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)

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PART I

Item 1. Business.

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 otherwise noted.

Company

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 may also originate and acquire other 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 initial distribution reinvestment plan, or the Initial 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 Initial DRIP.

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 to be issued pursuant to the Initial DRIP, or the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the 2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of common stock being issued pursuant to the 2015 DRIP Offering.

On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering. As of December 31, 2019, a total of $41,244,000 in distributions were reinvested that resulted in 4,398,586 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings.

On October 3, 2019, 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 $9.40. We provide an updated estimated per share NAV on at least an annual basis to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority, or FINRA, Rule 2231 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, 2019. 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 United States Securities and Exchange Commission, or 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, 2019, 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 initial 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

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the parties on February 11, 2020 and expires on February 26, 2021. 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 wholly owned subsidiaries of 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.

Key Developments

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On September 5, 2019, we entered into an amended and restated loan agreement, or the 2019 Trilogy Credit Agreement, with KeyBank, National Association, CIT Bank, N.A., Regions Bank, KeyBanc Capital Markets, Inc., Regions Capital Markets, Bank of America, N.A., The Huntington National Bank and a syndicate of other banks, as lenders named therein, to obtain a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, consisting of: (i) a $325,000,000 secured revolver supported by real estate assets and ancillary business cash flow and (ii) a $35,000,000 accounts receivable revolving credit facility supported by eligible accounts receivable, or the 2019 Trilogy Credit Facility. See Note 8, Lines of Credit and Term Loans — 2019 Trilogy Credit Facility, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

•	On October 3, 2019, 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 $9.40, an increase from the previous estimated per share NAV of $9.37 approved by our board on October 3, 2018.

•	During 2019, we expanded our integrated senior health campuses segment by $45,472,000 through the completion of development projects, as well as the acquisition of additional campuses and land parcels for development through our majority-owned subsidiary, Trilogy Investors, LLC.

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As of March 20, 2020, we owned and/or operated 98 properties, comprising 102 buildings, and 118 integrated senior health campuses including completed development projects, or approximately 13,836,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $3,003,155,000. In addition, as of March 20, 2020, we also owned a real estate-related investment purchased for $60,429,000.

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Our Structure

The following is a summary of our organizational structure as of March 26, 2020:

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Our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, and our telephone number is (949) 270-9200. We maintain a web site at http://www.healthcarereit3.com, at which there is additional information about us and our affiliates. The contents of that site are not incorporated by reference in, or otherwise a part of, this filing. We make our periodic and current reports and all amendments to those reports available at http://www.healthcarereit3.com as soon as reasonably practicable after such materials are electronically filed with the SEC. They also are available for printing by any stockholder upon request. In addition, copies of our filings with the SEC may be obtained from the SEC’s website, http://www.sec.gov. Access to these filings is free of charge.

Investment Objectives

Our investment objectives are:

•	to preserve, protect and return our stockholders’ capital contributions;

•	to pay regular cash distributions; and

•	to realize growth in the value of our investments upon our ultimate sale of such investments.

Our board may change our investment objectives if it determines it is advisable and in the best interest of our stockholders.

During the term of the Advisory Agreement, decisions relating to the purchase or sale of investments will be made by our advisor, subject to approval by our advisor’s investment committee and oversight and approval by our board.

Investment Strategy

We have and we may continue to 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, such as long-term acute care centers, surgery centers, memory care facilities, specialty medical and diagnostic service facilities, laboratories and research facilities, pharmaceutical and medical supply manufacturing facilities and offices leased to tenants in healthcare-related industries. We also have originated and acquired and may continue to originate or acquire, secured loans and other real estate-related investments on an infrequent and opportunistic basis. We also may originate or acquire real estate-related investments such as mortgage, mezzanine, bridge and other loans, common and preferred stock of, or other interests in, public or private unaffiliated real estate companies, commercial mortgage-backed securities and certain other securities, including collateralized debt obligations and foreign securities. We have acquired properties and may continue to acquire properties either directly or jointly with third parties. We generally seek investments that produce current income.

We seek to maximize long-term stockholder value by generating sustainable growth in cash flows and portfolio value. In order to achieve these objectives, we may invest using a number of investment structures, which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, we may be required to limit our investments in certain types of real estate-related investments. See “Investment Company Act Considerations” below for a further discussion.

In addition, when and as determined appropriate by our advisor, our portfolio may also include properties in various stages of development other than those producing current income. These stages include, without limitation, unimproved land both with and without entitlements and permits, property to be redeveloped and repositioned, newly constructed properties and properties in lease-up or other stabilization, all of which have limited or no relevant operating histories and current income. Our advisor makes this determination based upon a variety of factors, including the available risk-adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio and our objectives of realizing both current income and capital appreciation upon the ultimate sale of properties.

For each of our investments, regardless of property type, we seek to invest in properties with the following attributes:

•	Quality. We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.

•	Location. We seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants. In addition to United States properties, we also seek to acquire international properties that meet our investment criteria.

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Market; Supply and Demand. We focus on local or regional markets that have potential for stable and growing property level cash flows over the long-term. These determinations are based in part on an evaluation of local and regional economic, demographic and regulatory factors affecting the property. For instance, we favor markets that indicate a growing population and employment base or markets that exhibit potential limitations on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we generally seek to limit our investments in areas that have limited potential for growth.

•	Predictable Capital Needs. We seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would enable us to meet our objectives of growth in cash flows and preservation of capital and stability.

•	Cash Flows. We seek to acquire properties where the current and projected cash flows, including the potential for appreciation in value, would enable us to meet our overall investment objectives. We evaluate cash flows as well as expected growth and the potential for appreciation.

We are not limited as to the geographic areas where we may acquire properties. We are not specifically limited in the number or size of properties we may acquire or on the percentage of our assets that we may invest in a single property or investment, and we have not invested more than 25.0% of the proceeds available for investment from our initial offering in international properties. The number and mix of properties and real estate-related investments we will acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of debt financing available.

Real Estate Investments

We have invested, and may continue to invest, in a diversified portfolio of real estate investments, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We generally seek investments that produce current income. Our investments may include:

•	medical office buildings;

•	hospitals;

•	skilled nursing facilities;

•	senior housing facilities;

•	healthcare-related facilities operated utilizing a RIDEA structure;

•	long-term acute care facilities;

•	surgery centers;

•	memory care facilities;

•	specialty medical and diagnostic service facilities;

•	laboratories and research facilities;

•	pharmaceutical and medical supply manufacturing facilities; and

•	offices leased to tenants in healthcare-related industries.

Our advisor generally seeks to acquire real estate on our behalf of the types described above that will best enable us to meet our investment objectives, taking into account the diversification of our portfolio at the time, relevant real estate and financial factors, the location, the income-producing capacity and the prospects for long-range appreciation of a particular property and other considerations. As a result, we may acquire properties other than the types described above. In addition, we may acquire properties that vary from the parameters described above for a particular property type.

The consideration for each real estate investment must be authorized by a majority of our independent directors or a duly authorized committee of our board and ordinarily is based on the fair market value of the investment. If the majority of our independent directors or a duly authorized committee of our board so determines, or if the investment is to be acquired from an affiliate, the fair market value determination must be supported by an appraisal obtained from a qualified independent appraiser selected by a majority of our independent directors.

Our real estate investments generally take the form of holding fee title or long-term leasehold interests. Our investments may be made either directly through our operating partnership or indirectly through investments in joint ventures, limited liability companies, general partnerships or other co-ownership arrangements with the developers of the properties, affiliates of our advisor or other persons. See “Joint Ventures” below for a further discussion.

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In addition, we have participated in sale-leaseback transactions, in which we purchase real estate investments and lease them back to the sellers of such properties. Our advisor will use its best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes.

Our obligation to close a transaction involving the purchase of real estate is generally conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:

•	plans and specifications;

•	environmental reports (generally a minimum of a Phase I investigation);

•	building condition reports;

•	surveys;

•	evidence of marketable title subject to such liens and encumbrances as are acceptable to our advisor;

•	audited financial statements covering recent operations of real properties having operating histories unless such statements are not required to be filed with the SEC and delivered to stockholders;

•	title insurance policies; and

•	liability insurance policies.

In determining whether to purchase a particular real estate investment, we may, in circumstances in which our advisor deems it appropriate, obtain an option on such property, including land suitable for development. The amount paid for an option is normally surrendered if the real estate is not purchased, and is normally credited against the purchase price if the real estate is purchased. We also may enter into arrangements with the seller or developer of a real estate investment whereby the seller or developer agrees that if, during a stated period, the real estate investment does not generate specified cash flows, the seller or developer will pay us cash in an amount necessary to reach the specified cash flows level, subject in some cases to negotiated dollar limitations.

We will not purchase or lease real estate in which one of our co-sponsors, our advisor, any of our directors or any of their affiliates have an interest without a determination by a majority of our disinterested directors and a majority of our disinterested independent directors that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the real estate investment to the affiliated seller or lessor, unless there is substantial justification for the excess amount and the excess amount is reasonable. In no event will we acquire any such real estate investment at an amount in excess of its current appraised value.

We have obtained, and we intend to continue to obtain, adequate insurance coverage for all real estate investments in which we invest.

We have acquired, and we intend to continue to acquire, leased properties with long-term leases and we generally do not intend to operate any healthcare-related facilities directly. As a REIT, we are prohibited from operating healthcare-related facilities directly; however, from time to time we have leased and may continue to lease a healthcare-related facility that we acquire to a wholly owned taxable REIT subsidiary, or TRS. In such an event, our TRS will engage a third party in the business of operating healthcare-related facilities to manage the property utilizing a RIDEA structure.

Joint Ventures

We have entered into, and we may continue to enter into, joint ventures, general partnerships and other arrangements with one or more institutions or individuals, including real estate developers, operators, owners, investors and others, some of whom may be affiliates of our advisor, for the purpose of acquiring real estate. Such joint ventures may be leveraged with debt financing or unleveraged. We have entered into and may continue to enter into joint ventures to further diversify our investments or to access investments which meet our investment criteria that would otherwise be unavailable to us. In determining whether to invest in a particular joint venture, our advisor will evaluate the real estate that such joint venture owns or is being formed to own under the same criteria described elsewhere in this Annual Report on Form 10-K for the selection of our other properties. However, we will not participate in tenant in common syndications or transactions.

Joint ventures with unaffiliated third parties may be structured such that the investment made by us and the co-venturer are on substantially different terms and conditions. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flows up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flows than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the

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cash flows, including appreciation, of an investment than we would receive. See Item 1A, Risk Factors — Risks Related to Joint Ventures, for a further discussion.

We may invest in general partnerships or joint ventures with other Griffin Capital programs or American Healthcare Investors-sponsored programs or affiliates of our advisor to enable us to increase our equity participation in such ventures, so that ultimately we own a larger equity percentage of the property. Our entering into joint ventures with our advisor or any of its affiliates may result in certain conflicts of interest. See Item 1A, Risk Factors — Risks Related to Conflicts of Interest — We have entered and may continue to enter into joint ventures with other programs sponsored or advised by one of our co-sponsors or one of their affiliates, and we may face conflicts of interest or disagreements with our joint venture partners that may not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s-length with an independent joint venture partner, for a further discussion.

We may only enter into joint ventures with other Griffin Capital programs or American Healthcare Investors-sponsored programs, affiliates of our advisor or any of our directors for the acquisition of properties if:

•	a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction, approves the transaction as being fair and reasonable to us; and

•	the investment by us and such affiliates are on substantially the same terms and conditions.

Real Estate-Related Investments

In addition to our acquisition of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, on an infrequent and opportunistic basis, we have invested, and may continue to invest, in real estate-related investments, including loans (mortgage, mezzanine, bridge and other loans) and securities investments (common and preferred stock of or other interests in public or private unaffiliated real estate companies, commercial mortgage-backed securities and certain other securities, including collateralized debt obligations and foreign securities).

Investing In and Originating Loans

Our criteria for making or investing in loans are substantially the same as those involved in our investment in properties. We do not intend to make loans to other persons, to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than those relating to real estate. We will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loan, would exceed an amount equal to 85.0% of the appraised value of the property, as determined by an appraiser, unless we find substantial justification due to other underwriting criteria; however, our policy generally will be that the aggregate amount of all mortgage loans outstanding on the property, including our loan, would not exceed 75.0% of the appraised value of the property. We may find such justification in connection with the purchase of loans in cases in which we believe there is a high probability of our foreclosure upon the property in order to acquire the underlying assets and in which the cost of the loan investment does not exceed the fair market value of the underlying property. We will not invest in or make loans unless an appraisal has been obtained concerning the underlying property, except for those loans insured or guaranteed by a government or government agency. In cases in which a majority of our independent directors so determine and in the event the transaction is with our advisor, any of our directors or their respective affiliates, the appraisal will be obtained from a certified independent appraiser to support its determination of fair market value.

We have invested, and we may continue to invest, in first and second mortgage loans, mezzanine loans and bridge loans. However, we will not make or invest in any loans that are subordinate to any mortgage or equity interest of our advisor, any of our directors, one of our co-sponsors, or any of our affiliates. We also may invest in participations in mortgage loans. Second mortgage loans are secured by second deeds of trust on real property that is already subject to prior mortgage indebtedness. A mezzanine loan is a loan made in respect of certain real property but is secured by a lien on the ownership interests of the entity that, directly or indirectly, owns the real property. A bridge loan is short term financing, for an individual or business, until permanent or the next stage of financing can be obtained. Mortgage participation investments are investments in partial interests of mortgages of the type described above that are made and administered by third-party mortgage lenders.

In evaluating prospective loan investments, our advisor considers factors such as the following:

•	the ratio of the investment amount to the underlying property’s value;

•	the property’s potential for capital appreciation;

•	expected levels of rental and occupancy rates;

•	the condition and use of the property;

•	current and projected cash flows of the property;

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•	potential for rent increases;

•	the degree of liquidity of the investment;

•	the property’s income-producing capacity;

•	the quality, experience and creditworthiness of the borrower;

•	general economic conditions in the area where the property is located;

•	in the case of mezzanine loans, the ability to acquire the underlying real property; and

•	other factors that our advisor believes are relevant.

In addition, we will seek to obtain a customary lender’s title insurance policy or commitment as to the priority of the mortgage or condition of the title. Because the factors considered, including the specific weight we place on each factor, will vary for each prospective loan investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.

We may purchase existing loans from affiliates, and we may make or invest in loans in which the borrower is an affiliate. Our advisor will evaluate all potential loan investments to determine if the security for the loan and the loan-to-value ratio meets our investment criteria and objectives. Most loans that we will consider for investment would provide for monthly payments of interest and some may also provide for principal amortization, although many loans of the nature that we will consider provide for payments of interest only and a payment of principal in full at the end of the loan term. We will not originate loans with negative amortization provisions.

We are not limited as to the amount of our assets that may be invested in mezzanine loans, bridge loans and second mortgage loans. However, we recognize that these types of loans are riskier than first deeds of trust or first priority mortgages on income-producing, fee-simple properties, and we expect to minimize the amount of these types of loans in our portfolio. Our advisor will evaluate the fact that these types of loans are riskier in determining the rate of interest on the loans. We do not have any policy that limits the amount that we may invest in any single loan or the amount we may invest in loans to any one borrower. We have not established a portfolio turnover policy with respect to loans we invest in or originate.

Our loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, requiring disclosures to customers, governing secured transactions and setting collection, repossession and claims handling procedures and other trade practices. In addition, certain states have enacted legislation requiring the licensing of mortgage bankers or other lenders and these requirements may affect our ability to effectuate our proposed investments in loans. Commencement of operations in these or other jurisdictions may be dependent upon a finding of our financial responsibility, character and fitness. We may determine not to make loans in any jurisdiction in which the regulatory authority determines that we have not complied in all material respects with applicable requirements.

Investing in Securities

We have invested, and may continue to invest, in the following types of securities: (i) equity securities such as common stocks, preferred stocks and convertible preferred securities of public or private unaffiliated real estate companies (including other REITs, real estate operating companies and other real estate companies); (ii) debt securities such as commercial mortgage-backed securities and debt securities issued by other unaffiliated real estate companies; and (iii) certain other types of securities that may help us reach our diversification and other investment objectives. These other securities may include, but are not limited to, various types of collateralized debt obligations and certain non-United States dollar denominated securities.

Our advisor has substantial discretion with respect to the selection of specific securities investments. Our charter provides that we may not invest in equity securities unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve such investment as being fair, competitive and commercially reasonable. Consistent with such requirements, in determining the types of securities investments to make, our advisor will adhere to a board-approved asset allocation framework consisting primarily of components such as: (i) target mix of securities across a range of risk/reward characteristics; (ii) exposure limits to individual securities; and (iii) exposure limits to securities subclasses (such as common equities, debt securities and foreign securities). Within this framework, our advisor will evaluate specific criteria for each prospective securities investment, including but not limited to:

•	positioning the overall portfolio to achieve an optimal mix of real estate and real estate-related investments;

•	diversification benefits relative to the rest of the securities assets within our portfolio;

•	fundamental securities analysis;

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•	quality and sustainability of underlying property cash flows;

•	broad assessment of macroeconomic data and regional property level supply and demand dynamics;

•	potential for delivering high current income and attractive risk-adjusted total returns; and

•	additional factors considered important to meeting our investment objectives.

Commercial mortgage-backed securities are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Commercial mortgage-backed securities generally are pass-through certificates that represent beneficial ownership interests in common law trusts whose assets consist of defined portfolios of one or more commercial mortgage loans. They typically are issued in multiple tranches whereby the more senior classes are entitled to priority distributions from the trust’s income. Losses and other shortfalls from expected amounts to be received in the mortgage pool are borne by the most subordinate classes, which receive payments only after the more senior classes have received all principal and/or interest to which they are entitled. Commercial mortgage-backed securities are subject to all of the risks of the underlying mortgage loans. We may invest in investment grade and non-investment grade commercial mortgage-backed securities.

The specific number and mix of securities in which we invest will depend upon real estate market conditions, other circumstances existing at the time we are investing in securities, the amount of any future indebtedness that we may incur and any possible future equity offerings. We will not invest in securities of other issuers for the purpose of exercising control and the first or second mortgages in which we intend to invest will likely not be insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs or otherwise guaranteed or insured. Real estate-related equity securities are generally unsecured and also may be subordinated to other obligations of the issuer. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer.

Our Strategies and Policies With Respect to Borrowing

We have used, and intend to continue to use, secured and unsecured debt as a means of providing additional funds for the acquisition of properties and real estate-related investments. Our ability to enhance our investment returns and to increase our diversification by acquiring assets using additional funds provided through borrowing could be adversely impacted if banks and other lending institutions reduce the amount of funds available for the types of loans we seek. When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time. We have also used, and may continue to use, derivative financial instruments such as fixed interest rate swaps and caps to add stability to interest expense and to manage our exposure to interest rate movements.

We anticipate that our overall leverage will not exceed 45.0% of the combined 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 December 31, 2019, our aggregate borrowings were 44.5% 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 March 26, 2020 and December 31, 2019, our leverage did not exceed 300% of the value of our net assets.

By operating on a leveraged basis, we have more funds available for our investments. This generally enables us to make more investments than would otherwise be possible, potentially resulting in enhanced investment returns and a more diversified portfolio.

Our advisor uses its best efforts to obtain financing on the most favorable terms available to us and refinances assets during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing loan, when an existing loan matures or if an attractive investment becomes available and the proceeds from the

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refinancing can be used to purchase such investment. The benefits of the refinancing may include increased cash flows resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.

Our charter restricts us from borrowing money from one of our co-sponsors, our advisor, any of our directors or any of their respective affiliates unless such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as being fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties.

When incurring secured debt, we may incur recourse indebtedness, which means that the lenders’ rights upon our default generally will not be limited to foreclosure on the property that secured the obligation. If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year, although some mortgages are likely to provide for one large payment and we may incur floating or adjustable rate financing when our board determines it to be in our best interest.

Our board controls our strategies with respect to borrowing and may change such strategies at any time without stockholder approval, subject to the maximum borrowing limit of 300% of our net assets described above.

Sale or Disposition of Assets

Our advisor and our board determine whether a particular property or real estate-related investment should be sold or otherwise disposed of after consideration of the relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives.

We intend to hold each property or real estate-related investment we acquire for an extended period. However, circumstances might arise which could result in a shortened holding period for certain investments. A property or real estate-related investment may be sold before the end of the expected holding period if:

•	diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio;

•	an opportunity arises to pursue a more attractive investment;

•	in the judgment of our advisor, the value of the investment might decline;

•	with respect to properties, a major tenant involuntarily liquidates or is in default under its lease;

•	the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria;

•	an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; or

•	in the judgment of our advisor, the sale of the investment is in the best interest of our stockholders.

The determination of whether a particular property or real estate-related investment should be sold or otherwise disposed of will be made after consideration of the relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives.

Development Strategy

On an opportunistic basis, we have developed and may continue to selectively develop real estate assets when market conditions warrant. In doing so, we may be able to reduce overall purchase costs by developing property versus purchasing a finished property. We retain and will continue to retain independent contractors to perform the actual construction work on tenant improvements, such as installing heating, ventilation and air conditioning systems.

We have engaged and may continue to engage our advisor or its affiliates to provide development-related services for all or some of the properties that we develop or acquire for refurbishment. In those cases, we pay our advisor or its affiliates a development fee that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided. However, we do 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. In the event that our advisor or its affiliates assist with planning and coordinating the construction of any tenant improvements or capital improvements, the respective party may be paid a construction management fee of up to 5.0% of the cost of such improvements.

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Terms of Leases

The terms and conditions of any lease we enter into with our tenants may vary substantially from those we describe in this Annual Report on Form 10-K. However, we expect that a majority of our leases will require the tenant to pay or reimburse us for some or all of the operating expenses of the building based on the tenant’s proportionate share of rentable space within the building. Operating expenses typically include, but are not limited to, real estate and other taxes, utilities, insurance and building repairs, and other building operation and management costs. We expect to be responsible for the replacement of specific structural components of a property such as the roof of the building or the parking lot. We expect that many of our leases will have terms of five or more years, some of which may have renewal options.

Board Review of Our Investment Policies and Report of Independent Directors

Our board has established written policies on investments and borrowing. Our board is responsible for monitoring the administrative procedures, investment operations and performance of our company and our advisor to ensure such policies are carried out. Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. Each determination and the basis therefore is required to be set forth in the minutes of the applicable meetings of our directors. Implementation of our investment policies also may vary as new investment techniques are developed. Our investment policies may not be altered by our board without the approval of our stockholders.

As required by our charter, our independent directors have reviewed our policies outlined above and determined that they are in the best interests of our stockholders because: (i) they increase the likelihood that we will be able to acquire a diversified portfolio of income-producing properties, thereby reducing risk in our portfolio; (ii) there are sufficient property acquisition opportunities with the attributes that we seek; (iii) our executive officers, directors and affiliates of our advisor have expertise with the type of real estate investments we seek; and (iv) our borrowings will enable us to purchase assets and earn more real estate revenue earlier than we would have otherwise been able to, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.

Tax Status

We qualified and elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2014. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

Distribution Policy

In order to maintain our qualification as a REIT for federal income tax purposes, among other things, we are required to distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. We cannot predict if we will generate sufficient cash flows to continue to pay cash distributions to our stockholders on an ongoing basis or at all. The amount of any cash distributions is determined by our board and depends on the amount of distributable funds, current and projected cash requirements, tax considerations, any limitations imposed by the terms of indebtedness we may incur and other factors. If our investments produce sufficient cash flows, we expect to continue to pay distributions to our stockholders on a monthly basis. Because our cash available for distribution in any year may be less than 90.0% of our annual taxable income, excluding net capital gains, for the year, we may be required to borrow money, use proceeds from the issuance of securities (in subsequent offerings, if any) or sell assets to pay out enough of our taxable income to satisfy the distribution requirement. These methods of obtaining funds could affect future distributions by increasing operating costs. We did not establish any limit on the amount of net proceeds from our initial offering, and we have not established any limit on the amount of net proceeds from any future offerings, 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.

To the extent that distributions to our stockholders are paid out of our current or accumulated earnings and profits, such distributions are taxable as ordinary income. To the extent that our distributions exceed our current and accumulated earnings and profits, such amounts constitute a return of capital to our stockholders for federal income tax purposes, to the extent of their basis in their stock and thereafter will constitute capital gain. Any portion of distributions to our stockholders paid from net offering proceeds constitutes a return of capital to our stockholders.

Monthly distributions are calculated with daily record dates so distribution benefits begin to accrue immediately upon becoming a stockholder. However, our board could, at any time, elect to pay distributions quarterly to reduce administrative costs.

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The amount of distributions we pay to our stockholders is determined by our board and is dependent on a number of factors, including funds available for the payment of distributions, our financial condition, capital expenditure requirements, annual distribution requirements needed to maintain our status as a REIT under the Code and restrictions imposed by our organizational documents and Maryland Law.

See Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of distributions approved by our board.

Competition

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, including international, national, regional and local operators, acquirers and developers of healthcare real estate properties. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities or other assets we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Further, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets, and therefore, increased prices paid for them. If there is an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices per property if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices per property for medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities, our business, financial condition, results of operations and our ability to pay distributions to our stockholders may be materially and adversely affected and our stockholders may experience a lower return on their investment.

In addition, income from our investments is dependent on the ability of our tenants and operators to compete with other healthcare operators. These operators compete on a local and regional basis for residents and patients and the operators’ ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants and operators to compete successfully for residents and patients at the properties. For additional information on the risks associated with our business, please see Item 1A, Risk Factors.

Government Regulations

Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Costs of Compliance with the Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990, as amended, or the ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.

Costs of Government Environmental Regulation and Private Litigation. Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on a person who arranges for the disposal or treatment of hazardous or toxic substances and such person often must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.

Other Federal, State and Local Regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are and will be in substantial compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether

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future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flows and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

Significant Tenants

As of December 31, 2019, none of our tenants at our consolidated properties accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income, or NOI, 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 December 31, 2019.

Geographic Concentration

For a discussion of our geographic information, see Item 2, Properties — Geographic Diversification/Concentration Table, as well as Note 19, Segment Reporting, and Note 20, Concentration of Credit Risk, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Employees

We have no employees and our executive officers are all employees of one of our co-sponsors. Our day-to-day management is performed by our advisor and its affiliates. We cannot determine at this time if or when we might hire any employees, although we do not anticipate hiring any employees during the next twelve months. We do not directly compensate our executive officers for services rendered to us. However, our executive officers, consultants and the executive officers and key employees of our advisor and its affiliates are eligible for awards pursuant to the 2013 Incentive Plan, or our incentive plan. As of December 31, 2019, no awards had been granted to our executive officers, consultants or the executive officers or key employees of our advisor or its affiliates under this plan.

Investment Company Act Considerations

We conduct and intend to continue to conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act.

We primarily engage in the business of investing in real estate assets; however, our portfolio does include, to a much lesser extent, other real estate-related investments. We have also acquired and may continue to acquire real estate assets through investments in joint venture entities, including joint venture entities in which we may not own a controlling interest. We anticipate that our assets generally will be held in wholly and majority-owned subsidiaries of the company, each formed to hold a particular asset. We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. Among other things, we monitor the proportion of our portfolio that is placed in investments in securities.

Information About Industry Segments

Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or 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 facility in May 2015; skilled nursing facility in October 2015; and integrated senior health campus in December 2015, we added a new reportable segment at each such time. As of December 31, 2019, we operated through six reportable business segments — medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Medical Office Buildings. As of December 31, 2019, we owned 64 medical office buildings, or MOBs. These properties typically contain physicians’ offices and examination rooms and may also include pharmacies, hospital ancillary service space and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms. While these properties are similar to commercial office buildings, they require additional parking spaces as well as plumbing, electrical and mechanical systems to accommodate multiple exam rooms that may require sinks in every room and special equipment such as x-ray machines. In addition, MOBs are often built to accommodate higher structural loads for certain equipment and may contain other specialized construction. Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices) for approximately three to 10 years with fixed annual escalations. Based on GLA, approximately

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33.4% of our MOBs are located on hospital campuses and 3.1% are affiliated with hospital systems. Our medical office buildings segment accounted for approximately 6.6%, 7.1% and 7.5% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Hospitals. As of December 31, 2019, we owned two hospital buildings. Services provided by our operators and tenants in our hospitals are paid for by private sources, third-party payors (e.g., insurance and Health Maintenance Organizations), or through the Medicare and Medicaid programs. We expect that our hospital properties typically will include acute care, long-term acute care, specialty and rehabilitation hospitals and generally will be leased to single tenants or operators under triple-net lease structures. Our hospitals segment accounted for approximately 0.9%, 1.1% and 1.2% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Skilled Nursing Facilities. As of December 31, 2019, we owned seven skilled nursing facilities, or SNFs. Skilled nursing facility residents are generally higher acuity and need assistance with eating, bathing, dressing, and/or require assistance with medication and also require available 24-hour nursing care. SNFs offer restorative, rehabilitative and custodial nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Ancillary revenues and revenues from sub-acute care services are derived from providing services to residents beyond room and board and include occupational, physical, speech, respiratory and intravenous therapy, wound care, oncology treatment, brain injury care, orthopedic therapy and other services. Certain SNFs provide some of the foregoing services on an out-patient basis. Skilled nursing services provided by our tenants in these SNFs are primarily paid for either by private sources or through the Medicare and Medicaid programs. Our SNFs are leased to a single tenant under a triple-net lease structure with approximately 12 to 15 year terms and fixed annual rent escalations. Our skilled nursing facilities segment accounted for approximately 1.1%, 1.3% and 1.4% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Senior Housing. As of December 31, 2019, we owned nine senior housing facilities. Senior housing facilities cater to different segments of the elderly population based upon their personal needs, and include assisted living, memory care, and independent living. Residents of assisted living facilities typically need assistance with eating, bathing, dressing, and/or medications and those services can be provided by staff at the facility. Services provided by our tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Our senior housing facilities are leased to single tenants under triple-net lease structures, whereby the tenant is responsible for making rent payments, maintaining the properties and paying taxes and other expenses. Leases are typically 12 to 15 years with fixed annual escalations and required lease coverage ratios. Our senior housing segment accounted for approximately 1.5%, 1.9% and 2.0% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Senior Housing — RIDEA. As of December 31, 2019, we owned and operated 20 senior housing facilities utilizing a RIDEA structure. Such facilities are of a similar property type as our senior housing segment discussed above; however, we have entered into agreements with healthcare operators to manage the facilities on our behalf utilizing a RIDEA structure. The healthcare operators we engage provide management and operational services at the facilities, and we retain the net earnings generated by the performance of each of the facilities after payment of the management fee and other operational and maintenance expenses. As a result, under a RIDEA structure we retain the upside from improved operational performance, and similarly the risk of any decline in performance. Substantially all of our leases with residents in the senior housing facilities are for a term of one year or less. Our senior housing — RIDEA segment accounted for approximately 5.6%, 5.7% and 6.1% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Integrated Senior Health Campuses. As of December 31, 2019, we owned and/or operated 118 integrated senior health campuses, a majority of which are operated utilizing a RIDEA structure. Integrated senior health campuses include a range of senior care, including assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses. Services provided in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Our integrated senior health campuses segment accounted for approximately 84.3%, 82.9% and 81.8% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

For a further discussion of our segment reporting for the years ended December 31, 2019, 2018 and 2017, see Note 19, Segment Reporting, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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Item 1A. Risk Factors

Investment Risks

There is no public market for the shares of our common stock. Therefore, it will be difficult for our stockholders to sell their shares of our common stock and, if our stockholders are able to sell their shares of our common stock, they will likely sell them at a substantial discount.

We commenced a best efforts initial public offering on February 26, 2014 and terminated the primary portion of our initial offering on March 12, 2015. However, there currently is no public market for the shares of our common stock. We do not expect a public market for our stock to develop prior to the listing of the shares of our common stock on a national securities exchange, which we do not expect to occur in the near future and which may not occur at all. Additionally, our charter contains restrictions on the ownership and transfer of shares of our stock and these restrictions may inhibit our stockholders’ ability to sell their shares of our common stock. Our charter provides that no person may own more than 9.9% in value of our issued and outstanding shares of capital stock or more than 9.9% in value or in number of shares, whichever is more restrictive, of the issued and outstanding shares of our common stock. Any purported transfer of the shares of our common stock that would result in a violation of either of these limits will result in such shares being transferred to a trust for the benefit of a charitable beneficiary or such transfer being declared null and void. We have adopted a share repurchase plan, but it is limited in terms of the amount of shares of our common stock which may be repurchased annually and is subject to our board’s discretion. Our board may also amend, suspend, or terminate our share repurchase plan at any time upon 30 days’ written notice. Therefore, it will be difficult for our stockholders to sell their shares of our common stock promptly or at all. If our stockholders are able to sell their shares of our common stock, our stockholders may only be able to sell them to an unrelated third party at a substantial discount from the price they paid. This may be the result, in part, of the fact that, at the time we made our investments, the amount of funds available for investment were reduced by up to 12.0% of the gross offering proceeds, which amounts were used to pay selling commissions, a dealer manager fee and other organizational and offering expenses. We also were required to use gross offering proceeds to pay acquisition fees, acquisition expenses and asset management fees. Unless our aggregate investments increase in value to compensate for these fees and expenses, which may not occur, it is unlikely that our stockholders will be able to sell their shares of our common stock, whether pursuant to our share repurchase plan or otherwise, without incurring a substantial loss. We cannot assure our stockholders that their shares of our common stock will ever appreciate in value to equal the price our stockholders paid for their shares of our common stock. Therefore, shares of our common stock should be considered illiquid and a long-term investment and our stockholders must be prepared to hold their shares of our common stock for an indefinite length of time.

The estimated value per share of our common stock may not be an accurate reflection of fair value of our assets and liabilities and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved or completed a merger or other sale of our company.

On October 3, 2019, 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 $9.40. We are providing this updated estimated per share NAV to assist broker-dealers in connection with their obligations under FINRA Rule 2231, 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.

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 accounting principles generally accepted in the United States of America, or 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;

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•	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 our 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 reporting requirements under the Employee Retirement Income Security Act of 1974, or ERISA, the Code, other applicable law, or the applicable provisions of a retirement plan or individual retirement account, or IRA.

Further, 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, 2019. 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. We intend to continue 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, 2019.

It may be difficult to accurately reflect recent and material events that may impact our estimated per share NAV between valuations and accordingly, we may be repurchasing shares at too high or too low a price.

Our independent valuation firm will calculate estimates of the market value of our real estate investments, and our board will determine the net value of our real estate investments and liabilities taking into consideration such estimate provided by the independent valuation firm. Our board is ultimately responsible for determining the estimated per share NAV. Since our board determines our estimated per share NAV at least annually, there may be changes in the value of our assets that are not fully reflected in the updated estimated per share NAV. As a result, the published estimated per share NAV may not fully reflect changes in value that may have occurred since the prior valuation. Furthermore, our advisor will monitor our portfolio, but it may be difficult to reflect changing market conditions or material events that may impact the value of our portfolio between valuations, or to obtain timely or complete information regarding any such events. Therefore, the estimated per share NAV published before the announcement of an extraordinary event may differ significantly from our actual per share NAV until such time as sufficient information is available and analyzed, the financial impact is fully evaluated, and the appropriate adjustment is made to our estimated per share NAV, as determined by our board. Any resulting disparity may be to the detriment of a stockholder selling shares pursuant to our share repurchase plan.

We have experienced losses in the past and we may experience additional losses in the future.

Historically, we have experienced net losses (calculated in accordance with GAAP) and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs, general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments. For a further discussion of our operational history and the factors affecting our losses, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and the notes thereto.

We have not had sufficient cash available from operations to pay distributions, and therefore, we have paid a portion of 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, borrowings and our advisor has waived certain fees payable to it, and in the future, may use 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 partially include a return of capital, rather than a return on capital, and we have paid a portion of our distributions from the net proceeds of our initial offering. We have not established any limit on the amount of net proceeds from our initial offering or borrowings 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

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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 maintain our qualification 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 March 31, 2020. 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 our DRIP Offerings monthly in arrears, only from legally available funds.

The distributions paid for the years ended December 31, 2019 and 2018, along with the amount of distributions reinvested pursuant our DRIP Offerings, and the sources of our distributions as compared to cash flows from operations were as follows:

	Years Ended December 31,
	2019							2018
Distributions paid in cash	$	62,612,000						$	59,974,000
Distributions reinvested	55,440,000							60,030,000
	$	118,052,000						$	120,004,000
Sources of distributions:
Cash flows from operations	$	117,454,000			99.5	%		$	106,814,000			89.0	%
Proceeds from borrowings	598,000				0.5			13,190,000				11.0
	$	118,052,000			100	%		$	120,004,000			100	%

As of December 31, 2019, 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 net offering proceeds and borrowings. The payment of distributions from our net offering proceeds and borrowings have reduced the amount of capital we ultimately invested in assets and negatively impacted the amount of income available for future distributions.

As of December 31, 2019, we had an amount payable of $2,146,000 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. See Note 14, Related Party Transactions — Operational Stage, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

The distributions paid for the years ended December 31, 2019 and 2018, along with the amount of distributions reinvested pursuant to our DRIP Offerings, and the sources of our distributions as compared to funds from operations attributable to controlling interest, or FFO, were as follows:

	Years Ended December 31,
	2019							2018
Distributions paid in cash	$	62,612,000						$	59,974,000
Distributions reinvested	55,440,000							60,030,000
	$	118,052,000						$	120,004,000
Sources of distributions:
FFO attributable to controlling interest	$	91,159,000			77.2	%		$	96,958,000			80.8	%
Proceeds from borrowings	26,893,000				22.8			23,046,000				19.2
	$	118,052,000			100	%		$	120,004,000			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 II, Item 6, Selected Financial Data.

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Our stockholders may not be able to adequately evaluate our ability to achieve our investment objectives, and the prior performance of other programs sponsored or co-sponsored by American Healthcare Investors and Griffin Capital may not be an accurate predictor of our future results.

We were formed in January 2013, did not engage in any material business operations prior to the effective date of our initial offering and acquired our first property in June 2014. As a result, an investment in shares of our common stock may entail more risks than the shares of common stock of a REIT with a more substantial operating history. In addition, our stockholders should not rely on the past performance of other American Healthcare Investors or Griffin Capital-sponsored or co-sponsored programs to predict our future results. Our stockholders should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies like ours that do not have a substantial operating history, many of which may be beyond our control. For example, due to challenging economic conditions in the past, distributions to stockholders of several private real estate programs sponsored by Griffin Capital were suspended. Therefore, to be successful in this market, we must, among other things:

•	identify and acquire investments that further our investment strategy;

•	attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;

•	respond to competition both for investment opportunities and potential investors’ investment in us; and

•	build and expand our operational structure to support our business.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could adversely affect our results of operations and cause our stockholders to lose all or a portion of their investment and adversely effect our results of operations.

Our success is dependent on the performance of our co-sponsors. Our co-sponsors and certain of their key personnel will face competing demands relating to their time or fiduciary duties and this may cause our operating results to suffer.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor. Our advisor is a joint venture between our two co-sponsors, in which American Healthcare Investors indirectly owns a 75.0% interest and Griffin Capital indirectly owns a 25.0% interest.

Griffin Capital and certain of its key personnel and its respective affiliates serve as key personnel, advisors, managers and sponsors or co-sponsors of 11 other Griffin Capital-sponsored programs, including Griffin-American Healthcare REIT IV, Inc., or GA Healthcare REIT IV, Griffin Institutional Access Real Estate Fund, or GIA Real Estate, and Griffin Institutional Access Credit Fund, or GIA Credit Fund, and may have other business interests as well. In addition, American Healthcare Investors and its key personnel serve as key personnel and co-sponsor of GA Healthcare REIT IV and may sponsor or co-sponsor additional real estate programs in the future. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our stockholders’ investment may suffer. Also, since these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us, their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Accordingly, competing demands of such key personnel may cause us to be unable to successfully implement our investment objectives or generate cash needed to make distributions to our stockholders, and to maintain or increase the value of our assets.

