Table of Contents

     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018March 31, 2019
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission File Number: 000-55434

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
(Exact name of registrant as specified in its charter)

Maryland 46-1749436
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
18191 Von Karman Avenue, Suite 300,
Irvine, California
 92612
(Address of principal executive offices) (Zip Code)

(949) 270-9200
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer¨Accelerated filer¨
 Non-accelerated filerxSmaller reporting company¨
   Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨  Yes   x  No

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneNoneNone
As of November 9, 2018,May 10, 2019, there were 199,553,183196,193,084 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.
     


Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
 
 Page
  
 
  


2

Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2018March 31, 2019 and December 31, 20172018
(Unaudited)
 
September 30,
2018
 
December 31,
2017
ASSETS
Real estate investments, net$2,210,766,000
 $2,163,258,000
Real estate notes receivable and debt security investment, net99,813,000
 97,988,000
Cash and cash equivalents34,925,000
 33,656,000
Accounts and other receivables, net121,181,000
 117,188,000
Restricted cash36,369,000
 30,487,000
Real estate deposits2,904,000
 3,261,000
Identified intangible assets, net180,317,000
 180,308,000
Goodwill75,309,000
 75,309,000
Other assets, net110,970,000
 99,020,000
Total assets$2,872,554,000
 $2,800,475,000
    
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:   
Mortgage loans payable, net(1)$686,954,000
 $613,558,000
Lines of credit and term loans(1)698,073,000
 624,125,000
Accounts payable and accrued liabilities(1)136,821,000
 124,503,000
Accounts payable due to affiliates(1)1,994,000
 2,057,000
Identified intangible liabilities, net1,192,000
 1,568,000
Capital lease obligations(1)16,057,000
 16,193,000
Security deposits, prepaid rent and other liabilities(1)37,597,000
 39,461,000
Total liabilities1,578,688,000
 1,421,465,000
    
Commitments and contingencies (Note 11)
 
    
Redeemable noncontrolling interests (Note 12)33,397,000
 32,435,000
    
Equity:   
Stockholders’ equity:   
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding
 
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 198,503,045 and 199,343,234 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively1,985,000
 1,993,000
Additional paid-in capital1,778,084,000
 1,785,872,000
Accumulated deficit(676,166,000) (598,044,000)
Accumulated other comprehensive loss(2,345,000) (1,971,000)
Total stockholders’ equity1,101,558,000
 1,187,850,000
Noncontrolling interests (Note 13)158,911,000
 158,725,000
Total equity1,260,469,000
 1,346,575,000
Total liabilities, redeemable noncontrolling interests and equity$2,872,554,000
 $2,800,475,000
___________

 
March 31,
2019
 
December 31,
2018
ASSETS
Real estate investments, net$2,223,669,000
 $2,222,681,000
Real estate notes receivable and debt security investment, net99,312,000
 98,655,000
Cash and cash equivalents34,904,000
 35,132,000
Accounts and other receivables, net128,226,000
 122,918,000
Restricted cash38,972,000
 37,573,000
Real estate deposits3,119,000
 3,077,000
Identified intangible assets, net170,671,000
 179,521,000
Goodwill75,309,000
 75,309,000
Operating lease right-of-use assets208,160,000
 
Other assets, net122,546,000
 114,226,000
Total assets$3,104,888,000
 $2,889,092,000
    
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:   
Mortgage loans payable, net(1)$691,896,000
 $688,262,000
Lines of credit and term loans(1)804,049,000
 738,048,000
Accounts payable and accrued liabilities(1)135,730,000
 139,383,000
Accounts payable due to affiliates(1)2,014,000
 2,103,000
Identified intangible liabilities, net947,000
 1,051,000
Financing obligations(1)26,377,000
 25,947,000
Operating lease liabilities(1)195,990,000
 
Security deposits, prepaid rent and other liabilities(1)34,728,000
 37,418,000
Total liabilities1,891,731,000
 1,632,212,000
    
Commitments and contingencies (Note 11)
 
    
Redeemable noncontrolling interests (Note 12)37,839,000
 38,245,000
    
Equity:   
Stockholders’ equity:   
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding
 
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 195,188,759 and 197,557,377 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively1,951,000
 1,975,000
Additional paid-in capital1,743,711,000
 1,765,840,000
Accumulated deficit(728,598,000) (704,748,000)
Accumulated other comprehensive loss(2,341,000) (2,560,000)
Total stockholders’ equity1,014,723,000
 1,060,507,000
Noncontrolling interests (Note 13)160,595,000
 158,128,000
Total equity1,175,318,000
 1,218,635,000
Total liabilities, redeemable noncontrolling interests and equity$3,104,888,000
 $2,889,092,000

3

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
As of September 30, 2018March 31, 2019 and December 31, 20172018
(Unaudited)

___________

(1)Such liabilities of Griffin-American Healthcare REIT III, Inc. as of September 30, 2018March 31, 2019 and December 31, 20172018 represented liabilities of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries. Griffin-American Healthcare REIT III Holdings, LP is a variable interest entity, or VIE, and a consolidated subsidiary of Griffin-American Healthcare REIT III, Inc. The creditors of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries do not have recourse against Griffin-American Healthcare REIT III, Inc., except for the 2019 Corporate Line of Credit and 2016 Corporate Line of Credit, respectively, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $523,500,000$614,500,000 and $444,000,000$548,500,000 as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, which is guaranteed by Griffin-American Healthcare REIT III, Inc.
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)


Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Revenues:          
Resident fees and services$251,884,000
 $230,768,000
 $744,859,000
 $682,300,000
$268,282,000
 $245,393,000
Real estate revenue32,295,000
 31,980,000
 97,475,000
 95,422,000
32,776,000
 32,499,000
Total revenues284,179,000
 262,748,000
 842,334,000
 777,722,000
301,058,000
 277,892,000
Expenses:          
Property operating expenses223,665,000
 199,047,000
 659,295,000
 596,099,000
234,952,000
 217,359,000
Rental expenses8,577,000
 8,299,000
 26,264,000
 24,925,000
8,425,000
 8,940,000
General and administrative6,900,000
 9,270,000
 19,910,000
 24,642,000
6,917,000
 6,388,000
Acquisition related expenses(1,102,000) 71,000
 (1,657,000) 532,000
(696,000) (769,000)
Depreciation and amortization23,816,000
 27,579,000
 70,190,000
 88,442,000
25,628,000
 23,692,000
Total expenses261,856,000

244,266,000
 774,002,000
 734,640,000
275,226,000
 255,610,000
Other income (expense):          
Interest expense: 
        
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)(16,538,000) (14,773,000) (48,369,000) (45,356,000)
Interest expense (including amortization of deferred financing costs and debt discount/premium)(19,059,000) (15,352,000)
(Loss) gain in fair value of derivative financial instruments(750,000) (59,000) (1,127,000) 44,000
(560,000) 110,000
(Loss) gain on dispositions of real estate investments
 (9,000) 
 3,370,000
Impairment of real estate investments
 
 (2,542,000) (4,883,000)
Loss from unconsolidated entity(1,137,000) (1,494,000) (3,672,000) (3,668,000)
Foreign currency (loss) gain(619,000) 1,384,000
 (1,652,000) 3,697,000
Loss from unconsolidated entities(454,000) (1,077,000)
Foreign currency gain1,042,000
 1,796,000
Other income501,000
 210,000
 1,020,000
 673,000
208,000
 295,000
Income (loss) before income taxes3,780,000
 3,741,000
 11,990,000
 (3,041,000)
Income tax benefit44,000
 720,000
 941,000
 1,498,000
Net income (loss)3,824,000
 4,461,000
 12,931,000
 (1,543,000)
Less: net (income) loss attributable to noncontrolling interests(212,000) 176,000
 (1,224,000) 6,051,000
Income before income taxes7,009,000
 8,054,000
Income tax (expense) benefit(151,000) 371,000
Net income6,858,000
 8,425,000
Less: net income attributable to noncontrolling interests(1,348,000) (272,000)
Net income attributable to controlling interest$3,612,000
 $4,637,000
 $11,707,000
 $4,508,000
$5,510,000
 $8,153,000
Net income per common share attributable to controlling interest — basic and diluted$0.02
 $0.02
 $0.06
 $0.02
$0.03
 $0.04
Weighted average number of common shares outstanding — basic and diluted199,818,444
 198,733,528
 200,120,637
 197,832,280
198,400,657
 200,347,084
Distributions declared per common share$0.15
 $0.15
 $0.45
 $0.45
          
Net income (loss)$3,824,000
 $4,461,000
 $12,931,000
 $(1,543,000)
Other comprehensive (loss) income:       
Net income$6,858,000
 $8,425,000
Other comprehensive income:   
Foreign currency translation adjustments(136,000) 355,000
 (374,000) 977,000
219,000
 446,000
Total other comprehensive (loss) income(136,000) 355,000
 (374,000) 977,000
Comprehensive income (loss)3,688,000
 4,816,000
 12,557,000
 (566,000)
Less: comprehensive (income) loss attributable to noncontrolling interests(212,000) 176,000
 (1,224,000) 6,051,000
Total other comprehensive income219,000
 446,000
Comprehensive income7,077,000
 8,871,000
Less: comprehensive income attributable to noncontrolling interests(1,348,000) (272,000)
Comprehensive income attributable to controlling interest$3,476,000
 $4,992,000
 $11,333,000
 $5,485,000
$5,729,000
 $8,599,000
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)


 Stockholders’ Equity    
 Common Stock            
 
Number
of
Shares
 Amount 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 Total Equity
BALANCE — December 31, 2018197,557,377
 $1,975,000
 $1,765,840,000
 $(704,748,000) $(2,560,000) $1,060,507,000
 $158,128,000
 $1,218,635,000
Offering costs — common stock
 
 (83,000) 
 
 (83,000) 
 (83,000)
Issuance of common stock under the DRIP1,515,098
 15,000
 14,181,000
 
 
 14,196,000
 
 14,196,000
Amortization of nonvested common stock compensation
 
 43,000
 
 
 43,000
 
 43,000
Stock based compensation
 
 
 
 
 
 195,000
 195,000
Repurchase of common stock(3,883,716) (39,000) (36,447,000) 
 
 (36,486,000) 
 (36,486,000)
Contributions from noncontrolling interests
 
 
 
 
 
 3,000,000
 3,000,000
Distributions to noncontrolling interests
 
 
 
 
 
 (1,817,000) (1,817,000)
Reclassification of noncontrolling interests to mezzanine equity
 
 
 
 
 
 (195,000) (195,000)
Fair value adjustment to redeemable noncontrolling interests
 
 177,000
 
 
 177,000
 76,000
 253,000
Distributions declared ($0.15 per share)
 
 
 (29,360,000) 
 (29,360,000) 
 (29,360,000)
Net income
 
 
 5,510,000
 
 5,510,000
 1,208,000
(1)6,718,000
Other comprehensive income
 
 
 
 219,000
 219,000
 
 219,000
BALANCE — March 31, 2019195,188,759
 $1,951,000
 $1,743,711,000
 $(728,598,000) $(2,341,000) $1,014,723,000
 $160,595,000
 $1,175,318,000
Stockholders’ Equity    Stockholders’ Equity    
Common Stock            Common Stock            
Number
of
Shares
 Amount 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 Total Equity
Number
of
Shares
 Amount 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 Total Equity
BALANCE — December 31, 2017199,343,234
 $1,993,000
 $1,785,872,000
 $(598,044,000) $(1,971,000) $1,187,850,000
 $158,725,000
 $1,346,575,000
199,343,234
 $1,993,000
 $1,785,872,000
 $(598,044,000) $(1,971,000) $1,187,850,000
 $158,725,000
 $1,346,575,000
Offering costs — common stock
 
 (6,000) 
 
 (6,000) 
 (6,000)
 
 (6,000) 
 
 (6,000) 
 (6,000)
Issuance of vested and nonvested restricted common stock22,500
 
 41,000
 
 
 41,000
 
 41,000
Issuance of common stock under the DRIP4,902,237
 49,000
 45,395,000
 
 
 45,444,000
 
 45,444,000
1,642,834
 16,000
 15,213,000
 
 
 15,229,000
 
 15,229,000
Amortization of nonvested common stock compensation
 
 130,000
 
 
 130,000
 
 130,000

 
 43,000
 
 
 43,000
 
 43,000
Stock based compensation
 
 
 
 
 
 585,000
 585,000

 
 
 
 
 
 195,000
 195,000
Repurchase of common stock(5,764,926) (57,000) (53,042,000) 
 
 (53,099,000) 
 (53,099,000)(1,792,524) (18,000) (16,488,000) 
 
 (16,506,000) 
 (16,506,000)
Contribution from noncontrolling interest
 
 
 
 
 
 4,470,000
 4,470,000

 
 
 
 
 
 4,470,000
 4,470,000
Distributions to noncontrolling interests
 
 
 
 
 
 (5,246,000) (5,246,000)
 
 
 
 
 
 (1,919,000) (1,919,000)
Reclassification of noncontrolling interests to mezzanine equity
 
 
 
 
 
 (585,000) (585,000)
 
 
 
 
 
 (195,000) (195,000)
Fair value adjustment to redeemable noncontrolling interests
 
 (306,000) 
 
 (306,000) (131,000) (437,000)
 
 (173,000) 
 
 (173,000) (74,000) (247,000)
Distributions declared
 
 
 (89,829,000) 
 (89,829,000) 
 (89,829,000)
Distributions declared ($0.15 per share)
 
 
 (29,647,000) 
 (29,647,000) 
 (29,647,000)
Net income
 
 
 11,707,000
 
 11,707,000
 1,093,000
(1)12,800,000

 
 
 8,153,000
 
 8,153,000
 243,000
(1)8,396,000
Other comprehensive loss
 
 
 
 (374,000) (374,000) 
 (374,000)
BALANCE — September 30, 2018198,503,045
 $1,985,000
 $1,778,084,000
 $(676,166,000) $(2,345,000) $1,101,558,000
 $158,911,000
 $1,260,469,000
Other comprehensive income
 
 
 
 446,000
 446,000
 
 446,000
BALANCE — March 31, 2018199,193,544
 $1,991,000
 $1,784,461,000
 $(619,538,000) $(1,525,000) $1,165,389,000
 $161,445,000
 $1,326,834,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)


 Stockholders’ Equity    
 Common Stock            
 
Number
of
Shares
 Amount 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 Total Equity
BALANCE — December 31, 2016195,780,039
 $1,957,000
 $1,754,160,000
 $(490,298,000) $(3,029,000) $1,262,790,000
 $155,763,000
 $1,418,553,000
Offering costs — common stock
 
 (10,000) 
 
 (10,000) 
 (10,000)
Issuance of vested and nonvested restricted common stock22,500
 
 40,000
 
 
 40,000
 
 40,000
Issuance of common stock under the DRIP5,266,636
 53,000
 47,400,000
 
 
 47,453,000
 
 47,453,000
Amortization of nonvested common stock compensation
 
 131,000
 
 
 131,000
 
 131,000
Stock based compensation
 
 
 
 
 
 390,000
 390,000
Repurchase of common stock(2,699,995) (27,000) (23,995,000) 
 
 (24,022,000) 
 (24,022,000)
Contributions from noncontrolling interest
 
 
 
 
 
 8,304,000
 8,304,000
Distributions to noncontrolling interests
 
 
 
 
 
 (464,000) (464,000)
Reclassification of noncontrolling interests to mezzanine equity
 
 
 
 
 
 (585,000) (585,000)
Fair value adjustment to redeemable noncontrolling interests
 
 (939,000) 
 
 (939,000) (402,000) (1,341,000)
Distributions declared
 
 
 (88,800,000) 
 (88,800,000) 
 (88,800,000)
Net income (loss)
 
 
 4,508,000
 
 4,508,000
 (5,438,000)(1)(930,000)
Other comprehensive income
 
 
 
 977,000
 977,000
 
 977,000
BALANCE — September 30, 2017198,369,180
 $1,983,000
 $1,776,787,000
 $(574,590,000) $(2,052,000) $1,202,128,000
 $157,568,000
 $1,359,696,000
___________
(1)For the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, amounts exclude $131,000$140,000 and $(613,000),$29,000, respectively, of net income (loss) attributable to redeemable noncontrolling interests. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)

Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss)$12,931,000
 $(1,543,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Net income$6,858,000
 $8,425,000
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization70,190,000
 88,442,000
25,628,000
 23,692,000
Other amortization (including deferred financing costs, above/below-market leases, leasehold interests, debt discount/premium, real estate notes receivable loan costs and debt security investment accretion and closing costs)3,871,000
 4,056,000
Other amortization7,577,000
 1,174,000
Deferred rent(4,650,000) (3,913,000)(1,746,000) (1,068,000)
Stock based compensation585,000
 390,000
195,000
 195,000
Stock based compensation — nonvested restricted common stock171,000
 171,000
43,000
 43,000
Loss from unconsolidated entity3,672,000
 3,668,000
Bad debt expense, net331,000
 5,220,000
Gain on real estate dispositions
 (3,370,000)
Foreign currency loss (gain)1,619,000
 (3,678,000)
Loss on extinguishment of mortgage loan payable
 1,432,000
Loss from unconsolidated entities454,000
 1,077,000
Bad debt expense448,000
 126,000
Foreign currency gain(1,042,000) (1,791,000)
Change in fair value of contingent consideration(1,609,000) (57,000)(681,000) (743,000)
Change in fair value of derivative financial instruments1,127,000
 (44,000)560,000
 (110,000)
Impairment of real estate investments2,542,000
 4,883,000
Changes in operating assets and liabilities:      
Accounts and other receivables(5,325,000) (9,979,000)(5,756,000) (1,571,000)
Other assets(12,072,000) (6,501,000)726,000
 (2,831,000)
Accounts payable and accrued liabilities3,390,000
 8,832,000
(132,000) (2,404,000)
Accounts payable due to affiliates13,000
 (79,000)21,000
 15,000
Security deposits, prepaid rent and other liabilities(489,000) 610,000
Security deposits, prepaid rent, operating lease and other liabilities(7,853,000) 1,769,000
Net cash provided by operating activities76,297,000
 88,540,000
25,300,000
 25,998,000
CASH FLOWS FROM INVESTING ACTIVITIES      
Acquisitions of real estate investments(63,984,000) (102,241,000)(16,036,000) 
Proceeds from real estate dispositions1,000,000
 15,993,000
Principal repayments on real estate notes receivable
 26,752,000
Investment in unconsolidated entity(2,000,000) (1,250,000)
Investments in unconsolidated entities(1,100,000) 
Capital expenditures(41,753,000) (25,804,000)(16,722,000) (12,662,000)
Real estate and other deposits(2,815,000) (876,000)(187,000) (2,352,000)
Proceeds from insurance settlements
 85,000
Net cash used in investing activities(109,552,000)
(87,341,000)(34,045,000)
(15,014,000)
CASH FLOWS FROM FINANCING ACTIVITIES      
Borrowings under mortgage loans payable177,637,000
 230,452,000
6,080,000
 458,000
Payments on mortgage loans payable(7,539,000) (6,110,000)(2,867,000) (2,506,000)
Settlements of mortgage loans payable(94,449,000) (100,775,000)
Borrowings under the lines of credit and term loans206,664,000
 269,473,000
651,501,000
 71,531,000
Payments on the lines of credit and term loans(132,716,000) (325,756,000)(585,500,000) (45,100,000)
Payments under financing obligations(2,133,000) (1,754,000)
Deferred financing costs(4,130,000) (5,485,000)(6,020,000) (21,000)
Mortgage loan payable extinguishment costs
 (493,000)
Other obligations(1,000,000) 9,487,000
Repurchase of common stock(53,027,000) (24,022,000)(36,486,000) (16,506,000)
Repurchase of stock warrants and redeemable noncontrolling interest(78,000) 
Contributions from noncontrolling interests3,000,000
 4,470,000
Distributions to noncontrolling interests(1,813,000) (1,915,000)
Contributions from redeemable noncontrolling interests
 535,000
Distributions to redeemable noncontrolling interests(485,000) (166,000)
Security deposits and other(97,000) (21,000)

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)

