NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the
Three Months Ended
June 30, 2016
and
2015
,
for the
Six Months Ended
June 30, 2016
and
for the Period from
January 23, 2015
(Date of Inception) through
June 30, 2015
The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT IV, Inc. and its subsidiaries, including Griffin-American Healthcare REIT IV Holdings, LP, except where the context otherwise requires.
1. Organization and Description of Business
Griffin-American Healthcare REIT IV, Inc., a Maryland corporation, was incorporated on
January 23, 2015
and therefore we consider that our date of inception. We were initially capitalized on
February 6, 2015
. 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 may also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We intend to elect to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes beginning with our taxable year ending December 31, 2016.
On February 16, 2016, we commenced our initial public offering, or our offering, in which we were offering to the public a minimum of
$2,000,000
in shares of our Class T common stock, or the minimum offering, and a maximum of
$3,000,000,000
in shares of our Class T common stock in our primary offering at a purchase price of
$10.00
per share. Effective June 17, 2016, we reallocated certain of the unsold shares being offered, such that we are currently offering up to approximately
$2,800,000,000
in shares of Class T common stock at a price of
$10.00
per share and
$200,000,000
in shares of Class I common stock at a price of
$9.30
per share in our primary offering, and up to
$150,000,000
in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at a purchase price of
$9.50
per share, aggregating up to
$3,150,000,000
, or the maximum offering. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and the DRIP, and among classes of stock.
The conditions of our minimum offering were satisfied on April 12, 2016, and we admitted our initial public subscribers as stockholders, excluding shares purchased by residents of Ohio, Washington and Pennsylvania (who were subject to higher minimum offering amounts). Having raised the minimum offering, the offering proceeds were released by the escrow agent to us on April 13, 2016 and were made available for the acquisition of properties and other purposes as disclosed in our prospectus dated February 16, 2016, or our prospectus, as filed with the United States Securities and Exchange Commission, or the SEC (provided that subscriptions from residents of Ohio, Washington and Pennsylvania were to continue to be held in escrow until we had received and accepted subscriptions aggregating at least
$10,000,000
,
$20,000,000
and
$150,000,000
, respectively). On June 14, 2016, the conditions of our minimum offering in Ohio were satisfied, and as of such date we were able to admit Ohio subscribers as stockholders.
As of
June 30, 2016
, we had received and accepted subscriptions in our offering for
1,633,069
shares of our Class T common stock, or approximately
$16,209,000
, excluding subscriptions from residents in Washington (who were not admitted as stockholders until July 8, 2016, when we had received and accepted subscriptions aggregating at least
$20,000,000
) and Pennsylvania (who will not be admitted as stockholders until we have received and accepted subscriptions aggregating at least
$150,000,000
) and shares of our common stock issued pursuant to the DRIP.
We conduct substantially all of our operations through Griffin-American Healthcare REIT IV Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT IV Advisor, LLC, or Griffin-American Healthcare REIT IV Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor that has a
one
-year term that expires on February 16, 2017 and is subject to successive
one
-year renewals upon the mutual consent of the parties. Our advisor uses its best efforts, subject to the oversight and review of our board of directors, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary.
Our a
dvisor is
75.0%
owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and
25.0%
owned by a wholly owned subsidiary of Griffin Capital Corporation, or Griffin Capital, or collectively, our co-sponsors. Effective March 1, 2015, American Healthcare Investors is
47.1%
owned by AHI Group Holdings, LLC, or AHI Group Holdings,
45.1%
indirectly owned by NorthStar Asset Management Group Inc., or NSAM, and
7.8%
owned by James F. Flaherty III, one of NSAM’s partners. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, or Griffin Capital Securities, or our dealer manager, NSAM or Mr. Flaherty; however, we are affiliated with Griffin-American Healthcare REIT IV Advisor, American Healthcare Investors and AHI Group Holdings.
As of
June 30, 2016
, we had completed
one
property acquisition comprising
one
building, or approximately
19,000
square feet of gross leasable area, or GLA, for an aggregate contract purchase price of
$5,450,000
.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership and the wholly owned subsidiaries of our operating partnership, as well as any variable interest entities, or VIEs, in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and of which we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810.
We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership, will own substantially all of the properties acquired on our behalf. We are the sole general partner of o
ur operating partnership, and as of
June 30, 2016
and
December 31, 2015
, we owned a
99.99%
and
99.00%
general partnership interest, respectively, therein. Our advisor is a limited partner, and as of
June 30, 2016
and
December 31, 2015
, our advisor owned a
0.01%
and
1.00%
noncontrolling limited partnership interest, respectively, 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 condensed consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.
In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2015 Annual Report on Form 10-K, as filed with the SEC on March 7, 2016.
Use of Estimates
The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.
Cash
Cash consists of all highly liquid investments with a maturity of three months or less when purchased.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Restricted Cash Held in Escrow
Restricted funds held in escrow of
$32,000
as of
June 30, 2016
are not included in our assets in our accompanying condensed consolidated balance sheets and consist of funds received in connection with subscription agreements from residents of Washington to purchase shares of our common stock in connection with our offering. Such funds were held in an escrow account and would not be released to or available to us until we had raised the minimum offering of
$20,000,000
required by the state of Washington.
See Note 13, Subsequent Events
— Status of our Offering, for a further discussion.
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
We recognize 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. Tenant receivables are placed on nonaccrual status when management determines that collectability is not reasonably assured, and thus revenue is recognized using the cash basis method.
In accordance with ASC Topic 840,
Leases
, 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 or deferred rent liability, as applicable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with ASC Subtopic 605-45,
Revenue Recognition — Principal Agent Consideration
, or ASC Subtopic 605-45. ASC Subtopic 605-45 requires that these reimbursements be recorded on a gross basis as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees at such time when there is a signed termination letter agreement, all of the conditions of such agreement have been met and the tenant is no longer occupying the property.