Additionally, our co-sponsors’ ability to manage our operations successfully is impacted by trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment may negatively impact the value of commercial real estate assets and contribute to a general slow-down in our industry, which could put downward pressure on our co-sponsors’ revenues and operating results. Since American Healthcare Investors is 47.1% owned by AHI Group Holdings and 45.1% indirectly owned by Colony Capital, our company may not realize the anticipated benefits of the relationship with Colony Capital due to, among other things, the economic and overall conditions of the healthcare real estate industry, conflicts of interests relating to the purchase and leasing of healthcare properties, or American Healthcare Investors and Colony Capital having overlapping interests that could exacerbate other potential conflicts or disputes. To the extent that any of these factors may cause a decline in our co-sponsors’ operating results or revenues, the performance of our advisor may be impacted and in turn, our results of operations and financial condition could also suffer.

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Our stockholders may be unable to sell their shares of our common stock because our share repurchase plan is subject to significant restrictions and limitations.

Our share repurchase plan includes significant restrictions and limitations. Except in cases of death or qualifying disability, our stockholders must hold their shares of our common stock for at least one year. Our stockholders must present at least 25.0% of their shares of our common stock for repurchase and until they have held their shares of our common stock for at least four years, repurchases will be made for less than our stockholders paid for their shares of our common stock. Shares of our common stock may be repurchased quarterly, at our discretion, on a pro rata basis, and are limited during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. 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 our DRIP Offerings. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter generally will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to the DRIP Offerings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or qualifying disability of a stockholder will not be subject to this quarterly cap or to our existing cap on repurchases to 5.0% of the weighted average number of shares outstanding during the calendar year prior to the repurchase date.

Furthermore, our board may reject share repurchase requests in its sole discretion and reserves the right to amend, suspend or terminate our share repurchase plan at any time upon 30 days’ written notice. Therefore, in making a decision to purchase shares of our common stock, our stockholders should not assume that they will be able to sell any of their shares of our common stock back to us pursuant to our share repurchase plan and our stockholders also should understand that the repurchase price will not necessarily correlate to the value of our real estate holdings or other assets. If our board terminates our share repurchase plan, our stockholders may not be able to sell their shares of our common stock even if our stockholders deem it necessary or desirable to do so.

Our stockholders are limited in their ability to sell their shares pursuant to our share repurchase plan and may have to hold their shares for an indefinite period of time.

Our board has rejected and may reject any request for repurchase of shares, suspend (in whole or in part) the share repurchase plan at any time and from time to time upon notice to our stockholders and amend, suspend, reduce, terminate or otherwise change our share repurchase plan at any time upon 30 days’ notice to our stockholders for any reason it deems appropriate. Because we only repurchase shares on a quarterly basis, depending upon when during the quarter our board makes this determination, it is possible that our stockholders would not have any additional opportunities to have their shares repurchased under the prior terms of the program, or at all, upon receipt of the notice. In addition, the share repurchase plan includes numerous restrictions that would limit stockholders’ ability to sell their shares. Generally, stockholders must have held their shares for at least one year in order to participate in our share repurchase program, subject to the right of our board to waive such holding requirement in the event of the death or qualifying disability of a stockholder. Unless the shares of our common stock are being repurchased in connection with a stockholder’s death or qualifying disability, the purchase price for shares repurchased under our share repurchase program will be as set forth below. We do not currently anticipate obtaining appraisals for our investments (other than investments in transactions with affiliates), and, accordingly, the estimated value of our investments should not be viewed as an accurate reflection of the fair market value of our investments nor will they represent the amount of net proceeds that would result from an immediate sale of our assets. 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, we will 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 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). These limits might prevent us from accommodating all repurchase requests made in any year. These restrictions severely limit our stockholders’ ability to sell their shares should they require liquidity, and limit their ability to recover the value such stockholders invested or the fair market value of their shares. As a result, stockholders should not rely on our share repurchase plan to provide them with liquidity. On October 3, 2019, our board approved and established the updated estimated per share NAV of our common stock of $9.40.

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Our advisor may be entitled to receive significant compensation in the event of our liquidation or in connection with a termination of the Advisory Agreement, even if such termination is the result of poor performance by our advisor.

We are externally advised by our advisor pursuant to the Advisory Agreement between us and our advisor, which has a one-year term that expires on February 26, 2021 and is subject to successive one-year renewals upon the mutual consent of us and our advisor. In the event of a partial or full liquidation of our assets, our advisor will be entitled to receive an incentive distribution equal to 15.0% of the remaining net proceeds of the liquidation, after distributions to our stockholders, in the aggregate, of a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the shares of our common stock, as adjusted for distribution of net sale proceeds. In the event of a termination of the Advisory Agreement in connection with the listing of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (i) the market value of our outstanding common stock at listing plus distributions paid by us prior to the listing of the shares of our common stock on a national securities exchange, exceeds (ii) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus the 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 date of listing. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination or non-renewal of the Advisory Agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units 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) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return to our stockholders on the gross proceeds from the sale of shares of our common stock through the termination date. Such distribution upon termination of the Advisory Agreement is payable to our advisor even upon termination or non-renewal of the Advisory Agreement as a result of poor performance by our advisor. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor in connection with the termination of the Advisory Agreement cannot be determined at the present time, but such amounts, if paid, will reduce the cash available for distribution to our stockholders.

If we do not effect a liquidity event, our stockholders may have to hold their investment in shares of our common stock for an indefinite period of time.

On a limited basis, our stockholders may be able to sell shares of our common stock to us through our share repurchase plan. However, in the future we may also consider various forms of liquidity events, including but not limited to: (i) the listing of the shares of our common stock on a national securities exchange; (ii) our sale or merger in a transaction that provides our stockholders with a combination of cash and/or securities of a publicly traded company; and (iii) the sale of all or substantially all of our real estate and real estate-related investments for cash or other consideration. We are not obligated, through our charter or otherwise, to effectuate a liquidity event within a specified time frame or at all. If we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in the shares of our common stock other than limited liquidity through our share repurchase plan.

Our board may change our investment objectives without seeking our stockholders’ approval.

Our board may change our investment objectives without seeking our stockholders’ approval if our directors, in accordance with their fiduciary duties to our stockholders, determine that a change is in our stockholders’ best interest. A change in our investment objectives could reduce our payment of cash distributions to our stockholders or cause a decline in the value of our investments.

Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to international, national and local economic factors we cannot control or predict.

Our results of operations are subject to the risks of a international or national economic slowdown or downturn and other changes in national and local economic conditions. The following factors may affect income from our properties, our ability to acquire and dispose of properties, and yields from our properties:

•	poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity, or operational failures. We may also be required to provide rent concessions, tenant improvement expenditures or reduced rental rates to maintain or increase occupancy levels;

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•	fluctuations in property values as a result of increases or decreases in construction activity, supply and demand, occupancies and rental rates may cause the properties that we acquire to decrease in value. Consequently, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge or record a loss on sale in earnings;

•	reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;

•

the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment or other factors;

•	our lenders under a line of credit could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of such lender on favorable terms, or at all;

•	increases in index rates and lender spreads or other regulatory or market factors affecting the banking and commercial mortgage-backed securities industries may increase overall borrowing costs;

•	one or more counterparties to our interest rate swaps could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of these instruments;

•	increases in supply of competing properties or decreases in demand for our properties may impact our ability to maintain or increase occupancy levels and rents;

•	constricted access to credit may result in tenant defaults or non-renewals under leases;

•	job transfers and layoffs may lead to a lower demand for medical services and cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels;

•	future disruptions in the financial markets, deterioration in economic conditions or a public health crisis, such as coronavirus, may result in lower occupancy in our facilities, increased vacancy rates for commercial real estate due to generally lower demand for rentable space, as well as potential oversupply of rentable space;

•	governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; and

•	increased insurance premiums, real estate taxes or utilities or other expenses may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may make it difficult to increase rents to tenants on turnover, which may limit our ability to increase our returns.

The length and severity of any economic slowdown or downturn cannot be predicted. Our results of operations, our ability to continue to pay distributions to our stockholders and our ability to dispose of our investments may be negatively impacted to the extent an economic slowdown or downturn is prolonged or becomes more severe.

We face competition for the acquisition of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, which may impede our ability to make acquisitions or may increase the cost of these acquisitions and may reduce our profitability and could cause our stockholders to experience a lower return on our stockholders’ investment.

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, including international, national, regional and local operators, acquirers and developers of healthcare real estate properties, as well as Griffin-American Healthcare REIT IV, Inc. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities or other assets we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets, and therefore, increased prices paid for them. If there is an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices per property if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices per property for medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities,

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our business, financial condition, results of operations and our ability to pay distributions to our stockholders may be materially and adversely affected and our stockholders may experience a lower return on their investment.

Risks Related to Our Business

The availability and timing of cash distributions to our stockholders is uncertain. If we fail to pay distributions, our stockholders’ investment in shares of our common stock could suffer.

We expect to continue to pay distributions to our stockholders monthly. However, we bear all expenses incurred in our operations, which are deducted from cash flows generated by operations prior to computing the amount of cash distributions to our stockholders. In addition, our board, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be available to pay distributions to them monthly, or at all. Should we fail for any reason to distribute at least 90.0% of our annual taxable income, excluding net capital gains, we would not qualify for the favorable tax treatment accorded to REITs.

Actual or threatened public health epidemics, pandemics or outbreaks, such as a severe cold and flu season, the coronavirus, or any other widespread illnesses, could have a material adverse effect on our business and results of operations.

If an actual or threatened public health epidemic, pandemic, or outbreaks, such as a severe cold and flu season, the coronavirus, or any other widespread illness were to affect the markets in which we or our tenants operate, our business and results of operations could be materially adversely affected. Such a crisis could diminish the public trust in healthcare facilities, especially hospitals or facilities that fail to accurately or timely diagnose, or other facilities such as medical office buildings that are treating (or have treated) patients affected by contagious diseases. If any of our facilities were involved in treating patients for such a contagious disease, other patients might cancel elective procedures or fail to seek needed care from our or our tenants’ facilities. Additionally, our revenues and our operators’ revenues are dependent on occupancy. The occupancy of our integrated senior health campuses, senior housing and skilled nursing facilities could significantly decrease in the event of an epidemic or any other widespread illness. Such a decrease could affect the operating income of our integrated senior health campuses, senior housing and skilled nursing facilities and the ability of our operators to make payments to us. In addition, a flu pandemic or other widespread illness such as coronavirus could significantly increase the cost burdens faced by our operators, including if they are required to increase staffing and/or implement quarantines for residents. Further, a pandemic might adversely impact our tenants’ and operators’ businesses by causing a temporary shutdown or diversion of patients, by disrupting or delaying production and delivery of materials and products in the supply chain or by causing staffing shortages in those facilities, which could have a material adverse impact on our business, financial condition, results of operations and our ability to pay distributions.

We are uncertain of all of our sources of debt or equity for funding our capital needs. If we cannot obtain funding on acceptable terms, our ability to acquire, and make necessary capital improvements to, properties may be impaired or delayed.

We have not identified all of our sources of debt or equity for funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to acquire, and make necessary capital improvements to, properties, pay other expenses or expand our business.

We use mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to pay distributions and could decrease the value of our stockholders’ investment.

We have financed, and will continue to finance, all or 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 market value of our real estate and real estate-related investments, as determined at the end of each calendar year. 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 non-cash reserves, less total liabilities. Generally speaking, 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 properties 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.

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High debt levels may cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flows from a property and the cash flows needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. In addition, lenders may have recourse to assets other than those specifically securing the repayment of indebtedness. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Higher mortgage rates may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can develop or acquire and the amount of cash available for distribution to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the development or initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

We are dependent on tenants for our revenue, and lease terminations could reduce our distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could cause us to reduce the amount of distributions to our stockholders. If a property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.

The integrated senior health campuses managed by TMS account for a significant portion of our revenues and/or operating income. Adverse developments in TMS’s business or financial condition could have a material adverse effect on us.

As of March 26, 2020, Trilogy Management Services, LLC, or TMS, managed all of the day-to-day operations for our integrated senior health campuses pursuant to long-term management agreements. These integrated senior health campuses represent a substantial portion of our portfolio, based on their gross book value, and account for a significant portion of our revenues and/or NOI. Although we have various rights as the owner of these integrated senior health campuses under our management agreements, we rely on TMS’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our integrated senior health campuses operations efficiently and effectively, and to identify and manage development opportunities for new integrated senior health campuses. We also rely on TMS to provide accurate campus-level financial results for our integrated senior health campuses in a timely manner and to otherwise operate our integrated senior health campuses in compliance with the terms of our management agreements and all applicable laws and regulations. We depend on TMS’s ability to attract and retain skilled personnel to provide these services. A shortage of nurses or other trained personnel or general inflationary pressures may force TMS to enhance its pay and benefits package to compete effectively for such personnel, but it may not be able to offset these added costs by increasing the rates charged to residents. As such, any adverse developments in TMS’s business or financial condition, including its ability to retain key personnel, could impair its ability to manage our integrated senior health campuses efficiently and effectively and could have a material adverse effect on us. In addition, if TMS experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy, industry downturn or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings by or against it under the United States Bankruptcy Code. Any one or a combination of these risks could have a material adverse effect on us.

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We have rights to terminate our management agreements with TMS for our integrated senior health campuses under any circumstances; however, we may be unable to replace TMS in the event that our management agreements are terminated or not renewed.

We continually monitor and assess our contractual rights and remedies under our management agreements with TMS. When determining whether to pursue any existing or future rights or remedies under those agreements, including termination rights, we consider numerous factors, including legal, contractual, regulatory, business and other relevant considerations. In the event that we exercise our rights to terminate management agreements with TMS for any reason or such agreements are not renewed upon expiration of their terms, we would attempt to reposition the affected integrated senior health campuses with another manager. Although we believe that many qualified national and regional operators would be interested in managing our integrated senior health campuses, we cannot provide any assurance that we would be able to locate another suitable manager or, if we were successful in locating such a manager, that it would manage the integrated senior health campuses effectively or that any such transition would be completed timely. Any such transition would likely result in disruption of the operation of such facilities, including matters relating to staffing and reporting. Moreover, the transition to a replacement manager may require approval by the applicable regulatory authorities and, in most cases, one or more of our lenders including the mortgage lenders for the integrated senior health campuses, and we cannot provide any assurance that such approvals would be granted on a timely basis, if at all. Any inability to replace, or delay in replacing TMS as the manager of integrated senior health campuses could have a material adverse effect on us.

If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.

Any of our current or future tenants, or any guarantor of one of our current or future tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar us from attempting to collect pre-bankruptcy debts from the bankrupt tenant or its properties unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If we assume a lease, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim would be capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15.0% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.

The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past due balances under the relevant lease, and could ultimately preclude full collection of these sums. Such an event also could cause a decrease or cessation of current rental payments, reducing our cash flows and the amounts available for distributions to our stockholders. In the event a tenant or lease guarantor declares bankruptcy, the tenant or its trustee may not assume our lease or its guaranty. If a given lease or guaranty is not assumed, our cash flows and the amounts available for distributions to our stockholders may be adversely affected.

We face potential adverse consequences of bankruptcy or insolvency by our operators, borrowers, managers and other obligors.

We are exposed to the risk that our operators, borrowers, managers or other obligors may become bankrupt or insolvent. Although our loan, management and other agreements give us the right to exercise certain remedies in the event of default on the obligations owing to us or upon the occurrence of certain insolvency events, federal laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, if a debtor-manager seeks bankruptcy protection, the automatic stay provisions of the United States Bankruptcy Code would preclude us from enforcing our remedies against the manager unless relief is first obtained from the court having jurisdiction over the bankruptcy case. In any of these events, we also may be required to fund certain expenses and obligations, e.g., real estate taxes, debt costs and maintenance expenses, to preserve the value of our properties, avoid the imposition of liens on our properties or transition our properties to a new operator or manager. Furthermore, many of our facilities are leased to healthcare providers who provide long-term custodial care to the elderly. Evicting such operators for failure to pay rent while the facility is occupied may involve specific procedural requirements and may not be successful. Additionally, the financial weakness or other inability of our operators, borrowers or managers to make payments or comply with certain other lease obligations may affect our compliance with certain covenants contained in our debt securities, credit facilities and the mortgages on the properties leased or managed by such operators or managers or otherwise adversely affect our results of operations. Under certain conditions, defaults under the underlying mortgages may result in cross default under our other indebtedness. Although we may be able to secure amendments under the applicable agreements in those circumstances, the bankruptcy of an applicable operator, borrower or manager may potentially result in less favorable borrowing terms than currently available, delays in the availability of funding or other materially adverse consequences.

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Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions could be lower than if we did not enter into long-term leases.

We have entered and may continue to enter into long-term leases with tenants of certain of our properties. Our long-term leases have provided and would likely continue to provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.

We may incur additional costs in re-leasing properties, which could adversely affect the cash available for distribution to our stockholders.

We may invest in properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If the tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant without making substantial capital improvements or incurring other significant re-leasing costs. We also may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant. These consequences could adversely affect our revenues and reduce the cash available for distribution to our stockholders.

We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract, replace or retain tenants and decrease our stockholders’ return on investment.

When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we have and will be required to expend substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements have required and may continue to require us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant improvements or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flows as a result of fewer potential tenants being attracted to the property or our existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or pay distributions to our stockholders.

Our success is dependent on the performance of our advisor and certain key personnel.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor in identifying and acquiring investments, the determination of any financing arrangements, the asset management of our investments and the management of our day-to-day activities. Our advisor has broad discretion over our investment decisions and our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our periodic filings with the SEC. We rely on the management ability of our advisor, subject to the oversight and approval of our board. If our advisor suffers or is distracted by adverse financial or operational problems in connection with their own operations or the operations of American Healthcare Investors or Griffin Capital unrelated to us, our advisor may be unable to allocate time and/or resources to our operations. If our advisor is unable to allocate sufficient resources to oversee and perform our operations for any reason, we may be unable to achieve our investment objectives or to pay distributions to our stockholders. In addition, our success depends to a significant degree upon the continued contributions of our advisor’s officers and certain of the managing directors, officers and employees of American Healthcare Investors, in particular Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff, each of whom would be difficult to replace. Messrs. Hanson, Prosky and Streiff currently serve as our executive officers and/or directors and Mr. Hanson also serves as Chairman of our Board of Directors. We currently do not have an employment agreement with any of Messrs. Hanson, Prosky or Streiff. In the event that Messrs. Hanson, Prosky or Streiff are no longer affiliated with American Healthcare Investors, for any reason, it could have a material adverse effect on our success and American Healthcare Investors may not be able to attract and hire as capable individuals to replace Messrs. Hanson, Prosky and/or Streiff. We do not have key man life insurance on any of our co-sponsors’ key personnel. If our advisor or American Healthcare Investors were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.

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Our advisor may terminate the Advisory Agreement, which could require us to pay substantial fees and may require us to find a new advisor.

Either we or our advisor are able to terminate the Advisory Agreement subject to a 60-day transition period with respect to certain provisions of the Advisory Agreement. However, if the Advisory Agreement is terminated in connection with the listing of shares of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (i) the market value of the outstanding shares of our common stock at listing plus distributions paid by us prior to listing, exceeds (ii) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination of the Advisory Agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units equal to the amount that would be payable to our advisor pursuant to the incentive distribution upon sales if we liquidated all of our assets for their fair market value. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor upon termination of the Advisory Agreement cannot be determined at the present time.

If our advisor was to terminate the Advisory Agreement, we would need to find another advisor to provide us with day-to-day management services or have employees to provide these services directly to us. There can be no assurances that we would be able to find new advisors or employees or enter into agreements for such services on acceptable terms.

If we internalize our management functions, we could incur significant costs associated with being self-managed.

Our strategy may involve internalizing our management functions. If we internalize our management functions, we would no longer bear the costs of the various fees and expenses we expect to pay to our advisor under the Advisory Agreement; however, our direct expenses would include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, SEC reporting and compliance. We would also incur the compensation and benefits costs of our officers and other employees and consultants that are now paid by our advisor or its affiliates. In addition, we may issue equity awards to officers, employees and consultants, which awards would decrease net income and FFO, and may further dilute our stockholders’ investment. We cannot reasonably estimate the amount of fees to our advisor we would save and the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we no longer pay to our advisor, our net income per share and FFO per share may be lower as a result of the internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders.

As currently organized, we do not directly have any employees. If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as worker’s disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. Upon any internalization of our advisor, certain key personnel of our advisor or American Healthcare Investors may not be employed by us, but instead may remain employees of our co-sponsors or their affiliates.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. They have a great deal of know-how and can experience economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could, therefore, result in our incurring additional costs and/or experiencing deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our properties.

Because not all REITs calculate MFFO the same way, our use of MFFO may not provide meaningful comparisons with other REITs.

We use modified funds from operations attributable to controlling interest, or 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. However, not all REITs calculate MFFO the same way. We define MFFO, a non-GAAP measure, consistent with the IPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the

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Practice Guideline, issued by the IPA in November 2010. If REITs use different methods of calculating MFFO, it may not be possible for investors to meaningfully compare the performance of certain REITs.

Our use of derivative financial instruments to hedge against foreign currency exchange rate fluctuations could expose us to risks that may adversely affect our results of operations, financial condition and ability to pay distributions to our stockholders.

We have used and may continue to use derivative financial instruments to hedge against foreign currency exchange rate fluctuations, in which case we would be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

Cyber incidents and cyber-attacks have been occurring globally at a more frequent and severe level and may continue to increase in frequency in the future. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, patient and investor relationships. As our reliance on technology increases, so will the risks posed to our information systems, both internal and those we outsource. There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions, which could have a negative impact on our financial results, operations, business relationships or confidential information.

A breach of information technology systems on which we rely could materially and adversely impact our business, financial condition, results of operations and reputation. 

We and our operators rely on information technology systems, including the Internet and networks and systems maintained and controlled by third-party vendors and other third parties, to process, transmit and store information and to manage or support our business processes. Third-party vendors collect and hold personally identifiable information and other confidential information of our tenants, patients, stockholders and employees. We also maintain confidential financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we and our operators take steps to protect the security of the information maintained in our information technology systems, including the use of commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing of the information, it is possible that such security measures will not be able to prevent human error or the systems’ improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, phishing scams, attacks by hackers, breaches due to employee error or misconduct, and similar breaches, can create, and in some instances in the past resulted in, system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third-party vendors or other third parties or otherwise cause disruption or negative impacts to occur to our business and adversely affect our financial condition and results of operations. While we and most of our operators maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach. As the techniques used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third-party vendors and other third parties may be unable to adequately anticipate these techniques or breaches and implement appropriate preventative measures. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third-party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain tenants, and subject us to liability claims or regulatory penalties, which could adversely affect our business, financial condition and results of operations.

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The expansion of social media platforms presents new risks and challenges.

The inappropriate use of certain social media vehicles could cause brand damage or information leakage or could lead to legal implications from the improper collection and/or dissemination of personally identifiable information or the improper dissemination of material non-public information. In addition, negative posts or comments about us on any social networking website could seriously damage our reputation. Further, the disclosure of non-public company sensitive information through external media channels could lead to information loss as there might not be structured processes in place to secure and protect information. If our non-public sensitive information is disclosed or if our reputation is seriously damaged through social media, it could have a material adverse effect on our business and financial condition.

Risks Related to Conflicts of Interest

We are subject to conflicts of interest arising out of relationships among us, our officers, our co-sponsors, our advisor and its affiliates, including the material conflicts discussed below.

Our advisor faces conflicts of interest relating to its compensation structure, including the payment of acquisition fees and asset management fees, which could result in actions that are not necessarily in our stockholders’ long-term best interest.

Under the Advisory Agreement and pursuant to the subordinated participation interest our advisor holds in our operating partnership, our advisor will be entitled to fees and distributions that are structured in a manner intended to provide incentives to our advisor to perform in both our and our stockholders’ long-term best interests. The fees to which our advisor or its affiliates will be entitled include acquisition fees, asset management fees, property management fees, disposition fees and other fees as provided for under the Advisory Agreement and agreement of limited partnership of our operating partnership. The distributions our advisor may become entitled to receive would be payable upon distribution of net sales proceeds to our stockholders, the listing of the shares of our common stock on a national securities exchange, certain merger transactions or the termination of the Advisory Agreement. However, because our advisor will be entitled to receive substantial minimum compensation regardless of our performance, our advisor’s interests may not be wholly aligned with our stockholders’ interests. In that regard, our advisor or its affiliates will receive an asset management fee with respect to the ongoing operation and management of properties based on the amount of our initial investment and capital expenditures and not the performance of those investments, which could result in our advisor not having adequate incentive to manage our portfolio to provide profitable operations during the period we hold our investments. On the other hand, our advisor could be motivated to recommend riskier or more speculative investments in order to increase the fees payable to our advisor or for us to generate the specified levels of performance or net sales proceeds that would entitle our advisor to fees or distributions. Furthermore, our advisor or its affiliates will receive an acquisition fee that is based on the contract purchase price of each property acquired or the origination or acquisition price of any real estate-related investment, rather than the performance of those investments. Therefore, our advisor or its affiliates may have an incentive to recommend investments more quickly or with a higher purchase price or investments that may not produce the maximum risk adjusted returns in order to receive such acquisition fees.

Our advisor may receive economic benefits from its status as a limited partner without bearing any of the investment risk.

Our advisor is a limited partner in our operating partnership. Our advisor is entitled to receive an incentive distribution equal to 15.0% of net sales proceeds of properties after we have received and paid to our stockholders a return of their invested capital and an annual 7.0% cumulative, non-compounded return on the gross proceeds of the sale of shares of our common stock. We bear all of the risk associated with the properties but, as a result of the incentive distributions to our advisor, we are not entitled to all of our operating partnership’s proceeds from property dispositions.

The distribution payable to our advisor may influence our decisions about listing the shares of our common stock on a national securities exchange, merging our company with another company and acquisition or disposition of our investments.

Our advisor’s entitlement to fees upon the sale of our assets and to participate in net sales proceeds could result in our advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return which would entitle our advisor to compensation relating to such sales, even if continued ownership of those investments might be in our stockholders’ long-term best interest. The subordinated participation interest may require our operating partnership to make a distribution to our advisor in redemption of its limited partnership units upon the listing of the shares of our common stock on a national securities exchange or the merger of our company with another company in which our stockholders receive shares that are traded on a national securities exchange if our advisor meets the performance thresholds included in our operating partnership’s limited partnership agreement, even if our advisor is no longer serving as our advisor. To avoid making this distribution, our independent directors may decide against listing the shares of our common stock or merging with another company even if, but for the requirement to make this distribution, such listing or merger would be in our stockholders’ best interest. In addition, the requirement to pay these fees could cause our independent directors to make different investment or disposition decisions than they would otherwise make, in order to satisfy our obligation to our advisor.

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We may acquire assets from, or dispose of assets to, affiliates of our advisor, which could result in us entering into transactions on less favorable terms than we would receive from a third party or that negatively affect the public’s perception of us.

We may acquire assets from affiliates of our advisor. Further, we may also dispose of assets to affiliates of our advisor. Affiliates of our advisor may make substantial profits in connection with such transactions and may owe fiduciary and/or other duties to the selling or purchasing entity in these transactions, and conflicts of interest between us and the selling or purchasing entities could exist in such transactions. Because our independent directors would rely on our advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party. Also, the existence of conflicts, regardless of how they are resolved, might negatively affect the public’s perception of us.

We have entered and may continue to enter into joint ventures with other programs sponsored or advised by one of our co-sponsors or one of their affiliates, and we may face conflicts of interest or disagreements with our joint venture partners that may not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s-length with an independent joint venture partner.

We have entered and may continue to enter into joint ventures with other programs sponsored or advised by one of our co-sponsors or one of their affiliates, as such we do and may face certain additional risks and potential conflicts of interest. For example, securities issued by other current or future Griffin Capital or American Healthcare Investors-sponsored programs may never have an active trading market. Therefore, if we were to become listed on a national securities exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. Joint ventures between us and other current or future Griffin Capital or American Healthcare Investors-sponsored programs do not and will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could occur regarding matters pertaining to the joint venture, including determining when and whether to buy or sell a particular property and the timing of a liquidation, which might have a negative impact on the joint venture and decrease returns to our stockholders.

Risks Related to Our Organizational Structure

Several potential events could cause our stockholders’ investment in us to be diluted, which may reduce the overall value of our stockholders’ investment.

Our stockholders’ investment in us could be diluted by a number of factors, including:

•	future offerings of our securities, including issuances pursuant to the DRIP and up to 200,000,000 shares of any class or series of preferred stock that our board may authorize;

•	private issuances of our securities to other investors, including institutional investors;

•	issuances of our securities pursuant to our incentive plan; or

•	redemptions of units of limited partnership interest in our operating partnership in exchange for shares of our common stock.

To the extent we issue additional equity interests, current stockholders’ percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate and real estate-related investments, our stockholders may also experience dilution in the book value and fair market value of their shares of our common stock.

Our ability to issue preferred stock may include a preference in distributions superior to our common stock and also may deter or prevent a sale of shares of our common stock in which our stockholders could profit.

Our charter authorizes our board to issue up to 200,000,000 shares of preferred stock. Our board has the discretion to establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock. If we authorize and issue preferred stock with a distribution preference over our common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount our common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:

•	a merger, tender offer or proxy contest;

•	assumption of control by a holder of a large block of our securities; or

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•	removal of incumbent management.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.9% of the value of shares of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.9% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our stock on terms that might be financially attractive to our stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.

Our stockholders’ ability to control our operations is severely limited.

Our board determines our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board may amend or revise these and other strategies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association REIT Guidelines. Under our charter and Maryland law, our stockholders have a right to vote only on the following matters:

•	the election or removal of directors;

•

the amendment of our charter, except that our board may amend our charter without stockholder approval to change our name or the name of other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have the authority to issue, or effect certain reverse stock splits;

•	our dissolution; and

•	certain mergers, consolidations, conversions, statutory share exchanges and sales or other dispositions of all or substantially all of our assets.

All other matters are subject to the discretion of our board.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit or delay our stockholders’ ability to dispose of their shares of our common stock.

The Maryland General Corporation Law, or the MGCL, contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of us. Our bylaws exempt us from the control share acquisition statute, which eliminates voting rights for certain levels of shares that could exercise control over us, and our board has adopted a resolution providing that any business combination between us and any other person is exempted from the business combination statute, provided that such business combination is first approved by our board.

Under the MGCL, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

•	any person who beneficially owns, directly or indirectly, 10.0% or more of the voting power of the corporation’s outstanding voting stock; or

•	an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10.0% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if our board approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, our board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by our board.

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After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of the corporation and approved by the affirmative vote of at least:

•	80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

•	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares of stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the MGCL, for their shares of our common stock in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares of our common stock. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board prior to the time that the interested stockholder becomes an interested stockholder.

However, if the bylaw provisions exempting us from the control share acquisition statute or our board resolution opting out of the business combination statute were repealed in whole or in part at any time, these provisions of the MGCL could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in our stockholders’ best interest. Furthermore, these limits on ownership and transfer of our equity securities under the MGCL may have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our stockholders’ common stock.

The MGCL and our organizational documents limit our stockholders’ right to bring claims against our officers and directors.

The MGCL provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under the MGCL, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities unless: (i) their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (ii) they actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers and intend to enter into indemnification agreements with each of our future directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter also provides that we may not indemnify our directors, our advisor and its affiliates for any loss or liability suffered by them or hold them harmless for any loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interest, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from our stockholders.

Our charter includes a provision that may discourage a stockholder from launching a tender offer for shares of our common stock.

Our charter requires that any tender offer made by a person, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D of the Securities Exchange Act of 1934, as amended. The offeror must provide us notice of the tender offer at least 10 business days before initiating the tender offer. If the offeror does not comply with these requirements, we will have the first right to purchase the shares of our stock at the tender offer price offered in such non-compliant tender offer. In addition, the non-complying offeror shall be responsible for all of our expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a person from initiating a tender offer for shares of our common stock and prevent our stockholders from receiving a premium price for their shares of our common stock in such a transaction.

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Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act. To avoid registration as an investment company, we may not be able to operate our business successfully. If we become subject to registration under the Investment Company Act, we may not be able to continue our business.

We conduct and intend to continue to conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:

•	pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or

•

pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of United States government securities and cash items) on an unconsolidated basis, or the 40% test. “Investment securities” excludes United States government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

•	limitations on capital structure;

•	restrictions on specified investments;

•	prohibitions on transactions with affiliates;

•	compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations; and

•	potentially, compliance with daily valuation requirements.

To avoid meeting the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Similarly, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Accordingly, our board may not be able to change our investment policies as our board may deem appropriate if such change would cause us to meet the definition of an “investment company.” In addition, a change in the value of any of our assets could negatively affect our ability to avoid being required to register as an investment company. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

As part of our advisor’s obligations under the Advisory Agreement, our advisor agrees to refrain from taking any action which, in its sole judgment made in good faith, would subject us to regulation under the Investment Company Act. Failure to maintain an exclusion from registration under the Investment Company Act would require us to significantly restructure our business plan. For example, because affiliate transactions generally are prohibited under the Investment Company Act, we would not be able to enter into transactions with any of our affiliates if we are required to register as an investment company, and we may be required to terminate the Advisory Agreement and any other agreements with affiliates, which could have a material adverse effect on our ability to operate our business and pay distributions.

Risks Related to Investments in Real Estate

If we acquire real estate at a time when the real estate market is experiencing substantial influxes of capital investment and competition for income-producing properties, such real estate investments may not appreciate or may decrease in value.

The real estate market may experience a substantial influx of capital from investors. Any substantial flow of capital, combined with significant competition for income producing real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment in the future, we will be subject to the risk that the value of such investments may not appreciate or may decrease significantly below the amount we paid for such investment.

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A significant portion of our annual base rent may be concentrated in a small number of tenants. Therefore, non-renewals, terminations or lease defaults by any of these significant tenants could reduce our net income and have a negative effect on our ability to pay distributions to our stockholders.

The success of our investments materially depends upon the financial stability of the tenants leasing the properties we own. Therefore, a non-renewal after the expiration of a lease term, termination, default or other failure to meet rental obligations by a significant tenant would significantly lower our net income. Any of these events could have a negative effect on our results of operations, our ability to pay distributions to our stockholders or on our ability to cover distributions with cash flows from operations. As of March 26, 2020 and December 31, 2019, no single tenant accounted for more than 10.0% of our annualized base rent or annualized NOI of our total property portfolio.

Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce our stockholders’ returns.

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have a material adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.

Terrorist attacks, acts of violence or war or public health crises may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

Terrorist attacks, acts of war and public health crises (including the recent coronavirus outbreak) may negatively affect our operations and our stockholders’ investments. We may acquire real estate assets located in areas that are susceptible to terrorist attacks, acts of war, or a public health crisis. These events may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, or public health crisis (such as the coronavirus outbreak) could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices, which could have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

Dramatic increases in insurance rates could adversely affect our cash flows and our ability to pay distributions to our stockholders.

We may not be able to obtain insurance coverage at reasonable rates due to high premium and/or deductible amounts. As a result, our cash flows could be adversely impacted due to these higher costs, which would adversely affect our ability to pay distributions to our stockholders.

Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and our ability to pay distributions to our stockholders.

Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders’ returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases

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for space at a newly developed project. We may incur additional risks if we make periodic progress payments or other advances to builders prior to completion of construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.

We are permitted to invest in a limited amount of unimproved real property. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental concerns of governmental entities and/or community groups. If we invest in unimproved real property that we intend to develop, our stockholders’ investment would be subject to the risks associated with investments in unimproved real property.

If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.

We may acquire one or more properties under development. We anticipate that if we do acquire properties that are under development, we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties, and that we will be required to close the purchase of the property upon completion of the development of the property. We may enter into such a contract with the development company even if at the time we enter into the contract, we have not yet secured sufficient financing to enable us to close the purchase of such property. However, we may not be required to close a purchase from the development company, and may be entitled to a refund of our earnest money, in the following circumstances:

•	the development company fails to develop the property;

•	all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; or

•	we are unable to secure sufficient financing to pay the purchase price at closing.

The obligation of the development company to refund our earnest money deposit will be unsecured, and we may not be able to obtain a refund of such earnest money deposit from it under these circumstances since the development company may be an entity without substantial assets or operations.

Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.

Our advisor, subject to the oversight and approval of our board, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure our stockholders that we will be able to sell our properties at a profit in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions.

Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders.

The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand, and other factors that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have adequate funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our stockholders.

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Our stockholders may not receive any profits resulting from the sale of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.

If we decide to sell one of our properties in a forced or voluntary liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We may take a purchase money obligation secured by a mortgage as partial payment. We do not have any limitations or restrictions on our taking such purchase money obligations. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations. Even in the absence of a purchaser default, the distribution of sale proceeds, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. Therefore, our stockholders may experience a delay in the distribution to our stockholders of the proceeds of a sale until such time. Additionally, if any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.

Representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders.

When we sell a property, we may be required to make representations and warranties regarding the property and other customary items. In the event of a breach of such representations or warranties, the purchaser of the property may have claims for damages against us, rights to indemnification from us or otherwise have remedies against us. In any such case, we may incur liabilities that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to our stockholders.

Because we own and operate real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing. 

Our real estate investments may be concentrated in medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses or other healthcare-related facilities, making us potentially more vulnerable economically than if our investments were diversified.

As a REIT, we invest primarily in real estate. Within the real estate industry, we have acquired and may acquire or selectively develop and own medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities. We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in healthcare-related facilities.

A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to pay distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities.

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

We have a concentration of properties in particular geographic areas; therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio. As of March 26, 2020, properties located in Indiana and Ohio accounted for approximately 36.8% and 10.6%, respectively, 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.

The decision of the United Kingdom to exit the European Union could materially adversely affect our business, financial condition and results of operations.

The decision made in the British referendum of June 23, 2016 to leave the European Union, and the official withdrawal on January 31, 2020, commonly referred to as “Brexit,” has led to volatility in the financial markets of the United Kingdom, or UK, and more broadly across Europe and may also lead to weakening in consumer, corporate and financial confidence in such markets. The longer term economic, legal, political and social framework to be put in place between the UK and the European Union is unclear at this stage and is likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets for some time. In particular, Brexit caused significant volatility in global stock markets and currency exchange fluctuations.

As described elsewhere in this report, we translate revenue and expenses denominated in the Great Britain pound into United States dollars, or USD, for our financial statements. Consequently, our assets and liabilities denominated in Great Britain pounds may be subject to increased risks related to these currency rate fluctuations, and during periods of a strengthening USD, our reported operating results in the UK are reduced because the Great Britain pound translates into fewer USD. Currency volatility may mean that our assets and liabilities are adversely affected by market movements and may make it more difficult, or more expensive, for us to execute appropriate currency hedging policies. In addition, Brexit may also adversely affect commercial real estate fundamentals in the UK and European Union, including greater uncertainty for leasing prospects, which could negatively impact the ability of our UK and European Union-based borrowers to satisfy their debt payment obligations to us, increasing default risk and/or making it more difficult for us to generate attractive risk-adjusted returns for our operations in the UK and Europe.

The UK’s withdrawal from the European Union, effective January 31, 2020, commences an 11-month transitional period during which the UK will continue to be subject to European Union rules while establishing relationship guidelines and agreements with the European Union countries for the period after the transitional period ends on December 31, 2020. The long-term effects of Brexit are expected to depend on, among other things, any agreements the UK makes to retain access to European Union markets either during the transitional period or more permanently. Brexit could adversely affect European or worldwide economic or market conditions and could contribute to instability in global financial and real estate markets. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which European Union laws to replace or replicate. Until the terms of the UK’s exit from the European Union become clearer, it is not possible to determine the impact that the exit and/or any related matters may have on us. The decision of the UK could also have a destabilizing effect if other European Union member states were to consider the option of leaving the European Union. For these reasons, the decision of the UK to leave the European Union could have adverse consequences on our business, financial condition and results of operations. As of December 31, 2019, we had $68,085,000 invested in the UK, or 2.3% of our portfolio, based on our aggregate contract purchase price of real estate investments.

