% , respectively. For both the three and nine months ended September 30, 2017 , the leased percentage for the resident units of our integrated senior health campuses was 85.5%.


(2)	For the three and nine months ended September 30, 2018 , the leased percentage for the resident units of our senior housing — RIDEA facilities was 84.5% and 84.8% , respectively. For the three and nine months ended September 30, 2017 , the leased percentage for the resident units of our senior housing — RIDEA facilities was 85.5% and 84.7%, respectively.


(3)	Leased percentage excludes our senior housing — RIDEA facilities and integrated senior health campuses.

Revenues

For the three and nine months ended September 30, 2018 and 2017 , resident fees and services primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services. For the three and nine months ended September 30, 2018 and 2017 , real estate revenue primarily consisted of base rent and expense recoveries.

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Revenues by reportable segment consisted of the following for the periods then ended:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Resident Fees and Services
Integrated senior health campuses	$	235,605,000	$	214,555,000	$	696,187,000	$	634,252,000
Senior housing — RIDEA	16,279,000		16,213,000		48,672,000		48,048,000
Total resident fees and services	251,884,000		230,768,000		744,859,000		682,300,000
Real Estate Revenue
Medical office buildings	20,029,000		19,971,000		60,316,000		58,879,000
Senior housing	5,472,000		5,270,000		16,265,000		15,598,000
Skilled nursing facilities	3,716,000		3,775,000		11,183,000		11,228,000
Hospitals	3,078,000		2,964,000		9,711,000		9,717,000
Total real estate revenue	32,295,000		31,980,000		97,475,000		95,422,000
Total revenues	$	284,179,000	$	262,748,000	$	842,334,000	$	777,722,000

Property Operating Expenses and Rental Expenses

For the three months ended September 30, 2018 and 2017 , property operating expenses primarily consisted of administration and benefits expense of $196,321,000 and $176,251,000, respectively. For the nine months ended September 30, 2018 and 2017 , property operating expenses primarily consisted of administration and benefits expense of $575,730,000 and $520,058,000, respectively. Property operating expenses and property operating expenses as a percentage of resident fees and services, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017
Property Operating Expenses
Integrated senior health campuses	$	212,519,000	90.2	%	$	188,224,000	87.7	%	$	626,091,000	89.9	%	$	563,592,000	88.9	%
Senior housing — RIDEA	11,146,000		68.5	%	10,823,000		66.8	%	33,204,000		68.2	%	32,507,000		67.7	%
Total property operating expenses	$	223,665,000	88.8	%	$	199,047,000	86.3	%	$	659,295,000	88.5	%	$	596,099,000	87.4	%

Rental Expenses
Medical office buildings	$	7,577,000	37.8	%	$	7,343,000	36.8	%	$	23,255,000	38.6	%	$	22,068,000	37.5	%
Hospitals	398,000		12.9	%	375,000		12.7	%	1,219,000		12.6	%	1,152,000		11.9	%
Skilled nursing facilities	391,000		10.5	%	415,000		11.0	%	1,207,000		10.8	%	1,204,000		10.7	%
Senior housing	211,000		3.9	%	166,000		3.1	%	583,000		3.6	%	501,000		3.2	%
Total rental expenses	$	8,577,000	26.6	%	$	8,299,000	26.0	%	$	26,264,000	26.9	%	$	24,925,000	26.1	%

Integrated senior health campuses and senior housing — RIDEA facilities typically have a higher percentage of operating expenses to revenue than multi-tenant medical office buildings, hospitals, senior housing facilities and skilled nursing facilities. We anticipate that the percentage of operating expenses to revenue may fluctuate based on the types of property we own and/or operate in the future.

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General and Administrative

General and administrative expenses consisted of the following for the periods then ended:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Asset management fees — affiliates	$	4,873,000	$	4,713,000	$	14,438,000	$	14,054,000
Professional and legal fees	1,030,000		992,000		1,963,000		2,077,000
Transfer agent services	305,000		306,000		928,000		997,000
Stock compensation expense	195,000		195,000		585,000		390,000
Bank charges	113,000		104,000		331,000		301,000
Franchise taxes	101,000		241,000		348,000		400,000
Directors’ and officers’ liability insurance	78,000		80,000		236,000		241,000
Board of directors fees	72,000		61,000		190,000		182,000
Restricted stock compensation	72,000		71,000		171,000		171,000
Bad debt expense	48,000		2,313,000		331,000		5,220,000
Other	13,000		194,000		389,000		609,000
Total	$	6,900,000	$	9,270,000	$	19,910,000	$	24,642,000

The decrease in general and administrative expenses for the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017 was primarily due to the adoption of ASC Topic 606, such that substantially all amounts previously recorded to bad debt expense are now recorded as reductions of resident fees and services revenue.

Acquisition Related Expenses

For the three and nine months ended September 30, 2018 , acquisition related expenses were $(1,102,000) and $(1,657,000) , respectively, which primarily related to fair value adjustments to contingent consideration obligations. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration — Liabilities, for a further discussion. For the three and nine months ended September 30, 2017 , acquisition related expenses were $71,000 and $532,000 , respectively, which primarily related to our one business combination in 2017 as well as additional expenses associated with our prior year property acquisitions accounted for as business combinations.

Depreciation and Amortization

For the three months ended September 30, 2018 and 2017 , depreciation and amortization was $23,816,000 and $27,579,000 , respectively, which primarily consisted of depreciation on our operating properties of $20,636,000 and $20,611,000 , respectively, and amortization of our identified intangible assets of $2,983,000 and $6,841,000, respectively.

For the nine months ended September 30, 2018 and 2017 , depreciation and amortization was $70,190,000 and $88,442,000 , respectively, which primarily consisted of depreciation on our operating properties of $61,323,000 and $61,453,000, respectively, and amortization of our identified intangible assets of $8,333,000 and $26,599,000, respectively.

The decrease in amortization expense during the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017 was primarily the result of amortization expense of our identified intangible assets recognized during the three and nine months ended September 30, 2017 of $4,354,000 and $19,487,000, respectively, which related to $30,293,000 of in-place leases of our integrated senior health campuses that were fully amortized by January 2018. The amortization expense of such in-place leases was $702,000 for the nine months ended September 30, 2018 .

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Interest Expense

Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods then ended:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Interest expense — mortgage loans payable	$	7,186,000	$	7,109,000	$	21,448,000	$	19,450,000
Interest expense — lines of credit and term loans and derivative financial instruments	7,646,000		5,976,000		21,117,000		18,795,000
Amortization of deferred financing costs — lines of credit and term loans	981,000		978,000		3,578,000		2,828,000
Amortization of deferred financing costs — mortgage loans payable	346,000		296,000		995,000		1,120,000
Amortization of debt discount/premium, net	88,000		142,000		365,000		858,000
Loss (gain) in fair value of derivative financial instruments	750,000		59,000		1,127,000		(44,000		)
Loss on extinguishment of mortgage loan payable	—		—		—		1,432,000
Interest expense on other liabilities	291,000		272,000		866,000		873,000
Total	$	17,288,000	$	14,832,000	$	49,496,000	$	45,312,000

Liquidity and Capital Resources

Our sources of funds primarily consist of operating cash flows and borrowings. We terminated the primary portion of our initial offering on March 12, 2015. In the normal course of business, our principal demands for funds are for our payment of operating expenses, interest on our current and future indebtedness and distributions to our stockholders and for acquisitions and/or development of real estate and real estate-related investments.

Our total capacity to pay operating expenses, interest and distributions, as well as acquire and/or develop real estate and real estate-related investments, is a function of our current cash position, our borrowing capacity on our lines of credit and term loans, as well as any future indebtedness that we may incur. As of September 30, 2018 , our cash on hand was $34,925,000 and we had $126,927,000 available on our lines of credit and term loans. We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months. Our line of credit and term loans with Bank of America, N.A., KeyBank, National Association and a syndicate of other banks, as lenders, mature on February 3, 2019, and we have the right to extend the maturity date for one 12-month period. Such line of credit and term loans had an aggregate borrowing capacity of $550,000,000 as of September 30, 2018, and can be increased up to a total principal amount of $1,000,000,000, subject to the satisfaction of certain conditions.

We estimate that we will require approximately $15,148,000 to pay interest on our outstanding indebtedness in the remainder of 2018 , based on interest rates in effect and borrowings outstanding as of September 30, 2018 . In addition, we estimate that we will require $2,793,000 to pay principal on our outstanding indebtedness in the remainder of 2018 . We also require resources to make certain payments to our advisor and its affiliates. See Note 14, Related Party Transactions , to our accompanying condensed consolidated financial statements, for a further discussion of our payments to our advisor and its affiliates. Generally, cash needs for such items will be met from operations and borrowings.

Our advisor evaluates potential investments and engages in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. When we acquire a property, our advisor prepares a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from proceeds from sales of other investments, borrowings, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

Other Liquidity Needs

In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, or our advisor or its affiliates. We may also pay distributions from cash from capital transactions, including without limitation, the sale of one or more of our properties.

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Based on the budget for the properties we owned as of September 30, 2018 , we estimate that our discretionary capital improvement and tenant improvement expenditures will be $31,355,000 for the remaining three months of 2018 . As of September 30, 2018 , we had $12,720,000 of restricted cash in loan impounds and reserve accounts for capital expenditures, some of which may be used to fund our estimated expenditures for capital improvements and tenant improvements. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.

If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewed leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.

Cash Flows

The following table sets forth changes in cash flows:



	Nine Months Ended September 30,
	2018			2017
Cash, cash equivalents and restricted cash — beginning of period	$	64,143,000		$	55,677,000
Net cash provided by operating activities	76,297,000			88,540,000
Net cash used in investing activities	(109,552,000		)	(87,341,000		)
Net cash provided by financing activities	40,459,000			8,602,000
Effect of foreign currency translation on cash, cash equivalents and restricted cash	(53,000		)	132,000
Cash, cash equivalents and restricted cash — end of period	$	71,294,000		$	65,610,000

The following summary discussion of our changes in our cash flows is based on our accompanying condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Operating Activities

For the nine months ended September 30, 2018 and 2017 , cash flows provided by operating activities primarily related to the cash flows provided by our property operations, offset by the payment of general and administrative expenses. See “Results of Operations” above for a further discussion. In general, cash flows provided by operating activities will be affected by the timing of cash receipts and payments.

Investing Activities

For the nine months ended September 30, 2018 , cash flows used in investing activities primarily related to our 2018 property acquisitions, including our acquisitions of previously leased real estate investments, in the amount of $63,984,000 and capital expenditures of $41,753,000 . For the nine months ended September 30, 2017 , cash flows used in investing activities primarily related to our 2017 property acquisitions, including our acquisitions of previously leased real estate investments, in the amount of $102,241,000 and capital expenditures of $25,804,000 , partially offset by principal repayments on real estate notes receivable of $26,752,000 and proceeds from real estate dispositions of $15,993,000 . In general, cash flows used in investing activities will be affected by a decrease in the pace of acquisitions as compared to prior years and the timing of capital expenditures.

Financing Activities

For the nine months ended September 30, 2018 , cash flows provided by financing activities primarily related to borrowings under mortgage loans payable of $177,637,000 and net borrowings under our lines of credit and term loans in the amount of $73,948,000 , partially offset by settlements of mortgage loans payable of $94,449,000 , share repurchases of $53,027,000 and distributions to our common stockholders of $44,702,000 . For the nine months ended September 30, 2017 , cash flows provided by financing activities primarily related to borrowings under mortgage loans payable in the amount of $230,452,000 , partially offset by the settlement of mortgage loans payable in the amount of $100,775,000 , net payments under our lines of credit and term loans in the amount of $56,283,000 , distributions to our common stockholders of $41,526,000 and share repurchases of $24,022,000 . Overall, we anticipate cash flows from financing activities to decrease in the future since we

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terminated the primary portion of our initial offering on March 12, 2015. However, we anticipate borrowings under our lines of credit and term loans and other indebtedness to increase if we acquire additional real estate and real estate-related investments.

Distributions

Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on December 31, 2018. The distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. The daily distributions were or will be aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering, only from legally available funds.

The amount of the distributions paid to our stockholders is determined quarterly by our board and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code. We have not established any limit on the amount of offering proceeds that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.

The distributions paid for the nine months ended September 30, 2018 and 2017 , along with the amount of distributions reinvested pursuant to the Secondary DRIP Offering, and the sources of our distributions as compared to cash flows from operations were as follows:



	Nine Months Ended September 30,
	2018				2017
Distributions paid in cash	$	44,702,000			$	41,526,000
Distributions reinvested	45,444,000				47,453,000
	$	90,146,000			$	88,979,000
Sources of distributions:
Cash flows from operations	$	76,297,000	84.6	%	$	88,540,000	99.5	%
Proceeds from borrowings	13,849,000		15.4		439,000		0.5
	$	90,146,000	100	%	$	88,979,000	100	%

Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from debt.

Any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from offering proceeds and borrowings. The payment of distributions from our initial offering proceeds and borrowings could reduce the amount of capital we ultimately invest in assets and negatively impact the amount of income available for future distributions.

As of September 30, 2018 , we had an amount payable of $1,956,000 to our advisor or its affiliates primarily for asset and property management fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.

As of September 30, 2018 , no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to our initial offering, through June 5, 2014, the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion

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thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.



	Nine Months Ended September 30,
	2018				2017
Distributions paid in cash	$	44,702,000			$	41,526,000
Distributions reinvested	45,444,000				47,453,000
	$	90,146,000			$	88,979,000
Sources of distributions:
FFO attributable to controlling interest	$	74,015,000	82.1	%	$	78,175,000	87.9	%
Proceeds from borrowings	16,131,000		17.9		10,804,000		12.1
	$	90,146,000	100	%	$	88,979,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see the Funds from Operations and Modified Funds from Operations section below.

Financing

We intend to continue to finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that our overall leverage will not exceed 45.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the contract purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of September 30, 2018 , our aggregate borrowings were 41.5% of the combined market value of all of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of November 14, 2018 and September 30, 2018 , our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net , to our accompanying condensed consolidated financial statements.

Lines of Credit and Term Loans

For a discussion of our lines of credit and term loans, see Note 8, Lines of Credit and Term Loans , to our accompanying condensed consolidated financial statements.

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REIT Requirements

In order to maintain our qualification as a REIT for federal income tax purposes, we are required to make distributions to our stockholders of at least 90.0% of our annual taxable income, excluding net capital gains. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured and unsecured debt financing through one or more unaffiliated third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties or from the proceeds of our initial offering.

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 11, Commitments and Contingencies , to our accompanying condensed consolidated financial statements.

Debt Service Requirements

A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of September 30, 2018 , we had $711,978,000 ( $686,954,000 , including discount/premium and deferred financing costs, net) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of September 30, 2018 , we had $698,073,000 outstanding and $126,927,000 remained available under our lines of credit and term loans. See Note 7, Mortgage Loans Payable, Net and Note 8, Lines of Credit and Term Loans , to our accompanying condensed consolidated financial statements.

We are required by the terms of certain loan documents to meet certain covenants, such as leverage ratios, net worth ratios, debt service coverage ratios, fixed charge coverage ratios and reporting requirements. As of November 14, 2018 , we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loans. As of September 30, 2018 , the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 4.04% per annum.

Contractual Obligations

The following table provides information with respect to: (i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our lines of credit and term loans; (ii) interest payments on our mortgage loans payable, lines of credit and term loans and fixed interest rate swaps; and (iii) ground and other lease obligations, capital leases and other liabilities as of September 30, 2018 :



	Payments Due by Period
	2018		2019-2020		2021-2022		Thereafter		Total
Principal payments — fixed-rate debt	$	2,778,000	$	34,354,000	$	73,241,000	$	516,255,000	$	626,628,000
Interest payments — fixed-rate debt	5,797,000		45,231,000		42,258,000		297,636,000		390,922,000
Principal payments — variable-rate debt	15,000		743,124,000		40,284,000		—		783,423,000
Interest payments — variable-rate debt (based on rates in effect as of September 30, 2018)	9,351,000		23,061,000		1,081,000		—		33,493,000
Ground and other lease obligations	4,579,000		37,591,000		39,569,000		189,315,000		271,054,000
Capital leases	1,932,000		11,129,000		4,347,000		277,000		17,685,000
Other liabilities	25,000		1,049,000		—		—		1,074,000
Total	$	24,477,000	$	895,539,000	$	200,780,000	$	1,003,483,000	$	2,124,279,000

The table above does not reflect any payments expected under our contingent consideration obligations in the estimated amount of $3,498,000 , the majority of which we expect to pay during 2019. For a further discussion of our contingent consideration obligations, see Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, to our accompanying condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2018 , we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

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Inflation

During the nine months ended September 30, 2018 and 2017 , inflation has not significantly affected our operations because of the moderate inflation rate; however, we expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions will include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Related Party Transactions

For a discussion of related party transactions, see Note 14, Related Party Transactions , to our accompanying condensed consolidated financial statements.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. The use of funds from operations is recommended by the REIT industry as a supplemental performance measure, and our management uses FFO to evaluate our performance over time. FFO is not equivalent to our net income (loss) as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on funds from operations approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which is the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, we believe it is appropriate to exclude impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. Testing for an impairment of an asset is a continuous process and is analyzed on a quarterly basis. If certain impairment indications exist in an asset, and if the asset’s carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, an impairment charge would be recognized. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a further understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss).

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However, FFO and modified funds from operations attributable to controlling interest, or MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed as operating expenses under GAAP. We believe these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We have used the proceeds raised in our initial offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five years after the completion of our offering stage, which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as modified funds from operations, which the IPA has recommended as a supplemental performance measure for publicly registered, non-listed REITs and which we believe to be another appropriate supplemental performance measure to reflect the operating performance of a publicly registered, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes expensed acquisition fees and expenses that affect our operations only in periods in which properties are acquired and that we consider more reflective of investing activities, as well as other non-operating items included in FFO, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering stage has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired, as it excludes expensed acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines modified funds from operations as funds from operations further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to deferred rent and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect modified funds from operations on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. We are responsible for managing interest rate, hedge and foreign exchange risk, and we do not rely on another party to manage such risk. In as much as interest rate hedges will not be a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are based on market fluctuations and may not be directly related or attributable to our operations.

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Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses (which include gains or losses on contingent consideration), amortization of above- and below-market leases, amortization of loan and closing costs, change in deferred rent, gains or losses from the early extinguishment of debt, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions and the adjustments of such items related to unconsolidated properties and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the three and nine months ended September 30, 2018 and 2017 . Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent redeployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, we may pay acquisition fees or reimburse acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence, that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our initial offering and other financing sources and not from operations. By excluding expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate funds from operations and modified funds from operations the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

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Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three and nine months ended September 30, 2018 and 2017 :



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	3,824,000		$	4,461,000		$	12,931,000		$	(1,543,000	)
Add:
Depreciation and amortization — consolidated properties	23,816,000			27,579,000			70,190,000			88,442,000
Depreciation and amortization — unconsolidated properties	270,000			270,000			847,000			795,000
Impairment of real estate investments	—			—			2,542,000			4,883,000
Net (income) loss attributable to redeemable noncontrolling interests and noncontrolling interests	(212,000		)	176,000			(1,224,000		)	6,051,000
Less:
Loss (gain) on dispositions of real estate investments	—			9,000			—			(3,370,000		)
Depreciation, amortization, impairments and (gain) loss on dispositions related to redeemable noncontrolling interests and noncontrolling interests	(3,902,000		)	(4,792,000		)	(11,271,000		)	(17,083,000		)
FFO attributable to controlling interest	$	23,796,000		$	27,703,000		$	74,015,000		$	78,175,000

Acquisition related expenses(1)	$	(1,102,000	)	$	71,000		$	(1,657,000	)	$	532,000
Amortization of above- and below-market leases(2)	103,000			183,000			390,000			538,000
Amortization of loan and closing costs(3)	64,000			57,000			185,000			164,000
Change in deferred rent(4)	(1,896,000		)	(1,110,000		)	(4,650,000		)	(3,913,000		)
Loss on extinguishment of mortgage loan payable(5)	—			—			—			1,432,000
Loss (gain) in fair value of derivative financial instruments(6)	750,000			59,000			1,127,000			(44,000		)
Foreign currency loss (gain)(7)	619,000			(1,384,000		)	1,652,000			(3,697,000		)
Adjustments for unconsolidated properties(8)	402,000			582,000			1,257,000			1,520,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(8)	(146,000		)	(495,000		)	(966,000		)	(1,659,000		)
MFFO attributable to controlling interest	$	22,590,000		$	25,666,000		$	71,353,000		$	73,048,000
Weighted average common shares outstanding — basic and diluted	199,818,444			198,733,528			200,120,637			197,832,280
Net income (loss) per common share — basic and diluted	$	0.02		$	0.02		$	0.06		$	(0.01	)
FFO attributable to controlling interest per common share — basic and diluted	$	0.12		$	0.14		$	0.37		$	0.40
MFFO attributable to controlling interest per common share — basic and diluted	$	0.11		$	0.13		$	0.36		$	0.37

___________

(1)

In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition related expenses, we believe MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net

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income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

(2)

Under GAAP, above- and below-market leases are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, we believe that by excluding charges relating to the amortization of above- and below-market leases, MFFO may provide useful supplemental information on the performance of the real estate.

(3)

Under GAAP, direct loan and closing costs are amortized over the term of our notes receivable and debt security investment as an adjustment to the yield on our notes receivable or debt security investment. This may result in income recognition that is different than the contractual cash flows under our notes receivable and debt security investment. By adjusting for the amortization of the loan and closing costs related to our real estate notes receivable and debt security investment, MFFO may provide useful supplemental information on the realized economic impact of our notes receivable and debt security investment terms, providing insight on the expected contractual cash flows of such notes receivable and debt security investment, and aligns results with our analysis of operating performance.

(4)

Under GAAP, rental revenue or rental expense is recognized on a straight-line basis over the terms of the related lease (including rent holidays). This may result in income or expense recognition that is significantly different than the underlying contract terms. By adjusting for the change in deferred rent, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with our analysis of operating performance.

(5)

The loss associated with the early extinguishment of debt includes the write-off of unamortized deferred financing fees, as well as expenses, penalties or other fees incurred. We believe that adjusting for such non-recurring losses provides useful supplemental information because such charges (or losses) may not be reflective of on-going transactions and operations and is consistent with management’s analysis of our operating performance.

(6)

Under GAAP, we are required to record our derivative financial instruments at fair value at each reporting period. We believe that adjusting for the change in fair value of our derivative financial instruments is appropriate because such adjustments may not be reflective of on-going operations and reflect unrealized impacts on value based only on then current market conditions, although they may be based upon general market conditions. The need to reflect the change in fair value of our derivative financial instruments is a continuous process and is analyzed on a quarterly basis in accordance with GAAP.


(7)	We believe that adjusting for the change in foreign currency exchange rates provides useful information because such adjustments may not be reflective of on-going operations.


(8)	Includes all adjustments to eliminate the unconsolidated properties’ share or redeemable noncontrolling interests and noncontrolling interests’ share, as applicable, of the adjustments described in notes (1) – (7) above to convert our FFO to MFFO.

Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, acquisition related expenses, depreciation and amortization, interest expense, gain or loss on dispositions, impairment of real estate investments, loss from unconsolidated entity, foreign currency gain or loss, other income and income tax benefit (expense). Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore, if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. As a result, the amount of proceeds available for investment, operations and non-operating expenses would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under

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GAAP. All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, NOI is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. Investors are also cautioned that NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.

We believe that NOI is an appropriate supplemental performance measure to reflect the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of the properties. We believe that NOI is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to NOI for the three and nine months ended September 30, 2018 and 2017 :



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	3,824,000		$	4,461,000		$	12,931,000		$	(1,543,000	)
General and administrative	6,900,000			9,270,000			19,910,000			24,642,000
Acquisition related expenses	(1,102,000		)	71,000			(1,657,000		)	532,000
Depreciation and amortization	23,816,000			27,579,000			70,190,000			88,442,000
Interest expense	17,288,000			14,832,000			49,496,000			45,312,000
Loss (gain) on dispositions of real estate investments	—			9,000			—			(3,370,000		)
Impairment of real estate investments	—			—			2,542,000			4,883,000
Loss from unconsolidated entity	1,137,000			1,494,000			3,672,000			3,668,000
Foreign currency loss (gain)	619,000			(1,384,000		)	1,652,000			(3,697,000		)
Other income	(501,000		)	(210,000		)	(1,020,000		)	(673,000		)
Income tax benefit	(44,000		)	(720,000		)	(941,000		)	(1,498,000		)
Net operating income	$	51,937,000		$	55,402,000		$	156,775,000		$	156,698,000

Subsequent Event

For a discussion of a subsequent event, see Note 20, Subsequent Event , to our accompanying condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. There were no material changes in our market risk exposures, or in the methods we use to manage market risk, from those that were provided for in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018 . In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

Interest Rate Risk

We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. We are also exposed to the effects of changes in interest rates as a result of our investments in real estate notes receivable. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows

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and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed or variable rates.

We have entered into, and in the future may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2018 , our interest rate swaps are recorded in other assets, net in our accompanying condensed consolidated balance sheets at their aggregate fair value of $1,239,000 . We do not enter into derivative transactions for speculative purposes.

As of September 30, 2018 , the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.



	Expected Maturity Date
	2018			2019			2020			2021			2022			Thereafter			Total			Fair Value
Assets
Fixed-rate notes receivable — principal payments	$	—		$	28,650,000		$	—		$	—		$	—		$	—		$	28,650,000		$	28,816,000
Weighted average interest rate on maturing fixed-rate notes receivable	—		%	6.75		%	—		%	—		%	—		%	—		%	6.75		%	—
Variable-rate notes receivable — principal payments	$	1,799,000		$	—		$	—		$	—		$	—		$	—		$	1,799,000		$	1,799,000
Weighted average interest rate on maturing variable-rate notes receivable (based on rates in effect as of September 30, 2018)	8.39		%	—		%	—		%	—		%	—		%	—		%	8.39		%	—
Debt security held-to-maturity	$	—		$	—		$	—		$	—		$	—		$	93,433,000		$	93,433,000		$	93,396,000
Weighted average interest rate on maturing fixed-rate debt security	—		%	—		%	—		%	—		%	—		%	4.24		%	4.24		%	—
Liabilities
Fixed-rate debt — principal payments	$	2,778,000		$	11,551,000		$	22,803,000		$	12,158,000		$	61,083,000		$	516,255,000		$	626,628,000		$	530,243,000
Weighted average interest rate on maturing fixed-rate debt	3.71		%	3.72		%	4.84		%	3.67		%	4.15		%	3.64		%	3.73		%	—
Variable-rate debt — principal payments	$	15,000		$	683,078,000		$	60,046,000		$	40,284,000		$	—		$	—		$	783,423,000		$	785,098,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of September 30, 2018)	6.60		%	4.57		%	5.70		%	4.79		%	—		%	—		%	4.66		%	—

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Real Estate Notes Receivable and Debt Security Investment, Net

As of September 30, 2018 , the carrying value of our real estate notes receivable and debt security investment, net was $99,813,000 . As we expect to hold our fixed-rate notes receivable and debt security investment to maturity and the amounts due under such notes receivable and debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate notes receivable and debt security investment, would have a significant impact on our operations. Conversely, movements in interest rates on our variable-rate notes receivable may change our future earnings and cash flows, but not significantly affect the fair value of those instruments. See Note 15, Fair Value Measurements , to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our real estate notes receivable and our investment in a held-to-maturity debt security.

The weighted average effective interest rate on our outstanding real estate notes receivable and debt security investment, net was 4.88% per annum based on rates in effect as of September 30, 2018 . A decrease in the variable interest rate on our real estate notes receivable constitutes a market risk. As of September 30, 2018 , a 0.50% decrease in the market rates of interest would have no impact on our future earnings and cash flows due to interest rate floors on our variable-rate real estate notes receivable.

Mortgage Loans Payable, Net and Lines of Credit and Term Loans

Mortgage loans payable were $711,978,000 ( $686,954,000 , including discount/premium and deferred financing costs, net) as of September 30, 2018 . As of September 30, 2018 , we had 57 fixed-rate and five variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.07% per annum and a weighted average effective interest rate of 3.94% . In addition, as of September 30, 2018 , we had $698,073,000 outstanding under our lines of credit and term loans, at a weighted-average interest rate of 4.57% per annum.

As of September 30, 2018 , the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 4.04% per annum. An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loans constitutes a market risk. As of September 30, 2018 , we have three fixed-rate interest rate swaps on one of our lines of credit and term loans and an increase in the variable interest rate thereon would have no effect on our overall annual interest expense. As of September 30, 2018 , a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and term loans by $2,690,000, or 4.74% of total annualized interest expense on our mortgage loans payable and lines of credit and term loans. See Note 7, Mortgage Loans Payable, Net , and Note 8, Lines of Credit and Term Loans , to our accompanying condensed consolidated financial statements.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on our results for the nine months ended September 30, 2018 , if foreign currency exchange rates were to increase or decrease by 1.00%, our net income from these investments would decrease or increase, as applicable, by approximately $17,000 for the same period.

Other Market Risk

In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

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Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 2018 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2018 , were effective at the reasonable assurance level.

(b) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There were no material changes from the risk factors previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018, except as noted below.

We have not had sufficient cash available from operations to pay distributions, and therefore, we have paid distributions from the net proceeds of our initial offering and borrowings, and in the future, may continue to pay distributions from borrowings in anticipation of future cash flows or from other sources. Any such distributions may reduce the amount of capital we ultimately invest in assets, may negatively impact the value of our stockholders’ investment and may cause subsequent investors to experience dilution.