 Nine Months Ended September 30,
 2018 2017
Repurchase of stock warrants and redeemable noncontrolling interests$(306,000) $(204,000)
Payments under capital leases(5,329,000) (4,995,000)
Contributions from noncontrolling interest4,470,000
 8,304,000
Distributions to noncontrolling interests(5,243,000) (460,000)
Contributions from redeemable noncontrolling interests535,000
 975,000
Distributions to redeemable noncontrolling interests(497,000) (384,000)
Security deposits97,000
 131,000
Payment of offering costs(6,000) (10,000)
Distributions paid(44,702,000) (41,526,000)
Net cash provided by financing activities40,459,000
 8,602,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH$7,204,000
 $9,801,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH(53,000) 132,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period64,143,000
 55,677,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period$71,294,000
 $65,610,000
    
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH   
Cash and cash equivalents at beginning of period$33,656,000
 $29,123,000
Restricted cash at beginning of period30,487,000
 26,554,000
Cash, cash equivalents and restricted cash at beginning of period$64,143,000
 $55,677,000
    
Cash and cash equivalents at end of period$34,925,000
 $35,876,000
Restricted cash at end of period36,369,000
 29,734,000
Cash, cash equivalents and restricted cash at end of period$71,294,000
 $65,610,000
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION   
Cash paid for:   
Interest (including interest on capital leases)$43,016,000
 $46,117,000
Income taxes$764,000
 $432,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES   
Investing Activities:   
Accrued capital expenditures$15,162,000
 $6,163,000
Capital expenditures from capital leases$5,194,000
 $5,039,000
Settlement of receivable for investment in unconsolidated entity$
 $1,000,000
Tenant improvement overage$1,014,000
 $257,000
Exercise purchase options — attributable to intangible asset$
 $11,454,000
Disposition of real estate investment$
 $2,400,000
Reduction of capital lease obligations, net$
 $27,483,000
The following represents the increase (decrease) in certain assets and liabilities in connection with our acquisitions and dispositions of real estate investments:   
Other receivables$
 $3,155,000
Other assets, net$(1,587,000) $1,972,000
Accounts payable and accrued liabilities$47,000
 $1,967,000
Prepaid rent and other liabilities$223,000
 $2,257,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Nine Months Ended September 30, 2018 and 2017
(Unaudited)

Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Distributions paid$(15,227,000) $(14,377,000)
Net cash provided by (used in) financing activities9,875,000
 (5,372,000)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH$1,130,000
 $5,612,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH41,000
 59,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period72,705,000
 64,143,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period$73,876,000
 $69,814,000
   
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH   
Beginning of period:   
Cash and cash equivalents$35,132,000
 $33,656,000
Restricted cash37,573,000
 30,487,000
Cash, cash equivalents and restricted cash$72,705,000
 $64,143,000
   
End of period:   
Cash and cash equivalents$34,904,000
 $37,926,000
Restricted cash38,972,000
 31,888,000
Cash, cash equivalents and restricted cash$73,876,000
 $69,814,000
   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION   
Cash paid for:   
Interest$16,345,000
 $13,774,000
Income taxes$160,000
 $453,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES   
Investing Activities:   
Accrued capital expenditures$9,309,000
 $5,957,000
Capital expenditures from financing obligations$2,563,000
 $3,194,000
Tenant improvement overage$313,000
 $353,000
The following represents the increase in certain assets and liabilities in connection with our acquisitions of real estate investments:   
Accounts payable and accrued liabilities$37,000
 $
Prepaid rent$105,000
 $
Financing Activities:      
Issuance of common stock under the DRIP$45,444,000
 $47,453,000
$14,196,000
 $15,229,000
Distributions declared but not paid$9,875,000
 $9,830,000
$10,125,000
 $10,233,000
Payable to transfer agent$72,000
 $
Reclassification of noncontrolling interests to mezzanine equity$585,000
 $585,000
$195,000
 $195,000
Accrued deferred financing costs$
 $87,000
Settlement of mortgage loan payable$
 $2,040,000
The accompanying notes are an integral part of these condensed consolidated financial statements.


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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017
The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.noted.
1. Organization and Description of Business
Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and may also originate and acquire other real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT.
On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we offered to the public up to $1,900,000,000 in shares of our common stock. As of April 22, 2015, the deregistration date of our initial offering, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to our initial distribution reinvestment plan, or the Initial DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.Initial DRIP. See Note 13, Equity — Common Stock, for a further discussion.
On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock to be issued pursuant to the Initial DRIP, or the Secondary2015 DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the United States Securities and Exchange Commission, or SEC, upon its filing; however, we did not commenceWe commenced offering shares pursuant to the Secondary2015 DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of common stock being issued pursuant to the 2015 DRIP Offering. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering; however, we did not commence offering shares pursuant to the 2019 DRIP Offering until April 1, 2019, following the deregistration of the 2015 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion. As of September 30, 2018, a total of $216,614,000 in distributions were reinvested and 23,309,252 shares of our common stock were issued pursuant to the Secondary DRIP Offering.
We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had aone-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 201813, 2019 and expires on February 26, 2019. Our2020. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, or our board, to, amongamong other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony Capital or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

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

We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of September 30, 2018,March 31, 2019, we owned and/or operated 9798 properties, comprising 101102 buildings, and 111113 integrated senior health campuses including completed development projects, or approximately 13,132,00013,412,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,933,369,000.$2,967,409,000. In addition, as of September 30, 2018,March 31, 2019, we had invested $90,878,000$89,079,000 in real estate-related investments, net of principal repayments.

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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 accompanying condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries in which we have control, as well as any variable interest entities, or VIEs in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810.performance.
We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We are the sole general partner of our operating partnership, and as of September 30, 2018March 31, 2019 and December 31, 2017,2018, we owned greater than a 99.99% general partnership interest therein. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, our advisor owned less than a 0.01% limited partnership interest in our operating partnership.
Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the United States Securities and Exchange Commission, or 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 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.21, 2019.
Use of Estimates
The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis

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

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.
Leases
On January 1, 2019, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 842, or ASC Topic 842. ASC Topic 842 supersedes ASC Topic 840, Leases, or ASC Topic 840. We adopted ASC Topic 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Therefore, with respect to our leases as both lessees and lessors, information is presented under ASC Topic 842 as of and for the three months ended March 31, 2019 and under ASC Topic 840 as of and for the year ended December 31, 2018. In addition, ASC Topic 842 provides a practical expedient package that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) the lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. We elected such practical expedient package upon our adoption of ASC Topic 842 on January 1, 2019. We determine if a contract is a lease upon inception of the lease. We maintain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance.
Lessee: Pursuant to ASC Topic 842, lessees are required to recognize the following for all leases with terms greater of 12 months at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The lease liability is calculated by using either the implicit rate of the lease or the incremental borrowing rate. As a result of the adoption of ASC Topic 842 on January 1, 2019, we recognized an initial amount of lease liability of $198,453,000 in our condensed consolidated balance sheet for all of our operating leases for which we are the lessee, including facilities leases and ground leases. In addition, we recorded a corresponding right-of-use asset of $211,679,000, which is the lease liability, net of the existing prepaid rent asset and accrued straight-line rent liability balance and adjusted for unamortized above/below market ground lease intangibles. The accretion of lease liability and amortization expense on right-of-use assets for our operating leases are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income. The operating lease liability was calculated using our incremental borrowing rate based on the information available as of our adoption date.
The accounting for our existing capital (finance) leases upon adoption of ASC Topic 842 remains substantially unchanged. For our finance leases, the accretion of lease liability is included in interest expense and the amortization expense on right-of-use assets is included in depreciation and amortization in our accompanying condensed consolidated statements of operations and comprehensive income. Further, finance lease liabilities are included within financing obligations in our accompanying condensed consolidated balance sheets.
Lessor: Pursuant to ASC Topic 842, lessors bifurcate lease revenues into lease components and non-lease components and separately recognize and disclose non-lease components that are executory in nature. Lease components continue to be recognized on a straight-line basis over the lease term and certain non-lease components may be accounted for under the new revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606. See “Revenue Recognition” section below. ASC Topic 842 also provides for a practical expedient package that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. Such practical expedient is limited to circumstances in which (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. In addition, such practical expedient causes an entity to assess whether a contract is predominately lease or service based, and recognize the entire contract under the relevant accounting guidance. Effective upon our adoption of ASC Topic 842 on January 1, 2019, we recognize revenue for our medical office buildings, senior housing, skilled nursing facilities and hospitals segments under ASC Topic 842 as real estate revenue. Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements are recorded to deferred rent receivable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, are considered non-lease components. We qualified for and elected the practical expedient as outlined above to combine the non-lease component with the lease component, which is the predominant component, and therefore is recognized as part of real estate revenue. In addition as lessors, we exclude certain lessor costs (i.e., property taxes and insurance) paid

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

Revenue Recognitiondirectly by a lessee to third parties on our behalf from our measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs); and (ii) include lessor costs that we paid and are reimbursed by the lessee in our measurement of variable lease revenue and associated expense (i.e., gross up revenue and expense for these costs). Therefore, we no longer record revenue or expense when the lessee pays the property taxes and insurance directly to a third party.
Resident feesFor our senior housing — RIDEA facilities and services
Prior to January 1, 2018,integrated senior health campuses, we recognizedrecognize revenue under ASC Topic 606 as resident fees and services, revenue in accordance with ASC Topic 605, based on our predominance assessment from electing the practical expedient outlined above. See “Revenue Recognition” below.
See Note 17, Leases, for a further discussion.
Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC Topic 606 did not have a material impact on the measurement nor on the recognition of resident fees and services revenue as of January 1, 2018; therefore, no cumulative adjustment has been made to the opening balance of retained earnings at the beginning of 2018.
A significant portion of resident fees and servicesReal estate revenue represents healthcare service
Prior to January 1, 2019, minimum annual rental revenue that is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), other healthcare facilities, and others and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, we bill the patients, third-party payors and other healthcare facilities several days after the services are performed. Revenue iswas recognized as performance obligations are satisfied.
Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of servicesstraight-line basis over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campuses receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.
Because all of its performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The performance obligations for these contracts are generally completed within months of the end of the reporting period.
We determine the transaction price based on standard charges for goods and services provided, reduced, where applicable, by contractual adjustments provided to third-party payors, implicit price concessions provided to uninsured patients, and estimates of goods to be returned. We also determine the estimates of contractual adjustments based on Medicare and Medicaid pricing tables and historical experience. We determine the estimate of implicit price concessions based on the historical collection experience with each class of payor.
Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:
Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.
Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates. In the state of Indiana, we participate in an Upper Payment Limit program, or IGT, with various county hospital partners, which provides supplemental Medicaid payments to skilled nursing facilities that are licensed to non-state, government-owned entities such as county hospital districts. We have operational responsibility through management agreements for facilities retained by the county hospital districts including this IGT.

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

Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various healthcare organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.
Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigations. Adjustments arising from a change in the transaction price were not significant for the three and nine months ended September 30, 2018.
In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption of ASC Topic 606 on our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2018 were as follows:
  Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
  
As
Reported
 
Balances Without
Adoption of ASC
Topic 606
 
Effect of Change
(Lower)/Higher
 
As
Reported
 
Balances Without
Adoption of ASC
Topic 606
 
Effect of Change
Lower
Resident fees and services $251,884,000
 $253,397,000
 $(1,513,000) $744,859,000
 $749,860,000
 $(5,001,000)
Property operating expenses $223,665,000
 $223,586,000
 $79,000
 $659,295,000
 $659,395,000
 $(100,000)
General and administrative $6,900,000
 $8,533,000
 $(1,633,000) $19,910,000
 $24,761,000
 $(4,851,000)
Net income $3,824,000
 $3,783,000
 $41,000
 $12,931,000
 $12,981,000
 $(50,000)
In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption of ASC Topic 606 on our condensed consolidated balance sheet as of September 30, 2018 was as follows:
  
As
Reported
 
Balances Without
Adoption of ASC
Topic 606
 
Effect of Change
Higher/(Lower)
Assets      
Other assets, net $110,970,000
 $110,870,000
 $100,000
Liabilities      
Accounts payable and accrued liabilities $136,821,000
 $136,671,000
 $150,000
Equity      
Accumulated deficit $(676,166,000) $(676,116,000) $(50,000)
The change in reported balances is primarily based on the fact that substantially all of the amounts recorded to bad debt expense pursuant to our previous accounting policylease (including rent holidays) in accordance with ASC Topic 605840, Leases, or ASC Topic 840. Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements were recorded to deferred rent receivable 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, was recognized as revenue in the period in which the related expenses were incurred. Tenant reimbursements were recognized and presented in accordance with ASC Subtopic 606-10-55-36, Revenue RecognitionPrincipal Versus Agent Consideration, or ASC Subtopic 606. ASC Subtopic 606 requires that these reimbursements be recorded on a gross basis as we are now recorded as direct reductionsgenerally primarily responsible to fulfill the promise to provide specified goods and services. We recognized lease termination fees at such time when there was a signed termination letter agreement, all of residentthe conditions of such agreement have been met and the tenant is no longer occupying the property.
Effective January 1, 2019, we recognize real estate revenue in accordance with ASC Topic 842. See “Leases” section above.
Resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions pursuant to the new revenue standard, ASC Topic 606.

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Disaggregation of Resident Fees and Services Revenue
We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. This distinction is discussed in further detail below. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following table disaggregates our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time:
 Three Months Ended March 31,
 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 2019 2018
 Point in Time Over Time Total Point in Time Over Time Total Point in Time Over Time Total Point in Time Over Time Total
Integrated senior health campuses $46,525,000
 $189,080,000
 $235,605,000
 $136,347,000
 $559,840,000
 $696,187,000
 $52,342,000
 $199,372,000
 $251,714,000
 $45,165,000
 $183,896,000
 $229,061,000
Senior housing — RIDEA(1) 835,000
 15,444,000
 16,279,000
 2,332,000
 46,340,000
 48,672,000
 711,000
 15,857,000
 16,568,000
 768,000
 15,564,000
 16,332,000
Total resident fees and services $47,360,000
 $204,524,000
 $251,884,000
 $138,679,000
 $606,180,000
 $744,859,000
 $53,053,000
 $215,229,000
 $268,282,000
 $45,933,000
 $199,460,000
 $245,393,000

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The following table disaggregates our resident fees and services revenue by payor class:
 Three Months Ended March 31,
 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 2019 2018
 
Integrated
Senior Health
Campuses
 
Senior
Housing
 — RIDEA(1)
 Total 
Integrated
Senior Health
Campuses
 
Senior
Housing
 — RIDEA(1)
 Total 
Integrated
Senior Health
Campuses
 
Senior
Housing
 — RIDEA(1)
 Total 
Integrated
Senior Health
Campuses(2)
 
Senior
Housing
 — RIDEA(1)
 Total
Medicare $75,530,000
 $
 $75,530,000
 $208,524,000
 $
 $208,524,000
 $84,477,000
 $
 $84,477,000
 $78,037,000
 $
 $78,037,000
Medicaid 43,101,000
 11,000
 43,112,000
 124,320,000
 14,000
 124,334,000
 45,036,000
 13,000
 45,049,000
 40,404,000
 3,000
 40,407,000
Private and other payors 116,974,000
 16,268,000
 133,242,000
 363,343,000
 48,658,000
 412,001,000
 122,201,000
 16,555,000
 138,756,000
 110,620,000
 16,329,000
 126,949,000
Total resident fees and services $235,605,000
 $16,279,000
 $251,884,000
 $696,187,000
 $48,672,000
 $744,859,000
 $251,714,000
 $16,568,000
 $268,282,000
 $229,061,000

$16,332,000

$245,393,000
___________
(1)This includes fees for basic housing and assisted living care. We record revenue when services are rendered on the date services are provided at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.
(2)Medicare includes $21,881,000 of revenue that was previously disclosed as Private and other payors. There was no net change in previously disclosed total resident fees and services.
Accounts Receivable, Net Resident Fees and Services Revenue
The beginning and ending balances of accounts receivable, net resident fees and services are as follows:
  Medicare Medicaid 
Private
and
Other Payors
 Total
Beginning balance — January 1, 2018
 $29,979,000
 $15,640,000
 $35,706,000
 $81,325,000
Ending balance — September 30, 2018
 31,501,000
 15,257,000
 42,346,000
 89,104,000
Increase/(decrease) $1,522,000
 $(383,000) $6,640,000
 $7,779,000

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  Medicare Medicaid 
Private
and
Other Payors
 Total
Beginning balance — January 1, 2019
 $29,160,000
 $18,676,000
 $39,112,000
 $86,948,000
Ending balance — March 31, 2019
 30,898,000
 18,642,000
 43,912,000
 93,452,000
Increase/(decrease) $1,738,000
 $(34,000) $4,800,000
 $6,504,000
Deferred Revenue Resident Fees and Services Revenue
The beginning and ending balances of deferred revenue resident fees and services, all of which relates to private and other payors, are as follows:
  Total
Beginning balance — January 1, 2018
 $9,801,000
Ending balance — September 30, 2018
 10,765,000
Increase $964,000
  Total
Beginning balance — January 1, 2019
 $12,569,000
Ending balance — March 31, 2019
 10,590,000
Decrease $(1,979,000)
All amounts included inTenant and Resident Receivables and Allowance for Uncollectible Accounts
Resident receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the beginning balanceinability of deferred revenue residents and payors to meet the contractual obligations under their lease or service agreements. Upon our adoption of ASC Topic 606, substantially all of such allowances are recorded as direct reductions of resident fees and services at January 1, 2018 were recognizedrevenue as revenue during the nine months ended September 30, 2018.
Financing Component
We have elected the practical expedient allowed under FASB ASC 606-10-32-18 and, therefore, we do not adjust the promised amount of consideration from patients andcontractual adjustments provided to third-party payors for the effectsor implicit price concessions in our accompanying condensed consolidated statements of a significant financing component due to our expectation that the period between the time the service is provided to a patientoperations and the time that the patient or a third-party payor pays for that service will be one year or less.
Contract Costs
We have applied the practical expedient provided by FASB ASC 340-40-25-4 and, therefore, all incremental customer contract acquisition costs are expensed as they are incurred since the amortization periodcomprehensive income. Our determination of the asset that we otherwise would have recognizedadequacy of these allowances is one year or less in duration.
Accounts Payablebased primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and Accrued Liabilities
As of September 30, 2018by state, current economic conditions and December 31, 2017, accounts payable and accrued liabilities primarily includes insurance payables of $29,651,000 and $27,208,000, respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $25,940,000 and $23,737,000, respectively, accrued property taxes of $16,962,000 and $13,406,000, respectively, accrued capital expenditures to unaffiliated third parties of $15,124,000 and $5,988,000, respectively, and accrued distributions of $9,875,000 and $10,192,000, respectively.
Statement of Cash Flows
For the nine months ended September 30, 2017, amounts totaling $495,102,000 have been removed from borrowings under the lines of credit and term loans and payments on the lines of credit and term loans compared to amounts previously presented. There was no net change in previously disclosed net cash provided by financing activities.
Recently Issued or Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02, which amends the guidance on accounting for leases, including extensive amendments to the disclosure requirements. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02 from a lessor perspective, the guidance will require bifurcation of lease revenues into lease components and non-lease components and to separately recognize and disclose non-lease components that are executory in nature. Lease components will continue to be recognized on a straight-line basis over the lease term and certain non-lease components may be accounted for under the new revenue recognition guidance in ASC Topic 606. In addition, ASU 2016-02 provides a practical expedient that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) the lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. We plan to elect this practical expedient.
In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, or ASU 2018-10, and ASU 2018-11, Leases (Topic 842) Targeted Improvements, or ASU 2018-11, which update the guidance on accounting for leases under ASU 2016-02. ASU 2018-10 was issued to increase stockholders’ awareness of narrow aspects of the guidanceother relevant factors.