Certain of our properties may not have efficient alternative uses, so the loss of a tenant may cause us not to be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.

Some of the properties we have acquired and will seek to acquire are healthcare properties that may only be suitable for similar healthcare-related tenants. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Our current and future medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities and tenants may be unable to compete successfully, which could result in lower rent payments, reduce our cash flows from operations and amount available for distributions.

Our current and future medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities often will face competition from nearby medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities that

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provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.

Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients or that are permitted to participate in the payor program. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.

Any reduction in rental revenues resulting from the inability of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

The change in accounting standards in the United States for leases could reduce the overall demand to lease our properties.

Prior to January 1, 2019, the existing accounting standards for leases required lessees to classify their leases as either capital or operating leases. Under a capital lease, both the leased asset, which represented the tenant’s right to use the property, and the contractual lease obligation were recorded on the tenant’s balance sheet if one of the following criteria are met: (i) the lease transferred ownership of the property to the lessee by the end of the lease term; (ii) the lease contained a bargain purchase option; (iii) the non-cancelable lease term was more than 75.0% of the useful life of the asset; or (iv) if the present value of the minimum lease payments equaled 90.0% or more of the leased property’s fair value. If the terms of the lease did not meet these criteria, the lease was considered an operating lease, and no leased asset or contractual lease obligation was recorded by the tenant.

In order to address concerns raised by the SEC regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02, in February 2016, which substantially changed the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation is recorded on the tenant’s balance sheet for all lease arrangements. In addition, ASU 2016-02 and its amendments impact the method in which contractual lease payments are recorded. In order to mitigate the effect of the lease accounting, tenants may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms or fewer extension options, which would generally have less impact on tenant balance sheets. Also, tenants may reassess their lease-versus-buy strategies. This could result in a greater renewal risk or shorter lease terms, which may negatively impact our operations and ability to pay distributions. On January 1, 2019, we adopted ASU 2016-02 and its amendments. See Note 2, Summary of Significant Accounting Policies — Leases and Note 17, Leases, to the Consolidated Financial Statements that are part of this Annual Report on Form 10-K, for a further discussion.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we have acquired and may continue to attempt to acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multi-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on real property; therefore, accumulating such cash could reduce our funds available for distributions to our stockholders. Any of the foregoing events may have an adverse effect on our operations.

Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations.

We have operations in the Isle of Man and the UK. International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75.0% gross income test or the 95.0% gross income test that we must satisfy annually in order to maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally; challenges in managing international operations; challenges

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of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and legal proceedings; foreign ownership restrictions with respect to operations in countries; diminished ability to legally enforce our contractual rights in foreign countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the United States that affect foreign operations. In addition, we have limited investing experience in international markets. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.

Investments in properties or other real estate-related investments outside the United States would subject us to foreign currency risks, which may adversely affect distributions and our REIT status.

We generate a portion of our revenue in foreign currencies such as the UK Pound Sterling. Revenues generated from any properties or other real estate-related investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore, any investments we make outside the United States may subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the USD. As a result, changes in exchange rates of any such foreign currency to USD may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity.

Changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our status as a REIT. Further, bank accounts in a foreign currency which are not considered cash or cash equivalents may adversely affect our status as a REIT.

Risks Related to the Healthcare Industry

The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. The tenants in our healthcare properties generally will be subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations or our tenants’ failure to comply with these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to pay distributions to our stockholders.

Many of our healthcare properties and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON, would prevent a facility from operating in the manner intended by the tenant. These events could materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws and other similar laws are not uniform throughout the United States and are subject to change; therefore, this may adversely impact our tenants’ ability to provide services in different states. We cannot predict the impact of state CON laws or similar laws on our development of facilities or the operations of our tenants.

In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make rent payments to us.

In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility or provide services at the facility and require new CON authorization licensure and/or authorization or potential authorization from the Centers for Medicare and Medicaid Services to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

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

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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.

In 2019, the Centers for Medicare and Medicaid Services, or CMS, announced the CMS Primary Cares Initiative, a new set of payment models for primary care physicians. CMS stated that the goal of some of these models is to reduce hospital utilization and the total cost of patient care. These new models may have an effect on the financial condition of our tenants.

CMS has also implemented a value-based program specific to skilled nursing facilities. Under the SNF VBP Program, CMS withholds 2% of fee-for-service payments. The withheld amount is redistributed based upon certain performance measures. The withholding of payments may affect the financial condition and ability to pay of our skilled nursing facility tenants.

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 United States 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. With the elimination of the individual mandate, several states brought suit seeking to invalidate the entire Affordable Care Act, and, in December 2018, a federal district court in Texas ruled in favor of these states, finding the entire Affordable Care Act unconstitutional. The district court’s ruling was appealed to the Fifth Circuit Court of Appeals, which agreed that the individual mandate is unconstitutional and sent the case back to the district court for further analysis and consideration. Certain states have filed petitions requesting that the United States Supreme Court review the Fifth Circuit’s decision. If the entire Affordable Care Act, including the individual mandate, is eventually ruled unconstitutional, our tenants may have more patients who 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.

In 2019, CMS implemented changes to its outpatient prospective payment system, or OPPS, which resulted in reduced reimbursement for certain outpatient services furnished by “provider-based” clinicians. The OPPS payment reductions are intended to equalize amounts that the government pays for similar clinical services, regardless of the clinical setting in which they are provided. Healthcare providers and certain provider organizations, including the American Hospital Association,

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challenged these payment reductions in a lawsuit filed in federal court. A federal judge ruled that the government’s payment reductions for the 2019 OPPS were illegal, a decision which the government has appealed. Despite the court ruling with respect to the 2019 OPPS, CMS continued its reduced payment policy in the 2020 OPPS, a move that the American Hospital Association and other health care organizations have once again challenged. If the government ultimately prevails with respect to the OPPS payment reductions, the payments adjustments may impact the amount of reimbursement our tenants receive for the medical services they provide.

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. 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. Multiple lawsuits have been 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 sought review of the decision by the United States Supreme Court, and the United States Supreme Court heard oral arguments on the matter in December 2019. If the United States Supreme Court determines that risk corridor payments are not required to be paid to the QHPs offering insurance coverage on the health insurance exchange program, the insurance companies may cease offering the Health Insurance Exchange product to the current beneficiaries and may refuse to participate in future collaborations with the federal government that would increase the number of patients with insurance coverage. Therefore, our tenants may have an increase of self-pay patients and collections may decline, adversely impacting the tenants’ ability to pay rent.

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 United States Court of Federal Claims to recover cost-share reduction payments, and in several 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.

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). 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.

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On January 11, 2018, 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. Thus far, CMS has received proposals from several states seeking requirements for able bodied Medicaid beneficiaries to engage in employment and community engagement initiatives. Kentucky, Indiana, Arkansas, New Hampshire, Arizona, Michigan, Ohio, Utah, South Carolina and Wisconsin have been granted waivers for their programs that require Medicaid beneficiaries to work or get ready for employment, and work requirement waiver requests from other states are currently pending before CMS. However, the states of Kentucky, Arkansas and New Hampshire have had their approvals vacated by courts. 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.

Beginning in 2018, CMS cut funding to the 340B Program, which is intended to lower drug costs for certain healthcare providers. A federal court ruled the cuts to the 340B Program reimbursement were unlawful and ordered CMS to develop remedial measures to address the reimbursement cuts. Despite this ruling, CMS finalized plans to implement cuts to 340B Program reimbursement again in 2020. The cuts in the 340B Program may result in some of our tenants having less money available to cover operational costs.

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.

The current trend for seniors to delay moving to senior housing facilities until they require greater care or to forgo moving to senior housing facilities altogether could have a material adverse effect on our business, financial condition and results of operations.

Seniors have been increasingly delaying their moves to senior housing facilities, including to our leased and managed senior housing facilities, until they require greater care, and increasingly forgoing moving to senior housing facilities altogether. Further, rehabilitation therapy and other services are increasingly being provided to seniors on an outpatient basis or in seniors’ personal residences in response to market demand and government regulation, which may increase the trend for seniors to delay moving to senior housing facilities. Such delays may cause decreases in occupancy rates and increases in resident turnover rates at our senior housing facilities. Moreover, seniors may have greater care needs and require higher acuity services, which may increase our tenants’ and managers’ cost of business, expose our tenants and managers to additional liability or result in lost business and shorter stays at our leased and managed senior housing facilities if our tenants and managers are not able to provide the requisite care services or fail to adequately provide those services. These trends may negatively impact the occupancy rates, revenues, and cash flows at our leased and managed senior housing facilities and our results of operations. Further, if any of our tenants or managers are unable to offset lost revenues from these trends by providing and growing other revenue sources, such as new or increased service offerings to seniors, our senior housing facilities may be unprofitable and we may receive lower returns and rent, and the value of our senior housing facilities may decline.

Events that adversely affect the ability of seniors and their families to afford resident fees at our senior housing facilities could cause our occupancy rates, resident fee revenues and results of operations to decline.

Costs to seniors associated with independent and assisted living services are generally not reimbursable under government reimbursement programs such as Medicare and Medicaid. Only seniors with income or assets meeting or exceeding the comparable median in the regions where our facilities are located typically will be able to afford to pay the entrance fees and monthly resident fees, and a weak economy, depressed housing market or changes in demographics could adversely affect their continued ability to do so. If our tenants and operators are unable to retain and attract seniors with sufficient income, assets or other resources required to pay the fees associated with independent and assisted living services and other services provided by our tenants and operators at our healthcare facilities, our occupancy rates and resident fee revenues could decline, which could, in turn, materially adversely affect our business, results of operations and financial condition and our ability to make distributions to stockholders.

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Some tenants of our current and future medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities will be subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease arrangements with certain current and future tenants may also be subject to these fraud and abuse laws. In order to support compliance with the fraud and abuse laws, our lease agreements may be required to satisfy individual state law requirements that vary from state to state, such as the Stark Law exception and the Anti-Kickback Statute safe harbor for lease arrangements, which impacts the terms and conditions that may be negotiated in the lease arrangements.

These federal laws include:

•	the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by state or federal healthcare programs;

•	the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under federal healthcare programs to an entity with which the physician, or an immediate family member, has a financial relationship;

•	the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;

•	the Civil Monetary Penalties Law, which authorizes the United States Department of Health & Human Services to impose monetary penalties or exclusion from participating in state or federal healthcare programs for certain fraudulent acts;

•	the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, Fraud Statute, which makes it a federal crime to defraud any health benefit plan, including private payors; and

•	the Exclusions Law, which authorizes the United States Department of Health & Human Services to exclude someone from participating in state or federal healthcare programs for certain fraudulent acts.

Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Monetary penalties associated with violations of these laws have been increased in recent years. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to pay distributions to our stockholders.

The healthcare industry is currently experiencing:

•	changes in the demand for and methods of delivering healthcare services;

•	changes in third-party reimbursement policies;

•	significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;

•	increased expense for uninsured patients;

•	increased competition among healthcare providers;

•	increased liability insurance expense;

•	continued pressure by private and governmental payors to reduce payments to providers of services;

•	increased scrutiny of billing, referral and other practices by federal and state authorities;

•	changes in federal and state healthcare program payment models;

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•	increased emphasis on compliance with privacy and security requirements related to personal health information; and

•	increased instability in the Health Insurance Exchange market and lack of access to insurance plans participating in the exchange.

Moreover, the fines and penalties of HIPAA privacy and security rules increased in 2013. If a tenant breaches a patient’s protected health information and is fined by the federal government, the tenant’s ability to operate and pay rent may be adversely impacted.

These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues and our ability to pay distributions to our stockholders.

Operators/managers of healthcare properties that we own, or may acquire, may be affected by the financial deterioration, insolvency and/or bankruptcy of other significant operators/managers in the healthcare industry.

Certain companies in the healthcare industry, including some key senior housing operators/managers, are experiencing considerable financial, legal and/or regulatory difficulties which have resulted or may result in financial deterioration and, in some cases, insolvency and/or bankruptcy. The adverse effects on these companies could have a significant impact on the industry as a whole, including but not limited to negative public perception by investors, lenders and consumers. As a result, lessees of healthcare facilities that we own, or may acquire, could experience the damaging financial effects of a weakened industry sector driven by negative headlines, ultimately making them unable to meet their obligations to us, and our business could be adversely affected.

Our healthcare-related tenants may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, our healthcare-related tenants may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance may not always be available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

We, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses may be subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of the right to participate in Medicare and Medicaid programs.

As a result of our tenants’ participation in the Medicaid and Medicare programs, we, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses are subject to various governmental reviews, audits and investigations to verify compliance with these programs and applicable laws and regulations. We, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses are also subject to audits under various government programs, including Recovery Audit Contractors, Zone Program Integrity Contractors, Program Safeguard Contractors, Medicaid Integrity Contractors and Unified Program Integrity Contractor programs, in which third party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare and Medicaid programs. Private pay sources also reserve the right to conduct audits. Billing and reimbursement errors and disagreements occur in the healthcare industry. We, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses may be engaged in reviews, audits and appeals of claims for reimbursement due to the subjectivities inherent in the process related to patient diagnosis and care, record keeping, claims

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processing and other aspects of the patient service and reimbursement processes, and the errors and disagreements those subjectivities can produce. An adverse review, audit or investigation could result in:

•	an obligation to refund amounts previously paid to us, our tenants or our operators pursuant to the Medicare or Medicaid programs or from private payors, in amounts that could be material to our business;

•	state or federal agencies imposing fines, penalties and other sanctions on us, our tenants or our operators;

•	loss of our right, our tenants’ right or our operators’ right to participate in the Medicare or Medicaid programs or one or more private payor networks;

•	an increase in private litigation against us, our tenants or our operators; and

•	damage to our reputation in various markets.

While we, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses have always been subject to post-payment audits and reviews, more intensive “probe reviews” appear to be a permanent procedure with our fiscal intermediaries. Generally, findings of overpayment from CMS contractors are eligible for appeal through the CMS defined continuum, but there may be rare instances that are not eligible for appeal. We, our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses utilize all defenses at our disposal to demonstrate that the services provided meet all clinical and regulatory requirements for reimbursement.

If the government or court were to conclude that such errors, deficiencies or disagreements constituted criminal violations, or were to conclude that such errors, deficiencies or disagreements resulted in the submission of false claims to federal healthcare programs, or if the government were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we and certain of our officers, and our tenants and operators for our skilled nursing, senior housing and integrated senior health campuses and certain of their officers, might face potential criminal charges and/or civil claims, administrative sanctions and penalties for amounts that could be material to our business, results of operations and financial condition. In addition, we and/or some of the key personnel of our operating subsidiaries, or those of our tenants and operators for our skilled nursing, senior housing and integrated senior health campuses, could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare. In any event, it is likely that a governmental investigation alone, regardless of its outcome, would divert material time, resources and attention from our management team and our staff, or those of our tenants and our operators for our skilled nursing, senior housing and integrated senior health campuses and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings.

In cases where claim and documentation review by any CMS contractor results in repeated poor performance, a facility can be subjected to protracted oversight. This oversight may include repeat education and re-probe, extended pre-payment review, referral to recovery audit or integrity contractors, or extrapolation of an error rate to other reimbursement outside of specifically reviewed claims. Sustained failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare and Medicaid decertification, which could have a materially detrimental impact on our results of operations. Adverse actions by CMS may also cause third party payor or licensure authorities to audit our tenants. These additional audits could result in termination of third party payor agreements or licensure of the facility, which would also adversely impact our operations.

The Healthcare Reform Law imposes additional requirements on skilled nursing facilities regarding compliance and disclosure.

The Health Care and Education and Reconciliation Act of 2010, or the Healthcare Reform Law, requires skilled nursing facilities to have a compliance and ethics program that is effective in preventing and detecting criminal, civil and administrative violations and in promoting quality of care. The United States Department of Health and Human Services included in the final rule published on October 4, 2016 the requirement for operators to implement a compliance and ethics program as a condition of participation in Medicare and Medicaid. Long-term care facilities, including skilled nursing facilities, had until November 28, 2019 to comply. If our operators fall short in their compliance and ethics programs and quality assurance and performance improvement programs, if and when required, their reputations and ability to attract residents could be adversely affected.

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Risks Related to Debt Financing

Increases in interest rates could increase the amount of our debt payments, and therefore, negatively impact our operating results.

Interest we pay on our debt obligations will reduce cash available for distributions. Whenever we incur variable-rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

In addition, our variable-rate debt instruments use London Interbank Offering Rate, or LIBOR, as a benchmark for establishing the interest rate. In July 2017, the Financial Conduct Authority, or FCA, that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative to USD LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. The consequences of these developments are uncertain, but could include an increase in the cost of our variable-rate debt instruments. If LIBOR is no longer widely available, or otherwise at our option, we may need to renegotiate with our lenders that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. As such, the potential phase-out of LIBOR may have a material adverse effect on the interest rates on our current and future borrowings.

To the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

We are exposed to the effects of interest rate changes primarily as a result of borrowings we have used to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. To limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk, we have borrowed and may continue to borrow at fixed rates or variable rates depending upon prevailing market conditions. We have and may also continue to enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. Therefore, to the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

Hedging activity may expose us to risks.

We have used and may continue to use derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates on loans secured by our assets. If we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. These derivative instruments are speculative in nature and there is no guarantee that they will be effective. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating strategies. We have entered into and may continue to enter into loan documents that contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

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Interest-only indebtedness may increase our risk of default, adversely affect our ability to refinance or sell properties and ultimately may reduce our funds available for distribution to our stockholders.

We may finance or refinance our properties using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. At the time such a balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. Furthermore, these required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT. Any of these results would have a significant, negative impact on our stockholders’ investment.

If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.

In obtaining certain nonrecourse loans, we have provided and may continue to provide standard carve-out guaranties. These guaranties are only applicable if and when the borrower directly, or indirectly through agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guaranties). Although we believe that “bad boy” carve-out guaranties are not guaranties of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guaranties. In the event such a claim were made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loan, and such claim were successful, our business and financial results could be materially adversely affected.

Risks Related to Real Estate-Related Investments

The mortgage loans in which we have invested in and may invest in and the mortgage loans underlying the mortgage-backed securities in which we have and may continue to invest may be impacted by unfavorable real estate market conditions, which could decrease their value.

The investment in mortgage loans or mortgage-backed securities we have and may continue to invest in involve special risks relating to the particular borrower or issuer of the mortgage-backed securities and we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate. If we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know whether the values of the property securing any of our real estate-related investments will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Delays in liquidating defaulted mortgage loan investments could reduce our investment returns.

If there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The commercial mortgage-backed securities in which we have invested and may continue to invest are subject to several types of risks.

Commercial mortgage-backed securities are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the mortgage-backed securities in which we have invested and may continue to invest are subject to all the risks of the underlying mortgage loans.

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In a rising interest rate environment, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of commercial mortgage-backed securities may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, commercial mortgage-backed securities are subject to the credit risk associated with the performance of the underlying mortgage properties.

Commercial mortgage-backed securities are also subject to several risks created through the securitization process. Subordinate commercial mortgage-backed securities are paid interest-only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payments on subordinate commercial mortgage-backed securities will not be fully paid. Subordinate securities of commercial mortgage-backed securities are also subject to greater credit risk than those commercial mortgage-backed securities that are more highly rated.

The mezzanine loans in which we have invested and may continue to invest involve greater risks of loss than senior loans secured by income-producing real estate.

We have invested and may continue to invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real estate or loans secured by a pledge of the ownership interests of either the entity owning the real estate or the entity that owns the interest in the entity owning the real estate. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real estate because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real estate and increasing the risk of loss of principal.

Real estate-related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in real estate or real estate-related assets.

We may invest in the common and preferred stock of both publicly traded and private unaffiliated real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including the fact that such investments are subordinate to creditors and are not secured by the issuer’s property. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with acquiring real estate-related investments discussed elsewhere in this report, including risks relating to rising interest rates.

We expect a portion of our real estate-related investments to be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

We may acquire real estate-related investments in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

If we liquidate prior to the maturity of our real estate-related investments, we may be forced to sell those investments on unfavorable terms or at a loss.

Our board may choose to effect a liquidity event in which we liquidate our assets, including our real estate-related investments. If we liquidate those investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

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Risks Related to Joint Ventures

Property ownership through joint ventures could limit our control of those investments, restrict our ability to operate and finance the property on our term and reduce their expected return.

In connection with the purchase of real estate, we have and may continue to enter into joint ventures with third parties, including affiliates of our advisor. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. We own operating properties through both consolidated and unconsolidated joint ventures. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint ventures, and joint ventures we may enter into in the future, may involve risks not present with respect to our wholly owned properties, including the following:

•

we may share decision-making authority with our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as, but not limited to, (i) additional capital contribution requirements, (ii) obtaining, refinancing or paying off debt and (iii) obtaining consent prior to the sale or transfer of our interest in the joint venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners;

•	our joint venture partners might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;

•	our joint venture partners may have business interests or goals with respect to the property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property;

•

disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict is resolved, and possibly force a sale of the property if the dispute cannot be resolved; and

•	the activities of a joint venture could adversely affect our ability to maintain our qualification as a REIT.

We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flows or appreciation of an investment.

We have and may continue to enter into joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flows up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flows than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flows, including appreciation, of an investment than we would receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to pay cash distributions to our stockholders.

Federal Income Tax Risks

Failure to maintain our qualification as a REIT for federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to pay distributions to our stockholders.

We qualified and elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2014. To continue to maintain our qualification as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to maintain our qualification as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board to determine that it is not in our best interest to maintain our qualification as a REIT, and to revoke our REIT election, which it may do without stockholder approval.

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If we fail to maintain our qualification as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Losing our REIT status would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability. In addition, distributions would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to pay distributions to our stockholders.

Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through TRSs, each of which would diminish the return to our stockholders.

In light of our investment strategy, it is possible that one or more sales of our properties may be “prohibited transactions” under provisions of the Code. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), all income that we derive from such sale would be subject to a 100% tax. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale. Given our investment strategy, it is entirely possible, if not likely, that the sale of one or more of our properties will not fall within the prohibited transaction safe harbor.

If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to avoid the 100% penalty tax if we acquired the property through a TRS or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forego the use of a TRS in a transaction that does not meet the safe harbor based on our own internal analysis, the opinion of counsel or the opinion of other tax advisors that the disposition will not be subject to the 100% penalty tax. In cases where a property disposition is not effected through a TRS, the IRS could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net income from the sale of such property will be payable as a tax and none of the proceeds from such sale will be distributable by us to our stockholders or available for investment by us.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, then we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS if there is another, non-tax-related business purpose for the contribution of such property to the TRS. Following the transfer of the property to a TRS, the TRS will operate the property and may sell such property and distribute the net proceeds from such sale to us, and we may distribute the net proceeds distributed to us by the TRS to our stockholders. Though a sale of the property by a TRS likely would eliminate the danger of the application of the 100% penalty tax, the TRS itself would be subject to a tax at the federal level, and potentially at the state and local levels, on the gain realized by it from the sale of the property as well as on the income earned while the property is operated by the TRS. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the amount available for distribution to our stockholders would be substantially less than if the REIT had operated and sold such property directly and such transaction was not characterized as a prohibited transaction. The maximum federal corporate income tax rate is currently 21.0%. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property through a TRS after the effective date of any increase in such tax rates.

If we own too many properties through one or more of our TRSs, then we may lose our status as a REIT. If we fail to maintain our qualification as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. As a REIT, the value of the securities we hold in all of our TRSs may not exceed 20.0% of the value of all of our assets at the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded 20.0% of the value of total assets at the end of any calendar quarter, then we would fail to maintain our qualification as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude

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that the value of our interests in our TRSs exceeds 20.0% of the value of our total assets at the end of any calendar quarter, and therefore, cause us to fail to maintain our qualification as a REIT. Additionally, as a REIT, no more than 25.0% of our gross income with respect to any year may be from sources other than real estate. Distributions paid to us from a TRS are considered to be non-real estate income. Therefore, we may fail to maintain our qualification as a REIT if distributions from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25.0% of our gross income with respect to such year. We will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our qualification as a REIT. Our failure to maintain our qualification as a REIT would adversely affect our stockholders’ return on their investment.

Our stockholders may have a current tax liability on distributions they elect to reinvest in shares of our common stock.

If our stockholders participate in our DRIP Offerings, they will be deemed to have received, and for United States federal income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, our stockholders may be treated, for United States federal tax purposes, as having received an additional distribution to the extent the shares are purchased at a discount from fair market value. As a result, unless our stockholders are a tax-exempt entity, our stockholders may have to use funds from other sources to pay their tax liability on the value of the shares of common stock received.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility, including the recently passed Tax Cuts and Jobs Act.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of federal and state income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect our taxation and our ability to continue to qualify as a REIT or the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their tax advisor with respect to the impact of recent legislation on their investment in our stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for United States federal income tax purposes as a regular corporation. As a result, our charter provides our board with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interests of our stockholders.

In addition, on December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act made significant changes to the United States federal income tax rules for taxation of individuals and businesses, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and individual tax rates, the Tax Cuts and Jobs Act eliminates or restricts various deductions. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The Tax Cuts and Jobs Act made numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly but may otherwise affect us or our stockholders.

While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be revisited in subsequent tax legislation. At this point, it is not clear if or when Congress will address these issues or when the IRS will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.

We urge our stockholders to consult with their own tax advisor with respect to the status of the Tax Cuts and Jobs Act and other legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

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In certain circumstances, we may be subject to federal and state income taxes even if we maintain our qualification as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we maintain our qualification as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders.

Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income as compared to regular corporations, which could adversely affect the value of our shares.

The maximum United States federal income tax rate for certain qualified dividends payable to domestic stockholders that are individuals, trusts and estates generally is 20%. Dividends payable by REITs, however, are generally not eligible for these reduced rates for qualified dividends. For taxable years beginning after December 31, 2017 and before January 1, 2026, the Tax Cuts and Jobs Act permits a deduction for certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT stockholder that are not designated as capital gain dividends or qualified dividend income), which allows United States individuals, trusts, and estates to deduct up to 20% of such amounts, subject to certain limitations, resulting in an effective maximum United States federal income tax rate of 29.6% on such qualified REIT dividends. Although the reduced United States federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to qualified dividends from C corporations could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.

Distributions to tax-exempt stockholders may be classified as UBTI.

Neither ordinary nor capital gain distributions with respect to the shares of our common stock nor gain from the sale of the shares of our common stock should generally constitute unrelated business taxable income, or UBTI, to a tax-exempt stockholder. However, there are certain exceptions to this rule. In particular:

•

part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if the shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI;

•	part of the income and gain recognized by a tax exempt stockholder with respect to the shares of our common stock would constitute UBTI if the stockholder incurs debt in order to acquire the shares of our common stock; and

•	part or all of the income or gain recognized with respect to the shares of our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as UBTI.

Characterization of our sale-leaseback transactions may be challenged.

We have and may continue to participate in sale-leaseback transactions in which we purchase real estate investments and lease them back to the sellers of such properties. Our advisor will use its best efforts to structure any of our sale-leaseback transactions such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes. However, we cannot assure our stockholders that the IRS will not challenge such characterization. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such real estate investment would be disallowed or significantly reduced. If a sale-leaseback transaction is so re-characterized, we might fail to satisfy the REIT asset tests or income tests and, consequently, lose our REIT status.

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We cannot assure our stockholders that our goal to maximize our investment objectives will be realized.

Our advisor and our board determine whether a particular property or real estate-related investment should be sold or otherwise disposed of after consideration of the relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives. We cannot assure our stockholders that this objective will be realized. The selling price of a property which is net leased will be determined in large part by the amount of rent payable under the lease(s) for such property. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale.

Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.

To maintain our qualification as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to pay distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

If our operating partnership fails to maintain its status as a disregarded entity or as a partnership, its income may be subject to taxation, which would reduce the cash available for distribution to stockholders and likely result in a loss of our REIT status.

We intend to maintain the status of the operating partnership as a disregarded entity or as a partnership for United States federal income tax purposes. However, if the IRS were to successfully challenge the status of the operating partnership as a disregarded entity or as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This would also likely result in our losing REIT status, and, if so, becoming subject to a corporate level tax on our own income. This would substantially reduce any cash available to pay distributions. In addition, if any of the partnerships or limited liability companies through which the operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for United States federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our status as a REIT.

The mezzanine loans in which we may invest may not qualify as real estate assets and could adversely affect our status as a REIT.

We may invest in mezzanine loans, for which the IRS has provided a safe harbor, but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, the IRS will treat the mezzanine loan as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. To the extent that any mezzanine loans do not meet all of the requirements for reliance on the safe harbor, such loans may not be real estate assets and could adversely affect our qualification as a REIT.

Foreign purchasers of shares of our common stock may be subject to FIRPTA tax upon the sale of their shares of our common stock.

A foreign person disposing of a United States real property interest, including shares of stock of a United States corporation whose assets consist principally of United States real property interests, is generally subject to the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA, on the amount received from the disposition. However, foreign pension plans and certain foreign publicly traded entities are exempt from FIRPTA withholding. Further, such FIRPTA tax does not apply to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50.0% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying United States persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, amounts received by foreign investors on a sale of shares of our common stock would be subject to FIRPTA tax, unless the shares of our common stock were traded on an established securities market and the foreign investor did not at any time during a specified period directly or indirectly own more than 10.0% of the value of our outstanding common stock. However, these rules do not apply to foreign pension plans and certain publicly traded entities.

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Foreign stockholders may be subject to FIRPTA tax upon the payment of a capital gains dividend.

A foreign stockholder will likely be subject to FIRPTA upon the payment of any capital gain dividends by us if such gain is attributable to gain from sales or exchanges of United States real property interests. However, these rules do not apply to foreign pension plans and certain publicly traded entities.

Employee Benefit Plan, IRA, and Other Tax-Exempt Investor Risks

We, and our stockholders that are employee benefit plans, IRAs, annuities described in Sections 403(a) or (b) of the Code, Archer Medical Savings Accounts, health savings accounts, Coverdell education savings accounts, and other arrangements that are subject to ERISA or Section 4975 of the Code (referred to generally as “Benefit Plans and IRAs”) will be subject to risks relating specifically to our having such Benefit Plan and IRA stockholders, which risks are discussed below.

If a stockholder that is a Benefit Plan or IRA fails to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in shares of our common stock, such stockholder could be subject to civil and criminal, if the failure is willful, penalties.

There are special considerations that apply to Benefit Plans and IRAs investing in shares of our common stock. Stockholders that are Benefit Plans and IRAs should consider:

•	whether their investment is consistent with the applicable provisions of ERISA and the Code, or any other applicable governing authority in the case of a plan not subject to ERISA or the Code;

•	whether their investment is made in accordance with the documents and instruments governing the Benefit Plan or IRA, including any investment policy;

•	whether their investment satisfies the prudence, diversification and other requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA or any similar rule under other applicable laws or regulations;

•	whether their investment will impair the liquidity needs, the minimum and other distribution requirements, or the tax withholding requirements that may be applicable to such Benefit Plan or IRA;

•	whether their investment will constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or any similar rule under other applicable laws or regulations;

•	whether their investment will produce or result in UBTI, as defined in Sections 511 through 514 of the Code, to the Benefit Plan or IRA;

•	whether their investment will impair the Benefit Plan’s or IRA’s need to value its assets annually (or more frequently) in accordance with ERISA, the Code and the applicable provisions of the Benefit Plan or IRA; and

•	whether their investment will cause our assets to be treated as “plan assets” of the Benefit Plan or IRA.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA, the Code, or other applicable statutory or common law may result in the imposition of civil and criminal (if the violation is willful) penalties, and can subject the fiduciary to equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Code, the “party-in-interest” (within the meaning of ERISA) or “disqualified person” (within the meaning of the Code) who authorized or directed the investment may have to compensate the plan for any losses the plan suffered as a result of the transaction or restore to the plan any profits made by such person as a result of the transaction, or may be subject to excise taxes with respect to the amount involved. In the case of a prohibited transaction involving an IRA, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subject to tax.

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Code, stockholders that are Benefit Plans and IRAs should consider the effect of the plan assets regulation, United States Department of Labor Regulation Section 2510.3-101, as modified by ERISA Section 3(42). To avoid our assets from being considered “plan assets” under the plan assets regulation, our charter prohibits “benefit plan investors” from owning 25% or more of the shares of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the meaning of the plan assets regulation. However, we cannot assure our stockholders that those provisions in our charter will be effective in limiting benefit plan investors’ ownership to less than the 25% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan investor. If our underlying assets were to be considered “plan assets” of a benefit plan investor subject to ERISA, (i) we would be an ERISA fiduciary and subject to certain fiduciary requirements of ERISA with which it would be difficult for us to comply and (ii) we could be restricted from entering into favorable transactions if the transaction, absent an exemption, would constitute a prohibited transaction under ERISA or the Code. Even if our assets are not considered to be “plan assets,” a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) of a Benefit Plan or IRA stockholder.

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Due to the complexity of these rules and the potential penalties that may be imposed, it is important that stockholders that are Benefit Plans and IRAs consult with their own advisors regarding the potential applicability of ERISA, the Code and any similar applicable law.

Stockholders that are Benefit Plans and IRAs may be limited in their ability to withdraw required minimum distributions as a result of an investment in shares of our common stock.

If Benefit Plans or IRAs invest in our common stock, the Code may require such plan or IRA to withdraw required minimum distributions in the future. Our stock will be highly illiquid, and our share repurchase plan only offers limited liquidity. If a Benefit Plan or IRA requires liquidity, it may generally sell its shares, but such sale may be at a price less than the price at which such plan or IRA initially purchased its shares of our common stock. If a Benefit Plan or IRA fails to make required minimum distributions, it may be subject to certain taxes and tax penalties.

Specific rules apply to foreign, governmental and church plans.

As a general rule, certain employee benefit plans, including foreign pension plans, governmental plans established or maintained in the United States (as defined in Section 3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA’s requirements and are not “benefit plan investors” within the meaning of the plan assets regulation. Any such plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code and, under certain circumstances in the case of church plans, Section 4975 of the Code. Also, some foreign plans and governmental plans may be subject to foreign, state, or local laws which are, to a material extent, similar to the provisions of ERISA or Section 4975 of the Code. Each fiduciary of a plan subject to any such similar law should make its own determination as to the need for, and the availability of, any exemption relief.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of December 31, 2019, our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612. We do not have an address separate from our advisor or our co-sponsors. Since we pay our advisor fees for their services, we do not pay rent for the use of their space.

Real Estate Investments

As of December 31, 2019, we operated through six reportable business segments comprised of 102 buildings and 118 integrated senior health campuses, or approximately 13,836,000 square feet of GLA, acquired for an aggregate contract purchase price of $3,001,462,000. These properties consisted of: 64 medical office buildings, nine senior housing facilities, 20 senior housing — RIDEA facilities, seven skilled nursing facilities, two hospitals, as well as 118 owned and/or operated integrated senior health campuses.

The following table presents certain additional information about our real estate investments as of December 31, 2019:

Real Estate Investments(1)		Location		Reportable Segment		GLA (Sq Ft)			% of GLA			Aggregate Contract Purchase Price				Annualized Base Rent/NOI(2)				% of Annualized Base Rent			Leased Percentage(3)			Average Annual Rent Per Leased Sq Ft(4)
DeKalb Professional Center		Lithonia, GA		Medical Office		19,000			0.1	%		$	2,830,000			$	256,000			0.1	%		81.2	%		$	16.76
Country Club MOB		Stockbridge, GA		Medical Office		17,000			0.1			2,775,000				221,000				0.1			84.1	%		$	15.78
Acworth Medical Complex		Acworth, GA		Medical Office		39,000			0.3			6,525,000				621,000				0.3			82.7	%		$	19.17
Wichita KS MOB		Wichita, KS		Medical Office		39,000			0.3			8,800,000				729,000				0.3			94.1	%		$	19.57
Delta Valley ALF Portfolio		Springdale, AR; and Batesville and Cleveland, MS		Senior Housing		127,000			0.9			21,450,000				1,783,000				0.8			100	%		$	14.00
Lee’s Summit MO MOB		Lee’s Summit, MO		Medical Office		39,000			0.3			6,750,000				1,042,000				0.5			100	%		$	26.51
Carolina Commons MOB		Indian Land, SC		Medical Office		58,000			0.4			12,000,000				1,342,000				0.6			83.8	%		$	27.53

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Real Estate Investments(1)		Location		Reportable Segment		GLA (Sq Ft)			% of GLA			Aggregate Contract Purchase Price				Annualized Base Rent/NOI(2)				% of Annualized Base Rent			Leased Percentage(3)			Average Annual Rent Per Leased Sq Ft(4)
Mount Olympia MOB Portfolio		Mount Dora, FL; Olympia Fields, IL; and Columbus, OH		Medical Office		53,000			0.4	%		$	16,150,000			$	1,216,000			0.5	%		87.8	%		$	26.33
Southlake TX Hospital		Southlake, TX		Hospital		142,000			1.0			128,000,000				7,322,000				3.3			100	%		$	51.42
East Texas MOB Portfolio		Longview and Marshall, TX		Medical Office		393,000			2.8			68,500,000				7,626,000				3.4			97.1	%		$	19.98
Premier MOB		Novi, MI		Medical Office		45,000			0.3			12,025,000				996,000				0.5			86.7	%		$	25.63
Independence MOB Portfolio		Southgate, KY; Somerville, MA; Morristown and Verona, NJ; and Bronx, NY		Medical Office		477,000			3.5			135,000,000				13,078,000				5.8			97.3	%		$	28.11
King of Prussia PA MOB		King of Prussia, PA		Medical Office		72,000			0.5			18,500,000				1,438,000				0.6			66.5	%		$	30.02
North Carolina ALF Portfolio		Clemmons, Garner Huntersville, Matthews, Mooresville, Raleigh and Wake Forest, NC		Senior Housing — RIDEA		272,000			2.0			113,856,000				283,000				0.1			49.7	%		$	983.81
Orange Star Medical Portfolio		Durango, CO; and Friendswood, Keller and Wharton, TX		Medical Office and Hospital		183,000			1.3			57,650,000				4,307,000				2.0			97.5	%		$	24.21
Kingwood MOB Portfolio		Kingwood, TX		Medical Office		43,000			0.3			14,949,000				1,209,000				0.5			100	%		$	28.41
Mt. Juliet TN MOB		Mount Juliet, TN		Medical Office		46,000			0.3			13,000,000				712,000				0.3			70.0	%		$	22.23
Homewood AL MOB		Homewood, AL		Medical Office		30,000			0.2			7,444,000				262,000				0.1			43.1	%		$	20.26
Paoli PA Medical Plaza		Paoli, PA		Medical Office		99,000			0.7			24,820,000				1,903,000				0.9			66.9	%		$	28.65
Glen Burnie MD MOB		Glen Burnie, MD		Medical Office		77,000			0.6			18,650,000				1,619,000				0.7			89.6	%		$	23.61
Marietta GA MOB		Marietta, GA		Medical Office		41,000			0.3			13,050,000				988,000				0.4			100	%		$	24.20
Mountain Crest Senior Housing Portfolio		Elkhart, Hobart, LaPorte and Mishawaka, IN; and Niles, MI		Senior Housing — RIDEA		585,000			4.2			75,035,000				3,982,000				1.8			81.3	%		$	7,500.06
Mount Dora Medical Center		Mount Dora, FL		Medical Office		51,000			0.4			16,300,000				322,000				0.1			25.2	%		$	24.83
Nebraska Senior Housing Portfolio		Bennington and Omaha, NE		Senior Housing — RIDEA		282,000			2.0			66,000,000				2,813,000				1.3			80.6	%		$	15,863.78
Pennsylvania Senior Housing Portfolio		Bethlehem, Boyertown and York, PA		Senior Housing — RIDEA		260,000			1.9			87,500,000				6,460,000				2.9			89.2	%		$	20,865.57
Southern Illinois MOB Portfolio		Waterloo, IL		Medical Office		41,000			0.3			12,712,000				874,000				0.4			90.7	%		$	23.23
Napa Medical Center		Napa, CA		Medical Office		65,000			0.5			15,700,000				1,976,000				0.9			84.8	%		$	35.78
Chesterfield Corporate Plaza		Chesterfield, MO		Medical Office		226,000			1.6			36,000,000				4,802,000				2.1			96.5	%		$	22.04
Richmond VA ALF		North Chesterfield, VA		Senior Housing — RIDEA		210,000			1.5			64,000,000				4,471,000				2.0			95.9	%		$	25,056.41
Crown Senior Care Portfolio(5)		Peel, Isle of Man; and Aberdeen, Felixstowe, Salisbury and St. Albans, UK		Senior Housing		155,000			1.1			68,085,000				4,514,000				2.0			100	%		$	29.14
Washington DC SNF		Washington, D.C.		Skilled Nursing		134,000			1.0			40,000,000				4,514,000				2.0			100	%		$	33.76
Trilogy(6)		IN, KY, MI and OH		Integrated Senior Health Campuses		8,167,000			59.1			1,546,121,000				114,986,000				51.4			86.1	%		$	11,974.08
Stockbridge GA MOB II		Stockbridge, GA		Medical Office		46,000			0.3			8,000,000				754,000				0.3			85.7	%		$	19.22
Marietta GA MOB II		Marietta, GA		Medical Office		22,000			0.2			5,800,000				459,000				0.2			97.1	%		$	21.89

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Real Estate Investments(1)		Location		Reportable Segment		GLA (Sq Ft)			% of GLA			Aggregate Contract Purchase Price				Annualized Base Rent/NOI(2)				% of Annualized Base Rent			Leased Percentage(3)			Average Annual Rent Per Leased Sq Ft(4)
Naperville MOB		Naperville, IL		Medical Office		69,000			0.5	%		$	17,385,000			$	1,197,000			0.5	%		81.7	%		$	21.24
Lakeview IN Medical Plaza(7)		Indianapolis, IN		Medical Office		163,000			1.2			20,000,000				3,194,000				1.4			91.3	%		$	21.49
Pennsylvania Senior      Housing Portfolio II		Palmyra, PA		Senior Housing — RIDEA		125,000			0.9			27,500,000				2,234,000				1.0			97.1	%		$	19,172.39
Snellville GA MOB		Snellville, GA		Medical Office		42,000			0.3			8,300,000				693,000				0.3			84.0	%		$	19.76
Lakebrook Medical Center		Westbrook, CT		Medical Office		25,000			0.2			6,150,000				520,000				0.2			88.4	%		$	23.92
Stockbridge GA MOB III		Stockbridge, GA		Medical Office		43,000			0.3			10,300,000				871,000				0.4			96.4	%		$	20.85
Joplin MO MOB		Joplin, MO		Medical Office		85,000			0.6			11,600,000				1,290,000				0.6			93.1	%		$	16.36
Austell GA MOB		Austell, GA		Medical Office		39,000			0.3			12,600,000				834,000				0.4			91.0	%		$	23.36
Middletown OH MOB		Middletown, OH		Medical Office		103,000			0.7			19,300,000				1,716,000				0.8			80.8	%		$	20.59
Fox Grape SNF Portfolio		Braintree, Brighton, Duxbury, Hingham, Quincy and Weymouth, MA		Skilled Nursing		424,000			3.1			88,000,000				7,989,000				3.6			100	%		$	18.83
Voorhees NJ MOB		Voorhees, NJ		Medical Office		48,000			0.3			11,300,000				1,051,000				0.5			75.9	%		$	28.85
Norwich CT MOB Portfolio		Norwich, CT		Medical Office		56,000			0.4			15,600,000				1,173,000				0.5			98.8	%		$	21.11
New London CT MOB		New London, CT		Medical Office		27,000			0.2			4,850,000				526,000				0.2			100.0	%		$	19.81
Middletown OH MOB II		Middletown, OH		Medical Office		32,000			0.2			4,600,000				451,000				0.2			71.0	%		$	19.96
Total/weighted average(8)						13,836,000			100	%		$	3,001,462,000			$	223,619,000			100	%		91.9	%		$	35.26

_______

(1)	We own 100% of our properties as of December 31, 2019, with the exception of Trilogy and Lakeview IN Medical Plaza.