We have used the net proceeds from our initial offering, borrowed funds or other sources, to pay cash distributions to our stockholders, which may reduce the amount of proceeds available for investment and operations, cause us to incur additional interest expense as a result of borrowed funds or cause subsequent investors to experience dilution. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated earnings and profits, the excess amount will be deemed a return of capital. Therefore, distributions payable to our stockholders may include a return of capital, rather than a return on capital. We have not established any limit on the amount of proceeds from our initial offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences. The actual amount and timing of distributions is determined by our board, in its sole discretion and typically depends on the amount of funds available for distribution, which will depend on items such as our financial condition, current and projected capital expenditure requirements, tax considerations and annual distribution requirements needed to qualify as a REIT. As a result, our distribution rate and payment frequency may vary from time to time.

Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on December 31, 2018. The daily distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. These daily distributions were or will be aggregated and paid in cash or shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering monthly in arrears, only from legally available funds.

The distributions paid for the nine months ended September 30, 2018 and 2017 , along with the amount of distributions reinvested pursuant to the Secondary DRIP Offering and the sources of our distributions as compared to cash flows from operations were as follows:



	Nine Months Ended September 30,
	2018				2017
Distributions paid in cash	$	44,702,000			$	41,526,000
Distributions reinvested	45,444,000				47,453,000
	$	90,146,000			$	88,979,000
Sources of distributions:
Cash flows from operations	$	76,297,000	84.6	%	$	88,540,000	99.5	%
Proceeds from borrowings	13,849,000		15.4		439,000		0.5
	$	90,146,000	100	%	$	88,979,000	100	%

Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, subtracted from cash flows from operations. However, these expenses may be paid from debt.

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As of September 30, 2018 , no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to our initial offering, through June 5, 2014, the day prior to the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

The distributions paid for the nine months ended September 30, 2018 and 2017 , along with the amount of distributions reinvested pursuant the Secondary DRIP Offering and the sources of our distributions as compared to FFO were as follows:



	Nine Months Ended September 30,
	2018				2017
Distributions paid in cash	$	44,702,000			$	41,526,000
Distributions reinvested	45,444,000				47,453,000
	$	90,146,000			$	88,979,000
Sources of distributions:
FFO attributable to controlling interest	$	74,015,000	82.1	%	$	78,175,000	87.9	%
Proceeds from borrowings	16,131,000		17.9		10,804,000		12.1
	$	90,146,000	100	%	$	88,979,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations and Modified Funds from Operations.

The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment.

On October 3, 2018, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share NAV of our common stock of $9.37. We are providing this updated estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by FINRA with respect to customer account statements. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs , issued by the IPA in April 2013, in addition to guidance from the SEC. The updated estimated per share NAV was determined after consultation with our advisor and an independent third-party valuation firm, the engagement of which was approved by the audit committee of our board. FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, our independent valuation firm’s methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant.

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The updated estimated per share NAV was not audited or reviewed by our independent registered public accounting firm and does not represent the fair value of our assets or liabilities according to GAAP. Accordingly, with respect to the updated estimated per share NAV, we can give no assurance that:


•	a stockholder would be able to resell his or her shares at our updated estimated per share NAV;


•	a stockholder would ultimately realize distributions per share equal to our updated estimated per share NAV upon liquidation of our assets and settlement of our liabilities or a sale of the company;


•	our shares of common stock would trade at our updated estimated per share NAV on a national securities exchange;


•	an independent third-party appraiser or other third-party valuation firm, other than the third-party valuation firm engaged by the board to assist in its determination of the updated estimated per share NAV, would agree with our estimated per share NAV; or


•	the methodology used to estimate our updated per share NAV would be acceptable to FINRA or comply with the Employee Retirement Income Security Act of 1974, or ERISA, reporting requirements.

Further, the estimated updated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2018. The value of our shares may fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. Going forward, we intend to engage an independent valuation firm to assist us with publishing an updated estimated per share NAV on at least an annual basis.

For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of the updated estimated per share NAV, see our Current Report on Form 8-K filed with the SEC on October 4, 2018.

A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.

To the extent that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately effects that geographic area would have a magnified adverse effect on our portfolio. As of November 14, 2018 , properties located in Indiana accounted for approximately 35.3% of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rental payments to us, and comprehensive healthcare reform legislation could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal governmental healthcare programs are subject to reductions by state and federal legislative actions. The American Taxpayer Relief Act of 2012 prevented the reduction in physician reimbursement of Medicare from being implemented in 2013. The Protecting Access to Medicare Act of 2014 prevented the reduction of 24.4% in the physician fee schedule by replacing the scheduled reduction with a 0.5% increase to the physician fee schedule through December 31, 2014, and no increase from January 1, 2015 through March 31, 2015. The potential 21.0% cut in reimbursement that was to be effective April 1, 2015 was removed by the Medicare Access & CHIP Reauthorization Act of 2015, or MACRA, and replaced with two new methodologies that will focus upon payment based upon quality outcomes. The first model is the Merit-Based Incentive Payment System, or MIPS, which combines the Physician Quality Reporting System, or PQRS, and Meaningful Use program with the Value Based Modifier program to provide for one payment model based upon (i) quality, (ii) resource use, (iii) clinical practice improvement and (iv) advancing care information through the use of certified Electronic Health Record, or EHR, technology. The second model is the Advanced Alternative Payment Models, or APM, which requires the physician to participate in a risk share arrangement for reimbursement related to his or her patients while utilizing a certified health record and reporting on specific quality metrics. There are a number of physicians that will not qualify for the APM payment method. Therefore, this change in reimbursement models may impact our tenants’ payments and create uncertainty in the tenants’ financial condition.

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The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to reimbursement based upon value-based principles and quality driven managed care programs, and general industry trends that include pressures to control healthcare costs. The federal government's goal is to move approximately 90.0% of its reimbursement for providers to be based upon quality outcome models. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement based upon a fee for service payment to payment based upon quality outcomes have increased the uncertainty of payments.

In addition, the Patient Protection and Affordable Care Act of 2010, or the Healthcare Reform Act, is intended to reduce the number of individuals in the U.S. without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments.

Furthermore, the healthcare legislation passed in 2010 included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could have a material adverse effect on the financial condition of some of our tenants. Also, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law and repeals the individual mandate portion of the Healthcare Reform Act beginning in 2019. Therefore, our tenants may have more patients that do not have insurance coverage, which may adversely impact the tenants’ collections and revenues. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to stockholders.

Furthermore, beginning in 2016, the Centers for Medicare and Medicaid Services has applied a negative payment adjustment to individual eligible professionals, Comprehensive Primary Care practice sites, and group practices participating in the PQRS group practice reporting option (including Accountable Care Organizations) that do not satisfactorily report PQRS in 2014. Program participation during a calendar year will affect payments two years after the reporting cycle, such that individuals and groups that do not satisfy the PQRS reporting metrics in 2016 will be impacted by a two percent negative payment adjustment in 2018. Providers can appeal the determination, but if the provider is not successful, the provider’s reimbursement may be adversely impacted, which could adversely impact a tenant’s ability to make rent payments to us.

In 2014, state insurance exchanges were implemented, which provide a new mechanism for individuals to obtain insurance. At this time, the number of payors that are participating in the state insurance exchanges varies, and in some regions there are very limited insurance plans available for individuals to choose from when purchasing insurance. In addition, not all healthcare providers will maintain participation agreements with the payors that are participating in the state health insurance exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payors and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payors to healthcare providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payor, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to pay rent.

The insurance plans that participated on the health insurance exchanges created by the Healthcare Reform Act were expecting to receive risk corridor payments to address the high risk claims that they paid through the exchange product. However, the federal government currently owes the insurance companies approximately $12.3 billion under the risk corridor payment program that is currently disputed by the federal government. In addition, the health insurance exchange program included risk adjustment payments that allocated payments to insurers that had the most complex patients. Effective July 7, 2018, the federal government suspended $10.4 billion of the risk adjustment payments based upon a court order that the payment methodology was flawed. However, on July 24, 2018, the federal government reissued a previous rule regarding risk adjustment payments, including as part of the reissuance additional explanation regarding the methodology used in determining risk adjustment payments. As part of the reissuance, the federal government resumed its operation of the risk adjustment program. The federal government is currently defending several lawsuits from the insurance plans that participate on the health insurance exchange regarding the failure to remit payment for the risk corridor subsidies. The federal government is also subject to pending litigation regarding the risk adjustment payments. If the insurance companies do not receive payments, the insurance companies may also cease to participate on the insurance exchange, which limits insurance options for

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patients. If patients do not have access to insurance coverage, it may adversely impact the tenants’ revenues and the tenants’ ability to pay rent.

In addition to the failure to remit payment for the risk corridor payment and the recent suspension of the risk adjustment payments, the federal government also ceased to provide the cost-share subsidies to the insurance companies that offered the silver plan benefits on the Health Information Exchange. The termination of the cost-share subsidies would impact the subsidy payments due in 2017 and will likely adversely impact the insurance companies, causing an increase in the premium payments for the individual beneficiaries in 2018. Nineteen State Attorneys General filed suit to force the Trump Administration to reinstate the cost share subsidy payments. On October 25, 2017, a California Judge ruled in favor of the Trump Administration and found that the federal government was not required to immediately reinstate payment for the cost shares subsidy. The injunction sought by the Attorneys’ General lawsuit was denied. Subsequently, several insurers filed suit in the U.S. Court of Federal Claims to recover cost-share reduction payments, and in two of the matters, the Court of Federal Claims ruled in favor of the insurers. Nevertheless, because of the government’s refusal to make cost-share reduction payments, our tenants will likely see an increase in individuals who are self-pay or have a lower health benefit plan due to the increase in the premium payments. Our tenants’ collections and revenues may be adversely impacted by the change in the payor mix of their patients and it may adversely impact the tenants’ ability to make rent payments.

There are multiple lawsuits in several judicial districts brought by qualified health plans, or QHPs, to recover the prior risk corridor payments that were anticipated to be paid as part of the health insurance exchange program. In June 2018, the Court of Appeals for the Federal Circuit issued an opinion in Moda Health Plan v. United States , concluding that the government does not have to pay health insurers that offered QHPs the full amount owed to them in risk corridors payments. Several insurers have requested a rehearing as to the matters addressed in the Moda case in front of a full panel of appellate judges. At this time, at least two key cases have been determined in favor of the government withholding payment of the risk corridor payment. If the Administration or the court system decisions that risk corridor or risk share payments are not required to be paid to the QHPs offering insurance coverage on the health insurance exchange program remain in effect and binding, the insurance companies may cease offering the Health Insurance Exchange product to the current beneficiaries. Therefore, our tenants may have an increase of self-pay patients and collections may decline, adversely impacting the tenants’ ability to pay rent.

In 2017, Congressional activities to attempt to repeal the Healthcare Reform Act failed. However, President Trump signed several Executive Orders that address different aspects of the Healthcare Reform Act. First, on January 20, 2017 an Executive Order was signed to “ease the burden of Obamacare.” Furthermore, on October 12, 2017, President Trump signed an Executive Order the purpose of which was to, among other things, (i) cut healthcare cost-sharing reduction subsidies, (ii) allow more small businesses to join together to purchase insurance coverage, (iii) extend short-term coverage policies, and (iv) expand employers’ ability to provide workers cash to buy coverage elsewhere. The Executive Order required the government agencies to draft regulations for consideration related to Associated Health Plans (AHP), short term limited duration insurance (STLDI) and health reimbursement arrangements (HRA). Some, but not all, of the required regulations have been drafted. If the Healthcare Reform Act is modified through Executive Orders, the healthcare industry will continue to change and new regulations may further modify payment models, jeopardizing our tenants’ ability to remit the rental payments.

On January 11, 2018, the Centers for Medicare and Medicaid Services, or CMS, issued guidance to support state efforts to improve Medicaid enrollee health outcomes by incentivizing community engagement among able-bodied, working-age Medicaid beneficiaries. The policy excludes individuals eligible for Medicaid due to a disability, elderly beneficiaries, children and pregnant women. CMS has received proposals from 10 states seeking requirements for able bodied Medicaid beneficiaries to engage in employment and community engagement initiatives. Kentucky, Indiana, Arkansas and New Hampshire have been granted a waiver for their programs and require Medicaid beneficiaries to work or get ready for employment. However, in June 2018, the Federal District Court in the District of Columbia vacated the CMS approval of the Kentucky waiver, finding the approval was arbitrary and capricious and the Court referred it back to CMS. In response to CMS’s willingness to entertain Medicaid program waivers, states are seeking waivers to impose other Medicaid eligibility requirements, such as drug testing and eligibility time limits. If the “work requirement” and other eligibility requirements expand to the states’ Medicaid programs, it may decrease the number of patients eligible for Medicaid. The patients that are no longer eligible for Medicaid may become self-pay patients, which may adversely impact our tenant’s ability to receive reimbursement. If our tenants’ patient payor mix becomes more self-pay patients, it may impact our tenants’ ability to collect revenues and pay rent. In addition, beginning in 2018, CMS cut funding to the 340B Program, which is intended to lower drug costs for certain healthcare providers. The cuts in the 340B Program may result in some of our tenants having less money available to cover operational costs.

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In February of 2018, Congress passed the Bipartisan Balanced Budget Act of 2018. Some of the most notable provisions of the Bipartisan Balanced Budget Act include: (i) the permanent extension of Medicare Special Needs Plans, or SNPs, which provide tailored care for certain qualifying Medicare beneficiaries; (ii) guaranteed funding for the Children’s Health Insurance Program, or CHIP, through 2027; (iii) expansion of Medicare coverage for tele-medicine services; and (iv) expanded testing of certain value-based care models. The extension of SNPs and funding for CHIP secure coverage for patients of our tenants and may reduce the number of uninsured patients treated by our tenants. The expansion of coverage for tele-medicine services could impact the demand for medical properties. If more patients can be treated remotely, providers may have less demand for real property.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

On July 1, 2018, we issued an aggregate of 15,000 shares of restricted common stock to our independent directors. These shares of restricted common stock were issued pursuant to our incentive plan in a private transaction exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act. Such shares vest as to 20.0% of the shares on the date of grant and on each of the first four anniversaries of the grant date.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. All share repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan, and will be repurchased at a price between 92.5% and 100% of each stockholder’s “Repurchase Amount,” as defined in our share repurchase plan, depending on the period of time their shares have been held. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the repurchase price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

During the three months ended September 30, 2018 , we repurchased shares of our common stock as follows:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plan or Program	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2018 to July 31, 2018	—	$	—	—	(1	)
August 1, 2018 to August 31, 2018	—	$	—	—	(1	)
September 1, 2018 to September 30, 2018	2,000,654	$	9.23	2,000,654	(1	)
Total	2,000,654	$	9.23	2,000,654

___________


(1)	Subject to funds being available, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the period ended September 30, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).



3.1	Articles of Amendment and Restatement of Griffin-American Healthcare REIT III, Inc. dated January 15, 2014 (included as Exhibit 3.1 to Pre-Effective Amendment No. 5 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 16, 2014 and incorporated herein by reference)

3.2	Bylaws of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 3.2 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)

4.1	Amended and Restated Distribution Reinvestment Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-55434) filed October 7, 2016 and incorporated herein by reference)

10.1*	First Amended and Restated Limited Liability Company Agreement of Trilogy REIT Holdings, LLC dated as of October 1, 2018, entered into by and among GAHC3 Trilogy JV, LLC, Trilogy Holdings NT-HCI, LLC and GAHC4 Trilogy JV, LLC

31.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

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

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

___________



*	Filed herewith.
**	Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		Griffin-American Healthcare REIT III, Inc. (Registrant)

November 14, 2018	By:	/s/ J EFFREY T. H ANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)

November 14, 2018	By:	/s/ B RIAN S. P EAY
Date		Brian S. Peay
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

Exhibit 10.1

FIRST AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

TRILOGY REIT HOLDINGS, LLC
(A Delaware limited liability company)

___________________________________________________

Dated as of October 1, 2018

The membership interests evidenced hereby have not been registered with the Securities and Exchange Commission under the Securities Act (as defined herein) in reliance upon an exemption from registration thereunder and have not been registered or qualified under the state securities laws of any relevant jurisdiction in which the membership interests have been offered and sold pursuant to applicable exemption therefrom. The membership interests may not be sold, pledged, hypothecated, or otherwise transferred except pursuant to an effective registration statement under the Securities Act and qualification under applicable state securities laws, unless exemptions from such registration and qualification are available. In addition, the sale, transfer or other disposition of the membership interests evidenced hereby or any interest therein are subject to certain restrictions on transfer set forth in this Agreement.



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		Page
ARTICLE ONE DEFINITIONS AND INTERPRETATION		2

ARTICLE TWO ORGANIZATION		2
2.01	Formation and Continuation	2
2.02	Name	2
2.03	Place of Business; Registered Office	2
2.04	Purpose; Powers	3
2.05	Structure	3
2.06	Term	3
2.07	Qualification in Other Jurisdictions	3
2.08	No State-Law Partnership; Tax Treatment	3
2.09	REIT Status	4

ARTICLE THREE MEMBERS AND CAPITAL		5
3.01	Members	5
3.02	Capital Contributions	6
3.03	Additional Capital Contributions – Mandatory Contributions	6
3.04	Additional Capital Contributions – Discretionary Contributions	8
3.05	Fair Market Value Determination	9
3.06	Right to Assign Additional Capital Contribution Obligation/Right	10
3.07	Liability of Members	10
3.08	Member Loans	10
3.09	Withdrawal	10
3.10	No Right of Partition	11
3.11	Title to Assets	11

ARTICLE FOUR DISTRIBUTIONS		11
4.01	Timing of Distributions	11
4.02	Distributions of Available Cash	11
4.03	Limitation on Distributions	11

ARTICLE FIVE MANAGEMENT OF THE COMPANY		11
5.01	Generally	11
5.02	Major Decisions/Deadlock	13
5.03	Officers and Directors	14
5.04	Liability for Certain Acts and Indemnification	16
5.05	Manager, Member and Affiliate Compensation	17
5.06	Business Plan	17
5.07	Resignation/Removal of the Manager	17

ARTICLE SIX TRANSFER OF MEMBERSHIP INTERESTS		20
6.01	Transfers	20
6.02	Additional Restrictions on Transfers	22
6.03	Admission and Withdrawals	23



6.04	Enforcement	23
6.05	Transfers During a Fiscal Year	24
6.06	Right of First Offer	24
6.07	Drag-Along Right	26
6.08	Tag-Along Right	28
6.09	Initial Public Offering	29

ARTICLE SEVEN INVESTMENT REPRESENTATIONS		29
7.01	Investment Intent	29
7.02	Business Experience	29
7.03	No Registration of Units	30
7.04	Restricted Securities	30
7.05	No Obligations to Register	30
7.06	No Disposition in Violation of Law	30
7.07	Investment Risk	30
7.08	Restrictions on Transferability	30
7.09	Information Reviewed	30
7.10	No Advertising	30
7.11	“Accredited Investor” Qualification	31

ARTICLE EIGHT DISSOLUTION AND LIQUIDATION OF THE COMPANY		31
8.01	Dissolution	31
8.02	Liquidation	32

ARTICLE NINE AMENDMENTS		33
9.01	Amendments	33

ARTICLE TEN FINANCIAL, REPORTING AND TAX MATTERS		33
10.01	Records and Accounting	33
10.02	Annual Reports	34
10.03	Management Agreement	34
10.04	Tax Information	34
10.05	Tax Matters Member	34
10.06	Capital Accounts, Allocations and Elections	35
10.07	Tax Advances	35

ARTICLE ELEVEN CONFIDENTIALITY		36
11.01	Disclosure of Confidential Information	36
11.02	Certain Exceptions	36
11.03	Permitted Disclosure to Representatives	36
11.04	Disclosure to Non-Representatives	36
11.05	Remedies	36

ARTICLE TWELVE MISCELLANEOUS		37
12.01	Notices	37
12.02	Governing Law	37
12.03	Arbitration	37



12.04	Entire Agreement	38
12.05	Headings	38
12.06	Binding Provisions	38
12.07	No Waiver	38
12.08	Counterparts	38
12.09	Costs	38
12.10	No Third Party Rights	38
12.11	Severability	38

ARTICLE THIRTENN FORCED SALE PROVISION		39
13.01	Forced Sale Triggers	39
13.02	Forced Sale Election	39
13.03	Marketing of the Company	40
13.04	Closing	40

ARTICLE FOURTEEN BUY/SELL PROVISIONS		41
14.01	Exercise of Buy/Sell Rights	41
14.02	Terms of Buy/Sell	42
14.03	Termination of Obligations	43
14.04	Escrow and Closing of Buy/Sell	43
14.05	Default	44
14.06	Release of Seller	45

iii

APPENDICES

Annex 1 – Definitions

Appendix A – Member Information

Exhibit A – Approved Business Plan

Exhibit B – Capital Accounts; Allocation Rules; Tax Elections

Exhibit C – Officers

Exhibit D – Fair Market Value

Exhibit E – Major Decisions

Exhibit F – Information Requirements

FIRST AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

TRILOGY REIT HOLDINGS, LLC

THIS FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “ Agreement ”) of TRILOGY REIT HOLDINGS, LLC (the “ Company ”) is entered into as of October 1, 2018 by and between GAHC3 TRILOGY JV, LLC (“ GAHR3 ”), a Delaware limited liability company, as a member and the sole manager, TRILOGY HOLDINGS NT-HCI, LLC , a Delaware limited liability company (“ NHI ”), as a member, and GAHC4 TRILOGY JV, LLC (“ GAHR4 ”), a Delaware limited liability company, as a member.

WHEREAS , GAHR3 is a wholly owned subsidiary of Griffin-American Healthcare REIT III Holdings, LP, a Delaware limited partnership (the “ GAHR3 Partnership ”), GAHR4 is a wholly owned subsidiary of Griffin-American Healthcare REIT IV Holdings, LP, a Delaware limited partnership (the “ GAHR4 Partnership ”), and NHI is a wholly owned subsidiary of NorthStar Healthcare Income Operating Partnership, LP, a Delaware limited partnership (the “ NHI Partnership ”);

WHEREAS , GAHR3 and NHI formed the Company to, among other things, acquire Trilogy Investors, LLC, a Delaware limited liability company (“ HoldCo ”), and its subsidiaries, and their respective real estate and operating assets, as set forth in the Equity Purchase Agreement;

WHEREAS , GAHR3 formed the Company under the name “Trilogy REIT Holdings, LLC” under the Delaware Limited Liability Company Act (6 Del. Code §§ 18-101, et seq .) (as amended from time to time, the “ Act ”) by the filing of a Certificate of Formation (the “ Certificate ”) with the Delaware Secretary of State on August 26, 2015; and

WHEREAS , on September 11, 2015, GAHR3 and NHI entered into that certain Limited Liability Company Agreement of Trilogy REIT Holdings, LLC dated as of September 11, 2015 (the “ Prior LLC Agreement ”) to set forth their respective rights and obligations as members of the Company, among other things;

WHEREAS , on October 1, 2018, NHI and GAHR4 entered into that certain Membership Interest Purchase Agreement (the “ Purchase Agreement ”), pursuant to which GAHR4 acquired from NHI, 46,658 Units of the Company’s Membership Interest held by NHI (the “ Purchased Units ”) representing six percent (6%) of all issued and outstanding Membership Interests of the Company;

WHEREAS , a condition of the Purchase Agreement and the acquisition by GAHR4 of the Purchased Units is the amendment and restatement of the Prior LLC Agreement with this Agreement to set forth, as of the date hereof, the respective rights and obligations of GAHR3, NHI and GAHR4 as members of the Company, among other things;

NOW , THEREFORE , for and in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:

ARTICLE ONE

DEFINITIONS AND INTERPRETATION

Capitalized terms used herein without definition shall have the respective meanings assigned thereto in Annex I attached hereto and incorporated herein for all purposes of this Agreement (such definitions to be equally applicable to both the singular and plural forms of the terms defined). When a reference is made in this Agreement to Sections, subsections, Appendix or Exhibits, such reference is to a Section, subsection, Appendix or Exhibit to this Agreement unless otherwise indicated. The words “include”, “includes” and “including” when used herein are deemed in each case to be followed by the words “without limitation.” The word “herein” and similar references mean, except where a specific Section or Article reference is expressly indicated, the entire Agreement rather than any specific Section or Article.

ARTICLE TWO

ORGANIZATION

2.01 Formation and Continuation . The Company was formed as a limited liability company upon filing of the Certificate pursuant to the provisions of the Act on August 26, 2015. The Members hereby agree to continue the Company as a limited liability company under the Act for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members shall be determined pursuant to the Act, the Certificate, and this Agreement. To the extent that there is any conflict or inconsistency between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence. As of the date hereof, each of GAHR3, GAHR4 and NHI are admitted to the Company as a member of the Company upon its execution of this Agreement.

2.02 Name . The name of the Company shall be “ Trilogy REIT Holdings, LLC .” The business of the Company may be conducted, upon compliance with all applicable laws, under any other name designated by the Manager.

2.03 Place of Business; Registered Office .

(a) The Company shall maintain its principal office at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, or at such other place or places as the Manager may from time to time determine.

(b) The registered office of the Company in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The name of the registered agent for the Company is Corporation Service Company. The Manager may, from time to time, appoint a new registered agent for the Company.

2.04 Purpose; Powers . The purpose of the Company shall be to conduct and engage in the following activities: (i) to create one or more Subsidiaries and to directly or (through various Subsidiaries) indirectly acquire, purchase, own, hold, manage, develop, operate, improve, rent, lease, finance, encumber, sell, transfer, exchange, dispose of, invest in or otherwise deal with (a) the congregate care, skilled nursing, assisted living, independent living and/or memory care facilities/communities and other healthcare-related properties (“ Properties ”) of HoldCo, (b) certain joint ventures which lease one or more skilled nursing, assisted living and/or memory care facilities, (c) certain assets relating to one or more pharmacy businesses, and/or (d) certain assets relating to one or more rehabilitation services businesses, and/or any direct or indirect interest therein, (ii) to conduct such other lawful business activities related or incidental thereto as the Manager may determine, and (iii) to exercise all powers enumerated in the Act necessary to the conduct, promotion or attainment of the purposes set forth herein and for the protection and benefit of the Company. The Company is authorized and empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes and for the protection and benefit of the Company, including all acts and things permitted under the Act and this Agreement. Unless a Member agrees in writing, no third party or creditor of the Company shall have recourse against such Member for any liability of the Company.

2.05 Structure . The Company shall own all of the common ownership interests of Trilogy Real Estate Investment Trust, a Maryland statutory trust that has elected to be taxed as a REIT (“ Trilogy REIT ”), and the Company shall serve as the sole trustee of Trilogy REIT. The Company shall cause Trilogy REIT to issue preferred ownership interests to 100 or more persons. As of the date hereof, Trilogy REIT owns approximately 96.7% of the ownership interests of HoldCo. As of the date hereof, HoldCo owns indirect ownership interests of, and shall have general management control over (i) Trilogy OpCo Finance, LLC (“ OpCo ”), (ii) Trilogy PropCo Finance, LLC (“ PropCo I ”), (iii) Trilogy PropCo II, LLC (“ PropCo II ”), and (iv) Trilogy Pro Services, LLC (“Pro Services”) and their respective subsidiaries.

2.06 Term . The term of the Company commenced on the date of filing of the Certificate with the office of the Delaware Secretary of State in accordance with the Act and shall continue until the winding up and liquidation of the Company and its business completed in accordance with Article Eight .

2.07 Qualification in Other Jurisdictions . The Manager shall cause the Company to be qualified, formed or registered under assumed or fictitious names or other limited liability company statutes or similar laws in any jurisdiction in which the Company owns property or transacts business if and to the extent that such qualification, formation or registration is necessary in order to protect the limited liability of the Members or to permit the Company lawfully to own property or to transact business. The Manager shall execute, file and publish all such certificates, notices, statements or other instruments necessary to permit the Company to conduct business as a limited liability company in all jurisdictions in which the Company elects to do business or to maintain the limited liability of the Members.

2.08 No State-Law Partnership; Tax Treatment .

(a) Except as provided in Section 2.08(b) , each of the Members agrees and acknowledges that the Company is not intended to be treated as a partnership (whether as a limited partnership or otherwise) or joint venture under applicable state law, and that no Member is intended to be treated as a partner or joint venturer of any other Member under applicable state law, and neither this Agreement nor any document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise.

(b) The Members intend that the Company be treated as a partnership for federal and, if applicable, state and local income and other tax purposes. The Company and each Member shall file all tax returns and otherwise take all tax and financial reporting positions in a manner consistent with such treatment, and no election to the contrary shall be made.

2.09 REIT Status .

(a) The Manager and the Members acknowledge that Trilogy REIT and certain Affiliates of the Members (each a “ Qualifying Entity ”) intend to qualify and remain qualified as REITs, and agree that the Company and the Subsidiaries shall operate in a manner that does not adversely affect any Qualifying Entity’s status as a REIT. As such, in order to preserve each Qualifying Entity’s qualification as a REIT under the Code, the Manager and the Members shall use reasonable best efforts to, and shall cause their respective Affiliates to:

(i) Operate the Company and the Subsidiaries in such a manner as would allow each Qualifying Entity to qualify as (and to continue to qualify as) a REIT and cause Trilogy REIT to form a subsidiary that will be taxable as a corporation for U.S. federal income tax purposes and that will join with Trilogy REIT to make a “taxable REIT subsidiary” election under Section 856(l) of the Code, which subsidiary will form one or more subsidiaries to lease “qualified health care properties,” as defined in Code Section 856(e)(6)(D)(i), from certain subsidiaries of Trilogy REIT and to own certain pharmacy and rehabilitation businesses; provided, however, that such taxable REIT subsidiary shall not, directly or indirectly, operate or manage a “health care facility” as defined in Code Section 856(l)(4)(B);

(ii) Operate the Company and the Subsidiaries in such a manner so as to not subject any Qualifying Entity to any additional taxes under Section 857 or Section 4981 of the Code;

(iii) Cooperate with one another to provide one another with (i) any information reasonably requested for the purposes of verifying that Trilogy REIT is organized and operated so as to qualify for taxation as a REIT and (ii) any other reasonably requested information necessary for each Qualifying Entity to comply with the requirements necessary to qualify as a REIT under Code Section 856; and

(iv) Not engage in any transaction (or cause the Company or any Subsidiary to engage in any transaction) that could reasonably be characterized as a “prohibited transaction” subject to tax under Code Section 857(b)(6) without the prior written Consent of all Members.