Tenant receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight line recognition of rents. Such allowances are charged to bad debt expense, which is included in general and administrative in our accompanying condensed consolidated statements of operations. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. As of
June 30, 2016
and
December 31, 2015
, we did not have any allowances for uncollectible accounts.
Real Estate Investments, Net
We carry our operating properties at historical cost less accumulated depreciation. The cost of operating properties includes the cost of land and completed buildings and related improvements. 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
39 years
, and the cost for tenant improvements is depreciated over the shorter of the lease term or useful life, or
four years
. Furniture, fixtures and equipment, if any, is depreciated over the estimated useful life, ranging from
five years
to
10 years
. When depreciable property is retired, replaced or disposed of, the related costs 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 recognized over the lease term as a reduction of rental 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.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
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 and Intangible Assets
We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment 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 book value. We recognize an impairment loss at the time we make any such determination.
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 estimated future undiscounted net cash flows are less than the carrying amount of the asset, we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period.
For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
, there were no impairment losses recorded.
Property Acquisitions
In accordance with ASC Topic 805,
Business Combinations
, or ASC Topic 805, 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 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 condensed consolidated statements of operations.
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, 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 market ground lease payment is estimated as a percentage of the land value. The fair value of buildings is based upon our determination of the value as if it were to be replaced and vacant using cost data and discounted cash flow models similar to those used by independent appraisers. 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, if any, 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 condensed consolidated balance sheets and are amortized to 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 condensed 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.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
The value of in-place lease costs, if any, 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 net amounts related to in-place lease costs are included in identified intangible assets, in our accompanying condensed 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, would be included in identified intangible assets, in our accompanying condensed consolidated balance sheets and would be 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, if any, 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, in our accompanying condensed 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, would be determined in accordance with ASC Topic 820,
Fair Value Measurements and Disclosures
, or ASC Topic 820, and would be included in derivative financial instruments in our accompanying condensed consolidated balance sheets.
The values of contingent consideration assets and liabilities, if any, 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.
These values are preliminary estimates in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition.
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 9, Fair Value Measurements
, for a further discussion.
Real Estate Deposits
Real estate deposits include funds held by escrow agents and others to be applied towards the purchase of real estate.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Prepaid Expenses
As of
June 30, 2016
, prepaid expenses consists primarily of annual directors’ and officers’ liability insurance premiums
of
$148,000
. We did
no
t have any prepaid expenses as of
December 31, 2015
. Prepaid expenses are amortized over the related contract periods.
Stock Compensation
We follow ASC Topic 718,
Compensation
—
Stock Compensation
, or ASC Topic 718, to account for our stock compensation pursuant to the 2015 Incentive Plan, or our incentive plan, and the 2015 Independent Directors Compensation Plan.
See Note 7, Equity
— 2015 Incentive Plan and Independent Directors Compensation Plan, for a further discussion of grants under such plans.
Income Taxes
We have not yet elected to be taxed as a REIT under the Code. We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code beginning with our taxable year ending December 31, 2016, and we intend to continue to qualify to be taxed as a REIT. To qualify and 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 ordinary taxable income, excluding net capital gains, to 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 qualify and 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 elect to be treated as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse affect on our net income and net cash available for distribution to stockholders. Because of our intention to elect REIT status for our taxable year ending December 31, 2016, we will not benefit from the loss incurred for the three and
six months ended June 30, 2016
.
We follow ASC Topic 740,
Income Taxes
, to recognize, measure, present and disclose in our accompanying condensed consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of
June 30, 2016
and
December 31, 2015
, we did not have any tax benefits nor liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.
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. As of
June 30, 2016
, we have determined that we operate through
one
reportable business segment, with activities related to investing in medical office buildings.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update, or ASU, 2014-09,
Revenue from Contracts with Customers
, or ASU 2014-09, which replaces the existing accounting standards for revenue recognition. ASU 2014-09 provides a five-step framework to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Since its issuance, the FASB has amended several aspects of ASU 2014-09, including provisions that address principal-versus-agent implementation guidance and identifying performance obligations. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017. It may be adopted either by restating all years presented in the financial statements or by recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption. We have not yet selected a transition method nor have we determined the impact the adoption of ASU 2014-09 and its amendments on January 1, 2018 will have on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02,
Amendments to the Consolidation Analysis,
or ASU 2015-02, which amends the consolidation analysis required under ASC Topic 810. Specifically, ASU 2015-02: (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities; (ii) eliminates the presumption that a general partner should consolidate a limited partnership; and (iii) amends the effect of fee arrangements in the primary beneficiary determination. Further, the application of ASU 2015-02 permits the use of either the full retrospective or modified retrospective
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
adoption approach. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We adopted ASU 2015-02 on January 1, 2016, which did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs,
or ASU 2015-03, which amends the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Amortization of such costs is required to be reported as interest expense. In August 2015, the FASB issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, which clarified that debt issuance costs associated with line of credit arrangements may continue to be presented as an asset, regardless of whether there are any outstanding borrowings on the line of credit arrangemen
t. T
he application of ASU 2015-03 requires retrospective adjustment of all prior periods presented. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We adopted ASU 2015-03 on January 1, 2016, which did not have an impact on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments,
or ASU 2015-16, which eliminates the requirement to restate prior period financial statements for measurement period adjustments in a business combination. The cumulative effect of a measurement period adjustment as a result of a change in the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, is required to be recorded in the reporting period in which the adjustment amount is determined, rather than retrospectively. Further, ASU 2015-16 requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015 and should be applied prospectively to adjustments to provisional amounts that occur after the effective date. Early adoption is permitted for financial statements that have not yet been made available for issuance. We adopted ASU 2015-16 on January 1, 2016, which did not have an impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, or ASU 2016-01, which amends the classification and measurement of financial instruments. ASU 2016-01 revises the accounting related to: (i) the classification and measurement of investments in equity securities; and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, with respect to only certain of the amendments in ASU 2016-01, for financial statements that have not yet been made available for issuance. ASU 2016-01 requires the application of the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with certain exceptions. We have not yet determined the impact the adoption of ASU 2016-01 on January 1, 2018 will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, or ASU 2016-02, which amends the guidance on accounting for leases, including extensive amendments to the disclosure requirements. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We have not yet determined the impact the adoption of ASU 2016-02 on January 1, 2019 will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
or ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 requires disclosures about a change in accounting principle under ASC 250,
Accounting Changes and Error Corrections,
in the period of adoption. ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted for financial statements that have not yet been made available for issuance. We do not expect the adoption of ASU 2016-09 on January 1, 2017 to have a material impact on our consolidated financial statements.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments
—
Credit Losses,
or ASU 2016-13, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted after December 15, 2018. We have not yet determined the impact the adoption of ASU 2016-13 on January 1, 2020 will have on our consolidated financial statements.