(2)

With the exception of our senior housing — RIDEA facilities and our integrated senior health campuses, annualized base rent is based on contractual base rent from leases in effect as of December 31, 2019. Annualized base rent for our senior housing — RIDEA facilities and our integrated senior health campuses is based on annualized NOI, a non-GAAP financial measure. See Part II, Item 6, Selected Financial Data, for a further discussion.

(3)	Leased percentage includes all leased space of the respective property including master leases, except for our senior housing — RIDEA facilities and our integrated senior health campuses where leased percentage represents resident occupancy on the available units of the RIDEA facilities or integrated senior health campuses.

(4)	Average annual rent per leased square foot is based on leases in effect as of December 31, 2019, except for our senior housing — RIDEA facilities and our integrated senior health campuses where average annual rent per unit is based on NOI divided by the average occupied units of the senior housing — RIDEA facilities or integrated senior health campuses.

(5)	We acquired six senior housing facilities comprising Crown Senior Care Portfolio for an aggregate net contract purchase price of £44,526,000.

(6)

On December 1, 2015, we completed the acquisition of Trilogy, the parent company of Trilogy Health Services, LLC, through our majority-owned subsidiary, Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings. Trilogy REIT Holdings acquired Trilogy for a purchase price based on a total company valuation of approximately $1,125,000,000. Our effective ownership of Trilogy was approximately 67.6% at the time of acquisition and our portion of the purchase price was approximately $760,356,000. NorthStar Healthcare Income, Inc. and Griffin-American Healthcare REIT IV, Inc. each currently own a minority interest in Trilogy REIT Holdings. See Note 13, Equity — Noncontrolling Interests, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion. Since December 1, 2015, we have expanded the Trilogy portfolio by investing in development projects and campus expansions and the acquisition of additional campuses, land parcels for development and a pharmaceutical business

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through our majority-owned subsidiary, Trilogy Investors, LLC. As of December 31, 2019, our effective ownership in Trilogy was approximately 67.6%.

(7)	On January 21, 2016, we completed the acquisition of Lakeview IN Medical Plaza, pursuant to a joint venture with an affiliate of Cornerstone Companies, Inc., an unaffiliated third party. Our effective ownership of the joint venture is 86.0%.

(8)	Weighted average annual rent per leased square foot excludes our senior housing — RIDEA facilities and our integrated senior health campuses.

We own fee simple interests in all of our buildings except for 17 buildings for which we own fee simple interests in the building and improvements of such properties subject to the respective ground leases.

The following information generally applies to our properties:

•	we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;

•	we have no plans for any material renovations, improvements or development with respect to any of our properties, except in accordance with planned budgets;

•	our properties are located in markets where we are subject to competition for attracting new tenants and retaining current tenants; and

•	depreciation is provided on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 50 years, over the shorter of the lease term or useful lives of the tenant improvements, up to 34 years, and over the estimated useful life of furniture, fixtures and equipment, up to 28 years.

For additional information regarding our real estate investments, see Schedule III, Real Estate and Accumulated Depreciation, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Lease Expirations

The following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years and thereafter at our properties other than our senior housing — RIDEA facilities and our integrated senior health campuses, by number, total square feet, percentage of leased area, annual base rent and percentage of total annual base rent of expiring leases as of December 31, 2019:

Year		Number of Expiring Leases		Total Square Feet of Expiring Leases		% of Leased Area Represented by Expiring Leases			Annual Base Rent  of Expiring Leases				% of Total Annual Base Rent Represented by Expiring Leases(1)
2020		94		287,000		7.9	%		$	6,357,000			6.1	%
2021		65		290,000		8.0			6,270,000				6.0
2022		68		400,000		11.0			9,811,000				9.4
2023		55		278,000		7.6			7,108,000				6.8
2024		46		318,000		8.7			6,912,000				6.6
2025		22		359,000		9.9			10,140,000				9.7
2026		12		84,000		2.3			1,988,000				1.9
2027		12		133,000		3.7			3,592,000				3.4
2028		7		148,000		4.1			5,842,000				5.6
2029		10		288,000		7.9			6,573,000				6.3
Thereafter		30		1,052,000		28.9			39,753,000				38.1
Total		421		3,637,000		100	%		$	104,346,000			100	%

 _______

(1)	The annual rent percentage is based on the total annual contractual base rent expiring in the applicable year, based on leases in effect as of December 31, 2019.

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Geographic Diversification/Concentration Table

The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2019:

State		Number of Buildings/ Campuses		GLA (Sq Ft)		% of GLA			Annualized Base Rent/NOI(1)				% of Annualized Base Rent/NOI
Alabama		1		30,000		0.2	%		$	262,000			0.1	%
Arkansas		1		51,000		0.4			661,000				0.3
California		2		65,000		0.5			1,976,000				0.9
Colorado		2		69,000		0.5			2,162,000				1.0
Connecticut		4		107,000		0.8			2,219,000				1.0
District of Columbia		1		134,000		1.0			4,514,000				2.0
Florida		2		62,000		0.4			883,000				0.4
Georgia		11		307,000		2.2			5,697,000				2.5
Illinois		6		122,000		0.9			2,325,000				1.0
Indiana		75		5,213,000		37.7			84,545,000				37.8
Kansas		1		40,000		0.3			729,000				0.3
Kentucky		12		946,000		6.8			(838,000		)		(0.4	)
Maryland		1		76,000		0.6			1,619,000				0.7
Massachusetts		7		525,000		3.8			11,319,000				5.1
Michigan		14		913,000		6.6			18,461,000				8.4
Mississippi		2		76,000		0.5			1,122,000				0.5
Missouri		3		350,000		2.5			7,134,000				3.2
Nebraska		2		282,000		2.0			2,813,000				1.3
New Jersey		3		278,000		2.0			7,348,000				3.3
New York		1		91,000		0.7			2,776,000				1.2
North Carolina		7		272,000		2.0			283,000				0.1
Ohio		30		2,110,000		15.3			24,233,000				10.8
Pennsylvania		8		556,000		4.0			12,035,000				5.4
South Carolina		1		58,000		0.4			1,342,000				0.6
Tennessee		1		46,000		0.3			712,000				0.3
Texas		15		692,000		5.0			18,302,000				8.2
Virginia		1		210,000		1.5			4,471,000				2.0
Total Domestic		214		13,681,000		98.9			219,105,000				98.0
Isle of Man and UK		6		155,000		1.1			4,514,000				2.0
Total		220		13,836,000		100	%		$	223,619,000			100	%

 _______

(1)	Annualized base rent is based on contractual base rent from leases in effect as of December 31, 2019, with the exception of our senior housing — RIDEA facilities and our integrated senior health campuses, which are based on annualized NOI.

Indebtedness

For a discussion of our indebtedness, see Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

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

Market Information

There is no established public trading market for shares of our common stock.

To assist the members of FINRA and their associated persons, pursuant to FINRA Conduct Rule 5110, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, we prepare annual statements of the estimated share value to assist fiduciaries of Benefit Plans and IRAs subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in shares of our common stock. For these purposes, our updated estimated per share NAV is $9.40 calculated as of June 30, 2019, an increase from our previously determined estimated per share NAV of $9.37 calculated as of June 30, 2018. The updated estimated per share NAV of $9.40 was approved and established by our board on October 3, 2019 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, 2019. However, there is no established public trading market for the shares of our common stock at this time, and there can be no assurance that stockholders could receive $9.40 per share if such a market did exist and they sold their shares of our common stock or that they would be able to receive such amount for their shares of our common stock in the future.

Pursuant to FINRA rules, we disclose an estimated per share NAV of our shares based on a valuation performed at least annually, and we disclose the resulting estimated per share NAV in our Annual Reports on Form 10-K distributed to stockholders. When determining the estimated value per share NAV, there are currently no SEC, federal and state rules that establish requirements specifying the methodology to employ in determining an estimated per share NAV; provided, however, that the determination of the estimated per share NAV must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert or service and must be derived from a methodology that conforms to standard industry practice. In determining the updated estimated per share NAV of our shares, our board considered information and analysis, including valuation materials that were provided by an independent third-party valuation firm, information provided by our advisor and the estimated per share NAV recommendation made by the audit committee of our board, which committee is comprised entirely of independent directors. See our Current Report on Form 8-K, filed with the SEC on October 4, 2019, for additional information regarding our independent third-party valuation firm, its valuation materials and the methodology used to determine the updated estimated per share NAV.

FINRA rules require subsequent valuations to be performed at least annually. The valuations are estimates and consequently should not be viewed as an accurate reflection of the amount of net proceeds that would result from an immediate sale of our assets.

Stockholders

As of March 20, 2020, we had approximately 35,454 stockholders of record.

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 March 31, 2020. 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 our DRIP Offerings, 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.

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The distributions paid for the years ended December 31, 2019 and 2018, along with the amount of distributions reinvested pursuant to our DRIP Offerings, and the sources of our distributions as compared to cash flows from operations were as follows:

	Years Ended December 31,
	2019							2018
Distributions paid in cash	$	62,612,000						$	59,974,000
Distributions reinvested	55,440,000							60,030,000
	$	118,052,000						$	120,004,000
Sources of distributions:
Cash flows from operations	$	117,454,000			99.5	%		$	106,814,000			89.0	%
Proceeds from borrowings	598,000				0.5			13,190,000				11.0
	$	118,052,000			100	%		$	120,004,000			100	%

As of December 31, 2019, 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 net offering proceeds and borrowings. The payment of distributions from our net offering proceeds and borrowings have reduced the amount of capital we ultimately invested in assets and negatively impacted the amount of income available for future distributions.

As of December 31, 2019, we had an amount payable of $2,146,000 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. See Note 14, Related Party Transactions — Operational Stage, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

The distributions paid for the years ended December 31, 2019 and 2018, along with the amount of distributions reinvested pursuant to our DRIP Offerings, and the sources of our distributions as compared to FFO were as follows:

	Years Ended December 31,
	2019							2018
Distributions paid in cash	$	62,612,000						$	59,974,000
Distributions reinvested	55,440,000							60,030,000
	$	118,052,000						$	120,004,000
Sources of distributions:
FFO attributable to controlling interest	$	91,159,000			77.2	%		$	96,958,000			80.8	%
Proceeds from borrowings	26,893,000				22.8			23,046,000				19.2
	$	118,052,000			100	%		$	120,004,000			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 Item 6, Selected Financial Data.

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Securities Authorized for Issuance under Equity Compensation Plans

We adopted our incentive plan, pursuant to which our board or a committee of our independent directors may make grants of options, shares of our restricted 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 a further discussion of our incentive plan, see Note 13, Equity — 2013 Incentive Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. The following table provides information regarding our incentive plan as of December 31, 2019:

Plan Category		Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights			Weighted Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders(1)		—			—			1,872,500
Equity compensation plans not approved by security holders		—			—			—
Total		—						1,872,500

________ 

(1)

Through December 31, 2019, we granted an aggregate of 52,500 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election or re-election to our board, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant. In addition, through December 31, 2019, we granted an aggregate of 75,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in consideration for their past services rendered. These shares of restricted common stock vest under the same period described above. Prior to October 5, 2016, the fair value of each share at the date of grant was estimated at $10.00 based on the then most recent price paid to acquire one share of our common stock in our initial offering; effective October 5, 2016, the fair value of each share at the date of grant was estimated at the updated estimated per share NAV approved and established by our board; and with respect to the initial 20.0% of shares of our restricted common stock that vested on the date of grant, expensed as compensation immediately, and with respect to the remaining shares of our restricted common stock, amortized over the period from the service inception date to the vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions. Such shares are not shown in the chart above as they are deemed outstanding shares of our common stock; however, such grants reduce the number of securities remaining available for future issuance.

Recent Sales of Unregistered Securities

None.

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. The number of shares that we will repurchase is limited during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to our DRIP Offerings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or qualifying disability of a stockholder will not be subject to this quarterly cap or to our existing cap on repurchases to 5.0% of the weighted average number of shares outstanding during the calendar year prior to the repurchase date. Funds for the repurchase of shares of our common stock will come from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings. Furthermore, our share repurchase plan, as amended, provides that if there are insufficient funds to honor all repurchase requests, pending requests may be honored among all requests for repurchase in any given repurchase period as follows: first, repurchases in full as to repurchases that would result in a stockholder owning less than $2,500 of shares; and, next, pro rata as to other repurchase requests.

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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 December 31, 2019, 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
October 1, 2019 to October 31, 2019		—			$	—			—			(1	)
November 1, 2019 to November 30, 2019		—			$	—			—			(1	)
December 1, 2019 to December 31, 2019		1,843,110			$	9.46			1,843,110			(1	)
Total		1,843,110			$	9.46			1,843,110

___________

(1)	A description of the maximum number of shares that may be purchased under our share repurchase plan is included in the narrative preceding this table.

Item 6. Selected Financial Data.

The following table sets forth selected financial data for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. This table should be read with Part I, Item 1A, Risk Factors and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our accompanying Consolidated Financial Statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of results for any future period.

On January 1, 2019, we adopted ASC Topic 842, Leases, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. As such, with respect to our leases as both lessees and lessors, certain financial information below is presented pursuant to ASC Topic 842 for the year ended December 31, 2019, and pursuant to the lease accounting standard then in effect for the prior years. Therefore, our results of operations for the year ended December 31, 2019 may not be comparable to the prior years presented below. See Note 2, Summary of Significant Accounting Policies — Leases, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of ASC Topic 842.

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The following selected financial data is derived from our consolidated financial statements in Part IV, Item 15, Exhibits, Financial Statement Schedules that is a part of this Annual Report on Form 10-K.

		December 31,
Selected Financial Data		2019				2018				2017				2016				2015
BALANCE SHEET DATA:
Total assets		$	3,172,289,000			$	2,889,092,000			$	2,800,475,000			$	2,794,518,000			$	2,525,019,000
Mortgage loans payable, net		$	792,870,000			$	688,262,000			$	613,558,000			$	495,717,000			$	295,270,000
Lines of credit and term loans		$	815,879,000			$	738,048,000			$	624,125,000			$	649,317,000			$	350,000,000
Stockholders’ equity		$	900,555,000			$	1,060,507,000			$	1,187,850,000			$	1,262,790,000			$	1,492,113,000
		Years Ended December 31,
		2019				2018				2017				2016				2015
STATEMENT OF OPERATIONS DATA:
Total revenues		$	1,223,116,000			$	1,135,260,000			$	1,054,292,000			$	989,571,000			$	160,476,000
Net (loss) income		$	(852,000	)		$	14,537,000			$	5,350,000			$	(203,896,000	)		$	(115,041,000	)
Net (loss) income attributable to controlling interest		$	(4,965,000	)		$	13,297,000			$	11,222,000			$	(146,034,000	)		$	(101,333,000	)
Net (loss) income per common share attributable to controlling interest — basic and diluted(1)		$	(0.03	)		$	0.07			$	0.06			$	(0.75	)		$	(0.55	)
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating activities		$	117,454,000			$	106,814,000			$	128,103,000			$	114,357,000			$	(22,987,000	)
Net cash used in investing activities		$	(103,112,000	)		$	(135,772,000	)		$	(124,551,000	)		$	(352,687,000	)		$	(1,591,056,000	)
Net cash provided by financing activities		$	2,688,000			$	37,597,000			$	4,765,000			$	226,656,000			$	1,176,599,000
OTHER DATA:
Distributions declared		$	117,837,000			$	120,001,000			$	118,968,000			$	116,549,000			$	109,957,000
Distributions declared per share		$	0.60			$	0.60			$	0.60			$	0.60			$	0.60
FFO attributable to controlling interest(2)		$	91,159,000			$	96,958,000			$	113,464,000			$	62,915,000			$	(30,815,000	)
MFFO attributable to controlling interest(2)		$	96,703,000			$	94,677,000			$	102,272,000			$	96,528,000			$	37,241,000
Net operating income(3)		$	221,397,000			$	211,366,000			$	214,778,000			$	195,038,000			$	60,146,000

_________

(1)

Net income (loss) per common share is based upon the weighted average number of shares of our common stock outstanding. Distributions by us of our current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholders’ basis in the shares of our common stock to the extent thereof (a return of capital for tax purposes) and, thereafter, as taxable gain. These distributions in excess of earnings and profits will have the effect of deferring taxation of the distributions until the sale of the stockholders’ common stock.

(2)	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.

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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, 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 certain real estate assets and impairment writedowns of certain real estate assets and investments, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. 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. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above.

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).

However, FFO and 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.

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 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

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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.

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 early extinguishment of debt, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions, fair value adjustment to investments in unconsolidated entities and the adjustments of such items related to unconsolidated entities and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the periods presented in the table below.

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. 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. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

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.

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.

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.

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The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for the periods presented below:

		Years Ended December 31,
		2019				2018				2017				2016				2015
Net (loss) income		$	(852,000	)		$	14,537,000			$	5,350,000			$	(203,896,000	)		$	(115,041,000	)
Add:
Depreciation and amortization related to real estate — consolidated properties		111,412,000				95,678,000				113,226,000				271,307,000				75,714,000
Depreciation and amortization related to real estate — unconsolidated entities		1,189,000				1,085,000				1,075,000				1,061,000				75,000
Impairment of real estate investments		—				2,542,000				14,070,000				—				—
Less:
Net (income) loss attributable to redeemable noncontrolling interests and noncontrolling interests		(4,113,000		)		(1,240,000		)		5,872,000				57,862,000				13,708,000
Gain on dispositions of real estate investments		—				—				(3,370,000		)		—				—
Depreciation, amortization, impairments and gain on dispositions related to redeemable noncontrolling interests and noncontrolling interests		(16,477,000		)		(15,644,000		)		(22,759,000		)		(63,419,000		)		(5,271,000		)
FFO attributable to controlling interest		$	91,159,000			$	96,958,000			$	113,464,000			$	62,915,000			$	(30,815,000	)
Acquisition related expenses(a)		$	(161,000	)		$	(2,913,000	)		$	(3,833,000	)		$	28,589,000			$	74,170,000
Amortization of above- and below-market leases(b)		219,000				450,000				710,000				929,000				882,000
Amortization of loan and closing costs(c)		275,000				251,000				223,000				754,000				669,000
Change in deferred rent(d)		744,000				(4,841,000		)		(5,289,000		)		(10,733,000		)		(2,816,000		)
Loss on extinguishment of debt(e)		2,968,000				—				1,432,000				—				—
Loss (gain) in fair value of derivative financial instruments(f)		4,541,000				1,949,000				(383,000		)		(1,968,000		)		—
Foreign currency (gain) loss(g)		(1,730,000		)		2,690,000				(4,045,000		)		8,755,000				3,199,000
Fair value adjustment to investments in unconsolidated entities(h)		—				—				—				9,101,000				—
Adjustments for unconsolidated entities(i)		1,431,000				1,645,000				1,981,000				2,140,000				—
Adjustments for redeemable noncontrolling interests and noncontrolling interests(i)		(2,743,000		)		(1,512,000		)		(1,988,000		)		(3,954,000		)		(8,048,000		)
MFFO attributable to controlling interest		$	96,703,000			$	94,677,000			$	102,272,000			$	96,528,000			$	37,241,000
Weighted average common shares outstanding — basic and diluted		196,342,873				199,953,936				198,234,677				194,199,931				183,234,601
Net (loss) income per common share — basic and diluted		$	—			$	0.07			$	0.03			$	(1.05	)		$	(0.63	)
FFO attributable to controlling interest per common share — basic and diluted		$	0.46			$	0.48			$	0.57			$	0.32			$	(0.17	)
MFFO attributable to controlling interest per common share — basic and diluted		$	0.49			$	0.47			$	0.52			$	0.50			$	0.20

_________

(a)

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.

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(b)

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.

(c)

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

(d)

Under GAAP, as a lessor, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays). As a lessee, we record amortization of right-of-use assets and accretion of lease liabilities for our operating leases. This may result in income or expense recognition that is significantly different than the underlying contract terms. By adjusting such amounts, 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.

(e)

The loss associated with the early extinguishment of debt primarily includes the write-off of unamortized deferred financing fees, write-off of unamortized debt discount, 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 business transactions and operations and is consistent with management’s analysis of our operating performance.

(f)

Under GAAP, we are required to include changes in fair value of our derivative financial instruments in the determination of net income or loss. We believe that adjusting for the change in fair value of our derivative financial instruments to arrive at MFFO 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.

(g)	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.

(h)	Includes impairment of one of our investments in unconsolidated entities, which resulted from a measurable decrease in the fair value of the real estate operations of such entity.

(i)	Includes all adjustments to eliminate the unconsolidated entities’ share or redeemable noncontrolling interests and noncontrolling interests’ share, as applicable, of the adjustments described in notes (a) – (h) above to convert our FFO to MFFO.

(3)	Net Operating Income

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 entities, foreign currency gain or loss, other income and income tax benefit (expense). 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, as 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.

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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.

To facilitate understanding of this financial measure, the following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to NOI for the periods presented below:

	Years Ended December 31,
	2019				2018				2017				2016				2015
Net (loss) income	$	(852,000	)		$	14,537,000			$	5,350,000			$	(203,896,000	)		$	(115,041,000	)
General and administrative	29,749,000				28,770,000				32,587,000				28,951,000				16,544,000
Acquisition related expenses	(161,000		)		(2,913,000		)		(3,833,000		)		28,589,000				74,170,000
Depreciation and amortization	111,412,000				95,678,000				113,226,000				271,307,000				75,714,000
Interest expense	83,094,000				68,230,000				60,489,000				43,697,000				5,619,000
Gain on dispositions of real estate investments	—				—				(3,370,000		)		—				—
Impairment of real estate investments	—				2,542,000				14,070,000				—				—
Loss from unconsolidated entities	2,097,000				3,877,000				5,048,000				18,377,000				590,000
Foreign currency (gain) loss	(1,730,000		)		2,690,000				(4,045,000		)		8,755,000				3,199,000
Other income	(3,736,000		)		(1,248,000		)		(1,517,000		)		(1,085,000		)		(839,000		)
Income tax expense (benefit)	1,524,000				(797,000		)		(3,227,000		)		343,000				190,000
Net operating income	$	221,397,000			$	211,366,000			$	214,778,000			$	195,038,000			$	60,146,000

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

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 otherwise noted.

The following discussion should be read in conjunction with our accompanying consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 2019 and 2018, together with our results of operations and cash flows for the years ended December 31, 2019, 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; changes in accounting principles generally accepted in the United States, or GAAP, policies or guidelines applicable to REITs; the success of our investment strategy; 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 United States Securities and Exchange Commission, or 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 may also originate and acquire other 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 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 initial distribution reinvestment plan, or the Initial 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 Initial DRIP.

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 to be issued pursuant to the Initial DRIP, or the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the 2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of our common stock being issued pursuant to the 2015 DRIP Offering.

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On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering. As of December 31, 2019, a total of $41,244,000 in distributions were reinvested that resulted in 4,398,586 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings. See Note 13, Equity — Distribution Reinvestment Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

On October 3, 2019, 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 $9.40. We provide an updated estimated per share NAV on at least an annual basis to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority, or FINRA, Rule 2231 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, 2019. 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, 2019 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 initial 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 11, 2020 and expires on February 26, 2021. 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 wholly owned subsidiaries of 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.

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 December 31, 2019, we owned and/or operated 98 properties, comprising 102 buildings, and 118 integrated senior health campuses including completed development projects, or approximately 13,836,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $3,001,462,000. In addition, as of December 31, 2019, we also owned a real estate-related investment purchased for $60,429,000.

Critical Accounting Policies

We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to revenue recognition, tenant and resident receivables, allowance for uncollectible accounts, accounting for property acquisitions, depreciation of and capitalization of expenditures on our real estate investments, impairment of long-lived assets, goodwill and intangibles, properties held for sale and qualification as a REIT for income tax purposes. These estimates may require complex judgment in their application and are evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. A discussion of our critical accounting policies is included within Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. There have been no significant changes to our critical accounting policies during 2019 other than those resulting from new accounting standards.

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Recently Adopted Accounting Pronouncements

For a discussion of recently adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Acquisitions and Dispositions in 2019, 2018 and 2017

For a discussion of our acquisitions and dispositions of real estate investments in 2019, 2018 and 2017, see Note 3, Real Estate Investments, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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 I, Item 1A, Risk Factors, of this Annual Report on Form 10-K. However, due to the recent outbreak of the coronavirus in the United States and globally, our residents, tenants and operating partners may be impacted. The impact of the coronavirus on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus, and reactions by consumers, companies, governmental entities and capital markets.

Scheduled Lease Expirations

Excluding our senior housing — RIDEA facilities and our integrated senior health campuses, as of December 31, 2019, our properties were 91.9% leased and during 2020, 7.9% of the leased GLA is scheduled to expire. Our leasing strategy focuses on negotiating renewals for leases scheduled 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 December 31, 2019, our remaining weighted average lease term was 7.5 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.

Our senior housing — RIDEA facilities and integrated senior health campuses were 84.9% and 86.1% leased, respectively, for the year ended December 31, 2019. Substantially all of our leases with residents at such properties are for a term of one year or less.

Results of Operations

Comparison of the Years Ended December 31, 2019, 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 ongoing developments of properties, as well as the result of any additional real estate and real estate-related investments we may acquire or originate.

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 December 31, 2019, we operated through 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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Except where otherwise noted, the changes in our results of operations for 2019 as compared to 2018 and 2017 are primarily due to the development and expansion of our portfolio of integrated senior health campuses, as well as growth in our pharmaceutical and rehabilitation businesses within our integrated senior health campuses segment. In addition, the changes in our results of operations were due to transitioning the operations of seven senior housing facilities within North Carolina ALF Portfolio to a RIDEA structure on December 1, 2019. As of December 31, 2019, 2018 and 2017, we owned and/or operated the following types of properties:

	December 31,
	2019										2018										2017
	Number of Buildings/ Campuses			Aggregate Contract Purchase Price				Leased %			Number of Buildings/ Campuses			Aggregate Contract Purchase Price				Leased %			Number of Buildings/ Campuses			Aggregate Contract Purchase Price				Leased %
Integrated senior health campuses	118			$	1,546,121,000			(1	)		112			$	1,500,649,000			(1)			107			$	1,441,058,000			(1)
Medical office buildings	64			664,135,000				89.1	%		64			664,135,000				89.3	%		64			663,835,000				92.0	%
Senior housing — RIDEA	20			433,891,000				(2	)		13			320,035,000				(2)			13			320,035,000				(2)
Senior housing	9			89,535,000				100	%		15			188,391,000				100	%		14			173,391,000				100	%
Skilled nursing facilities	7			128,000,000				100	%		7			128,000,000				100	%		7			128,000,000				100	%
Hospitals	2			139,780,000				100	%		2			139,780,000				100	%		2			139,780,000				100	%
Total/weighted average(3)	220			$	3,001,462,000			91.9	%		213			$	2,940,990,000			92.5	%		207			$	2,866,099,000			94.3	%

___________

(1)	The leased percentage for the resident units of our integrated senior health campuses was 86.1%, 84.8% and 85.3% for the years ended December 31, 2019, 2018 and 2017, respectively.

(2)	The leased percentage for the resident units of our senior housing — RIDEA facilities was 84.9%, 84.9% and 85.0% for the years ended December 31, 2019, 2018 and 2017, respectively.

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

Revenues

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

	Years Ended December 31,
	2019				2018				2017
Resident Fees and Services
Integrated senior health campuses	$	1,030,934,000			$	940,616,000			$	863,029,000
Senior housing — RIDEA	68,144,000				65,075,000				64,192,000
Total resident fees and services	1,099,078,000				1,005,691,000				927,221,000
Real Estate Revenue
Medical office buildings	80,805,000				80,078,000				78,584,000
Senior housing	18,407,000				21,913,000				20,898,000
Skilled nursing facilities	13,345,000				14,887,000				14,884,000
Hospitals	11,481,000				12,691,000				12,705,000
Total real estate revenue	124,038,000				129,569,000				127,071,000
Total revenues	$	1,223,116,000			$	1,135,260,000			$	1,054,292,000

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 available space at the then existing rental rates. For the years ended December 31, 2019, 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 years ended December 31, 2019, 2018 and 2017, real estate revenue primarily consisted of base rent and expense recoveries. The decrease in real estate revenue for our senior housing segment for the year ended

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December 31, 2019, compared to 2018 and 2017, is primarily due to the write-off of $2,345,000 in deferred rent receivables in connection with the termination of a management services agreement with an operator during the year December 31, 2019. The decrease in real estate revenue for our skilled nursing facilities segment for the year ended December 31, 2019, compared to 2018 and 2017, is primarily due to the $1,334,000 write-off of receivables that we estimated to be uncollectible during the year December 31, 2019. The decrease in real estate revenue for our hospitals segment for the year ended December 31, 2019, as compared to 2018 and 2017, is primarily due to the exclusion of $1,065,000 and $1,080,000, respectively, of property tax recoveries that resulted upon our adoption of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 842, Leases on January 1, 2019. See Note 2, Summary of Significant Accounting Policies — Leases, to our accompanying consolidated financial statements.

Property Operating Expenses and Rental Expenses

For the years ended December 31, 2019, 2018 and 2017, property operating expenses primarily consisted of administration and benefits expense of $847,602,000, $775,804,000 and $705,072,000, 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:

	Years Ended December 31,
	2019							2018							2017
Property Operating Expenses
Integrated senior health campuses	$	919,793,000			89.2	%		$	844,279,000			89.8	%		$	763,306,000			88.4	%
Senior housing — RIDEA	48,067,000				70.5	%		44,792,000				68.8	%		43,133,000				67.2	%
Total property operating expenses	$	967,860,000			88.1	%		$	889,071,000			88.4	%		$	806,439,000			87.0	%
Rental Expenses
Medical office buildings	$	30,870,000			38.2	%		$	30,514,000			38.1	%		$	29,344,000			37.3	%
Skilled nursing facilities	1,456,000				10.9	%		1,816,000				12.2	%		1,608,000				10.8	%
Senior housing	1,001,000				5.4	%		837,000				3.8	%		670,000				3.2	%
Hospitals	532,000				4.6	%		1,656,000				13.0	%		1,453,000				11.4	%
Total rental expenses	$	33,859,000			27.3	%		$	34,823,000			26.9	%		$	33,075,000			26.0	%

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 due to the nature of RIDEA facilities where we conduct day-to-day operations. 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.

General and Administrative

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

	Years Ended December 31,
	2019				2018				2017
Asset management fees — affiliates	$	20,073,000			$	19,373,000			$	18,793,000
Professional and legal fees	2,965,000				2,578,000				2,559,000
Stock compensation expense	2,744,000				3,026,000				986,000
Transfer agent services	1,340,000				1,239,000				1,310,000
Bad debt expense	991,000				490,000				6,674,000
Directors’ and officers’ liability insurance	314,000				315,000				321,000
Bank charges	282,000				374,000				416,000
Board of directors fees	280,000				262,000				247,000
Restricted stock compensation	215,000				215,000				216,000
Franchise taxes	82,000				354,000				414,000
Other	463,000				544,000				651,000
Total	$	29,749,000			$	28,770,000			$	32,587,000

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The increase in general and administrative for the year ended December 31, 2019 as compared to 2018 was primarily due to the increase in asset management fees as a result of an increase in our average invested assets through capital expenditures and property acquisitions in 2019 as compared to 2018. The decrease in general and administrative in 2018 compared to 2017 was primarily due to the adoption of ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, on January 1, 2018, such that substantially all amounts previously recorded to bad debt expense are now recorded as reductions of resident fees and services revenue. See Note 2, Summary of Significant Accounting Policies — Revenue Recognition, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K for a discussion of our adoption of ASC Topic 606. Such decrease in general and administrative in 2018 as compared to 2017 was partially offset by stock compensation expense due to fair value adjustments to performance-based profit interest units in Trilogy Investors, LLC, or Trilogy. See Note 13, Equity — Noncontrolling interests, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the profit interest units in Trilogy.

Acquisition Related Expenses

For the year ended December 31, 2019, we completed $34,638,000 in property acquisitions that we accounted for as asset acquisitions; however, the direct acquisition related expenses of $836,000 associated with such property acquisitions were capitalized in our consolidated balance sheets in accordance with Accounting Standards Update, or ASU, 2017-01, Clarifying the Definition of a Business, or ASU 2017-01. See Note 2, Summary of Significant Accounting Policies — Property Acquisitions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of ASU 2017-01. For the year ended December 31, 2019, we also recorded negative acquisition related expenses of $(161,000), which are primarily related to $(681,000) in fair value adjustments to a contingent consideration obligation. See Note 15, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of our contingent consideration obligation.

For the year ended December 31, 2018, we completed $65,901,000 in property acquisitions that we accounted for as asset acquisitions; however, the direct acquisition related expenses of $3,044,000 associated with such property acquisitions were capitalized. For the year ended December 31, 2018, we recorded negative acquisition related expenses of $(2,913,000), which primarily related to $(2,843,000) in fair value adjustments to contingent consideration obligations.

For the year ended December 31, 2017, we completed $113,584,000 in property acquisitions that we accounted for as asset acquisitions; however, the direct acquisition related expenses of $3,055,000 associated with such property acquisitions were capitalized. For the year ended December 31, 2017, we also recorded negative acquisition related expenses of $(3,833,000), which primarily related to $(3,885,000) in fair value adjustments to contingent consideration obligations.

Depreciation and Amortization

For the years ended December 31, 2019, 2018 and 2017, depreciation and amortization was $111,412,000, $95,678,000 and $113,226,000, respectively, which primarily consisted of depreciation on our operating properties of $90,914,000, $83,309,000 and $81,743,000, respectively, and amortization on our identified intangible assets of $19,366,000, $11,628,000 and $31,033,000, respectively.

The increase in depreciation and amortization for the year ended December 31, 2019, as compared to the year ended December 31, 2018 was primarily due to the write-off of certain assets in connection with the termination of a management services agreement with an operator during the year ended December 31, 2019. The decrease in amortization expense for the year ended December 31, 2018 as compared to the years ended December 31, 2019 and 2017 was primarily the result of amortization expense on our identified intangible assets recognized during the year ended December 31, 2017 of $21,702,000, which related to $33,084,000 of in-place leases of our integrated senior health campuses and senior housing — RIDEA properties that were fully amortized by January 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:

	Years Ended December 31,
	2019				2018				2017
Interest expense — lines of credit and term loans and derivative financial instruments	$	36,064,000			$	29,508,000			$	24,839,000
Interest expense — mortgage loans payable	32,714,000				29,183,000				26,632,000
Amortization of deferred financing costs — lines of credit and term loans	3,664,000				4,637,000				4,331,000
Amortization of deferred financing costs — mortgage loans payable	1,449,000				1,269,000				1,446,000
Amortization of debt discount/premium, net	647,000				537,000				998,000
Loss (gain) in fair value of derivative financial instruments	4,541,000				1,949,000				(383,000		)
Loss on extinguishment of debt	2,968,000				—				1,432,000
Accretion of finance lease liabilities	390,000				—				—
Interest expense on financing obligations and other liabilities	657,000				1,147,000				1,194,000
Total	$	83,094,000			$	68,230,000			$	60,489,000

The increase in total interest expense in 2019 as compared to 2018 was primarily related to the increase in debt balances as well as the increase in loss on fair value recognized on the derivative financial instruments, which was due to a decrease in LIBOR rates relative to our interest rate swap contracts. The loss on extinguishment of debt in 2019 was due to the early payoff of two mortgage loans payable and the termination of a line of credit, which resulted in the write-off of unamortized debt discounts and unamortized deferred financing fees, as well as the payment of prepayment penalties. See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K for a further discussion of extinguishment of debt. The increase in interest expense in 2018 as compared to 2017 was primarily related to the increase in debt balances and higher weighted average interest rates on our lines of credit and term loans, as well as the increase in loss on fair value of derivative financial instruments that was attributable to such instruments approaching maturity.