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issued in the amendments andPrior to expedite the improvements under ASU 2016-02. ASU 2018-11 provides (a) an alternative transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, in addition to the modified retrospective transition method prescribed by ASU 2016-02, which requires application of the new leases standard at the beginning of the earliest period presented in the financial statements for comparative purposes; and (b) a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. We plan to elect this practical expedient and transition method. We completed a preliminary assessment of predominance for our medical office buildings, senior housing, skilled nursing facilities and hospitals segments and, effective upon the adoption of ASU 2016-02 (codified under ASC Topic 842), we expect842, tenant receivables and unbilled deferred rent receivables were reduced for uncollectible amounts. Such amounts were charged to recognize revenue from these segments underbad debt expense, which was included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income. Effective upon our adoption of ASC Topic 842. We are still in the process of completing our preliminary assessment related to senior housing — RIDEA. We plan to finalize our assessment for all segments during the fourth quarter of 2018.
ASU 2016-02, ASU 2018-10 and ASU 2018-11 are effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. As a result of the adoption of the new leases standard842 on January 1, 2019, we: (i) will recognize all of our operating leases for which wesuch amounts are the lessee, including facilities leases and ground leases, on our consolidated balance sheets; and (ii) may be required to increase our revenue and expense for the amountrecognized as direct reductions of real estate taxesrevenue in our accompanying condensed consolidated statements of operations and comprehensive income.
Accounts Payable and Accrued Liabilities
As of March 31, 2019 and December 31, 2018, accounts payable and accrued liabilities primarily includes insurance paid by our tenants under triple-net leases; however, we are still evaluating the complete impactpayables of the adoption$31,961,000 and $32,123,000, respectively, reimbursement of the new leases standard and itspayroll related expedients, in additioncosts to the transition method, on January 1, 2019managers of our senior housing — RIDEA facilities and integrated senior health campuses of $28,200,000 and $26,428,000, respectively, accrued property taxes of $14,480,000 and $15,121,000, respectively, accrued distributions of $10,125,000 and $10,189,000, respectively, and accrued capital expenditures to our consolidated financial statementsunaffiliated third parties of $9,252,000 and disclosures.$12,490,000, respectively.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In addition, in November 2018, the FASB issued ASU 2018-19, which amended the scope of ASU 2016-13 to clarify that operating lease receivables should be accounted for under the new leasing standard ASC Topic 842. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted after December 15, 2018. We do not expectare evaluating the impact of the adoption of ASU 2016-13 on January 1, 2020 to have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassificationposition and results of Certain Tax Effects From Accumulated Other Comprehensive Income, or ASU 2018-02, which amends the reclassification requirements from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, or the Tax Act. Under ASU 2018-02, an entity will be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2018-02 on January 1, 2019 to have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05, Amendments to the SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, or ASU 2018-05, which updates the income tax accounting in GAAP to reflect the SEC’s interpretive guidance with regards to the Tax Act. We adopted ASU 2018-05 in March 2018, which did not have a material impact on our consolidated financial statements. See Note 16, Income Taxes, for a further discussion.operation.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements in ASC Topic 820, Fair Value Measurement,Measurements and Disclosures, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. ASU 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are currently evaluating this guidance to determine the complete impact of the adoption of ASU 2018-13 on January 1, 2020 to our consolidated financial statement disclosures.
3. Real Estate Investments, Net
Our real estate investments, net consisted of the following as of March 31, 2019 and December 31, 2018:
 
March 31,
2019
 December 31,
2018
Building, improvements and construction in process$2,177,669,000
 $2,160,944,000
Land and improvements188,241,000
 189,446,000
Furniture, fixtures and equipment132,992,000
 126,985,000
 2,498,902,000
 2,477,375,000
Less: accumulated depreciation(275,233,000) (254,694,000)
 $2,223,669,000
 $2,222,681,000
Depreciation expense for the three months ended March 31, 2019 was $22,204,000. In addition to the acquisitions and completed development discussed below, for the three months ended March 31, 2019, we incurred capital expenditures of $13,628,000 for our integrated senior health campuses, $2,034,000 for our medical office buildings, $305,000 for our senior housing —RIDEA facilities and $34,000 for our skilled nursing facilities. We did not incur any capital expenditures for our senior housing facilities and hospitals for the three months ended March 31, 2019.

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3. Real Estate Investments, Net
Our real estate investments, net consisted of the following as of September 30, 2018 and December 31, 2017:
 
September 30,
2018
 December 31,
2017
Building, improvements and construction in process$2,139,126,000
 $2,058,312,000
Land and improvements185,902,000
 177,999,000
Furniture, fixtures and equipment119,447,000
 99,897,000
 2,444,475,000
 2,336,208,000
Less: accumulated depreciation(233,709,000) (172,950,000)
 $2,210,766,000
 $2,163,258,000
Depreciation expense for the three months ended September 30, 2018 and 2017 was $20,636,000 and $20,611,000, respectively. Depreciation expense for the nine months ended September 30, 2018 and 2017 was $61,323,000 and $61,453,000, respectively. No impairment charges were recognized for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018, we determined that one of our medical office buildings was impaired and recognized an impairment charge of $2,542,000, which reduced the total carrying value of such investment to $7,387,000. The fair value of such medical office building was based upon a discounted cash flow analysis where the most significant inputs were market rents, lease absorption rate, capitalization rate and discount rate, and such inputs were considered Level 3 measurements within the fair value hierarchy. For the nine months ended September 30, 2017, we recognized an aggregate impairment charge of $4,883,000 related to two integrated senior health campuses, which reduced the total carrying value of such investments to $990,000. In July 2017, we disposed of one such integrated senior health campus and, as of September 30, 2017, the fair value of the other integrated senior health campus was based on its projected sales price, which was considered a Level 2 measurement within the fair value hierarchy.
For the three months ended September 30, 2018, we incurred capital expenditures of $20,416,000 on our integrated senior health campuses, $2,047,000 on our medical office buildings, $768,000 on our senior housing —RIDEA facilities, and $10,000 on our hospitals. We did not incur any capital expenditures on our senior housing facilities or skilled nursing facilities for the three months ended September 30, 2018.
For the nine months ended September 30, 2018, we incurred capital expenditures of $48,282,000 on our integrated senior health campuses, $5,590,000 on our medical office buildings, $1,283,000 on our senior housing —RIDEA facilities, $459,000 on our skilled nursing facilities and $57,000 on our hospitals. We did not incur any capital expenditures on our senior housing facilities for the nine months ended September 30, 2018.
Acquisitions of Real Estate Investments
2018 Acquisitions of Real Estate Investments
For the ninethree months ended September 30, 2018,March 31, 2019, using cash on hand and debt financing, we completed the acquisition of one building from an unaffiliated third party, which we added to our existing North Carolina ALF Portfolio. The other fivesix buildings in North Carolina ALF Portfolio were acquired inbetween January 2015 June 2015 and January 2017.August 2018. The following is a summary of our property acquisition for the ninethree months ended September 30, 2018:March 31, 2019:
Acquisition(1) Location Type 
Date
Acquired
 
Contract
Purchase Price
 
Lines of Credit
and
Term Loans(2)
 
Acquisition
Fee(3)
 Location Type 
Date
Acquired
 
Contract
Purchase Price
 
Lines of Credit
and
Term Loans(2)
 
Acquisition
Fee(3)
North Carolina ALF Portfolio Matthews, NC Senior Housing 08/30/18 $15,000,000
 $13,500,000
 $338,000
 Garner, NC Senior Housing 03/27/19 $15,000,000
 $15,000,000
 $338,000
___________
(1)We own 100% of our property acquired in 2018.2019.
(2)Represents a borrowing under the 20162019 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loans, at the time of acquisition.
(3)Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our property, an acquisition fee of 2.25% of the contract purchase price of such property.

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In addition to the property acquisition discussed above, on April 17, 2018, we purchased land as part of our existing Southern Illinois MOB Portfolio for a contract purchase price of $300,000 and paid a 2.25% acquisition fee to our advisor of approximately $7,000, plus closing costs.
2018 Acquisition of Previously Leased Real Estate Investments
For the nine months ended September 30, 2018,March 29, 2019, we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, of which we own 67.7%, acquired land in Michigan for a portfoliocontract purchase price of four previously leased real estate investments located in Kentucky, Michigan$736,000 plus closing costs and Ohio. The following is a summarypaid to our advisor an acquisition fee of such acquisition for2.25% of the nineportion of the contract purchase price of the land attributed to our ownership interest.
For the three months ended September 30, 2018, which is included in our integrated senior health campuses segment:
Locations 
Date
Acquired
 
Contract
Purchase Price
 
Mortgage Loan
Payable(1)
 
Acquisition
Fee(2)
Lexington, KY; Novi and Romeo, MI; and Fremont, OH 07/20/18 $47,455,000
 $47,500,000
 $723,000
___________
(1)Represents the principal balance of the mortgage loan payable placed on the properties at the time of acquisition.
(2)Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the portion of the contract purchase price of the properties attributed to our ownership interest of approximately 67.7% in the Trilogy subsidiary that acquired the properties.
For the nine months ended September 30, 2018,March 31, 2019, we accounted for our property acquisitions, including our acquisition of previously leased real estate investments,acquisitions as asset acquisitions. We incurredcapitalized closing costs and direct acquisition related expenses of $2,936,000$441,000 for such property acquisitions, which were capitalized in accordance with ASU 2017-01, Clarifying the Definition of a Business, or ASU 2017-01.acquisitions. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our property acquisitions in 20182019 based on their relative fair values:
 
2018 Property
Acquisitions
 
2019 Real Estate
Acquisitions
Building and improvements $49,759,000
 $11,698,000
Land 7,725,000
 2,502,000
In-place leases 6,894,000
 1,978,000
Certificates of need 1,313,000
Total assets acquired $65,691,000
 $16,178,000
Completed Developments and/or Expansions in 2018Development
For the ninethree months ended September 30, 2018,March 31, 2019, we incurred $3,834,000 to expand ourcompleted the development of one integrated senior health campuses,campus for $10,558,000, which is included in real estate investments, net, in our accompanying condensed consolidated balance sheets.
4. Real Estate Notes Receivable and Debt Security Investment, Net
The following is a summary of our notes receivable and debt security investment, including unamortized loan and closing costs, net as of September 30, 2018March 31, 2019 and December 31, 20172018:
         Balance
 
Origination
Date
 
Maturity
Date
 
Contractual
Interest
Rate(1)
 
Maximum
Advances
Available
 
September 30,
2018
 
December 31,
2017
Mezzanine Fixed Rate Notes(2)(3)02/04/15 12/09/19 6.75% $28,650,000
 $28,650,000
 $28,650,000
Mezzanine Floating Rate Notes(2)(3)02/04/15 12/09/18 8.39% $31,567,000
 1,799,000
 1,799,000
Debt security investment(4)10/15/15 08/25/25 4.24% N/A 67,648,000
 65,638,000
         98,097,000
 96,087,000
Unamortized loan and closing costs, net        1,716,000
 1,901,000
         $99,813,000
 $97,988,000
___________
         Balance
 
Origination
Date
 
Maturity
Date
 
Contractual
Interest
Rate
 
Maximum
Advances
Available
 
March 31,
2019
 
December 31,
2018
Mezzanine Fixed Rate Notes(1)02/04/15 12/09/19 6.75% $28,650,000
 $28,650,000
 $28,650,000
Debt security investment(2)10/15/15 08/25/25 4.24% N/A 69,080,000
 68,355,000
         97,730,000
 97,005,000
Unamortized loan and closing costs, net        1,582,000
 1,650,000
         $99,312,000
 $98,655,000

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___________
(1)Represents the per annum interest rate in effect as of September 30, 2018.
(2)The Mezzanine Fixed Rate Notes and the Mezzanine Floating Rate Notes, or collectively, the Mezzanine Notes evidence interests in a portion of a mezzanine loan that is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such owners are themselves owned indirectly by a non-wholly owned subsidiary of Colony Capital. In November 2018, the borrower repaid the Mezzanine Floating Rate Notes in full.
(3)Balance represents the original principal balance, decreased by any subsequent principal paydowns. The Mezzanine NotesSuch notes only require monthly interest payments and are subject to certain prepayment restrictions if repaid before the respective maturity dates.date.
(4)(2)The commercial mortgage-backed debt security, or the debt security, bears an interest rate on the stated principal amount thereof equal to 4.24% per annum, the terms of which security provide for monthly interest-only payments. The debt security matures on August 25, 2025 at a stated amount of $93,433,000, resulting in an anticipated yield-to-maturity of 10.0% per annum. The debt security was issued by an unaffiliated mortgage trust and represents a 10.0% beneficial ownership interest in such mortgage trust. The debt security is subordinate to all other interests in the mortgage trust and is not guaranteed by a government-sponsored entity. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, the net carrying amount with accretion was $69,198,000$70,565,000 and $67,275,000,$69,873,000, respectively. We classify our debt security investment as held-to-maturity and we have not recorded any unrealized holding gains or losses on such investment.
The following table reflects the changes in the carrying amount of our real estate notes receivable and debt security investment net for the ninethree months ended September 30, 2018March 31, 2019 and 2017:2018:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Beginning balance$97,988,000
 $101,117,000
$98,655,000
 $97,988,000
Additions:      
Accretion on debt security2,010,000
 1,821,000
725,000
 657,000
Deductions:      
Principal repayments on real estate notes receivable
 (2,641,000)
Amortization of loan and closing costs(185,000) (164,000)(68,000) (59,000)
Ending balance$99,813,000

$100,133,000
$99,312,000

$98,586,000
For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we did not record any impairment losses on our real estate notes receivable andor debt security investment. Amortization expense ofon loan and closing costs for the three months ended September 30, 2018 and 2017 was $64,000 and $57,000, respectively, and for the nine months ended September 30, 2018 and 2017, was $185,000 and $164,000, respectively, which was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.

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5. Identified Intangible Assets, Net
Identified intangible assets, net consisted of the following as of September 30, 2018March 31, 2019 and December 31, 20172018:
September 30,
2018
 
December 31,
2017
March 31,
2019
 
December 31,
2018
Amortized intangible assets:      
In-place leases, net of accumulated amortization of $22,544,000 and $25,967,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 9.6 years and 10.2 years as of September 30, 2018 and December 31, 2017, respectively)$49,131,000
 $50,520,000
Leasehold interests, net of accumulated amortization of $512,000 and $407,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 53.9 years and 54.6 years as of September 30, 2018 and December 31, 2017, respectively)7,382,000
 7,487,000
Customer relationships, net of accumulated amortization of $149,000 and $37,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 19.0 years and 19.8 years as of September 30, 2018 and December 31, 2017, respectively)2,691,000
 2,803,000
Above-market leases, net of accumulated amortization of $2,807,000 and $3,335,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 5.2 years as of both September 30, 2018 and December 31, 2017)2,259,000
 3,026,000
Internally developed technology and software, net of accumulated amortization of $94,000 and $23,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 4.0 years and 4.8 years as of September 30, 2018 and December 31, 2017, respectively)376,000
 447,000
In-place leases, net of accumulated amortization of $25,467,000 and $23,497,000 as of March 31, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 10.2 years and 9.8 years as of March 31, 2019 and December 31, 2018, respectively)$44,801,000
 $45,815,000
Leasehold interests, net of accumulated amortization of $548,000 as of December 31, 2018 (with a weighted average remaining life of 53.6 years as of December 31, 2018)(1)
 7,346,000
Customer relationships, net of accumulated amortization of $224,000 and $187,000 as of March 31, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 18.5 years and 18.8 years as of March 31, 2019 and December 31, 2018, respectively)2,616,000
 2,653,000
Above-market leases, net of accumulated amortization of $1,942,000 and $2,851,000 as of March 31, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 5.2 years as of both March 31, 2019 and December 31, 2018)1,847,000
 2,059,000
Internally developed technology and software, net of accumulated amortization of $141,000 and $117,000 as of March 31, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 3.5 years and 3.8 years as of March 31, 2019 and December 31, 2018, respectively)329,000
 353,000
Unamortized intangible assets:      
Certificates of need85,773,000
 83,320,000
88,373,000
 88,590,000
Trade names30,787,000
 30,787,000
30,787,000
 30,787,000
Purchase option asset(1)1,918,000
 1,918,000
1,918,000
 1,918,000
$180,317,000
 $180,308,000
$170,671,000
 $179,521,000
___________
(1)Under oneSuch amount related to our ownership of fee simple interests in the building and improvements of 11 of our integrated senior health campus leases,buildings that are subject to respective ground leases. Upon our adoption of ASC Topic 842 on January 1, 2019, such amount was reclassed to operating lease right-of-use assets in which we are the lessee, we have the right to acquire the property atour accompanying condensed consolidated balance sheet. See Note 2, Summary of Significant Accounting Policies — Leases, and Note 17, Leases, for a date in the future and at our option. We estimated the fair value of this purchase option asset by discounting the difference between the property’s acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible asset over the term of the lease, but rather adjust the recognized value of the asset upon purchase.further discussion.
Amortization expense for the three months ended September 30,March 31, 2019 and 2018 was $3,345,000 and 2017 was $3,227,000 and $7,205,000,$3,512,000, respectively, which included $210,000$212,000 and $329,000,$339,000, respectively, of amortization recorded against real estate revenue for above-market leases and $34,000$0 and $35,000,$36,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
AmortizationThe aggregate weighted average remaining life of the identified intangible assets was 10.4 years and 15.5 years as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, estimated amortization expense on the identified intangible assets for the nine months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter was as follows:
Year Amount
2019 $6,974,000
2020 6,088,000
2021 5,515,000
2022 4,797,000
2023 4,016,000
Thereafter 22,203,000
  $49,593,000

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6. Other Assets, Net
Other assets, net consisted of the following as of March 31, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31,
2018
Deferred rent receivables$31,648,000
 $23,334,000
Prepaid expenses, deposits and other assets27,053,000
 29,803,000
Inventory18,601,000
 21,151,000
Investment in unconsolidated entities16,078,000
 15,432,000
Deferred tax assets, net(1)9,515,000
 9,461,000
Lease commissions, net of accumulated amortization of $1,471,000 and $1,274,000 as of March 31, 2019 and December 31, 2018, respectively8,481,000
 8,523,000
Deferred financing costs, net of accumulated amortization of $7,751,000 and $12,487,000 as of March 31, 2019 and December 31, 2018, respectively(2)7,047,000
 2,311,000
Lease inducement, net of accumulated amortization of $877,000 and $789,000 as of March 31, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 11.8 years and 12.0 years as of March 31, 2019 and December 31, 2018, respectively)4,123,000
 4,211,000
 $122,546,000
 $114,226,000
___________
(1)See Note 16, Income Taxes, for a further discussion.
(2)Deferred financing costs only include costs related to our lines of credit and term loans.
Amortization expense on deferred financing costs of our lines of credit and term loans for the three months ended September 30,March 31, 2019 and 2018 was $1,030,000 and 2017 was $9,204,000$985,000, respectively. Amortization expense on deferred financing costs of our lines of credit and $27,761,000, respectively, which included $766,000 and $1,056,000, respectively, of amortization recorded against real estate revenue for above-market leases and $105,000 and $106,000, respectively, of amortizationterm loans is recorded to rental expenses for leasehold interestsinterest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income. Amortization expense on lease commissions for the three months ended March 31, 2019 and 2018 was $291,000 and $155,000, respectively. Amortization expense on lease inducement for both the three months ended March 31, 2019 and 2018 was $88,000. Amortization expense on lease inducement is recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income.
Investments in unconsolidated entities primarily represents our investment in RHS Partners, LLC, or RHS, a privately-held company that operates 16 integrated senior health campuses. Our effective ownership of RHS was 33.9% and 33.8% as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019 and December 31, 2018, we had a receivable of $3,058,000 and $2,507,000, respectively, due from RHS, which is included in accounts and other receivables, net, in our accompanying condensed consolidated balance sheets. The following is summarized financial information of our investments in unconsolidated entities:
 
March 31,
2019
 
December 31,
2018
 RHS Other Total RHS Other Total
Balance Sheet Data:           
Total assets$271,118,000
 $654,000
 $271,772,000
 $48,291,000
 $100,000
 $48,391,000
Total liabilities$246,952,000
 $400,000
 $247,352,000
 $25,263,000
 $
 $25,263,000

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The aggregate weighted average remaining life of the identified intangible assets was 15.1 years and 15.5 years as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, estimated amortization expense of the identified intangible assets for the three months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter was as follows:
Year Amount
2018 $3,500,000
2019 10,211,000
2020 6,142,000
2021 5,569,000
2022 4,849,000
Thereafter 31,568,000
  $61,839,000
6. Other Assets, Net
Other assets, net consisted of the following as of September 30, 2018 and December 31, 2017:
 