3. Real Estate Investment
Our real estate investment consisted of the following as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Building and improvements
|
$
|
4,600,000
|
|
|
$
|
—
|
|
Land
|
406,000
|
|
|
—
|
|
|
$
|
5,006,000
|
|
|
$
|
—
|
|
For the three and
six months ended June 30, 2016
, we did not have any capital expenditures other than the acquisition noted below. We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate,
6.0%
of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three and
six months ended June 30, 2016
, such fees and expenses paid did not exceed
6.0%
of the contract purchase price of our property acquisition. We did not incur such fees and expenses for the
three months ended June 30, 2015
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
.
Acquisition in 2016
For the
six months ended June 30, 2016
, we completed
one
property acquisition comprising
one
building from an unaffiliated third party. The aggregate contract purchase price of this property was
$5,450,000
and we incurred
$245,000
in acquisition fees to our advisor in connection with this property acquisition. The following is a summary of our property acquisition for the
six months ended June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition(1)
|
|
Location
|
|
Type
|
|
Date Acquired
|
|
Contract
Purchase Price
|
|
Total
Acquisition Fee
|
Auburn MOB
|
|
Auburn, CA
|
|
Medical Office
|
|
06/28/16
|
|
$
|
5,450,000
|
|
|
$
|
245,000
|
|
(2)
|
___________
|
|
(1)
|
We own
100%
of the property acquired in 2016.
|
|
|
(2)
|
Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of the property, a base acquisition fee of
2.25%
of the contract purchase price upon the closing of the acquisition. In addition, the total acquisition fee includes a Contingent Advisor Payment, as defined in
Note 8, Related Party Transactions
, in the amount of
2.25%
of the contract purchase price of the property acquired, which shall be paid by us to our advisor, subject to the satisfaction of certain conditions.
See Note 8, Related Party Transactions
— Acquisition and Development Stage — Acquisition Fee, for a further discussion.
|
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
4. Identified Intangible Assets
As of
June 30, 2016
, identified intangible assets consisted of in-place leases of
$386,000
. We did
no
t have any identified intangible assets as of
December 31, 2015
. T
he aggregate weighted average remaining life of in-place leases was
4.0
years as of
June 30, 2016
. As of
June 30, 2016
, estimated amortization expense on the in-place leases for the six months ending
December 31, 2016
and for each of the next four years ending December 31 and thereafter was as follows:
|
|
|
|
|
|
Year
|
|
Amount
|
2016
|
|
$
|
48,000
|
|
2017
|
|
97,000
|
|
2018
|
|
97,000
|
|
2019
|
|
96,000
|
|
2020
|
|
48,000
|
|
Thereafter
|
|
—
|
|
|
|
$
|
386,000
|
|
5. 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 property, we are not currently aware of any environmental liability with respect to our property 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.
6. Redeemable Noncontrolling Interest
As of
June 30, 2016
and
December 31, 2015
, we owned a
99.99%
and a
99.00%
general partnership interest, respectively, in our operating partnership and our advisor owned a
0.01%
and
1.00%
limited partnership interest, respectively, in our operating partnership. The noncontrolling interest of our advisor in our operating partnership, which has redemption features outside of our control, is accounted for as a redeemable noncontrolling interest and is presented outside of permanent equity in our accompanying condensed consolidated balance sheets.
See Note 7, Equity
— Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion. In addition,
see Note 8, Related Party Transactions
— Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing, and
Note 8, Related Party Transactions
— Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
We record the carrying amount of redeemable noncontrolling interest at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and distributions; or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interest consisted of the following for the
six months ended June 30, 2016
:
|
|
|
|
|
|
|
|
Amount
|
Balance — December 31, 2015
|
|
$
|
—
|
|
Reclassification from equity
|
|
2,000
|
|
Net loss attributable to redeemable noncontrolling interest
|
|
—
|
|
Balance — June 30, 2016
|
|
$
|
2,000
|
|
7. 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
June 30, 2016
and
December 31, 2015
, 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. We commenced our public offering of shares of our common stock on February 16, 2016, and as of such date we were offering to the public up to
$3,150,000,000
of shares of our common stock, consisting of up to
$3,000,000,000
of shares of our Class T common stock for
$10.00
per share in our primary offering and up to
$150,000,000
of shares of our common stock for
$9.50
per share pursuant to the DRIP. Effective June 17, 2016, we reallocated certain of the unsold shares of our Class T common stock being offered, such that we are currently offering up to approximately
$2,800,000,000
in shares of Class T common stock at a price of
$10.00
per share and
$200,000,000
in shares of Class I common stock at a price of
$9.30
per share in our primary offering, and up to
$150,000,000
in shares of our common stock pursuant to the DRIP at a purchase price of
$9.50
per share. Subsequent to the reallocation, of the
1,000,000,000
shares of common stock authorized,
900,000,000
shares are classified as Class T common stock and
100,000,000
shares are classified as Class I common stock. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and the DRIP, and among classes of stock.