(b) The Manager shall provide the Members with quarterly asset and income tests within twenty-five (25) days after the end of each quarter and shall provide the Members with annual asset, income and distribution tests within thirty (30) days after the end of each year.

(c) If requested by a Member, at the Company’s expense, the Manager shall obtain and provide to such Member an opinion from outside counsel to the Company reasonably acceptable to the Manager as to the qualification as a REIT of Trilogy REIT. The Manager’s inability to obtain such an opinion shall not be a violation of this subsection or a breach of this Agreement so long as (i) the Manager has used commercially reasonable efforts to obtain such opinion and (ii) the failure to obtain such opinion is not a result of any action or inaction by the Manager that Manager knew or should have known would cause Trilogy REIT to fail to qualify as a REIT. If the Manager is unable to obtain such opinion, then NHI shall have the right, at the Company’s expense, to seek to obtain such opinion.

ARTICLE THREE

MEMBERS AND CAPITAL

3.01 Members .

(a) Each of the parties to this Agreement shall be a Member of the Company until such Person ceases to be a Member in accordance with the provisions of this Agreement. Each Member shall have the rights, powers, duties, obligations, preferences and privileges of a Member as set forth in this Agreement.

(b) No additional Members may be admitted to the Company except (i) to the extent agreed upon by the Qualifying Members as a Major Decision, or (ii) for Permitted Transferees pursuant to Article Six hereof. Any distribution by the Company to the Person shown on the Company’s records as a Member or to its legal representatives, an assignee of the right to receive distributions as provided herein, or an Unadmitted Assignee shall acquit the Company and the Members of all liability to any other Person who may be interested in such distribution by reason of assignment or Transfer of a Member’s Units for any reason.

(c) No additional Members shall be admitted to the Company if the admission of such Member would: (i) cause the Company’s assets to be deemed to be “plan assets” for purposes of ERISA, (ii) cause the Company to be deemed to be an “investment company” for purposes of the Investment Company Act, (iii) materially violate, or cause the Company to materially violate, any material applicable law or regulation, including any applicable United States federal or state securities laws or (iv) violate any other applicable law.

(d) The names, addresses, initial Capital Contributions, Units and Percentage Interests of the Members of the Company are set forth on Appendix A to this Agreement. Appendix A shall be revised from time to time by the Manager to reflect the withdrawal or admission of Members, the Transfer of Units by Members pursuant to the provisions of this Agreement, the issuance of additional Units in respect of additional Capital Contributions made to the Company by the Members in accordance with this Article Three , and to reflect any other change in the information set forth therein.

(e) Notwithstanding that pursuant to the definitions of “Affiliate”, “controlling”, “controlled by”, and “under common control with” set forth herein GAHR3 and GAHR4 are deemed to be Affiliates, the Members agree that for purposes of this Agreement (i) GAHR3 and its subsidiaries and GAHR4 and its subsidiaries are not and will not be deemed to be “Affiliates”, (ii) GAHR3 and its subsidiaries and GAHR4 and its subsidiaries shall not be afforded any of the rights and privileges afforded hereunder to Affiliates, and (iii) as of the date hereof GAHR4 is not a Qualifying Member as the aggregation of Percentage Interests of Affiliates does not apply to GAHR3 and GAHR4.

3.02 Capital Contributions . Each of the respective Capital Contributions of the Members as of the date hereof are set forth next to such Member’s name on Appendix A . This Section 3.02(a) shall not inure to or be for the benefit of any third-party beneficiaries, including any creditors of the Company.

3.03 Additional Capital Contributions – Mandatory Contributions .

(a) From and after the date hereof, upon the Manager’s determination that (i) additional Capital Contributions to the Company are required to fund “Identified Initiatives” as set forth in and in accordance with the Approved Business Plan (each, a “ Committed Capital Call ”), or (ii) additional Capital Contributions to the Company are advisable or necessary to pay for Necessary Expenses (each, a “ Necessary Capital Call ”), the Manager shall have the right to call for additional Capital Contributions from the Members in accordance with this Section 3.03 ; provided , however , that (A) the Manager shall not be required to seek third-party financing in lieu of, or prior to, making a Committed Capital Call if the Approved Business Plan contemplates the use of equity capital for the transaction or matter at issue, (B) the Manager may only make a Necessary Capital Call if it determines that third-party financing is not reasonably available timely or on commercially reasonable terms, as determined by the Manager (in its reasonable discretion), (C) the Manager may only make Committed Capital Calls in the amounts specified in the Approved Business Plan in accordance with the purposes set forth in the Approved Business Plan, and (D) the Manager may only make Necessary Capital Calls for up to Fifteen Million Dollars ($15,000,000) in the aggregate. In furtherance of the foregoing, in the event the Manager elects to make a capital call pursuant to this Section 3.03 , the Manager shall provide a written notice to the Members setting forth (i) the aggregate capital needs, (ii) the amount of each Member’s share of the Company’s required additional capital needs (which shall be based on each such Member’s respective Percentage Interest), (iii) if a Committed Capital Call, the section of the Approved Business Plan requiring the capital or, if a Necessary Capital Call, a reasonably detailed description of the Necessary Expenses, and (iv) the date by which such additional Capital Contributions are due, such date not being earlier than (x) with respect to Committed Capital Calls, thirty (30) days following the receipt of the capital call notice or (y) with respect to Necessary Capital Calls, five (5) days following the receipt of such capital call notice. Each Member shall contribute to the Company its share of such required additional Capital Contribution by the due date as determined in accordance with the immediately preceding sentence.

(b) Any Member (a “ Declining Member ”) that fails to make a mandatory additional Capital Contribution pursuant to Section 3.03(a) when due shall not be considered in breach or default of this Agreement. The only remedies available to the Company or any other

Member for a Declining Member’s failure to make a mandatory additional Capital Contribution pursuant to Section 3.03(a) shall be limited to those remedies described below in this Section 3.03 .

(c) Upon a failure of a Member to make a mandatory additional Capital Contribution pursuant to Section 3.03(a) when due and the designation of such Member as a Declining Member (the amount such Declining Member fails to contribute defined as the “ Declined Contribution ”), in addition to making its own Capital Contribution then due, a non-Declining Member may (but shall not be obligated to) fund the amount of the Declined Contribution by either (i) making an additional cash contribution to the Company of the amount thereof, which will be deemed to be an additional Capital Contribution by such non-Declining Member to the Company as of the date of such contribution (each, a “ Substituted Capital Contribution ”), or (ii) making an advance to the Company of the amount thereof, which will be deemed to be a loan by such non-Declining Member to the Company as of the date of such advance (each, a “ Shortfall Loan ”). A non-Declining Member that elects to fund the Declined Contribution shall notify the Manager of this election in writing. If there is more than one non-Declining Member that desires to make a Substituted Capital Contribution or Shortfall Loan, as applicable, then the non-Declining Members shall make such Substituted Capital Contribution or Shortfall Loan in proportion to their respective Percentage Interests or in such other proportions as they may agree to in writing. Each Shortfall Loan shall (i) have a term of ten (10) years, (ii) provide for interest-only payments during the first two (2) years of the term, (iii) accrue interest at a per annum rate equal to the Shortfall Rate, (iv) may be paid in full at any time during the term without penalty, and (v) after the first two (2) years of the term, be paid in full (both principal and interest) as soon as possible with Available Cash prior to the making of any distributions to the Members pursuant to Article Four or Section 8.02 hereof. If a non-Declining Member elects to fund the Declined Contribution and elects to treat such advanced funds as a Shortfall Loan, then such non-Declining Member may also elect to have all other capital it advanced in connection with such capital call treated as a Shortfall Loan (in lieu of treating such capital as a Capital Contribution).

(d) Each time additional Capital Contributions (but not Shortfall Loans which shall be treated as debt as described above) are made to the Company under Sections 3.03(a) , (b) and (c) , new Units shall be issued to the contributing Members in respect of such additional Capital Contributions at Fair Market Value as of the date of such issuance, which Fair Market Value shall be determined pursuant to Exhibit D ; provided, however , that in the case of an issuance of Units to a Member that makes a Substituted Capital Contribution on behalf of a Declining Member, then the Units issued to such non-Declining Member with respect to such Substituted Capital Contribution shall be based on an amount equal to one and 5/10 (1.5) multiplied by the Substituted Capital Contribution.

(e) If the non-Declining Members do not make a Substituted Capital Contribution or a Shortfall Loan for any or all of the Declined Contribution and the Company continues to require the additional capital set forth in the capital call notice, then the Manager shall be permitted to seek Indebtedness on behalf of the Company in order to fund the amount of the Declined Contribution, which Indebtedness shall be on commercially reasonable terms and may include loans from Members as permitted by Section 3.08 .

(f) In connection with any Shortfall Loan, at any time prior to the time the Company repays such Shortfall Loan, any Member, including the Declining Member, may

contribute capital to the Company in an amount sufficient to repay all of the outstanding principal and interest under the Shortfall Loan and the Manager shall cause the Company to utilize such contribution to repay the Shortfall Loan and issue new Units to such Contributing Member in accordance with Section 3.03(d) ; provided, however , that new Units issued to a Member that repays a Shortfall Loan shall be issued to such Member based on the Fair Market Value as of the date of inception of such Shortfall Loan.

3.04 Additional Capital Contributions – Discretionary Contributions .

(a) From and after the date hereof, if the Manager determines (in its reasonable discretion) that additional Capital Contributions to the Company are advisable to fund business initiatives or opportunities that are not contemplated in the Approved Business Plan, but are deemed by the Manager to be in the best interests of the Company, then the Manager shall have the right to call for additional Capital Contributions from the Members in accordance with this Section 3.04 ; provided, however , that the Manager shall not be permitted to make capital calls under this Section 3.04 in excess of Eight Million, Four Hundred Thousand Dollars ($8,400,000) in the aggregate without the Consent of the Qualifying Members as a Major Decision; provided further, however , that the Manager shall not be permitted to make capital calls under this Section 3.04 for the purpose of repaying Indebtedness without the Consent of the Qualifying Members as a Major Decision, unless (i) the Manager determines (in its reasonable discretion) that third-party financing is not reasonably available timely or on commercially reasonable terms to repay such Indebtedness and (ii) such Indebtedness is then due and payable. In furtherance of the foregoing, in the event the Manager elects to make a capital call pursuant to this Section 3.04 , the Manager shall provide a written notice to the Members setting forth (i) the aggregate capital needs, (ii) the amount of each Member’s share of the Company’s required additional capital needs (which shall be based on each such Member’s respective Percentage Interest) and whether the Manager, as a Member, will be contributing its share of such additional capital contribution, (iii) reasonably detailed information regarding the intended use for the additional capital, and (iv) the date by which such additional Capital Contributions are due, such date not being earlier than forty-five (45) days following the receipt of the capital call notice. During the period between delivery of the capital call notice and the due date for the additional Capital Contributions, the Members shall have the right to consult with the Manager regarding the intended use for the capital, and the Manager shall provide the Members with any information reasonably requested by the Members related thereto. Each Member shall have the right (but not the obligation) to contribute to the Company its share of such additional Capital Contribution by the due date as determined in accordance with this Section 3.04(a) . Notwithstanding the foregoing, in the event of an Emergency, GAHR3 shall have the right to contribute the full amount of such additional Capital Contribution pursuant to this Section 3.04(a) pending NHI’s and GAHR4’s determination whether to contribute to the Company its share of such additional Capital Contribution. In such event, if NHI and/or GAHR4 determine to contribute its/their share of the additional Capital Contribution after GAHR3 has contributed the full amount of such additional Capital Contribution, then the Company shall treat GAHR3’s contribution of NHI’s and/or GAHR4’s share of the additional Capital Contribution as an interest-free loan to the Company and shall repay GAHR3 with the proceeds of NHI’s and/or GAHR4’s additional Capital Contribution, as the case may be, as soon as practicable upon receipt of such additional Capital Contributions of NHI and/or GAHR4.

(b) Any Member (a “ Non-Contributing Member ”) that fails to make a discretionary additional Capital Contribution pursuant to Section 3.04(a) when due shall not be in breach or default of this Agreement, and the only right the other Members shall have is the right to make additional Capital Contributions to the Company as described in this Section 3.04 . Upon a failure of a Non-Contributing Member to make a discretionary additional Capital Contribution pursuant to Section 3.04(a) (the amount such Non-Contributing Member fails to contribute defined as the “ Shortfall Amount ”), the Manager shall provide notice of the Shortfall Amount to the other Members, and any Member that elects to make its share of such discretionary additional Capital Contribution (a “ Contributing Member ”) may (but shall not be obligated to) fund the amount of the Shortfall Amount by making an additional cash contribution to the Company of the amount thereof, which will be deemed to be an additional Capital Contribution by such Contributing Member to the Company as of the date of such contribution (each, a “ Shortfall Contribution ”). In addition, any Contributing Member shall have the right to rescind its election to make a discretionary additional Capital Contribution within five (5) days of receipt of notice from the Manager regarding a Shortfall Amount, and the Company shall return to the Contributing Member any such rescinded discretionary Capital Contribution within five (5) days of receipt of the Contributing Member’s notice of such rescission. A Contributing Member that elects to fund the Shortfall Amount shall notify the Manager of this election in writing. If there is more than one Contributing Member that desires to make a Shortfall Contribution, then the Contributing Members shall make such Shortfall Contribution in proportion to their respective Percentage Interests or in such other proportions as they may agree to in writing.

(c) Each time additional Capital Contributions are made to the Company under this Section 3.04 , new Units shall be issued to the contributing Members in respect of such additional Capital Contributions at Fair Market Value as of the date of such issuance, which Fair Market Value shall be determined pursuant to Exhibit D .

3.05 Fair Market Value Determination . If at any time new Units are to be issued to a Member making additional Capital Contributions to the Company pursuant to Section 3.03 or Section 3.04 and the Fair Market Value of the Units has not been agreed to by the Members as provided in Exhibit D, then the number of Units to be issued to such Member shall be determined based upon the Estimated Fair Market Value as of the date of issuance of the Units. If the actual Fair Market Value as of the date of issuance of such Units is later determined, as provided in Exhibit D , to be different than the Estimated Fair Market Value, then the number of Units issued to the Member based on such Estimated Fair Market Value shall be adjusted so that the actual number of Units held by such Member is equal to the sum of the Units held by such Member immediately prior to such issuance plus the number of Units to which such Member was actually entitled to receive based on the actual Fair Market Value as of the date of issuance. To the extent that any Distributions have been paid to the Members based upon Percentage Interests that were determined based upon an Estimated Fair Market Value that is subsequently adjusted as provided herein, then any Member (an “ Overfunded Member ”) that was paid Distributions in excess of the amount to which the Overfunded Member would have been entitled had the number of Units originally been issued based on the actual Fair Market Value (“ Excess Distributions ”) shall pay such Excess Distributions to the remaining Members pro rata in proportion to their as-adjusted Units so that the Distributions reflect the final Fair Market Value determination, which payment shall be made within five (5) Business Days of the final Fair Market Value determination. To the extent that any Overfunded Member fails to pay over any Excess Distributions as provided herein,

the Company shall cause the amount of such Excess Distributions to be deducted from future Distributions as soon as possible and any Distributions that should have been paid to a Member that were not so paid shall be paid to the Member as soon as reasonably practicable, but no later than the payment of the next Distribution. In the event that any Excess Distributions have not been repaid by an Overfunded Member at the time of any dissolution or liquidation of the Company pursuant to Article Eight, then the Overfunded Member shall be required to repay to the Company any remaining Excess Distributions due to the Company within five (5) Business Days of the determination of the amounts due from such Overfunded Member pursuant to Article Eight.

3.06 Right to Assign Additional Capital Contribution Obligation/Right . With respect to any of the capital calls permitted above in this Article Three , (i) each of GAHR3 and GAHR4 may assign their respective obligations or rights to contribute capital to one or more AHI Managed Companies, which shall constitute a Permitted Transfer, and (ii) NHI may assign its obligation or right to contribute capital to one or more NSAM Managed Companies which shall constitute a Permitted Transfer. If any such Permitted Transferee fails to perform under this Article Three as and when required, then the other Members shall have the rights and remedies provided for by this Article Three as if GAHR3, GAHR4 or NHI, as applicable, had failed to perform.

3.07 Liability of Members . Except as otherwise required by any non-waivable provision of the Act or other applicable law and except as otherwise provided in this Agreement or other agreements between the Company and one or more Members or their Affiliates: (a) no Member shall be personally liable in any manner whatsoever for any debt, liability or other obligation of the Company, whether such debt, liability or other obligation arises in contract, tort, or otherwise; and (b) no Member shall in any event have any liability whatsoever in excess of (i) the amount of its Capital Contributions, (ii) its share of assets and undistributed profits of the Company, if any, and (iii) the amount of any wrongful distribution to such Member, if, and only to the extent, such Member has actual knowledge (at the time of the distribution) that such distribution is made in violation of Section 18-607 of the Act. Upon written notice by the Company, any Member that received a Distribution in violation of Section 18-607 of the Act shall promptly return such distribution to the Company.

3.08 Member Loans . Except for Shortfall Loans, Members and their Affiliates may make loans to the Company only upon the approval of (i) the Qualifying Members as a Major Decision and (ii) if GAHR3 is not an AHI Managed Company, GAHR4. The amount of such loans (including, without limitation, Shortfall Loans) shall be treated as Indebtedness of the Company and not as a Capital Contribution and shall be repaid in accordance with the terms of the loan agreements relating to such loans, or in the case of Shortfall Loans, as described in Section 3.03(c) . Such loans shall not (i) increase the Units of the lending Member, (ii) entitle such Member to a greater share of Distributions, or (iii) entitle such Member to a greater share of allocations of Net Profits or Net Losses.

3.09 Withdrawal . No Member is entitled to withdraw any part of such Member’s Capital Contributions or Capital Account or to receive any distribution from the Company, except as expressly provided in this Agreement.

3.10 No Right of Partition . No Member has or shall have any right to seek or obtain partition by court decree or operation of law of any Company property, or the right to own or use particular or individual assets of the Company.

3.11 Title to Assets . The assets of the Company shall be owned by the Company as an entity, and no Member or Manager has any ownership interest in such assets or any portion thereof, and legal title to such assets shall be held in the name of the Company.

ARTICLE FOUR

DISTRIBUTIONS

4.01 Timing of Distributions . The Manager shall cause the Company to distribute all Available Cash, if any, to the Members (each such distribution being a “ Distribution ”) within thirty (30) days of the end of each fiscal quarter or on a more frequent basis as determined by the Manager in its sole discretion.

4.02 Distributions of Available Cash . Subject to Section 3.03(c) , Article Eight and Section 10.07 , all Available Cash shall be distributed to the Members pro rata in proportion to their respective Units.

4.03 Limitation on Distributions . Notwithstanding anything to the contrary in this Agreement, no Distribution shall be made to any Member to the extent such Distribution would violate the Act or other applicable law.

ARTICLE FIVE

MANAGEMENT OF THE COMPANY

5.01 Generally .

(a) The Company shall at all times only have one (1) Manager, and the initial Manager shall be GAHR3. Subject to the rights and powers of the Members as described herein (including, without limitation, the right of Qualifying Members to approve Major Decisions), the Manager shall have the exclusive right and power to conduct the business and affairs of the Company and to do all things necessary to carry on the business of the Company in accordance with the provisions of this Agreement and applicable law and hereby is authorized to take any action of any kind and to do anything and everything it deems necessary or appropriate in accordance with the provisions of this Agreement and applicable law. Except as expressly set forth herein, the Members, in their capacity as such, shall have no authority to act on behalf of the Company. To the maximum extent permitted under applicable law, the Members agree that the Manager shall have no fiduciary duties towards any Member, any Affiliate of any Member or the Company.

(b) Without limiting the generality of Section 5.01(a) , but subject to the rights and powers of the Members as described herein (including, without limitation, the right of

Qualifying Members to approve Major Decisions), the Manager shall have the power and authority to undertake any of the following on behalf of the Company:

(i) execute, deliver and perform any and all agreements, contracts, documents, certifications and instruments necessary or convenient in connection with the acquisition, development, financing, management, maintenance, operation, sale or other disposition of the Company’s Properties and assets;

(ii) borrow money and issue evidences of Indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company; provided , however , that in connection with the borrowing of money on a nonrecourse basis, no lender shall be granted or acquire, at any time as a result of making such a loan, any direct or indirect interest in the profits, capital or property of the Company other than as a secured creditor;

(iii) engage in any kind of activity and perform and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishment of, the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of the State of Delaware, and in each state where the Company has been qualified to do business; and

(iv) take such actions (including, without limitation, amending this Agreement) as the Manager determines are advisable or necessary, based upon advice of counsel to the Company (A) to preserve the tax status of the Company as a partnership for Federal income tax purposes or (B) to conform this Agreement to either (x) the Act, or (y) provisions of the Code or the Treasury Regulations relating to taxation of partners and partnerships, including, without limitation, any changes thereto.

(c) Any Person dealing with the Company or the Manager may rely upon a certificate signed by any officer, general partner or manager of the Manager, thereunto duly authorized, as to:

(i) the identity of the Manager or any Member;

(ii) the existence or non-existence of any fact or facts which constitute a condition precedent to the acts by the Manager or in any other manner germane to the affairs of the Company;

(iii) the persons who are authorized to execute and deliver any instrument or document of the Company; and

(iv) any act or failure to act by the Company or as to any other matter whatsoever involving the Company.

(d) The Manager shall use commercially reasonable efforts to perform the following duties (it being acknowledged and agreed that, notwithstanding any other provision herein, the obligation of the Manager to perform the duties described below are subject to the consent or approval of the non-Manager Members as to those actions or decisions that require the

consent or approval of one or more Members as specified hereunder (including, without limitation, the approval of Major Decisions):

(i) subject to the availability of funds therefor, including through Indebtedness available on commercially reasonable terms, conduct (or cause to be conducted) the day-to-day business and affairs of the Company in compliance with the Approved Business Plan in all material respects and approved Major Decisions and direct the officers of any Subsidiary to act in accordance with the Approved Business Plan and approved Major Decisions;

(ii) subject to the availability of funds therefor, direct the officers of HoldCo to operate HoldCo and its Subsidiaries in a manner consistent with the obligations set forth in the Loan Documents and, subject to the availability of funds therefor, to cause HoldCo to comply with the obligations contained therein;

(iii) cause Distributions, if any, through the applicable Subsidiaries to the Company and by the Company to the Members, at such times as are required under this Agreement;

(iv) cause to be developed and maintained a compliance program reasonably designed to provide effective internal controls that promote adherence to, and prevent and detect material violations of, applicable legal requirements;

(v) cause the EIK to employ reasonable accounting, billing, cash management and collection policies and practices;

(vi) cause to be developed and maintained reasonable accounting procedures, controls and systems sufficient to permit, without limitation, accurate, timely and complete preparation of records and books of accounting for the Company and its Subsidiaries in accordance with GAAP; and

(vii) work to implement SOX-compliant controls over financial reporting for the Company and its Subsidiaries and, following such implementation, maintain SOX-compliant controls over financial reporting for the Company and its Subsidiaries.

(e) The Manager shall not be required to manage the Company as the Manager’s sole and exclusive function and the Manager may have other business interests and may engage in other activities in addition to those relating to the Company, even if such other business interests or activities are competitive with the business of the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Manager or to the income or proceeds derived therefrom. The Manager shall incur no liability to the Company or to any of the Members as a result of engaging in any other business or ventures.

5.02 Major Decisions/Deadlock . Notwithstanding any provision herein to the contrary (including, without limitation, Section 5.01 ), the Manager shall not, without the prior consent of each Qualifying Member, make any decision or take any action that would constitute a Major Decision (as defined on Exhibit E attached hereto). Each time the Consent of any Qualifying Member is required under this Section 5.02 , a written notice shall be sent to each Qualifying

Member by the Manager, which notice shall provide in reasonable detail the proposed Major Decision. Each Qualifying Member shall use good faith efforts to respond within fifteen (15) days after receipt of such written notice. If a Qualifying Member does not approve or disapprove of a proposed Major Decision in writing within said fifteen (15) day period, then the Manager shall provide written notice to such Qualifying Member that such matter or action requested shall be deemed approved by such Qualifying Member if not objected to within five (5) days after receipt of such written notice. If the Manager and any Qualifying Member(s) disagree with respect to a Major Decision, then the Manager and all Qualifying Member(s) shall engage in good faith negotiations to resolve such disagreement. If the Manager and all Qualifying Member(s) have not resolved the disagreement within twenty (20) days of entering into such good faith negotiations, then the Manager and all Qualifying Member(s) may mediate such disagreement pursuant to the commercial mediation rules then in effect of the American Arbitration Association in the City of Wilmington, State of Delaware (such mediation process not to exceed ninety (90) days); provided , however , that if the Manager and any Qualifying Member(s) are still in disagreement after such mediation process, then a “ Deadlock ” shall be deemed to have occurred with respect to the Manager and the Qualifying Member(s), in which event GAHR3 may thereafter initiate the buy/sell procedures set forth in Article Fourteen subject to the terms of Article Fourteen . Notwithstanding anything to the contrary set forth herein, if GAHR3 and GAHR4 are both AHI Managed Companies, then any disagreement between GAHR3 and GAHR4 with respect to a Major Decisions shall not result in any negotiation, arbitration, or delay pursuant to this Section, or Deadlock, and GAHR3 and GAHR4 shall be required to resolve such disagreement without any delay or negative impact on NHI.

5.03 Officers and Directors .

(a) Officers of the Company . The Manager, without the Consent of any Member, may at any time appoint one or more officers of the Company (the “ Officers ”) which shall exercise and perform such powers and duties (subject to subject to the rights and powers of the Members as described herein (including, without limitation, the right of the Qualifying Members to approve Major Decisions)) as shall be assigned and delegated to them from time to time by the Manager. The Officers of the Company may include a chief executive officer, a president, one or more vice presidents, a chief operations officer (and one or more assistants), a secretary (and one or more assistants), and a chief financial officer or treasurer (and one or more assistants). Each Officer may be removed by the decision of the Manager at any time, with or without cause. Each Officer shall hold office until his or her successor is appointed, unless earlier removed by the Manager. Any individual may hold any number of offices. The execution and delivery of any document, agreement or instrument by an Officer shall be sufficient to bind, and shall be binding upon, the Company for all purposes and third parties shall be entitled to rely on the authority of any Officer acting at the direction of the Manager to take any such action on behalf of the Company. The initial Officers are listed on Exhibit C attached hereto. The Manager may revise Exhibit C in its sole discretion at any time. The Officers shall not be entitled to any compensation from the Company for their service as Officers of the Company.

(b) Officers of Trilogy REIT/HoldCo . Except as provided in Exhibit E , the Manager, without the Consent of any Member, may cause the Company, in its capacity as the sole trustee of Trilogy REIT, to (i) appoint one or

more officers of Trilogy REIT at any time, and (ii) cause Trilogy REIT, in its capacity as the controlling member of HoldCo, to appoint one or more officers of HoldCo at any time. Except as provided in Exhibit E , each officer of Trilogy REIT and HoldCo may similarly be removed by the decision of the Manager at any time, with or without cause. The officers of Trilogy REIT shall not be entitled to any compensation from the Company or Trilogy REIT for their service as officers of Trilogy REIT, respectively. Each advisory board member of Holdco who is not an Affiliate of the Manager shall be entitled to compensation for his or her service as an advisory board member in an amount not to exceed $100,000 per year, a portion of which may be paid in the form of HoldCo equity and/or profit interests; provided that the number of HoldCo advisory board members cannot exceed five.

(i) The Manager shall cause the Company, in its capacity as the sole trustee of Trilogy REIT, in its capacity as the controlling member of HoldCo, to cause HoldCo to establish and maintain a board of directors for HoldCo (the “ HoldCo Board ” and each director a “ HoldCo Director ”) as follows: (A) a majority of the HoldCo Directors shall be designated by GAHR3 (the “ GAHR3 Directors ”); (B) one (1) HoldCo Director may be designated by NHI (the “ NHI Director ”), or in lieu thereof, NHI may appoint one (1) HoldCo Board observer, at its election; and (C) the Manager and the Qualifying Members may jointly designate one or more HoldCo Directors; provided , however , that (i) the number of GAHR3 Directors shall be reduced to one (1) if the Percentage Interest of GAHR3 (combined with its Affiliates’ Percentage Interests) is reduced below thirty-five percent (35%), (ii) the number of GAHR3 Directors shall be reduced to zero (0) if GAHR3 is not a Qualifying Member, (iii) the number of NHI Directors shall be increased to a majority of the HoldCo Board if NHI is appointed as the Manager in accordance with Sections 5.07(a) or 5.07 (b)(i) hereof or otherwise obtains the rights of the Manager pursuant to this Agreement, (iv) the number of NHI Directors shall be reduced to zero (0) if NHI is not a Qualifying Member provided NHI may appoint one (1) HoldCo Board observer, (v) if GAHR3 at any time ceases to be an AHI Managed Company, then GAHR4 may, at its election, appoint one (1) HoldCo Board observer, and (vi) if GAHR4 becomes a Qualified Member, GAHR4 may, at its election, appoint one (1) HoldCo Director (the “ GAHR4 Director ”). The Manager shall have the power and authority to act (and shall act promptly) to adjust the composition of the HoldCo Board in accordance with the foregoing. By execution hereof, the Manager and GAHR3 and NHI (i.e., the Qualifying Members as of the date hereof) hereby jointly designate and ratify Randall Bufford as a HoldCo Director effective as of the date hereof. In furtherance of the foregoing, the Manager shall cause the Company, in its capacity as the sole trustee of Trilogy REIT, in its capacity as the controlling member of HoldCo, to cause HoldCo to appoint Randall Bufford and the individuals identified in writing as the GAHR3 Directors, the GAHR4 Director, and the NHI Director to serve as HoldCo Directors effective as of the date hereof.