September 30,
2018
 
December 31,
2017
Prepaid expenses, deposits and other assets$31,908,000
 $21,796,000
Deferred rent receivables22,418,000
 17,458,000
Inventory16,790,000
 19,311,000
Investment in unconsolidated entity(1)15,586,000
 17,259,000
Deferred tax assets, net(2)8,594,000
 6,882,000
Lease commissions, net of accumulated amortization of $1,080,000 and $606,000 as of September 30, 2018 and December 31, 2017, respectively8,110,000
 5,426,000
Lease inducement, net of accumulated amortization of $702,000 and $439,000 as of September 30, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 12.3 years and 13.0 years as of September 30, 2018 and December 31, 2017, respectively)4,298,000
 4,561,000
Deferred financing costs, net of accumulated amortization of $11,428,000 and $7,850,000 as of September 30, 2018 and December 31, 2017, respectively(3)3,266,000
 6,327,000
 $110,970,000
 $99,020,000
___________
(1)Represents our investment in RHS Partners, LLC, or RHS, a privately-held company that operates 16 integrated senior health campuses. Our effective ownership of RHS is 33.8% as of both September 30, 2018 and December 31, 2017.
(2)See Note 16, Income Taxes, for a further discussion.
(3)
In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, or ASU 2015-15, deferred financing costs, net only include costs related to our lines of credit and term loans.
Amortization expense of lease commissions for the three months ended September 30, 2018 and 2017 was $197,000 and $127,000, respectively, and for the nine months ended September 30, 2018 and 2017 was $534,000 and $306,000, respectively. Amortization expense of lease inducement for both the three months ended September 30, 2018 and 2017 was $88,000 and for both the nine months ended September 30, 2018 and 2017 was $263,000. Amortization expense of lease inducement is recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Amortization expense of deferred financing costs of our lines of credit and term loans for the three months ended September 30, 2018 and 2017 was $981,000 and $978,000, respectively, and for the nine months ended September 30, 2018 and 2017 was $3,578,000 and $2,828,000, respectively. Amortization expense of deferred financing costs related to our lines of

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credit and term loans is recorded to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss).
As of September 30, 2018, we had a receivable of $2,705,000 due from RHS, which is included in other assets, net, in our accompanying condensed consolidated balance sheet. The following is summarized financial information of RHS:
  
September 30,
2018
 
December 31,
2017
Balance Sheet Data:    
Total assets $47,473,000
 $48,176,000
Total liabilities $24,037,000
 $21,395,000
Three Months Ended March 31,
Three Months Ended September 30, Nine Months Ended September 30,2019 2018
2018 2017 2018 2017RHS Other Total RHS Other Total
Statement of Operations Data:                  
Revenues$32,346,000
 $32,305,000
 $96,516,000
 $96,018,000
$35,368,000
 $
 $35,368,000
 $32,475,000
 $
 $32,475,000
Expenses34,622,000
 35,292,000
 103,861,000
 103,353,000
36,231,000
 46,000
 36,277,000
 34,628,000
 
 34,628,000
Net loss$(2,276,000) $(2,987,000) $(7,345,000) $(7,335,000)$(863,000) $(46,000) $(909,000) $(2,153,000) $
 $(2,153,000)
7. Mortgage Loans Payable, Net
Mortgage loans payable were $711,978,000$716,243,000 ($686,954,000,691,896,000, including discount/premium and deferred financing costs, net) and $636,329,000$713,030,000 ($613,558,000,688,262,000, including discount/premium and deferred financing costs, net) as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. As of September 30, 2018,March 31, 2019, we had 57 fixed-rate mortgage loans payable and fiveseven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.07%8.49% per annum based on interest rates in effect as of September 30, 2018March 31, 2019 and a weighted average effective interest rate of 3.94%4.01%. As of December 31, 2017,2018, we had 4757 fixed-rate mortgage loans payable and foursix variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 7.57%8.46% per annum based on interest rates in effect as of December 31, 20172018 and a weighted average effective interest rate of 4.02%3.98%. We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ratio, leverage ratio and reporting requirements.
Mortgage loans payable, net consisted of the following as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
September 30, 2018 December 31, 2017
March 31,
2019
 
December 31,
2018
Total fixed-rate debt$626,628,000
 $526,503,000
$622,381,000
 $624,616,000
Total variable-rate debt85,350,000
 109,826,000
93,862,000
 88,414,000
Total fixed- and variable-rate debt711,978,000
 636,329,000
716,243,000
 713,030,000
Less: deferred financing costs, net(1)(8,908,000) (6,290,000)(8,572,000) (8,824,000)
Add: premium752,000
 1,176,000
573,000
 663,000
Less: discount(16,868,000) (17,657,000)(16,348,000) (16,607,000)
Mortgage loans payable, net$686,954,000
 $613,558,000
$691,896,000
 $688,262,000
___________The following table reflects the changes in the carrying amount of mortgage loans payable for the three months ended March 31, 2019 and 2018:
(1)In accordance with ASU 2015-03 and ASU 2015-15, deferred financing costs, net only include costs related to our mortgage loans payable.
 Three Months Ended March 31,
 2019 2018
Beginning balance$688,262,000
 $613,558,000
Additions:   
Borrowings on mortgage loans payable6,080,000
 458,000
Amortization of deferred financing costs258,000
 325,000
Amortization of discount/premium on mortgage loans payable169,000
 139,000
Deductions:   
Scheduled principal payments on mortgage loans payable(2,867,000) (2,506,000)
Deferred financing costs(6,000) (14,000)
Ending balance$691,896,000
 $611,960,000

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The following table reflects the changes in the carrying amount of mortgage loans payable, net for the nine months ended September 30, 2018 and 2017:
 Nine Months Ended September 30,
 2018 2017
Beginning balance$613,558,000
 $495,717,000
Additions:   
Borrowings on mortgage loans payable177,637,000
 230,452,000
Amortization of deferred financing costs995,000
 2,060,000
Amortization of discount/premium on mortgage loans payable365,000
 858,000
Deductions:   
Scheduled principal payments on mortgage loans payable(7,539,000) (6,110,000)
Settlements of mortgage loans payable(94,449,000) (102,815,000)
Deferred financing costs(3,613,000) (4,816,000)
Ending balance$686,954,000
 $615,346,000
As of September 30, 2018,March 31, 2019, the principal payments due on our mortgage loans payable for the threenine months ending December 31, 20182019 and for each of the next four years ending December 31 and thereafter were as follows:
Year Amount Amount
2018 $2,793,000
2019 11,611,000
 $20,100,000
2020 82,849,000
 82,770,000
2021 37,387,000
 34,645,000
2022 61,083,000
 61,083,000
2023 28,101,000
Thereafter 516,255,000
 489,544,000
 $711,978,000
 $716,243,000
8. Lines of Credit and Term Loans
2016 Corporate Line of Credit
On February 3, 2016, we, through certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, N.A., or Bank of America, as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, National Association, or KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000, or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000, or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Line of Credit. Pursuant to the terms of the 2016 Corporate Credit Agreement, we may borrow up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The 2016 Corporate Line of Credit matures on February 3, 2019, and we have the right to extend the maturity date for one 12-month period during the term of the 2016 Corporate Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee. On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and separate term notes or the Term Notes, with each of Bank of America, KeyBank and a syndicate of other banks.
The maximum principal amount of the 2016 Corporate Line of Credit can be increased by up to $500,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2016 Corporate Credit Agreement; and (ii) such additional financing being offered and provided by existing lenders or new lenders under the 2016 Corporate Credit Agreement. would have matured on February 3, 2019.
On August 3, 2017, we entered into a First Amendment, Waiver and Commitment Increase Agreement, or the Amendment, with Bank of America, KeyBank, and the lenders named therein, to amend the 2016 Corporate Credit Agreement. The material terms of the Amendment provide for:included: (i) an increase in the 2016 Corporate Term Loan Facility in an amount equal to $50,000,000; (ii) the establishment of an additional capitalization rate of 8.75% for any Real Property Asset, as defined in the 2016 Corporate

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Credit Agreement, with mixed uses consisting of both assisted living and independent living properties and skilled nursing facilities, but specifically excluding medical office buildings and life science buildings; (iii) a revision to the definition of Term Loan Commitment as(as defined in the 2016 Corporate Credit Agreement,Agreement) to reflect the increase in the 2016 Corporate Term Loan Facility and specify that the aggregate principal amount of the Term Loan Commitments of all of the Term Loan Lenders as(as defined in the 2016 Corporate Credit Agreement,Agreement) as in effect on the effective date of the Amendment is $250,000,000; (iv) an agreement by each Term Loan Lender severally, but not jointly, to fund its pro rata share of the Initial Term Loan, as defined in the Amendment, and Incremental Term Loan, as defined in the Amendment, subject to the terms and conditions set forth in the Amendment; (v) the obligation of the Credit Parties, as defined in the 2016 Corporate Credit Agreement, to cause the Consolidated Secured Leverage Ratio, as defined in the 2016 Corporate Credit Agreement, as of the end of any fiscal quarter, to be equal to or less than 40.0%; (vi) the Lenders’ waiver of the notice requirement regarding the change in name and form of organization of certain subsidiary guarantors, as set forth in the Amendment; and (vii)(iii) the addition of Bank of the West, or New Lender, as a party to the 2016 Corporate Credit Agreement and a Term Loan Lender and Lender as(as defined in the 2016 Corporate Credit Agreement,Agreement) and New Lender’s agreement to be bound by all terms, provisions and conditions applicable to Lenders contained in the 2016 Corporate Credit Agreement. As a result of the Amendment, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was increased to $550,000,000.
Until such timeOn December 20, 2018, we entered into a Commitment Increase Agreement with Bank of America. The material terms of the Commitment Increase Agreement provided for an increase in the 2016 Corporate Revolving Credit Facility by an aggregate amount equal to $25,000,000. On December 20, 2018, we also entered into an Amended and Restated Revolving Note with Bank of America, whereby we promised to pay the principal amount and accrued interest of each loan to the respective lender or its registered assigns, in accordance with the terms and conditions of the 2016 Corporate Credit Agreement, as we oramended. As a result of the Commitment Increase Agreement, our operating partnership have obtained two investment grade ratings from anyaggregate borrowing capacity under the 2016 Corporate Line Credit was increased to $575,000,000.
As of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and/or Fitch Ratings, loansDecember 31, 2018, our aggregate borrowing capacity under the 2016 Corporate Line of Credit bearwas $575,000,000. As of December 31, 2018, borrowings outstanding under the 2016 Corporate Line of Credit totaled $548,500,000 and the weighted average interest rate on such borrowings outstanding was 4.60% per annum.
On January 25, 2019, we terminated the 2016 Corporate Credit Agreement, as amended, and the 2016 Corporate Revolving Notes and entered into the 2019 Corporate Line of Credit as described below. We currently do not have any obligations under the 2016 Corporate Credit Agreement, as amended, or the 2016 Corporate Revolving Notes.


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

2019 Corporate Line of Credit
On January 25, 2019, we, through our operating partnership and certain of our subsidiaries entered into a credit agreement, or the 2019 Corporate Credit Agreement, with Bank of America as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; Citizens Bank, National Association, as a syndication agent, a swing line lender, a letter of credit issuer, a joint lead arranger and joint bookrunner; and a syndicate of other banks, as lenders, to obtain a credit facility with an aggregate maximum principal amount of $630,000,000, or the 2019 Corporate Line of Credit. The 2019 Corporate Line of Credit consists of a senior unsecured revolving credit facility in the initial aggregate amount of $150,000,000 and a senior unsecured term loan facility in the initial aggregate amount of $480,000,000. We may obtain up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The maximum principal amount of the 2019 Corporate Line of Credit may be increased by up to $370,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2019 Corporate Credit Agreement; and (ii) at least five business days’ prior written notice to Bank of America.
At our option, the 2019 Corporate Line of Credit bears interest at per annum rates equal to at our option, either:(a) (i)(a) the Eurodollar Rate, as(as defined in the 20162019 Corporate Credit Agreement, as amended,Agreement) plus (b) in the case of revolving loans, a margin ranging from 1.55% to 2.20% per annum based on our and our consolidated subsidiaries’ consolidated leverage ratio and in the case of term loans,(ii) a margin ranging from 1.50% to 2.10% per annum2.20% based on our and our consolidated subsidiaries’ consolidated leverage ratio;Consolidated Leverage Ratio (as defined in the 2019 Corporate Credit Agreement), or (ii)(a)(b) (i) the greatestgreater of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 20162019 Corporate Credit Agreement, as amended)Agreement) plus 0.50% per annum,, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum, and (4) 0.00%, plus (b) in the case of revolving loans, a margin ranging from 0.55% to 1.20% per annum based on our consolidated leverage ratio and in the case of term loans,(ii) a margin ranging from 0.50% to 1.10% per annum1.20% based on our consolidated leverage ratio.
After such time as we or our operating partnership have obtained two investment grade ratings from any of Moody’s Investors Service, Inc., Standard & Poor’s Rating Services and/or Fitch Ratings and submitted a written election toConsolidated Leverage Ratio. Accrued interest on the administrative agent, loans under the 20162019 Corporate Line of Credit shall bear interest at per annum rates equal to, at the option of our operating partnership, either: (i)(a) the Eurodollar Rate, as defined in the 2016 Corporate Credit Agreement, as amended, plus (b) in the case of revolving loans, a margin ranging from 0.925% to 1.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 1.00% to 1.95% per annum based on our or our operating partnership’s debt ratings; or (ii)(a) the greatest of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 0.50% per annum, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum and (4) 0.00%, plus (b) in the case of revolving loans, a margin ranging from 0.00% to 0.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 0.00% to 0.95% per annum based on our or our operating partnership’s debt ratings. Accrued interest under the 2016 Corporate Credit Agreement, as amended, is payable monthly.
The loans may be repaid in whole or in part without prepayment premium or penalty, subject to certain conditions. We are required to pay a fee on the unused portion of the lenders’ commitments under the 20162019 Corporate Revolving Credit Facility in an amountAgreement at a per annum rate equal to 0.30% per annum on the actual average daily unused portion of the available commitments0.20% if the average daily used amount is greater than 50% of actual usagethe commitments and 0.25% if the average daily used amount is less than 50.0% and in an amountor equal to 0.20% per annum on the actual average daily unused portion50% of the available commitments, ifwhich fee shall be measured and payable on a quarterly basis.
The 2019 Corporate Line of Credit matures on January 25, 2022, and may be extended for one 12-month period during the actual average daily usage is greater than 50.0%. Such fee is payable quarterly in arrears. We are also required to pay a fee on the unused portionterm of the lenders’ commitments under the 2016 Corporate Term Loan Facility in2019 Credit Agreement, subject to satisfaction of certain conditions, including payment of an amount equal to: (i) 0.25% per annum multiplied by (ii) the actual daily amount of the unused Term Loan Commitments, as defined in the 2016extension fee. The 2019 Corporate Credit Agreement as amended, during the period for which payment is made. The unused fee on the 2016 Corporate Term Loan Facility is payable quarterly in arrears.
The 2016 Corporate Credit Agreement, as amended, contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness.

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As of September 30, 2018 and DecemberMarch 31, 2017,2019, our aggregate borrowing capacity under the 20162019 Corporate Line of Credit was $550,000,000.$630,000,000. As of September 30, 2018 and DecemberMarch 31, 2017,2019, borrowings outstanding under the 20162019 Corporate Line of Credit totaled $523,500,000 and $444,000,000, respectively,$614,500,000 and the weighted average interest rate on such borrowings outstanding was 4.08% and 3.23%4.43% per annum, respectively.annum.
Trilogy PropCo Line of Credit
OnIn connection with our acquisition of Trilogy, on December 1, 2015, in connection with the acquisition of Trilogy, our majority-owned subsidiary, we, through Trilogy PropCo Finance, LLC, a Delaware limited liability company and an indirect subsidiary of Trilogy, or Trilogy PropCo Parent, and certain of its subsidiaries, or the Trilogy PropCo Co-Borrowers, and, together with Trilogy PropCo Parent, the Trilogy PropCo Borrowers, entered into a loan agreement, or the Trilogy PropCo Credit Agreement, with KeyBank, as administrative agent; Regions Bank, as syndication agent; and a syndicate of other banks, as lenders, to obtain a line of credit with an aggregate maximum principal amount of $300,000,000, or the Trilogy PropCo Line of Credit.
On December 1, 2015, we We also entered into separate revolving notes with each of KeyBank and Regions Bank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Trilogy PropCo Credit Agreement. The proceeds of the loans made under the Trilogy PropCo Line of Credit may be used for working capital, capital expenditures, acquisition of properties and fee interests in leasehold properties and general corporate purposes. The Trilogy PropCo Line of Credit has a four-year term, maturingmatures on December 1, 2019, unless extended for a one-year period subject to satisfaction of certain conditions, including payment of an extension fee, or otherwise terminated in accordance with the terms thereunder. Availability of the total commitment under the Trilogy PropCo Line of Credit is subject to a borrowing base based on, among other things, the appraised value of certain real estate and villa units constructed on such real estate.
In addition to paying interest on the outstanding principal under the Trilogy PropCo Line of Credit, the Trilogy PropCo Borrowers are required to pay an unused fee to the lenders in respect of the unutilized commitments at a rate equal to an initial rate of 0.25% per annum, subject to adjustment depending on usage. Outstanding amounts under the Trilogy PropCo Line of Credit may be prepaid, in whole or in part, at any time, without penalty or premium, subject to customary breakage costs. The Trilogy PropCo Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including incurrence of debt and limitations on secured recourse indebtedness.
Provided that no default or event
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Table of default has occurred and subject to certain terms and conditions set forth in the Trilogy PropCo Credit Agreement, the Trilogy PropCo Borrowers had the option, at any time and from time to time, before the maturity date, to request an increase of the total maximum principal amount by $100,000,000 to $400,000,000. Contents

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

On October 27, 2017, we entered into an amendment to the Trilogy PropCo Credit Agreement, or the Trilogy PropCo Amendment, with KeyBank, as administrative agent, and a syndicate of other banks, as lenders, to amend the terms of the Trilogy PropCo Credit Agreement. The material terms of the Trilogy PropCo Amendment provide for:included: (i) a reduction of the total commitment under the Trilogy PropCo Line of Credit from $300,000,000 to $250,000,000; and (ii) a revision to the definition of applicable margin, pursuant to which the Trilogy PropCo Line of Credit bears interest at a floating rate based on an adjusted London Interbank Offered Rate, or LIBOR, plus an applicable margin of 4.00% per annum or an alternate base rate plus an applicable margin of 3.00% per annum, at the Trilogy PropCo Borrowers’ option; and (iii) the Trilogy PropCo Borrowers’ obligation to pay to KeyBank the unused fee that has accrued with respect to the portion of the total commitment being reduced.option.
Our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $250,000,000 as of September 30, 2018March 31, 2019 and December 31, 2017.2018. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, borrowings outstanding under the Trilogy PropCo Line of Credit totaled $159,518,000$173,517,000 and $179,376,000,$170,518,000, respectively, and the weighted average interest rate on such borrowings outstanding was 6.16%6.49% and 5.39%6.45% per annum, respectively.
Trilogy OpCo Line of Credit
On March 21, 2016, we, through Trilogy Healthcare Holdings, Inc., a Delaware corporation and a direct subsidiary of Trilogy, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, or Wells Fargo, N.A., as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. The Trilogy OpCo Line of Credit is secured primarily by residents’ receivables of the Trilogy OpCo Borrowers. The terms of the Trilogy OpCo Credit Agreement provided for a one-time increase during the term of the agreement by up to $18,000,000, for a maximum principal amount of $60,000,000, subject to certain conditions.

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InOn April 1, 2016, we entered into an amendment to the Trilogy OpCo Credit Agreement to increase the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000. In April 2018, we further amended the Trilogy OpCo Credit Agreement, or the Trilogy OpCo Amendment. The material terms of the Trilogy OpCo Amendment provideprovided for: (i) a reduction in the aggregate maximum principal amount from $60,000,000 to $25,000,000; (ii) a reduced floating interest rate based on LIBOR, plus an applicable margin of 2.75% per annum, for LIBOR Rate Loans, as defined in the agreement, or an alternate base rate plus an applicable margin of 1.75% per annum, for Base Rate Loans, as defined in the agreement, at the Trilogy OpCo Borrowers’ option; (iii) a reduced letter of credit fee of 2.75% per annum times the undrawn amount of outstanding letters of credit; and (iv) an updated maturity date of April 27, 2021.
Accrued interest under the Trilogy OpCo Line of Credit is payable monthly.
In addition to paying interest on the outstanding principal under the Trilogy OpCo Line of Credit, the Trilogy OpCo Borrowers are required to pay an unused fee in an amount equal to 0.50% per annum times the average monthly unutilized commitment. The unused fee is payable monthly in arrears, commencing on the first day of each month from and after the closing date up to the first day of the month prior to the date on which the obligations are paid in full. If the commitment is terminated prior to the second anniversary of the closing date, a prepayment premium of 1.00% of the total commitment applies.
The Trilogy OpCo Credit Agreement, as amended, contains customary events of default, covenants and other terms, including, among other things, restrictions on the payment of dividends and other distributions, incurrence of indebtedness, creation of liens and transactions with affiliates. Availability of the total commitment under the Trilogy OpCo Line of Credit is subject to a borrowing base based on, among other things, the eligible accounts receivable outstanding of the Trilogy OpCo Borrowers.
As of September 30, 2018 and December 31, 2017, ourOur aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $25,000,000 as of both March 31, 2019 and $60,000,000, respectively,December 31, 2018, subject to certain terms and conditions. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, borrowings outstanding under the Trilogy OpCo Line of Credit totaled $15,055,000$16,032,000 and $749,000,$19,030,000, respectively, and the weighted average interest rate on such borrowings outstanding was 4.89%4.86% and 5.84%5.17% per annum, respectively.