Each share of our common stock, regardless of class, will be entitled to one vote per share on matters presented to the common stockholders for approval; provided, however, that stockholders of one share class shall have exclusive voting rights on any amendment to our charter that would alter only the contract rights of that share class, and no stockholders of another share class shall be entitled to vote thereon.
On February 6, 2015, our advisor acquired
22,222
shares of our Class T 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 Class T common stock to our advisor to make an initial capital contribution to our operating partnership. We effected a reverse stock split as of July 23, 2015, whereby every 2.50 shares of our Class T common stock issued and outstanding were combined into one share of our Class T common stock, resulting in our advisor owning
8,889
shares of our Class T common stock following the reverse stock split. On October 22, 2015, we effected a stock split, whereby every share of our Class T common stock issued and outstanding was split into
2.343749
shares of our Class T common stock, resulting in our advisor owning
20,833
shares of our Class T common stock.
On April 13, 2016, we granted an aggregate of
15,000
shares of our restricted common stock to our independent directors. Through
June 30, 2016
, we had issued
1,633,069
shares of our Class T common stock in connection with the primary portion of our offering and
2,003
shares of our Class T common stock pursuant to the DRIP. As of
June 30, 2016
and
December 31, 2015
, we had
1,670,905
and
20,833
shares of our Class T common stock issued and outstanding, respectively.
As of
June 30, 2016
, we had a receivable of
$552,000
for offering proceeds, net of selling commissions and dealer manager fees, from our transfer agent, which was received on July 1, 2016.
Distribution Reinvestment Plan
We have registered and reserved
$150,000,000
in shares of our common stock for sale pursuant to the DRIP in our offering. The DRIP allows stockholders to purchase additional Class T shares and Class I shares of our common stock through
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
the reinvestment of distributions during our offering at an offering price equal to
95.0%
of the primary offering price for Class T shares, or
$9.50
assuming a
$10.00
per share primary offering price for Class T shares. Pursuant to the DRIP, distributions with respect to Class T shares are reinvested in Class T shares and distributions with respect to Class I shares are reinvested in Class I shares.
For the three and
six months ended June 30, 2016
,
$19,000
in distributions were reinvested and
2,003
shares of our common stock were issued pursuant to the DRIP. No reinvestment of distributions were made for
three months ended June 30, 2015
and for the period from January 23, 2015 (Date of Inception) through
June 30, 2015
. As of
June 30, 2016
and
December 31, 2015
, a total of
$19,000
and
$0
, respectively, in distributions were reinvested and
2,003
and
0
shares of our common stock, respectively, were issued pursuant to the DRIP.
Share Repurchase Plan
In February 2016, our board of directors approved a share repurchase plan. The 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 of directors. Subject to the availability of the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to
5.0%
of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP.
All repurchases will be subject to a
one
-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Further, all share repurchases will be repurchased following a
one
-year holding period at
92.5%
to
100%
of each stockholder’s repurchase amount depending on the period of time their shares have been held. At any time while we are engaged in an offering of shares of our common stock, the repurchase amount for shares repurchased under our share repurchase plan will always be equal to or lower than the applicable per share offering price. However, if shares of our common stock are repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price will be no less than
100%
of the price paid to acquire the shares of our common stock from us. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period, as follows: first, pro rata as to repurchases sought upon a stockholder’s death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests. No share repurchases were requested or made for the
three months ended June 30, 2016
and
2015
, for the
six months ended
June 30, 2016
and for the period from January 23, 2015 (Date of Inception) through
June 30, 2015
.
2015 Incentive Plan and Independent Directors Compensation Plan
In February 2016, we adopted our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of 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
4,000,000
shares.
Upon the election of our
three
independent directors to our board of directors on February 12, 2016, or the service inception date, the independent directors each became entitled to
5,000
shares of our restricted common stock, as defined in our incentive plan, upon the initial release from escrow of the minimum offering. Having raised the minimum offering and upon the initial release from escrow, on April 13, 2016, or the grant date, we granted
5,000
shares of our restricted common stock, as defined in our incentive plan, to each of our
three
independent directors in connection with their initial election to our board of directors, of which
20.0%
immediately vested on the grant date and
20.0%
will vest on each of the first
four
anniversaries of the grant date. 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 will have full voting rights and rights to distributions.
From the service inception date to the grant date, we recognized compensation expense related to the shares of our restricted common stock based on the reporting date fair value, which was estimated at
$10.00
per share, the price paid to acquire one share of Class T common stock in our offering. After the grant date, compensation cost related to the shares of our restricted common stock is measured based on the grant date fair value. Stock compensation expense is recognized 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.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
For the three and
six months ended June 30, 2016
, we recognized compensation expense of
$20,000
and
$52,000
, respectively, which is included in general and administrative in our accompanying condensed consolidated statements of operations. We did not incur compensation expense for the
three months ended June 30, 2015
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
. ASC Topic 718,
Compensation
—
Stock Compensation,
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three and
six months ended June 30, 2016
, we did not assume any forfeitures.
As of
June 30, 2016
and
December 31, 2015
, there was
$98,000
and
$0
, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. This expense is expected to be recognized over a remaining weighted average period of
2.29
years.