Liquidity and Capital Resources

Our sources of funds primarily consist of operating cash flows and borrowings. In the normal course of business, our principal demands for funds are for our payment of operating expenses, capital improvement expenditures, development of real estate investments, interest on our indebtedness, distributions to our stockholders and repurchases of our common stock.

Our total capacity to pay operating expenses, capital improvement expenditures, interest, distributions and repurchases, as well as acquire and/or develop real estate 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 December 31, 2019, our cash on hand was $53,149,000 and we had $174,121,000 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.

We estimate that we will require approximately $63,784,000 to pay interest on our outstanding indebtedness in 2020, based on interest rates in effect and borrowings outstanding as of December 31, 2019. In addition, we estimate that we will require $71,838,000 to pay down principal on our outstanding indebtedness in 2020. We also require resources to make certain payments to our advisor and its affiliates. See Note 14, Related Party Transactions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, 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. 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.

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Based on the budget for the properties we owned as of December 31, 2019, we estimate that our discretionary capital improvement and tenant improvement expenditures could require up to $275,499,000 within the next 12 months. As of December 31, 2019, we had $12,736,000 of restricted cash in loan impounds and reserve accounts to fund a portion of 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 expenditures or be able to obtain additional sources of financing on commercially favorable terms or at all.

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 and share repurchases or the timing of the collection of receivables, we may seek to obtain capital to pay distributions and share repurchases 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 and share repurchases from cash from capital transactions, including without limitation, the sale of one or more of our properties.

In addition, we are continuing to monitor the outbreak of the coronavirus and its impact on residents in our senior housing and skilled nursing facilities, our tenants, operating partners and the healthcare industry as a whole. The magnitude and duration of the pandemic and its impact on our operations and liquidity is uncertain as of the filing date of our report as this continues to evolve globally. However, if the outbreak continues on its current trajectory, such impacts could grow and become material. To the extent that our residents, tenants and operating partners continue to be impacted by the coronavirus outbreak, or by the other risks disclosed in our report, this could materially disrupt our business operations.

Cash Flows

The following table sets forth changes in cash flows:

	Years Ended December 31,
	2019				2018				2017
Cash, cash equivalents and restricted cash — beginning of period	$	72,705,000			$	64,143,000			$	55,677,000
Net cash provided by operating activities	117,454,000				106,814,000				128,103,000
Net cash used in investing activities	(103,112,000		)		(135,772,000		)		(124,551,000		)
Net cash provided by financing activities	2,688,000				37,597,000				4,765,000
Effect of foreign currency translation on cash, cash equivalents and restricted cash	145,000				(77,000		)		149,000
Cash, cash equivalents and restricted cash — end of period	$	89,880,000			$	72,705,000			$	64,143,000

The following summary discussion of our changes in our cash flows is based on our accompanying 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 years ended December 31, 2019, 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 the “Results of Operations” section 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 year ended December 31, 2019, cash flows used in investing activities primarily related to capital expenditures of $92,836,000 and our 2019 property acquisitions, including our acquisitions of previously leased real estate investments, in the amount of $37,863,000, partially offset by principal repayments on real estate notes receivable of $28,650,000. For the year ended December 31, 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 $67,285,000 and capital expenditures of $66,907,000. For the year ended December 31, 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 $123,088,000 and capital expenditures of $43,553,000, partially offset by principal repayments on real estate notes receivable of $29,478,000 and proceeds from our 2017 real estate dispositions of $15,993,000. In general, cash flows used in investing activities will be affected by the number of acquisitions we complete in future years as compared to prior years and the timing of capital expenditures and development projects.

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Financing Activities

For the year ended December 31, 2019, cash flows provided by financing activities primarily related to borrowings under mortgage loans payable in the amount of $191,246,000 and net borrowings under our lines of credit and term loans in the amount of $77,831,000, partially offset by share repurchases of $89,888,000, payments on mortgage loans of $74,037,000, distributions to our common stockholders of $62,612,000 and the payoff of mortgage loans payable in the amount of $14,022,000. For the year ended December 31, 2018, cash flows provided by financing activities primarily related to borrowings under mortgage loans payable in the amount of $181,594,000 and net borrowings under our lines of credit and term loans in the amount of $113,923,000, partially offset by the payoff of mortgage loans payable in the amount of $94,449,000, share repurchases of $76,577,000 and distributions to our common stockholders of $59,974,000. For the year ended December 31, 2017, cash flows provided by financing activities primarily related to net borrowings under mortgage loans payable in the amount of $230,611,000, partially offset by the payoff of mortgage loans payable in the amount of $100,775,000, net payments on our lines of credit and term loans in the amount of $25,192,000, distributions to our common stockholders of $55,777,000 and share repurchases of $30,656,000. Overall, we anticipate cash flows from financing activities to decrease in the future. 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

The income tax treatment for distributions reportable for the years ended December 31, 2019, 2018 and 2017 was as follows:

	Years Ended December 31,
	2019							2018							2017
Ordinary income	$	35,294,000			29.9	%		$	33,141,000			27.6	%		$	40,475,000			34.1	%
Capital gain	—				—			—				—			—				—
Return of capital	82,731,000				70.1			86,833,000				72.4			78,285,000				65.9
	$	118,025,000			100	%		$	119,974,000			100	%		$	118,760,000			100	%

Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.

See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of our distributions.

Financing

We intend to continue to finance all or 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 December 31, 2019, our aggregate borrowings were 44.5% 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 March 26, 2020 and December 31, 2019, our leverage did not exceed 300% of the value of our net assets.

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Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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 the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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 the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Debt Service Requirements

A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of December 31, 2019, we had $816,217,000 ($792,870,000, net of discount/premium and deferred financing costs) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of December 31, 2019, we had $815,879,000 outstanding and $174,121,000 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 the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

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 December 31, 2019, 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 December 31, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps and interest rate cap, was 4.03% 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; (iii) ground and other lease obligations; (iv) financing obligations; and (v) finance leases as of December 31, 2019:

	Payments Due by Period
	2020				2021-2022				2023-2024				Thereafter				Total
Principal payments — fixed-rate debt	$	24,223,000			$	75,177,000			$	95,114,000			$	520,272,000			$	714,786,000
Interest payments — fixed-rate debt	26,293,000				49,642,000				42,174,000				259,940,000				378,049,000
Principal payments — variable-rate debt	47,615,000				599,312,000				270,383,000				—				917,310,000
Interest payments — variable-rate debt (based on rates in effect as of December 31, 2019)	37,491,000				49,050,000				8,453,000				—				94,994,000
Ground and other lease obligations	24,571,000				50,399,000				49,882,000				187,534,000				312,386,000
Financing obligations	12,692,000				17,239,000				1,882,000				—				31,813,000
Finance leases	1,217,000				129,000				—				—				1,346,000
Total	$	174,102,000			$	840,948,000			$	467,888,000			$	967,746,000			$	2,450,684,000

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Off-Balance Sheet Arrangements

As of December 31, 2019, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

Inflation

During the years ended December 31, 2019, 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 include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements. 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 the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Item 7A. 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, between the years ended December 31, 2019 and 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. 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 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. We have not elected to apply hedge accounting treatment to these derivatives, therefore 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 consolidated statements of operations and comprehensive income (loss). As of December 31, 2019, our interest rate cap and interest rate swaps are recorded in other assets, net and security deposits, prepaid rent and other liabilities, in our accompanying consolidated balance sheets at their fair value of $0 and $(3,971,000), respectively. We do not enter into derivative transactions for speculative purposes.

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As of December 31, 2019, 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
	2020				2021				2022				2023				2024				Thereafter				Total				Fair Value
Assets
Debt security held-to-maturity	$	—			$	—			$	—			$	—			$	—			$	93,433,000			$	93,433,000			$	94,026,000
Weighted average interest rate on maturing fixed-rate debt security	—		%		—		%		—		%		—		%		—		%		4.24		%		4.24		%		—
Liabilities
Fixed-rate debt — principal payments	$	24,223,000			$	13,107,000			$	62,070,000			$	29,127,000			$	65,987,000			$	520,272,000			$	714,786,000			$	631,315,000
Weighted average interest rate on maturing fixed-rate debt	4.68		%		3.69		%		4.15		%		4.14		%		3.67		%		4.07		%		3.72		%		—
Variable-rate debt — principal payments	$	47,615,000			$	42,312,000			$	557,000,000			$	265,574,000			$	4,809,000			$	—			$	917,310,000			$	917,886,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of December 31, 2019)	4.66		%		3.87		%		3.83		%		4.53		%		5.38		%		—		%		4.14		%		—

Debt Security Investment, Net

As of December 31, 2019, the carrying value of our debt security investment, net was $72,717,000. As we expect to hold our debt security investment to maturity and the amounts due under such 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 debt security investment, would have a significant impact on our operations. See Note 15, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a discussion of the fair value of our investment in a held-to-maturity debt security. The weighted average effective interest rate on our outstanding debt security investment, net was 4.24% per annum as of December 31, 2019.

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

Mortgage loans payable were $816,217,000 ($792,870,000, net of discount/premium and deferred financing costs) as of December 31, 2019. As of December 31, 2019, we had 58 fixed-rate mortgage loans payable and seven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 6.21% per annum and a weighted average effective interest rate of 3.85%. In addition, as of December 31, 2019, we had $815,879,000 outstanding under our lines of credit and term loans, at a weighted-average interest rate of 4.05% per annum.

As of December 31, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps and interest rate cap, was 4.03% 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 December 31, 2019, we have a fixed-rate interest rate cap on one of our variable-rate mortgage loans payable and two fixed-rate interest rate swaps on one of our lines of credit and term loans; an increase in the variable interest rate thereon would have no effect on our overall annual interest expense. As of December 31, 2019, 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 $2,724,000, or 3.96% 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 the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

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 year ended December 31, 2019, 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 $21,000 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 8. Financial Statements and Supplementary Data.

See Part IV, Item 15, Exhibits, Financial Statement Schedules.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. 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 December 31, 2019 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 December 31, 2019, were effective at the reasonable assurance level.

(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision, and with the participation, of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the Internal Control-Integrated Framework issued in 2013, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

(c) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2020 annual meeting of stockholders.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2020 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2020 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2020 annual meeting of stockholders.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2020 annual meeting of stockholders.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

	Page
Report of Independent Registered Public Accounting Firm	87
Consolidated Balance Sheets as of December 31, 2019 and 2018	88
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017	90
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017	91
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017	93
Notes to Consolidated Financial Statements	96

(a)(2) Financial Statement Schedule:

The following financial statement schedule for the year ended December 31, 2019 is submitted herewith:

	Page
Real Estate and Accumulated Depreciation (Schedule III)	145

All schedules other than the one listed above have been omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes.

(a)(3) Exhibits:

	Page
The exhibits listed in this section are included, or incorporated by reference, in this annual report.	156

(b) Exhibits:

See Item 15(a)(3) above.

(c) Financial Statement Schedule: 

See Item 15(a)(2) above.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Griffin-American Healthcare REIT III, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Griffin-American Healthcare REIT III, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach.

Basis for Opinion

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

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Costa Mesa, California

March 26, 2020

We have served as the Company’s auditor since 2013.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2019 and 2018

	December 31,
	2019				2018
ASSETS
Real estate investments, net	$	2,270,421,000			$	2,222,681,000
Debt security investment and real estate notes receivable, net	72,717,000				98,655,000
Cash and cash equivalents	53,149,000				35,132,000
Accounts and other receivables, net	144,130,000				122,918,000
Restricted cash	36,731,000				37,573,000
Real estate deposits	223,000				3,077,000
Identified intangible assets, net	160,247,000				179,521,000
Goodwill	75,309,000				75,309,000
Operating lease right-of-use assets, net	219,187,000				—
Other assets, net	140,175,000				114,226,000
Total assets	$	3,172,289,000			$	2,889,092,000
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	792,870,000			$	688,262,000
Lines of credit and term loans(1)	815,879,000				738,048,000
Accounts payable and accrued liabilities(1)	171,394,000				139,383,000
Accounts payable due to affiliates(1)	2,321,000				2,103,000
Identified intangible liabilities, net	663,000				1,051,000
Financing obligations(1)	30,918,000				25,947,000
Operating lease liabilities(1)	207,371,000				—
Security deposits, prepaid rent and other liabilities(1)	48,105,000				37,418,000
Total liabilities	2,069,521,000				1,632,212,000
Commitments and contingencies (Note 11)
Redeemable noncontrolling interests (Note 12)	44,105,000				38,245,000
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; 193,967,474 and 197,557,377 shares issued and outstanding as of December 31, 2019 and 2018, respectively	1,939,000				1,975,000
Additional paid-in capital	1,728,421,000				1,765,840,000
Accumulated deficit	(827,550,000		)		(704,748,000		)
Accumulated other comprehensive loss	(2,255,000		)		(2,560,000		)
Total stockholders’ equity	900,555,000				1,060,507,000
Noncontrolling interests (Note 13)	158,108,000				158,128,000
Total equity	1,058,663,000				1,218,635,000
Total liabilities, redeemable noncontrolling interests and equity	$	3,172,289,000			$	2,889,092,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED BALANCE SHEETS — (Continued)

As of December 31, 2019 and 2018

___________

(1)

Such liabilities of Griffin-American Healthcare REIT III, Inc. as of December 31, 2019 and 2018 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, or VIE, 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 2019 Corporate Line of Credit and 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $557,000,000 and $548,500,000 as of December 31, 2019 and 2018, respectively, which is guaranteed by Griffin-American Healthcare REIT III, Inc.

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2019, 2018 and 2017

	Years Ended December 31,
	2019				2018				2017
Revenues:
Resident fees and services	$	1,099,078,000			$	1,005,691,000			$	927,221,000
Real estate revenue	124,038,000				129,569,000				127,071,000
Total revenues	1,223,116,000				1,135,260,000				1,054,292,000
Expenses:
Property operating expenses	967,860,000				889,071,000				806,439,000
Rental expenses	33,859,000				34,823,000				33,075,000
General and administrative	29,749,000				28,770,000				32,587,000
Acquisition related expenses	(161,000		)		(2,913,000		)		(3,833,000		)
Depreciation and amortization	111,412,000				95,678,000				113,226,000
Total expenses	1,142,719,000				1,045,429,000				981,494,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)	(78,553,000		)		(66,281,000		)		(60,872,000		)
(Loss) gain in fair value of derivative financial instruments	(4,541,000		)		(1,949,000		)		383,000
Gain on dispositions of real estate investments	—				—				3,370,000
Impairment of real estate investments	—				(2,542,000		)		(14,070,000		)
Loss from unconsolidated entities	(2,097,000		)		(3,877,000		)		(5,048,000		)
Foreign currency gain (loss)	1,730,000				(2,690,000		)		4,045,000
Other income	3,736,000				1,248,000				1,517,000
Income before income taxes	672,000				13,740,000				2,123,000
Income tax (expense) benefit	(1,524,000		)		797,000				3,227,000
Net (loss) income	(852,000		)		14,537,000				5,350,000
Less: net (income) loss attributable to noncontrolling interests	(4,113,000		)		(1,240,000		)		5,872,000
Net (loss) income attributable to controlling interest	$	(4,965,000	)		$	13,297,000			$	11,222,000
Net (loss) income per common share attributable to controlling interest — basic and diluted	$	(0.03	)		$	0.07			$	0.06
Weighted average number of common shares outstanding — basic and diluted	196,342,873				199,953,936				198,234,677
Net (loss) income	$	(852,000	)		$	14,537,000			$	5,350,000
Other comprehensive income (loss):
Foreign currency translation adjustments	305,000				(589,000		)		1,058,000
Total other comprehensive income (loss)	305,000				(589,000		)		1,058,000
Comprehensive (loss) income	(547,000		)		13,948,000				6,408,000
Less: comprehensive (income) loss attributable to noncontrolling interests	(4,113,000		)		(1,240,000		)		5,872,000
Comprehensive (loss) income attributable to controlling interest	$	(4,660,000	)		$	12,708,000			$	12,280,000

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended December 31, 2019, 2018 and 2017

	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	—			—				(12,000		)		—				—				(12,000		)		—					(12,000		)
Issuance of common stock under the DRIP	6,960,664			70,000				62,938,000				—				—				63,008,000				—					63,008,000
Issuance of vested and nonvested restricted common stock	22,500			—				40,000				—				—				40,000				—					40,000
Amortization of nonvested common stock compensation	—			—				176,000				—				—				176,000				—					176,000
Stock based compensation	—			—				—				—				—				—				936,000					936,000
Repurchase of common stock	(3,419,969	)		(34,000		)		(30,622,000		)		—				—				(30,656,000		)		—					(30,656,000		)
Contributions from noncontrolling interests	—			—				—				—				—				—				11,754,000					11,754,000
Distributions to noncontrolling interests	—			—				—				—								—				(3,466,000		)			(3,466,000		)
Reclassification of noncontrolling interests to mezzanine equity	—			—				—				—				—				—				(635,000		)			(635,000		)
Fair value adjustment to redeemable noncontrolling interests	—			—				(808,000		)		—				—				(808,000		)		(347,000		)			(1,155,000		)
Distributions declared ($0.60 per share)	—			—				—				(118,968,000		)		—				(118,968,000		)		—					(118,968,000		)
Net income (loss)	—			—				—				11,222,000				—				11,222,000				(5,280,000		)	(1	)	5,942,000
Other comprehensive income	—			—				—				—				1,058,000				1,058,000				—					1,058,000
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	—			—				(7,000		)		—				—				(7,000		)		—					(7,000		)
Issuance of common stock under the DRIP	6,464,432			65,000				59,965,000				—				—				60,030,000				—					60,030,000
Issuance of vested and nonvested restricted common stock	22,500			—				41,000				—				—				41,000				—					41,000
Amortization of nonvested common stock compensation	—			—				174,000				—				—				174,000				—					174,000
Stock based compensation	—			—				—				—				—				—				2,898,000					2,898,000
Repurchase of common stock	(8,272,789	)		(83,000		)		(76,494,000		)		—				—				(76,577,000		)		—					(76,577,000		)
Contribution from noncontrolling interest	—			—				—				—				—				—				4,470,000					4,470,000
Distributions to noncontrolling interests	—			—				—				—				—				—				(6,701,000		)			(6,701,000		)
Reclassification of noncontrolling interests to mezzanine equity	—			—				—				—				—				—				(780,000		)			(780,000		)
Fair value adjustment to redeemable noncontrolling interests	—			—				(3,711,000		)		—				—				(3,711,000		)		(1,590,000		)			(5,301,000		)
Distributions declared ($0.60 per share)	—			—				—				(120,001,000		)		—				(120,001,000		)		—					(120,001,000		)
Net income	—			—				—				13,297,000				—				13,297,000				1,106,000			(1	)	14,403,000
Other comprehensive loss	—			—				—				—				(589,000		)		(589,000		)		—					(589,000		)
BALANCE — December 31, 2018	197,557,377			$	1,975,000			$	1,765,840,000			$	(704,748,000	)		$	(2,560,000	)		$	1,060,507,000			$	158,128,000				$	1,218,635,000
Offering costs — common stock	—			—				(91,000		)		—				—				(91,000		)		—					(91,000		)
Issuance of common stock under the DRIP	5,913,684			59,000				55,381,000				—				—				55,440,000				—					55,440,000
Issuance of vested and nonvested restricted common stock	22,500			—				42,000				—				—				42,000				—					42,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Years Ended December 31, 2019, 2018 and 2017

	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
Amortization of nonvested common stock compensation	—			$	—			$	173,000			$	—			$	—			$	173,000			$	—				$	173,000
Stock based compensation	—			—				—				—				—				—				2,698,000					2,698,000
Repurchase of common stock	(9,526,087	)		(95,000		)		(89,793,000		)		—				—				(89,888,000		)		—					(89,888,000		)
Contribution from noncontrolling interest	—			—				—				—				—				—				3,000,000					3,000,000
Distributions to noncontrolling interests	—			—				—				—				—				—				(7,272,000		)			(7,272,000		)
Reclassification of noncontrolling interests to mezzanine equity	—			—				—				—				—				—				(780,000		)			(780,000		)
Fair value adjustment to redeemable noncontrolling interests	—			—				(3,131,000		)		—				—				(3,131,000		)		(1,342,000		)			(4,473,000		)
Distributions declared ($0.60 per share)	—			—				—				(117,837,000		)		—				(117,837,000		)		—					(117,837,000		)
Net (loss) income	—			—				—				(4,965,000		)		—				(4,965,000		)		3,676,000			(1	)	(1,289,000		)
Other comprehensive income	—			—				—				—				305,000				305,000				—					305,000
BALANCE — December 31, 2019	193,967,474			$	1,939,000			$	1,728,421,000			$	(827,550,000	)		$	(2,255,000	)		$	900,555,000			$	158,108,000				$	1,058,663,000

___________

(1)	For the years ended December 31, 2019, 2018 and 2017, amounts exclude $437,000, $134,000 and $(592,000), 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 consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2019, 2018 and 2017

	Years Ended December 31,
	2019				2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(852,000	)		$	14,537,000			$	5,350,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	111,412,000				95,678,000				113,226,000
Other amortization	29,740,000				4,918,000				5,737,000
Deferred rent	(3,264,000		)		(4,841,000		)		(5,289,000		)
Stock based compensation	2,744,000				3,026,000				986,000
Stock based compensation — nonvested restricted common stock	215,000				215,000				216,000
Loss from unconsolidated entities	2,097,000				3,877,000				5,048,000
Bad debt expense	991,000				490,000				6,674,000
Gain on dispositions of real estate	—				—				(3,370,000		)
Foreign currency (gain) loss	(1,731,000		)		2,658,000				(4,009,000		)
Loss on extinguishment of debt	2,968,000				—				1,432,000
Deferred income taxes	964,000				(1,854,000		)		(3,771,000		)
Contingent consideration related to acquisition of real estate	—				(93,000		)		—
Change in fair value of contingent consideration	(681,000		)		(2,843,000		)		(3,885,000		)
Change in fair value of derivative financial instruments	4,541,000				1,949,000				(383,000		)
Impairment of real estate investments	—				2,542,000				14,070,000
Changes in operating assets and liabilities:
Accounts and other receivables	(23,426,000		)		(7,221,000		)		(17,132,000		)
Other assets	(6,537,000		)		(15,317,000		)		(6,558,000		)
Accounts payable and accrued liabilities	18,103,000				8,187,000				18,790,000
Accounts payable due to affiliates	121,000				(26,000		)		(151,000		)
Security deposits, prepaid rent, operating lease and other liabilities	(19,951,000		)		932,000				1,122,000
Net cash provided by operating activities	117,454,000				106,814,000				128,103,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate and other investments	(37,863,000		)		(67,285,000		)		(123,088,000		)
Proceeds from dispositions of real estate and other investments	1,227,000				1,000,000				15,993,000
Principal repayments on real estate notes receivable	28,650,000				1,799,000				29,478,000
Investments in unconsolidated entities	(1,640,000		)		(2,050,000		)		(2,250,000		)
Capital expenditures	(92,836,000		)		(66,907,000		)		(43,553,000		)
Real estate and other deposits	(650,000		)		(2,329,000		)		(1,218,000		)
Proceeds from insurance settlements	—				—				87,000
Net cash used in investing activities	(103,112,000		)		(135,772,000		)		(124,551,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	191,246,000				181,594,000				230,611,000
Payments on mortgage loans payable	(74,037,000		)		(10,444,000		)		(8,524,000		)
Payoff of mortgage loans payable	(14,022,000		)		(94,449,000		)		(100,775,000		)
Borrowings under the lines of credit and term loans	1,030,653,000				273,639,000				318,474,000
Payments on the lines of credit and term loans	(952,822,000		)		(159,716,000		)		(343,666,000		)
Payments of financing obligations and other obligations	(7,850,000		)		(8,055,000		)		(6,631,000		)
Purchase of derivative financial instruments	—				(153,000		)		—

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Years Ended December 31, 2019, 2018 and 2017

	Years Ended December 31,
	2019				2018				2017
Deferred financing costs	$	(12,945,000	)		$	(4,177,000	)		$	(5,847,000	)
Debt extinguishment costs	(870,000		)		—				(493,000		)
Contingent consideration related to acquisition of real estate	—				(1,490,000		)		—
Repurchase of common stock	(89,888,000		)		(76,577,000		)		(30,656,000		)
Repurchase of stock warrants and redeemable noncontrolling interests	(475,000		)		(306,000		)		(206,000		)
Contributions from noncontrolling interests	3,000,000				4,470,000				8,304,000
Distributions to noncontrolling interests	(7,272,000		)		(6,701,000		)		(16,000		)
Contributions from redeemable noncontrolling interests	2,000,000				535,000				975,000
Distributions to redeemable noncontrolling interests	(1,430,000		)		(711,000		)		(1,184,000		)
Security deposits and other	12,000				112,000				176,000
Distributions paid	(62,612,000		)		(59,974,000		)		(55,777,000		)
Net cash provided by financing activities	2,688,000				37,597,000				4,765,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	17,030,000			$	8,639,000			$	8,317,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	145,000				(77,000		)		149,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	72,705,000				64,143,000				55,677,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	89,880,000			$	72,705,000			$	64,143,000
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period:
Cash and cash equivalents	$	35,132,000			$	33,656,000			$	29,123,000
Restricted cash	37,573,000				30,487,000				26,554,000
Cash, cash equivalents and restricted cash	$	72,705,000			$	64,143,000			$	55,677,000
End of period:
Cash and cash equivalents	$	53,149,000			$	35,132,000			$	33,656,000
Restricted cash	36,731,000				37,573,000				30,487,000
Cash, cash equivalents and restricted cash	$	89,880,000			$	72,705,000			$	64,143,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	68,654,000			$	59,365,000			$	52,340,000
Income taxes	$	921,000			$	1,647,000			$	621,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Investing Activities:
Accrued capital expenditures	$	25,194,000			$	12,616,000			$	6,106,000
Capital expenditures from financing obligations	$	11,821,000			$	16,809,000			$	5,009,000
Tenant improvement overage	$	1,216,000			$	1,373,000			$	325,000
Investments in unconsolidated entity	$	5,276,000			$	—			$	—
Disposition of real estate investment	$	—			$	—			$	2,400,000
Exercise purchase options — attributable to intangible asset	$	—			$	—			$	12,290,000
Reduction of financing obligations, net	$	—			$	—			$	27,483,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Years Ended December 31, 2019, 2018 and 2017

	Years Ended December 31,
	2019				2018				2017
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	$	—			$	(1,587,000	)		$	2,450,000
Accounts payable and accrued liabilities	$	46,000			$	58,000			$	2,062,000
Security deposits, prepaid rent and other liabilities	$	105,000			$	223,000			$	2,323,000
Financing Activities:
Issuance of common stock under the DRIP	$	55,440,000			$	60,030,000			$	63,008,000
Distributions declared but not paid	$	9,974,000			$	10,189,000			$	10,192,000
Reclassification of noncontrolling interests to mezzanine equity	$	780,000			$	780,000			$	635,000
Settlement of mortgage loan payable	$	—			$	—			$	2,040,000
Contribution from noncontrolling interest	$	—			$	—			$	3,450,000
Distribution to noncontrolling interest	$	—			$	—			$	3,450,000

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2019, 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 otherwise noted.

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 may also originate and acquire other 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 initial distribution reinvestment plan, or the Initial 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 Initial DRIP. See Note 13, Equity — Common Stock, for a further discussion.

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 to be issued pursuant to the Initial DRIP, or the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the 2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of common stock being issued pursuant to the 2015 DRIP Offering.

On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering. As of December 31, 2019, a total of $41,244,000 in distributions were reinvested that resulted in 4,398,586 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion.

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 initial 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 11, 2020 and expires on February 26, 2021. Our 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 advisor is 75.0% owned and managed by wholly owned subsidiaries of 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.

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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 December 31, 2019, we owned and/or operated 98 properties, comprising 102 buildings, and 118 integrated senior health campuses including completed development projects, or approximately 13,836,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $3,001,462,000. In addition, as of December 31, 2019, we also owned a real estate-related investment purchased for $60,429,000.

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our accompanying consolidated financial statements. Such 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 of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying consolidated financial statements.

Basis of Presentation

Our accompanying 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 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.

We operate and intend to continue 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 are the sole general partner of our operating partnership, and as of December 31, 2019 and 2018, we owned greater than a 99.99% general partnership interest therein. Our advisor is a limited partner, and as of December 31, 2019 and 2018, owned less than a 0.01% noncontrolling 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 consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of our accompanying 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the initial and recurring valuation of certain assets acquired and liabilities assumed through property acquisitions, allowance for uncollectible accounts, impairment of long-lived assets and contingencies. 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.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Restricted cash primarily comprises lender required accounts for property taxes, tenant improvements, capital improvements and insurance, which are restricted as to use or withdrawal.

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Leases

On January 1, 2019, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 842, Leases, or ASC Topic 842. ASC Topic 842 supersedes ASC Topic 840, Leases, or ASC Topic 840. We adopted ASC Topic 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Therefore, with respect to our leases as both lessees and lessors, information is presented under ASC Topic 842 for the year ended December 31, 2019 and under ASC Topic 840 for the years ended December 31, 2018 and 2017. In addition, ASC Topic 842 provides a practical expedient package 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 elected such practical expedient package upon our adoption of ASC Topic 842 on January 1, 2019. We determine if a contract is a lease upon inception of the lease. We maintain a distinction between finance and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance.

Lessee: Pursuant to ASC Topic 842, lessees are required to recognize the following for all leases with terms greater than 12 months 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. The lease liability is calculated by using either the implicit rate of the lease or the incremental borrowing rate. As a result of the adoption of ASC Topic 842 on January 1, 2019, we recognized an initial amount of operating lease liabilities of $198,453,000 in our consolidated balance sheet for all of our operating leases for which we are the lessee, including facilities leases and ground leases. In addition, we recorded corresponding right-of-use assets of $211,679,000, which represent the lease liabilities, net of the existing prepaid rent asset and accrued straight-line rent liabilities and adjusted for unamortized above/below market ground lease intangibles. The accretion of lease liabilities and amortization expense on right-of-use assets for our operating leases are included in rental expenses in our accompanying consolidated statements of operations and comprehensive income (loss). Operating lease liabilities are calculated using our incremental borrowing rate based on the information available as of the lease commencement date.

The accounting for our existing capital (finance) leases upon adoption of ASC Topic 842 remains substantially unchanged. For our finance leases, the accretion of lease liabilities are included in interest expense and the amortization expense on right-of-use assets are included in depreciation and amortization in our accompanying consolidated statements of operations and comprehensive income (loss). Further, finance lease assets are included within real estate investments, net and finance lease liabilities are included within financing obligations in our accompanying consolidated balance sheets.

Lessor: Pursuant to ASC Topic 842, lessors bifurcate lease revenues into lease components and non-lease components and separately recognize and disclose non-lease components that are executory in nature. Lease components 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, Revenue from Contracts with Customers, or ASC Topic 606. See the “Revenue Recognition” section below. ASC Topic 842 also provides for a practical expedient package that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. Such practical expedient is limited to circumstances in which: (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. In addition, such practical expedient causes an entity to assess whether a contract is predominately lease or service based, and recognize the revenue from the entire contract under the relevant accounting guidance. Effective upon our adoption of ASC Topic 842 on January 1, 2019, we continue to recognize revenue for our medical office buildings, senior housing, skilled nursing facilities and hospitals segments as real estate revenue. Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements are recorded to deferred rent receivable, which is included in other assets, net in our accompanying consolidated balance sheet. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, are considered non-lease components and variable lease payments. We qualified for and elected the practical expedient as outlined above to combine the non-lease component with the lease component, which is the predominant component, and therefore the non-lease component is recognized as part of real estate revenue. In addition, as lessors, we exclude certain lessor costs (i.e., property taxes and insurance) paid directly by a lessee to third parties on our behalf from our measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs); and include lessor costs that we paid and are reimbursed by the lessee in our measurement of variable lease revenue and associated expense (i.e., gross up revenue

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and expense for these costs). Therefore, we no longer record revenue or expense when the lessee pays the property taxes and insurance directly to a third party.

Our senior housing — RIDEA facilities offer residents room and board (lease component), standard meals and healthcare services (non-lease component), and certain ancillary services that are not contemplated in the lease with each resident (i.e., laundry, guest meals, etc.). For our senior housing — RIDEA facilities, we recognize revenue under ASC Topic 606 as resident fees and services, based on our predominance assessment from electing the practical expedient outlined above. See the “Revenue Recognition” section below.

See Note 17, Leases, for a further discussion.

Revenue Recognition

Prior to January 1, 2018, we recognized 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, 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 revenue as of January 1, 2018; therefore, no cumulative adjustment was made to the opening balance of retained earnings at the beginning of 2018.

Real Estate Revenue

Prior to January 1, 2019, minimum annual rental revenue was recognized on a straight-line basis over the term of the related lease (including rent holidays) in accordance with ASC Topic 840. Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements were recorded to deferred rent receivable. Tenant reimbursement revenue was recognized as revenue in the period in which the related expenses were incurred. Tenant reimbursements were recognized and presented in accordance with ASC Subtopic 606-10-55-36, Revenue Recognition — Principal Versus Agent Consideration, or ASC Subtopic 606. ASC Subtopic 606 requires that these reimbursements be recorded on a gross basis as we are generally primarily responsible to fulfill the promise to provide specified goods and services. We recognized lease termination fees at such time when there was a signed termination letter agreement, all of the conditions of such agreement had been met and the tenant was no longer occupying the property.

Effective January 1, 2019, we recognize real estate revenue in accordance with ASC Topic 842. See the “Leases” section above.

Resident Fees and Services Revenue

A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that we expect to be entitled to 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 receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the facility 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 we are 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.

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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.

•	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 years ended December 31, 2019 and 2018.

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.

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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:

		Years Ended December 31,
		2019												2018
		Point in Time				Over Time				Total				Point in Time				Over Time				Total
Integrated senior health campuses		$	214,650,000			$	816,284,000			$	1,030,934,000			$	185,273,000			$	755,343,000			$	940,616,000
Senior housing — RIDEA(1)		2,944,000				65,200,000				68,144,000				3,079,000				61,996,000				65,075,000
Total resident fees and services		$	217,594,000			$	881,484,000			$	1,099,078,000			$	188,352,000			$	817,339,000			$	1,005,691,000

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

		Years Ended December 31,
		2019												2018
		Integrated Senior Health Campuses				Senior Housing  — RIDEA(1)				Total				Integrated Senior Health Campuses(2)				Senior Housing — RIDEA(1)				Total
Medicare		$	338,466,000			$	—			$	338,466,000			$	332,852,000			$	—			$	332,852,000
Medicaid		192,775,000				214,000				192,989,000				170,664,000				43,000				170,707,000
Private and other payors		499,693,000				67,930,000				567,623,000				437,100,000				65,032,000				502,132,000
Total resident fees and services		$	1,030,934,000			$	68,144,000			$	1,099,078,000			$	940,616,000			$	65,075,000			$	1,005,691,000

___________

(1)

This includes fees for basic housing and assisted living care. We record revenue when services are rendered 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.

(2)	For the year ended December 31, 2018, Medicare includes $21,881,000 of revenue that was previously disclosed as Private and other payors. There was no net change in previously disclosed total resident fees and services.

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, 2019		$	29,160,000			$	18,676,000			$	39,112,000			$	86,948,000
Ending balance — December 31, 2019		32,127,000				26,295,000				46,614,000				105,036,000
Increase		$	2,967,000			$	7,619,000			$	7,502,000			$	18,088,000

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, 2019		$	12,569,000
Ending balance — December 31, 2019		13,518,000
Increase		$	949,000

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All amounts included in the beginning balance of deferred revenue — resident fees and services at January 1, 2019 were recognized as revenue during the year ended December 31, 2019.

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.

Tenant and Resident Receivables and Allowances

Resident receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Upon our adoption of ASC Topic 606, substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying consolidated statements of operations and comprehensive income (loss). Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions and other relevant factors.

Prior to our adoption of ASC Topic 842, tenant receivables and unbilled deferred rent receivables were reduced for uncollectible amounts. Such amounts were charged to bad debt expense, which was included in general and administrative in our accompanying consolidated statements of operations and comprehensive income (loss). Effective upon our adoption of ASC Topic 842 on January 1, 2019, such amounts are recognized as direct reductions of real estate revenue in our accompanying consolidated statements of operations and comprehensive income (loss).

As of December 31, 2019 and 2018, we had $11,435,000 and $11,216,000, respectively, in allowances, which was determined necessary to reduce receivables to our estimate of the amount collectible and includes price concessions. For the years ended December 31, 2019, 2018 and 2017, we increased allowances by $13,087,000, $8,520,000 and $7,298,000, respectively, and reduced allowances for collections or adjustments by $6,094,000, $1,437,000 and $54,000, respectively. For the years ended December 31, 2019, 2018 and 2017, $6,774,000, $6,405,000 and $6,074,000, respectively, of our receivables were written off against the related allowances. For the years ended December 31, 2019, 2018 and 2017, $0, $59,000 and $170,000, respectively, of our deferred rent receivables were directly written off to bad debt expense.

Property Acquisitions

In accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and ASU 2017-01, Clarifying the Definition of a Business, or ASU 2017-01, we determine whether a transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired and liabilities assumed are not a business, we account for the transaction as an asset acquisition. Under both methods, we recognize the identifiable assets acquired and liabilities assumed; however, for a transaction accounted for as an asset acquisition, we allocate the purchase price to the identifiable assets acquired and liabilities assumed based on their relative fair values. We immediately expense acquisition related expenses associated with a business combination and capitalize acquisition related expenses directly associated with an asset acquisition. As a result of our early adoption of ASU 2017-01 on January 1, 2017, we accounted for the property acquisitions we completed for the years ended December 31, 2019, 2018 and 2017 as asset acquisitions rather than business combinations. See Note 3, Real Estate Investments, Net, and Note 18, Business Combinations for a further discussion.

We, with assistance from independent valuation specialists, measure the fair value of tangible and identified intangible assets and liabilities, as applicable, based on their respective fair values for acquired properties. Our method for allocating the purchase price to acquired investments in real estate requires us to make subjective assessments for determining fair value of the assets acquired and liabilities assumed. This includes determining the value of the buildings, land, leasehold interests, furniture, fixtures and equipment, above- or below-market rent, in-place leases, master leases, above- or below-market debt assumed and derivative financial instruments assumed. These estimates require significant judgment and in some cases involve

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complex calculations. These allocation assessments directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation or amortization lives. In addition, we amortize the value assigned to above- or below-market rent as a component of revenue, unlike in-place leases and other intangibles, which we include in depreciation and amortization in our accompanying consolidated statements of operations and comprehensive income (loss).

The determination of the fair value of land is based upon comparable sales data. In cases where a leasehold interest in the land is acquired, only the above/below market consideration is necessary where the value of the leasehold interest is determined by discounting the difference between the contract ground lease payments and a market ground lease payment back to a present value as of the acquisition date. The fair value of buildings is based upon our determination of the value under two methods: one, as if it were to be replaced and vacant using cost data and, two, also using a residual technique based on discounted cash flow models, as vacant. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. We also recognize the fair value of furniture, fixtures and equipment on the premises, as well as the above- or below-market rent, the value of in-place leases, master leases, above- or below-market debt and derivative financial instruments assumed.