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

9. Derivative Financial Instruments
Consistent with ASC Topic 815, Derivatives and Hedging, or ASC Topic 815, weWe record derivative financial instruments in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. The following table lists the derivative financial instruments held by us as of March 31, 2019 and December 31, 2018:
          Fair Value
Instrument Notional Amount Index Interest Rate Maturity Date 
March 31,
2019
 
December 31,
2018
Swap $140,000,000
 one month LIBOR 0.82% 02/03/19 $
 $221,000
Swap 60,000,000
 one month LIBOR 0.78% 02/03/19 
 97,000
Swap 50,000,000
 one month LIBOR 1.39% 02/03/19 
 51,000
Cap 20,000,000
 one month LIBOR 3.00% 09/23/21 11,000
 48,000
  $270,000,000
       $11,000

$417,000
ASC Topic 815, Derivatives and Hedging, or ASC Topic 815, permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item or items or to be deferred in other comprehensive income (loss).
The following table lists the derivative financial instruments held by us asincome. As of September 30, 2018March 31, 2019 and December 31, 2017:
          Fair Value
Instrument Notional Amount Index Interest Rate Maturity Date 
September 30,
2018
 
December 31,
2017
Swap $140,000,000
 one month LIBOR 0.82% 02/03/19 $746,000
 $1,486,000
Swap 60,000,000
 one month LIBOR 0.78% 02/03/19 327,000
 661,000
Swap 50,000,000
 one month LIBOR 1.39% 02/03/19 166,000
 219,000
  $250,000,000
       $1,239,000

$2,366,000
As of September 30, 2018, and December 31, 2017, none of our derivative financial instruments were designated as hedges. Derivative financial instruments not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in gain or (loss) in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income. For the three months ended September 30,March 31, 2019 and 2018, and 2017, we recorded $(750,000)$(560,000) and $(59,000), respectively, and for the nine months ended September 30, 2018 and 2017, we recorded $(1,127,000) and $44,000,$110,000, respectively, as an (increase) decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss) related to the change in the fair value of our derivative financial instruments.

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See Note 15, Fair Value Measurements, for a further discussion of the fair value of our derivative financial instruments.
10. Identified Intangible Liabilities, Net
As of September 30, 2018March 31, 2019 and December 31, 2017,2018, identified intangible liabilities consisted of below-market leases of $1,192,000$947,000 and $1,568,000,$1,051,000, respectively, net of accumulated amortization of $1,142,000$1,334,000 and $1,135,000,$1,229,000, respectively. Amortization expense ofon below-market leases for the three months ended September 30,March 31, 2019 and 2018 was $105,000 and 2017 was $107,000 and $146,000,$140,000, respectively, and for the nine months ended September 30, 2018 and 2017 was $376,000 and $518,000, respectively. Amortization expense of below-market leaseswhich is recorded to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
The weighted average remaining life of below-market leases was 4.6 years and 4.84.3 years as of September 30, 2018both March 31, 2019 and December 31, 2017,2018, respectively. As of September 30, 2018,March 31, 2019, estimated amortization expense ofon below-market leases for the threenine months ending December 31, 20182019 and for each of the next four years ending December 31 and thereafter was as follows:
Year Amount Amount
2018 $106,000
2019 392,000
 $284,000
2020 263,000
 260,000
2021 146,000
 143,000
2022 97,000
 93,000
2023 78,000
Thereafter 188,000
 89,000
 $1,192,000
 $947,000

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11. Commitments and Contingencies
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Environmental Matters
We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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12. Redeemable Noncontrolling Interests
On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, we owned greater than a 99.99% general partnership interest in our operating partnership, and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as a redeemable noncontrolling interest and is presented outside of permanent equity in our accompanying condensed consolidated balance sheets. See Note 14, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 14, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.
On December 1, 2015, we, through Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings, in which we indirectly hold a 70.0% ownership interest, pursuant to an equity purchase agreement with Trilogy and other seller parties thereto, completed the acquisition of approximately 96.7% of the outstanding equity interests of Trilogy. Pursuant to the equity purchase agreement, at the closing of the acquisition, certain members of Trilogy’s pre-closing management retained a portion of the outstanding equity interests of Trilogy held by such members of Trilogy’s pre-closing management, representing in the aggregate approximately 3.3% of the outstanding equity interests of Trilogy. The noncontrolling interests held by Trilogy’s pre-closing management have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets. As of September 30,both March 31, 2019 and December 31, 2018, Trilogy REIT Holdings and certain members of Trilogy’s pre-closing management owned approximately 96.7% and 3.3% of Trilogy, respectively.

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We record the carrying amount of redeemable noncontrolling interests at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interests consisted of the following for the ninethree months ended September 30, 2018March 31, 2019 and 2017:2018:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Beginning balance$32,435,000
 $31,507,000
$38,245,000
 $32,435,000
Additions535,000
 975,000

 535,000
Reclassification from equity585,000
 585,000
195,000
 195,000
Distributions(497,000) (384,000)(485,000) (166,000)
Repurchase of redeemable noncontrolling interest(229,000) (59,000)(3,000) 
Fair value adjustment to redemption value437,000
 1,341,000
(253,000) 247,000
Net income (loss) attributable to redeemable noncontrolling interests131,000
 (613,000)
Net income attributable to redeemable noncontrolling interests140,000
 29,000
Ending balance$33,397,000
 $33,352,000
$37,839,000
 $33,275,000
13. Equity
Preferred Stock
Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, no shares of preferred stock were issued and outstanding.
Common Stock
Our charter authorizes us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share. On January 15, 2013, our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership. On March 12, 2015, we terminated the primary portion of our initial public offering. We continued to offer shares of our common stock in our initial offering pursuant to the Initial DRIP, until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015.

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

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary2015 DRIP Offering. We did not commence offering shares to the 2015 DRIP Offering until April 22, 2015 following the deregistration of our initial offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of our offering on March 29, 2019.
On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary2019 DRIP Offering until April 22, 2015,1, 2019, following the deregistration of our initial offering.the 2015 DRIP Offering.
Through September 30, 2018,March 31, 2019, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial public offering and 25,257,81528,335,108 shares of our common stock pursuant to the Initial DRIP and the Secondary2015 DRIP Offering. We also repurchased 11,812,59018,204,169 shares of our common stock under our share repurchase plan and granted an aggregate of 105,000 shares of our restricted common stock to our independent directors through September 30, 2018.March 31, 2019. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, we had 198,503,045195,188,759 and 199,343,234197,557,377 shares of our common stock issued and outstanding, respectively.

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Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the ninethree months ended September 30, 2018March 31, 2019 and 2017:2018:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Beginning balance — foreign currency translation adjustments$(1,971,000) $(3,029,000)$(2,560,000) $(1,971,000)
Net change in current period(374,000) 977,000
219,000
 446,000
Ending balance — foreign currency translation adjustments$(2,345,000) $(2,052,000)$(2,341,000) $(1,525,000)
Noncontrolling Interests
As of September 30, 2018March 31, 2019 and December 31, 2017,2018, Trilogy REIT Holdings owned approximately 96.7% of Trilogy. We are the indirect owner of a 70.0% interest in Trilogy REIT Holdings pursuant to a joint venture agreement, or the Trilogy JV Agreement, with an indirect, wholly-owned subsidiary of NorthStar Healthcare Income, Inc., or NHI. We serve as the sole manager of Trilogy REIT Holdings. Prior to October 1, 2018, NHI was the indirect owner of the remaining 30.0% interest in Trilogy REIT Holdings. On October 1, 2018, we entered into an amended and restated joint venture agreement, or the Amended Trilogy JV Agreement withas a result of the other memberspurchase by an indirect, wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., or GAHR IV JV Member, of 6.0% of the total membership interests in Trilogy REIT Holdings from a wholly-owned subsidiary of NHI. Both Griffin-American Healthcare REIT IV, Inc. and us are sponsored by American Healthcare Investors. Effective October 1, 2018, NHI and GAHR IV JV Member indirectly own a 24.0% and 6.0% membership interest, respectively, in Trilogy REIT Holdings. See Note 20, Subsequent Event, for a further discussion. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.
In connection with theour acquisition and operation of Trilogy, profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and an independent director of Trilogy, both unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests consist of time-based or performance-based commitments. The time-based Profit Interests were measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five-year period. We amortize the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income. The performance-based Profit Interests are subject to a performance commitment and vest upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their grant date fair value and immediately expensed. The performance-based Profit Interests are subject to fair value measurements until vesting occurs with changes to fair value recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Stock compensation expense related to Profit Interests forincome. For both the three months ended September 30,March 31, 2019 and 2018, and 2017 was $195,000 and forwe recognized stock compensation expense related to the nine months ended September 30, 2018 and 2017, was $585,000 and $390,000, respectively.Profit Interests of $195,000.
There were no canceled, expired or exercised Profit Interests during the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018. The nonvested awards are presented as noncontrolling interests and are re-classified to redeemable noncontrolling interests upon vesting as they have redemption features outside of our control similar to the common stock units held by Trilogy’s pre-closing management once vested.management. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.
On January 6, 2016, one of our consolidated subsidiaries issued non-voting preferred shares of beneficial interests to qualified investors for total proceeds of $125,000. These preferred shares of beneficial interests are entitled to receive cumulative preferential cash dividends at the rate of 12.5% per annum. In accordance with ASC Topic 810, weWe classify the value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying condensed consolidated balance sheets and the dividends of the preferred shares of beneficial interests as net loss attributable to

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noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
In addition, as of September 30, 2018March 31, 2019 and December 31, 2017,2018, we owned an 86.0% interest in a consolidated limited liability company that owns Lakeview IN Medical Plaza, which we acquired on January 21, 2016. As such, 14.0% of the net earnings of Lakeview IN Medical Plaza were allocated to noncontrolling interests for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.

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Distribution Reinvestment Plan
We adopted the Initial DRIP that allowed stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our initial offering, subject to certain conditions. We had registered and reserved $35,000,000 in shares of our common stock for sale pursuant to the Initial DRIP in our initial offering at an offering price of $9.50 per share, which we terminatedderegistered on April 22, 2015. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary2015 DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commenceWe commenced offering shares pursuant to the Secondary2015 DRIP Offering, until April 22, 2015, following the deregistration of our initial offering.offering on April 22, 2015. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the deregistration of such offering on March 29, 2019. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering.
Effective October 5, 2016, we amended and restated the Amended and RestatedInitial DRIP amendedto amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering.such distribution reinvestment plan. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated value of one share of our common stock, as approved and established by our board. The Amended and Restated DRIP became effective with the distribution payment to stockholders paid in the month of November 2016. In all other material respects, the terms of the Secondary2015 DRIP Offering remain unchanged by the Amended and Restated DRIP.
OnSince October 4, 2017,5, 2016, our board has approved and established an updated estimated per share net asset value, or NAV, of our common stock of $9.27. Accordingly, commencingon at least an annual basis. Commencing with the distribution payment to stockholders paid in the month of November 2017, shares of our common stock issued pursuant to the Amended and Restated DRIP were issued at $9.27 per share. On October 3, 2018, ourfollowing such board approved and established an updated estimated per share NAV of our common stock of $9.37. Accordingly, commencing with the distribution payment to stockholders paid in the month of November 2018,approval, shares of our common stock issued pursuant to the Amended and Restated DRIP were or will be issued at $9.37the current estimated per share NAV until such time as our board determines a newan updated estimated per share NAV. The following is a summary of our historical and current estimated per share NAV:
Approval Date by our Board 
Estimated Per Share NAV
(Unaudited)
10/05/16 $9.01
10/04/17 $9.27
10/03/18 $9.37
For the three months ended September 30,March 31, 2019 and 2018, $14,196,000 and 2017, $14,995,000$15,229,000, respectively, in distributions were reinvested and $15,826,000,1,515,098 and 1,642,834 shares of our common stock, respectively, were issued pursuant to the 2015 DRIP Offering. As of March 31, 2019 and December 31, 2018, a total of $263,907,000 and $249,711,000, respectively, in distributions were reinvested that resulted in 1,617,58428,335,108 and 1,756,46626,820,010 shares of our common stock, respectively, being issued pursuant to the Secondaryour DRIP Offering. For the nine months ended September 30, 2018 and 2017, $45,444,000 and $47,453,000, respectively, in distributions were reinvested that resulted in 4,902,237 and 5,266,636 shares of our common stock, respectively, being issued pursuant to the Secondary DRIP Offering.
As of September 30, 2018 and December 31, 2017, a total of $235,125,000 and $189,681,000, respectively, in distributions were reinvested that resulted in 25,257,815 and 20,355,578 shares of our common stock, respectively, being issued pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.Offerings.

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Share Repurchase Plan
Our board has approved a share repurchase plan. Our share repurchase plan, which allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. Subject to the availability of the funds for share repurchases, we will generally limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap.year. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to the DRIP portionOfferings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or “qualifying disability,” as defined in our share repurchase plan, of a stockholder will not be subject to this quarterly cap or to our initial offering andexisting cap on repurchases to 5.0% of the Secondary DRIP Offering.weighted average number of shares outstanding during the calendar year prior to the repurchase date. Furthermore, our share repurchase plan, as amended, provides that if there are insufficient funds to honor all repurchase requests, pending requests willmay be honored among all requests for repurchase in any given repurchase period as follows: first, pro ratarepurchases in full as to repurchases sought uponthat would result in a stockholder’s death;stockholder owning less than $2,500 of shares; and, next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.
All repurchases will be subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan.qualifying disability. Further, all share repurchases will be repurchased following a one-year holding period at a price between 92.5% and 100% of each stockholder’s repurchase amount, depending on the period of time their shares have been held. Until October 4, 2016, the repurchase amount for shares repurchased under our share repurchase plan was equal to the lesser of the amount a stockholder paid for their shares of our common stock or the most recent per share offering price. However, if shares of our common stock were repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price was no less than 100% of the price paid to acquire the shares of our common stock from us.
Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount, as such term is defined in our share repurchase plan, as amended, is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, commencing with the share repurchase requests submitted during the fourth quarter 2016, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).
OnSince October 4, 2017,5, 2016, our board has approved and established an updated estimated per share NAV on at least an annual basis. See summary of our common stock of $9.27.historical and current estimated per share NAV in the “Distribution Reinvestment Plan” section above. Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2017, the updatedthat our board has approved and established an estimated per share NAV, of $9.27 served as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than $9.27such NAV per share in our initial offering. On October 3, 2018, our board approved and established an updated estimated per share NAV of our common stock of $9.37. Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2018, the updated estimated per share NAV of $9.37 served or will serve as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than $9.37such NAV per share in our initial offering, until such time as our board determines a newan updated estimated per share NAV.
For the three months ended September 30,March 31, 2019 and 2018, and 2017, we received share repurchase requests and repurchased 1,994,3543,883,716 and 1,039,4501,792,524 shares of our common stock, respectively, for an aggregate of $18,399,000$36,486,000 and $9,317,000,$16,506,000, respectively, at an average repurchase price of $9.23$9.39 and $8.96$9.21 per share, respectively. For the nine months ended September 30,As of March 31, 2019 and December 31, 2018, and 2017, we received cumulative share repurchase requests and repurchased 5,764,92618,204,169 and 2,699,99514,320,453 shares of our common stock, respectively, for an aggregate of $53,099,000$168,421,000 and $24,022,000,$131,935,000, respectively, at an average repurchase price of $9.21$9.25 and $8.90$9.21 per share, respectively. All shares were repurchased using proceeds we received from the cumulative sale of shares of our common stock pursuant to our DRIP Offerings.

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As of September 30, 2018 and December 31, 2017, we received share repurchase requests and repurchased 11,812,590 and 6,047,664 shares of our common stock, respectively, for an aggregate of $108,457,000 and $55,358,000, respectively, at an average repurchase price of $9.18 and $9.15 per share, respectively. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.
2013 Incentive Plan
We adopted the 2013 Incentive Plan, or our incentive plan, pursuant to which our board or a committee of our independent directors may make grants of options, shares of our common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares.
For the three and nine months ended September 30,March 31, 2019 and 2018, we granted an aggregate of 15,000 and 22,500did not issue any shares respectively, of our restricted common stock at a weighted average grant date fair value of $9.27 per share,pursuant to our independent directors in connection with their re-election to our board or in consideration for their past services rendered. Such shares vest as to 20.0%incentive plan and none of the previously issued shares on the date of grant and on each of the first four anniversaries of the grant date.our restricted common stock were vested. For both the three months ended September 30,March 31, 2019 and 2018, and 2017, we recognized stock compensation expense related to the director grants of $72,000 and $71,000, respectively, and for both the nine months ended September 30, 2018 and 2017, we recognized stock compensation expense related to the director grants of $171,000.$43,000. Such stock compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
14. Related Party Transactions
Fees and Expenses Paid to Affiliates
All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings; however, we are not affiliated with Griffin Capital, our dealer manager, Colony Capital or Mr. Flaherty. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. Our board, including a majority of our independent directors, has reviewed the material transactions between our affiliates and us during the three and nine months ended September 30, 2018.March 31, 2019. Set forth below is a description of the transactions with affiliates. We believe that we have executed all of the transactions set forth below on terms that are fair and reasonable to us and on terms no less favorable to us than those available from unaffiliated third parties. In the aggregate, for the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $6,705,000$6,241,000 and $5,544,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $18,357,000 and $17,931,000,$5,519,000, respectively, in fees and expenses to our affiliates as detailed below.
Acquisition and Development Stage
Acquisition Fee
We pay our advisor or its affiliates an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.00% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Since January 31, 2015, acquisition fees are and have been paid in cash. Our advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our initial offering including acquisitions completed after the termination of the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.
For the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $1,069,000$358,000 and $67,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $1,076,000 and $1,700,000,$0, respectively, in acquisition fees to our advisor. Acquisition fees in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01 or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

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Development Fee
In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.
For the three and nine months ended September 30,March 31, 2019 and 2018, we incurred $24,000$150,000 and $69,000,$0, respectively, in development fees to our advisor or its affiliates. Foraffiliates, which was capitalized as part of the three and nine months ended September 30, 2017, we did not incur any development fees toassociated investments in our advisor or its affiliates.accompanying condensed consolidated balance sheets.
Reimbursement of Acquisition Expenses
We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets, which are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees, total development costs, real estate commissions or other fees paid to unaffiliated third parties will not exceed, in the aggregate, 6.0% of the contract purchase price or real estate-related investments, unless fees in excess of such limits are approved by a

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majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our property acquisitions or real estate-related investments.
For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we did not incur any acquisition expenses to our advisor or its affiliates. Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805 are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01 or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.
Operational Stage
Asset Management Fee
We pay our advisor or its affiliates a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan.
For the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $4,873,000$4,977,000 and $4,713,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $14,438,000 and $14,054,000,$4,781,000, respectively, in asset management fees to our advisor or its affiliates. Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
Property Management Fee
Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third-party property manager. We pay our advisor or its affiliates a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a property management oversight fee of 1.0% of the gross monthly cash receipts of any stand-alone, single-tenant, net leased property; (ii) a property management oversight fee of 1.5% of the gross monthly cash receipts of any property that is not a stand-alone, single-tenant, net leased property and for which our advisor or its affiliates provide oversight of a third party that performs the duties of a property manager with respect to such property; or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant, net leased property

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and for which our advisor or its affiliates will directly serve as the property manager without sub-contracting such duties to a third party.
For the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $617,000$619,000 and $589,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $1,811,000 and $1,761,000,$611,000, respectively, in property management fees to our advisor or its affiliates. Property management fees are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income.
Lease Fees
We pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm’s-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of the gross revenues generated during the initial term of the lease.
For the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $36,000$24,000 and $102,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $764,000 and $222,000,$69,000, respectively, in lease fees to our advisor or its affiliates. Lease fees are capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.