As of
June 30, 2016
and
December 31, 2015
, the weighted average grant date fair value of the nonvested shares of our restricted common stock was
$120,000
and
$0
, respectively. A summary of the status of the nonvested shares of our restricted common stock as of
June 30, 2016
and
December 31, 2015
and the changes for the
six months ended June 30, 2016
is presented below:
|
|
|
|
|
|
|
|
|
Number of Nonvested
Shares of our
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
Balance — December 31, 2015
|
—
|
|
|
$
|
—
|
|
Granted
|
15,000
|
|
|
$
|
10.00
|
|
Vested
|
(3,000
|
)
|
|
$
|
10.00
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Balance — June 30, 2016
|
12,000
|
|
|
$
|
10.00
|
|
Expected to vest — June 30, 2016
|
12,000
|
|
|
$
|
10.00
|
|
Offering Costs
Selling Commissions
Generally, we pay our dealer manager selling commissions of up to
3.0%
of the gross offering proceeds from the sale of Class T shares of our common stock pursuant to the primary offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager may re-allow all or a portion of these fees to participating broker-dealers. For the three and
six months ended June 30, 2016
, we incurred
$380,000
in selling commissions to our dealer manager, which are charged to stockholders’ equity as such amounts are reimbursed to our dealer manager from the gross proceeds of our offering. Our dealer manager did not receive selling commissions for the
three months ended June 30, 2015
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
.
Dealer Manager Fee
Generally, our dealer manager receives a dealer manager fee of up to
3.0%
of the gross offering proceeds from the sale of shares of our common stock sold pursuant to the primary offering, of which
1.0%
of the gross offering proceeds is funded by us. Our dealer manager may re-allow all or a portion of these fees to participating broker-dealers. For the three and
six months ended June 30, 2016
, we incurred
$151,000
in dealer manager fees to our dealer manager, which are charged to stockholders’ equity as such amounts are reimbursed to our dealer manager or its affiliates from the gross proceeds of our offering. Our dealer manager did not receive dealer manager fees for the
three months ended June 30, 2015
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
.
See Note 8, Related Party Transactions
— Offering Stage — Dealer Manager Fee, for a further discussion of the dealer manager fee funded by our advisor.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Stockholder Servicing Fee
We will pay our dealer manager a stockholder servicing fee with respect to the Class T shares sold as additional compensation to the dealer manager and participating broker-dealers. The stockholder servicing fee will accrue daily equal to 1/365th of
1.0%
of the purchase price per share of the Class T shares sold and will be paid quarterly. We will cease paying the stockholder servicing fee with respect to the Class T shares sold in our offering upon the occurrence of certain defined events. Our dealer manager may re-allow to participating broker-dealers all or a portion of the stockholder servicing fee for services that such participating broker-dealers perform in connection with the shares of our Class T common stock. No stockholder servicing fee shall be paid with respect to Class I shares or shares sold pursuant to the DRIP. For the three and
six months ended June 30, 2016
, we incurred
$507,000
in connection with the stockholder servicing fee to our dealer manager. As of
June 30, 2016
, we accrued
$507,000
in connection with the stockholder servicing fee payable, which is included in accounts payable and accrued liabilities with a corresponding offset to stockholders’ equity in our accompanying condensed consolidated balance sheets.
Noncontrolling Interest of Limited Partner in Operating Partnership
On February 6, 2015, our advisor made an initial capital contribution of
$2,000
to our operating partnership in exchange for
222
Class T partnership units. Following our reverse stock split and the corresponding conversion of the partnership units of our operating partnership, our advisor owned
89
Class T partnership units effective as of July 23, 2015. On October 22, 2015, we effected a stock split, which increased the number of Class T partnership units outstanding to
208
. Upon the effectiveness of the Advisory Agreement on February 16, 2016, Griffin-American Healthcare REIT IV Advisor became our advisor. As our advisor, Griffin-American Healthcare REIT IV Advisor is entitled to redemption rights of its limited partnership units. Therefore, as of February 16, 2016, such limited partnership units no longer meet the criteria for classification within the equity section of our accompanying condensed consolidated balance sheets, and as such, were reclassified outside of permanent equity, as a mezzanine item, in our accompanying condensed consolidated balance sheets.
See Note 6, Redeemable Noncontrolling Interest
, for a further discussion.
8. Related Party Transactions
Fees and Expenses Paid to Affiliates
All of our executive officers and one of 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, Griffin Capital Securities, NSAM 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. For the three and
six months ended June 30, 2016
, we incurred
$2,862,000
and
$3,169,000
, respectively, in fees and expenses to our affiliates as detailed below. We did not incur fees and expense to our affiliates for the
three months ended June 30, 2015
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
.
Offering Stage
Dealer Manager Fee
Generally, our dealer manager receives a dealer manager fee of up to
3.0%
of the gross offering proceeds from the sale of shares of our common stock sold pursuant to the primary offering, of which
2.0%
of the gross offering proceeds is funded by our advisor. Our advisor intends to recoup the portion of the dealer manager fee it funds through the receipt of the Contingent Advisor Payment from us, as described below, through the payment of acquisition fees. No dealer manager fee is payable on shares of our common stock sold pursuant to the DRIP. For the three and
six months ended June 30, 2016
, we incurred
$302,000
to our advisor as part of the Contingent Advisor Payment in connection with the dealer manager fee that our advisor had incurred. We did not incur any dealer manager fees to our advisor for the
three months ended June 30, 2015
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
.