The value of the above- or below-market component of the acquired in-place leases is determined based upon the present value (using a discount rate that reflects the risks associated with the acquired leases) of the difference between: (i) the level payment equivalent of the contract rent paid pursuant to the lease; and (ii) our estimate of market rent payments taking into account rent steps throughout the lease. In the case of leases with options, a case-by-case analysis is performed based on all facts and circumstances of the specific lease to determine whether the option will be assumed to be exercised. The amounts related to above-market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized against real estate revenue over the remaining non-cancelable lease term of the acquired leases with each property. The amounts related to below-market leases are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and are amortized to real estate revenue over the remaining non-cancelable lease term plus any below-market renewal options of the acquired leases with each property.

The value of in-place lease costs are based on management’s evaluation of the specific characteristics of the tenant’s lease and our overall relationship with the tenants. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The in-place lease intangible represents the value related to the economic benefit for acquiring a property with in-place leases as opposed to a vacant property, which is evaluated based on a review of comparable leases for a similar property, terms and conditions for marketing and executing new leases, and implied in the difference between the value of the whole property “as is” and “as vacant.” The net amounts related to in-place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to depreciation and amortization expense over the average downtime of the acquired leases with each property. The net amounts related to the value of tenant relationships, if any, are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to depreciation and amortization expense over the average remaining non-cancelable lease term of the acquired leases plus the market renewal lease term. The value of a master lease, if any, in which a previous owner or a tenant is relieved of specific rental obligations as additional space is leased, is determined by discounting the expected real estate revenue associated with the master lease space over the assumed lease-up period.

The value of above- or below-market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage at the time of assumption. The net value of above- or below-market debt is included in mortgage loans payable, net in our accompanying consolidated balance sheets and is amortized to interest expense over the remaining term of the assumed mortgage.

The value of derivative financial instruments, if any, is determined in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820, and is included in other assets or other liabilities in our accompanying consolidated balance sheets.

The values of contingent consideration assets and liabilities are analyzed at the time of acquisition. For contingent purchase options, the fair market value of the acquired asset is compared to the specified option price at the exercise date. If the option price is below market, it is assumed to be exercised and the difference between the fair market value and the option price is discounted to the present value at the time of acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Real Estate Investments, Net

We carry our operating properties at our historical cost less accumulated depreciation. The cost of operating properties includes the cost of land and completed buildings and related improvements, including those related to financing obligations. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of buildings and capital improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 50 years, and the cost for tenant improvements is depreciated over the shorter of the lease term or useful life, up to 34 years. The cost of furniture, fixtures and equipment is depreciated over the estimated useful life, up to 28 years. When depreciable property is retired, replaced or disposed of, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is reflected in earnings.

As part of the leasing process, we may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements, the allowance is considered to be a lease inducement and is included in other assets, net in our accompanying consolidated balance sheets. Lease inducement is recognized over the lease term as a reduction of real estate revenue on a straight-line basis. Factors considered during this evaluation include, among other things, who holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs (e.g., unilateral control of the tenant space during the build-out process). Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. Recognition of lease revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements when we are the owner of the leasehold improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date (and the date on which recognition of lease revenue commences) is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements.

Impairment of Long-Lived Assets, Goodwill and Intangible Assets

We periodically evaluate our long-lived assets, primarily consisting of investments in real estate that we carry at our historical cost less accumulated depreciation, for impairment when events or changes in circumstances indicate that its carrying value may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include, among others, the following:

•	significant negative industry or economic trends;

•	a significant underperformance relative to historical or projected future operating results; and

•	a significant change in the extent or manner in which the asset is used or significant physical change in the asset.

If indicators of impairment of our long-lived assets are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to holding or disposing of the asset. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than carrying value. We recognize an impairment loss at the time we make any such determination.

On January 1, 2017, we early adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04, which eliminates Step 2 from the goodwill impairment test and allows an entity to perform its goodwill impairment test by comparing the fair value of a reporting segment with its carrying amount. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.

If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If the estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. For all of our reporting units, we recognize any shortfall from carrying value as an impairment loss in the current period.

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We test other indefinite-lived intangible assets for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors to determine the likelihood that the fair value of the reporting group is less than its carrying value. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are usually determined based on discounted cash flows or appraised values, as appropriate.

For the years ended December 31, 2019, 2018 and 2017, we did not incur any impairment losses with respect to goodwill and intangible assets. See Note 3, Real Estate Investments, Net, for a further discussion of impairment of long-lived assets.

Properties Held for Sale

We account for our properties held for sale in accordance with ASC Topic 360, Property, Plant, and Equipment, or ASC Topic 360, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC Topic 360 requires that a property or a group of properties is required to be reported in discontinued operations in the statements of operations and comprehensive income (loss) for current and prior periods if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when either: (i) the component has been disposed of or (ii) is classified as held for sale.

In accordance with ASC Topic 360, at such time as a property is held for sale, such property is carried at the lower of: (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as property held for sale in the period in which all of the following criteria are met:

•	management, having the authority to approve the action, commits to a plan to sell the asset;

•	the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

•	an active program to locate a buyer or buyers and other actions required to complete the plan to sell the asset has been initiated;

•	the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

•	the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

•	given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.

Debt Security Investment and Real Estate Notes Receivable, Net

We classify our marketable debt security investment as held-to-maturity because we have the positive intent and ability to hold the security to maturity. Our held-to-maturity security is recorded at amortized cost and adjusted for the amortization of premiums or discounts through maturity. When we determine declines in fair value of marketable securities are other-than-temporary, a loss is recognized in earnings. For the years ended December 31, 2019, 2018 and 2017, we did not incur any losses for a decline in fair value of marketable securities that are other-than-temporary.

Real estate notes receivable consists of mortgage loans collateralized by interests in real property. We record such mortgage loans at cost. Interest income on our real estate notes receivable is recognized on an accrual basis over the life of the investment using the effective interest method and is included in real estate revenue in our accompanying consolidated statements of operations and comprehensive income (loss). Direct loan costs are amortized over the term of the loan as an adjustment to the yield on the loan. We evaluate the collectability of both interest and principal for each of our loans to determine whether they are impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the allowance is calculated by comparing the recorded investment to either the value determined by discounting the expected future cash flows using the loan’s effective interest rate or to the fair value of the collateral if the loan is collateral dependent. For the years ended December 31, 2019, 2018 and 2017, we did not incur any impairment losses.

See Note 4, Debt Security Investment and Real Estate Notes Receivable, Net, for a further discussion.

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Derivative Financial Instruments

We are exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures, which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts, such as fixed rate interest rate swaps and interest rate caps, is to add stability to interest expense and to manage our exposure to interest rate movements by effectively converting a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes.

Derivatives are recognized as either other assets or other liabilities in our accompanying consolidated balance sheets and are measured at fair value in accordance with ASC Topic 815, Derivatives and Hedging, or ASC Topic 815. ASC Topic 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Since our derivative instruments are not designated as hedge instruments, they do not qualify for hedge accounting under ASC Topic 815. Changes in the fair value of 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 consolidated statements of operations and comprehensive income (loss).

See Note 9, Derivative Financial Instruments, and Note 15, Fair Value Measurements, for a further discussion of our derivative financial instruments.

Fair Value Measurements

We follow ASC Topic 820 to account for the fair value of certain assets and liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

See Note 15, Fair Value Measurements, for a further discussion.

Real Estate Deposits

Real estate deposits may include refundable and non-refundable funds held by escrow agents and others to be applied towards the acquisition of real estate investments, and such future investments are subject to substantial conditions to closing.

Other Assets, Net

Other assets, net consist of investments in unconsolidated entities, inventory, prepaid expenses and deposits, deferred financing costs related to our lines of credit and term loans, deferred rent receivables, deferred tax assets, derivative financial instruments, lease inducements and lease commissions.

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We report investments in unconsolidated entities using the equity method of accounting when we have the ability to exercise significant influence over the operating and financial policies. Under the equity method, our share of the investee’s earnings or losses is included in our accompanying consolidated statements of operations and comprehensive income (loss). To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. We have elected to follow the cumulative earnings approach when classifying distributions received from equity method investments in our consolidated statements of cash flows, whereby any distributions received up to the amount of cumulative equity earnings will be considered a return on investment and classified in operating activities and any excess distributions would be considered a return of investment and classified in investing activities. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded. For the years ended December 31, 2019, 2018 and 2017, we did not incur any impairment losses from unconsolidated entities.

Inventory consists primarily of pharmaceutical and medical supplies and is stated at the lower of cost (first-in, first-out) or market. Deferred financing costs related to our lines of credit and term loans include amounts paid to lenders and others to obtain such financing. Such costs are amortized using the straight-line method over the term of the related loan, which approximates the effective interest rate method. Amortization of deferred financing costs related to our lines of credit and term loans is included in interest expense in our accompanying consolidated statements of operations and comprehensive income (loss). Lease commissions are amortized using the straight-line method over the term of the related lease. Prepaid expenses are amortized over the related contract periods.

See Note 6, Other Assets, Net, for a further discussion.

Accounts Payable and Accrued Liabilities

As of December 31, 2019 and 2018, accounts payable and accrued liabilities primarily includes insurance reserves of $35,581,000 and $32,123,000, respectively, accrued capital expenditures to unaffiliated third parties of $25,019,000 and $12,490,000, respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $24,118,000 and $26,428,000, respectively, accrued property taxes of $14,501,000 and $15,121,000, respectively, and accrued distributions of $9,974,000 and $10,189,000, respectively.

Stock Compensation

We account for stock compensation issued to non-employees in accordance with the provisions of ASC 505-50, Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (i) the goods or services received; or (ii) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date. See Note 13, Equity — Noncontrolling Interests, for a further discussion of grants to non-employees.

We follow ASC Topic 718, Compensation — Stock Compensation, or ASC Topic 718, to account for our stock compensation pursuant to the 2013 Incentive Plan, or our incentive plan. See Note 13, Equity — 2013 Incentive Plan, for a further discussion of grants under our incentive plan.

Foreign Currency

We have real estate investments in the United Kingdom, or UK, and Isle of Man for which the functional currency is the UK Pound Sterling, or GBP. We translate the results of operations of our foreign real estate investments into United States Dollars, or USD, using the average currency rates of exchange in effect during the period, and we translate assets and liabilities using the currency exchange rate in effect at the end of the period. The resulting foreign currency translation adjustments are included in accumulated other comprehensive loss, a component of stockholders’ equity, in our accompanying consolidated balance sheets. Certain balance sheet items, primarily equity and capital-related accounts, are reflected at the historical currency exchange rates. We also have intercompany notes and payables denominated in GBP with our UK subsidiaries. Gains or losses resulting from remeasuring such intercompany notes and payables into USD at the end of each reporting period are reflected in our accompanying consolidated statements of operations and comprehensive income (loss). When such intercompany notes and payables are deemed to be of a long-term investment nature, they will be reflected in accumulated other comprehensive loss in our accompanying consolidated balance sheets.

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Gains or losses resulting from foreign currency transactions are remeasured into USD at the rates of exchange prevailing on the date of the transactions. The effects of transaction gains or losses are included in our accompanying consolidated statements of operations and comprehensive income (loss).

Income Taxes

We qualified, and elected 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. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to our stockholders.

We may be subject to certain state and local income taxes on our income, property or net worth in some jurisdictions, and in certain circumstances we may also be subject to federal excise taxes on undistributed income. In addition, certain activities that we undertake are conducted by subsidiaries, which we elected to be treated as taxable REIT subsidiaries, or TRSs, to allow us to provide services that would otherwise be considered impermissible for REITs. Also, we have real estate investments in the UK and Isle of Man, which do not accord REIT status to United States REITs under their tax laws. Accordingly, we recognize an income tax benefit or expense for the federal, state and local income taxes incurred by our TRSs and foreign income taxes on our real estate investments in the UK and Isle of Man.

We follow ASC Topic 740, Income Taxes, or ASC Topic 740, to recognize, measure, present and disclose in our accompanying consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of December 31, 2019 and 2018, we did not have any tax benefits nor liabilities for uncertain tax positions that we believe should be recognized in our accompanying consolidated financial statements.

We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets reflect the impact of the future deductibility of operating loss carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in income tax benefit or expense in our accompanying consolidated statements of operations and comprehensive income (loss) when such changes occur. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is recorded in income tax benefit or expense in our accompanying consolidated statements of operations and comprehensive income (loss).

Deferred tax assets are included in other assets, net, and deferred tax liabilities are included in security deposits, prepaid rent and other liabilities, in our accompanying consolidated balance sheets.

See Note 16, Income Taxes, for a further discussion.

Segment Disclosure

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 facility in May 2015; skilled nursing facility in October 2015; and integrated senior health campus in December 2015, we established a new reportable segment at such time. As of December 31, 2019, we operated through six reportable business segments, with activities related to investing in medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

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See Note 19, Segment Reporting, for a further discussion.

GLA and Other Measures

GLA and other measures used to describe real estate investments included in our accompanying consolidated financial statements are presented on an unaudited basis.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update, or 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. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, or ASU 2018-19, which amended the scope of ASU 2016-13 to clarify that operating lease receivables should be accounted for under the new leasing standard ASC Topic 842. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2019-04, to increase stakeholders’ awareness of the amendments and to expedite improvements to the ASC. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, or ASU 2019-05, to address certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), or ASU 2019 10, which provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. ASU 2016-13 and its related amendments are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption was permitted. We adopted such accounting pronouncements on January 1, 2020, which did not have a material impact to our consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements in ASC Topic 820 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 was permitted for any removed or modified disclosures. We adopted ASU 2018-13 on January 1, 2020, which did not have a material impact to our consolidated financial statement disclosures.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of December 31, 2019 and 2018:

	December 31,
	2019				2018
Building, improvements and construction in process	$	2,262,320,000			$	2,160,944,000
Land and improvements	195,491,000				189,446,000
Furniture, fixtures and equipment	150,508,000				126,985,000
	2,608,319,000				2,477,375,000
Less: accumulated depreciation	(337,898,000		)		(254,694,000		)
	$	2,270,421,000			$	2,222,681,000

Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $90,914,000, $83,309,000 and $81,743,000, respectively. No impairment charges were recognized for the year ended December 31, 2019. For the year ended December 31, 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 considered Level 3

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measurements within the fair value hierarchy. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Real Estate Investment, for a further discussion.

For the year ended December 31, 2017, we determined that four integrated senior health campuses and one medical office building were impaired and recognized an aggregate impairment charge of $14,070,000, which reduced the total aggregate carrying value of such investments to $14,653,000. In July 2017, we disposed of one of those impaired integrated senior health campuses. The aggregate fair value of our remaining impaired integrated senior health campuses was based on their projected sales prices, which we considered as Level 2 measurements within the fair value hierarchy. The fair value of the impaired medical office building was based upon discounted cash flow analyses where the most significant inputs were considered Level 3 measurements within the fair value hierarchy. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Real Estate Investment, for a further discussion.

In addition to the acquisitions discussed below, for the years ended December 31, 2019, 2018 and 2017, we incurred capital expenditures of $93,485,000, $76,330,000 and $33,766,000, respectively, for our integrated senior health campuses, $16,571,000, $8,426,000 and $11,117,000, respectively, for our medical office buildings, $2,015,000, $1,711,000 and $855,000, respectively, for our senior housing — RIDEA facilities, $1,954,000, $463,000 and $569,000, respectively, for our skilled nursing facilities and $53,000, $131,000 and $92,000, respectively, for our hospitals. We did not incur any capital expenditures for our senior housing facilities for the years ended December 31, 2019, 2018 and 2017.

Included in capital expenditure amounts above are completed developments and expansions of integrated senior health campuses. For the year ended December 31, 2019, we completed the development of two integrated senior health campuses for $25,709,000. For the year ended December 31, 2018, we incurred $8,309,000 to expand our existing integrated senior health campuses. For the year ended December 31, 2017, we completed integrated senior health campus developments for a total cost of approximately $6,834,000.

Acquisitions of Real Estate Investments

2019 Acquisitions of Real Estate Investments

For the year ended December 31, 2019, using cash on hand and debt financing, we completed the acquisition of two buildings from unaffiliated third parties. The following is a summary of our property acquisitions for the year ended December 31, 2019:

Acquisition		Location		Type		Date Acquired		Contract Purchase Price				Line of Credit				Acquisition Fee
North Carolina ALF Portfolio(1)		Garner, NC		Senior Housing — RIDEA		03/27/19		$	15,000,000			$	15,000,000			$	338,000
The Cloister at Silvercrest(2)		New Albany, IN		Integrated Senior Health Campus		10/01/19		750,000				—				11,000
Total								$	15,750,000			$	15,000,000			$	349,000

___________

(1)

We own 100% of our property acquired in 2019, which we added to our existing North Carolina ALF Portfolio. The other six buildings in North Carolina ALF Portfolio were acquired between January 2015 and August 2018. We borrowed under the 2019 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loans, at the time of acquisition. 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.

(2)

We, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, of which we owned 67.7% at the time of acquisition, acquired such property using cash on hand. 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 portion of the contract purchase price of the property attributed to our ownership interest in the Trilogy subsidiary that acquired the property.

In addition to the property acquisitions discussed above, for the year ended December 31, 2019, we, through a majority-owned subsidiary of Trilogy, acquired land in Michigan and Ohio for an aggregate contract purchase price of $4,806,000 plus closing costs and paid to our advisor an acquisition fee of 2.25% of the portion of the contract purchase price of each land parcel attributed to our ownership interest at the time of acquisition.

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2019 Acquisition of Previously Leased Real Estate Investment

For the year ended December 31, 2019, we, through a majority-owned subsidiary of Trilogy, of which we owned 67.7% at the time of acquisition, acquired one previously leased real estate investment located in Indiana. The following is a summary of such acquisition for the year ended December 31, 2019, which is included in our integrated senior health campuses segment:

Location		Date Acquired		Contract Purchase Price				Line of Credit(1)				Acquisition Fee(2)
Corydon, IN		09/05/19		$	14,082,000			$	14,114,000			$	215,000

___________

(1)	Represents a borrowing under the 2019 Trilogy Credit Facility, as defined in Note 8, Lines of Credit and Term Loans, 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 property, an acquisition fee of 2.25% of the portion of the contract purchase price of the property attributed to our ownership interest at the time of acquisition in the Trilogy subsidiary that acquired the property.

For the year ended December 31, 2019, we accounted for our property acquisitions, including our acquisition of previously leased real estate investments, as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $836,000 for such property acquisitions. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our property acquisitions in 2019 based on their relative fair values:

		2019 Acquisitions
Building and improvements		$	23,834,000
Land		8,496,000
In-place leases		3,596,000
Total assets acquired		$	35,926,000

2018 Acquisitions of Real Estate Investments

For the year ended December 31, 2018, using cash on hand and debt financing, we completed the acquisition of one building from an unaffiliated third party, which was 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. On December 1, 2019, we transitioned the operations of North Carolina ALF Portfolio to a RIDEA structure. The following is a summary of our property acquisition for the year ended December 31, 2018:

Acquisition(1)

Location

Type

Date Acquired

Contract Purchase Price

Line of Credit(2)

Acquisition Fee(3)

North Carolina ALF Portfolio

Matthews, NC

Senior Housing — RIDEA

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.

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, plus closing costs and paid a 2.25% acquisition fee to our advisor of approximately $7,000. On October 23, 2018 and November 26, 2018, we, through a majority-owned subsidiary of Trilogy, of which we owned 67.7% at the time of acquisition, acquired land in Ohio and Michigan for an

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aggregate contract purchase price of $3,146,000, plus closing costs and paid aggregate acquisition fees of 2.25% of the portion of the contract purchase price of the land attributed to our ownership interest to our advisor of approximately $47,000.

2018 Acquisition of Previously Leased Real Estate Investments

For the year ended December 31, 2018, we, through a majority-owned subsidiary of 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 year ended December 31, 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 at the time of acquisition of approximately 67.7% in the Trilogy subsidiary that acquired the properties.

For the year ended December 31, 2018, we accounted for our property acquisitions, including our acquisition of previously leased real estate investments, as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $3,044,000 for such property acquisitions. 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 Acquisitions
Building and improvements		$	49,757,000
Land		10,980,000
In-place leases		6,894,000
Certificates of need		1,313,000
Total assets acquired		$	68,944,000

2017 Acquisitions of Real Estate Investments

For the year ended December 31, 2017, using cash on hand and debt financing, we completed the acquisition of three buildings from unaffiliated third parties. The following is a summary of our property acquisitions for the year ended December 31, 2017:

Acquisition(1)		Location		Type		Date Acquired		Contract Purchase Price				Line of Credit(2)				Acquisition Fee(3)
North Carolina ALF Portfolio(4)		Huntersville, NC		Senior Housing — RIDEA		01/18/17		$	15,000,000			$	14,000,000			$	338,000
New London CT MOB		New London, CT		Medical Office		05/03/17		4,850,000				4,000,000				109,000
Middletown OH MOB II		Middletown, OH		Medical Office		12/20/17		4,600,000				5,000,000				104,000
Total								$	24,450,000			$	23,000,000			$	551,000

___________

(1)	We own 100% of our properties acquired in 2017.

(2)	Represents borrowings 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 properties, an acquisition fee of 2.25% of the contract purchase price of each property.

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(4)	On January 18, 2017, we added one building to our existing North Carolina ALF Portfolio. The other four buildings in North Carolina ALF Portfolio were acquired in January 2015 and June 2015. On December 1, 2019, we transitioned the operations of North Carolina ALF Portfolio to a RIDEA structure.

In addition to the property acquisitions in 2017 discussed above, on December 19, 2017, we purchased vacant land as part of Southern Illinois MOB Portfolio for a total price of $140,000, plus closing costs and paid a 2.25% acquisition fee to our advisor of $3,000. Also, for the year ended December 31, 2017, we, through a majority-owned subsidiary of Trilogy, of which we owned 67.7% at the time of acquisition, acquired six land parcels for an aggregate contract purchase price of $3,461,000, plus closing costs and paid aggregate acquisition fees of 2.25% of the portion of the contract purchase price of the land attributed to our ownership interest to our advisor of approximately $53,000.

2017 Acquisitions of Previously Leased Real Estate Investments

For the year ended December 31, 2017, we, through a majority-owned subsidiary of Trilogy, acquired eight previously leased real estate investments located in Indiana, Kentucky and Ohio. The following is a summary of such acquisitions for the year ended December 31, 2017, which are included in our integrated senior health campuses segment:

Location		Date Acquired		Contract Purchase Price				Line of Credit(1)				Acquisition Fee(2)
Boonville, Columbus and Hanover, IN; Lexington, KY; and Maumee and Willard, OH		02/01/17		$	72,200,000			$	53,700,000			$	1,099,000
Greenfield, IN		05/16/17		3,500,000				—				53,000
Ottawa, OH		12/15/17		9,833,000				10,000,000				150,000
Total				$	85,533,000			$	63,700,000			$	1,302,000

___________

(1)	Represents borrowings under the Trilogy PropCo Line of Credit, as defined in Note 8, Lines of Credit and Term Loans, 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 at the time of acquisition in the subsidiary of Trilogy that acquired the properties.

For the year ended December 31, 2017, we accounted for our property acquisitions, including our acquisitions of previously leased real estate investments, as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $3,055,000 for such property acquisitions. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our property acquisitions in 2017 based on their relative fair values:

		2017 Acquisitions
Building and improvements		$	70,607,000
Land		11,463,000
In-place leases		13,167,000
Certificates of need		5,608,000
Above-market leases		187,000
Total assets acquired		101,032,000
Below-market leases		(11,000		)
Total liabilities assumed		(11,000		)
Net assets acquired		$	101,021,000

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Dispositions of Real Estate Investments

For the years ended December 31, 2019 and 2018, we did not dispose of any real estate investments. For the year ended December 31, 2017, we disposed of one land parcel in Kentucky and one integrated senior health campus in each of Indiana and Ohio. We recognized a total net gain on such dispositions of $3,370,000. Our advisor agreed to waive the disposition fees and expense reimbursements related to such dispositions 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 fees and expense reimbursements.

The following is a summary of our dispositions for the year ended December 31, 2017, which were included in our integrated senior health campuses segment:

Location		Date Disposed		Contract Sales Price
Harrodsburg, KY		01/13/17		$	2,400,000
Merrillville, IN		05/01/17		17,000,000
Fremont, OH		07/20/17		400,000
Total				$	19,800,000

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

The following is a summary of our debt security investment and notes receivable, including unamortized loan and closing costs, net as of December 31, 2019 and 2018:

								December 31,
		Origination Date		Original Maturity Date		Contractual Interest Rate(1)		2019				2018
Debt security investment(2)		10/15/15		08/25/25		4.24%		$	71,342,000			$	68,355,000
Mezzanine Fixed Rate Notes(3)		02/04/15		12/09/19		N/A		—				28,650,000
								71,342,000				97,005,000
Unamortized loan and closing costs, net								1,375,000				1,650,000
								$	72,717,000			$	98,655,000

___________

(1)	Represents the per annum interest rate in effect as of December 31, 2019.

(2)

On October 15, 2015, we acquired a commercial mortgage-backed debt security, or the debt security, for a purchase price of $60,429,000, from an unaffiliated third party. The 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 December 31, 2019 and 2018, the net carrying amount with accretion was $72,717,000 and $69,873,000, 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.

(3)

On February 4, 2015, we acquired four fixed-rate promissory notes at par value in the aggregate outstanding principal amount of $28,650,000, or the Mezzanine Fixed Rate Notes. The Mezzanine Fixed Rate Notes evidenced interests in a portion of a mezzanine loan that was 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 June 2019, the Mezzanine Fixed Rate Notes were paid in full by the borrowers.

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The following table reflects the changes in the carrying amount of our debt security investment and real estate notes receivable for the years ended December 31, 2019 and 2018:

	Years Ended December 31,
	2019				2018
Beginning Balance	$	98,655,000			$	97,988,000
Additions:
Accretion on debt security	2,987,000				2,717,000
Deductions:
Principal repayments on real estate notes receivable	(28,650,000		)		(1,799,000		)
Amortization of loan and closing costs	(275,000		)		(251,000		)
Ending Balance	$	72,717,000			$	98,655,000

For the years ended December 31, 2019, 2018 and 2017, we did not record any impairment losses on our debt security investment or real estate notes receivable. Amortization expense on loan and closing costs for the years ended December 31, 2019, 2018 and 2017, was recorded against real estate revenue in our accompanying consolidated statements of operations and comprehensive income (loss).

5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of December 31, 2019 and 2018:

	December 31,
	2019				2018
Amortized intangible assets:
In-place leases, net of accumulated amortization of $21,029,000 and $23,497,000 as of December 31, 2019 and 2018, respectively (with a weighted average remaining life of 9.4 years and 9.8 years as of December 31, 2019 and 2018, respectively)	$	30,407,000			$	45,815,000
Customer relationships, net of accumulated amortization of $336,000 and $187,000 as of December 31, 2019 and 2018, respectively (with a weighted average remaining life of 16.8 years and 18.8 years as of December 31, 2019 and 2018, respectively)	2,504,000				2,653,000
Above-market leases, net of accumulated amortization of $2,057,000 and $2,851,000 as of December 31, 2019 and 2018, respectively (with a weighted average remaining life of 5.0 years and 5.2 years as of December 31, 2019 and 2018, respectively)	1,452,000				2,059,000
Internally developed technology and software, net of accumulated amortization of $211,000 and $117,000 as of December 31, 2019 and 2018, respectively (with a weighted average remaining life of 2.8 years and 3.8 years as of December 31, 2019 and 2018, respectively)	259,000				353,000
Leasehold interests, net of accumulated amortization of $548,000 as of December 31, 2018 (with a weighted average remaining life of 53.6 years as of December 31, 2018)(1)	—				7,346,000
Unamortized intangible assets:
Certificates of need	94,838,000				88,590,000
Trade names	30,787,000				30,787,000
Purchase option asset(2)	—				1,918,000
	$	160,247,000			$	179,521,000

___________

(1)

Upon our adoption of ASC Topic 842 on January 1, 2019, such amount was reclassed to operating lease right-of-use assets, net in our accompanying consolidated balance sheet and related to our ownership of fee simple interests in the building and improvements of 16 of our buildings that are subject to respective ground leases. See Note 2, Summary of Significant Accounting Policies — Leases, and Note 17, Leases, for a further discussion.

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(2)	For the year ended December 31, 2019, we exercised our right to acquire a property through our unconsolidated investment in RHS Partners, LLC, or RHS. The value of the purchase option asset utilized was $1,918,000. See Note 6, Other Assets, Net for a further discussion.

Amortization expense for the years ended December 31, 2019, 2018 and 2017 was $19,973,000, $12,736,000 and $32,541,000, respectively, which included $607,000, $967,000 and $1,368,000, respectively, of amortization recorded against real estate revenue for above-market leases and $0, $141,000 and $140,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying consolidated statements of operations and comprehensive income (loss).

The aggregate weighted average remaining life of the identified intangible assets was 9.7 years and 15.5 years as of December 31, 2019 and 2018, respectively. As of December 31, 2019, estimated amortization expense on the identified intangible assets for each of the next five years ending December 31 and thereafter was as follows:

Year		Amount
2020		$	6,450,000
2021		4,715,000
2022		4,002,000
2023		3,235,000
2024		2,819,000
Thereafter		13,401,000
		$	34,622,000

6. Other Assets, Net

Other assets, net consisted of the following as of December 31, 2019 and 2018:

	December 31,
	2019				2018
Deferred rent receivables	$	33,205,000			$	23,334,000
Prepaid expenses, deposits and other assets	26,816,000				29,803,000
Inventory	23,872,000				21,151,000
Investments in unconsolidated entities	20,176,000				15,432,000
Deferred tax assets, net(1)	13,315,000				9,461,000
Lease commissions, net of accumulated amortization of $2,201,000 and $1,274,000 as of December 31, 2019 and 2018, respectively	10,794,000				8,523,000
Deferred financing costs, net of accumulated amortization of $2,138,000 and $12,487,000 as of December 31, 2019 and 2018, respectively(2)	8,137,000				2,311,000
Lease inducement, net of accumulated amortization of $1,140,000 and $789,000 as of December 31, 2019 and 2018, respectively (with a weighted average remaining life of 10.9 years and 12.0 years as of December 31, 2019 and 2018, respectively)	3,860,000				4,211,000
	$	140,175,000			$	114,226,000

___________

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

(2)	Deferred financing costs only include costs related to our lines of credit and term loans.

Amortization expense on deferred financing costs of our lines of credit and term loans for the years ended December 31, 2019, 2018 and 2017 was $3,664,000, $4,637,000 and $4,331,000, respectively. Amortization expense on lease commissions for the years ended December 31, 2019, 2018 and 2017 was $1,132,000, $741,000 and $450,000, respectively. Amortization expense on lease inducements for the years ended December 31, 2019, 2018 and 2017 was $351,000, $350,000 and $351,000, respectively.

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Investments in unconsolidated entities primarily represents our investment in RHS, a privately-held company that operates 16 integrated senior health campuses, of which RHS owns three integrated senior health campuses. Our effective ownership of RHS was 33.8% as of both December 31, 2019 and 2018. As of December 31, 2019 and 2018, we had a receivable of $5,133,000 and $2,507,000, respectively, due from RHS, which is included in accounts and other receivables, net, in our accompanying consolidated balance sheets. The following is summarized financial information of our investments in unconsolidated entities:

	December 31,
	2019												2018
	RHS				Other				Total				RHS				Other				Total
Balance Sheet Data:
Total assets	$	278,297,000			$	17,022,000			$	295,319,000			$	48,291,000			$	100,000			$	48,391,000
Total liabilities	$	251,283,000			$	17,245,000			$	268,528,000			$	25,263,000			$	—			$	25,263,000

	Years Ended December 31,
	2019												2018												2017
	RHS				Other				Total				RHS				Other				Total				RHS				Other				Total
Statement of Operations Data:
Revenues	$	142,834,000			$	7,322,000			$	150,156,000			$	130,543,000			$	—			$	130,543,000			$	128,038,000			$	—			$	128,038,000
Expenses	145,575,000				9,045,000				154,620,000				138,296,000				—				138,296,000				138,134,000				—				138,134,000
Net loss	$	(2,741,000	)		$	(1,723,000	)		$	(4,464,000	)		$	(7,753,000	)		$	—			$	(7,753,000	)		$	(10,096,000	)		$	—			$	(10,096,000	)

7. Mortgage Loans Payable, Net

As of December 31, 2019 and 2018, mortgage loans payable were $816,217,000 ($792,870,000, net of discount/premium and deferred financing costs) and $713,030,000 ($688,262,000, net of discount/premium and deferred financing costs), respectively. As of December 31, 2019, we had 58 fixed-rate mortgage loans payable and seven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 6.21% per annum based on interest rates in effect as of December 31, 2019 and a weighted average effective interest rate of 3.85%. As of December 31, 2018, we had 57 fixed-rate mortgage loans payable and six variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.46% per annum based on interest rates in effect as of December 31, 2018 and a weighted average effective interest rate of 3.98%. We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ratios, leverage ratios and reporting requirements.

For the year ended December 31, 2019, we incurred an aggregate loss on the extinguishment of mortgage loans payable of $2,182,000, which is recorded to interest expense in our accompanying consolidated statements of operations and comprehensive income (loss). Such losses were primarily related to the write-off of unamortized debt discounts and prepayment penalties on two mortgage loans payable that were due to mature in November 2047 and April 2049. The source of funds for the payoffs were from the 2019 Trilogy Credit Facility, as defined in Note 8, Lines of Credit and Term Loans.

Mortgage loans payable, net consisted of the following as of December 31, 2019 and 2018:

	December 31,
	2019				2018
Total fixed-rate debt	$	714,786,000			$	624,616,000
Total variable-rate debt	101,431,000				88,414,000
Total fixed- and variable-rate debt	816,217,000				713,030,000
Less: deferred financing costs, net	(9,362,000		)		(8,824,000		)
Add: premium	304,000				663,000
Less: discount	(14,289,000		)		(16,607,000		)
Mortgage loans payable, net	$	792,870,000			$	688,262,000

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The following table reflects the changes in the carrying amount of mortgage loans payable, net for the years ended December 31, 2019 and 2018:

	Years Ended December 31,
	2019				2018
Beginning Balance	$	688,262,000			$	613,558,000
Additions:
Borrowings on mortgage loans payable	191,246,000				181,594,000
Amortization of deferred financing costs	1,544,000				1,269,000
Amortization of discount/premium on mortgage loans payable	647,000				537,000
Deductions:
Scheduled principal payments on mortgage loans payable	(74,037,000		)		(10,444,000		)
Payoff of mortgage loans payable	(14,022,000		)		(94,449,000		)
Deferred financing costs	(770,000		)		(3,803,000		)
Ending Balance	$	792,870,000			$	688,262,000

As of December 31, 2019, the principal payments due on our mortgage loans payable for each of the next five years ending December 31 and thereafter were as follows:

Year		Amount
2020		$	71,838,000
2021		55,419,000
2022		62,070,000
2023		35,822,000
2024		70,796,000
Thereafter		520,272,000
		$	816,217,000

8. Lines of Credit and Term Loans

2016 Corporate Line of Credit

On February 3, 2016, we, through certain of our subsidiaries, 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. On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and separate term notes with each of Bank of America, KeyBank and a syndicate of other banks. The 2016 Corporate Line of Credit would have matured on February 3, 2019.

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 included: (i) an increase in the 2016 Corporate Term Loan Facility in an amount equal to $50,000,000; (ii) 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; and (iii) 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.

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On December 20, 2018, we entered into a Commitment Increase Agreement with Bank of America. The material terms of the Commitment Increase Agreement provided for an increase in the 2016 Corporate Revolving Credit Facility by an aggregate amount equal to $25,000,000. On December 20, 2018, we also entered into an Amended and Restated Revolving Note with Bank of America, whereby we promised to pay the principal amount and accrued interest of each loan to the respective lender or its registered assigns, in accordance with the terms and conditions of the 2016 Corporate Credit Agreement, as amended. As a result of the Commitment Increase Agreement, our aggregate borrowing capacity under the 2016 Corporate Line Credit was increased to $575,000,000.

As of December 31, 2018, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was $575,000,000. As of December 31, 2018, borrowings outstanding under the 2016 Corporate Line of Credit totaled $548,500,000 and the weighted average interest rate on such borrowings outstanding was 4.60% per annum.

On January 25, 2019, we terminated the 2016 Corporate Credit Agreement, as amended, and the 2016 Corporate Revolving Notes and entered into the 2019 Corporate Line of Credit as described below. We currently do not have any obligations under the 2016 Corporate Credit Agreement, as amended, or the 2016 Corporate Revolving Notes.

2019 Corporate Line of Credit

On January 25, 2019, we, through our operating partnership and certain of our subsidiaries, entered into a credit agreement, or the 2019 Corporate Credit Agreement, with Bank of America as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; Citizens Bank, National Association, as a syndication agent, a swing line lender, a letter of credit issuer, a joint lead arranger and joint bookrunner; and a syndicate of other banks, as lenders, to obtain a credit facility with an aggregate maximum principal amount of $630,000,000, or the 2019 Corporate Line of Credit. The 2019 Corporate Line of Credit consists of a senior unsecured revolving credit facility in the initial aggregate amount of $150,000,000 and a senior unsecured term loan facility in the initial aggregate amount of $480,000,000. We may obtain 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 maximum principal amount of the 2019 Corporate Line of Credit may be increased by up to $370,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2019 Corporate Credit Agreement; and (ii) at least five business days’ prior written notice to Bank of America.

At our option, the 2019 Corporate Line of Credit bears interest at per annum rates equal to (a) (i) the Eurodollar Rate, as defined in the 2019 Corporate Credit Agreement, plus (ii) a margin ranging from 1.50% to 2.20% based on our Consolidated Leverage Ratio, as defined in the 2019 Corporate Credit Agreement, or (b) (i) the greater of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate, as defined in the 2019 Corporate Credit Agreement, plus 0.50%, (3) the one-month Eurodollar Rate plus 1.00%, and (4) 0.00%, plus (ii) a margin ranging from 0.50% to 1.20% based on our Consolidated Leverage Ratio. Accrued interest on the 2019 Corporate Line of Credit is payable monthly. The loans may be repaid in whole or in part without prepayment premium or penalty, subject to certain conditions. We are required to pay a fee on the unused portion of the lenders’ commitments under the 2019 Corporate Credit Agreement at a per annum rate equal to 0.20% if the average daily used amount is greater than 50% of the commitments and 0.25% if the average daily used amount is less than or equal to 50% of the commitments, which fee shall be measured and payable on a quarterly basis.

The 2019 Corporate Line of Credit matures on January 25, 2022, and may be extended for one 12-month period during the term of the 2019 Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee. The 2019 Corporate Credit Agreement 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.

As of December 31, 2019, our aggregate borrowing capacity under the 2019 Corporate Line of Credit was $630,000,000. As of December 31, 2019, borrowings outstanding under the 2019 Corporate Line of Credit totaled $557,000,000 and the weighted average interest rate on such borrowings outstanding was 3.83% per annum.

Trilogy PropCo Line of Credit

In connection with our acquisition of Trilogy, on December 1, 2015, 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

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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 Trilogy PropCo Line of Credit would have matured on December 1, 2019.

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 included a reduction of the total commitment under the Trilogy PropCo Line of Credit from $300,000,000 to $250,000,000.

On September 5, 2019, we entered into an amended and restated loan agreement, or the 2019 Trilogy Credit Agreement, to further amend the Trilogy PropCo Credit Agreement and to replace the terms of the Trilogy PropCo Line of Credit with the 2019 Trilogy Credit Facility, as further discussed below in the “2019 Trilogy Credit Facility” section. As of December 31, 2018, our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $250,000,000. As of December 31, 2018, borrowings outstanding under the Trilogy PropCo Line of Credit totaled $170,518,000 and the weighted average interest rate on such borrowing outstanding was 6.45% per annum.

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.

On April 1, 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 to provide for: (i) a reduction in the aggregate maximum principal amount from $60,000,000 to $25,000,000; and (ii) an updated maturity date of April 27, 2021.