(ii) Subject to Section 5.03(c)(i) , a GAHR3 or GAHR4 Director may only be removed and/or replaced (including, without limitation, to fill a vacancy due to death, disability or resignation of a GAHR3 or GAHR4 Director) as a HoldCo Director at the direction of GAHR3 or GAHR4, as the case may be, in writing; provided , however , that GAHR3 or GAHR4, as the case may be, shall promptly remove any GAHR3 or GAHR4 Director that commits fraud, willful misconduct, gross negligence, bad faith or any felony. GAHR3 or GAHR4, as the case may be, may direct the removal and replacement of a GAHR3 or GAHR4 Director at any time for any reason. If GAHR3 or GAHR4, as the case may be, desires to remove and/or replace a GAHR3 or GAHR4 Director, then GAHR3 or GAHR4, as the case may be, shall notify the Manager in

writing of such decision. Upon receipt of such written notice from GAHR3 or GAHR4, as the case may be, the Manager shall promptly cause the Company, in its capacity as the sole trustee of Trilogy REIT, in its capacity as the controlling member of HoldCo, to cause HoldCo to remove and/or replace such GAHR3 or GAHR4 Director in accordance with the direction of GAHR3 or GAHR4, as the case may be.

(iii) Subject to Section 5.03(c)(i) , the NHI Director, if any, may only be removed and/or replaced (including, without limitation, to fill a vacancy due to death, disability or resignation of the NHI Director) as a HoldCo Director at the direction of NHI in writing; provided , however , that NHI shall promptly remove any NHI Director that commits fraud, willful misconduct, gross negligence, bad faith or any felony. NHI may direct the removal and replacement of the NHI Director at any time for any reason. If NHI desires to remove and/or replace the NHI Director, then NHI shall notify the Manager in writing of such decision. Upon receipt of such written notice from NHI, the Manager shall promptly cause the Company, in its capacity as the sole trustee of Trilogy REIT, in its capacity as the controlling member of HoldCo, to cause HoldCo to remove and/or replace the NHI Director in accordance with the direction of NHI.

(iv) A HoldCo Director that is jointly appointed by the Manager and the Qualifying Members as a Major Decision may only be removed and/or replaced (including, without limitation, to fill a vacancy due to death, disability or resignation of any such HoldCo Director) as a HoldCo Director as a Major Decision. Upon approval of the Manager and the Qualifying Members of the appointment, removal or replacement of a HoldCo Director as a Major Decision, the Manager shall promptly cause the Company, in its capacity as the sole trustee of Trilogy REIT, in its capacity as the controlling member of HoldCo, to cause HoldCo to appoint, remove and/or replace such HoldCo Director in accordance with the approved Major Decision.

5.04 Liability for Certain Acts and Indemnification .

(a) No Manager, Member, Officer, Tax Matters Member or agent of the Company has guaranteed or shall have any obligation with respect to the return of a Member’s Capital Contributions or profits from the operation of the Company. Notwithstanding any provision of the Act, no Manager, Member, Officer, Tax Matters Member or agent of the Company shall be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member except for loss or damage resulting from fraud, willful misconduct, gross negligence, or material breach of this Agreement. Each Manager, Member, Officer, Tax Matters Member and agent of the Company shall be entitled to rely on information, opinions, reports or statements, including but not limited to financial statements or other financial data prepared or presented by: (i) any one or more Members, Managers, Officers, Tax Matters Member or agents of the Company whom such party reasonably believes to be reliable and competent in the matter presented, or (ii) legal counsel, public accountants, or other Persons as to matters such party reasonably believes are within the such Person’s professional or expert competence.

(b) To the fullest extent permitted by the Act, the Company shall indemnify each Manager, Member, Officer, Tax Matters Member, agent of the Company and their respective officers, directors, employees, agents and affiliates (“ Indemnified Persons ”) for any loss, damage or expense incurred by such Indemnified Person on behalf of the Company or in furtherance of the

interests of the Members or otherwise arising out of or in connection with the Company, except for losses arising from such Indemnified Person’s own fraud, willful misconduct, gross negligence, or material breach of this Agreement. No Indemnified Person shall, in the absence of its own fraud, willful misconduct, gross negligence, or material breach of this Agreement, be liable to the Company or the Members for (i) any mistake in judgment, (ii) any act performed or omission made by it or (iii) any losses due to the mistake, action, inaction or negligence of agents of the Company. Expenses (including attorneys’ fees) incurred by an Indemnified Person in a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding; provided , however , that, if an Indemnified Person is advanced such expenses and it is later determined that such Indemnified Person was not entitled to indemnification with respect to such action, suit or proceeding, then such Indemnified Person shall reimburse the Company for such advances. The Members hereby acknowledge that each Indemnified Person shall be a third party beneficiary under the terms of this Section 5.04(b) . The provisions of this Section 5.04(b) shall continue to afford protection to each Indemnified Person regardless of whether such Indemnified Person remains in the position or capacity pursuant to which such Indemnified Person became entitled to indemnification under this Section 5.04(b) and regardless of any subsequent amendment to this Agreement. The Members agree that the covenants and agreements set forth in this Section 5.04(b) shall survive the cancellation of the Company.

5.05 Manager, Member and Affiliate Compensation . Except as otherwise contemplated in this Section 5.05 or elsewhere in this Agreement, no Member, Manager or Affiliate thereof shall be entitled to any compensation from the Company or any Subsidiary, unless approved by (i) the Qualifying Members as a Major Decision and (ii) if GAHR3 is not an AHI Managed Company, GAHR4. The Manager and its Affiliates shall be reimbursed by the Company (or applicable Subsidiary) for all reasonable expenses properly incurred by the Manager or an Affiliate thereof in connection with the discharge of its obligations under this Agreement in its capacity as Manager or otherwise properly incurred on behalf of the Company (or applicable Subsidiary); provided that the Manager shall not be entitled to seek reimbursement from the Company for a percentage of its general and administrative expenses, including personnel costs for personnel providing services to the Company.

5.06 Business Plan . Attached hereto as Exhibit A is the business plan for the Company, which is approved by the Members by execution of this Agreement (the “ Approved Business Plan ”). The Approved Business Plan may be amended at any time pursuant to the approval of the Qualifying Members as a Major Decision.

5.07 Resignation/Removal of the Manager .

(a) Resignation . The Manager of the Company may resign at any time by giving thirty (30) days written notice to the Members of the Company. The resignation of any Manager shall take effect upon the date that is 30 days following the receipt of such notice or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The resignation of the Manager shall not affect the Manager’s rights as a Member and shall not constitute a withdrawal of the Manager as a Member. In the event the Manager resigns as provided in this Section 5.07(a) , then, so long as NHI is Qualifying Member, then NHI shall have the right to serve as the Manager

if it so chooses and may not be removed as Manager except upon a Default. If NHI is not a Qualifying Member or declines to serve as the Manager, then the Manager shall be chosen by a majority vote of the Qualifying Members.

(b) Removal .

(i) Generally . So long as (A) GAHR3 and its Affiliates in the aggregate own the largest number of Units (as compared with any other Member and such Member’s Affiliates) and (B) the Percentage Interest of GAHR3 and its Affiliates in the aggregate is equal to or greater than thirty-five percent (35%), then GAHR3 shall serve as Manager and may not be removed as Manager except upon a Default. If GAHR3 ceases to meet all such requirements, then GAHR3 shall be removed as Manager as provided in Section 5.07(b)(iii)(A) below. Should GAHR3 be removed as Manager and the replacement manager is not NHI, GAHR3 shall retain the right to vote on the replacement manager, as long as GAHR3 is, at the time of the vote, a Qualifying Member. If at any time (x) NHI and its Affiliates in the aggregate own the largest number of Units (as compared with any other Member and such Member’s Affiliates), and (y) the Percentage Interest of NHI and its Affiliates in the aggregate is equal to or greater than thirty-five percent (35%), then so long as (x) and (y) continue to be true, NHI shall serve as Manager and may not be removed as Manager except upon a Default.

(ii) Default – For Cause Removal . Any Person serving as Manager may be removed by the affirmative vote of all Qualifying Members of the Company (excluding any Member that is the Manager or that is an Affiliate of the Manager) in accordance with this Section 5.07(b) after the occurrence of any of the following (each a “ Default ”):

(A) the commission of fraud, embezzlement or commission of a felony by the Manager against the Company, any Member or any Subsidiary;

(B) the commission of gross negligence or willful misconduct by the Manager relating to the Company, any Member or any Subsidiary;

provided, however, that any such action in (A) or (B) shall not constitute a Default if such action: (i) is committed by an employee or other agent of Manager (other than the officers or directors of the Manager, the officers and directors of AHI if GAHR3 is then an AHI Managed Company or the officers and directors of any successor advisor to GAHR3 if GAHR3 or its REIT Parent is an externally-managed company) who is promptly terminated or removed; and (ii) is cured within 30 days (or such longer period of time not to exceed 90 days so long as Manager is diligently pursuing a cure of such breach), which cure may be accomplished through reimbursing the Company, Member or Subsidiary for actual damages or losses incurred; or

(C) breach by the Manager of any provision contained in this Agreement that (A) has a material adverse economic effect on the Company, any Member or any Subsidiary and (B) is not cured within thirty (30) days after written notice thereof from any other Member which notice describes in reasonable detail the alleged breach (or within such longer period of time, not to exceed ninety (90) days, if such breach cannot reasonably be cured within such thirty (30) day period and so long as the Manager is diligently pursuing a cure of such breach).

(iii) Removal of the Manager .

(A) Removal as a Result of Change in Ownership . In the event that GAHR3 is no longer entitled to serve as the Manager as provided by Section 5.07(b)(i) hereof, NHI shall have the right to remove GAHR3 as Manager by delivering written notice (the “ Removal Notice ”) to GAHR3 and GAHR4 at any time within thirty (30) days after GAHR3 ceases to be entitled to serve as the Manager. The Removal Notice shall specify the effective date of removal of GAHR3 as Manager which effective date may not be earlier than ten (10) days after the date of the Removal Notice. Upon the effective date of removal of a Person as Manager pursuant to this Section 5.07(b)(iii)(A) , such Person shall automatically be removed as the Manager, and in the event that NHI meets the requirements to serve as the Manager as provided in Section 5.07(b)(i) , GAHR3 shall be replaced in that capacity by NHI. If NHI does not meet the requirements set forth above to serve as the Manager or declines to serve as the Manager, then the Manager shall be chosen by a majority vote of the Qualifying Members.

(B) Removal As a Result of a Default . In the event of a Default by the Manager, the Qualifying Members (by unanimous vote, excluding any Member that is the Manager or that is an Affiliate of the Manager) shall have the right to remove such Manager as Manager by delivering written notice (the “ Default Notice ”) to such Manager at any time within thirty (30) days after obtaining actual knowledge of such Default, but only so long as (i) such Manager and its Affiliates are released on or prior to the effective date of removal from any and all personal or recourse liability with respect to all Company and Subsidiary financings and other obligations, and (ii) such removal does not result in a default or breach under any Company or Subsidiary financing documentation. Each Default Notice shall specify in reasonable detail the event of Default and the effective date of removal of the Manager as Manager which effective date may not be earlier than ten (10) days after the date of the Default Notice. Upon the effective date of removal of a Person as Manager, such Person shall automatically be removed as the Manager and shall be replaced in that capacity by a Person elected by the Qualifying Members by unanimous vote (excluding any Member that is the Manager subject to removal or that is an Affiliate of the Manager subject to removal). Notwithstanding the foregoing or any other provision herein to the contrary, if the Manager subject to removal contests the validity of its removal as Manager through expedited arbitration in accordance with Section 12.03 hereof (which such Manager shall be entitled to do), then such Manager shall not be removed as Manager until the conclusion of such arbitration, and only then if such arbitration validates the removal of such Person as Manager.

(iv) Effect of Removal . After the effective date of removal as Manager, any removed Manager shall cease to be the Manager, but shall continue to be a Member (if applicable) and maintain (i) all of the same economic rights it had prior to removal as Manager, (ii) the right to approve Major Decisions (if such Person is a Qualifying Member), and (iii) its other rights as described herein.

(c) Except as otherwise provided above in this Section 5.07 , any vacancy occurring for any reason in the position of Manager may be filled by the Qualifying Members (including the departing Manager) as a Major Decision.

ARTICLE SIX

TRANSFER OF MEMBERSHIP INTERESTS

6.01 Transfers .

(a) Generally . Prior to September 11, 2020, except for Permitted Transfers and except as otherwise provided herein (including, without limitation, pursuant to Section 6.06 (i.e., right of first offer), Section 6.07 (i.e., drag-along), Section 6.08 (i.e., tag-along), and Article Fourteen (i.e., buy/sell)), no Member may (i) assign, convey, sell, transfer, liquidate, encumber, or in any way alienate (collectively a “ Transfer ”), all or any part of its Units in the Company, or (ii) permit any Person to Transfer any direct or indirect interest in such Member, without in each case the prior written Consent of each Qualifying Member, whose Consent may not be unreasonably withheld. A Member’s Consent shall not be considered unreasonably withheld if a Member withholds its Consent for any of the following reasons (it being acknowledged and agreed that the following is not an exhaustive list): (A) the proposed transferee is a competitor of a Member, any AHI Managed Company or any NSAM Managed Company, is the owner of or manages one or more properties that compete with one or more of the Properties owned directly or indirectly by HoldCo; (B) the proposed transferee or any of its Affiliates is generally recognized as being of ill repute or is in any other manner a person with whom a prudent business person would not wish to associate in a commercial venture or a person that, in such Member’s reasonable determination, would be considered by regulators in the healthcare industry in any jurisdiction where HoldCo’s Properties are located to be an unsuitable business associate for such Member and its Affiliates, including as a result of the proposed transferee’s character, lack of competence, low quality of care or unacceptable track record of past and current compliance with state and federal requirements; (C) the proposed transferee does not have the ability to fulfill the transferring Member’s financial obligations hereunder; (D) the proposed transferee or any of its Affiliates had a prior unsatisfactory business relationship with such Member or any of its Affiliates; (E) the proposed Transfer would subject the Company, any Member or any of their Affiliates to additional regulatory requirements the compliance with which would subject the Company or such other Person to material expense or burden; (F) the proposed Transfer involves only a component portion of a Unit, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Unit; or (G) such Transfer would not comply with the USA PATRIOT Act or the proposed transferee or any of its Affiliates are included on any watch list issued by any governmental authority, including the Securities and Exchange Commission. Any attempted Transfer of all or any portion of a direct or indirect interest in the Company in breach of the foregoing shall be null and void and shall have no effect whatsoever.

(b) Permitted Transfers . Notwithstanding the foregoing or any other provision herein to the contrary, the following Transfers of direct or indirect interests in the Company (“ Permitted Transfers ”) shall be permitted and not require the Consent of any Member or the Manager:

(i) with respect to any direct or indirect interest in any Member held by a REIT: (A) a direct or indirect Transfer of the stock of such REIT or the interests in the NHI Partnership, the GAHR3 Partnership or the GAHR4 Partnership, (B) a stock split, or reverse stock split or the creation of new classes of stock in such REIT or new classes of partnership interests in the NHI Partnership, the GAHR3 Partnership or the GAHR4 Partnership, (C) the issuance or redemption of stock by such REIT or partnership interests in

the NHI Partnership, the GAHR3 Partnership, or the GAHR4 Partnership, as applicable, (D) any reorganization, merger, consolidation, recapitalization, listing or similar transaction with respect to such REIT or the NHI Partnership, the GAHR3 Partnership or the GAHR4 Partnership, as applicable (E) any other transaction that modifies, changes, or affects the ownership or control of such REIT or the NHI Partnership, the GAHR3 Partnership or the GAHR4 Partnership, as applicable, and (F) the direct or indirect sale of all or substantially all of the assets of such REIT or the NHI Partnership, the GAHR3 Partnership or the GAHR4 Partnership, as applicable;

(ii) with respect to any direct or indirect interest in any Member or any Units in the Company, a direct or indirect Transfer of any such interest or Units to a majority-owned and controlled subsidiary of Griffin-American Healthcare REIT III, Inc. (the parent company of GAHR3), Griffin-American Healthcare REIT IV, Inc. (the parent company of GAHR4), or NorthStar Healthcare Income, Inc. (the parent company of NHI); provided, however, (x) any direct or indirect interest in GAHR3, or any Units in the Company owned by GAHR3, may only be Transferred to a majority-owned and controlled subsidiary Griffin-American Healthcare REIT IV, Inc. (the parent company of GAHR4) if GAHR4 is an AHI Managed Company and (y) any direct or indirect interest in GAHR4, or any Units in the Company owned by GAHR4, may only be Transferred to a majority-owned and controlled subsidiary Griffin-American Healthcare REIT III, Inc. (the parent company of GAHR3) if GAHR3 is an AHI Managed Company;

(iii) with respect to any direct or indirect interest in NHI or its Affiliates that own Units or any Units in the Company owned by NHI or its Affiliate, a direct or indirect Transfer of any such interest or Units to any other NSAM Managed Company or any subsidiary of NHI;

(iv) with respect to any direct or indirect interest in GAHR3 or its Affiliates that own Units or any Units in the Company owned by GAHR3 or its Affiliate, a direct or indirect Transfer of any such interest or Units to any other AHI Managed Company or any subsidiary of GAHR3; and

(v) with respect to any direct or indirect interest in GAHR4 or its Affiliates that own Units or any Units in the Company owned by GAHR4 or its Affiliate, a direct or indirect Transfer of any such interest or Units to any other AHI Managed Company or any subsidiary of GAHR4.

(c) Each Member hereby agrees that it shall not Transfer all or any of its Units in the Company, except as permitted by this Agreement. Any purported Transfer of a direct or indirect interest in the Company which is not in accordance with this Agreement shall be null and void ab initio. After the consummation of any Transfer of any Units, the Units so Transferred shall remain subject to the terms and provisions of this Agreement, any further Transfers must comply with all the terms and provisions of this Agreement and any Person admitted as a Permitted Transferee must execute a counter-signature page to and agree to be bound by this Agreement.

(d) By execution of this Agreement (or any amendment or assignment), (i) GAHR3 and each Permitted Transferee that receives a Permitted Transfer from or with respect to

GAHR3 (directly or indirectly) agree that they shall act only as one under the terms of this Agreement through GAHR3 and no Permitted Transferee may take a position, make a decision or act in any manner that is contrary to the position taken, decision made or action taken by GAHR3 hereunder, and (ii) GAHR4 and each Permitted Transferee that receives a Permitted Transfer from or with respect to GAHR4 (directly or indirectly) agree that they shall act only as one under the terms of this Agreement through GAHR4 and no Permitted Transferee may take a position, make a decision or act in any manner that is contrary to the position taken, decision made or action taken by GAHR4 hereunder.

(e) By execution of this Agreement (or any amendment or assignment), NHI and each Permitted Transferee that receives a Permitted Transfer from or with respect to NHI (directly or indirectly) agree that they shall act as one under the terms of this Agreement through NHI only, and no Permitted Transferee may take a position, make a decision or act in any manner that is contrary to the position taken, decision made or action taken by NHI hereunder.

(f) For purposes of Sections 6.06, 6.07 and 6.08, (i) GAHR3 and its Affiliates that own Units shall be treated as one party and a reference to GAHR3 in Section 6.06, 6.07 and 6.08 shall mean GAHR3 and its Affiliates that own Units, (ii) GAHR4 and its Affiliates that own Units shall be treated as one party and a reference to GAHR4 in Section 6.06, 6.07 and 6.08 shall mean GAHR4 and its Affiliates that own Units, and (iii) NHI and its Affiliates that own Units shall be treated as one party and a reference to NHI in Section 6.06, 6.07 and 6.08 shall mean NHI and its Affiliates that own Units.

6.02 Additional Restrictions on Transfers .

(a) In no event shall a Transfer of a direct or indirect interest in the Company be permitted under Sections 6.01(b)(ii) – (iv) if: (i) such Transfer would violate the Securities Act or any state securities or “Blue Sky” laws applicable to the Company or the Units to be Transferred, (ii) such Transfer would cause the Company to become subject to the registration requirements of the Investment Company Act, (iii) such Transfer would constitute a “prohibited transaction” under Section 406 of ERISA or Section 4975 of the Code or cause all or any portion of the assets of the Company to constitute “plan assets” under ERISA or Section 4975 of the Code, (iv) such Transfer could reasonably be expected to cause the Company to be treated as a “publicly traded partnership” within the meaning of Sections 7704 and/or 469 of the Code, (v) such Transfer would violate any other applicable law, or (vi) such Transfer would adversely affect the REIT status of any Qualifying Entity, including by causing the EIK to fail to qualify as an “eligible independent contractor” under Code Section 856(d)(9).

(b) Any Person that acquires all or any Units in a Transfer permitted under this Article Six shall be obligated to assume any obligations of such Member under this Agreement. Each Member agrees that, notwithstanding the Transfer of all or any of its Units, as between such Member and the Company, such Member shall remain liable for all Capital Contributions required to be made by such Member (without taking into account the Transfer of all or any of such Units) prior to the time, if any, when the purchaser, assignee or transferee of such Units is admitted as a substituted Member.

6.03 Admission and Withdrawals .

(a) Generally . Except as provided herein, no Member shall have the right to withdraw from the Company and no additional Member may be admitted to the Company.

(b) Conditions of Admission . A Permitted Transferee or other transferee of Units pursuant to a Transfer made in accordance with this Agreement shall become a Member only if the following conditions have been satisfied:

(i) the transferor, its legal representative or authorized agent must have executed a written instrument of transfer of such Units in form and substance reasonably satisfactory to the Manager;

(ii) the transferee must have executed a written agreement, in form and substance reasonably satisfactory to the Manager to assume all of the duties and obligations of the transferor under this Agreement with respect to the transferred Units and to be bound by and subject to all of the terms and conditions of this Agreement;

(iii) unless waived by all of the Qualifying Members, an opinion described in this subpart (iii) has been delivered to the Company. Such opinion shall be (i) obtained at the expense of the transferor, (ii) from counsel acceptable to the Manager, and (iii) to the effect that such Transfer (w) may be effected without registration of the Units under the Securities Act of 1933, as amended, (x) does not cause the violation of any state or federal securities law (including any investment suitability standards) applicable to the Company, (y) does not have any adverse tax result for the Company, the Manager or the Members, and (z) shall not cause the Company or any entity in which the Company invests to be subject to any additional regulatory requirements (including, without limitation, those imposed by ERISA, or the registration requirements of the Investment Company Act of 1940, as amended, or to lose the “ safe harbor ” exemption from such registration which relates to the number of investors);

(iv) the transferee must have executed such other documents and instruments as the Manager may deem reasonably necessary to effect the admission of the transferee as a Member; and

(v) the transferee or the transferor must have paid the expenses incurred by the Company in connection with the admission of the transferee to the Company.

A Person who acquires any Units but who is not admitted as a Member pursuant to this Article Six (such Person an “ Unadmitted Assignee ”) shall be entitled only to distributions pursuant to Articles Four and Eight with respect to such Units as if a Member and on the same basis as the Members. To the fullest extent permitted by the Act, in no case shall an Unadmitted Assignee (a) have a right to any information or accounting of the affairs of the Company, (b) be entitled to inspect the books or records of the Company, or (c) have any other rights of a member under the Act or a Member under this Agreement, including the right to vote such Unadmitted Assignee’s Units.

6.04 Enforcement . The restrictions on Transfer contained in this Agreement are an essential element in the ownership of Units, and each Member specifically acknowledges and

agrees that money damages would not provide an adequate remedy for a breach of such restrictions. Upon application to any court of competent jurisdiction, the Company or a Member, as the case may be, is entitled to a decree against any Person violating or about to violate such restrictions, requiring their specific performance, including those requiring a Member to sell all or a portion of its Units to another Member, or prohibiting a Transfer of all or a portion of such Units.

6.05 Transfers During a Fiscal Year . In the event of a Transfer of a Member’s Units at any time other than the end of a Fiscal Year, the various items of Company income, gain, deduction, loss, credit and allowance as computed for federal income tax purposes shall be allocated between the transferor and the transferee in the ratio of the number of days in the Fiscal Year before and after the Transfer, unless the transferor and the transferee shall (i) have given the Company written notice, on or before the January 15 following the year in which such Transfer occurred, stating their agreement that such allocation shall be made on some other proper basis and (ii) agree to reimburse the Company for any incidental accounting fees and other expenses incurred by the Company in making such allocation.

6.06 Right of First Offer .

(a) GAHR3 shall cause all of its Affiliates to act in accordance with this Section 6.06 , GAHR4 shall cause all of its Affiliates to act in accordance with this Section 6.06 , and NHI shall cause all of its Affiliates (as applicable) to act in accordance with this Section 6.06 .

(b) At any time (i) prior to September 11, 2020 with regard to a Transfer of Units with respect to which a Member may not unreasonably withhold its Consent pursuant to Section 6.01(a) , or (ii) after September 11, 2020 with regard to any Transfer of Units, if GAHR3, GAHR4 or NHI (the “ Selling Member ”) desires to Transfer (or cause its Affiliate to Transfer) all or any portion of its Units to a purchaser that is not an Affiliate of GAHR3, GAHR4 or NHI in a single, arm’s length transaction, or in a series of related arm’s length transactions through the sale of Units, or a merger, consolidation or other similar corporate reorganization of the Company (the “ Proposed Sale ” and the Units that are the subject of such Proposed Sale are the “ Proposed Units ”), the Selling Member shall notify each other Member (each an “ Offeree Member ” and collectively, the “ Offeree Members ”) in writing of its intentions to sell (the “ Initial Sale Notice ”). The Initial Sale Notice shall contain general information on the proposed sale. The parties shall have sixty (60) days to discuss the proposed sale (such sixty (60) day period beginning upon receipt by the Offeree Members of the Initial Sale Notice defined as the “ Proposed Sale Discussion Period ”). If, after the Proposed Sale Discussion Period, the Selling Member still desires to proceed with the Proposed Sale, then Selling Member shall provide a formal written notice (the “ Proposed Sale Notice ”) to each Offeree Member within thirty (30) days after the end of the Proposed Sale Discussion Period. The Proposed Sale Notice shall specify the proposed sale price of the Proposed Units and the material terms and conditions of such Proposed Sale (the “ Proposed Sale Terms ”). If applicable, the Proposed Sale Notice may also constitute the Drag-Along Notice provided for in Section 6.07 or the Tag-Along Notice provided for by Section 6.08 if it includes all information required by such sections. Within thirty (30) days after receipt of the Proposed Sale Notice (such period beginning upon the Offeree Members’ receipt of the Proposed Sale Notice and ending on the thirtieth (30th) day thereafter being known as the “ Proposed Sale Notice Period ”), each Offeree Member may elect to purchase all of the Proposed Units from the Selling Member upon the same terms and conditions as those set forth in the Proposed Sale Notice by delivering a written notice

(the “ Purchase Notice ”) of such election to the Selling Member. If an Offeree Member elects to purchase the Proposed Units, then the closing of such Transfer shall take place at such time and place as specified in the Purchase Notice, which date shall not be more than one hundred twenty (120) days after delivery of the Purchase Notice by the Offeree Member, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Proposed Sale. At the closing, the Selling Member shall deliver such customary transfer documents as the applicable Offeree Member may reasonably request to Transfer the Proposed Units to be sold by such Selling Member, against delivery of the applicable consideration. In the event more than one Offeree Member elects to purchase the Proposed Units, such units shall be allocated to each Offeree Member pro rata in accordance with their relative Percentage Interests.

(c) If no Offeree Member timely elects to purchase the Selling Member’s Proposed Units or if one or more Offeree Members timely elect to purchase the Proposed Units but one or more Offeree Members fails to close the purchase in the time frame described in Section 6.06(c) , then, subject to Section 6.06(e), the Selling Member may proceed with the Proposed Sale without the Consent of any Member or Manager, provided that (i) (A) if no Offeree Member timely elected to purchase the Selling Member’s Proposed Units, such Proposed Sale is consummated within one hundred twenty (120) days following the end of the Proposed Sale Notice Period, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Proposed Sale, or (B ) if an Offeree Member elected to purchase the Proposed Units but fails to close the purchase of the Proposed Units within the time frame described in Section 6.06(c) , such Proposed Sale is consummated within one hundred twenty (120) days following the last possible date that the Offeree Member could have consummated the Proposed Sale in accordance with Section 6.06(c) , subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Proposed Sale, and (ii) the actual sale terms are substantially consistent with the Proposed Sale Terms (it being acknowledged and agreed that the sale price of the Proposed Units must be equal to or greater than ninety-eight percent (98%) of the sale price of the Proposed Units as specified in the Proposed Sale Notice). If no Offeree Member elected to purchase the Selling Member’s Proposed Units, and the Proposed Sale is not consummated within the time frame and on the terms described above, the Offeree Member shall have the right to require that the Selling Member thereafter again comply with this Section 6.06 , however if the Selling Member provides the Offeree Members a subsequent Proposed Sale Notice on the same or more favorable terms to the Offeree Members within one hundred eighty (180) days from the original Proposed Sale Notice, each Offeree Member must respond to the subsequent Proposed Sale Notice within ten (10) Business Days after receipt of the subsequent Proposed Sale Notice.

(d) If any Member shall default in its obligations under this Section 6.06 , then the other Member may seek specific performance of such Member’s obligations under this Section 6.06 or pursue any other remedies at law or in equity. In addition, to the extent any Member fails to take any required action in connection with this Section 6.06 , each Member hereby grants the other Member power of attorney to take such action on such Member’s behalf. The power of attorney granted pursuant to this Section 6.06(d) is a special power of attorney coupled with an interest and is irrevocable.