As of
December 31, 2015
, our advisor had
no
t incurred any dealer manager fees as we commenced our offering in February 2016. As of
June 30, 2016
, we accrued
$302,000
as part of the Contingent Advisor Payment related to the dealer manager fee that our advisor had incurred, which is included in accounts payable due to affiliates with a corresponding offset to stockholders’ equity in our accompanying condensed consolidated balance sheets. As of June 30, 2016, we have not paid any amounts to our advisor in connection with the Contingent Advisor Payment.
See Note 7, Equity
— Offering Costs — Dealer Manager Fee, for a further discussion.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Other Organizational and Offering Expenses
Our other organizational and offering expenses in connection with our offering (other than selling commissions, the dealer manager fee and the stockholder servicing fee) are funded by our advisor. Our advisor intends to recoup such expenses it funds through the receipt of the Contingent Advisor Payment from us, as described below, through the payment of acquisition fees. We anticipate that our other organizational and offering expenses will not exceed
1.0%
of the gross offering proceeds for shares of our common stock sold pursuant to our primary offering. No other organizational and offering expenses will be paid with respect to shares of our common stock sold pursuant to the DRIP. For the three and
six months ended June 30, 2016
, we incurred
$2,415,000
to our advisor as part of the Contingent Advisor Payment in connection with the other organizational and offering expenses that our advisor had incurred. We did not incur any other organizational and offering expenses to our advisor or its affiliates for the
three months ended June 30, 2015
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
.
As of
December 31, 2015
, our advisor has incurred other organizational and offering expenses of approximately
$1,606,000
on our behalf, which expenses were not recorded in our condensed consolidated balance sheets because such costs did not become our liability until we reached the minimum offering on April 12, 2016. As of
June 30, 2016
, we recorded
$2,415,000
as part of the Contingent Advisor Payment related to the other organizational and offering expenses that our advisor had incurred, which is included in accounts payable due to affiliates with a corresponding offset to stockholders’ equity in our accompanying condensed consolidated balance sheets. As of June 30, 2016, we have not paid any amounts to our advisor in connection with the Contingent Advisor Payment.
Acquisition and Development Stage
Acquisition Fee
We pay our advisor an acquisition fee of up to
4.50%
of the contract purchase price, including any contingent or earn-out payments that may be paid, of each property we acquire or, with respect to any real estate-related investment we originate or acquire, up to
4.25%
of the origination or acquisition price, including any contingent or earn-out payments that may be paid. The
4.50%
or
4.25%
acquisition fees consist of a
2.25%
or
2.00%
base acquisition fee, or the base acquisition fee, for real estate and real estate-related acquisitions, respectively, and an additional
2.25%
contingent advisor payment, or the Contingent Advisor Payment. The Contingent Advisor Payment allows our advisor to recoup the portion of the dealer manager fee and other organizational and offering expenses funded by our advisor. Therefore, the amount of the Contingent Advisor Payment paid upon the closing of an acquisition shall not exceed the then outstanding amounts paid by our advisor for dealer manager fees and other organizational and offering expenses at the time of such closing. For these purposes, the amounts paid by our advisor and considered as “outstanding” will be reduced by the amount of the Contingent Advisor Payment previously paid. Notwithstanding the foregoing, the initial
$7,500,000
of amounts paid by our advisor to fund the dealer manager fee and other organizational and offering expenses, or the Contingent Advisor Payment Holdback, shall be retained by us until the later of the termination of our last public offering or the third anniversary of the commencement date of our initial public offering, at which time such amount shall be paid to our advisor or its affiliates. In connection with any subsequent public offering of shares of our common stock, the Contingent Advisor Payment Holdback may increase, based upon the maximum offering amount in such subsequent public offering and the amount sold in prior offerings. Our advisor or its affiliates will be entitled to receive these acquisition fees for properties and real estate-related investments acquired with funds raised in our offering, including acquisitions completed after the termination of the Advisory Agreement (including imputed leverage of
50.0%
on funds raised in our offering), or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions. Our advisor may waive or defer all or a portion of the acquisition fee at any time and from time to time, in our advisor’s sole discretion.
The base acquisition fee in connection with the acquisition of properties is expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. The base acquisition fee in connection with the acquisition of real estate-related investments is capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets. For the three and
six months ended June 30, 2016
, we paid a base acquisition fee of
$123,000
to our advisor. We did not pay any base acquisition fees to our advisor for the
three months ended June 30, 2015
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
. The Contingent Advisor Payment is used to decrease the liability we incur to our advisor in connection with the dealer manager fee and other organizational and offering expenses. For a further discussion of amounts paid in connection with the Contingent Advisor Payment, see Dealer Manager Fee and Other Organizational and Offering Expenses, above. In addition,
see Note 3, Real Estate Investment
, for a further discussion.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Development Fee
In the event our advisor or its affiliates provide development-related services, we pay our advisor or its affiliates a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.
For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not incur any development fees to our advisor or its affiliates.
Reimbursement of Acquisition Expenses
We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets, which will be reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees and real estate commissions paid to unaffiliated parties will not exceed, in the aggregate,
6.0%
of the contract purchase price of the property or real estate-related investment or total development costs, 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.
Reimbursements of acquisition expenses are expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Reimbursements of acquisition expenses in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
, we did not incur any acquisition expenses to our advisor or its affiliates.
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
0.80%
of average invested assets. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation.
Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations. We did not incur any asset management fees for the three and
six months ended June 30, 2016
as a result of our advisor waiving
$2,000
in asset management fees. Our advisor agreed to waive certain asset management fees that may otherwise be due to our advisor pursuant to the Advisory Agreement until such time as the amount of such waived asset management fees is equal to the amount of distributions payable to our stockholders for the period beginning on May 1, 2016 and ending on the date of the acquisition of our first property or real estate-related investment, as such terms are defined in the Advisory Agreement. As such, the asset management fees of
$2,000
that would have been incurred through June 2016 were waived by our advisor and an additional
$78,000
in asset management fees will be waived in subsequent months. Our advisor will not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees. We did not incur any asset management fees to our advisor or its affiliates for the
three months ended June 30, 2015
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
.