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Construction Management Fee
In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended September 30,March 31, 2019 and 2018, and 2017, we incurred $38,000$37,000 and $20,000, respectively, and for the nine months ended September 30, 2018 and 2017, we incurred $52,000 and $38,000,$6,000, respectively, in construction management fees to our advisor or its affiliates.
Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or are expensed and included in our accompanying condensed consolidated statements of operations and comprehensive income, (loss), as applicable.
Operating Expenses
We reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement; or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determined that such excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient.
OurFor the 12 months ended March 31, 2019 and 2018, our operating expenses did not exceed the aforementioned limitations. The following table reflects our operating expenses as a percentage of average invested assets and as a percentage of net income were 0.9% and 18.4%, respectively, for the 12 months ended September 30, 2018; therefore, our operating expenses did not exceed the aforementioned limitation.month periods then ended:
 12 months ended March 31,
 2019 2018
Operating expenses as a percentage of average invested assets0.9% 0.9%
Operating expenses as a percentage of net income19.2% 16.3%
For the three months ended September 30,March 31, 2019 and 2018, and 2017, our advisor or its affiliates incurred operating expenses on our behalf of $48,000$76,000 and $53,000, respectively, and for the nine months ended September 30, 2018 and 2017, incurred $147,000 and $156,000,$52,000, respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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income.
Compensation for Additional Services
We pay our advisor and its affiliates for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, our advisor and its affiliates were not compensated for any additional services.
Liquidity Stage
Disposition Fees
For services relating to the sale of one or more properties, we pay our advisor or its affiliates a disposition fee of up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated third parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price.
For the three and nine months ended September 30,March 31, 2019 and 2018, we did not incur any disposition fees to our advisor or its affiliates. For the three months ended September 30, 2017, we disposed

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

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Subordinated Participation Interest
Subordinated Distribution of Net Sales Proceeds
In the event of liquidation, we will pay our advisor a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the remaining net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of: (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan); plus (ii) an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we did not pay any such distributions to our advisor.
Subordinated Distribution Upon Listing
Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor’s limited partnership units, we will pay our advisor a distribution equal to 15.0% of the amount by which: (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be paid depend upon the market value of our outstanding stock at the time of listing, among other factors. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we did not pay any such distributions to our advisor.
Subordinated Distribution Upon Termination
Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to 15.0% of the amount, if any, by which: (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In

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addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.
As of September 30,March 31, 2019 and December 31, 2018, and 2017, we did not have any liability related to the subordinated distribution upon termination.
Accounts Payable Due to Affiliates
The following amounts were outstanding to our affiliates as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
Fee 
September 30,
2018
 
December 31,
2017
 
March 31,
2019
 
December 31,
2018
Asset and property management fees $1,833,000
 $1,783,000
 $1,872,000
 $1,856,000
Lease commissions 53,000
 94,000
Construction management fees 46,000
 58,000
Operating expenses 32,000
 12,000
Acquisition fees 79,000
 115,000
 11,000
 15,000
Construction management fees 38,000
 14,000
Lease commissions 34,000
 31,000
Operating expenses 10,000
 10,000
Development fees 
 104,000
 
 68,000
 $1,994,000
 $2,057,000
 $2,014,000
 $2,103,000

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15. Fair Value Measurements
Assets and Liabilities Reported at Fair Value
The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2018,March 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Assets:       
Derivative financial instruments$
 $1,239,000
 $
 $1,239,000
Contingent consideration receivable
 
 
 
Total assets at fair value$
 $1,239,000
 $
 $1,239,000
Liabilities:       
Contingent consideration obligations$
 $
 $3,498,000
 $3,498,000
Warrants
 
 1,078,000
 1,078,000
Total liabilities at fair value$
 $
 $4,576,000
 $4,576,000

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

 
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Assets:       
Derivative financial instruments$
 $11,000
 $
 $11,000
Total assets at fair value$
 $11,000
 $
 $11,000
Liabilities:       
Contingent consideration obligation$
 $
 $
 $
Warrants
 
 1,132,000
 1,132,000
Total liabilities at fair value$
 $
 $1,132,000
 $1,132,000
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2017,2018, aggregated by the level in the fair value hierarchy within which those measurements fall:
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Assets:              
Derivative financial instruments$
 $2,366,000
 $
 $2,366,000
$
 $417,000
 $
 $417,000
Contingent consideration receivable
 
 
 
Total assets at fair value$
 $2,366,000
 $
 $2,366,000
$
 $417,000
 $
 $417,000
Liabilities:              
Contingent consideration obligations$
 $
 $5,107,000
 $5,107,000
Contingent consideration obligation$
 $
 $681,000
 $681,000
Warrants
 
 1,155,000
 1,155,000

 
 1,207,000
 1,207,000
Total liabilities at fair value$
 $
 $6,262,000
 $6,262,000
$
 $
 $1,888,000
 $1,888,000
There were no transfers into orand out of fair value measurement levels during the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018.
Derivative Financial Instruments
We use interest rate swaps and interest rate caps to manage interest rate risk associated with variable-rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, as well as option volatility. The fair values of interest rate swaps are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.
To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820, weWe incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

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

Although we have determined that the majority of the inputs used to value our derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of September 30, 2018,March 31, 2019, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Contingent Consideration Liability
Asset
As of September 30, 2018, we have not recorded any contingent consideration receivables. In connection with our acquisition of Mt. Juliet TN MOB in March 2015, there was a contingent consideration receivable in the range of $0 up to a maximum of $634,000 as of the acquisition date. We would have received payment of contingent consideration in the event that a tenant occupying 6,611 square feet of GLA terminated their lease prior to March 31, 2018, and to the extent there was a shortfall in rent from such tenant. As of March 31, 2018, such tenant was current on all rental payments and the lease expired with no amounts due to us. In addition, we were to receive payment of contingent consideration in the event a replacement tenant was not found as of the expiration of the lease of the above mentioned tenant prior to March 31, 2018. As of March 31, 2018, a replacement tenant was not found and, as such, we received consideration of $45,000 in May 2018.

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

Liabilities
As of September 30, 20182019 and December 31, 2017,2018, we have accrued $3,498,000$0 and $5,107,000,$681,000, respectively, of a contingent consideration obligationsobligation in connection with our acquisitions of two senior housing facilitiesClemmons facility within North Carolina ALF Portfolio in January and June 2015.Portfolio. Such obligations areobligation was included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets and aremay be paid upon various conditions being met, including our tenants achieving certain operating performance metrics. In particular, the amounts willmay be paid based upon the computation in the lease agreement, as amended, and receipt of notification within threefour years after the applicable acquisition date that the tenant has increased its earnings before interest, taxes, depreciation and rent cost, or EBITDAR, as defined in the lease agreement, for the preceding three months. Effective January 2018, the lease agreement was amended to extend the contingent consideration payout period to four years from the original three years for the two facilities with other terms of the amendment remaining consistent with the original lease agreement. There is no minimum required payment but the total maximum payment is capped at $20,318,000 for the two senior housing facilities$11,000,000 and is also limited by the tenant’s ability to increase its EBITDAR. Any payment made will result in an increase in the monthly rent charged to the tenant and additional rental revenue to us. AsThe contingent consideration obligation continues to be revised to its estimated fair value each reporting period, and as such, as of September 30, 2018,March 31, 2019, we estimate that we will not pay theany contingent consideration of $3,498,000 for these two facilitiesthe Clemmons facility within North Carolina ALF Portfolio.
Warrants
As of September 30, 2018March 31, 2019 and December 31, 2017,2018, we have recorded $1,078,000$1,132,000 and $1,155,000,$1,207,000, respectively, related to warrants in Trilogy common units held by certain members of Trilogy’s pre-closing management, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Once exercised, these warrants have redemption features similar to the common units held by members of Trilogy’s pre-closing management. See Note 12, Redeemable Noncontrolling Interests, for a further discussion. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, the carrying value is a reasonable estimate of fair value.
Financial Instruments Disclosed at Fair Value
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC Topic 820.
Our accompanying condensed consolidated balance sheets include the following financial instruments: real estate notes receivable, debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits, accounts payable and accrued liabilities, accounts payable due to affiliates, mortgage loans payable and borrowings under our lines of credit and term loans.
We consider the carrying values of real estate notes receivable, cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. The fair value of accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable. The fair values of the other financial instruments are classified in Level 2 of the fair value hierarchy.

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

The fair value of our real estate notes receivable and debt security investment areis estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair value of our mortgage loans payable and our lines of credit and term loans are estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our real estate notes receivable, debt security investment, mortgage loans payable and lines of credit and term loans are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of September 30, 2018March 31, 2019 and December 31, 20172018 were as follows:
September 30,
2018
 
December 31,
2017
March 31,
2019
 
December 31,
2018
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial Assets:              
Real estate notes receivable$30,615,000
 $30,615,000
 $30,713,000
 $31,414,000
Debt security investment$69,198,000
 $93,396,000
 $67,275,000
 $94,202,000
$70,565,000
 $94,083,000
 $69,873,000
 $94,116,000
Financial Liabilities:              
Mortgage loans payable$686,954,000
 $617,388,000
 $613,558,000
 $570,918,000
$691,896,000
 $636,795,000
 $688,262,000
 $618,886,000
Lines of credit and term loans$694,807,000
 $697,953,000
 $617,798,000
 $624,102,000
$797,002,000
 $810,066,000
 $735,737,000
 $737,982,000
16. Income Taxes
As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. We have elected to treat certain of our consolidated subsidiaries as taxable REIT subsidiaries, or TRSs, pursuant to the Code. TRSs may participate in services that would otherwise be considered impermissible for REITs and are subject to federal and state income tax at regular corporate tax rates.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35.0% to 21.0%, eliminating the corporate alternative minimum tax and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
We adopted ASU 2018-05 which allows us The Tax Act is still unclear in some respects and could be subject to record provisional amounts during the period of enactment. Any change to the provisional amounts will be recorded as an adjustment to the provision forpotential amendments and technical corrections. The federal income taxestax rules dealing with U.S. federal income taxation and REITs are constantly under review by persons involved in the periodlegislative process, the amounts are determined. The measurement period ends when we have obtained, preparedIRS and analyzed the information necessaryU.S. Treasury Department, which results in statutory changes as well as frequent revisions to finalizeregulations and interpretations. As a result, the provision, but cannot extend beyond one yearlong-term impact of the enactment date.Tax Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.
The components of income (loss) before taxes for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 were as follows:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Domestic$3,926,000
 $3,875,000
 $12,248,000
 $(2,318,000)$7,206,000
 $8,109,000
Foreign(146,000) (134,000) (258,000) (723,000)(197,000) (55,000)
Income (loss) before income taxes$3,780,000
 $3,741,000
 $11,990,000
 $(3,041,000)
Income before income taxes$7,009,000
 $8,054,000
The components of income tax expense (benefit) for the three months ended March 31, 2019 and 2018 were as follows:
 Three Months Ended March 31,
 2019 2018
Federal deferred$(548,000) $(1,332,000)
State deferred(70,000) (267,000)
Foreign current145,000
 79,000
Valuation allowances624,000
 1,149,000
Total income tax expense (benefit)$151,000
 $(371,000)

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

The components of income tax benefit for the three and nine months ended September 30, 2018 and 2017 were as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Federal deferred$(1,291,000) $(1,996,000) $(3,769,000) $(5,478,000)
State deferred(270,000) (200,000) (773,000) (549,000)
State current4,000
 
 4,000
 
Foreign deferred
 
 
 (61,000)
Foreign current387,000
 90,000
 568,000
 239,000
Valuation allowances1,126,000
 1,386,000
 3,029,000
 4,351,000

$(44,000) $(720,000) $(941,000) $(1,498,000)
Current Income Tax
Federal and state income taxes are generally a function of the level of income recognized by our TRSs. Foreign income taxes are generally a function of our income on our real estate and real estate-related investments located in the United Kingdom, or UK, and Isle of Man.
Deferred Taxes
Deferred income tax is generally a function of the period’s temporary differences (primarily basis differences between tax and financial reporting for real estate assets and equity investments) and generation of tax net operating losses that may be realized in future periods depending on sufficient taxable income.
We apply the rules under ASC 740-10, Accounting for Uncertainty in Income Taxes, for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of aan uncertain tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, our valuation allowance substantially reserves the net deferred tax assets due to inherent uncertainty of future income. We will continue to monitor industry and economic conditions, and our ability to generate taxable income based on our business plan and available tax planning strategies, which would allow us to utilize the tax benefits of the net deferred tax assets and thereby allow us to reverse all, or a portion of, our valuation allowance in the future.
17. Leases
Lessor
We have operating leases with tenants that expire at various dates through 2059. We recognized $31,053,000 of revenues related to operating lease payments, of which $4,741,000 was for variable lease payments for the three months ended March 31, 2019. The following table sets forth the undiscounted cash flows for future minimum base rents due under operating leases for leases in effect for properties we wholly own for the nine months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter:
Year Amount
2019 $71,941,000
2020 91,871,000
2021 89,724,000
2022 83,418,000
2023 76,070,000
Thereafter 578,517,000
Total $991,541,000

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

Future minimum base rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2018 for each of the next five years ending December 31 and thereafter was as follows:
Year Amount
2019 $92,888,000
2020 88,536,000
2021 86,362,000
2022 80,233,000
2023 72,535,000
Thereafter 559,649,000
Total $980,203,000
Lessee
We lease certain land, buildings, furniture, fixtures, campus equipment, office equipment and automobiles. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Most leases include one or more options to renew, with renewal terms that generally can extend at various dates through 2112, excluding extension options. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property.
The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments that are adjusted periodically based on Consumer Price Index (CPI), and may also include other variable lease costs (i.e., common area maintenance, property taxes and insurance). Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs were as follows:
Lease Cost Classification 
Three Months Ended
March 31, 2019
Operating lease cost(1) Property operating expenses and rental expenses $7,456,000
Finance lease cost    
Amortization of leased assets Depreciation and amortization 974,000
Accretion of lease liabilities Interest expense 79,000
Total lease cost   $8,509,000
___________
(1)Includes short-term leases and variable lease costs, which are immaterial.
Other information related to leases was as follows:
Supplemental Disclosure of Cash Flows Information 
Three Months Ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $5,511,000
Operating cash flows from finance leases $79,000
Financing cash flows from finance leases $962,000
Right-of-use assets obtained in exchange for operating lease liabilities $92,000

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

Lease Term and Discount RateAmount
Weighted-average remaining lease term (in years)
Operating leases13.6
Finance leases1.3
Weighted-average discount rate
Operating leases6.13%
Finance leases7.87%
Operating Leases
17.The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the nine months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter, as well as the reconciliation of those cash flows to operating lease liabilities:
Year Amount
2019 $17,321,000
2020 23,098,000
2021 23,568,000
2022 23,950,000
2023 23,257,000
Thereafter 189,416,000
Total operating lease payments 300,610,000
Less: interest 104,620,000
Present value of operating lease liabilities $195,990,000
Future minimum lease obligations under non-cancelable ground and other lease obligations as of December 31, 2018 for each of the next five years ending December 31 and thereafter was as follows:
Year Amount
2019 $22,194,000
2020 22,564,000
2021 23,166,000
2022 23,702,000
2023 23,154,000
Thereafter 177,927,000
Total $292,707,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Finance Leases
The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the nine months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter, as well as a reconciliation of those cash flows to finance lease liabilities:
Year Amount
2019 $2,265,000
2020 1,266,000
2021 130,000
2022 
2023 
Total finance lease payments 3,661,000
Less: interest 185,000
Present value of finance lease liabilities $3,476,000
Future minimum lease payments under finance leases as of December 31, 2018 and for each of the next five years ending December 31 and thereafter was as follows:
Year Amount(1)
2019 $3,307,000
2020 1,266,000
2021 130,000
2022 
2023 
  $4,703,000
___________
(1)Amounts above represent principal of $4,438,000 and interest obligations of $265,000 under finance lease.
18. Segment Reporting
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we established a new reportable business segment at such time. As of September 30, 2018,March 31, 2019, we evaluated our business and made resource allocations based on six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

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

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

We evaluate performance based upon segment net operating income. We define segment net operating income as total revenues, less property operating expenses and rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related expenses, interest expense, gain (loss) on disposition of real estate investments, impairment of real estate investments, foreign currency gain (loss), other income (expense), loss from unconsolidated entityentities and income tax benefit (expense) for each segment. We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment net operating income serves as an appropriate supplemental performance measure to net income (loss) because it allows investors and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis.
Interest expense, depreciation and amortization and other expenses not attributable to individual properties are not allocated to individual segments for purposes of assessing segment performance. Non-segment assets primarily consist of corporate assets including cash and cash equivalents, other receivables, deferred financing costs interest rate swap assets and other assets not attributable to individual properties.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Summary information for the reportable segments during the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 was as follows:
 
Integrated
Senior Health
Campuses
 
Senior
Housing
RIDEA
 
Medical
Office
Buildings
 
Senior
Housing
 
Skilled
Nursing
Facilities
 Hospitals 
Three Months
Ended
September 30, 2018
 
Integrated
Senior Health
Campuses
 
Senior
Housing
RIDEA
 
Medical
Office
Buildings
 
Senior
Housing
 
Skilled
Nursing
Facilities
 Hospitals 
Three Months
Ended
March 31, 2019
Revenues:                            
Resident fees and services $235,605,000
 $16,279,000
 $
 $
 $
 $
 $251,884,000
 $251,714,000
 $16,568,000
 $
 $
 $
 $
 $268,282,000
Real estate revenue 
 
 20,029,000
 5,472,000
 3,716,000
 3,078,000
 32,295,000
 
 
 20,554,000
 5,652,000
 3,659,000
 2,911,000
 32,776,000
Total revenues 235,605,000
 16,279,000
 20,029,000
 5,472,000
 3,716,000
 3,078,000
 284,179,000
 251,714,000
 16,568,000
 20,554,000
 5,652,000
 3,659,000
 2,911,000
 301,058,000
Expenses:                            
Property operating expenses 212,519,000
 11,146,000
 
 
 
 
 223,665,000
 223,328,000
 11,624,000
 
 
 
 
 234,952,000
Rental expenses 
 
 7,577,000
 211,000
 391,000
 398,000
 8,577,000
 
 
 7,816,000
 96,000
 362,000
 151,000
 8,425,000
Segment net operating income $23,086,000

$5,133,000

$12,452,000

$5,261,000

$3,325,000

$2,680,000
 $51,937,000
 $28,386,000

$4,944,000

$12,738,000

$5,556,000

$3,297,000

$2,760,000
 $57,681,000
Expenses:                            
General and administrativeGeneral and administrative      $6,900,000
General and administrative      $6,917,000
Acquisition related expensesAcquisition related expenses      (1,102,000)Acquisition related expenses      (696,000)
Depreciation and amortizationDepreciation and amortization      23,816,000
Depreciation and amortization      25,628,000
Other income (expense):Other income (expense):        Other income (expense):        
Interest expense:Interest expense:  Interest expense:  
Interest expense (including amortization of deferred financing costs and debt discount/premium)Interest expense (including amortization of deferred financing costs and debt discount/premium)  (16,538,000)Interest expense (including amortization of deferred financing costs and debt discount/premium) (19,059,000)
Loss in fair value of derivative financial instrumentsLoss in fair value of derivative financial instruments (750,000)Loss in fair value of derivative financial instruments (560,000)
Loss from unconsolidated entity      (1,137,000)
Foreign currency loss       (619,000)
Loss from unconsolidated entitiesLoss from unconsolidated entities      (454,000)
Foreign currency gainForeign currency gain       1,042,000
Other incomeOther income      501,000
Other income      208,000
Income before income taxesIncome before income taxes      3,780,000
Income before income taxes      7,009,000
Income tax benefit       44,000
Income tax expenseIncome tax expense       (151,000)
Net income             $3,824,000
             $6,858,000

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

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

  
Integrated
Senior Health
Campuses
 
Senior
Housing
RIDEA
 
Medical
Office
Buildings
 
Senior
Housing
 
Skilled
Nursing
Facilities
 Hospitals 
Nine Months
Ended
September 30, 2018
Revenues:              
Resident fees and services $696,187,000
 $48,672,000
 $
 $
 $
 $
 $744,859,000
Real estate revenue 
 