(e) If both Offeree Members elect to purchase the Proposed Units but one Offeree Member (the “ Defaulting Offeree Member ”) fails to close the purchase in the time frame described in Section 6.06(c) , then the Offeree Member (the “ Non-defaulting Offeree Member ”) which is prepared to close on the purchase of the Proposed Units it elected to Purchase shall have the right to purchase the Proposed Units that the Defaulting Offeree Member fails to purchase. The Selling Member shall give the Non-defaulting Offeree Member notice of such failure by the Defaulting Offeree Member and the Non-defaulting Offeree Member shall have a period of twenty (20) days to elect whether to purchase the Proposed Units which the Defaulting Offeree Member failed to purchase and shall have an additional period of time, not to exceed (20) days, to consummate such sale subject to a reasonable extension of time necessary in order to obtain any third party Consents required to consummate such sale. If the Non-defaulting Offeree Member does not elect to purchase the Proposed Units which the Defaulting Offeree Member failed to Purchase within the time period set forth in this Section 6.06(e) , then the Selling Member may proceed with the Proposed Sale of all of the Proposed Units without the Consent of any Member or Manager but subject to the provisions of this Section 6.06 , and the Non-defaulting Offeree Member shall have no further right to purchase the Proposed Units it elected to purchase.

6.07 Drag-Along Right . At any time (i) prior to September 11, 2020 with regard to a Transfer of Units with respect to which a Member may not unreasonably withhold its Consent pursuant to Section 6.01(a) , or (ii) after September 11, 2020 with regard to any Transfer of Units, if GAHR3 receives a bona fide offer from an independent third party to Transfer all, but not less than all, of its Units to a purchaser which is not an Affiliate of GAHR3 in a single, arm’s length transaction, or in a series of related arm’s length transactions, through the sale of Units, or a merger, consolidation or other similar corporate reorganization of the Company (the “ Drag-Along Sale ”), then GAHR3 shall provide written notice to NHI, GAHR4 and the other Members at least thirty (30) days prior to the date of such proposed Transfer (the “ Drag-Along Notice ”), which shall specify the identity of the prospective purchaser and the material terms and conditions of such proposed Transfer and the amount and type of consideration to be paid in respect thereof. Subject to Section 6.07 (d) , the Drag-Along Notice shall also constitute the Proposed Sale Notice pursuant to Section 6.06(b) . Subject to Section 6.07 (d) , if neither NHI nor GAHR4 provide a Purchase Notice to GAHR3 as provided in Section 6.06(c) , then GAHR3 may at its option, require all of the other Members of the Company, including NHI and GAHR4, to Transfer all, but not less than all, of their respective Units to such purchaser on the same terms and conditions offered to GAHR3; provided, however , that the gross proceeds of the Drag-Along Sale, less the aggregate reasonable and customary expenses of the Company incurred in connection therewith, shall be shared by the Members in the same manner as if all of the assets of the Company were sold for such sale price and the proceeds of such sale were distributed to the Members in accordance with Section 4.02 (and the same power of attorney contained in Section 6.06(e) shall apply with respect to any Drag-Along Sale).

(a) The closing of the Drag-Along Sale shall take place at such time and place as GAHR3 shall specify in the Drag-Along Notice. At the closing of the Drag-Along Sale, each Member shall deliver such customary transfer documents as GAHR3 may reasonably request to Transfer the Units to be sold by such Member, against delivery of the applicable consideration.

(b) By execution of this Agreement, each Member hereby agrees, subject to NHI’s and GAHR4’s rights pursuant to Section 6.06 and Section 6.07(d) to Consent to and to

participate in a Drag-Along Sale in a timely manner. If any Member shall default in its obligation to sell its Units in a Drag-Along Sale, then GAHR3 may seek specific performance of such Member’s obligations under this Section 6.07 or pursue any other remedies at law or in equity. In addition, to the extent any Member fails to take any required action in connection with this Section 6.07 , each Member hereby grants GAHR3 power of attorney to take such action on such Member’s behalf. The power of attorney granted pursuant to this Section 6.07(b) is a special power of attorney coupled with an interest and is irrevocable.

(c) Notwithstanding anything to the contrary contained herein, as a condition and prior to the closing of a Drag-Along Sale, each Member and its respective Affiliates (unless waived by such Member) shall be released from any personal liability with respect to all Loans (including, without limitation, any liability associated with any guaranty or indemnity relating to a Loan).

(d) This Section 6.07 (d) shall govern the rights of NHI and GAHR4 with respect to the Drag-Along Notice constituting the Proposed Sale Notice pursuant to Section 6.06(b) . If NHI or GAHR4, but not both, elect to purchase from GAHR3 all of the Units owned by GAHR3 within the time periods and in the manner required by Section 6.06 , then the Member making such election to purchase shall also be required to purchase all of the Units owned by all other Members on the same terms and conditions offered by GAHR3 (subject to the proviso set forth in Section 6.07(a) and the other terms and conditions of this Section 6.07 ). If both NHI and GAHR4 elect to purchase from GAHR3 all of the Units owned by GAHR3 within the time periods and in the manner required by Section 6.06 , then NHI shall have the sole right to purchase the all of the Units owned by GAHR3 and all of the Units owned by GAHR4 at a price designated by NHI which price shall be required to be in excess of price offered by GAHR3 (the “ NHI Drag-Along Price ”) and otherwise on terms set forth in the Drag-Along Notice and the other terms and conditions of this Section 6.07 . Such election (the “ NHI Drag-Along Election ”) shall be made by NHI by written notice to the other Members (the “ NHI Drag-Along Election Notice ”) within ten (10) Business days after the election of both NHI and GAHR4 to purchase from GAHR3 all of the Units owned by GAHR3. If NHI does not make the NHI Drag-Along Election pursuant to an NHI Drag-Along Election Notice within the time period required by this Section, then GAHR4 shall be obligated to purchase all of the Units owned by GAHR3 and NHI on the terms set forth in the Drag-Along Notice and the other terms and conditions of this Section 6.07 . If NHI makes the NHI Drag-Along Election pursuant to an NHI Drag-Along Election Notice then GAHR4 shall have the right (the “ GAHR4 Drag-Along Election ”) by written notice (the “ GAHR4 Drag-Along Election Notice ”) to the other Members delivered no later than then (10) Business Days after receipt of the NHI Drag-Along Election Notice to purchase from GAHR3 all of the Units owned by GAHR3 and all of the Units owned by NHI for a price designated by GAHR4 in the GAHR4 Election Notice which price shall be required to be in excess of the NHI Drag-Along Price and otherwise on the terms set forth in the Drag-Along Notice and the other terms and conditions of this Section 6.07 . If GAHR4 does not make the GAHR4 Drag-Along Election pursuant to a GAHR4 Drag-Along Election Notice within the time period required by this Section, then NHI shall be obligated to purchase all of the Units owned by GAHR3 and GAHR4 at the NHI Drag-Along Price and otherwise on the terms set forth in the Drag-Along Notice and the other terms and conditions of this Section 6.07 .

6.08 Tag-Along Right .

(a) At any time (i) prior to September 11, 2020 with regard to a Transfer of Units with respect to which a Member may not unreasonably withhold its Consent pursuant to Section 6.01(a) , or (ii) after September 11, 2020 with regard to any Transfer of Units, if GAHR3 receives a bona fide offer from an independent third party to Transfer at least ten percent (10%) of its Units to a purchaser which is not an Affiliate of GAHR3 in a single, arm’s length transaction, or in a series of related arm’s length transactions, through the sale of Units, or a merger, consolidation or other similar corporate reorganization of the Company (the “ Tag-Along Sale ”), then GAHR3 shall provide written notice to NHI, GAHR4 and the other Members at least thirty (30) days prior to the date of such proposed Transfer (the “ Tag-Along Notice ”), which shall specify the identity of the prospective purchaser (the “ Tag-Along Purchaser ”) and the material terms and conditions of such proposed Transfer and the amount and type of consideration to be paid in respect thereof. The Tag-Along Notice shall also constitute the Proposed Sale Notice pursuant to Section 6.06(b) . If NHI and/or GAHR4 does not provide a Purchase Notice to GAHR3 as provided in Section 6.06(c) , and GAHR3 does not exercise its drag-along right contained in Section 6.07 hereof, if applicable, then GAHR3 shall comply with the requirements of this Section 6.08 .

(b) Within thirty (30) days after delivery of an effective Tag-Along Notice, each of NHI and GAHR4 shall give written notice to GAHR3 that (i) NHI and/or GAHR4, as the case may be, elects to transfer its respective Units (which shall be no greater than the percentage of its Units that the Tag-Along Notice states GAHR3 desires to Transfer (the “ Tag-Along Percentage ”)) to the Tag-Along Purchaser on the same terms and conditions set forth in the Tag-Along Notice (the “ Tag-Along Option ”) or (ii) NHI and/or GAHR4, as the case may be, elects not to transfer its respective Units (or the Tag-Along Percentage thereof) to the Tag-Along Purchaser (the “ Non-Transfer Option ”). NHI and/or GAHR4, as the case may be, shall conclusively be deemed to have elected the Non-Transfer Option with respect to its Units if it fails to give written notice of its election of either of the above-described options within such thirty (30) day period.

(c) If NHI and GAHR4 both elect or are both deemed to have elected the Non-Transfer Option, GAHR3 shall be permitted to make the Tag-Along Sale, so long as (i) such Tag-Along Sale is consummated within one hundred twenty (120) days of the Tag-Along Notice, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Tag-Along Sale and (ii) the actual sales price does not exceed one hundred two percent (102%) of the sales price specified in the Tag-Along Notice.

(d) If NHI and GAHR4 both elect the Tag-Along Option or either NHI or GAHR4 elect the Tag-Along Option, GAHR3 shall not make the Tag-Along Sale to the Tag-Along Purchaser unless such Tag-Along Purchaser acquires, simultaneously with its acquisition of GAHR3’s Units (or the Tag-Along Percentage thereof), the Units (or the Tag-Along Percentages thereof) of either or both of NHI and GAHR4 which has elected the Tag-Along Option at a purchase price per Unit equal to the purchase price per Unit paid for GAHR3’s Units. Notwithstanding the foregoing, the aggregate reasonable and customary expenses of the Members incurred in connection with the transfer of their Units or portions thereof (including, without limitation, any reasonable attorneys’ fees and expenses and any brokerage fees) shall be paid (or reimbursed) out of the aggregate purchase price paid to the Members.

(e) If NHI and/or GAHR4 exercises the Tag-Along Option, then each of NHI and/or GAHR4 which has elected the Tag-Along Option shall take all actions necessary to cause its Units (or the Tag-Along Percentage thereof) to be transferred to the Tag-Along Purchaser as set forth in Section 6.08(e) , such actions to include, without limitation, executing a contract of sale if requested to do so by the Tag-Along Purchaser (which contract shall be no more onerous to NHI and/or GAHR4 than the contract of sale executed by GAHR3) and complying with the terms thereof. If either or both of NHI and GAHR4 elects or is deemed to have elected the Non-Transfer Option, and the Tag-Along Sale does not occur on the terms set forth in Section 6.08(c) , NHI and/or GAHR4 shall have the right to require that GAHR3 thereafter again comply with this Section 6.08 , however if GAHR3 provides a subsequent Tag-Along Notice on the same or more favorable terms to NHI and GAHR4 within one hundred eighty (180) days from the original Tag-Along Notice, NHI and GAHR4 must respond to the subsequent Tag-Along Notice within ten (10) Business Days after receipt of the subsequent Tag-Along Notice.

6.09 Initial Public Offering . If the Qualified Members approve an IPO by Trilogy REIT as a Major Decision, then the Members shall take all reasonable actions in connection therewith (including any restructuring transactions to effect such IPO as determined to be necessary by the Qualified Members); provided, however , that no Member shall be required to expend any funds or take any actions that would impair REIT status of such Member or its parent or Trilogy REIT. The Company shall be liquidated and dissolved upon the IPO and the Members shall be subject to customary lock-up restrictions with respect to the equity interests in Trilogy REIT they receive in connection with such IPO. Upon an IPO, any governance or transfer restrictions described above governing Trilogy REIT shall terminate.

6.10 Additional Rights of NHI Upon Purchasing GAHR3 Units . If, at any time, NHI and its Affiliates owns seventy percent (70%) or more of the outstanding Units, whether Units are acquired from GAHR3 pursuant to Section 6.06, Section 14.01 or otherwise, NHI shall also have all of the rights of GAHR3 set forth herein which are in addition to the rights of GAHR3 as a Member, Manager, and Qualifying Member including, the right to initiate the Drag-Along Right pursuant to Section 6.07, the right to initiate the Tag-Along Right pursuant to Section 6.07, and the right to initiate the Buy/Sell pursuant to Article Fourteen. The Members shall act reasonably and in good faith to appropriately amend this Agreement to grant and confirm such rights for the benefit of NHI.

ARTICLE SEVEN

INVESTMENT REPRESENTATIONS

Each Member hereby represents and warrants to, and agrees with, the other Member and the Company as follows:

7.01 Investment Intent . Such Member is acquiring the Units for investment purposes for its own account only and not with a view to or for sale in connection with any distribution of all or any part of such Units.

7.02 Business Experience . By reason of such Member’s business or financial experience, or by reason of the business or financial experience of its general partner, managing

member, or financial advisor who is unaffiliated with and who is not compensated, directly or indirectly, by the Company or any Affiliate or selling agent of the Company, such Member is capable of evaluating the risks and merits of an investment in the Units and of protecting such Member’s own interests in connection with this investment.

7.03 No Registration of Units . Such Member acknowledges that the Units have not been registered under the Securities Act or under any applicable “Blue Sky” laws in reliance, in part, upon its representations, warranties, and agreements herein.

7.04 Restricted Securities . Such Member understands that the Units are “restricted securities” under the Securities Act in that such Units are being acquired from the Company in a transaction not involving a public offering, and that the Units may be resold without a registration under the Securities Act only in certain limited circumstances and that otherwise the Units must be held indefinitely.

7.05 No Obligations to Register . Such Member represents, warrants and agrees that the Company is under no obligation to register or qualify the Units under the Securities Act or under any state securities law, or to assist it in complying with any exemption from registration and qualification.

7.06 No Disposition in Violation of Law . Without limiting the representations set forth above, and without limiting anything contained elsewhere in this Agreement (including Article Six concerning Transfers of Units), no Member shall make any disposition of all or any part of such Member’s Units that would result in a violation by the Company of the Securities Act or any other applicable securities laws. Without limiting the foregoing, such Member agrees not to make any Transfer of all or any part of its Units unless and until such Member has notified the Company of the proposed Transfer and, if requested by the Manager, furnish, a written opinion of counsel, reasonably satisfactory to the Manager, that such disposition would not require registration of any Securities under the Securities Act or the Consent of or a permit from appropriate authorities under any applicable state securities laws.

7.07 Investment Risk . Such Member acknowledges that the Units are speculative investments which involve a substantial degree of risk of loss of its entire investment in the Company, and it understands and takes full cognizance of the risks related to the purchase of such Units.

7.08 Restrictions on Transferability . Such Member acknowledges that there are substantial restrictions on the transferability of the Units pursuant to this Agreement, that there is no public market for such Units and that none is expected to develop, and that, accordingly, it may not be possible for such Member to liquidate its investment in the Company.

7.09 Information Reviewed . Such Member has received and reviewed this Agreement and the other information provided by the Company such Member considers necessary or appropriate for deciding whether to invest in the Company.

7.10 No Advertising . Such Member has not seen, received, been presented with, or been solicited by any leaflet, public promotional meeting, article or any other form of advertising or general solicitation with respect to the sale of Units.

7.11 “Accredited Investor” Qualification . Such Member is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. Each Member shall provide to the Company, upon request by the Manager, additional certifications or other evidence, in form and substance acceptable to the Manager, in respect of the foregoing.

7.12 Authority . This Agreement has been duly executed and delivered by such Member and constitutes a valid and binding obligation of such Member, enforceable against such Member in accordance with its terms except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

7.13 Power and Authority . Such Member has the requisite power and authority necessary to enter into, deliver and perform its obligations pursuant to this Agreement. Such Member’s execution, delivery and performance of this Agreement has been duly authorized by the such Member.

ARTICLE EIGHT

DISSOLUTION AND LIQUIDATION OF THE COMPANY

8.01 Dissolution .

(a) The Company shall be dissolved and wound up upon the first to occur of any of the following events:

(i) the sale of all or substantially all of the Company’s assets;

(ii) the Consent of all Members; or

(iii) any other event that applicable law specifies must operate as an event causing the dissolution of a limited liability company, notwithstanding any provision to the contrary in this Agreement.

The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it is wound up and its assets have been distributed as provided in Section 8.02 . Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement.

(b) Each Member shall look solely to the assets of the Company for all distributions with respect to the Company, its Capital Contributions thereto, such Member’s Capital Account and such Member’s share of profits and losses, and shall have no recourse therefor (upon dissolution or otherwise) against any other Member. Accordingly, if any Member has a deficit balance in such Member’s Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which the liquidation

occurs), then such Member shall have no obligation to make any Capital Contribution with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever.

8.02 Liquidation .

(a) Upon dissolution of the Company, the Manager or a liquidating trustee or person selected by the Manager (the “ Liquidating Trustee ”), shall wind up the affairs of the Company and proceed within a reasonable period of time to sell or otherwise liquidate the assets of the Company and, after paying or making due provision by the setting up of reserves for all liabilities to creditors of the Company in accordance with applicable law, to distribute the assets among the Members in accordance with the provisions for the making of distributions set forth in this Article Eight and Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the foregoing, in the event that the Manager or the Liquidating Trustee, as the case may be, shall, in its absolute discretion, determine that a sale or other disposition of part or all of the assets of the Company would cause undue loss to the Members or otherwise be impractical, the Manager or the Liquidating Trustee may either defer liquidation of, and withhold from distribution for a reasonable time, the assets or distribute part or all of the assets to the Members in kind based on the fair market value of such assets.

(b) No Member shall be liable for the return of the Capital Contributions of other Members, except as expressly provided for herein.

(c) Upon liquidation, all of the assets of the Company, or the proceeds therefrom, shall be distributed or used as follows and in the following order of priority:

(i) for the payment of Indebtedness of the Company including any expenses of liquidation and any outstanding Member loans (including, without limitation, Shortfall Loans) and accrued and unpaid interest thereon;

(ii) to the setting up of any reserves which the Manager or the Liquidating Trustee may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company in accordance with applicable law; and

(iii) to the Members in accordance with Section 4.02 of this Agreement; provided , however , that if for any reason the amounts otherwise distributable to the Members pursuant to this Section 8.02(c)(iii) differ from the Capital Account balances of the Members immediately prior to the making of such liquidating distributions (and after taking into account all Capital Account adjustments for the Company’s taxable year in which liquidation occurs), then allocations of items of income, gain, loss and deduction (for the current tax year and prior tax years) shall be made to eliminate all such differences to the extent permitted by the Code and the applicable Regulations.

(d) When the Manager or the Liquidating Trustee, as the case may be, has complied with the foregoing liquidation plan, the Members shall execute, acknowledge and cause to be filed an instrument evidencing the cancellation of the Company’s Certificate, if required by the Act.

ARTICLE NINE

AMENDMENTS

9.01 Amendments .

(a) Except as provided in Section 9.01(b) , this Agreement is subject to amendment only with the Consent of each of the Members.

(b) Notwithstanding the provisions of Section 9.01(a) , this Agreement may be amended from time to time by the Manager without the Consent of the Members as follows: (i) to the extent provided by Section 3.01(d) ; (ii) to correct a typographical error; and (iii) to delete from or add to any provision required to be so deleted or added by a state securities commission, which addition or deletion is deemed by such commission to be for the benefit or protection of the Members.

(d) Upon the adoption of any amendment to this Agreement in accordance with Section 9.01(b) , the amendment shall be executed by the Manager on behalf of the Members.

ARTICLE TEN

FINANCIAL, REPORTING AND TAX MATTERS

10.01 Records and Accounting . Proper and complete records and books of account of the business of the Company shall be maintained at the Company’s principal place of business. The books and records of the Company and its Subsidiaries shall be open to the reasonable inspection and examination of the Members or their duly authorized Representatives during reasonable business hours. The Members and their duly authorized Representatives may discuss the affairs, finances and accounts of the Company with the Manager and the accountants of the Company during reasonable business hours. The books and records of the Company shall be kept in accordance with GAAP. The Manager shall cause the documents and information listed on Exhibit F to be prepared and delivered to the Members. The Manager shall use commercially reasonable efforts to deliver such documents and information in a form that enables REIT Parents and their respective Affiliates to comply with REIT Parents’ and their respective Affiliates’ reporting and certification requirements under applicable laws and regulations, and to implement a system to enable REIT Parents and their respective Affiliates to do control testing pursuant to the certification requirements of the Sarbanes-Oxley Act of 2002 (as amended, supplemented, restated or replaced from time to time, “ SOX ”) or any similar or related requirements that may from time to time be applicable to the REIT Parents. Manager shall reasonably cooperate with REIT Parents and their respective Affiliates in complying with their respective obligations pursuant to SOX, other applicable legal requirements and any matters related to REIT testing and compliance, if applicable, including assisting REIT Parents and their respective Affiliates and their respective internal and external independent auditors in completing procedures to comply with their obligations under SOX and other applicable legal requirements in a timely manner, including

causing officers of the Company to execute and deliver to REIT Parents and their respective Affiliates such certifications with respect to the financial reports required by this Agreement as REIT Parents or their respective Affiliates may reasonably request. To facilitate the foregoing, Manager shall maintain SOX-compliant internal controls over financial reporting for the Company to the extent required to accomplish the purposes set forth above.

10.02 Annual Reports . Within ninety (90) days after the end of each Fiscal Year, the Manager shall cause to be delivered to the Members a balance sheet as of the end of such Fiscal Year and statements of income, Members’ equity and cash flows for such Fiscal Year, which, except as otherwise provided in this Agreement, shall be prepared in accordance with GAAP, and a statement, in reasonable detail, showing the Capital Account of each Member and detailing the Capital Contributions of, distributions to, and gains and losses allocated to, each Member for such Fiscal Year.

10.03 Management Agreement . Within fifteen (15) days’ written request of any Member, the Manager shall deliver or cause to be delivered to the Members copies of any notices or reports delivered by an EIK to OpCo pursuant to section 6.2 of the Management Agreement or such other sections of the Management Agreement as a Member may reasonably request from time to time.

10.04 Tax Information . The Manager shall cause to be prepared all federal, state, local and foreign tax returns of the Company for each year for which such returns are required to be filed and shall use commercially reasonable efforts to cause such returns to be timely filed. The Members agree that they shall not, except as otherwise required by law or with the prior Consent of the Manager, (i) treat, on their own income tax returns, any item of income, gain, loss, deduction or credit relating to their interest in the Company in a manner inconsistent with the treatment of such items by the Company as reflected on the Schedule or equivalent form, or (ii) file any claim for a refund relating to any such item based on, or which would result in, such inconsistent treatment. The Manager shall cause a draft copy of the Schedule K-1 for each Member to be delivered to such Member by May 31 of each year and the final Schedule K-1 for each Member to be delivered to such Member by July 15 of each year. With respect to each tax return of the Company, the Manager shall cause a draft copy of such tax return to be provided to the Members concurrent with the delivery of the final Schedule K-1. The Manager shall make itself available during reasonable business hours to discuss each such tax return with the Members prior to filing.

10.05 Tax Matters Member . For taxable years beginning before December 31, 2017, GAHR3 is hereby designated as the tax matters partner within the meaning of Section 6231(a)(7) of the Code and, for each taxable year beginning after December 31, 2017, GAHR3 is hereby designated as the partnership representative for purposes of the Partnership Tax Audit Rules (“ Tax Matters Member ”). In such capacity, GAHR3 shall have all of the rights, authority and power, and shall be subject to all of the obligations, of a tax matters partner or partnership representative, as the case may be, to the extent provided in the Code and the Treasury Regulations. If any state or local tax law provides for a tax matters partner, partnership representative or Person having similar rights, powers, authority or obligations, GAHR3 shall also serve in such capacity. In all other cases, GAHR3 shall represent the Company in all tax matters to the extent allowed by law and to the maximum extent not prohibited by law. Out-of-pocket expenses reasonably incurred by GAHR3 as the Tax Matters Member or in a similar capacity as set forth in this Section 10.04 shall be reimbursed by the Company. Such expenses shall include, without limitation, reasonable

fees of attorneys and other tax professionals, accountants, appraisers and experts, filing fees and reasonable out-of-pocket costs. Any decisions made by the Tax Matters Member shall be made in the Tax Matters Member’s reasonable discretion. GAHR3 shall inform the Members of any decision or action GAHR3 takes as the Tax Matters Member. Each Member will cooperate with the Tax Matters Member, including providing any information reasonably requested by the Tax Matters Member in connection with any proceeding, and do or refrain from doing any or all things reasonably requested by the Tax Matters Member with respect to the conduct of any examinations or proceedings involving the Company. Each Member will furnish to the Company all pertinent information in its possession to make any election or computation under the Partnership Tax Audit Rules. A Member’s obligations to comply with the requirements of this Section 10.05 will survive such Member’s ceasing to be a Member of the Company and/or the termination, dissolution, liquidation and winding up of the Company, and, for purposes of this Section 10.05 , the Company will be treated as continuing in existence.

10.06 Capital Accounts, Allocations and Elections . Each Member shall have a capital account (a “ Capital Account ”) which shall be established and maintained in accordance with Exhibit B . Allocations of Net Profits and Net Losses shall be made in accordance with Exhibit B , and tax elections shall be made by the Company as set forth in Exhibit B .

10.07 Tax Advances . To the extent the Company is required by law to withhold or to make tax payments on behalf of or with respect to any Member (including any taxes arising under the Partnership Tax Audit Rules) (the latter a “ Tax Advance ”), the Manager may withhold such amounts and make such tax payments as so required. All Tax Advances made on behalf of a Member, plus interest thereon at a rate equal to the Base Rate, as of the date of such Tax Advances, shall, either (at the option of the Manager), (i) be promptly paid to the Company by the Member on whose behalf such Tax Advances were made (such payment not to constitute a Capital Contribution) or (ii) be repaid by reducing the amount of the current or next succeeding Distribution or Distributions which would otherwise have been made to such Member or, if such Distributions are not sufficient for that purpose, by so reducing the proceeds of liquidation otherwise payable to such Member. Whenever the Manager selects option (ii) pursuant to the preceding sentence for repayment of a Tax Advance by a Member, for all other purposes of this Agreement such Member shall be treated as having received all Distributions (whether before or upon liquidation) unreduced by the amount of such Tax Advance and interest thereon. Each Member hereby agrees to reimburse the Company and the Manager for any liability with respect to Tax Advances required on behalf of or with respect to such Member. For the avoidance of doubt, any taxes, penalties and interest payable under the Partnership Tax Audit Rules by the Company or any fiscally transparent entity in which the Company owns an interest will be treated as specifically attributable to the Members and the Manager will use reasonable best efforts to allocate the burden of (or any diminution in distributable proceeds resulting from) any such taxes, penalties or interest to those Members to whom such amounts are specifically attributable (whether as a result of their status, actions, inactions or otherwise), as reasonably determined by the Manager. A Member’s obligations to comply with the requirements of this Section 10.07 will survive such Member’s ceasing to be a Member of the Company and/or the termination, dissolution, liquidation and winding up of the Company, and, for purposes of this Section 10.07 , the Company will be treated as continuing in existence.

ARTICLE ELEVEN

CONFIDENTIALITY

11.01 Disclosure of Confidential Information . Except as otherwise expressly permitted by this Article Eleven , each Member shall keep confidential and not disclose the Confidential Information for the longer of the term of this Agreement or three (3) years after a Member receives, obtains or learns of such Confidential Information. Without limiting the foregoing, each Member will use no less than the same degree of care, and no less than a reasonable degree of care, to protect the Confidential Information as such Member uses to protect its own Trade Secrets and confidential information.

11.02 Certain Exceptions . The prohibitions in Section 11.01 will not apply only to the extent that: (a) the disclosing Person (i) demonstrates that the same Confidential Information was in its possession before disclosure to it and (ii) the disclosing Person provided the Company and each Member with written notice of prior possession; (b) the disclosing Person demonstrates (i) that the same information is currently publicly available or has become publicly available and (ii) that such public availability does not result from (A) the misappropriation or improper disclosure of such Confidential Information by the disclosing Person or (B) the obtaining of such Confidential Information by improper means of the disclosing Person; (c) the disclosing Person demonstrates that the same information was developed independently by the disclosing Person without the use of the Confidential Information; (d) the disclosure of the Confidential Information is required or deemed advisable by counsel in order to comply with applicable laws, rules, regulatory requirements or other governmental requirements (e.g., securities law requirements), or the requirements of any securities exchange, that are binding upon such Member or its Affiliates; (e) it is reasonably necessary for a Member or the Company to make the disclosure to enforce this Agreement; or (f) disclosure is made by a Member or the Company in connection with the sale, transfer or other disposition, in whole or in part, of Units or the financing, sale, transfer or other disposition of the assets of the Company in accordance with this Agreement (but then only if disclosure is subject to a non-disclosure agreement then customary in such transactions). In the absence of an order or relief, the disclosing Person must use reasonable efforts to have the disclosed information treated confidentially, consistent with this Article Eleven .

11.03 Permitted Disclosure to Representatives . Notwithstanding the prohibitions of this Article Eleven , each Member and the Company may disclose Confidential Information to its Representatives directly involved with the Company.

11.04 Disclosure to Non-Representatives . Except as otherwise provided by this Article Eleven , any disclosure of any Confidential Information may be made to a non-Representative only if the receiving Person executes and delivers a confidentiality agreement in form and substance approved by the Manager in good faith or by legal counsel to the Company.

11.05 Remedies . Each Member recognizes that the activities proscribed by this Article will result in irreparable damage and harm to the Company and the Members and that the Company and Members and their Affiliates may be without an adequate remedy at law in the event of any such activities. Each Member agrees that if this Article is breached or is threatened to be breached, the Company, each Member, and each of their Affiliates may: (a) obtain specific performance;

(b) enjoin any Person that has breached or threatens to breach from engaging in any activity proscribed by this Article; and (c) pursue any one or more of the foregoing or any other remedy available to it under applicable law, including damages and set-off rights. A Person seeking or obtaining any such relief will not be deemed to be precluded from obtaining any other relief to which that Person may be entitled.