Property Management Fee
Our advisor or its affiliates may provide property management services with respect to our properties or may sub-contract these 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
1.0%
property management oversight fee for any stand-alone, single-tenant, net leased property, except for such properties operated 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 Code authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008), for which we pay a property management oversight fee of
1.5%
of the gross monthly cash receipts with respect to such property; (ii) a
1.5%
property management oversight fee for 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
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
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 directly serve as the property manager without sub-contracting such duties to a third party.
Property management fees are included in rental expenses in our accompanying condensed consolidated statements of operations. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not incur any property management fees to our advisor or its affiliates.
Lease Fees
We may 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.
Lease fees are capitalized as lease commissions and will be included in other assets in our accompanying condensed consolidated balance sheets. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not incur any lease fees to our advisor or its affiliates.
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, we pay our advisor or its affiliates a construction management fee of up to
5.0%
of the cost of such improvements. Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or are expensed and included in our accompanying condensed consolidated statements of operations, as applicable. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not incur any construction management fees to our advisor or its affiliates.
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
June 30, 2016
, our operating expenses exceeded this limitation by
$336,000
. Our operating expenses as a percentage of average invested assets and as a percentage of net income were
39.3%
and
(46.4)%
, respectively, for the 12 months ended
June 30, 2016
. We raised the minimum offering and had funds held in escrow released to us to commence real estate operations in April 2016. We purchased our first property in June 2016. At this early stage of our operations, our general and administrative expenses are relatively high compared with our net income and our average invested assets. Our board of directors determined that the relationship of our general and administrative expenses to our funds from operations and our average invested assets was justified for the 12 months ended June 30, 2016 given the costs of operating a public company and the early stage of our operations.
For the three and
six months ended June 30, 2016
, our advisor incurred operating expenses on our behalf of
$22,000
and
$329,000
, respectively. Our advisor or its affiliates did not incur any operating expenses on our behalf for the
three months ended June 30, 2015
and
for the period from January 23, 2015 (Date of Inception) through June 30, 2015
. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations.
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
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated parties for similar services. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, 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 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 of directors, 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 parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to
6.0%
of the contract sales price. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not incur any disposition fees to our advisor or its affiliates.
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
6.0%
cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, we did not pay any such distributions to our advisor.
Subordinated Distribution Upon Listing
Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor’s limited partnership units, we will pay our advisor a distribution equal to
15.0%
of the amount by which: (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual
6.0%
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 received depend upon the market value of our outstanding stock at the time of listing, among other factors. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from
January 23, 2015
(Date of Inception) through
June 30, 2015
, 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) an
d the total amount of cash equal to an annual
6.0%
cumula
tive, 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
June 30, 2016
, we had not recorded any charges to earnings related to the subordinated distribution upon termination.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Stock Purchase Plans
On February 29, 2016, our Chief Executive Officer and Chairman of the Board of Directors, Jeffrey T. Hanson, our President and Chief Operating Officer, Danny Prosky, and our Executive Vice President and General Counsel, Mathieu B. Streiff, each executed stock purchase plans, or the stock purchase plans, whereby they each irrevocably agreed to invest
100%
of their net after-tax base salary and cash bonus compensation earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. In addition, on February 29, 2016, three Executive Vice Presidents of American Healthcare Investors, including our Executive Vice President of Acquisitions, Stefan K.L. Oh, executed similar stock purchase plans, whereby each individual irrevocably agreed to invest a portion of their net after-tax base salary or a portion of their net after-tax base salary and cash bonus compensation, ranging from
10.0%
to
15.0%
, earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock.
Purchases of shares of our common stock pursuant to the stock purchase plans commenced beginning with the officers’ regularly scheduled payroll payment after the initial release from escrow of the minimum offering amount, on April 13, 2016. The stock purchase plans terminate on December 31, 2016 or earlier upon the occurrence of certain events, unless otherwise renewed or extended. The shares of common stock were purchased at a price of
$9.60
per share, reflecting the purchase price of the Class T shares in our offering, exclusive of selling commissions and the dealer manager fee.
For the three and
six months ended June 30, 2016
, our officers invested the following amounts and we issued the following shares of our Class T common stock pursuant to the applicable stock purchase plan:
|
|
|
|
|
|
|
|
|
|
|
Officer’s Name
|
|
Title
|
|
Amount
|
|
Shares
|
Jeffrey T. Hanson
|
|
Chief Executive Officer and Chairman of the Board of Directors
|
|
$
|
51,000
|
|
|
5,283
|
|
Danny Prosky
|
|
President and Chief Operating Officer
|
|
61,000
|
|
|
6,347
|
|
Mathieu B. Streiff
|
|
Executive Vice President and General Counsel
|
|
58,000
|
|
|
6,065
|
|
Stefan K.L. Oh
|
|
Executive Vice President of Acquisitions
|
|
7,000
|
|
|
730
|
|
|
|
|
|
$
|
177,000
|
|
|
18,425
|
|
Accounts Payable Due to Affiliates
As of
June 30, 2016
, the amounts due to our affiliates primarily related to the Contingent Advisor Payment of
$2,717,000
and operating expenses of
$14,000
. We did
no
t incur any accounts payable due to affiliates as of
December 31, 2015
.
9. Fair Value Measurements
Financial Instruments Disclosed at Fair Value
ASC Topic 825,
Financial Instruments,
requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC Topic 820.