 60,316,000
 16,265,000
 11,183,000
 9,711,000
 97,475,000
            Total revenues 696,187,000
 48,672,000
 60,316,000

16,265,000
 11,183,000
 9,711,000
 842,334,000
Expenses:              
Property operating expenses 626,091,000
 33,204,000
 
 
 
 
 659,295,000
Rental expenses 
 
 23,255,000
 583,000
 1,207,000
 1,219,000
 26,264,000
Segment net operating income $70,096,000
 $15,468,000
 $37,061,000

$15,682,000
 $9,976,000
 $8,492,000
 $156,775,000
Expenses:              
General and administrative $19,910,000
Acquisition related expenses   (1,657,000)
Depreciation and amortization 70,190,000
Other income (expense):        
Interest expense: 
Interest expense (including amortization of deferred financing costs and debt discount/premium)  (48,369,000)
Loss in fair value of derivative financial instruments(1,127,000)
Impairment of real estate investments (2,542,000)
Loss from unconsolidated entity (3,672,000)
Foreign currency loss       (1,652,000)
Other income 1,020,000
Income before income taxes 11,990,000
Income tax benefit       941,000
Net income             $12,931,000


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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

 
Integrated
Senior Health
Campuses
 
Senior
Housing
 RIDEA
 Medical
Office
Buildings
 
Senior
Housing
 
Skilled
Nursing
Facilities
 Hospitals 
Nine Months
Ended
September 30, 2017
 
Integrated
Senior Health
Campuses
 
Senior
Housing
RIDEA
 
Medical
Office
Buildings
 
Senior
Housing
 
Skilled
Nursing
Facilities
 Hospitals 
Three Months
Ended
March 31, 2018
Revenues:                            
Resident fees and services $634,252,000
 $48,048,000
 $
 $
 $
 $
 $682,300,000
 $229,061,000
 $16,332,000
 $
 $
 $
 $
 $245,393,000
Real estate revenue 
 
 58,879,000
 15,598,000
 11,228,000
 9,717,000
 95,422,000
 
 
 20,081,000
 5,400,000
 3,739,000
 3,279,000
 32,499,000
Total revenues 634,252,000
 48,048,000
 58,879,000

15,598,000
 11,228,000
 9,717,000
 777,722,000
 229,061,000
 16,332,000
 20,081,000
 5,400,000
 3,739,000
 3,279,000
 277,892,000
Expenses:                            
Property operating expenses 563,592,000
 32,507,000
 
 
 
 
 596,099,000
 206,295,000
 11,064,000
 
 
 
 
 217,359,000
Rental expenses 
 
 22,068,000
 501,000
 1,204,000
 1,152,000
 24,925,000
 
 
 7,930,000
 187,000
 421,000
 402,000
 8,940,000
Segment net operating income $70,660,000
 $15,541,000

$36,811,000

$15,097,000
 $10,024,000
 $8,565,000

$156,698,000
 $22,766,000
 $5,268,000
 $12,151,000
 $5,213,000
 $3,318,000
 $2,877,000
 $51,593,000
Expenses:                            
General and administrativeGeneral and administrative       $24,642,000
General and administrative $6,388,000
Acquisition related expensesAcquisition related expenses       532,000
Acquisition related expenses   (769,000)
Depreciation and amortizationDepreciation and amortization   88,442,000
Depreciation and amortization 23,692,000
Other income (expense):Other income (expense):        Other income (expense):        
Interest expense:Interest expense: Interest expense: 
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)  (45,356,000)
Interest expense (including amortization of deferred financing costs and debt discount/premium)Interest expense (including amortization of deferred financing costs and debt discount/premium) (15,352,000)
Gain in fair value of derivative financial instrumentsGain in fair value of derivative financial instruments44,000
Gain in fair value of derivative financial instruments110,000
Gain on dispositions of real estate investments3,370,000
Impairment of real estate investments(4,883,000)
Loss from unconsolidated entity(3,668,000)
Loss from unconsolidated entitiesLoss from unconsolidated entities (1,077,000)
Foreign currency gainForeign currency gain3,697,000
Foreign currency gain       1,796,000
Other incomeOther income673,000
Other income 295,000
Loss before income taxes      (3,041,000)
Income before income taxesIncome before income taxes 8,054,000
Income tax benefitIncome tax benefit1,498,000
Income tax benefit       371,000
Net loss             $(1,543,000)
Net income             $8,425,000
Total assets by reportable segment as of September 30, 2018March 31, 2019 and December 31, 20172018 were as follows:
September 30,
2018
 
December 31,
2017
March 31,
2019
 
December 31,
2018
Integrated senior health campuses$1,447,243,000
 $1,366,245,000
$1,672,770,000
 $1,478,147,000
Medical office buildings653,967,000
 662,959,000
648,550,000
 646,784,000
Senior housing — RIDEA273,893,000
 279,388,000
270,684,000
 271,381,000
Senior housing244,497,000
 231,559,000
259,619,000
 242,686,000
Skilled nursing facilities128,882,000
 129,359,000
128,067,000
 127,809,000
Hospitals119,632,000
 123,431,000
117,003,000
 118,685,000
Other4,440,000
 7,534,000
8,195,000
 3,600,000
$2,872,554,000
 $2,800,475,000
Total assets$3,104,888,000
 $2,889,092,000
As of both September 30, 2018March 31, 2019 and December 31, 2017,2018, goodwill of $75,309,000 was allocated to integrated senior health campuses, and no other segments had goodwill.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Our portfolio of properties and other investments are located in the United States, Isle of Man and the UK. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for our operations for the periods presented:
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
 2018 2017 2018 20172019 2018
Revenues:           
United States $282,977,000
 $261,551,000
 $838,603,000
 $774,230,000
$299,822,000
 $276,611,000
International 1,202,000
 1,197,000
 3,731,000
 3,492,000
1,236,000
 1,281,000
 $284,179,000
 $262,748,000
 $842,334,000
 $777,722,000
$301,058,000
 $277,892,000
The following is a summary of real estate investments, net by geographic regions as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
September 30,
2018
 
December 31,
2017
March 31,
2019
 
December 31,
2018
Real estate investments, net:      
United States$2,160,641,000
 $2,110,280,000
$2,173,158,000
 $2,173,395,000
International50,125,000
 52,978,000
50,511,000
 49,286,000
$2,210,766,000
 $2,163,258,000
$2,223,669,000
 $2,222,681,000
18.19. Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are primarily real estate notes receivable and debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash and real estate deposits. We are exposed to credit risk with respect to the real estate notes receivable and debt security investment, but we believe collection of the outstanding amount is probable. We believe that the risk is further mitigated as the real estate notes receivable are secured by property and there is a guarantee of completion agreement executed between the parent company of the borrowers and us. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, we had cash and cash equivalents in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants and security deposits are obtained at the time of property acquisition and upon lease execution.
Based on leases in effect as of September 30, 2018,March 31, 2019, properties in one state in the United States accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income. Properties located in Indiana accounted for 35.3%33.4% of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.
Based on leases in effect as of September 30, 2018,March 31, 2019, our six reportable business segments, integrated senior health campuses, medical office buildings, senior housing — RIDEA, senior housing, skilled nursing facilities and hospitals accounted for 46.3%47.7%, 27.8%27.2%, 9.9%9.0%, 6.5%7.0%, 5.6%5.4% and 3.9%3.7%, respectively, of our total property portfolio’s annualized base rent or annualized net operating income. As of September 30, 2018,March 31, 2019, none of our tenants at our properties accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income, which is based on contractual base rent from leases in effect inclusive of our senior housing — RIDEA facilities and integrated senior health campuses operations as of September 30, 2018.March 31, 2019.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

19.20. Per Share Data
We report earnings (loss) per share pursuant to ASC Topic 260, Earnings per Share. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $7,000 for both the three months ended September 30, 2018March 31, 2019 and 2017, and $20,000 and $19,000, respectively, for the nine months ended September 30, 2018 and 2017.2018. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock.
As of September 30,March 31, 2019 and 2018, and 2017, there were 47,50046,500 and 46,00045,000 nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of September 30,both March 31, 2019 and 2018, and 2017, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.
20. Subsequent Event
Amended Trilogy JV Agreement
On October 1, 2018, we entered into the Amended Trilogy JV Agreement as a result of the purchase by an indirect, wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., or GAHR IV JV Member, of 6.0% of the total membership interests in Trilogy REIT Holdings from a wholly-owned subsidiary of NHI. Both Griffin-American Healthcare REIT IV, Inc. and us are sponsored by American Healthcare Investors. Therefore, effective October 1, 2018, NHI and GAHR IV JV Member indirectly own a 24.0% and 6.0% membership interest, respectively, in Trilogy REIT Holdings.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.noted.
The following discussion should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 20172018 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 16, 2018.21, 2019. Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of September 30, 2018March 31, 2019 and December 31, 2017,2018, together with our results of operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018.
Forward-Looking Statements
Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical factual statements are “forward-looking statements.” Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” “seek” and any other comparable and derivative terms or the negatives thereof. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest and foreign currency exchange rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States, or GAAP, policies or guidelines applicable to REITs; the sucess of our investment strategy; the availability of financing; and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview and Background
Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013, and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and may also originate and acquire other real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a REIT under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT.
On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we offered to the public up to $1,900,000,000 in shares of our common stock. As of April 22, 2015, the deregistration date of our initial offering, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to our initial distribution reinvestment plan, or the Initial DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.Initial DRIP.
On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock to be issued pursuant to our distribution reinvestment plan,the Initial DRIP, or the Secondary2015 DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commenceWe commenced offering shares pursuant to the Secondary2015 DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary2015 DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan,We continued to our accompanying condensed consolidated financial statements for a further discussion. As of September 30, 2018, a total of $216,614,000 in distributions were reinvested and 23,309,252offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of our common stock being issued pursuant to the Secondary2015 DRIP Offering. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our

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common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering; however, we did not commence offering shares pursuant to the 2019 DRIP Offering until April 1, 2019, following the deregistration of the 2015 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings.
On October 3, 2018, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updatedthe most recent estimated per share net asset value, or NAV, of our common stock of $9.37. We provide thean updated estimated per share NAV on at least an annual basis to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. The updatedmost recent estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2018. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the United States Securities and Exchange Commission, or SEC. We intend to continue to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 4, 2018 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updatedmost recent estimated per share NAV.
We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 201813, 2019 and expires on February 26, 2019.2020. Our advisor uses its best efforts, subject to the oversight, review and approval of our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, Colony Capital, or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.
We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of September 30, 2018,March 31, 2019, we owned and/or operated 9798 properties, comprising 101102 buildings, and 111113 integrated senior health campuses including completed development projects, or approximately 13,132,00013,412,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,933,369,000.$2,967,409,000. In addition, as of September 30, 2018,March 31, 2019, we had invested $90,878,000$89,079,000 in real estate-related investments, net of principal repayments.
Critical Accounting Policies
The complete listing of our Critical Accounting Policies was previously disclosed in our 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018,21, 2019, and there have been no material changes to our Critical Accounting Policies as disclosed therein, except as noted below.below or included within Note 2, Summary of Significant Accounting Policies, to our accompanying condensed consolidated financial statements.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.
Revenue Recognition
Resident fees and services
Prior to January 1, 2018, we recognized resident fees and services revenue in accordance with Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an21, 2019.

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arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC Topic 606 did not have a material impact on the measurement nor on the recognition of resident fees and services revenue as of January 1, 2018; therefore, no cumulative adjustment has been made to the opening balance of retained earnings at the beginning of 2018.
A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), other healthcare facilities, and others and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, we bill the patients, third-party payors and other healthcare facilities several days after the services are performed. Revenue is recognized as performance obligations are satisfied.
Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campus receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.
Because all of its performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in Financial Accounting Standards Board, or FASB, ASC 606-10-50-14(a) and, therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The performance obligations for these contracts are generally completed within months of the end of the reporting period.
We determine the transaction price based on standard charges for goods and services provided, reduced, where applicable, by contractual adjustments provided to third-party payors, implicit price concessions provided to uninsured patients, and estimates of goods to be returned. We also determine the estimates of contractual adjustments based on Medicare and Medicaid pricing tables and historical experience. We determine the estimate of implicit price concessions based on the historical collection experience with each class of payor.
Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:
Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.
Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates. In the state of Indiana, we participate in an Upper Payment Limit program, or IGT, with various county hospital partners, which provides supplemental Medicaid payments to skilled nursing facilities that are licensed to non-state, government-owned entities such as county hospital districts. We have operational responsibility through management agreements for facilities retained by the county hospital districts including this IGT.
Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various healthcare organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties and potential exclusion from the related programs. There can be no assurance that regulatory

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authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.
Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigations.
Substantially all of the amounts recorded to bad debt expense pursuant to our previous accounting policy in accordance with ASC Topic 605 are now recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions pursuant to the new revenue standard, ASC Topic 606.
Disaggregation of Resident Fees and Services Revenue
We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Financing Component
We have elected the practical expedient allowed under FASB ASC 606-10-32-18 and, therefore, we do not adjust the promised amount of consideration from patients and third-party payors for the effects of a significant financing component due to our expectation that the period between the time the service is provided to a patient and the time that the patient or a third-party payor pays for that service will be one year or less.
Contract Costs
We have applied the practical expedient provided by FASB ASC 340-40-25-4 and, therefore, all incremental customer contract acquisition costs are expensed as they are incurred since the amortization period of the asset that we otherwise would have recognized is one year or less in duration.
Recently Issued or Adopted Accounting Pronouncements
For a discussion of recently issued or adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Issued or Adopted Accounting Pronouncements, to our accompanying condensed consolidated financial statements.
Acquisitions in 2019
For a discussion of our property acquisitions in 2019, see Note 3, Real Estate Investments, Net, to our accompanying condensed consolidated financial statements.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q and those Risk Factors previously disclosed in our 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.21, 2019.
Revenues
The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations at the then existing rental rates. Negative trends in one or more of these factors could adversely affect our revenue in future periods.
Scheduled Lease Expirations
Excluding our senior housing — RIDEA facilities and our integrated senior health campuses, as of September 30, 2018,March 31, 2019, our properties were 92.5%93.1% leased and during the remainder of 2018, 1.4%2019, 5.5% of the leased GLA is scheduled to expire. For the three months ended September 30, 2018, our senior housing— RIDEA facilities and integrated senior health campuses were 84.5% and 83.8% leased, respectively. For the nine months ended September 30, 2018, our senior housing— RIDEA facilities and integrated senior health campuses were 84.8% and 84.2% leased, respectively. Substantially all of our leases with residents at such properties are for a term of one year or less. Our leasing strategy focuses on negotiating renewals for leases scheduled

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to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.
As of September 30, 2018,March 31, 2019, our remaining weighted average lease term was 8.58.4 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.
Our senior housing— RIDEA facilities and integrated senior health campuses were 83.6% and 83.8% leased, respectively, for the three months ended March 31, 2019. Substantially all of our leases with residents at such properties are for a term of one year or less.
Results of Operations
Comparison of the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017
Our primary sources of revenue include rent and resident fees and services from our properties. Our primary expenses include property operating expenses and rental expenses. In general, we expect amounts related to our portfolio of operating properties to increase in the future based on a full yearongoing developments of operations of newly acquired investmentsproperties, as well as the result of any additional real estate and real estate-related investments we may acquire or develop.originate.
We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of September 30, 2018,March 31, 2019, we operated through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

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Except where otherwise noted, the changes in our results of operations for 20182019 as compared to 20172018 are primarily due to the development and expansion of our portfolio of integrated senior health campuses, as well as growth in our pharmaceutical and rehabilitation businesses within our integrated senior health campuses segment, as well as the development and expansion of our integrated senior health campuses.segment. As of September 30,March 31, 2019 and 2018, and 2017, we owned and/or operated the following types of properties:
September 30,March 31,
2018 20172019 2018
Number of
Buildings/
Campuses
 
Aggregate
Contract
Purchase Price
 
Leased
%
 
Number of
Buildings/
Campuses
 
Aggregate
Contract
Purchase Price
 
Leased
%
Number of
Buildings/
Campuses
 
Aggregate
Contract
Purchase Price
 
Leased
%
 
Number of
Buildings/
Campuses
 
Aggregate
Contract
Purchase Price
 
Leased
%
Integrated senior health campuses111
 $1,493,028,000
 (1) 107
 $1,417,074,000
 (1)113
 $1,512,068,000
 (1) 108
 $1,441,058,000
 (1)
Medical office buildings64
 664,135,000
 89.3% 63
 659,095,000
 92.3%64
 664,135,000
 90.0% 64
 663,835,000
 90.1%
Senior housing15
 188,391,000
 100% 14
 173,391,000
 100%16
 203,391,000
 100% 14
 173,391,000
 100%
Senior housing — RIDEA13
 320,035,000
 (2) 13
 320,035,000
 (2)13
 320,035,000
 (2) 13
 320,035,000
 (2)
Skilled nursing facilities7
 128,000,000
 100% 7
 128,000,000
 100%7
 128,000,000
 100% 7
 128,000,000
 100%
Hospitals2
 139,780,000
 100% 2
 139,780,000
 100%2
 139,780,000
 100% 2
 139,780,000
 100%
Total/weighted average(3)212
 $2,933,369,000
 92.5% 206
 $2,837,375,000
 94.6%215
 $2,967,409,000
 93.1% 208
 $2,866,099,000
 93.0%
___________
(1)For the three and nine months ended September 30,March 31, 2019 and 2018, the leased percentage for the resident units of our integrated senior health campuses was 83.8% and 84.2%82.3%, respectively. For both the three and nine months ended September 30, 2017, the leased percentage for the resident units of our integrated senior health campuses was 85.5%.
(2)For the three and nine months ended September 30,March 31, 2019 and 2018, the leased percentage for the resident units of our senior housing — RIDEA facilities was 84.5%83.6% and 84.8%, respectively. For the three and nine months ended September 30, 2017, the leased percentage for the resident units of our senior housing — RIDEA facilities was 85.5% and 84.7%, respectively.
(3)Leased percentage excludes our senior housing — RIDEA facilities and integrated senior health campuses.
Revenues
For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, resident fees and services primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, real estate revenue primarily consisted of base rent and expense recoveries.

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Revenues by reportable segment consisted of the following for the periods then ended:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Resident Fees and Services          
Integrated senior health campuses$235,605,000
 $214,555,000
 $696,187,000
 $634,252,000
$251,714,000
 $229,061,000
Senior housing — RIDEA16,279,000
 16,213,000
 48,672,000
 48,048,000
16,568,000
 16,332,000
Total resident fees and services251,884,000
 230,768,000
 744,859,000
 682,300,000
268,282,000
 245,393,000
Real Estate Revenue          
Medical office buildings20,029,000
 19,971,000
 60,316,000
 58,879,000
20,554,000
 20,081,000
Senior housing5,472,000
 5,270,000
 16,265,000
 15,598,000
5,652,000
 5,400,000
Skilled nursing facilities3,716,000
 3,775,000
 11,183,000
 11,228,000
3,659,000
 3,739,000
Hospitals3,078,000
 2,964,000
 9,711,000
 9,717,000
2,911,000
 3,279,000
Total real estate revenue32,295,000
 31,980,000
 97,475,000
 95,422,000
32,776,000
 32,499,000
Total revenues$284,179,000
 $262,748,000
 $842,334,000

$777,722,000
$301,058,000
 $277,892,000

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Property Operating Expenses and Rental Expenses
For the three months ended September 30,March 31, 2019 and 2018, and 2017, property operating expenses primarily consisted of administration and benefits expense of $196,321,000$204,701,000 and $176,251,000, respectively. For the nine months ended September 30, 2018 and 2017, property operating expenses primarily consisted of administration and benefits expense of $575,730,000 and $520,058,000,$189,436,000, respectively. Property operating expenses and property operating expenses as a percentage of resident fees and services, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Property Operating Expenses                      
Integrated senior health campuses$212,519,000
 90.2% $188,224,000
 87.7% $626,091,000
 89.9% $563,592,000
 88.9%$223,328,000
 88.7% $206,295,000
 90.1%
Senior housing — RIDEA11,146,000
 68.5% 10,823,000
 66.8% 33,204,000
 68.2% 32,507,000
 67.7%11,624,000
 70.2% 11,064,000
 67.7%
Total property operating expenses$223,665,000
 88.8% $199,047,000
 86.3% $659,295,000
 88.5% $596,099,000
 87.4%$234,952,000
 87.6% $217,359,000
 88.6%
                      
Rental Expenses                      
Medical office buildings$7,577,000
 37.8% $7,343,000
 36.8% $23,255,000
 38.6% $22,068,000
 37.5%$7,816,000
 38.0% $7,930,000
 39.5%
Skilled nursing facilities362,000
 9.9% 421,000
 11.3%
Hospitals398,000
 12.9% 375,000
 12.7% 1,219,000
 12.6% 1,152,000
 11.9%151,000
 5.2% 402,000
 12.3%
Skilled nursing facilities391,000
 10.5% 415,000
 11.0% 1,207,000
 10.8% 1,204,000
 10.7%
Senior housing211,000
 3.9% 166,000
 3.1% 583,000
 3.6% 501,000
 3.2%96,000
 1.7% 187,000
 3.5%
Total rental expenses$8,577,000
 26.6% $8,299,000
 26.0% $26,264,000
 26.9% $24,925,000
 26.1%$8,425,000
 25.7% $8,940,000
 27.5%
Integrated senior health campuses and senior housing — RIDEA facilities typically have a higher percentage of operating expenses to revenue than multi-tenant medical office buildings, hospitals, senior housing facilities and skilled nursing facilities. We anticipate that the percentage of operating expenses to revenue may fluctuate based on the types of property we own and/or operate in the future.