ARTICLE TWELVE

MISCELLANEOUS

12.01 Notices .

(a) Any notice to a Member shall be delivered or sent to the address of such Member set forth next to such Member’s name on Appendix A or such other mailing address of which such Member shall advise the Manager in writing. Any notice to the Company or the Manager shall be delivered or sent to the principal office of the Company or such other mailing address of which the Manager shall advise the Members in writing.

(b) Any notice hereunder shall be in writing and shall be deemed effectively given and received (i) upon personal delivery, when sent by electronic mail or similar electronic means or the next Business Day if sent after business hours or on a non-Business Day (in each case in place of receipt), (ii) five (5) Business Days after mailing by registered or certified mail, return receipt requested, postage prepaid, addressed as described in Section 12.01(a) or (iii) (24) hours after sending by overnight courier, addressed as described in Section 12.01(a) or the next Business Day if the end of such twenty-four (24) hour period does not fall within business hours on a Business Day in place of receipt; provided , however , that any notice sent by electronic mail or similar electronic means shall be promptly followed by a copy of such notice sent by mail or overnight courier in the manner described herein.

12.02 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflicts of law principles.

12.03 Arbitration . Any dispute, controversy or claim arising out of or in connection with, or relating to, this Agreement (excluding any attempt to resolve a disagreement regarding a Major Decision, which shall be handled through mediation in accordance with Section 5.02 hereof) or any breach or alleged breach hereof shall, upon the request of any party involved, be submitted to, and settled by, expedited arbitration proceedings in the City of Wilmington, State of Delaware, pursuant to the commercial arbitration rules then in effect of the American Arbitration Association (or at any time or at any other place or under any other form of arbitration mutually acceptable to the parties so involved). Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in the highest court of the forum, state or federal, having jurisdiction. The expenses of the arbitration shall be borne equally by the parties to the arbitration, provided that each party shall pay for and bear the cost of its own experts, evidence and counsel’s fees, except that in the discretion of the arbitrator, any award may include the cost of a party’s counsel if the arbitrator expressly determines that the party against whom such award is entered has caused the dispute, controversy or claim to be submitted to arbitration as a dilatory tactic. The arbitrator shall decide such dispute in accordance with the laws of the State of Delaware, without

regard to conflict of law provisions thereof. Notwithstanding any provision of the Agreement to the contrary, this Section 12.03 shall be construed to the maximum extent possible to comply with the laws of the State of Delaware, including the Uniform Arbitration Act (10 Del. C. § 5701 et seq.) (the “ Delaware Arbitration Act ”). If, nevertheless, it shall be determined by a court of competent jurisdiction that any provision or wording of this Section 12.03 , including any rules of the American Arbitration Association, shall be invalid or unenforceable under the Delaware Arbitration Act, or other applicable law, such invalidity shall not invalidate all of this Section 12.03 . In that case, this Section 12.03 shall be construed so as to limit any term or provision so as to make it valid or enforceable within the requirements of the Delaware Arbitration Act or other applicable law, and, in the event such term or provision cannot be so limited, this Section 12.03 shall be construed to omit such invalid or unenforceable provision.

12.04 Entire Agreement . This Agreement (including any Annexes, Exhibits, or Appendix hereto) and any other written agreements constitute (for the respective Members that are parties thereto or bound thereby) the entire agreement among the Members with respect to the subject matter hereof and thereof and supersede any prior agreement or understanding among them with respect to such subject matters.

12.05 Headings . The headings in this Agreement are inserted for convenience of reference only and shall not affect the interpretation of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural.

12.06 Binding Provisions . The covenants and agreements contained herein shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto.

12.07 No Waiver . The failure of any Member to seek redress for violation, or to insist on strict performance, of any covenant or condition of this Agreement shall not prevent a subsequent act which would have constituted a violation from having the effect of an original violation.

12.08 Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. This Agreement may be executed by electronic mail or other electronic transmission.

12.09 Costs . Except as expressly provided herein, each party will solely be responsible for and bear all of its respective expenses, including expenses of legal counsel, investment bankers, consultants, accountants and other advisors, incurred at any time in connection with the transactions contemplated in this Agreement.

12.10 No Third Party Rights . Except as set forth in Section 5.04(b) , this Agreement is intended solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the parties hereto.

12.11 Severability . If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other Persons or circumstances shall not be affected thereby, and the intent of this Agreement shall be enforced to the greatest extent permitted by law.

ARTICLE THIRTEEN

FORCED SALE PROVISION

13.01 Forced Sale Triggers . At any time following (i) September 11, 2025, or (ii) September 11, 2022, if GAHR3 is no longer an AHI Managed Company, either NHI, or GAHR3 (the “ Triggering Member ”) shall have the right to cause the Company to sell all of its assets (the “ Assets ” which shall mean either (a) the Company’s entire ownership interest in Trilogy REIT, or (b) all of the direct and indirect assets owned through Trilogy REIT) in accordance with this Article Thirteen (a “ Forced Sale ”) by delivering written notice (a “ Forced Sale Notice ”) to the other Members (the “ Non-Triggering Members ”) indicating the Triggering Member’s election to exercise a Forced Sale. The Forced Sale Notice shall specify (A) the proposed selling price (the “ Forced Sale Price ”) for the Assets, and (B) any other material terms of the proposed sale (collectively, with the Forced Sale Price, the “ Forced Sale Terms ”). Notwithstanding the foregoing, GAHR3 may only trigger a Forced Sale after September 11, 2025 (i.e., GAHR3 may not trigger a Forced Sale due to the occurrence of the event described in subpart (ii) above in this Section 13.01 ).

13.02 Forced Sale Election .

(a) Subject to this Section 13.02 , the Non-Triggering Members shall have the right to elect to purchase the Assets on substantially the same terms as contained in the Forced Sale Notice (including, without limitation, the same Forced Sale Price), such right to be exercised by delivery of written notice thereof to the Triggering Member (the “ Forced Sale Purchase Notice ”) within sixty (60) days following the Non-Triggering Members’ receipt of the Forced Sale Notice (such sixty (60) day period defined as the “ Forced Sale Purchase Notice Period ”).

(b) If none of the Non-Triggering Members timely deliver a Forced Sale Purchase Notice to the Triggering Member, then the Non-Triggering Members shall conclusively be deemed to have elected to not purchase the Assets.

(c) If one, but not both Non-Triggering Members timely exercises its right to purchase the Assets on the Forced Sale Terms (the Non-Triggering Member that exercises its right to purchase the Assets, the “ Purchasing Non-Triggering Member ”) pursuant to a Forced Sale Purchase Notice, then the other Non-Triggering Members and the Triggering Member shall promptly enter into (or cause the appropriate parties to enter into) a legally-binding purchase and sale agreement and proceed with the purchase and sale of the Assets to the Purchasing Non-Triggering Member substantially in accordance with the Forced Sale Terms, all of the foregoing to be consummated by the Non-Triggering Members and the Triggering Member acting in good faith and in a commercially reasonable manner.

(d) If both Non-Triggering Members timely exercise its right to purchase the Assets on the Forced Sale Terms, then NHI, if GAHR3 is the Triggering Member, or GAHR3, if NHI as the Triggering Member, shall have the sole right to purchase the Assets at a price designated by NHI or GAHR3, as applicable, which price shall be required to be in excess of Forced Sale Price (the “ Non-Triggering Member Forced Sale Price ”) and otherwise on the Forced Sale Terms. Such election (the “ Non-Triggering Member Election ”) shall be made by GAHR3 or

NHI, as applicable, by written notice to the other Members (the “ Non-Triggering Member Election Notice ”) within ten (10) Business Days after the election of both Non-Triggering Members to purchase the Assets pursuant to a Forced Sale Purchase Notice. If GAHR3 or NHI, as applicable, does not make the Non-Triggering Member Election pursuant to a Non-Triggering Member Election Notice within the time period set forth in this Section 13.02(d) , then GAHR4 shall be obligated to purchase the Assets on the Forced Sale Terms. If GAHR3 or NHI, as applicable, makes the Non-Triggering Member Election pursuant to a Non-Triggering Member Election Notice then GAHR4 shall have the right (the “ GAHR4 Election ”) by written notice (the “ GAHR4 Election Notice ”) to the other Members delivered no later than then (10) Business Days after receipt of the Non-Triggering Member Election Notice to purchase the Assets for a price designated by GAHR4 in the GAHR4 Election Notice which price shall be required to be in excess of the Non-Triggering Member Forced Sale Price and otherwise on the Forced Sale Terms . If GAHR4 does not make the GAHR4 Election pursuant to a GAHR4 Election Notice within the time period set forth in this Section 13.02(d) , then GAHR3 or NHI, as applicable, shall be obligated to purchase the Assets at the Non-Triggering Member Forced Sale Price and otherwise on the Forced Sale Terms. Once it is determined pursuant to this Section 13.02(d) which Member shall purchase the Assets, the Members shall promptly enter into (or cause the appropriate parties to enter into) a legally-binding purchase and sale agreement and proceed with the purchase and sale of the Assets substantially in accordance with the applicable terms provided in this Section 13.02(d ), all of the foregoing to be consummated by the Members acting in good faith and in a commercially reasonable manner.

(e) The closing of the purchase of the Assets shall be held no later than one hundred twenty (120) days after the date on which it is determined pursuant to this Section 13.02 which Member shall purchase the Assets, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Forced Sale.

13.03 Marketing of the Company . If both Non-Triggering Members affirmatively elect not to purchase the Assets (or are deemed to have elected to not purchase the Assets), then the Triggering Member may cause the Company to cause a sale of the Assets. The Assets shall be professionally marketed with appropriate financial advisors and brokers; provided , however , that (i) the Assets may only be sold to a bona fide third party purchaser, unaffiliated with the Triggering Member and (ii) as a condition to closing any such sale, the Non-Triggering Members and their Affiliates (unless waived by such Members) must be released on or prior to the closing date from any and all personal or recourse liability with respect to all Loans (including, without limitation, any liability associated with any guaranty or indemnity relating to a Loan). The Non-Triggering Members shall cooperate with the Triggering Member, act in good faith and act in a commercially reasonable manner in the marketing and sale of the Assets, and shall make all such representations, warranties and covenants as may be reasonable and customary for comparable sales of assets and shall execute on behalf of the Company and the Members any and all agreements, instruments, certificates or other documents necessary or appropriate to effectuate the Forced Sale of the Assets in accordance with this Article Thirteen .

13.04 Closing . If the Assets have not been sold within (A) in the event both Non-Triggering Members affirmatively elect to not purchase the Assets (or are deemed to have elected to not purchase the Assets), two hundred ten (210) days following the end of the Forced Sale

Purchase Notice Period, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Forced Sale, or (B) in the event one or both Non-Triggering Members elect to purchase the Assets but the Member which is required to purchase the Assets as determined by Section 13.02(c) or 13.02(d) fails to close the purchase of the Assets within the time frame described in Section 13.02 , two hundred ten (210) days following the last possible date that such Non-Triggering Member could have consummated the Forced Sale in accordance with Section 13.02 , subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the Forced Sale, then the Triggering Member’s right to cause the Company to cause a sale of the Assets based on the Forced Sale Terms set forth in such Forced Sale Notice shall terminate, and the Triggering Member may not thereafter unilaterally cause a sale of the Assets without again initiating the forced sales procedures contained in this Article Thirteen .

ARTICLE FOURTEEN

BUY/SELL PROVISIONS

14.01 Exercise of Buy/Sell Rights .

(a) When Applicable . Notwithstanding anything to the contrary set forth herein, the provisions of this Article Fourteen and the right to exercise the buy/sell procedure pursuant to this Article Fourteen shall only apply at such time as there is only one (1) Qualifying Member who has the right to consent to Major Decisions. If at any time there is more than one (1) Qualifying Member that has the right to consent to Major Decisions, than any Deadlock shall be resolved through a Forced Sale pursuant to Article Thirteen, which Forced Sale may be exercised by GAHR3 at such that GAHR3 would have had the right to exercise the buy/sell procedure pursuant to this Article Fourteen if this Article Fourteen were applicable.

(b) Right to Exercise and Elections . At any time after the date on which NHI is not a NSAM Managed Company, if a Deadlock exists, then GAHR3 (the “ Initiating Member ”) may initiate the buy/sell procedure pursuant to this Article Fourteen by giving written notice (the “ Value Notice ”) to NHI (the “ Electing Member ” which shall include NHI and its Affiliates, successors and assigns) stating an amount not less than the aggregate of all indebtedness owing by the Company (the “ Stated Amount ”) to be used in the calculations under Section 14.02 below. The Value Notice shall set forth a calculation, in reasonable detail, of the application of the Stated Amount to pay all Company obligations (including Member loans payable by the Company), and of all distributions to be made, resulting in specified purchase prices for each Member’s Units pursuant to Section 14.02 below. The Electing Member shall have thirty (30) days from receipt of the Value Notice to notify the Initiating Member in writing (the “ Election Notice ”) whether the Electing Member shall sell their Units in the Company to the Initiating Member or purchase the Initiating Member’s Units in the Company. If the Electing Member shall fail to give a timely Election Notice, the Electing Member shall be deemed to have elected to sell its Units in the Company to the Initiating Member. Upon delivery of the Election Notice, or the expiration of the notice period, the Buyer (as defined below), shall provide a separate notice to GAHR4 detailing its election to purchase Units in the Company, including the price and terms, at which point GAHR4 shall have thirty (30) days to notify the Buyer of its intention either to buy its pro rata

share of the Seller Units in the Company (the “ Buy/Sell Purchase Election ”) or to sell its Units in the Company to Buyer at the same price and on the same terms. If GAHR4 shall fail to give a timely response to such notice, GAHR4 shall be deemed to have elected to sell its Units in the Company to Buyer.

(c) Treatment of Members and Affiliates . For purposes of this Article Fourteen , (i) GAHR3 and its Affiliates that own Units shall be treated as one party and a reference to GAHR3 in this Article Fourteen shall mean GAHR3 and its Affiliates that own Units, (ii) GAHR4 and its Affiliates that own Units shall be treated as one party and a reference to GAHR4 in this Article Fourteen shall mean GAHR4 and its Affiliates that own Units, and (iii) NHI and its Affiliates that own Units, and their successors and assigns, shall be treated as one party and a reference to NHI in this Article Fourteen shall mean NHI and its Affiliates that own Units, and their successors and assigns. For the avoidance of all doubt, (A) if GAHR3 becomes the Seller (as defined below), then GAHR3 and its Affiliates that own Units (and their successors and assigns) shall be required to sell all of their Units in accordance with this Article Fourteen , and NHI and GAHR4 (if GAHR4 has made the Buy/Sell Purchase Election) and their respective Affiliates (and successors and assigns), as the Buyer (as defined below), shall be required to purchase all of the Units owned by GAHR3 and its Affiliates in accordance with this Article Fourteen , (B) if NHI becomes the Seller, then NHI and its Affiliates that own Units (and their successors and assigns) shall be required to sell all of their Units in accordance with this Article Fourteen , and GAHR3 and GAHR4 (if GAHR4 has made the Buy/Sell Purchase Election) and their respective Affiliates (and successors and assigns), as the Buyer, shall be required to purchase all of the Units owned by NHI and its Affiliates in accordance with this Article Fourteen , and/or (C) if GAHR4 becomes the Seller, then GAHR4 and its Affiliates that own Units (and its successors and assigns) shall be required to sell all of their Units in accordance with this Article Fourteen , and whichever of NHI and GAHR3 is determined to be the Buyer and its Affiliates (and successors and assigns), as the Buyer, shall be required to purchase all of the Units owned by GAHR4 and its Affiliates in accordance with this Article Fourteen . In furtherance of the foregoing, GAHR3 shall cause all of its Affiliates to act in accordance with this Article Fourteen , GAHR4 shall cause all of its Affiliates to act in accordance with this Article Fourteen , and NHI shall cause all of its Affiliates to act in accordance with this Article Fourteen .

14.02 Terms of Buy/Sell .

(a) Purchase Price . The purchase price (“ Buy/Sell Purchase Price ”) for any Member’s Units in the Company acquired pursuant to this Article Fourteen shall be that amount which would be distributed to such Member pursuant to Section 4.02 hereof (after giving effect to all applicable provisions of this Agreement, but after liquidating all reserves then existing and without establishing any additional reserves) if (i) all of the assets then held by the Company were sold for cash on the Buy/Sell Closing Date (as defined in Section 14.04 ) for a gross sales price equal to the Stated Amount, (ii) the Company’s liabilities (including Member loans) were paid in full, and (iii) the balance of the sales proceeds were distributed to the Members pursuant to Section 4.02 .

(b) Deposit . Upon determination of which Members are to be a Buyer, each such Buyer shall, within thirty (30) days, pay to such escrow agent as shall be reasonably acceptable to the Seller, or if the Seller fails to designate an escrow agent, then to the Seller’s

attorney, in escrow, a deposit in good funds in an amount equal to five percent (5%) of its pro rata share of the Buy/Sell Purchase Price, which deposit shall be applied against the purchase price at the closing. The Member or Members that finally become obligated to sell its or their Units is sometimes herein referred to as a “ Seller ” and all such Members shall collectively be referred to as “ Sellers ”, and the Member or Members that finally become obligated (for itself or, subject to Section 14.02(d), a nominee ) to purchase the other Member’s or Members’ Units is sometimes hereinafter referred to as a “ Buyer ” and all such Members shall collectively be referred to as “ Buyers ”.

(c) Terms of Closing . The closing of a purchase of an Interest pursuant to this Article Fourteen shall be held on the Buy/Sell Closing Date, subject to the terms and conditions specified in Section 14.04 hereof.

(d) Assignment of Purchase Rights . Each Buyer shall have the right to assign its right to acquire its pro rata share of the Seller’s Units, in whole or in part, under this Article Fourteen to any other Person; provided , however , that no Buyer may assign any of its obligations under this Article Fourteen and shall continue to be fully-obligated to satisfy (or cause its assignee to satisfy) all of its obligations hereunder; and provided further that if NHI and GAHR4 shall both be Buyers, GAHR4 shall not have any right to assign its rights to acquire any of Seller’s Units and GAHR4 shall be required to purchase its pro rata share of the Seller’s Units in its own name and for its own account.

14.03 Termination of Obligations . As of the effective date of any transfer of Units pursuant to this Article Fourteen , the transferee shall assume all obligations of the Seller with respect to the Units so transferred. Upon such transfer, the Seller’s rights and obligations under this Agreement shall terminate with respect to such transferred Units, except as to indemnity rights of such Member under this Agreement.

14.04 Escrow and Closing of Buy/Sell .

(a) Closing Time and Location . Unless each Seller and each Buyer agree otherwise, the closing (the “ Buy/Sell Closing ”) of any transfer of Units between or among the Members pursuant to Article Fourteen shall take place at 9:00 a.m. at the Company’s principal place of business on the first business day (the “ Buy/Sell Closing Date ”) which is no more than one hundred twenty (120) days after the giving of the Election Notice, subject to extension of up to an additional one hundred fifty (150) days if necessary in order to obtain any third party Consents required to consummate the transactions contemplated by this Article Fourteen .

(b) Required Documents . Prior to or at the closing, each Seller shall supply to each Buyer all documents customarily required (or reasonably required by such Buyer) to make a good and sufficient conveyance of each Seller’s Units to the applicable Buyer, which documents shall be in form and substance reasonably satisfactory to such Buyer.

(c) Payment . At the Buy/Sell Closing, each Buyer shall pay its pro rata share of the Buy/Sell Purchase Price by wire transfer of immediately available funds.

(d) Conditions Precedent to Closing . It shall be an express condition precedent to the Buy/Sell Closing and to the obligation of each Buyer to pay its pro rata share of the Buy/Sell

Purchase Price and to assume the applicable Seller’s obligations hereunder that the Units being transferred are free and clear of all liens, encumbrances, restrictions or claims of any kind. This condition is for the sole benefit of the applicable Buyer and may be waived by the applicable Buyer in whole or in part in its sole discretion. If a Buyer waives this condition, such Buyer may reduce the purchase price payable by such Buyer by the amount of any lien or other encumbrance which encumbers the Seller’s Units acquired by such Buyers.

(e) Closing Costs . Each party shall pay its own attorneys’ fees and expenses incurred in connection with the Buy/Sell Closing.

14.05 Default .

(a) Events of Default . The failure of a Member to perform any of the obligations set forth in this Article Fourteen with respect to a transfer of its Units or purchase of the other Member’s Units shall constitute an event of default (“ Event of Default ”) on the part of the Member with respect to whom such failure occurs.

(b) Remedies . Upon the occurrence of an Event of Default, the Member may exercise, in addition to all other rights and remedies provided in this Agreement or available at law or in equity, any one or more of the remedies provided for in Section 14.05(c) below.

(i) Seller’s Failure . (ii) In the event that a Seller fails to make conveyance of its Units pursuant to its obligations herein, then the applicable Buyer shall have the option:

(A) to demand and receive specific performance of the Seller’s obligations to convey its Units as provided for herein;

(B) to recover damages on account of such Seller’s failure to make conveyance (which rights shall be in addition to the right granted under subparagraph (A) above, if the Member so elects);

(C) if there is only one Buyer, to terminate the obligations of the parties to proceed with the sale of the Units, whereupon the position of the parties shall revert to the status quo ante as if no notice to purchase from either party to the other had been given under the provisions of this Agreement; or

(D) to effect the transfer of all of the Seller’s Units in the Company to the applicable Buyer by executing, acknowledging and delivering all documents which are necessary to effect such transfer for, on behalf of, or in the stead of the Seller, and such execution, acknowledgment and delivery by the Buyer shall be for all purposes as effective against and binding upon such Seller as if the execution, acknowledgment and delivery had been by such Seller. Each Member does hereby irrevocably constitute and appoint Manager as the true and lawful attorney-in-fact of such Member and his or her successors and assigns, in the name, place and stead of such Member or his or her successors or assigns, as the case may be, to execute, acknowledge and deliver such transfers and other documents contemplated in this Section

14.05(c)(i)(D) . It is expressly understood, intended and agreed by such Member for such Member and his or her successors and assigns, that the grant of the Power of Attorney to Manager, pursuant to this Agreement is coupled with an interest, is irrevocable and shall survive the death, incapacity, termination or legal incompetence of such Member. Notwithstanding the foregoing, any transfer, acknowledgment or delivery effectuated by this Power of Attorney shall be effective only at such time as the applicable Buyer delivers the Buy/Sell Purchase Price to the Seller. Refusal by the Seller to accept the Buy/Sell Purchase Price upon delivery shall not invalidate any transfer of all of the Seller’s Units in the Company pursuant to this Section 14.05(c)(i)(D) .

If a Buyer elects the option described in Section 14.05(c)(i)(D) above, any deposit furnished by the applicable Buyer shall be promptly returned to the applicable Buyer, unless such Buyer determines to apply the deposit to payment of the purchase price.

(ii) Buyer’s Failure . In the event that a Buyer defaults in the closing of a sale of Units as herein provided, then the Seller shall have the option:

(A) to elect to purchase such Buyer’s Units on the terms and conditions otherwise set forth herein, by notice to such Buyer of the Seller’s intention so to do, given within fifteen (15) days after such default in which event the Seller shall become the Buyer of such Buyer’s Units and the Buyer shall become the Seller of such Buyer’s Units, and all the applicable terms, conditions and provisions of this Agreement with respect to such sales shall govern, except that the closing thereof shall take place thirty (30) days after such date of notice from the Seller (now the Buyer) to the applicable Buyer (now the Seller) and except that the purchase price shall be ten percent (10%) less than the price which the Seller (now the Buyer) would have had to pay had the applicable Buyer (now the Seller) originally elected to sell its Units;

(B) if there is only one Buyer, to terminate the Seller’s obligation to convey its Units to the Buyer by notice to the Buyer, wherein the Seller shall have the right to retain any deposits given by the Buyer as security for the Buyer’s obligations, and to retain the proceeds thereof as the Seller’s own property, as liquidated damages on account of the Buyer’s default (all Members hereby acknowledging and agreeing that it is extremely difficult and impracticable to ascertain the amount of damages which would be incurred by the Seller as a result of the Buyer’s default and that the amounts of such deposits shall be determined, when such transactions are proposed, as reasonable estimates of the damages the Seller would incur in such event), but otherwise the position of the parties shall revert to the status quo ante as if no notice from either party to the other had been given under the provisions of this Agreement; or

Where the Seller elects the options described in Section 14.05(c)(ii)(A) or Section 14.05(c)(ii)(C) above, any deposits theretofore paid by the applicable Buyer shall be returned to the applicable Buyer after performance by such Buyer of such Buyer’s obligations hereunder.

14.06 Release of Seller . Notwithstanding anything to the contrary contained herein, as a condition and prior to the Buy/Sell Closing under this Article Fourteen , each Seller and its Seller’s

Affiliates (unless waived by such Seller) shall be released from any personal liability with respect to all Loans (including, without limitation, any liability associated with any guaranty or indemnity relating to a Loan).

[Remainder of page intentionally left blank; signature page follows]

IN WITNESS WHEREOF, the parties have executed this Limited Liability Company Agreement as of the date first written above.

MEMBERS :

GAHC3 TRILOGY JV, LLC

a Delaware limited liability company

By: Griffin-American Healthcare REIT III

Holdings, LP, its Sole Member

By: Griffin-American Healthcare REIT III, Inc.,
its General Partner



By:	/s/ Mathieu Streiff
Name:	Mathieu Streiff
Title:	Executive Vice President and General Counsel

TRILOGY HOLDINGS NT-HCI, LLC
a Delaware limited liability company



By:	/s/ Robert C. Gatenio
Name:	Robert C. Gatenio
Title:

GAHC4 TRILOGY JV, LLC

a Delaware limited liability company

By: Griffin-American Healthcare REIT IV

Holdings, LP, its Sole Member

By: Griffin-American Healthcare REIT IV, Inc.,
its General Partner



By:	/s/ Danny Prosky
Name:	Danny Prosky
Title:	President and Chief Operating Officer

ANNEX I

DEFINITIONS

Definitions . The following terms, as used herein, have the meanings hereinafter specified:

“ Acquisition Financing ” means that certain debt facility or debt facilities closed in connection with the Company’s acquisition of HoldCo and certain Properties.

“ Act ” shall have the meaning specified in the Recitals.

“ Affiliate ” means, subject to Section 3.01(e) , with respect to any Person, (i) in the case of an individual, any relative of such Person, (ii) any officer, director, trustee, partner, member, manager, employee or holder of ten percent (10%) or more of any class of the voting securities of or equity interest in such Person; (iii) any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person; or (iv) any officer, director, trustee, partner, member, manager, employee or holder of ten percent (10%) or more of the outstanding voting securities of any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person. For purposes of this definition, the term “controlling”, “controlled by,” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an Entity, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that for purposes of this Agreement with respect to the ownership and Transfer of Units, the determination of Percentage Interests and related matters, any NSAM Managed Company shall be considered an Affiliate of NHI and any AHI Managed Company shall be considered an Affiliate of GAHR3.

“ Agreement ” shall have the meaning specified in the Preamble, as further amended, modified, supplemented or restated from time to time.

“ AHI Managed Company ” means any entity that is managed or controlled, directly or indirectly, by American Healthcare Investors, LLC, a Delaware limited liability company.

“ Approved Business Plan ” shall have the meaning specified in Section 5.06 .

“ Assets ” shall have the meaning specified in Section 13.01 .

“ Available Cash ” means for any period the total cash gross receipts of the Company (on a consolidated basis) derived from all sources (including, without limitation, all distributions received from Trilogy REIT), together with any amounts included in Company reserves or working capital which are not required to be maintained under any Loan Documents or the Approved Business Plan and the Manager decides in good faith are reasonable to distribute, less (i) amounts needed to make principal and interest payments on Indebtedness of the Company when due and all other sums due to be paid to lenders (including, without limitation, loans made by Members pursuant to Section 3.03(c) , Section 3.03(e) and Section 3.07) , (ii) all rent payments to third party landlords, (iii) all cash expenditures incurred in the ordinary course of business incident to the operation of the business of the Company, (iv) capital expenditures incurred in the ordinary course of business, (v) required expenditures in connection with committed developments that are

incurred in the ordinary course of business and consistent with the Approved Business Plan, (vi) any financing proceeds, to the extent the Manager reasonably determines to use such proceeds for Company purposes (including acquisitions to the extent consistent with the Approved Business Plan and the terms hereof), unless such proceeds have not been invested within twelve (12) months of receipt, in which case such proceeds shall be considered Available Cash, (vii) any proceeds from the disposition of assets, to the extent the Manager reasonably determines to use such proceeds for Company purposes (including acquisitions to the extent consistent with the Approved Business Plan and the terms hereof), unless such proceeds have not been reinvested within twelve (12) months of the disposition, in which case such proceeds shall be considered Available Cash and (viii) any increases in reserves or working capital as required under any Loan Documents or the Approved Business Plan or otherwise determined by the Manager in good faith are reasonable taking into account the liquidity needs of the Company’s business and the Members; provided that the Manager is not permitted to set aside reserves to fund any proposed acquisitions.

“ Business Day ” means any day that is not a day on which commercial banks located in Washington, D.C. are required or authorized by law to be closed.

“ Buyer ” shall have the meaning specified in Section 14.02(b) .

“ Buy/Sell Closing ” shall have the meaning specified in Section 14.04(a) .

“Buy/Sell Closing Date ” shall have the meaning specified in Section 14.04(a) .

“ Buy/Sell Purchase Price ” shall have the meaning specified in Section 14.02(a) .

“ Capital Account ” shall have the meaning specified in Section 10.05 .

“ Capital Contributions ” means, with respect to each Member, the contributions of capital made by such Member to the Company pursuant to Article Three . For the avoidance of doubt, Capital Contributions shall not include Member loans or Shortfall Loans as described in Article Three .

“ Certificate ” shall have the meaning specified in the Recitals, as further amended, modified, supplemented or restated from time to time.