Our accompanying condensed consolidated balance sheets include the following financial instruments: cash, accounts and other receivables, a real estate deposit, accounts payable and accrued liabilities and accounts payable due to affiliates.
We consider the carrying values of cash, accounts and other receivables, 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 the short period of time since origination of the instruments or the short period of time between origination of the instruments and their expected realization. The fair value of cash 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 value of the other financial instruments is classified in Level 2 of the fair value hierarchy.
10. Business Combinations
For the
six months ended June 30, 2016
, using net proceeds from our offering, we completed
one
property acquisition comprising
one
building, which has been accounted for as a business combination. The aggregate contract purchase price for this property acquisition was
$5,450,000
, plus closing costs and a base acquisition fee of
$285,000
, which are included in acquisition related expenses in our accompanying condensed consolidated statements of operations. See
Note 3, Real Estate Investment
, for a listing of the property acquired and acquisition date. In addition, we incurred a Contingent Advisor Payment
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
of
$123,000
to our advisor for this property acquisition. See
Note 8, Related Party Transactions
, for a further discussion of the Contingent Advisor Payment. We did not complete any property acquisitions for the
six months ended June 30, 2015
.
Results of operations for the property acquisition of Auburn MOB during the
six months ended June 30, 2016
are reflected in our accompanying condensed consolidated statements of operations for the period from the date of acquisition of Auburn MOB through
June 30, 2016
. For the period from the acquisition date through
June 30, 2016
, we recognized
$26,000
of revenue and
$3,000
of net income for Auburn MOB.
The following table summarizes the acquisition date fair value of Auburn MOB:
|
|
|
|
|
|
|
|
|
|
Amount
|
Building and improvements
|
|
|
$
|
4,600,000
|
|
Land
|
|
|
406,000
|
|
In-place leases
|
|
|
386,000
|
|
Total assets acquired
|
|
|
$
|
5,392,000
|
|
Assuming the property acquisition in 2016 discussed above had occurred on January 23, 2015 (Date of Inception), for the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from January 23, 2015 (Date of Inception) through
June 30, 2015
, unaudited pro forma revenue, net loss, net loss attributable to controlling interest and net loss per common share attributable to controlling interest — basic and diluted would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended
|
|
Period from
January 23, 2015
(Date of Inception)
through
|
|
2016
|
|
2015
|
|
June 30, 2016
|
|
June 30, 2015
|
Revenue
|
$
|
111,000
|
|
|
$
|
108,000
|
|
|
$
|
222,000
|
|
|
$
|
216,000
|
|
Net loss
|
$
|
(350,000
|
)
|
|
$
|
(25,000
|
)
|
|
$
|
(524,000
|
)
|
|
$
|
(324,000
|
)
|
Net loss attributable to controlling interest
|
$
|
(350,000
|
)
|
|
$
|
(25,000
|
)
|
|
$
|
(524,000
|
)
|
|
$
|
(324,000
|
)
|
Net loss per common share attributable to controlling interest — basic and diluted
|
$
|
(0.28
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.53
|
)
|
The unaudited pro forma adjustments assume that the offering proceeds, at a price of
$10.00
per share, net of offering costs, were raised as of January 1, 2015. In addition, acquisition related expenses associated with the acquisition of Auburn MOB have been excluded from the pro forma results in 2016 and added to the 2015 pro forma results. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisition occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
11. Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash, accounts and other receivables and real estate deposits. Cash is generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of
June 30, 2016
and
December 31, 2015
, we had cash 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. In general, we perform credit evaluations of prospective tenants and security deposits are obtained at the time of property acquisition and upon lease execution.
As of
June 30, 2016
, we owned
one
property in California, which accounts for
100%
of our annualized base rent. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.
GRIFFIN-AMERICAN HEALTHCARE REIT IV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
As of
June 30, 2016
, we had
one
tenant that accounted for
10.0%
or more of our annualized base rent, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant
|
|
Annualized
Base Rent(1)
|
|
Percentage of Annualized
Base Rent
|
|
Acquisition
|
|
Reportable Segment
|
|
GLA
(Sq Ft)
|
|
Lease Expiration
Date
|
The Regents of the University of California
|
|
$
|
422,000
|
|
|
100%
|
|
Auburn MOB
|
|
Medical Office
|
|
19,000
|
|
|
06/30/20
|
___________
|
|
(1)
|
Annualized base rent is based on contractual base rent from the lease in effect as of
June 30, 2016
. The loss of this tenant or its inability to pay rent could have a material adverse effect on our business and results of operations.
|
For the period from January 23, 2015 (Date of Inception) through
June 30, 2015
, we did not own any properties.
12. Per Share Data
We report earnings (loss) per share pursuant to ASC Topic 260,
Earnings per Share
. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities. For the
three months ended June 30, 2016
and
2015
, for the
six months ended June 30, 2016
and for the period from January 23, 2015 (Date of Inception) through
June 30, 2015
, we did not allocate any distributions to participating securities. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock. As of
June 30, 2016
and
2015
, there were
12,000
and
0
nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of
June 30, 2016
, there were
208
units of redeemable limited partnership units of our operating partnership outstanding, but such units were excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.
13. Subsequent Events
Status of Our Offering
On July 8, 2016, we satisfied the conditions of the
$20,000,000
minimum offering amount required by the state of Washington in connection with our offering, and as of such date we were able to admit Washington subscribers as stockholders.
As of August 5, 2016, we had received and accepted subscriptions in our offering for
2,795,069
shares of our Class T and Class I common stock, or
$27,783,000
, excluding subscriptions from residents of Pennsylvania (who will not be admitted as stockholders until we have received and accepted subscriptions aggregating at least
$150,000,000
) and shares of our common stock issued pursuant to the DRIP.