On September 5, 2019, we paid off and terminated the Trilogy OpCo Line of Credit, as amended, and replaced it with the 2019 Trilogy Credit Facility, as described below. As a result of such termination, we incurred a loss on extinguishment of $786,000, which is recorded to interest expense in our accompanying consolidated statements of operations and comprehensive income (loss) and was primarily related to the write-off of unamortized deferred financing fees. The source of funds for the payoff was from the 2019 Trilogy Credit Facility.

We currently do not have any obligations under the Trilogy OpCo Credit Agreement, as amended. As of December 31, 2018, our aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $25,000,000, subject to certain terms and conditions. As of December 31, 2018, borrowings outstanding under the Trilogy OpCo Line of Credit totaled $19,030,000 and the weighted average interest rate on such borrowings outstanding was 5.17% per annum.

2019 Trilogy Credit Facility

As discussed above, on September 5, 2019, we, through Trilogy RER, LLC and certain subsidiaries of Trilogy OpCo, LLC, Trilogy RER, LLC, and Trilogy Pro Services, LLC, or the 2019 Trilogy Co-Borrowers, entered into the 2019 Trilogy Credit Agreement with KeyBank, as administrative agent; CIT Bank, N.A., or CIT Bank, as revolving agent; Regions Bank, as syndication agent; KeyBanc Capital Markets, Inc., or KeyBanc Capital Markets, as co-lead arranger and co-book runner; Regions Capital Markets, as co-lead arranger and co-book runner; Bank of America as co-documentation agent; The Huntington National Bank, as co-documentation agent; and a syndicate of other banks, as lenders named therein, to amend and restate the terms of the Trilogy PropCo Credit Agreement to obtain a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, consisting of: (i) a $325,000,000 secured revolver supported by real estate assets and ancillary business cash flow and (ii) a $35,000,000 accounts receivable revolving credit facility supported by eligible accounts receivable, or the 2019 Trilogy Credit Facility. We may obtain up to $35,000,000 in the form of swing line loans and up to $15,000,000 in the form of standby letters of credit. The proceeds of the 2019 Trilogy Credit Facility may be used for acquisitions, debt repayment and general corporate purposes. The maximum principal amount of the 2019 Trilogy Credit Facility may be increased by up to $140,000,000, for a total principal amount of $500,000,000, subject to: (i) the terms of the 2019 Trilogy Credit Agreement and (ii) at least 10 business days’ prior written notice to KeyBank.

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At our option, the 2019 Trilogy Credit Facility bears interest at per annum rates equal to (a) LIBOR plus 2.75% for LIBOR Rate Loans, as defined in the 2019 Trilogy Credit Agreement, and (b) for Base Rate Loans, as defined in the 2019 Trilogy Credit Agreement, 1.75% plus the greater of: (i) the fluctuating annual rate of interest announced from time to time by KeyBank as its prime rate, (ii) 0.5% above the Federal Funds Effective Rate, as defined in the 2019 Trilogy Credit Agreement, and (iii) 1.00% above the one-month LIBOR. Accrued interest on the 2019 Trilogy Credit Facility is payable monthly. The loans may be repaid in whole or in part without prepayment fees or penalty, subject to certain conditions. We are required to pay fees on the unused portion of the lenders’ commitments under the 2019 Trilogy Credit Facility, with respect to any day during a calendar quarter, at a per annum rate equal to (a) 0.15% if the sum of the Aggregate Real Estate Revolving Credit Obligations, as defined in the 2019 Trilogy Credit Agreement, outstanding on such day is greater than 50% of the commitments or 0.20% if the sum of the Aggregate Real Estate Revolving Credit Obligations on such day is less than or equal to 50% of the commitments, and (b) 0.15% if the sum of the Aggregate A/R Revolving Credit Obligations, as defined in the 2019 Trilogy Credit Agreement, outstanding on such day is greater than 50% of the commitments or 0.20% if the sum of the Aggregate A/R Revolving Credit Obligations on such day is less than or equal to 50% of the commitments, which fees shall be measured and payable on a quarterly basis.

The 2019 Trilogy Credit Facility matures on September 5, 2023 and may be extended for one 12-month period during the term of the 2019 Trilogy Credit Agreement subject to the satisfaction of certain conditions, including payment of an extension fee.

As of December 31, 2019, our aggregate borrowing capacity under the 2019 Trilogy Credit Facility was $360,000,000. As of December 31, 2019, borrowings outstanding under the 2019 Trilogy Credit Facility totaled $258,879,000 and the weighted average interest rate on such borrowings outstanding was 4.52% per annum.

9. Derivative Financial Instruments

We record derivative financial instruments in our accompanying consolidated balance sheets as either an asset or a liability measured at fair value. The following table lists the derivative financial instruments held by us as of December 31, 2019 and 2018:

												Fair Value
												December 31,
Instrument		Notional Amount				Index		Interest Rate		Maturity Date		2019				2018
Swap		$	140,000,000			one month LIBOR		0.82%		02/03/19		$	—			$	221,000
Swap		60,000,000				one month LIBOR		0.78%		02/03/19		—				97,000
Swap		50,000,000				one month LIBOR		1.39%		02/03/19		—				51,000
Cap		20,000,000				one month LIBOR		3.00%		09/23/21		—				48,000
Swap		250,000,000				one month LIBOR		2.10%		01/25/22		(2,821,000		)		—
Swap		130,000,000				one month LIBOR		1.98%		01/25/22		(1,150,000		)		—
												$	(3,971,000	)		$	417,000

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). As of December 31, 2019 and 2018, 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. For the years ended December 31, 2019, 2018 and 2017, we recorded $(4,541,000), $(1,949,000) and $383,000, respectively, as an (increase) decrease to interest expense in our accompanying consolidated statements of operations and comprehensive income (loss) related to the change in the fair value of our derivative financial instruments.

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

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10. Identified Intangible Liabilities, Net

As of December 31, 2019 and 2018, identified intangible liabilities, net consisted of below-market leases of $663,000 and $1,051,000, respectively, net of accumulated amortization of $1,342,000 and $1,229,000, respectively. Amortization expense on below-market leases for the years ended December 31, 2019, 2018 and 2017 was $388,000, $517,000 and $658,000, respectively, which is recorded to real estate revenue in our accompanying consolidated statements of operations and comprehensive income (loss).

The weighted average remaining life of below-market leases was 4.3 years as of both December 31, 2019 and 2018. As of December 31, 2019, estimated amortization expense on below-market leases for each of the next five years ending December 31 and thereafter was as follows:

Year		Amount
2020		$	260,000
2021		143,000
2022		93,000
2023		78,000
2024		35,000
Thereafter		54,000
		$	663,000

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.

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 Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As of December 31, 2019 and 2018, 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 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.

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As of December 31, 2019 and 2018, we, through Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings, in which we indirectly hold a 70.0% ownership interest, owned 96.6% and 96.7%, respectively, of the outstanding equity interest of Trilogy. As of December 31, 2019 and 2018, certain members of Trilogy’s management and certain members of an advisory committee to Trilogy’s board of directors owned approximately 3.4% and 3.3%, respectively, of the outstanding equity interests of Trilogy. The noncontrolling interests held by such members have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying consolidated balance sheets.

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 years ended December 31, 2019 and 2018:

		December 31,
		2019				2018
Beginning balance		$	38,245,000			$	32,435,000
Additions		2,000,000				535,000
Reclassification from equity		780,000				780,000
Distributions		(1,430,000		)		(711,000		)
Repurchase of redeemable noncontrolling interests		(400,000		)		(229,000		)
Fair value adjustment to redemption value		4,473,000				5,301,000
Net income attributable to redeemable noncontrolling interests		437,000				134,000
Ending balance		$	44,105,000			$	38,245,000

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 December 31, 2019 and 2018, 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 public offering. We continued to offer shares of our common stock in our initial offering pursuant to the Initial DRIP, until the termination of the DRIP portion of our initial offering and deregistration of our initial offering 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 2015 DRIP Offering. We did not commence offering shares to the 2015 DRIP Offering until April 22, 2015, following the deregistration of our initial offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of the 2015 DRIP Offering on March 29, 2019.

On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 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 2019 DRIP Offering until April 1, 2019, following the deregistration of the 2015 DRIP Offering.

Through December 31, 2019, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial public offering and 32,733,694 shares of our common stock pursuant to our DRIP Offerings. We also repurchased 23,846,540 shares of our common stock under our share repurchase plan and granted an aggregate of 127,500 shares of our restricted common stock to our independent directors through December 31, 2019. As of December 31, 2019 and 2018, we had 193,967,474 and 197,557,377 shares of our common stock issued and outstanding, respectively.

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Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the years ended December 31, 2019 and 2018:

		December 31,
		2019				2018
Beginning balance — foreign currency translation adjustments		$	(2,560,000	)		$	(1,971,000	)
Net change in current period		305,000				(589,000		)
Ending balance — foreign currency translation adjustments		$	(2,255,000	)		$	(2,560,000	)

Noncontrolling Interests

As of December 31, 2019 and 2018, Trilogy REIT Holdings owned approximately 96.6% and 96.7% of Trilogy, respectively. 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 amended the 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. 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. As of December 31, 2019 and 2018, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with our 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 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 consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2019, 2018 and 2017, we recognized stock compensation expense related to the Profit Interests of $2,744,000, $2,898,000 and $936,000, respectively.

There were no canceled, expired or exercised Profit Interests during the years ended December 31, 2019, 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. 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. We classify the value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying consolidated balance sheets and the dividends of the preferred shares of beneficial interests as net income attributable to noncontrolling interests in our accompanying consolidated statements of operations and comprehensive income (loss).

In addition, as of December 31, 2019 and 2018, 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 years ended December 31, 2019, 2018 and 2017.

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Distribution Reinvestment Plan

We adopted the Initial 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 Initial DRIP in our initial offering, which we deregistered 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 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering, following the deregistration of our initial offering on April 22, 2015. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the deregistration of such offering on March 29, 2019. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering.

Effective October 5, 2016, we amended and restated the Initial DRIP to amend the price at which shares of our common stock are issued pursuant to such distribution reinvestment plan. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated net asset value, or NAV, 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 2015 DRIP Offering remained unchanged by the Amended and Restated DRIP.

Since October 5, 2016, our board has approved and established an estimated per share NAV on at least an annual basis. Commencing with the distribution payment to stockholders paid in the month following such board approval, shares of our common stock issued pursuant to the Amended and Restated DRIP were or will be issued at the current estimated per share NAV until such time as our board determines an updated estimated per share NAV. The following is a summary of our historical and current estimated per share NAV:

Approval Date by our Board		Estimated Per Share NAV
10/05/16		$	9.01
10/04/17		$	9.27
10/03/18		$	9.37
10/03/19		$	9.40

For the years ended December 31, 2019, 2018 and 2017, $55,440,000, $60,030,000 and $63,008,000, respectively, in distributions were reinvested and 5,913,684, 6,464,432 and 6,960,664 shares of our common stock, respectively, were issued pursuant to our DRIP Offerings. As of December 31, 2019 and 2018, a total of $305,151,000 and $249,711,000, respectively, in distributions were reinvested that resulted in 32,733,694 and 26,820,010 shares of our common stock, respectively, being issued pursuant to our DRIP Offerings.

Share Repurchase Plan

Our board has approved a share repurchase plan, which 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 generally 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. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to our DRIP Offerings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or “qualifying disability,” as defined in our share repurchase plan, of a stockholder will not be subject to this quarterly cap or to our existing cap on repurchases of 5.0% of the weighted average number of shares outstanding during the calendar year prior to the repurchase date. Funds for the repurchase of shares of our common stock will come from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings. Furthermore, our share repurchase plan, as amended, provides that if there are insufficient funds to honor all repurchase requests, pending requests may be honored among all requests for repurchase in any given repurchase period as follows: first, repurchases in full as to repurchases that would result in a stockholder owning less than $2,500 of shares; and, next, pro rata as to other repurchase requests.

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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. 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, 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).

Since October 5, 2016, our board has approved and established an estimated per share NAV on at least an annual basis. See summary of our historical and current estimated per share NAV in the “Distribution Reinvestment Plan” section above. Accordingly, commencing with share repurchase requests submitted during the quarter that our board has approved and established an estimated per share NAV, such per share NAV served or will serve as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than such per share NAV in our initial offering, until such time as our board determines an updated estimated per share NAV.

For the years ended December 31, 2019, 2018 and 2017, we received share repurchase requests of 15,030,794, 8,272,789 and 3,419,969 shares of our common stock, respectively, and repurchased 9,526,087, 8,272,789 and 3,419,969 shares of our common stock, respectively, for an aggregate of $89,888,000, $76,577,000 and $30,656,000, respectively, at an average repurchase price of $9.44, $9.26 and $8.96 per share, respectively.

As of December 31, 2019 and 2018, we received cumulative share repurchase requests 29,351,247 and 14,320,453 shares of our common stock, respectively, and repurchased 23,846,540 and 14,320,453 shares of our common stock, respectively, for an aggregate of $221,823,000 and $131,935,000, respectively, at an average repurchase price of $9.30 and $9.21 per share, respectively. Shares were repurchased using proceeds we received from the cumulative sale of shares of our common stock pursuant to our DRIP Offerings.

2013 Incentive Plan

We adopted 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 years ended December 31, 2019, 2018 and 2017, we granted 22,500 shares of our restricted common stock at a weighted average grant date fair value of $9.37, $9.27 and $9.01 per share, respectively, 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 years ended December 31, 2019, 2018 and 2017, we recognized stock compensation expense related to the independent director grants of $215,000, $215,000 and $216,000, respectively. Such stock compensation expense is included in general and administrative in our accompanying consolidated statements of operations and comprehensive income (loss).

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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 year ended December 31, 2019. 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 years ended December 31, 2019, 2018 and 2017, we incurred $25,064,000, $24,266,000 and $23,698,000, 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. 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 years ended December 31, 2019, 2018 and 2017, we incurred $1,124,000, $1,194,000 and $1,922,000, respectively, in acquisition fees to our advisor. Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying consolidated balance sheets. Acquisition fees in connection with the acquisition of investments accounted for as business combinations are expensed as incurred and included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive income (loss). 

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 years ended December 31, 2019, 2018 and 2017, we incurred $346,000, $137,000 and $104,000, respectively, in development fees to our advisor or its affiliates, which are capitalized as part of the associated investments in our accompanying consolidated balance sheets.

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 years ended December 31, 2019, 2018 and 2017, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our acquisitions of real estate or real estate-related investments.

For the years ended December 31, 2019, 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 asset acquisitions or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying consolidated balance sheets.

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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 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 years ended December 31, 2019, 2018 and 2017, we incurred $20,073,000, $19,373,000 and $18,793,000, respectively, in asset management fees to our advisor or its affiliates. Asset management fees are included in general and administrative in our accompanying 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 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 years ended December 31, 2019, 2018 and 2017, we incurred $2,611,000, $2,428,000 and $2,358,000, 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 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 years ended December 31, 2019, 2018 and 2017, we incurred $379,000, $843,000 and $267,000, 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 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 years ended December 31, 2019, 2018 and 2017, we incurred $320,000, $91,000 and $46,000, 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 consolidated balance sheets or are expensed and included in our accompanying consolidated statements of operations and comprehensive income (loss), as applicable.

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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.

For the 12 months ended December 31, 2019, 2018 and 2017, our operating expenses did not exceed the aforementioned limitations. The following table reflects our operating expenses as a percentage of average invested assets and as a percentage of net income for the 12 month periods then ended:

	12 Months Ended December 31,
	2019			2018			2017
Operating expenses as a percentage of average invested assets	0.9	%		0.9	%		0.9	%
Operating expenses as a percentage of net income	18.9	%		19.1	%		16.6	%

For the years ended December 31, 2019, 2018 and 2017, our advisor or its affiliates incurred operating expenses on our behalf of $211,000, $200,000 and $208,000, respectively. Operating expenses are generally included in general and administrative in our accompanying consolidated statements of operations and comprehensive income (loss).

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 years ended December 31, 2019, 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 years ended December 31, 2019 and 2018, we did not incur any disposition fees to our advisor or its affiliates. For the year ended December 31, 2017, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement. See Note 3, Real Estate Investments, Net — Dispositions of Real Estate Investments, for a further discussion.

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 years ended December 31, 2019, 2018 and 2017, we did not pay any such distributions to our advisor.

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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 years ended December 31, 2019, 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 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 December 31, 2019 and 2018, 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 December 31, 2019 and 2018:

		December 31,
Fee		2019				2018
Asset and property management fees		$	1,991,000			$	1,856,000
Construction management fees		175,000				58,000
Lease commissions		143,000				94,000
Operating expenses		12,000				12,000
Acquisition fees		—				15,000
Development fees		—				68,000
		$	2,321,000			$	2,103,000

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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 December 31, 2019, 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 instrument	$	—			$	—			$	—			$	—
Total assets at fair value	$	—			$	—			$	—			$	—
Liabilities:
Derivative financial instruments	$	—			$	3,971,000			$	—			$	3,971,000
Warrants	—				—				1,178,000				1,178,000
Total liabilities at fair value	$	—			$	3,971,000			$	1,178,000			$	5,149,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 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	$	—			$	417,000			$	—			$	417,000
Total assets at fair value	$	—			$	417,000			$	—			$	417,000
Liabilities:
Contingent consideration obligation	$	—			$	—			$	681,000			$	681,000
Warrants	—				—				1,207,000				1,207,000
Total liabilities at fair value	$	—			$	—			$	1,888,000			$	1,888,000

There were no transfers into and out of fair value measurement levels during the years ended December 31, 2019 and 2018.

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.

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.

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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 December 31, 2019, 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 Liability

Contingent consideration obligations are due upon certain criteria being met within specified time frames. For the years ended December 31, 2019, 2018 and 2017, we recorded a net gain on the change in fair value of contingent consideration obligations of $681,000, $2,843,000 and $3,885,000, respectively, which is included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive income (loss). As of December 31, 2018, we had accrued $681,000 of a contingent consideration obligation in connection with our Clemmons facility within North Carolina ALF Portfolio. Such obligation was included in security deposits, prepaid rent and other liabilities in our accompanying consolidated balance sheets and would have been paid upon various conditions being met, including our tenants achieving certain operating performance metrics. In particular, the amounts may have been paid based upon the computation in the lease agreement, as amended, and receipt of notification within four 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. There was no minimum required payment but the total maximum was capped at $11,000,000 and also limited by the tenant’s ability to increase its EBITDAR. Any payment made would have resulted in an increase in the monthly rent charged to the tenant and additional rental revenue to us. The contingent consideration obligation was not exercised and expired June 28, 2019, and as such, no contingent consideration amounts were due for the Clemmons facility within North Carolina ALF Portfolio as of December 31, 2019.

The following is a reconciliation of the beginning and ending balances of our contingent consideration obligations for the years ended December 31, 2019, 2018 and 2017:

		Years Ended December 31,
		2019				2018				2017
Contingent Consideration Obligations:
Beginning balance		$	681,000			$	5,107,000			$	8,992,000
Realized/unrealized gains recognized in earnings		(681,000		)		(2,843,000		)		(3,885,000		)
Settlements of obligations		—				(1,583,000		)		—
Ending balance		$	—			$	681,000			$	5,107,000
Amount of total gains included in earnings attributable to the change in unrealized gains related to obligations still held		$	(681,000	)		$	(2,843,000	)		$	(3,885,000	)

Warrants

As of December 31, 2019 and 2018, we have recorded $1,178,000 and $1,207,000, 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 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 December 31, 2019 and 2018, the carrying value is a reasonable estimate of fair value.

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Real Estate Investment

For the years ended December 31, 2018 and 2017 we determined that one of our medical office buildings was impaired based upon discounted cash flow analyses where the most significant inputs were market rent, capitalization rate and discount rate. We considered these inputs as Level 3 measurements within the fair value hierarchy. The following table is a summary of the quantitative information related to the non-recurring fair value measurement for the impairment of our real estate investment as of December 31, 2018 and 2017:

	Range of Inputs or Inputs
	December 31,
	2018			2017
Unobservable Inputs
Market rent per square foot	$13.75 to $25.00			$19.00 to $25.53
Capitalization rate	7.50	%		7.25	%
Discount rate	8.00	%		8.00	%

Financial Instruments Disclosed at Fair Value

Our accompanying 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 real estate notes receivable, 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.

The fair value of our debt security investment is 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 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 December 31, 2019 and 2018 were as follows:

	December 31,
	2019								2018
	Carrying Amount(1)				Fair Value				Carrying Amount(1)				Fair Value
Financial Assets:
Debt security investment	$	72,717,000			$	94,026,000			$	69,873,000			$	94,116,000
Financial Liabilities:
Mortgage loans payable	$	792,870,000			$	732,846,000			$	688,262,000			$	618,886,000
Lines of credit and term loans	$	807,742,000			$	816,355,000			$	735,737,000			$	737,982,000

___________

(1)	Carrying amount is net of any discount/premium and unamortized costs.

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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 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 United States government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act makes broad and complex changes to the United States tax code, including, but not limited to, reducing the United States 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. As a result, income tax expense reported for the year ended December 31, 2017 was adjusted to reflect the effects of the Tax Act, which resulted in an income tax benefit of $2,997,000 and is primarily due to the application of the newly enacted rates to the existing deferred tax assets/liabilities of our TRSs. The Tax Act is still unclear in some respects and could be subject to potential amendments and technical corrections. The federal income tax rules dealing with United States federal income taxation and REITs are constantly under review by persons involved in the legislative process, the IRS and the United States Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. As a result, the long-term impact of the Tax Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.

The components of income before taxes for the years ended December 31, 2019, 2018 and 2017, were as follows:

	December 31,
	2019				2018				2017
Domestic	$	1,193,000			$	14,202,000			$	2,931,000
Foreign	(521,000		)		(462,000		)		(808,000		)
Income before income taxes	$	672,000			$	13,740,000			$	2,123,000

The components of income tax (benefit) expense for the years ended December 31, 2019, 2018 and 2017 were as follows:

	December 31,
	2019				2018				2017
Federal deferred	$	(3,672,000	)		$	(4,647,000	)		$	(3,382,000	)
State deferred	(737,000		)		(922,000		)		(755,000		)
Federal current	(29,000		)		—				—
State current	(16,000		)		—				—
Foreign current	605,000				988,000				543,000
Valuation allowances	5,373,000				3,784,000				367,000
Total income tax expense (benefit)	$	1,524,000			$	(797,000	)		$	(3,227,000	)

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 investments located in the 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.

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We recognize the financial statement effects of an uncertain 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 December 31, 2019 and December 31, 2018, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying consolidated financial statements.

We assess the available 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 December 31, 2019 and 2018, 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.

Any increases or decreases to the deferred income tax assets or liabilities are reflected in income tax benefit (expense) in our accompanying consolidated statements of operations and comprehensive income (loss). The components of deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:

	December 31,
	2019				2018
Deferred income tax assets:
Fixed assets & intangibles	$	6,509,000			$	7,292,000
Expense accruals & other	14,233,000				10,686,000
Net operating loss	14,341,000				8,980,000
Reserves and accruals	5,540,000				4,095,000
Allowances for accounts receivable	(179,000		)		581,000
Investments in joint ventures	2,326,000				1,909,000
Valuation allowances	(29,456,000		)		(24,082,000		)
Total deferred income tax assets	$	13,314,000			$	9,461,000
Deferred income tax liabilities:
Fixed assets and intangibles	$	(14,468,000	)		$	(8,924,000	)
Other — temporary differences	(2,176,000		)		(2,903,000		)
Total deferred income tax liabilities	$	(16,644,000	)		$	(11,827,000	)

At December 31, 2019 and 2018, we had a net operation loss, or NOL, carryforward of $58,416,000 and $34,656,000, respectively, related to the TRSs. These amounts can be used to offset future taxable income, if any. The NOL carryforwards incurred after December 31, 2017 will be carried forward indefinitely.

Tax Treatment of Distributions

For federal income tax purposes, distributions to stockholders are characterized as ordinary income, capital gain distributions or nontaxable distributions. Nontaxable distributions will reduce United States stockholders’ basis (but not below zero) in their shares. The income tax treatment for distributions reportable for the years ended December 31, 2019, 2018 and 2017 was as follows:

	Years Ended December 31,
	2019							2018							2017
Ordinary income	$	35,294,000			29.9	%		$	33,141,000			27.6	%		$	40,475,000			34.1	%
Capital gain	—				—			—				—			—				—
Return of capital	82,731,000				70.1			86,833,000				72.4			78,285,000				65.9
	$	118,025,000			100	%		$	119,974,000			100	%		$	118,760,000			100	%

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Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.

17. Leases

Lessor

We have operating leases with tenants that expire at various dates through 2059. For the year ended December 31, 2019, we recognized $118,201,000 of revenues related to operating lease payments, of which $18,942,000 was for variable lease payments. As of December 31, 2019, the following table sets forth the undiscounted cash flows for future minimum base rents due under operating leases for leases in effect for properties we wholly own for each of the next five years ending December 31 and thereafter:

Year		Amount
2020		$	86,817,000
2021		84,786,000
2022		78,164,000
2023		70,582,000
2024		64,805,000
Thereafter		444,839,000
Total		$	829,993,000

Future minimum base rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2018 for each of the next five years ending December 31 and thereafter was as follows:

Year		Amount
2019		$	92,888,000
2020		88,536,000
2021		86,362,000
2022		80,233,000
2023		72,535,000
Thereafter		559,649,000
Total		$	980,203,000

Lessee

We lease certain land, buildings, furniture, fixtures, campus equipment, office equipment and automobiles. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Most leases include one or more options to renew, with renewal terms that generally can extend at various dates through 2112, excluding extension options. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property.

As of December 31, 2019, we had future lease payments of $28,703,000 for operating leases that had not yet commenced. These operating leases will commence between fiscal year 2020 and fiscal year 2021 with lease terms of up to 10 years.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments that are adjusted periodically based on Consumer Price Index, and may also include other variable lease costs (i.e., common area maintenance, property taxes and insurance). Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of lease costs were as follows:

Lease Cost		Classification		Year Ended December 31, 2019
Operating lease cost(1)		Property operating expenses and rental expenses		$	29,974,000
Finance lease cost
Amortization of leased assets		Depreciation and amortization		2,001,000
Accretion of lease liabilities		Interest expense		391,000
Total lease cost				$	32,366,000

___________

(1)	Includes short-term leases and variable lease costs, which are immaterial.

Other information related to leases was as follows:

Supplemental Disclosure of Cash Flows Information		Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows related to operating leases		$	22,114,000
Operating cash outflows related to finance leases		$	390,000
Financing cash outflows related to finance leases		$	3,076,000
Right-of-use assets obtained in exchange for operating lease liabilities		$	31,958,000

Lease Term and Discount Rate		December 31, 2019
Weighted average remaining lease term (in years)
Operating leases		13.5
Finance leases		1.3
Weighted average discount rate
Operating leases		5.94	%
Finance leases		7.33	%

Operating Leases

As of December 31, 2019, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for each of the next five years ending December 31 and thereafter, as well as the reconciliation of those cash flows to operating lease liabilities:

Year		Amount
2020		$	24,571,000
2021		24,993,000
2022		25,406,000
2023		24,732,000
2024		25,150,000
Thereafter		187,534,000
Total operating lease payments		312,386,000
Less: interest		105,015,000
Present value of operating lease liabilities		$	207,371,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2018, future minimum lease obligations under non-cancelable ground and other lease obligations for each of the next five years ending December 31 and thereafter was as follows:

Year		Amount
2019		$	22,194,000
2020		22,564,000
2021		23,166,000
2022		23,702,000
2023		23,154,000
Thereafter		177,927,000
Total		$	292,707,000

Finance Leases

As of December 31, 2019, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for each of the next five years ending December 31 and thereafter, as well as a reconciliation of those cash flows to finance lease liabilities:

Year		Amount
2020		$	1,217,000
2021		129,000
2022		—
2023		—
2024		—
Thereafter		—
Total finance lease payments		1,346,000
Less: interest		44,000
Present value of finance lease liabilities		$	1,302,000

As of December 31, 2018, future minimum lease payments under finance leases and for each of the next five years ending December 31 and thereafter was as follows:

Year		Amount(1)
2019		$	3,307,000
2020		1,266,000
2021		130,000
2022		—
2023		—
Thereafter		—
		$	4,703,000

___________

(1)	Amounts above represent principal of $4,438,000 and interest obligations of $265,000 under finance leases.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18. Business Combinations

For the years ended December 31, 2019, 2018 and 2017, none of our property acquisitions were accounted for as business combinations. See Note 3, Real Estate Investments, Net, for a discussion of our property acquisitions accounted for as asset acquisitions for such periods. On September 26, 2017, we, through a majority-owned subsidiary of Trilogy, acquired a pharmaceutical business in Nashville, Tennessee from an unaffiliated third party for a contract purchase price of $7,500,000, plus closing costs and an acquisition fee paid to our advisor, which are included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive income (loss). The acquisition of such pharmaceutical business is included in our integrated senior health campuses segment and was accounted for as a business combination. Based on quantitative and qualitative considerations, such business combination we completed during 2017 was not material.

19. Segment Reporting

As of December 31, 2019, 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. Our medical office buildings are typically leased to multiple tenants under separate leases, thus requiring active management and responsibility for many of the associated operating expenses (much of which are, or can effectively be, passed through to the tenants). In addition, our medical office buildings segment included the Mezzanine Fixed Rate 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 that are owned and operated utilizing a RIDEA structure.

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 or loss in fair value of derivative financial instruments, gain or loss on disposition of real estate investments, impairment of real estate investments, foreign currency gain or loss, other income, loss from unconsolidated entities and income tax benefit or 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 and other assets not attributable to individual properties.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary information for the reportable segments during the years ended December 31, 2019, 2018 and 2017 was as follows:

		Integrated Senior Health Campuses				Senior Housing —  RIDEA				Medical Office Buildings				Senior Housing				Skilled Nursing Facilities				Hospitals				Year Ended December 31, 2019
Revenues:
Resident fees and services		$	1,030,934,000			$	68,144,000			$	—			$	—			$	—			$	—			$	1,099,078,000
Real estate revenue		—				—				80,805,000				18,407,000				13,345,000				11,481,000				124,038,000
Total revenues		1,030,934,000				68,144,000				80,805,000				18,407,000				13,345,000				11,481,000				1,223,116,000
Expenses:
Property operating expenses		919,793,000				48,067,000				—				—				—				—				967,860,000
Rental expenses		—				—				30,870,000				1,001,000				1,456,000				532,000				33,859,000
Segment net operating income		$	111,141,000			$	20,077,000			$	49,935,000			$	17,406,000			$	11,889,000			$	10,949,000			$	221,397,000
Expenses:
General and administrative																										$	29,749,000
Acquisition related expenses																										(161,000		)
Depreciation and amortization																										111,412,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)																										(78,553,000		)
Loss in fair value of derivative financial instruments																										(4,541,000		)
Loss from unconsolidated entities																										(2,097,000		)
Foreign currency gain																										1,730,000
Other income																										3,736,000
Income before income taxes																										672,000
Income tax expense																										(1,524,000		)
Net loss																										$	(852,000	)

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Integrated Senior Health Campuses				Senior Housing — RIDEA				Medical Office Buildings				Senior Housing				Skilled Nursing Facilities				Hospitals				Year Ended December 31, 2018
Revenues:
Resident fees and services		$	940,616,000			$	65,075,000			$	—			$	—			$	—			$	—			$	1,005,691,000
Real estate revenue		—				—				80,078,000				21,913,000				14,887,000				12,691,000				129,569,000
Total revenues		940,616,000				65,075,000				80,078,000				21,913,000				14,887,000				12,691,000				1,135,260,000
Expenses:
Property operating expenses		844,279,000				44,792,000				—				—				—				—				889,071,000
Rental expenses		—				—				30,514,000				837,000				1,816,000				1,656,000				34,823,000
Segment net operating income		$	96,337,000			$	20,283,000			$	49,564,000			$	21,076,000			$	13,071,000			$	11,035,000			$	211,366,000
Expenses:
General and administrative																										$	28,770,000
Acquisition related expenses																										(2,913,000		)
Depreciation and amortization																										95,678,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)																										(66,281,000		)
Loss in fair value of derivative financial instruments																										(1,949,000		)
Impairment of real estate investment																										(2,542,000		)
Loss from unconsolidated entities																										(3,877,000		)
Foreign currency loss																										(2,690,000		)
Other income																										1,248,000
Income before income taxes																										13,740,000
Income tax benefit																										797,000
Net income																										$	14,537,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Integrated Senior Health Campuses				Senior Housing — RIDEA				Medical Office Buildings				Senior Housing				Skilled Nursing Facilities				Hospitals				Year Ended December 31, 2017
Revenues:
Resident fees and services		$	863,029,000			$	64,192,000			$	—			$	—			$	—			$	—			$	927,221,000
Real estate revenue		—				—				78,584,000				20,898,000				14,884,000				12,705,000				127,071,000
Total revenues		863,029,000				64,192,000				78,584,000				20,898,000				14,884,000				12,705,000				1,054,292,000
Expenses:
Property operating expenses		763,306,000				43,133,000				—				—				—				—				806,439,000
Rental expenses		—				—				29,344,000				670,000				1,608,000				1,453,000				33,075,000
Segment net operating income		$	99,723,000			$	21,059,000			$	49,240,000			$	20,228,000			$	13,276,000			$	11,252,000			$	214,778,000
Expenses:
General and administrative																										$	32,587,000
Acquisition related expenses																										(3,833,000		)
Depreciation and amortization																										113,226,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)																										(60,872,000		)
Gain in fair value of derivative financial instruments																										383,000
Gain on dispositions of real estate investments																										3,370,000
Impairment of real estate investments																										(14,070,000		)
Loss from unconsolidated entities																										(5,048,000		)
Foreign currency gain																										4,045,000
Other income																										1,517,000
Income before income taxes																										2,123,000
Income tax benefit																										3,227,000
Net Income																										$	5,350,000

Total assets by reportable segment as of December 31, 2019 and 2018 were as follows:

	December 31,
	2019				2018
Integrated senior health campuses	$	1,791,868,000			$	1,478,147,000
Medical office buildings	620,292,000				646,784,000
Senior housing — RIDEA	360,823,000				271,381,000
Senior housing	152,909,000				242,686,000
Skilled nursing facilities	126,606,000				127,809,000
Hospitals	113,737,000				118,685,000
Other	6,054,000				3,600,000
Total assets	$	3,172,289,000			$	2,889,092,000

As of both December 31, 2019 and 2018, 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 CONSOLIDATED FINANCIAL STATEMENTS — (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:

		Years Ended December 31,
		2019				2018				2017
Revenues:
United States		$	1,218,337,000			$	1,130,350,000			$	1,049,586,000
International		4,779,000				4,910,000				4,706,000
		$	1,223,116,000			$	1,135,260,000			$	1,054,292,000

The following is a summary of real estate investments, net by geographic regions as of December 31, 2019 and 2018:

	December 31,
	2019				2018
Real estate investments, net:
United States	$	2,219,882,000			$	2,173,395,000
International	50,539,000				49,286,000
	$	2,270,421,000			$	2,222,681,000

20. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily debt security investments, cash and cash equivalents, accounts and other receivables, restricted cash and real estate deposits. We are exposed to credit risk with respect to a debt security investment, but we believe collection of the outstanding amount is probable. 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 December 31, 2019 and 2018, 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 December 31, 2019, properties in two states 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 and Ohio accounted for 37.8% and 10.8%, respectively, 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 each state’s economy.

Based on leases in effect as of December 31, 2019, our six reportable business segments, integrated senior health campuses, medical office buildings, senior housing — RIDEA, skilled nursing facilities, hospitals and senior housing accounted for 51.4%, 27.3%, 9.1%, 5.6%, 3.8% and 2.8%, respectively, of our total property portfolio’s annualized base rent or annualized net operating income. As of December 31, 2019, 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 December 31, 2019.

21. Per Share Data

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 $28,000, $28,000 and $26,000, respectively, for the years ended December 31, 2019, 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.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of both December 31, 2019 and 2018, there were 46,500 nonvested shares 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 both December 31, 2019 and 2018, 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.

22. Selected Quarterly Financial Data (Unaudited)

Set forth below is the unaudited selected quarterly financial data. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the unaudited selected quarterly financial data when read in conjunction with our consolidated financial statements.