“ Change of Control ” means (a) the date on which any Permitted Transferee that received a Permitted Transfer of a direct or indirect interest in the Company from or with respect to GAHR3 (directly or indirectly) (1) is no longer an AHI Managed Company or a majority-owned and controlled subsidiary of Griffin-American Healthcare REIT III, Inc., or (2) makes a subsequent Transfer of such interest that is not a Permitted Transfer, (b) the date on which any Permitted Transferee that received a Permitted Transfer of a direct or indirect interest in the Company from or with respect to GAHR4 (directly or indirectly) (1) is no longer an AHI Managed Company or a majority-owned and controlled subsidiary of Griffin-American Healthcare REIT IV, Inc., or (2) makes a subsequent Transfer of such interest that is not a Permitted Transfer, and (c) the date on which any Permitted Transferee that received a Permitted Transfer of a direct or indirect interest in the Company from or with respect to NHI (directly or indirectly) (1) is no longer a NSAM Managed Company or a majority-owned and controlled subsidiary of NorthStar Healthcare Income, Inc., or (2) makes a subsequent Transfer of such interest that is not a Permitted Transfer.

“ Code ” means the Internal Revenue Code of 1986 of the United States, as amended from time to time (including any successor law).

“ Committed Capital Call ” shall have the meaning specified in Section 3.03(a) .

“ Company ” shall have the meaning specified in the Preamble, as such limited liability company may from time to time be constituted.

“ Confidential Information ” means any information and data of the Company concerning the Company’s intellectual property, patent applications, processes, Trade Secrets, client lists, sales and marketing information, business and financial plans, information regarding ongoing litigation, pricing information, drawings, know-how, technical information, operating techniques, prototypes, financial data, design information, products, product development, government contracting, contract applications, competitive analysis, and any other proprietary or confidential information relating to the business or affairs of the Company whether in oral or written form, together with all analyses, compilations, forecasts, studies or other documents or records prepared by the Company or any of its agents or representatives based in whole or in part on the foregoing. Notwithstanding the foregoing, “Confidential Information” does not include the terms of this Agreement or any information regarding the tax structure of the Company or its investments, the tax treatment of an investment in the Company, or the tax treatment of the transactions entered into, directly or indirectly, by the Company.

“ Consent ” means the written consent of a Person to do the act or thing for which the consent is given or solicited, or the act of granting such consent, as the context may require.

“ Contributing Membe r” shall have the meaning specified in Section 3.04(b) .

“ Deadlock ” shall have the meaning specified in Section 5.02 .

“ Declined Contribution ” shall have the meaning specified in Section 3.03(c) .

“ Declining Member ” shall have the meaning specified in Section 3.03(b) .

“ Default ” shall have the meaning specified in Section 5.07(b)(ii) .

“ Default Notice ” shall have the meaning specified in Section 5.07(b)(iii)(B) .

“ Delaware Arbitration Act ” shall have the meaning specified in Section 12.03 .

“ Distribution ” shall have the meaning specified in Section 4.01 .

“ Drag-Along Notice ” shall have the meaning specified in Section 6.07(a) .

“ Drag-Along Sale ” shall have the meaning specified in Section 6.07(a) .

“ EIK ” means an “eligible independent contractor” as defined in Code Section 856(d)(9). The initial EIK with respect to Trilogy REIT shall be Trilogy Management Services, LLC (which entity may adopt another name prior to Closing).

“ Electing Member ” shall have the meaning specified in Section 14.01 .

“ Election Notice ” shall have the meaning specified in Section 14.01 .

“ Emergency ” means a genuine emergency which in the Manager’s reasonable discretion poses immediate or imminent harm to individuals or material loss to the Company’s or any Subsidiary’s assets.

“ ERISA ” means the Employee Retirement Income Security Act of 1974 of the United States, as amended from time to time.

“ Estimated Fair Market Value ” shall mean the estimated fair market value of the Units as of a particular date, as determined by CS Capital Advisors, LLC or another independent valuation firm selected by the Manager and mutually acceptable to the Qualifying Members, which the Manager shall request such independent valuation firm to provide by the date of issuance of additional Units in the event that the FMV Participating Members (as defined in Exhibit D ) cannot agree to the actual Fair Market Value, as provided in Exhibit D , by such date of issuance, provided however, that if the Manager determines that it is not reasonably practicable to retain CS Capital Advisors, LLC or another independent valuation firm timely, then “Estimated Fair Market Value” shall mean the last agreed upon Fair Market Value plus, if it has been more than twelve (12) months since the last Fair Market Value determination, 10% per annum.

“ Event of Default ” shall have the meaning specified in Section 14.05(a) .

“ Fair Market Value ” shall have the meaning specified in Exhibit D .

“ Fiscal Year ” means the calendar year or, in the case of the first and last fiscal years of the term of the Company, the portion thereof commencing on the date hereof or ending on the date on which the winding up of the Company is completed, as the case may be.

“ Forced Sale ” shall have the meaning specified in Section 13.01 .

“ Forced Sale Notice ” shall have the meaning specified in Section 13.01 .

“ Forced Sale Price ” shall have the meaning specified in Section 13.01 .

“ Forced Sale Purchase Notice ” shall have the meaning specified in Section 13.02 .

“ Forced Sale Purchase Notice Period ” shall have the meaning specified in Section 13.02 .

“ Forced Sale Terms ” shall have the meaning specified in Section 13.01 .

“ GAAP ” means generally accepted accounting principles in the United States of America as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are in effect on the date of determination, consistently applied.

“ GAHR3 ” shall have the meaning specified in the Preamble.

“ GAHR4 ” shall have the meaning specified in the Preamble.

“ GAHR3 Director ” shall have the meaning specified in Section 5.03(c) .

“ GAHR4 Director ” shall have the meaning specified in Section 5.03(c) .

“ GAHR3 Partnership ” shall have the meaning specified in the Recitals.

“ GAHR4 Partnership ” shall have the meaning specified in the Recitals.

“ HoldCo ” shall have the meaning specified in the Recitals.

“ HoldCo Board ” shall have the meaning specified in Section 5.03(c) .

“ HoldCo Director ” shall have the meaning specified in Section 5.03(c) .

“ IGT Agreement ” means each agreement between the Company or any Subsidiary and an Indiana county hospital entered into in connection with participation in the IGT Program by the Indiana County hospital, including Health Care Facility Sublease Agreements, Management Agreements, and Intangible Property License Agreements between the Company or a Subsidiary and an Indiana county hospital.

“ IGT Program ” means the Indiana Non-State Government Owned or Operated Nursing Facility Upper Payment Limit Program pursuant to which non-state government owned or operated nursing facilities are able to receive Medicaid supplemental payments up to the federal Upper Payment Limit on fee-for-service reimbursement of Medicaid nursing facility providers.

“ Indebtedness ” as to any Person, at a particular time, means (i) indebtedness for borrowed money or for the deferred purchase price of property or services (which shall not include accounts payable incurred in the ordinary course of business) in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person otherwise assures a creditor against loss, (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles used in the United States, recorded as capital leases in respect of which obligations such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person assures a creditor against loss, (iii) obligations of such Person to purchase or repurchase accounts receivable, chattel paper or other payment rights sold or assigned by such Person, (iv) indebtedness or obligations of such Person under or with respect to letters of credit, notes, bonds or other debt instruments and (v) all obligations of such Person under any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in interest rates, in each case whether contingent or matured.

“ Indemnified Persons ” shall have the meaning specified in Section 5.04(b) .

“ Initial Sale Notice ” shall have the meaning specified in Section 6.06(b) .

“ Initiating Member ” shall have the meaning specified in Section 14.01 .

“ IPO ” shall have the meaning specified in Exhibit E attached hereto.

“ Key Subsidiary ” means Trilogy REIT, HoldCo, Trilogy Healthcare Holdings, Inc., OpCo, Pro Services, Trilogy Property Holdings, LLC, PropCo I and PropCo II.

“ Liquidating Trustee ” shall have the meaning specified in Section 8.02(a) .

“ Loan ” means any loan to the Company or any Subsidiary that is either unsecured or secured by assets of the Company or any Subsidiary.

“ Loan Documents ” means, with respect to any Loan, the documents evidencing or securing such Loan, as amended from time to time.

“ Major Decision ” shall have the meaning specified in Exhibit E attached hereto.

“ Majority in Interest of the Members ” means Members who hold greater than fifty percent (50%) of the Percentage Interests at the time of determination.

“ Management Agreement ” means that certain Management Agreement by and among HoldCo and certain Subsidiaries thereof and the EIK, with respect to the management and operations of the HoldCo business, as such agreement may be modified, amended, replaced or supplemented from time to time in accordance with this Agreement.

“ Manager ” means the manager of the Company. The initial Manager shall be GAHR3.

“ Members ” means each Person who executes this Agreement or a counterpart thereof as a Member, and each of the Persons who may hereafter become Members as provided in this Agreement. The Members as of the date hereof shall be GAHR3, GAHR4 and NHI. The Members are listed on Appendix A , which Appendix A shall be amended each time a Member or substitute Member is admitted to the Company.

“ Membership Interest ” means the entire ownership interest of a Member in the Company at any particular time, including without limitation, the Member’s economic interest, any and all rights to vote and otherwise participate in the Company’s affairs, and the rights to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement.

“ Necessary Expenses ” means (i) all real estate taxes and other taxes affecting any Company or Subsidiary property and all insurance premiums for the Company or any Subsidiary or any property owned by the Company or any Subsidiary, (ii) all debt service payments and required debt pay downs or debt payoffs on indebtedness owed by the Company or any Subsidiary, (iii) all costs and expenses and funding obligations reasonably necessary to allow the Company or any Subsidiary to perform under any lease, contract, agreement, commitment or other instrument to which the Company or any such Subsidiary is a party (including, without limitation, amounts to fund working capital required under any operating lease), (iv) all amounts needed to fund committed development projects, exercised purchase options or FF&E in the event of a shortfall

in financing proceeds, (v) all utilities affecting any Company or Subsidiary property, and (vi) all costs and expenses needed to address an Emergency.

“ Net Loss ” shall have the meaning specified in Exhibit B .

“ Net Profit ” shall have the meaning specified in Exhibit B .

“ NHI ” shall have the meaning specified in the Preamble.

“ NHI Director ” shall have the meaning specified in Section 5.03(c) .

“ NHI Partnership ” shall have the meaning specified in the Recitals.

“ Non-Contributing Member ” shall have the meaning specified in Section 3.04(b) .

“ Non-Transfer Option ” shall have the meaning specified in Section 6.08(b) .

“ Non-Triggering Member ” shall have the meaning specified in Section 13.01 .

“ NSAM Managed Company ” means any entity that is managed or controlled, directly or indirectly, by Colony Capital, Inc., a Maryland corporation.

“ Offeree Member ” shall have the meaning specified in Section 6.06(b) .

“ Officers ” shall have the meaning specified in Section 5.03(a) .

“ OpCo ” shall have the meaning specified in Section 2.05 .

“ Overfunded Member ” shall have the meaning specified in Section 3.05 .

“ Partnership Tax Audit Rules ” means Section 6221 through 6241 of the Code, as amended by the Bipartisan Budget Act of 2015, together with any guidance issued thereunder or successor provisions and any similar provision of state or local tax laws.

“ Payor Mix ” means the percentage of occupied beds for which reimbursement is or was paid for by a source other than a Medicaid program as compared to the total number of occupied beds.

“ Percentage Interest ” means, with respect to any Member as of a specified date, the percentage determined by dividing (a) the aggregate number of Units held by such Member as of such date, by (b) the aggregate number of issued and outstanding Units as of such date. The sum of the Percentage Interests shall at all times equal one hundred percent (100%). The Percentage Interests of the Members are set forth on Appendix A hereto which shall be amended from time to time by the Manager to reflect changes in the Members’ Percentage Interests.

“ Permitted Refinance ” shall have the meaning specified in Exhibit E attached hereto.

“ Permitted Transfer ” shall have the meaning specified in Section 6.01(b) .

“ Permitted Transferee ” means any recipient of a Permitted Transfer.

“ Person ” means any individual, partnership, corporation, limited liability company, unincorporated organization or association, trust (including the trustees thereof in their capacity as such) or other entity (including any governmental entity), whether organized under the laws of (or, in the case of individuals, resident in) the United States (or any political subdivision thereof) or any foreign jurisdiction.

“ PropCo I ” shall have the meaning specified in Section 2.05 .

“ PropCo II ” shall have the meaning specified in Section 2.05 .

“ Properties ” shall have the meaning specified in Section 2.04 .

“ Proposed Sale ” shall have the meaning specified in Section 6.06(b) .

“ Proposed Sale Discussion Period ” shall have the meaning specified in Section 6.06(b) .

“ Proposed Sale Notice ” shall have the meaning specified in Section 6.06(b) .

“ Proposed Sale Terms ” shall have the meaning specified in Section 6.06(b) .

“ Proposed Units ” shall have the meaning specified in Section 6.06(b) .

“ Pro Services ” shall have the meaning specified in Section 2.05 .

“ Purchase Notice ” shall have the meaning specified in Section 6.06(c) .

“ Qualifying Entity ” shall have the meaning specified in Section 2.09 .

“ Qualifying Member ” means, subject to Section 3.01(e) :

(1) with respect to GAHR3, GAHR4 or NHI, any such Member whose Percentage Interest (when combined with the Percentage Interests of all Affiliates of such Member) is equal to or greater than ten percent (10%); provided, however, for the avoidance of doubt, as of the date hereof, GAHR4 is not a Qualifying Member as the aggregation of Percentage Interests of Affiliates does not apply to GAHR3 and GAHR4; and

(2) with respect to any Permitted Transferee that becomes a Member, any such Member (i) whose Percentage Interest (when combined with the Percentage Interests of all Affiliates of such Member) is equal to or greater than ten percent (10%), and (ii) that has not suffered a Change of Control.

For the avoidance of doubt, if a Member loses its status as a Qualifying Member in accordance with the foregoing, then such Member shall not have the right to approve Major Decisions or remove the Manager.

“ REIT ” means an entity treated as a real estate investment trust as defined in Section 856 of the Code.

“ REIT Parents ” means each of Griffin-American Healthcare REIT III, Inc. (the parent company of GAHR3 Partnership), Griffin-American Healthcare REIT IV, Inc. (the parent company of GAHR4 Partnership), and NorthStar Healthcare Income, Inc. (the parent company of NHI Partnership) and their respective successors and assigns.

“ Removal Notice ” shall have the meaning specified in Section 5.07(b)(iii)(A) .

“ Representatives ” means a Person’s directors, officers, employees, agents, consultants, advisors or other representatives, including lawyers, accountants and financial advisors. In the case of a Member, “Representatives” includes the Representatives of that Member’s Affiliates.

“ Securities ” means capital stock, partnership interests, membership interests, subscriptions, certificates of trust or other equity ownership interests, warrants, bonds, notes, debentures, and other debt or equity securities of any Person and all rights and options relating to any of the foregoing.

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

“ Seller ” shall have the meaning specified in Section 14.02(b) .

“ Selling Member ” shall have the meaning specified in Section 6.06(b) .

“ Shortfall Amount ” shall have the meaning specified in Section 3.04(b) .

“ Shortfall Contribution ” shall have the meaning specified in Section 3.04(b) .

“ Shortfall Loan ” shall have the meaning specified in Section 3.03(c) .

“ Shortfall Rate ” means eleven percent (11%) per annum.

“ SOX ” shall have the meaning specified in Section 10.01 .

“ Stated Amount ” shall have the meaning specified in Section 14.01 .

“ Subsidiary ” means any entity directly or indirectly owned in whole or in part by the Company (including, without limitation, the Key Subsidiaries).

“ Substituted Capital Contributions ” shall have the meaning set forth in Section 3.03(c) .

“ Tag-Along Notice ” shall have the meaning specified in Section 6.08(a) .

“ Tag-Along Option ” shall have the meaning specified in Section 6.08(b) .

“ Tag-Along Percentage ” shall have the meaning specified in Section 6.08(b) .

“ Tag-Along Purchaser ” shall have the meaning specified in Section 6.08(a) .

“ Tag-Along Sale ” shall have the meaning specified in Section 6.08(a) .

“ Tax Advance ” shall have the meaning specified in Section 10.07 .

“ Tax Matters Member ” shall have the meaning specified in Section 10.04 .

“ Total Equity Value ” means the aggregate proceeds which would be received by the Members if: (i) the assets of the Company as a going concern were sold at their fair market value; (ii) the Company satisfied and paid in full all of its obligations and liabilities (including all taxes, costs and expenses incurred in connection with such transaction and any reserves established by the Manager for contingent liabilities); and (iii) such net sale proceeds were then distributed in accordance with Section 4.02 .

“ Trade Secrets ” means trade secrets under applicable trade secret or other law; and includes, however documented, concepts, ideas, designs, know-how, methods, data, processes, formulae, compositions, improvements, inventions, discoveries, product specifications, past, current and planned research and development and manufacturing or distribution methods and processes, lists of actual or potential customers or suppliers, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, structures and architectures, and any other information that is a trade secret within the meaning of Delaware law.

“ Transfer ” shall have the meaning specified in Section 6.01(a) .

“ Treasury Regulations ” means the regulations promulgated under the Code, as amended from time to time (including any successor regulations).

“ Triggering Member ” shall have the meaning specified in Section 13.01 .

“ Trilogy REIT ” shall have the meaning specified in Section 2.05 .

“ Unadmitted Assigne e” shall have the meaning specified in Section 6.03(b) .

“ Units ” represent the Membership Interests of the Members in the Company.

“ USA PATRIOT Act ” means the Uniting and Strengthening American by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.

“ Value Notice ” shall have the meaning specified in Section 14.01 .

Appendix A

Member Information



Name	Address	Capital Contributions	Units	Percentage Interests
GAHC3 Trilogy JV, LLC	c/o Griffin-American REIT III Holdings, LP 18191 Von Karman Avenue Suite 300 Irvine, CA 92612 Attn : Mathieu Streiff (Tel) (949) 270-9203 (Email) mstreiff@ahinvestors.com	$544,344,047.90	544,344	70%
Trilogy Holdings NT-HCI, LLC	c/o Colony Capital, Inc. 590 Madison Avenue New York, NY 10222 Attn : Robert Gatenio And Legal Department (Tel) (212) 547-2600 (Email): gatenio@clny.com legal@clny.com	$186,632,244.99	186,632	24%
GAHC4 Trilogy JV, LLC	c/o Griffin-American REIT IV Holdings, LP 18191 Von Karman Avenue Suite 300 Irvine, CA 92612 Attn : Mathieu Streiff (Tel) (949) 270-9203 (Email) mstreiff@ahinvestors.com	$48,000,000	46,658	6%

Exhibit A

Approved Business Plan

See attached.

Approved Business Plan

Overview

Trilogy Investors, LLC (together with its Subsidiaries, “Trilogy” or “the company”) is an owner and operator of post-acute care facilities, providing skilled nursing, assisted living, independent living and/or memory care services. Trilogy currently owns and operates facilities in the states of Indiana, Ohio, Michigan and Kentucky. Trilogy also owns certain ancillary businesses including a pharmacy business (“PCA Pharmacy”) and a therapy business (“Paragon Rehabilitation”). Trilogy REIT Holdings, LLC, as owner of Trilogy, intends to cause Trilogy to operate and grow the Trilogy business in accordance with, and subject to the limitations set forth in, this Approved Business Plan (including Schedule A). This Approved Business Plan contemplates additional debt and equity funding for the company in three areas: (1) certain currently-identified initiatives, (2) unanticipated necessary expenses and (3) future growth opportunities.

Identified Initiatives

This Approved Business Plan contemplates several identified initiatives requiring committed equity from the Members (the “Identified Initiatives”), including (i) the development of new properties (“Campus Developments”) (ii) the expansions of existing properties (“Campus Expansions”), and (iii) the acquisition of properties from in-place landlords (“Purchase Options”). In addition, the Approved Business Plan contemplates obtaining certain third-party debt financing (“Debt Financing”), as set forth on Schedule A attached hereto. The Manager may call capital for the Identified Initiatives in accordance with this Approved Business Plan (including Schedule A ) from the Members in the amounts and time periods stated below (the “Identified Committed Capital”), in each case in accordance with and subject to the terms of the operating agreement of Trilogy REIT Holdings, LLC (the “JV Agreement”):

• 2016 : $8.9m in the aggregate (the “ Base 2016 Amount ”), plus a contingency of up to $2.2m.

• 2017 : $7.9m in the aggregate (the “ Base 2017 Amount ”), plus a contingency of up to $2.0m, plus any remaining balance of the Base 2016 Amount not called in 2016.

• 2018 : $11.9m in the aggregate (the “ Base 2018 Amount ”), plus a contingency of up to $3.0m, plus any remaining balance of the Base 2016 Amount & Base 2017 Amount not previously called.

• 2019 : $10.0m in the aggregate (the “ Base 2019 Amount ”).

• 2020 : $10.0m in the aggregate (the “ Base 2020 Amount ”), plus any remaining balance of the Base 2019 Amount not previously called.

• 2021 : $10.0m in the aggregate (the “ Base 2021 Amount ”), plus any remaining balance of the Base 2019 or 2020 Amount not previously called.

• 2022 (and beyond) : only previous years base amounts not previously called and such other amounts agreed to by the Qualified Members.

Necessary Expenses

The Manager may require additional capital to fund Necessary Expenses (as defined in the JV Agreement) and such capital may be called in accordance with and subject to the terms of the JV Agreement.

Additional Investment Capital

The company may pursue additional acquisition and growth opportunities in the future, including the acquisition and/or development of additional senior housing and care properties, campuses, post-acute and senior care operating businesses (provided any such acquisitions are effected in a permitted RIDEA

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Approved Business Plan

structure) and/or certain ancillary services platforms, not contemplated by the Identified Initiatives (the “Future Opportunities”). The Manager may call additional equity capital and/or utilize third party financing to fund such opportunities in accordance with and subject to the terms of the JV Agreement; provided, however, that the company shall not (i) make any acquisition that would cause greater than 15% of the company’s owned and/or operated facilities to be located in any state other than Indiana, Ohio, Michigan and Kentucky, (ii) make any acquisition or series of acquisitions that would reasonably be expected to cause revenues generated by the pharmacy business to increase by more than 30% in any twelve (12) month period, (iii) make any acquisition or series of acquisitions that would reasonably be expected to cause revenues from the therapy business increase by more than 30% in any twelve (12) month period, or (iv) make any acquisition or series of acquisitions that would be reasonably expected to cause revenues generated by the pharmacy business from non-healthcare entities or clients to exceed 30% of the total revenues of the pharmacy business, in each case without the consent of all of the Qualified Members.

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Approved Business Plan

Schedule A – Identified Initiatives

A. Campus Developments

The Approved Business Plan anticipates the construction of 5 to 8 Campus Developments per year. The company will not commence construction of greater than 10 Campus Developments in any year without the approval of all of the Qualified Members. A Campus Development will typically comprise approximately 100 units/beds (approximately 2/3 skilled nursing and 1/3 seniors housing) and depending on location and other factors, is anticipated to cost between $8m - $10m to construct (“Cost”) plus an additional $1.5m - $2.5m of FF&E (“FF&E Cost”). It is expected the company will finance Campus Developments using a combination of equity and third-party debt financing (“On-Balance Sheet Developments”), as well as entering into third-party developer / owner lease financing (“Off-Balance Sheet Developments”).

• On-Balance Sheet Developments : Expectation to obtain third-party financing equal to approximately 70% of the Cost and 80% of the FF&E Cost.

• Off-Balance Sheet Developments : Expectation that the lease with a third party developer / owner will state that the developer / owner will fund 100% of the Cost and that Trilogy will fund 100% of the FF&E Cost. It is expected that 80% of the FF&E Cost will be funded by third-party capital leases or financing.

The following is an illustrative projection relating to Campus Developments:



	2016		2017		2018		Total
On-Balance Sheet Developments
Number of Openings	1		2		8		11
Cost		$22.7		$26.2		$39.7		$88.5
FF&E Cost	2.0		3.4		10.8			$16.2
Third Party Financing	15.9		18.3		27.8		62.0
Equity Requirement	6.8		7.9		11.9		26.6
Off-Balance Sheet Developments
Number of Openings	6		3		-		9
FF&E Cost		$10.6	5.1		-			$15.7
Equity Requirement	-		-		-		-

B. Campus Expansions

The Approved Business Plan anticipates the expansion of 5-10 currently open properties (“Existing Property”) per year by adding capacity to an Existing Property (a “Property Expansion), by adding independent living villas (“IL Expansion”) or by adding freestanding memory care units (“MC Expansion”) on available excess land or on adjoining land (collectively, each is a “Campus Expansion”). The Cost of a Campus Expansion is typically expected to cost approximately $2.5m - $4.0M for a Property Expansion, $3.0M - $5.0M for IL Expansion, and $3.0M - $4.0M for a MC Expansion. In addition, each Campus Expansion typically requires approximately $0.5m - $1.0m of additional FF&E Cost.

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Approved Business Plan

A Campus Expansion is expected to be funded by obtaining third-party financing equal to approximately 70% of the Cost and 80% of the FF&E Cost.

To the extent the Existing Property is leased to a third party landlord, it is expected that the landlord will fund 100% of the Campus Expansion and add such Cost to the lease basis. In the case where Trilogy (as tenant) has a purchase option on Existing Property, Trilogy may elect to fund the Campus Expansion with the expectation of acquiring the property in the future, but such costs are not contemplated to be funded as part of the Identified Committed Capital (defined below).

The following is an illustrative projection relating to Campus Expansions:



	2016		2017	2018	Total
Property Expansions
Number of Openings	2		-	-	2
Cost	-		-	-	-
FF&E Cost		$0.4	-	-		$0.4
Third Party Financing	-		-	-	-
Equity Requirement	-		-	-	-
IL Expansions
Number of Openings	8		3	-	11
Cost		$7.1	-	-		$7.1
FF&E Cost	2.1		-	-	2.1
Third Party Financing	5.0		-	-	5.0
Equity Requirement	2.1		-	-	2.1

C. Maintenance and Refurbishment Capital Expenditures

Trilogy expects to spend $1,000 per unit per year for general refurbishment and maintenance capital expenditures for its stabilized facilities. The Approved Business Plan contemplates that these costs will be funded out of operating cash flow.

D. Purchase Options

There are currently 16 leased properties with purchase options, plus another six leased properties with the “Ramsey family" (as landlord) whereby such leases do not include a purchase option but that Trilogy expects to acquire in the future in manner consistent with past practices (collectively, the “Purchase Options”). Once a property has reached stabilization, these 22 properties are expected to be acquired by exercising the purchase option pursuant to the terms of the applicable development lease. The Approved Business Plan expects to fund the exercise of the Purchase Options using third-party financing equal to 100% of cost to acquire the property. In the event 100% financing is not available, the company may fund the shortfall with equity; however, such use of equity is not contemplated as part of the Identified Committed Capital or as Necessary Expenses.

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Approved Business Plan

The following is an illustrative projection relating to Purchase Options:



	2016		2017		2018		Total
Purchase Options
Number of Properties	8		5		6		19
Purchase Option Cost		$78.5		$52.7		$76.5		$207.7
Third Party Financing	78.5		52.7		76.5		207.7
Equity Requirement	-		-		-		-

E. Debt Financing

In addition to the debt financing initiatives stated above, the Approved Business Plan also includes obtaining or replacing third party debt as follows:

• Refinance of Key Bank Debt : The expectation is to refinance over time all or a portion of the Key Bank debt incurred at Closing with a like amount of permanent HUD financing or other long term fixed rate financing, upon terms that are reasonably acceptable to all of the Qualified Members.

• Future OpCo Financing : The expectation is to obtain third party A/R financing equal to 80-85% of qualifying A/R (e.g. <120 days old) to supplement the working capital needs of OpCo. The company may obtain other third party financing from time to time, including financing for OpCo that is secured by its interests in its ancillary businesses including PCA Pharmacy and Paragon Rehabilitation, expected to equal approximately 2x - 3x EBITDA.

In summary, the following is an illustrative projection relating to the Identified Initiatives (exclusive of any refinance of the Key Bank debt or Future OpCo financing):



	2016		2017		2018		Total
Equity Requirements
On-Balance Sheet Developments	6.8		7.9		11.9		26.6
Off-Balance Sheet Developments	-		-		-		-
Property Expansions	-		-		-		-
IL Expansions	2.1		-		-		2.1
Purchase Options	-		-		-		-
Total	8.9		7.9		11.9		28.7

Debt Financing
On-Balance Sheet Developments		$15.9		$18.3		$27.8	62.0
Off-Balance Sheet Developments	-		-		-		-
Property Expansions	-		-		-		-
IL Expansions	5.0		-		-		5.0
Purchase Options	78.5		52.7		76.5		207.7
FF&E / Working Capital / Other Debt	26.9		8.9		-		35.7
Total	126.2		79.9		104.3		310.4

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Exhibit B

Capital Accounts; Allocation Rules; Tax Elections

(3) Definitions . The following definitions shall be applied to the terms used in this Exhibit B . Capitalized terms not defined should have the meaning set forth in the Agreement.

“ Adjusted Capital Account ” means the Capital Account maintained for each Member as of the end of each Fiscal Year (i) increased by any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

“ Adjusted Capital Account Deficit ” means, with respect to any Member, the deficit balance, if any, in such Member’s Adjusted Capital Account as of the end of the relevant Fiscal Year.

“ Adjusted Property ” means any property the Carrying Value of which has been adjusted pursuant to Section 2.D of this Exhibit B .

“ Agreed Value ” means in the case of any Contributed Property, as of the time of its contribution to the Company, the 704(c) Value of such property, reduced by any liabilities either assumed by the Company upon such contribution or to which such property is subject when contributed, and in the case of any property distributed to a Member by the Company, the Company’s Carrying Value of such property at the time such property is distributed, reduced by any Indebtedness either assumed by such Member upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder.

“ Book-Tax Disparities ” means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date.

“ Carrying Value ” means (i) with respect to a Contributed Property or Adjusted Property, the 704(c) Value of such property, reduced (but not below zero) by all Depreciation with respect to such property charged to the Members’ Capital Accounts following the contribution of or adjustment with respect to such property, and (ii) with respect to any other Company property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with this Exhibit B , and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of the Properties, as deemed appropriate by the Manager.