	Quarters Ended
	December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
Revenues	$	315,365,000			$	301,762,000			$	304,931,000			$	301,058,000
Expenses	(292,219,000		)		(295,503,000		)		(279,771,000		)		(275,226,000		)
Other expense	(13,224,000		)		(22,522,000		)		(25,156,000		)		(18,823,000		)
Income tax expense	(374,000		)		(840,000		)		(159,000		)		(151,000		)
Net income (loss)	9,548,000				(17,103,000		)		(155,000		)		6,858,000
Less: net income attributable to noncontrolling interests	(1,134,000		)		(201,000		)		(1,430,000		)		(1,348,000		)
Net income (loss) attributable to controlling interest	$	8,414,000			$	(17,304,000	)		$	(1,585,000	)		$	5,510,000
Net income (loss) per common share attributable to controlling interest — basic and diluted	$	0.04			$	(0.09	)		$	(0.01	)		$	0.03
Weighted average number of common shares outstanding — basic and diluted	195,268,047				195,669,002				196,075,614				198,400,657

	Quarters Ended
	December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Revenues	$	292,926,000			$	284,179,000			$	280,263,000			$	277,892,000
Expenses	(271,427,000		)		(261,856,000		)		(256,536,000		)		(255,610,000		)
Other expense	(19,749,000		)		(18,543,000		)		(23,571,000		)		(14,228,000		)
Income tax (expense) benefit	(144,000		)		44,000				526,000				371,000
Net income	1,606,000				3,824,000				682,000				8,425,000
Less: net income attributable to noncontrolling interests	(16,000		)		(212,000		)		(740,000		)		(272,000		)
Net income (loss) attributable to controlling interest	$	1,590,000			$	3,612,000			$	(58,000	)		$	8,153,000
Net income (loss) per common share attributable to controlling interest — basic and diluted	$	0.01			$	0.02			$	—			$	0.04
Weighted average number of common shares outstanding — basic and diluted	199,459,268				199,818,444				200,202,193				200,347,084

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
DeKalb Professional Center (Medical Office)	Lithonia, GA		$	—			$	479,000			$	2,871,000			$	87,000			$	479,000			$	2,958,000			$	3,437,000			$	(709,000	)		2008			06/06/14
Country Club MOB (Medical Office)	Stockbridge, GA		—				240,000				2,306,000				337,000				240,000				2,643,000				2,883,000				(445,000		)		2002			06/26/14
Acworth Medical Complex (Medical Office)	Acworth, GA		—				216,000				3,135,000				63,000				216,000				3,198,000				3,414,000				(595,000		)		1976/2009			07/02/14
	Acworth, GA		—				250,000				2,214,000				134,000				250,000				2,348,000				2,598,000				(471,000		)		1976/2009			07/02/14
	Acworth, GA		—				104,000				774,000				3,000				104,000				777,000				881,000				(170,000		)		1976/2009			07/02/14
Wichita KS MOB (Medical Office)	Wichita, KS		—				943,000				6,288,000				373,000				943,000				6,661,000				7,604,000				(1,418,000		)		1980/1996			09/04/14
Delta Valley ALF Portfolio (Senior Housing)	Batesville, MS		—				331,000				5,103,000				(1,000		)		331,000				5,102,000				5,433,000				(924,000		)		1999/2005			09/11/14
	Cleveland, MS		—				348,000				6,369,000				—				348,000				6,369,000				6,717,000				(1,259,000		)		2004			09/11/14
	Springdale, AR		—				891,000				6,538,000				—				891,000				6,538,000				7,429,000				(1,283,000		)		1998/2005			01/08/15
Lee’s Summit MO MOB (Medical Office)	Lee’s Summit, MO		—				1,045,000				5,068,000				420,000				1,045,000				5,488,000				6,533,000				(1,454,000		)		2006			09/18/14
Carolina Commons MOB (Medical Office)	Indian Land, SC		6,796,000				1,028,000				9,430,000				1,330,000				1,028,000				10,760,000				11,788,000				(1,728,000		)		2009			10/15/14
Mount Olympia MOB Portfolio (Medical Office)	Mount Dora, FL		—				393,000				5,633,000				—				393,000				5,633,000				6,026,000				(882,000		)		2009			12/04/14
	Olympia Fields, IL		—				298,000				2,726,000				21,000				298,000				2,747,000				3,045,000				(502,000		)		2005			12/04/14
	Columbus, OH		—				225,000				5,649,000				213,000				225,000				5,862,000				6,087,000				(1,010,000		)		2005			12/04/14
Southlake TX Hospital (Hospital)	Southlake, TX		—				5,089,000				108,517,000				—				5,089,000				108,517,000				113,606,000				(14,787,000		)		2013			12/04/14
East Texas MOB Portfolio (Medical Office)	Longview, TX		—				—				19,942,000				73,000				—				20,015,000				20,015,000				(3,375,000		)		2008			12/12/14
	Longview, TX		—				228,000				965,000				—				228,000				965,000				1,193,000				(280,000		)		1979/1997			12/12/14
	Longview, TX		—				759,000				1,696,000				—				759,000				1,696,000				2,455,000				(507,000		)		1998			12/12/14
	Longview, TX		—				—				8,027,000				—				—				8,027,000				8,027,000				(1,393,000		)		2004			12/12/14
	Longview, TX		—				—				696,000				29,000				—				725,000				725,000				(201,000		)		1956			12/12/14

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
	Longview, TX		$	—			$	—			$	27,601,000			$	3,064,000			$	—			$	30,665,000			$	30,665,000			$	(5,432,000	)		1985/1993/ 2004			12/12/14
	Marshall, TX		—				368,000				1,711,000				99,000				368,000				1,810,000				2,178,000				(550,000		)		1970			12/12/14
Premier MOB (Medical Office)	Novi, MI		—				644,000				10,420,000				788,000				644,000				11,208,000				11,852,000				(1,955,000		)		2006			12/19/14
Independence MOB Portfolio (Medical Office)	Southgate, KY		—				411,000				11,005,000				1,709,000				411,000				12,714,000				13,125,000				(1,959,000		)		1988			01/13/15
	Somerville, MA		30,906,000				1,509,000				46,775,000				3,279,000				1,509,000				50,054,000				51,563,000				(6,523,000		)		1990			01/13/15
	Morristown, NJ		28,911,000				3,763,000				26,957,000				3,261,000				3,763,000				30,218,000				33,981,000				(5,667,000		)		1980			01/13/15
	Verona, NJ		—				1,683,000				9,405,000				590,000				1,683,000				9,995,000				11,678,000				(1,780,000		)		1970			01/13/15
	Bronx, NY		—				—				19,593,000				2,506,000				—				22,099,000				22,099,000				(3,205,000		)		1987/1988			01/26/15
King of Prussia PA MOB (Medical Office)	King of Prussia, PA		9,015,000				3,427,000				13,849,000				4,117,000				3,427,000				17,966,000				21,393,000				(3,191,000		)		1946/2000			01/21/15
North Carolina ALF Portfolio (Senior Housing — RIDEA)	Clemmons, NC		—				596,000				13,237,000				(799,000		)		596,000				12,438,000				13,034,000				(1,707,000		)		2014			06/29/15
	Garner, NC		—				1,723,000				11,517,000				—				1,723,000				11,517,000				13,240,000				(309,000		)		2014			03/27/19
	Huntersville, NC		—				2,033,000				11,494,000				(214,000		)		2,033,000				11,280,000				13,313,000				(1,060,000		)		2015			01/18/17
	Matthews, NC		—				949,000				12,537,000				(199,000		)		949,000				12,338,000				13,287,000				(554,000		)		2017			08/30/18
	Mooresville, NC		—				835,000				15,894,000				(796,000		)		835,000				15,098,000				15,933,000				(2,141,000		)		2012			01/28/15
	Raleigh, NC		—				1,069,000				21,235,000				(803,000		)		1,069,000				20,432,000				21,501,000				(2,738,000		)		2013			01/28/15
	Wake Forest, NC		—				772,000				13,596,000				(878,000		)		772,000				12,718,000				13,490,000				(1,640,000		)		2014			06/29/15
Orange Star Medical Portfolio (Medical Office and Hospital)	Durango, CO		—				623,000				14,166,000				232,000				623,000				14,398,000				15,021,000				(1,978,000		)		2004			02/26/15
	Durango, CO		—				788,000				10,467,000				477,000				788,000				10,944,000				11,732,000				(1,697,000		)		2004			02/26/15
	Friendswood, TX		—				500,000				7,664,000				317,000				500,000				7,981,000				8,481,000				(1,212,000		)		2008			02/26/15
	Keller, TX		—				1,604,000				7,912,000				15,000				1,604,000				7,927,000				9,531,000				(1,277,000		)		2011			02/26/15
	Wharton, TX		—				259,000				10,590,000				228,000				259,000				10,818,000				11,077,000				(1,627,000		)		1987			02/26/15
Kingwood MOB Portfolio (Medical Office)	Kingwood, TX		—				820,000				8,589,000				95,000				820,000				8,684,000				9,504,000				(1,385,000		)		2005			03/11/15

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
	Kingwood, TX		$	—			$	781,000			$	3,943,000			$	—			$	781,000			$	3,943,000			$	4,724,000			$	(669,000	)		2008			03/11/15
Mt Juliet TN MOB (Medical Office)	Mount Juliet, TN		—				1,188,000				10,720,000				2,000				1,188,000				10,722,000				11,910,000				(1,622,000		)		2012			03/17/15
Homewood AL MOB (Medical Office)	Homewood, AL		—				405,000				6,590,000				(79,000		)		405,000				6,511,000				6,916,000				(978,000		)		2010			03/27/15
Paoli PA Medical Plaza (Medical Office)	Paoli, PA		12,715,000				2,313,000				12,447,000				1,962,000				2,313,000				14,409,000				16,722,000				(2,128,000		)		1951			04/10/15
	Paoli, PA		—				1,668,000				7,357,000				1,335,000				1,668,000				8,692,000				10,360,000				(1,592,000		)		1975			04/10/15
Glen Burnie MD MOB (Medical Office)	Glen Burnie, MD		—				2,692,000				14,095,000				2,419,000				2,692,000				16,514,000				19,206,000				(2,781,000		)		1981			05/06/15
Marietta GA MOB (Medical Office)	Marietta, GA		—				1,347,000				10,947,000				51,000				1,347,000				10,998,000				12,345,000				(1,595,000		)		2002			05/07/15
Mountain Crest Senior Housing Portfolio (Senior Housing — RIDEA)	Elkhart, IN		—				793,000				6,009,000				138,000				793,000				6,147,000				6,940,000				(1,218,000		)		1997			05/14/15
	Elkhart, IN		—				782,000				6,760,000				515,000				782,000				7,275,000				8,057,000				(1,446,000		)		2000			05/14/15
	Hobart, IN		—				604,000				11,529,000				2,000				604,000				11,531,000				12,135,000				(1,756,000		)		2008			05/14/15
	LaPorte, IN		—				392,000				14,894,000				247,000				392,000				15,141,000				15,533,000				(2,305,000		)		2008			05/14/15
	Mishawaka, IN		9,365,000				3,670,000				14,416,000				581,000				3,670,000				14,997,000				18,667,000				(2,323,000		)		1978			07/14/15
	Niles, MI		—				404,000				5,050,000				248,000				404,000				5,298,000				5,702,000				(983,000		)		2000			06/11/15 and 11/20/15
Mount Dora Medical Center (Medical Office)	Mount Dora, FL		—				736,000				14,616,000				(7,022,000		)		736,000				7,594,000				8,330,000				(1,361,000		)		2008			05/15/15
Nebraska Senior Housing Portfolio (Senior Housing — RIDEA)	Bennington, NE		—				981,000				20,427,000				284,000				981,000				20,711,000				21,692,000				(2,895,000		)		2009			05/29/15
	Omaha, NE		—				1,274,000				38,619,000				647,000				1,274,000				39,266,000				40,540,000				(5,026,000		)		2000			05/29/15
Pennsylvania Senior Housing Portfolio (Senior Housing — RIDEA)	Bethlehem, PA		—				1,542,000				22,249,000				490,000				1,542,000				22,739,000				24,281,000				(3,417,000		)		2005			06/30/15
	Boyertown, PA		22,932,000				480,000				25,544,000				375,000				480,000				25,919,000				26,399,000				(3,437,000		)		2000			06/30/15

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
	York, PA		$	12,432,000			$	972,000			$	29,860,000			$	206,000			$	972,000			$	30,066,000			$	31,038,000			$	(3,943,000	)		1986			06/30/15
Southern Illinois MOB Portfolio (Medical Office)	Waterloo, IL		—				94,000				1,977,000				—				94,000				1,977,000				2,071,000				(314,000		)		2015			07/01/15
	Waterloo, IL		—				738,000				6,332,000				471,000				738,000				6,803,000				7,541,000				(1,169,000		)		1995			07/01/15, 12/19/17 and 04/17/18
	Waterloo, IL		—				200,000				2,648,000				62,000				200,000				2,710,000				2,910,000				(459,000		)		2011			07/01/15
Napa Medical Center (Medical Office)	Napa, CA		—				1,176,000				13,328,000				1,485,000				1,176,000				14,813,000				15,989,000				(2,418,000		)		1980			07/02/15
Chesterfield Corporate Plaza (Medical Office)	Chesterfield, MO		—				8,030,000				24,533,000				2,674,000				8,030,000				27,207,000				35,237,000				(4,900,000		)		1989			08/14/15
Richmond VA ALF (Senior Housing — RIDEA)	North Chesterfield, VA		34,281,000				2,146,000				56,671,000				479,000				2,146,000				57,150,000				59,296,000				(6,599,000		)		2009			09/11/15
Crown Senior Care Portfolio (Senior Housing)	Peel, Isle of Man		—				1,206,000				7,200,000				—				1,206,000				7,200,000				8,406,000				(933,000		)		2015			09/15/15
	St. Albans, UK		—				1,216,000				13,249,000				241,000				1,216,000				13,490,000				14,706,000				(1,625,000		)		2015			10/08/15
	Salisbury, UK		—				1,292,000				12,418,000				37,000				1,292,000				12,455,000				13,747,000				(1,541,000		)		2015			12/08/15
	Aberdeen, UK		—				2,097,000				6,252,000				—				2,097,000				6,252,000				8,349,000				(568,000		)		1986			11/15/16
	Felixstowe, UK		—				729,000				6,110,000				429,000				729,000				6,539,000				7,268,000				(542,000		)		2010/2011			11/15/16
	Felixstowe, UK		—				550,000				2,702,000				286,000				550,000				2,988,000				3,538,000				(268,000		)		2010/2011			11/15/16
Washington DC SNF (Skilled Nursing)	Washington, DC		—				1,194,000				34,200,000				—				1,194,000				34,200,000				35,394,000				(4,904,000		)		1983			10/29/15
Stockbridge GA MOB II (Medical Office)	Stockbridge, GA		—				499,000				8,353,000				509,000				499,000				8,862,000				9,361,000				(1,304,000		)		2006			12/03/15
Marietta GA MOB II (Medical Office)	Marietta, GA		—				661,000				4,783,000				142,000				661,000				4,925,000				5,586,000				(716,000		)		2007			12/09/15
Naperville MOB (Medical Office)	Naperville, IL		—				392,000				3,765,000				58,000				392,000				3,823,000				4,215,000				(684,000		)		1999			01/12/16
	Naperville, IL		—				548,000				11,815,000				199,000				548,000				12,014,000				12,562,000				(1,668,000		)		1989			01/12/16
Lakeview IN Medical Plaza (Medical Office)	Indianapolis, IN		20,000,000				2,375,000				15,911,000				4,733,000				2,375,000				20,644,000				23,019,000				(3,770,000		)		1987			01/21/16

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
Pennsylvania Senior Housing Portfolio II (Senior Housing — RIDEA)	Palmyra, PA		$	19,114,000			$	835,000			$	24,424,000			$	199,000			$	835,000			$	24,623,000			$	25,458,000			$	(3,610,000	)		2007			02/01/16
Snellville GA MOB (Medical Office)	Snellville, GA		—				332,000				7,781,000				277,000				332,000				8,058,000				8,390,000				(1,122,000		)		2005			02/05/16
Lakebrook Medical Center (Medical Office)	Westbrook, CT		—				653,000				4,855,000				276,000				653,000				5,131,000				5,784,000				(748,000		)		2007			02/19/16
Stockbridge GA MOB III (Medical Office)	Stockbridge, GA		—				606,000				7,924,000				293,000				606,000				8,217,000				8,823,000				(1,109,000		)		2007			03/29/16
Joplin MO MOB (Medical Office)	Joplin, MO		—				1,245,000				9,860,000				41,000				1,245,000				9,901,000				11,146,000				(1,827,000		)		2000			05/10/16
Austell GA MOB (Medical Office)	Austell, GA		—				663,000				10,547,000				10,000				663,000				10,557,000				11,220,000				(1,141,000		)		2008			05/25/16
Middletown OH MOB (Medical Office)	Middletown, OH		—				—				17,389,000				354,000				—				17,743,000				17,743,000				(1,884,000		)		2007			06/16/16
Fox Grape SNF Portfolio (Skilled Nursing)	Braintree, MA		—				1,844,000				10,847,000				31,000				1,844,000				10,878,000				12,722,000				(1,086,000		)		2015			07/01/16
	Brighton, MA		—				779,000				2,661,000				334,000				779,000				2,995,000				3,774,000				(327,000		)		1982			07/01/16
	Duxbury, MA		—				2,921,000				11,244,000				1,933,000				2,921,000				13,177,000				16,098,000				(1,233,000		)		1983			07/01/16
	Hingham, MA		—				2,316,000				17,390,000				(166,000		)		2,316,000				17,224,000				19,540,000				(1,713,000		)		1990			07/01/16
	Weymouth, MA		—				1,857,000				5,286,000				377,000				1,857,000				5,663,000				7,520,000				(637,000		)		1963			07/01/16
	Quincy, MA		14,938,000				3,537,000				13,697,000				184,000				3,537,000				13,881,000				17,418,000				(1,270,000		)		1995			11/01/16
Voorhees NJ MOB (Medical Office)	Voorhees, NJ		—				1,727,000				8,451,000				607,000				1,727,000				9,058,000				10,785,000				(1,212,000		)		2008			07/08/16
Norwich CT MOB Portfolio (Medical Office)	Norwich, CT		—				403,000				1,601,000				730,000				403,000				2,331,000				2,734,000				(237,000		)		2014			12/16/16
	Norwich, CT		—				804,000				12,094,000				318,000				804,000				12,412,000				13,216,000				(1,228,000		)		1999			12/16/16
New London CT MOB (Medical Office)	New London, CT		—				669,000				3,479,000				289,000				669,000				3,768,000				4,437,000				(474,000		)		1987			05/03/17
Middletown OH MOB II (Medical Office)	Middletown, OH		—				—				3,949,000				86,000				—				4,035,000				4,035,000				(280,000		)		2007			12/20/17

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
Owen Valley Health Campus	Spencer, IN		$	9,112,000			$	307,000			$	9,111,000			$	257,000			$	307,000			$	9,368,000			$	9,675,000			$	(1,007,000	)		1999			12/01/15
Homewood Health Campus	Lebanon, IN		9,143,000				973,000				9,702,000				480,000				1,040,000				10,115,000				11,155,000				(1,106,000		)		2000			12/01/15
Ashford Place Health Campus	Shelbyville, IN		6,327,000				664,000				12,662,000				734,000				682,000				13,378,000				14,060,000				(1,431,000		)		2004			12/01/15
Mill Pond Health Campus	Greencastle, IN		7,487,000				1,576,000				8,124,000				447,000				1,576,000				8,571,000				10,147,000				(905,000		)		2005			12/01/15
St. Andrews Health Campus	Batesville, IN		4,723,000				552,000				8,213,000				199,000				619,000				8,345,000				8,964,000				(909,000		)		2005			12/01/15
Hampton Oaks Health Campus	Scottsburg, IN		6,650,000				720,000				8,145,000				352,000				837,000				8,380,000				9,217,000				(943,000		)		2006			12/01/15
Forest Park Health Campus	Richmond, IN		7,262,000				535,000				9,399,000				404,000				535,000				9,803,000				10,338,000				(1,088,000		)		2007			12/01/15
The Maples at Waterford Crossing	Goshen, IN		6,055,000				344,000				8,027,000				48,000				347,000				8,072,000				8,419,000				(873,000		)		2006			12/01/15
Morrison Woods Health Campus	Muncie, IN		(c)				1,526,000				10,144,000				78,000				1,261,000				10,487,000				11,748,000				(1,406,000		)		2008			12/01/15 and 09/14/16
Woodbridge Health Campus	Logansport, IN		8,661,000				228,000				11,812,000				284,000				233,000				12,091,000				12,324,000				(1,312,000		)		2003			12/01/15
Bridgepointe Health Campus	Vincennes, IN		7,412,000				572,000				7,469,000				436,000				651,000				7,826,000				8,477,000				(840,000		)		2002			12/01/15
Greenleaf Living Center	Elkhart, IN		11,851,000				492,000				12,157,000				295,000				511,000				12,433,000				12,944,000				(1,336,000		)		2000			12/01/15
Scenic Hills Care Center	Ferdinand, IN		—				212,000				5,702,000				(4,129,000		)		—				1,785,000				1,785,000				—				1985			12/01/15
Forest Glen Health Campus	Springfield, OH		10,531,000				846,000				12,754,000				303,000				875,000				13,028,000				13,903,000				(1,427,000		)		2007			12/01/15
The Meadows of Kalida Health Campus	Kalida, OH		8,196,000				298,000				7,628,000				127,000				303,000				7,750,000				8,053,000				(839,000		)		2007			12/01/15
The Heritage	Findlay, OH		13,703,000				1,312,000				13,475,000				356,000				1,382,000				13,761,000				15,143,000				(1,517,000		)		1975			12/01/15
Genoa Retirement Village	Genoa, OH		8,601,000				881,000				8,113,000				604,000				909,000				8,689,000				9,598,000				(942,000		)		1985			12/01/15
Waterford Crossing	Goshen, IN		8,625,000				344,000				4,381,000				809,000				350,000				5,184,000				5,534,000				(580,000		)		2004			12/01/15
St. Elizabeth Healthcare	Delphi, IN		9,394,000				522,000				5,463,000				5,293,000				625,000				10,653,000				11,278,000				(864,000		)		1986			12/01/15
Cumberland Pointe	West Lafayette, IN		9,979,000				1,645,000				13,696,000				573,000				1,901,000				14,013,000				15,914,000				(1,649,000		)		1980			12/01/15

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SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
Franciscan Healthcare Center	Louisville, KY		$	11,191,000			$	808,000			$	8,439,000			$	949,000			$	815,000			$	9,381,000			$	10,196,000			$	(1,087,000	)		1975			12/01/15
Blair Ridge Health Campus	Peru, IN		7,996,000				734,000				11,648,000				544,000				773,000				12,153,000				12,926,000				(1,501,000		)		2001			12/01/15
Glen Oaks Health Campus	New Castle, IN		5,424,000				384,000				8,189,000				184,000				384,000				8,373,000				8,757,000				(866,000		)		2011			12/01/15
Covered Bridge Health Campus	Seymour, IN		(c)				386,000				9,699,000				453,000				—				10,538,000				10,538,000				(1,087,000		)		2002			12/01/15
Stonebridge Health Campus	Bedford, IN		10,155,000				1,087,000				7,965,000				380,000				1,141,000				8,291,000				9,432,000				(920,000		)		2004			12/01/15
RiverOaks Health Campus	Princeton, IN		15,155,000				440,000				8,953,000				469,000				466,000				9,396,000				9,862,000				(1,019,000		)		2004			12/01/15
Park Terrace Health Campus	Louisville, KY		(c)				2,177,000				7,626,000				1,166,000				2,177,000				8,792,000				10,969,000				(1,002,000		)		1977			12/01/15
Cobblestone Crossing	Terre Haute, IN		(c)				1,462,000				13,860,000				5,669,000				1,496,000				19,495,000				20,991,000				(2,011,000		)		2008			12/01/15
Creasy Springs Health Campus	Lafayette, IN		16,770,000				2,111,000				14,337,000				5,918,000				2,393,000				19,973,000				22,366,000				(2,070,000		)		2010			12/01/15
Avalon Springs Health Campus	Valparaiso, IN		18,233,000				1,542,000				14,107,000				130,000				1,575,000				14,204,000				15,779,000				(1,539,000		)		2012			12/01/15
Prairie Lakes Health Campus	Noblesville, IN		9,220,000				2,204,000				13,227,000				317,000				2,339,000				13,409,000				15,748,000				(1,456,000		)		2010			12/01/15
RidgeWood Health Campus	Lawrenceburg, IN		14,295,000				1,240,000				16,118,000				58,000				1,261,000				16,155,000				17,416,000				(1,723,000		)		2009			12/01/15
Westport Place Health Campus	Louisville, KY		(c)				1,245,000				9,946,000				69,000				1,261,000				9,999,000				11,260,000				(1,056,000		)		2011			12/01/15
Paddock Springs	Warsaw, IN		8,528,000				488,000				2,727,000				7,866,000				654,000				10,427,000				11,081,000				(265,000		)		2019			02/01/19
Amber Manor Care Center	Petersburg, IN		5,824,000				446,000				6,063,000				251,000				494,000				6,266,000				6,760,000				(718,000		)		1990			12/01/15
The Meadows of Leipsic Health Campus	Leipsic, OH		(c)				1,242,000				6,988,000				467,000				1,242,000				7,455,000				8,697,000				(839,000		)		1986			12/01/15
Springview Manor	Lima, OH		(c)				260,000				3,968,000				98,000				265,000				4,061,000				4,326,000				(455,000		)		1978			12/01/15
Willows at Bellevue	Bellevue, OH		17,079,000				587,000				15,575,000				596,000				787,000				15,971,000				16,758,000				(1,705,000		)		2008			12/01/15
Briar Hill Health Campus	North Baltimore, OH		(c)				673,000				2,688,000				391,000				696,000				3,056,000				3,752,000				(360,000		)		1977			12/01/15
Cypress Pointe Health Campus	Englewood, OH		(c)				921,000				10,291,000				4,136,000				1,416,000				13,932,000				15,348,000				(1,130,000		)		2010			12/01/15

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
The Oaks at NorthPointe Woods	Battle Creek, MI		(c)				$	567,000			$	12,716,000			$	109,000			$	567,000			$	12,825,000			$	13,392,000			$	(1,366,000	)		2008			12/01/15
RidgeCrest Health Campus	Jackson, MI		$	—			642,000				6,194,000				(297,000		)		—				6,539,000				6,539,000				—				2010			12/01/15
Westlake Health Campus	Commerce, MI		14,906,000				815,000				13,502,000				49,000				826,000				13,540,000				14,366,000				(1,455,000		)		2011			12/01/15
Springhurst Health Campus	Greenfield, IN		20,712,000				931,000				14,114,000				1,496,000				1,842,000				14,699,000				16,541,000				(1,809,000		)		2007			12/01/15 and 05/16/17
Glen Ridge Health Campus	Louisville, KY		(c)				1,208,000				9,771,000				1,577,000				1,320,000				11,236,000				12,556,000				(1,196,000		)		2006			12/01/15
St. Mary Healthcare	Lafayette, IN		5,470,000				348,000				2,710,000				41,000				348,000				2,751,000				3,099,000				(297,000		)		1969			12/01/15
The Oaks at Woodfield	Grand Blanc, MI		(c)				897,000				12,270,000				66,000				927,000				12,306,000				13,233,000				(1,338,000		)		2012			12/01/15
Stonegate Health Campus	Lapeer, MI		(c)				538,000				13,159,000				93,000				567,000				13,223,000				13,790,000				(1,447,000		)		2012			12/01/15
Senior Living at Forest Ridge	New Castle, IN		(c)				204,000				5,470,000				72,000				204,000				5,542,000				5,746,000				(604,000		)		2005			12/01/15
Highland Oaks Health Center	McConnelsville, OH		(c)				880,000				1,803,000				564,000				970,000				2,277,000				3,247,000				(253,000		)		1978			12/01/15
Richland Manor	Bluffton, OH		—				224,000				2,200,000				(2,200,000		)		—				224,000				224,000				—				1940			12/01/15
River Terrace Health Campus	Madison, IN		11,650,000				—				13,378,000				4,219,000				—				17,597,000				17,597,000				(1,645,000		)		2016			03/28/16
St. Charles Health Campus	Jasper, IN		11,934,000				467,000				14,532,000				828,000				518,000				15,309,000				15,827,000				(1,589,000		)		2000			06/24/16 and 06/30/16
Bethany Pointe Health Campus	Anderson, IN		20,463,000				2,337,000				26,524,000				1,518,000				2,445,000				27,934,000				30,379,000				(2,881,000		)		1999			06/30/16
River Pointe Health Campus	Evansville, IN		14,698,000				1,118,000				14,736,000				1,244,000				1,126,000				15,972,000				17,098,000				(1,732,000		)		1999			06/30/16
Waterford Place Health Campus	Kokomo, IN		15,553,000				1,219,000				18,557,000				1,150,000				1,306,000				19,620,000				20,926,000				(2,072,000		)		2000			06/30/16
Autumn Woods Health Campus	New Albany, IN		(c)				1,016,000				13,414,000				1,416,000				1,025,000				14,821,000				15,846,000				(1,711,000		)		2000			06/30/16
Oakwood Health Campus	Tell City, IN		9,547,000				783,000				11,880,000				1,079,000				874,000				12,868,000				13,742,000				(1,460,000		)		2000			06/30/16
Cedar Ridge Health Campus	Cynthiana, KY		(c)				102,000				8,435,000				3,504,000				139,000				11,902,000				12,041,000				(1,309,000		)		2005			06/30/16
Aspen Place Health Campus	Greensburg, IN		9,838,000				980,000				10,970,000				682,000				1,016,000				11,616,000				12,632,000				(1,169,000		)		2012			08/16/16

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
The Willows at Citation	Lexington, KY		(c)				$	826,000			$	10,017,000			$	588,000			$	844,000			$	10,587,000			$	11,431,000			$	(1,066,000	)		2014			08/16/16
The Willows at East Lansing	East Lansing, MI		$	17,000,000			1,449,000				15,161,000				1,268,000				1,496,000				16,382,000				17,878,000				(1,779,000		)		2014			08/16/16
The Willows at Howell	Howell, MI		(c)				1,051,000				12,099,000				5,125,000				1,079,000				17,196,000				18,275,000				(1,394,000		)		2015			08/16/16
The Willows at Okemos	Okemos, MI		7,792,000				1,171,000				12,326,000				785,000				1,210,000				13,072,000				14,282,000				(1,515,000		)		2014			08/16/16
Shelby Crossing Health Campus	Macomb, MI		17,866,000				2,533,000				18,440,000				1,964,000				2,612,000				20,325,000				22,937,000				(2,354,000		)		2013			08/16/16
Village Green Healthcare Center	Greenville, OH		7,241,000				355,000				9,696,000				404,000				373,000				10,082,000				10,455,000				(1,010,000		)		2014			08/16/16
The Oaks at Northpointe	Zanesville, OH		(c)				624,000				11,665,000				940,000				650,000				12,579,000				13,229,000				(1,352,000		)		2013			08/16/16
The Oaks at Bethesda	Zanesville, OH		4,728,000				714,000				10,791,000				671,000				743,000				11,433,000				12,176,000				(1,185,000		)		2013			08/16/16
White Oak Health Campus	Monticello, IN		2,637,000				—				3,559,000				717,000				296,000				3,980,000				4,276,000				(512,000		)		2010			09/23/16
Woodmont Health Campus	Boonville, IN		8,117,000				790,000				9,633,000				859,000				880,000				10,402,000				11,282,000				(1,192,000		)		2000			02/01/17
Silver Oaks Health Campus	Columbus, IN		(c)				1,776,000				21,420,000				1,261,000				1,000				24,456,000				24,457,000				(2,605,000		)		2001			02/01/17
Thornton Terrace Health Campus	Hanover, IN		5,753,000				764,000				9,209,000				579,000				820,000				9,732,000				10,552,000				(1,084,000		)		2003			02/01/17
The Willows at Hamburg	Lexington, KY		11,978,000				1,740,000				13,422,000				487,000				1,775,000				13,874,000				15,649,000				(1,190,000		)		2012			02/01/17
The Lakes at Monclova	Monclova, OH		13,082,000				2,869,000				12,855,000				1,744,000				2,913,000				14,555,000				17,468,000				(1,379,000		)		2013			02/01/17
The Willows at Willard	Willard, OH		(c)				610,000				12,256,000				5,033,000				—				17,899,000				17,899,000				(1,525,000		)		2012			02/01/17
Cedar Creek Health Campus	Lowell, IN		—				304,000				—				(304,000		)		—				—				—				—				—			06/07/17
Trilogy Healthcare of Pickerington, LLC	Pickerington, OH		—				756,000				—				15,487,000				778,000				15,465,000				16,243,000				(67,000		)		2019			10/01/19
Lakeland Rehab and Health Center	Milford, IN		—				306,000				2,727,000				(1,292,000		)		—				1,741,000				1,741,000				—				1973			12/01/15
Westlake Health Campus — Commerce Villa	Commerce, MI		(c)				261,000				6,610,000				937,000				268,000				7,540,000				7,808,000				(477,000		)		2017			11/17/17

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

							Initial Cost to Company												Gross Amount of Which Carried at Close of Period(f)
Description(a)			Encumbrances				Land				Buildings and Improvements				Cost  Capitalized Subsequent to Acquisition(b)				Land				Buildings and Improvements				Total(e)				Accumulated Depreciation (g)(h)				Date of Construction			Date  Acquired
Orchard Grove Health Campus	Romeo, MI		$	15,132,000			$	2,065,000			$	11,510,000			$	4,032,000			$	3,284,000			$	14,323,000			$	17,607,000			$	(989,000	)		2016			11/30/17
The Meadows of Ottawa	Ottawa, OH		(c)				616,000				7,752,000				324,000				629,000				8,063,000				8,692,000				(584,000		)		2014			12/15/17
Valley View Healthcare Center	Fremont, OH		10,266,000				930,000				7,635,000				1,471,000				1,089,000				8,947,000				10,036,000				(352,000		)		2017			07/20/18
Novi Lakes Health Campus	Novi, MI		10,327,000				1,654,000				7,494,000				2,637,000				1,661,000				10,124,000				11,785,000				(870,000		)		2016			07/20/18
The Willows at Fritz Farm	Lexington, KY		11,775,000				1,538,000				8,637,000				355,000				1,551,000				8,979,000				10,530,000				(341,000		)		2017			07/20/18
Trilogy Real Estate Gahanna, LLC	Gahanna, OH		4,809,000				1,146,000				—				11,808,000				1,201,000				11,753,000				12,954,000				—				—			10/23/18
Trilogy Real Estate of Kent, LLC	Byron Center, MI		6,694,000				2,000,000				—				12,299,000				2,007,000				12,292,000				14,299,000				—				—			11/26/18
Morrison Woods Legacy & IL	Muncie, IN		—				—				—				11,778,000				584,000				11,194,000				11,778,000				—				—			02/01/19
Ottawa Villa Land	Ottawa, OH		—				79,000				—				2,000				81,000				—				81,000				—				—			06/21/19
Harrison Springs Health Campus	Corydon, IN		(c)				1,653,000				11,487,000				2,000				1,653,000				11,489,000				13,142,000				(145,000		)		2016			09/04/19
The Cloister at Silvercrest	New Albany, IN		—				139,000				634,000				—				139,000				634,000				773,000				(4,000		)		1940			10/01/19
Trilogy Healthcare of Ferdinand II, LLC	Ferdinand, IN		11,262,000				—				—				15,151,000				—				15,151,000				15,151,000				(32,000		)		2019			11/01/19
			$	816,217,000			$	187,582,000			$	2,063,920,000			$	192,932,000			$	189,817,000			$	2,254,617,000			$	2,444,434,000			$	(274,094,000	)
Leased properties(d)			$	—			$	—			$	71,365,000			$	88,351,000			$	1,468,000			$	158,248,000			$	159,716,000			$	(63,668,000	)
Construction in progress			—				3,794,000				—				10,664,000				4,206,000				10,252,000				14,458,000				(136,000		)
			$	816,217,000			$	191,376,000			$	2,135,285,000			$	291,947,000			$	195,491,000			$	2,423,117,000			$	2,618,608,000			$	(337,898,000	)

 ________________

(a)	We own 100% of our properties as of December 31, 2019, with the exception of Trilogy and Lakeview IN Medical Plaza.

(b)	The cost capitalized subsequent to acquisition is shown inclusive of dispositions and impairments.

(c)	These properties are used as collateral for the secured revolver portion of the 2019 Trilogy Credit Facility, which had an outstanding balance of $234,179,000 as of December 31, 2019. See Note 8, Lines of Credit and Term Loans — 2019 Trilogy Credit Facility, for a further discussion.

(d)	Represents furniture, fixtures, equipment and improvements associated with properties under operating leases.

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SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2019

(e)	The changes in total real estate for the years ended December 31, 2019, 2018 and 2017 are as follows:

	Amount
Balance — December 31, 2016	$	2,233,756,000
Acquisitions	83,309,000
Additions	35,243,000
Dispositions and impairments	(20,864,000		)
Foreign currency translation adjustment	4,764,000
Balance — December 31, 2017	$	2,336,208,000
Acquisitions	$	60,751,000
Additions	87,061,000
Dispositions and impairments	(4,142,000		)
Foreign currency translation adjustment	(2,503,000		)
Balance — December 31, 2018	$	2,477,375,000
Acquisitions	$	32,330,000
Additions	114,078,000
Dispositions	(8,050,000		)
Foreign currency translation adjustment	2,875,000
Balance — December 31, 2019	$	2,618,608,000

(f)	As of December 31, 2019, the aggregate cost of our properties was $2,500,824,000 for federal income tax purposes.

(g)	The changes in accumulated depreciation for the years ended December 31, 2019, 2018 and 2017 are as follows:

	Amount
Balance — December 31, 2016	$	94,775,000
Additions	81,743,000
Dispositions	(3,574,000		)
Foreign currency translation adjustment	6,000
Balance — December 31, 2017	$	172,950,000
Additions	$	83,309,000
Dispositions	(1,603,000		)
Foreign currency translation adjustment	38,000
Balance — December 31, 2018	$	254,694,000
Additions	$	90,914,000
Dispositions	(7,614,000		)
Foreign currency translation adjustment	(96,000		)
Balance — December 31, 2019	$	337,898,000

(h)

The cost of buildings and capital improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 50 years, and the cost of tenant improvements is depreciated over the shorter of the lease term or useful life, up to 34 years. The cost of furniture, fixtures and equipment is depreciated over the estimated useful life, up to 28 years.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

EXHIBITS LIST

December 31, 2019

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the period ended December 31, 2019 (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 4.7 to our Registration Statement on Form S-3 (File No. 333-229427) filed January 30, 2019 and incorporated herein by reference)
4.2*	Description of Registered Securities, pursuant to Section 12 of the Securities Exchange Act of 1934
10.1	Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.1 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)
10.2	Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.5 to Pre-effective Amendment No. 1 to our Registration Statement on Form S-11 (File No. 333-186073) filed April 10, 2013 and incorporated herein by reference)
10.3	Second Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.6 to Pre-effective Amendment No. 2 to our Registration Statement on Form S-11 (File No. 333-186073) filed June 6, 2013 and incorporated herein by reference)
10.4	Third Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.7 to Pre-effective Amendment No. 4 to our Registration Statement on Form S-11 (File No. 333-186073) filed November 8, 2013 and incorporated herein by reference)
10.5	Advisory Agreement by and among Griffin-American Healthcare REIT III, Inc., Griffin-American Healthcare REIT III Holdings, LP and Griffin-American Healthcare REIT III Advisor, LLC dated February 26, 2014 (included as Exhibit 10.2 to our Quarterly Report on Form 10-Q (File No. 333-186073) filed May 7, 2014 and incorporated herein by reference)
10.6	Form of Indemnification Agreement between Griffin-American Healthcare REIT III, Inc. and Indemnitee made effective as of January 17, 2013 (included as Exhibit 10.3 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)
10.7	Griffin-American Healthcare REIT III, Inc. 2013 Incentive Plan (including the 2013 Independent Directors Compensation Plan) (included as Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No. 333-186073) filed May 7, 2014 and incorporated herein by reference)
10.8	Second Amended and Restated Share Repurchase Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed December 19, 2016 and incorporated herein by reference)
10.9	Credit Agreement dated as of January 25, 2019, among Griffin-American Healthcare REIT III Holdings, LP, Griffin-American Healthcare REIT III, Inc. and certain subsidiaries, certain lender parties, Bank of America, N.A., KeyBank, National Association, Citizens Bank, National Association, Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBanc Capital Markets (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed January 31, 2019 and incorporated herein by reference)
10.10	Amendment No. 1 to Second Amended and Restated Share Repurchase Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 10.13 to our Annual Report on Form 10-K (File No. 000-55434) filed March 21, 2019 and incorporated herein by reference)
10.11	Confirmation of swap transaction, dated May 16, 2019 from Fifth Third Bank to Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.1 to our Current Report on Form 8-K filed May 22, 2019 and incorporated herein by reference)
10.12	Confirmation of swap transaction, dated May 29, 2019 from Fifth Third Bank to Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.1 to our Current Report on Form 8-K filed June 3, 2019 and incorporated herein by reference)

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

EXHIBITS LIST — (Continued)

December 31, 2019

10.13	First Amended and Restated Senior Secured Credit Agreement dated as of September 5, 2019, among Trilogy RER, LLC, and certain subsidiaries of Trilogy RER, LLC, Trilogy OpCo, LLC and Trilogy Pro Services, LLC, KeyBank National Association and the other lenders which are parties thereto from time to time, CIT Bank, N.A., Regions Bank, KeyBanc Capital Markets, Inc., Regions Capital Markets, Bank of America, N.A. and The Huntington National Bank (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed September 11, 2019 and incorporated herein by reference)
10.14	Unconditional Guaranty of Payment dated as of September 5, 2019, by Trilogy Investors, LLC, Trilogy Healthcare Holdings, Inc., Trilogy Pro Services, LLC and Trilogy OpCo, LLC for the benefit of KeyBank National Association and the other lenders which are parties thereto from time to time, CIT Bank, N.A., Regions Bank, KeyBanc Capital Markets, Inc., Regions Capital Markets, Bank of America, N.A. and The Huntington National Bank (included as Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-55434) filed September 11, 2019 and incorporated herein by reference)
21.1*	Subsidiaries of Griffin-American Healthcare REIT III, Inc.
23.1*	Consent of Deloitte & Touche LLP
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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Item 16. Form 10-K Summary.

None.

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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)
By		/s/ JEFFREY T. HANSON		Chief Executive Officer and Chairman of the Board of Directors
		Jeffrey T. Hanson
Date: March 26, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By		/s/ JEFFREY T. HANSON		Chief Executive Officer and Chairman of the Board of Directors
		Jeffrey T. Hanson		(Principal Executive Officer)
Date: March 26, 2020
By		/s/ BRIAN S. PEAY		Chief Financial Officer
		Brian S. Peay		(Principal Financial Officer and Principal Accounting Officer)
Date: March 26, 2020
By		/s/ DANNY PROSKY		President, Chief Operating Officer and Director
		Danny Prosky
Date: March 26, 2020
By		/s/ HAROLD H. GREENE		Director
		Harold H. Greene
Date: March 26, 2020
By		/s/ GERALD W. ROBINSON		Director
		Gerald W. Robinson
Date: March 26, 2020
By		/s/ J. GRAYSON SANDERS		Director
		J. Grayson Sanders
Date: March 26, 2020

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