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“ Contributed Property ” means each property or other asset (excluding cash) contributed or deemed contributed to the Company. Once the Carrying Value of a Contributed Property is adjusted pursuant to Section 2.D of this Exhibit B , such property shall no longer constitute a Contributed Property, but shall be deemed an Adjusted Property for such purposes.

“ Depreciation ” means, for each Fiscal Year an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided , however , that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Manager.

“ Net Profit ” or “ Net Loss ” means for each Fiscal Year the Company’s taxable income or taxable loss for such Fiscal Year, determined in accordance with this Exhibit B .

“ Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).

“ Nonrecourse Liability ” has the meaning set forth in Regulations Section 1.752-1(a)(2).

“ Partially Adjusted Capital Account ” means, with respect to any Member for any Fiscal Year or other period, the Capital Account balance of such Member at the beginning of such period, adjusted as set forth in the definition of Capital Account for (i) all contributions and distributions during such period, and (ii) all special allocations pursuant to Section 4 of this Exhibit B with respect to such period.

“ Partner Minimum Gain ” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704‑2(i)(3).

“ Partner Nonrecourse Debt ” has the meaning set forth Regulations Section 1.704-2(b)(4).

“ Partner Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704‑2(i)(2) .

“ Partnership Minimum Gain ” has the meaning set forth in Regulations Section 1.704‑2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in a Partnership Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).

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“ Regulations ” means the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“ Residual Gain ” or “ Residual Loss ” means any item of gain or loss, as the case may be, of the Company recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 5.B(1)(a) or 5.B(2)(a) of this Exhibit B to eliminate Book-Tax Disparities.

“ 704(c) Value ” of any Contributed Property means the fair market value of such property or other consideration at the time of contribution as determined by the Manager using such reasonable method of valuation as it may adopt.

“ Target Capital Account ” means, with respect to any Member for any Fiscal Year or other period, an amount (which may be either a positive or negative balance) equal to the hypothetical distribution (if any) such Member would receive if (x) all Company assets, including cash, were sold for cash equal to their Carrying Value (taking into account any adjustments to Carrying Value for such period), (y) all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability of the Company, to the Carrying Value of the assets securing such liability), and (z) the net proceeds of such sale to the Company (after satisfaction of said liabilities) were distributed in full pursuant to Section 4.02 of the Agreement; minus the sum of such Member’s share of Partnership Minimum Gain and Partner Minimum Gain, determined as provided in Section 4 of this Exhibit B immediately prior to such deemed sale.

“ Unrealized Gain ” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under this Exhibit B ) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to this Exhibit B ) as of such date.

“ Unrealized Loss ” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to this Exhibit B ) as of such date, over (ii) the fair market value of such property (as determined under this Exhibit B ) as of such date.

(4) Capital Accounts of the Members

A. The Company shall maintain for each Member a separate Capital Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of cash contributed or deemed contributed or the Agreed Value of all actual and deemed contributions of property made by such Member to the Company pursuant to this Agreement and (ii) all items of Company income and gain (including income and gain exempt from tax) computed in accordance with Section 2.B of this Exhibit B and allocated to such Member pursuant to Section 3 or Section 4 of this Exhibit B , and decreased by (x) the amount of cash distributed or deemed distributed or the Agreed Value of all actual and deemed distributions of property made to such Member pursuant to this Agreement and (y) all items of Company

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deduction and loss computed in accordance with Section 2.B of this Exhibit B and allocated to such Member pursuant to Section 3 or Section 4 of this Exhibit B .

B. For purposes of computing the amount of Net Profit or Net Loss to be reflected in the Members’ Capital Accounts, the determination, recognition and classification of any item of income, gain, deduction or loss shall be the same as its determination, recognition and classification for federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:

(1) Except as otherwise provided in Regulations Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Company or any “substantial basis reduction” under Code Section 734(d) or “substantial built-in loss” under Code Section 743(d), provided that the amounts of any adjustments to the adjusted tax bases of the assets of the Company made pursuant to Section 734 of the Code as a result of the distribution of property by the Company to a Member (to the extent that such adjustments have not previously been reflected in the Members’ Capital Accounts) shall be reflected in the Capital Accounts of the Members in the manner and subject to the limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4).

(2) The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Sections 705(a)(l)(B) or 705(a)(2)(B) of the Code (or treated as an expenditure under Section 705(a)(2)(B) pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) are not includible in gross income or are neither currently deductible nor capitalized for federal income tax purposes.

(3) Any income, gain or loss attributable to the taxable disposition of any Company property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Company’s Carrying Value with respect to such property as of such date.

(4) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period.

(5) In the event the Carrying Value of any Company asset is adjusted pursuant to Section 2.D of this Exhibit B , the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset.

(6) Any items specially allocated under Section 5 of this Exhibit B shall not be taken into account.

C. Generally, a transferee (including an assignee) of Units shall succeed to a pro rata portion of the Capital Account of the transferor.

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D. (1) Consistent with the provisions of Regulations Section 1.704-1(b)(2)(iv)(f), and as provided in Section 2.D(2) , the Carrying Values of all Company assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as of the times of the adjustments provided in Section 2.D(2) of this Exhibit B , as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 3 and Section 4 of this Exhibit B .

(2) Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (b) immediately prior to the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an interest in the Member; (c) immediately prior to the acquisition of new or additional interests in the Company (other than de minimis interests) by any new or existing Member as consideration for the provision of services to or for the benefit of the Company; and (d) immediately prior to the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided , however , that adjustments pursuant to clauses (a), (b) and (c) above shall be made only if the Manager determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company.

(3) In accordance with Regulations Section 1.704 -l(b)(2)(iv)(e), the Carrying Value of Company assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as of the time any such asset is distributed.

(4) In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit B , the aggregate cash amount and fair market value of all Company assets (including cash or cash equivalents) shall be determined by the Manager using such reasonable method of valuation as it may adopt.

E. The provisions of this Exhibit B relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or the Members) are computed in order to comply with such Regulations, the Manager may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to the Agreement upon the dissolution of the Company. The Manager also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Member capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704‑1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

F. All decisions and matters concerning the computation and allocation of items of income, gain, loss, deduction and credits among the Members, and accounting procedures

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not specifically and expressly provided for by the terms of this Exhibit B shall be determined by the Manager.

3. General Allocation Rules . After giving effect to the special allocations set forth in Section 4 of this Exhibit B , all Net Profit and Net Loss (and to the extent necessary, as set forth in clauses (A) and (B) of this Section 3 , items of gross income, gain, expense and loss) of the Company shall be allocated to the Members as follows:

A. Net Loss shall be allocated among the Members so as to reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for such year; provided , however , that no portion of the Net Loss for any taxable year shall be allocated to a Member whose Target Capital Account is greater than or equal to its Partially Adjusted Capital Account for such taxable year; and

B. Net Profit shall be allocated among the Members so as to reduce, proportionately, the differences between their respective Target Capital Accounts and Partially Adjusted Capital Accounts for such year; provided , however , that no portion of the Net Profit for any taxable year shall be allocated to a Member whose Target Capital Account is less than or equal to its Partially Adjusted Capital Account for such taxable year.

4. Special Allocation Rules . Notwithstanding any other provision of the Agreement or this Exhibit B, the following special allocations shall be made in the following order:

A. Minimum Gain Chargeback . Notwithstanding any other provision of this Exhibit B , if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f)(6). This Section 4.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and for purposes of this Section 4.A only, each Member’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 3 and Section 4 of this Exhibit B with respect to such Fiscal Year and without regard to any decrease in Partner Minimum Gain during such Fiscal Year.

B. Partner Minimum Gain Chargeback . Notwithstanding any other provision of this Exhibit B (except Section 4.A of this Exhibit B ), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i)(4). This Section 4.B is intended to comply with

B-6

the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 4.B , each Member’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 3 and Section 4 of this Exhibit B with respect to such Fiscal Year, other than allocations pursuant to Section 4.A of this Exhibit B .

C. Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704‑1(b)(2)(ii)(d)(5), or 1.704‑1(b)(2)(ii)(d)(6), and after giving effect to the allocations required under Sections 4.A and 4.B of this Exhibit B , such Member has an Adjusted Capital Account Deficit, items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income and gain for the Fiscal Year) shall be specifically allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible.

D. Nonrecourse Deductions . Nonrecourse Deductions for any Fiscal Year shall be allocated to the Members in accordance with their respective Percentage Interests. If the Manager determines in its good faith discretion that the Company’s Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the Manager is authorized, upon notice to the Members to revise the prescribed ratio to the numerically closest ratio for such Fiscal Year which would satisfy such requirements.

E. Partner Nonrecourse Deductions . Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i).

F. Code Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.

5. Allocations for Tax Purposes .

A. Except as otherwise provided in this Section 5 , for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Section 3 and Section 4 of this Exhibit B .

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B. In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for federal income tax purposes among the Members as follows:

(1) (a) In the case of a Contributed Property, such items attributable thereto shall be allocated among the Members consistent with the principles of Section 704(c) of the Code to take into account the variation between the 704(c) Value of such property and its adjusted basis at the time of contribution; and

(b) Any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Members in the same manner as its correlative item of “book” gain or loss is allocated pursuant to Section 3 and Section 4 of this Exhibit B .

(2) (a) In the case of an Adjusted Property, such items shall

(i) first, be allocated among the Members in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Section 2 of this Exhibit B , and

(ii) second, in the event such property was originally a Contributed Property, be allocated among the Members in a manner consistent with Section 5.B(1) of this Exhibit B ; and

(b) Any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Members in the same manner its correlative item of “book” gain or loss is allocated pursuant to Section 3 and Section 4 of this Exhibit B .

(3) All items of tax credit under Code Section 42 with respect to a property shall be allocated to the Members in accordance with the manner in which the items of Depreciation with respect to such property were allocated, and any items of recapture of any such tax credit shall be allocated to the Members to whom the related items of tax credit were allocated.

6. Tax Elections

A. Subject to Section 2.08(b) of the Agreement, the Manager shall have the exclusive right to make any determination whether the Company shall make available elections (including any election pursuant to Section 754 of the Code relating to certain adjustments to the basis of the Company’s property) for federal, state or local income tax purposes. Any determination made pursuant to this Section 6(A) by the Manager shall be conclusive and binding on all Members. The Manager shall be absolved from all liability for any and all consequences to any previously admitted or subsequently admitted Members resulting from its making or failing to make any such election.

B. In the event any Member makes any tax election that requires the Company to furnish information to such Member to enable such Member to compute its own tax liability, or requires the Company to file any tax return or report with any tax authority, in either case that would not be required in the absence of such election made by such Member, the Company, acting

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reasonably through the Tax Matters Member, may, as a condition to furnishing such information or filling such return or report, require such Member to pay to the Company any incremental expenses incurred in connection therewith.

B-9

Exhibit C

Officers

None.

Exhibit D

Fair Market Value

1. Valuation of Units . The “ Fair Market Value ” of each Unit means the fair value of each Unit based on the portion of the Total Equity Value to which each Unit would be entitled upon a liquidation of the Company pursuant to Section 8.02 of the Agreement, assuming an all-cash sale and taking into account the total fair market value of the Company, which shall include the value of the Company’s indirect interest in HoldCo and its subsidiaries, as adjusted for any assets or liabilities existing at Trilogy REIT or the Company that are not reflected in the valuation of HoldCo and less the minority interest in Trilogy REIT to be held by holders of preferred ownership interests in Trilogy REIT. The Fair Market Value of each Unit shall be mutually agreed to by NHI and GAHR3 for so long as each remains a Qualifying Member and GAHR4 if it becomes a Qualifying Member and is not an AHI Managed Company.

2. Resolution of Valuation Disputes. In the event of any disagreement between or among those Members that have the right to agree on the Fair Market Value of each Unit pursuant to the last sentence of Section 1 of this Exhibit D (each, an “FMV Participating Member” and collectively, the “FMV Participating Members”):

(i) If such disagreement relates to the value of assets and liabilities existing at Trilogy REIT or the Company (and not involving the assets and liabilities of HoldCo and its subsidiaries), then the Manager shall select an independent qualified third party appraiser reasonably acceptable to the FMV Participating Members and the determination of such appraiser shall be final and conclusive; or

(ii) If such disagreement relates to the valuation of HoldCo and its subsidiaries and/or involves a disagreement with the Member Representative (as defined in the HoldCo LLC Agreement), the Manager shall cause the HoldCo Board to conduct an appraisal of HoldCo in accordance with the valuation process outlined in Article 9 of the HoldCo LLC Agreement (the appraisal firm that finally determines such HoldCo Value, the “ Appraiser ”). The Manager will consult with the FMV Participating Members before causing the HoldCo Board to select an independent appraisal firm to conduct an appraisal (or to select another appraisal firm in the event the Manager Representative does not approve such appraiser selected by the HoldCo Board). If the FMV Participating Members do not approve the firm selected by the Manager, then each FMV Participating Member shall provide the Manager with a list of at least three Qualified Appraisers (the “ Alternative Proposed Appraisers ”) and the Manager may select from any of the Alternative Proposed Appraisers to conduct the appraisal. In the event none of the Alternative Proposed Appraisers are acceptable to GAHR3, the FMV Participating Members agree to cooperate in good faith to select an appraisal firm reasonably acceptable to all parties. The term “ Qualified Appraiser ” means a nationally-recognized valuation firm with at least ten (10) years’ experience valuing companies similar to the Company and Trilogy REIT.

3. Initial Fair Market Value. Notwithstanding the foregoing, from the date hereof and continuing until December 31, 2021, the Fair Market Value of each Unit shall be $1,000.00.

Exhibit E

Major Decisions

The term “ Major Decision ” means the following decisions and actions:

1. Amend or modify the Approved Business Plan or take any action prohibited by the Approved Business Plan;

2. Cause or permit the Company or any Subsidiary to sell, transfer, convey, exchange, or otherwise dispose of assets owned directly and indirectly by the Company having a fair market value of more than $75,000,0000 in the aggregate during the first five (5) years of this Agreement and more than $20,000,000 in the aggregate annually thereafter; or cause or permit the Company or any Subsidiary to sell, transfer, convey, exchange, or otherwise dispose of all or any portion of its assets in a single transaction, or in a series of related transactions, that would trigger the recognition of built in gain in excess of $1,000,000 for federal income tax purposes;

3. Amend this Agreement (except as otherwise permitted in Section 9.01(b) hereof) or the Certificate, or amend any of the organizational documents of any of the Key Subsidiaries, other than amendments to such organizational documents similar in nature to the permitted amendments pursuant to Section 9.01(b) hereof;

4. Cause or permit the removal or appointment of any HoldCo Directors, other than in accordance with Section 5.03(c) hereof; cause or permit the removal or appointment of any Person as trustee of Trilogy REIT other than the Company;

5. Cause or permit the removal of Randall Bufford, or his successors as an officer of Holdco;

6. Cause or permit the Company or any Subsidiary to amend (in any material respect) or terminate the master lease agreement between OpCo and PropCo or PropCo II, as applicable, or the entry into any new or substitute master lease agreement, other than amendments reasonably deemed necessary by the Manager to obtain HUD financing or refinance existing Indebtedness; provided that the Manager shall not renew any master lease agreement or enter into any new master lease agreement between OpCo and PropCo or PropCo II unless it obtains a transfer pricing study to support such renewal or new agreement;

7. Cause or permit the Company or any Subsidiary to amend (in any material respect) or terminate the Management Agreement and the entry into any substitute eligible independent contractor management agreement; provided, however, that it shall not be a Major Decision to amend the Management Agreement to increase the aggregate fees payable pursuant to the Management Agreement by $1,500,000 more than the base management fee;

8. Cause or permit the Company or any Subsidiary to take, or fail to take, any of the following actions under the Management Agreement (or any successor management agreement with the EIK) (defined terms used in this Item 8 and not defined herein have the meanings ascribed to such terms in the Management Agreement) (such Major Decision approval not to be unreasonably withheld):

E-1


a.	extend the Term in accordance with Section 2 of the Management Agreement;

consent to change or alter the Applicable Use of the campus facilities existing as of the date hereof pursuant to Section 3.18 of the Management Agreement that would result in a change of more than 5% in the relative percentages of skilled nursing, assisted living, memory care and independent living units of such facilities in the aggregate over any three year period (and excluding any potential future expansion developments of such facilities);

consent to the execution or material modification of any new agreement (including any renewal of an existing agreement unless on substantially similar terms) requiring OpCo consent under Section 3.9.3 of the Management Agreement if (i) such agreement is entered into outside of the ordinary course of business and the payments under such agreement (and any related agreements) are in excess of Five Million Dollars ($5,000,000) (5-Year CPI Adjusted) in the aggregate in any Fiscal Year (and not otherwise related to a campus development permitted in accordance with the Approved Business Plan); or (ii) such agreement is in the nature of a collective bargaining or labor agreement;


d.	increase the aggregate Management Fees by more than $1,500,000 more than the base management fee set forth in the Agreement;


e.	determine to waive, or elect not to pursue any rights or remedies, upon notice of any Event of Default under the Management Agreement;


f.	any election not to terminate the Manager or pursue any remedial measures in accordance with Section 14.4 of the Management Agreement; and


g.	exercise any rights under Section 16.4 (Key Principals) of Management Agreement.

9. Cause or permit the Company or any Subsidiary to enter into, amend (in any material respect), or terminate any other material contract as defined in subsections (i) and (ii) of Regulation S-K Item 601(b)(10), unless such action is contemplated in the Approved Business Plan or is otherwise permitted in connection with another approved Major Decision;

10. Cause or permit the Company or any Subsidiary to enter into any lease, sublease or occupancy agreement pursuant to which an OpCo Entity leases, subleases or is granted a right to occupy real property from another Person to the extent (i) the aggregate payments under such lease, sublease or occupancy agreement are in excess of Five Million Dollars ($5,000,000) over the life of the contract and (ii) such lease, sublease or occupancy agreement grants the landlord a right to approve a change of control of the Company or the applicable Subsidiary in the landlord’s sole and absolute discretion (it being agreed that it shall not be a Major Decision to grant a landlord a right to approve a change of control of the Company or the applicable Subsidiary in landlord’s reasonable discretion) provided, however, that the foregoing shall not include any development lease entered into for a new facility development in accordance with the Approved Business Plan with an existing development landlord of the Company to the extent all other development leases with such landlord grant the landlord a right to approve a change of control of the Company or the applicable Subsidiary in such landlord’s sole and absolute discretion;

E-2

11. Merge, consolidate, sell or reorganize the Company or any Key Subsidiary, or market any of the foregoing for sale (except in connection with any Member’s exercise of its rights set forth in Articles Six and Thirteen hereof);

12. File any voluntary petition for the Company or any Key Subsidiary under Title 11 of the United States Code, the Bankruptcy Act, seek the protection of any other federal or state bankruptcy or insolvency law, fail to contest a bankruptcy proceeding, or seek or permit a receivership or make an assignment for the benefit of its creditors;

13. Voluntarily dissolve or liquidate the Company or any Key Subsidiary;

14. Make a capital call other than in accordance with Article Three hereof;

15. Issue new equity interests in the Company, Trilogy REIT (other than issuances to the accommodation stockholders), HoldCo (other than reasonable issuances to advisory board members who are not Affiliates of the Manager in connection with their service on the advisory board, subject to the cap on compensation set forth in Section 5.03(b)), or any other Key Subsidiary, except as otherwise set forth herein;

16. Appoint auditors for the Company or any Key Subsidiary, other than PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young or KPMG;

17. Modify any accounting practice for the Company or any Key Subsidiary, except as required by GAAP;

18. Cause or permit the Company or any Subsidiary to enter into any financing transaction that would increase the Company’s loan to value (when viewing the Company and the Subsidiaries together as one Person) above 60%, other than a Permitted Refinance;

19. Refinance the Acquisition Financing, other than (a) a refinance in connection with one or more HUD loans, (b) a refinance that is on terms substantially the same or more favorable than the Acquisition Financing, or (c) a refinance at then-prevailing market terms within six months of the Acquisition Financing maturity or at any time the Acquisition Financing is in substantial risk of default (the financings identified in (a) – (c) are defined as a “ Permitted Refinance ”; provided that such “Permitted Refinance” shall be reasonably acceptable to the Qualifying Members;

20. Cause or permit Trilogy REIT to modify the terms of the profits interests in HoldCo granted to the EIK (the “ Profits Interests ”);

21. Cause or permit the Company or any Subsidiary to enter into any agreement, or amend or modify any agreement, with any Manager, Member or any Affiliate thereof, or pay to any Manager, Member or Affiliate thereof any compensation or fees, except as specified in Section 5.05 hereof;

22. Cause or permit the Company or any Subsidiary to enter into a new line of business or to engage in any business not described in Section 2.04 hereof, or modify the business purpose of the Company; cause or permit the Company or any Subsidiary to exit an existing line of

E-3

business; or cause the Company or any Subsidiary to withdraw, in whole or in part, from participation in the IGT Program (unless such withdrawal is as a result of a hospital default under any IGT Agreement or otherwise necessary to protect the interests of the Company and its assets as reasonably determined by Manager);

23. Cause or permit the Company or any Subsidiary to enter into any material off-balance sheet arrangements;

24. Cause or permit Trilogy REIT to engage in an initial public offering (“ IPO ”);

25. Cause or permit the Company or any Subsidiary to commence or settle any litigation involving uninsured legal claims in excess of $5,000,000 or any material regulatory matters (such Major Decision approval not to be unreasonably withheld);

26. Cause or permit the Company or any Subsidiary to make or revoke any material tax election, claim or take any tax position with any taxing authority that reasonably could be expected to have a material adverse economic impact on any Member;

27. Cause or permit the Company or any Subsidiary to enter into any agreement that potentially (a) restricts the ability of the Company, any Member or any Affiliate thereof or Trilogy REIT to compete, or (b) restricts the ability of HoldCo, OpCo, PropCo I or PropCo II to compete outside of the ordinary course;

28. Cause or permit the Company or any Key Subsidiary to enter into any joint ventures that require a capital commitment from the Company in excess of $25 million or that acquires assets in excess of $50 million (or granting any promote interests in the Company or any Key Subsidiary (other than the Profits Interests)) (but excluding any subsidiaries of OpCo, PropCo I or PropCo II) not contemplated in the Approved Business Plan;

29. Amend any provision of the Equity Purchase Agreement or waive any of the conditions to Trilogy REIT's obligation to consummate the transactions contemplated by the Equity Purchase Agreement;

30. With respect to stabilized campus facilities (i.e., campus facilities open for more than two years and stabilized for the entire preceding calendar year, and excluding any facilities acquired after the Closing Date that are intended to be re-developed):

approve any of the following that would cause, individually or in the aggregate, the budgeted net operating income for such portfolio of properties to decrease by 5% or more from the previous year's actual results: (i) a decrease the aggregate budgeted occupancy rate for such properties by more than 3%; (ii) a reduction in the aggregate budgeted average daily rates for assisted living or independent living units by more than 4%; (iii) a decrease in Payor Mix by more than 5% or (iv) an increase aggregate budgeted labor expenses by more than 10%; or


b.	cause or permit total capital expenditures for such properties to increase by more than 20% from the amounts contemplated in the Approved Business

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Plan (suc h amounts contemplated in the Approved Business Plan to be increased

annually based on the Consumer Price Index (CPI-U (U.S. City Average) for

November published in December).

In each case, such Major Decision approval shall not be unreasonably withheld.

31. Cause HoldCo to incur corporate-level capital expenditures in excess of $3,000,000 in any fiscal year (excluding any capital expenditures in connection with any electronic medical records projects) (such Major Decision approval shall not be unreasonably withheld);

32. Approve the operating plan in connection with non-stabilized campus facilities (i.e. campus facilities open for less than three years that are less than 85% occupied) that have been open for at least twelve (12) months in the event the aggregate current budgeted Payor Mix for such non-stabilized campus facilities is more than 10% below the budgeted Payor Mix established at the issuance of the certificate of occupancy for such facilities (such Major Decision approval shall not be unreasonably withheld); or

33. Make any other decision or take any other action hereunder that is specified as a Major Decision hereunder.

E-5

Exhibit F

Information Requirements

See attached.



REPORTING REQUIREMENTS
				Reporting Entity
Item #	Requirement	Format	Due to NS	Consolidated	Lower Tier Entity (1)	Distribution	Comments
1	Income Statement and Balance Sheet	Excel	15 business days after month end	Monthly	Upon Request	#All	To include computation of management fee. US GAAP basis
2	Trial Balance with Financial Statement Mapping	Excel	15 business days after month end	Monthly	Upon Request	# Accounting	US GAAP basis
3	General Ledger	Excel	15 business days after month end	Upon Request	Upon Request	# Accounting
4	Bank Statements and Reconciliations	PDF	15 business days after month end	Upon Request	Upon Request	# Accounting
5	Other Balance Sheet Account Reconciliations	Excel/PDF	15 business days after month end	Upon Request	Upon Request	# Accounting	Balance sheet reconciliations in support of TB to be provided on a quarterly basis upon request
6	Aged Receivable Report	Excel/PDF	15 business days after month end	NA	Upon Request	# Accounting	Monthly or quarterly format upon request
7	Aged Payable Report	Excel/PDF	15 business days after month end	Upon Request	Upon Request	# Accounting	Monthly or quarterly format upon request
8	Allowance for Doubtful Accounts	PDF	15 business days after month end	NA	Upon Request	# Accounting	Quarterly upon request
9	Supporting Schedules	Excel	15 business days after month end	Upon Request	Upon Request	# Accounting	For example, depreciation/amortization, s/l rent, deferred costs, prepaid expenses, below/above market leases, capital expenditure spend-down and any other supporting schedules that may be reasonably required from time-to-time
10	Rent Roll or Rent Roll Equivalent Report	PDF	15 business days after month end	NA	Upon Request	# Accounting	To include room and care charges by unit and by resident. Also to include anniversary dates for contracted rate increases.
11	Loan Statements	PDF	15 business days after month end or when available	NA	Upon Request	# Accounting	Within 15 business day or as soon as available from the lender
12	Loan Covenant Tests	Excel/PDF	30 calendar days before month end	NA	Monthly	#All	Quarterly
13	Loan Compliance Package	PDF	Once Certified	NA	Quarterly	#All
14	JV Equity Accounts Rollforward	Excel	20 business days after month end	Quarterly	NA	#All
15	Distribution Analysis and Capital Call analysis	Excel/PDF	15 business days after month end	Quarterly	NA	#All	Or more often, if applicable
16	Income Statement and Balance Sheet	Excel	15 business days after month end	Quarterly	Upon Request	#All	QTD income statement and balance sheet and trial balance in format consistent with monthly plus capital expenditures.
17	Officers Certificate	PDF	15 business days after month end	NA	Quarterly	#All	Certificate from the EIK, substantially in the form provided. Certificate of Manager certifying that (i) it is not aware of any defaults under this Agreement, (ii) it has delivered all documents required to be delivered under this Agreement and (iii) to the best of such officer's knowledge (which includes reasonable reliance upon any information and/or certification delivered by the EIK under the Management Agreement), the financial statements delivered herewith (a) fairly present the financial condition and operating performance of the Company and its Subsidiaries on a consolidated basis as of the dates of such financial statements in all material respects and (b) have been prepared in accordance with U.S. generally accepted accounting
18	Quarterly Budget to Actual Analytics	Excel	20 business days after month end	Quarterly	Upon Request	#All	Presented on a quarterly basis & with comments including capital expenditure actual vs. budget (on a standalone or consolidated property basis)
19	Quarterly Quarter over Quarter and Year over Year Actual Analytics	Excel	20 business days after month end	Quarterly	Upon Request	#All	Presented on a quarterly basis & with comments including capital expenditure, payor mix, if available, and occupancy information
20	Income Statement and Balance Sheet	Excel	15 business days after month end	Annually	Upon Request	#All	YTD income statement and balance sheet and trial balance in format consistent with monthly.
21	Final unaudited YE Financials	Excel	45 days after FY end	Annually	Upon Request	#All
22	Audited Final YE Financials	PDF	75 days after FY end (or such short time if required by lender)	Annually	Upon Request	#All	Navigator REIT level
23	Capital and Operating Budgets	Excel	60 days prior to FY end	NA	Annually	#All	per agreement with EIK
24	K-1	PDF	15-Jul	Annually	NA	# Accounting
25	REIT Tests	Excel	See comments	Quarterly	NA	# Accounting	25 days after quarter end and 30 days after year end
26	Additional reasonable requests at our discretion	Excel/PDF	As Requested	Upon Request	Upon Request	#All	e.g. tax/insurance and other property invoices, supporting schedules etc.

(1) Includes reporting for stable properties, development properties, lease up properties, pharmacy, rehab, holding company and other entities as appropriate.



Distribution List #All	Email	Phone
# Accounting (NYC/Lux)
1. Frank V Saracino	fsaracino@nsamgroup.com	212.287.2119
2. Matt Brandwein	mbrandwein@nsamgroup.com	212.547.2675
3. Elijah Kanevskiy	ekanevskiy@nsamgroup.eu	352.269.466.457
4. TBD
# Asset Management (Bethesda)
1. Jason Simmers	jsimmers@nsamgroup.com	240.479.7128
2. Stephanie Tapiero	stapiero@nsamgroup.com	240.479.7132
3. Lauren O'Neil	loneil@nsamgroup.com	240.479.7124

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey T. Hanson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Griffin-American Healthcare REIT III, 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 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 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.



November 14, 2018	By:	/s/ J EFFREY T. H ANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Brian S. Peay, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Griffin-American Healthcare REIT III, Inc.;

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.



November 14, 2018	By:	/s/ B RIAN S. P EAY
Date		Brian S. Peay
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Griffin-American Healthcare REIT III, Inc., or the Company, hereby certifies, to his knowledge, that:

(1) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



November 14, 2018	By:	/s/ J EFFREY T. H ANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



November 14, 2018	By:	/s/ B RIAN S. P EAY
Date		Brian S. Peay
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)