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General and Administrative
General and administrative expenses consisted of the following for the periods then ended:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Asset management fees — affiliates$4,873,000
 $4,713,000
 $14,438,000
 $14,054,000
$4,977,000
 $4,781,000
Professional and legal fees1,030,000
 992,000
 1,963,000
 2,077,000
534,000
 390,000
Bad debt expense448,000
 126,000
Transfer agent services305,000
 306,000
 928,000
 997,000
322,000
 339,000
Stock compensation expense195,000
 195,000
 585,000
 390,000
195,000
 195,000
Bank charges113,000
 104,000
 331,000
 301,000
Franchise taxes101,000
 241,000
 348,000
 400,000
122,000
 175,000
Directors’ and officers’ liability insurance78,000
 80,000
 236,000
 241,000
79,000
 79,000
Board of directors fees72,000
 61,000
 190,000
 182,000
72,000
 61,000
Bank charges59,000
 117,000
Restricted stock compensation72,000
 71,000
 171,000
 171,000
43,000
 43,000
Bad debt expense48,000
 2,313,000
 331,000
 5,220,000
Other13,000
 194,000
 389,000
 609,000
66,000
 82,000
Total$6,900,000
 $9,270,000
 $19,910,000
 $24,642,000
$6,917,000
 $6,388,000
The decreaseincrease in general and administrative expenses for the three and nine months ended September 30, 2018March 31, 2019 as compared to the three and nine months ended September 30, 2017March 31, 2018 was primarily due to the adoption of ASC Topic 606, such that substantially all amounts previously recorded to bad debt expense are now recorded as reductions of residentan increase in asset management fees and services revenue.professional and legal fees as a result of an increase in our average invested assets through capital expenditures and property acquisitions in 2019 as compared to 2018.
Acquisition Related Expenses
For the three and nine months ended September 30,March 31, 2019 and 2018, we recorded negative acquisition related expenses were $(1,102,000)of $(696,000) and $(1,657,000)$(769,000), respectively, which primarily related to fair value adjustments to contingent consideration obligations. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration — Liabilities,Liability, for a further discussion. For the three and nine months ended September 30, 2017,March 31, 2019, we completed $15,736,000 in property acquisitions that we

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accounted for as asset acquisitions; however, the direct acquisition related expenses were $71,000 and $532,000, respectively, which primarily related to our one business combination in 2017 as well as additional expensesof $441,000 associated with our prior yearsuch property acquisitions accountedwere capitalized in our condensed consolidated balance sheets. We did not complete any property acquisitions for as business combinations.the three months ended March 31, 2018.
Depreciation and Amortization
For the three months ended September 30,March 31, 2019 and 2018, and 2017, depreciation and amortization was $23,816,000$25,628,000 and $27,579,000,$23,692,000, respectively, which primarily consisted of depreciation on our operating properties of $20,636,000$22,204,000 and $20,611,000,$20,400,000, respectively, and amortization of our identified intangible assets of $2,983,000$3,133,000 and $6,841,000,$3,137,000, respectively.
For the nine months ended September 30, 2018 and 2017, depreciation and amortization was $70,190,000 and $88,442,000, respectively, which primarily consisted of depreciation on our operating properties of $61,323,000 and $61,453,000, respectively, and amortization of our identified intangible assets of $8,333,000 and $26,599,000, respectively.
The decrease in amortization expense during the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017 was primarily the result of amortization expense of our identified intangible assets recognized during the three and nine months ended September 30, 2017 of $4,354,000 and $19,487,000, respectively, which related to $30,293,000 of in-place leases of our integrated senior health campuses that were fully amortized by January 2018. The amortization expense of such in-place leases was $702,000 for the nine months ended September 30, 2018.

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Interest Expense
Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods then ended:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Interest expense — lines of credit and term loans and derivative financial instruments$9,606,000
 $6,464,000
Interest expense — mortgage loans payable$7,186,000
 $7,109,000
 $21,448,000
 $19,450,000
7,714,000
 7,097,000
Interest expense — lines of credit and term loans and derivative financial instruments7,646,000
 5,976,000
 21,117,000
 18,795,000
Amortization of deferred financing costs — lines of credit and term loans981,000
 978,000
 3,578,000
 2,828,000
1,030,000
 985,000
Amortization of deferred financing costs — mortgage loans payable346,000
 296,000
 995,000
 1,120,000
258,000
 325,000
Amortization of debt discount/premium, net88,000
 142,000
 365,000
 858,000
169,000
 139,000
Loss (gain) in fair value of derivative financial instruments750,000
 59,000
 1,127,000
 (44,000)560,000
 (110,000)
Loss on extinguishment of mortgage loan payable
 
 
 1,432,000
Interest expense on other liabilities291,000
 272,000
 866,000
 873,000
Accretion of finance lease liabilities79,000
 
Interest expense on financing obligations and other liabilities203,000
 342,000
Total$17,288,000
 $14,832,000
 $49,496,000
 $45,312,000
$19,619,000
 $15,242,000
Liquidity and Capital Resources
Our sources of funds primarily consist of operating cash flows and borrowings. We terminated the primary portion of our initial offering on March 12, 2015. In the normal course of business, our principal demands for funds are for our payment of operating expenses, capital improvement expenditures, interest on our current and future indebtedness, and distributions to our stockholders and for acquisitions and/orrepurchases of our common stock and development of real estate and real estate-related investments.
Our total capacity to pay operating expenses, capital improvement expenditures, interest, distributions and distributions,repurchases, as well as acquire and/or develop real estate and real estate-related investments, is a function of our current cash position, our borrowing capacity on our lines of credit and term loans, as well as any future indebtedness that we may incur. As of September 30, 2018,March 31, 2019, our cash on hand was $34,925,000$34,904,000 and we had $126,927,000$100,951,000 available on our lines of credit and term loans. In April 2019, we obtained a $50,380,000 mortgage loan with KeyBank, National Association, secured by three of our senior housing facilities and used the proceeds from such loan to pay down our line of credit, thereby increasing the availability of our line of credit.We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months. Our line of credit and term loans with Bank of America, N.A., KeyBank, National Association and a syndicate of other banks, as lenders, mature on February 3, 2019, and we have the right to extend the maturity date for one 12-month period. Such line of credit and term loans had an aggregate borrowing capacity of $550,000,000 as of September 30, 2018, and can be increased up to a total principal amount of $1,000,000,000, subject to the satisfaction of certain conditions.
We estimate that we will require approximately $15,148,000$30,604,000 to pay interest on our outstanding indebtedness in the remainder of 2018,2019, based on interest rates in effect and borrowings outstanding as of September 30, 2018.March 31, 2019. In addition, we estimate that we will require $2,793,000$193,617,000 to pay principal on our outstanding indebtedness in the remainder of 2018.2019. We also require resources to make certain payments to our advisor and its affiliates. See Note 14, Related Party Transactions, to our accompanying condensed consolidated financial statements, for a further discussion of our payments to our advisor and its affiliates. Generally, cash needs for such items will be met from operations and borrowings.
Our advisor evaluates potential investments and engages in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. When we acquire a property, our advisor prepares a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from proceeds from sales of other investments, borrowings, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.
Other Liquidity Needs
In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, or our advisor or its affiliates. We may also pay distributions from cash from capital transactions, including without limitation, the sale of one or more of our properties.

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Based on the budget for the properties we owned as of September 30, 2018,March 31, 2019, we estimate that our discretionary capital improvement and tenant improvement expenditures will be $31,355,000require up to $96,782,000 for the remaining threenine months of 2018.2019. As of September 30, 2018,March 31, 2019, we had $12,720,000$13,210,000 of restricted cash in loan impounds and reserve accounts for capital expenditures, some of which may be used to fund our estimated expenditures for capital improvements and tenant improvements. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.
Other Liquidity Needs
In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions and share repurchases or the timing of the collection of receivables, we may seek to obtain capital to pay distributions and share repurchases by means of secured or unsecured debt financing through one or more third parties, or our advisor or its affiliates. We may also pay distributions and share repurchases from cash from capital transactions, including without limitation, the sale of one or more of our properties.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewed leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
The following table sets forth changes in cash flows:
 Nine Months Ended September 30, Three Months Ended March 31,
 2018 2017 2019 2018
Cash, cash equivalents and restricted cash — beginning of period $64,143,000
 $55,677,000
 $72,705,000
 $64,143,000
Net cash provided by operating activities 76,297,000
 88,540,000
 25,300,000
 25,998,000
Net cash used in investing activities (109,552,000) (87,341,000) (34,045,000) (15,014,000)
Net cash provided by financing activities 40,459,000
 8,602,000
Net cash provided by (used in) financing activities 9,875,000
 (5,372,000)
Effect of foreign currency translation on cash, cash equivalents and restricted cash (53,000) 132,000
 41,000
 59,000
Cash, cash equivalents and restricted cash — end of period $71,294,000
 $65,610,000
 $73,876,000
 $69,814,000
The following summary discussion of our changes in our cash flows is based on our accompanying condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Operating Activities
For the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, cash flows provided by operating activities primarily related to the cash flows provided by our property operations, offset by the payment of general and administrative expenses. See “Results of Operations” above for a further discussion. In general, cash flows provided by operating activities will be affected by the timing of cash receipts and payments.
Investing Activities
For the ninethree months ended September 30,March 31, 2019, cash flows used in investing activities primarily related to our 2019 property acquisitions in the amount of $16,036,000 and capital expenditures of $16,722,000. For the three months ended March 31, 2018, cash flows used in investing activities primarily related to our 2018 property acquisitions, including our acquisitions of previously leased real estate investments, in the amount of $63,984,000 and capital expenditures of $41,753,000. For the nine months ended September 30, 2017, cash flows used in investing activities primarily related to our 2017 property acquisitions, including our acquisitions of previously leased$12,662,000 and real estate investments, in the amount of $102,241,000 and capital expenditures of $25,804,000, partially offset by principal repayments on real estate notes receivable of $26,752,000 and proceeds from real estate dispositions of $15,993,000.other deposits $2,352,000. In general, cash flows used in investing activities will be affected by a decrease in the pacenumber of acquisitions we complete in future years as compared to prior years and the timing of capital expenditures.
Financing Activities
For the ninethree months ended September 30, 2018,March 31, 2019, cash flows provided by financing activities primarily related to borrowings under mortgage loans payable of $177,637,000 and net borrowings under our lines of credit and term loans in the amount of $73,948,000,$66,001,000, partially offset by settlements of mortgage loans payable of $94,449,000, share repurchases of $53,027,000$36,486,000 and distributions to our common stockholders of $44,702,000.$15,227,000. For the ninethree months ended September 30, 2017,March 31, 2018, cash flows provided byused in financing activities primarily related to borrowings under mortgage loans payable in the amount of $230,452,000, partially offset by the settlement of mortgage loans payable in the amount of $100,775,000, net paymentsborrowings under our lines of credit and term loans in the amount of $56,283,000,

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$26,431,000, partially offset by share repurchases of $16,506,000 and distributions to our common stockholders of $41,526,000 and share repurchases of $24,022,000.$14,377,000. Overall, we anticipate cash flows from financing activities to decrease in the future since we

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terminated the primary portion of our initial offering on March 12, 2015.future. However, we anticipate borrowings under our lines of credit and term loans and other indebtedness to increase if we acquire additional real estate and real estate-related investments.
Distributions
Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on December 31, 2018.June 30, 2019. The distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. The daily distributions were or will be aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to theour DRIP and the Secondary DRIP Offering,Offerings, only from legally available funds.
The amount of the distributions paid to our stockholders is determined quarterly by our board and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code. We have not established any limit on the amount of offering proceeds that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.
The distributions paid for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, along with the amount of distributions reinvested pursuant to the Secondary2015 DRIP Offering, and the sources of our distributions as compared to cash flows from operations were as follows:
 Nine Months Ended September 30,
 2018 2017
Distributions paid in cash$44,702,000
   $41,526,000
  
Distributions reinvested45,444,000
   47,453,000
  
 $90,146,000
   $88,979,000
  
Sources of distributions:       
Cash flows from operations$76,297,000
 84.6% $88,540,000
 99.5%
Proceeds from borrowings13,849,000
 15.4
 439,000
 0.5
 $90,146,000
 100% $88,979,000
 100%
Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from debt.
 Three Months Ended March 31,
 2019 2018
Distributions paid in cash$15,227,000
   $14,377,000
  
Distributions reinvested14,196,000
   15,229,000
  
 $29,423,000
   $29,606,000
  
Sources of distributions:       
Cash flows from operations$25,300,000
 86.0% $25,998,000
 87.8%
Proceeds from borrowings4,123,000
 14.0
 3,608,000
 12.2
 $29,423,000
 100% $29,606,000
 100%
Any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from offering proceeds and borrowings. The payment of distributions from our initial offering proceeds and borrowings could reducehave reduced the amount of capital we ultimately investinvested in assets and negatively impactimpacted the amount of income available for future distributions.
As of September 30, 2018,March 31, 2019, we had an amount payable of $1,956,000$1,957,000 to our advisor or its affiliates primarily for asset and property management fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.
As of September 30, 2018,March 31, 2019, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to our initial offering, through June 5, 2014, the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of such asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a

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thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.
The distributions paid for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, along with the amount of distributions reinvested pursuant to the Secondary2015 DRIP Offering, and the sources of our distributions as compared to funds from operations attributable to controlling interest, or FFO, were as follows:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Distributions paid in cash$44,702,000
   $41,526,000
  $15,227,000
   $14,377,000
  
Distributions reinvested45,444,000
   47,453,000
  14,196,000
   15,229,000
  
$90,146,000
   $88,979,000
  $29,423,000
   $29,606,000
  
Sources of distributions:              
FFO attributable to controlling interest$74,015,000
 82.1% $78,175,000
 87.9%$27,232,000
 92.6% $28,318,000
 95.6%
Proceeds from borrowings16,131,000
 17.9
 10,804,000
 12.1
2,191,000
 7.4
 1,288,000
 4.4
$90,146,000
 100% $88,979,000
 100%$29,423,000
 100% $29,606,000
 100%
The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see the Funds“Funds from Operations and Modified Funds from OperationsOperations” section below.
Financing
We intend to continue to finance all or a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that our overall leverage will not exceed 45.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the contract purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of September 30, 2018,March 31, 2019, our aggregate borrowings were 41.5%43.8% of the combined market value of all of our real estate and real estate-related investments.
Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of November 14, 2018May 15, 2019 and September 30, 2018,March 31, 2019, our leverage did not exceed 300% of the value of our net assets.
Mortgage Loans Payable, Net
For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net, to our accompanying condensed consolidated financial statements.
Lines of Credit and Term Loans
For a discussion of our lines of credit and term loans, see Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

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REIT Requirements
In order to maintain our qualification as a REIT for federal income tax purposes, we are required to make distributions to our stockholders of at least 90.0% of our annual taxable income, excluding net capital gains. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured and unsecured debt financing through one or more unaffiliated third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties or from the proceeds of our initial offering.
Commitments and Contingencies
For a discussion of our commitments and contingencies, see Note 11, Commitments and Contingencies, to our accompanying condensed consolidated financial statements.
Debt Service Requirements
A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of September 30, 2018,March 31, 2019, we had $711,978,000$716,243,000 ($686,954,000,691,896,000, including discount/premium and deferred financing costs, net) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of September 30, 2018,March 31, 2019, we had $698,073,000$804,049,000 outstanding and $126,927,000$100,951,000 remained available under our lines of credit and term loans. See Note 7, Mortgage Loans Payable, Net and Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.
We are required by the terms of certain loan documents to meet certain covenants, such as leverage ratios, net worth ratios, debt service coverage ratios, fixed charge coverage ratios and reporting requirements. As of November 14, 2018,May 15, 2019, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loans. As of September 30, 2018,March 31, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps,cap, was 4.04%4.45% per annum.
Contractual Obligations
The following table provides information with respect to: (i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our lines of credit and term loans; (ii) interest payments on our mortgage loans payable, lines of credit and term loans and fixed interest rate swaps; andcap; (iii) ground and other lease obligations, capital leasesobligations; (iv) financing and other liabilitiesobligations; and (v) finance leases as of September 30, 2018:March 31, 2019:
 Payments Due by Period
 2018 2019-2020 2021-2022 Thereafter Total
Principal payments — fixed-rate debt$2,778,000
  $34,354,000
 $73,241,000
 $516,255,000
 $626,628,000
Interest payments — fixed-rate debt5,797,000
  45,231,000
 42,258,000
 297,636,000
 390,922,000
Principal payments — variable-rate debt15,000
 743,124,000
 40,284,000
 
 783,423,000
Interest payments — variable-rate debt (based on rates in effect as of September 30, 2018)9,351,000
 23,061,000
 1,081,000
 
 33,493,000
Ground and other lease obligations4,579,000
  37,591,000
 39,569,000
 189,315,000
 271,054,000
Capital leases1,932,000
 11,129,000
 4,347,000
 277,000
 17,685,000
Other liabilities25,000
 1,049,000
 
 
 1,074,000
Total$24,477,000
  $895,539,000
 $200,780,000
 $1,003,483,000
 $2,124,279,000
The table above does not reflect any payments expected under our contingent consideration obligations in the estimated amount of $3,498,000, the majority of which we expect to pay during 2019. For a further discussion of our contingent consideration obligations, see Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, to our accompanying condensed consolidated financial statements.
 Payments Due by Period
 2019 2020-2021 2022-2023 Thereafter Total
Principal payments — fixed-rate debt$8,691,000
  $34,962,000
 $89,184,000
 $489,544,000
 $622,381,000
Interest payments — fixed-rate debt17,374,000
  43,802,000
 38,750,000
 280,933,000
 380,859,000
Principal payments — variable-rate debt184,926,000
 98,485,000
 614,500,000
 
 897,911,000
Interest payments — variable-rate debt (based on rates in effect as of March 31, 2019)13,230,000
 5,205,000
 
 
 18,435,000
Ground and other lease obligations17,321,000
  46,666,000
 47,207,000
 189,416,000
 300,610,000
Financing and other obligations4,772,000
 19,097,000
 1,583,000
 
 25,452,000
Finance leases2,265,000
 1,396,000
 
 
 3,661,000
Total$248,579,000
  $249,613,000
 $791,224,000
 $959,893,000
 $2,249,309,000
Off-Balance Sheet Arrangements
As of September 30, 2018,March 31, 2019, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

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Inflation
During the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, inflation has not significantly affected our operations because of the moderate inflation rate; however, we expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions will include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.
Related Party Transactions
For a discussion of related party transactions, see Note 14, Related Party Transactions, to our accompanying condensed consolidated financial statements.
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. The use of funds from operations is recommended by the REIT industry as a supplemental performance measure, and our management uses FFO to evaluate our performance over time. FFO is not equivalent to our net income (loss) as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on funds from operations approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of propertycertain real estate assets and asset impairment writedowns of certain real estate assets and investments, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which is the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, we believe it is appropriate to exclude impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. Testing for an impairment of an asset is a continuous process and is analyzed on a quarterly basis. If certain impairment indications exist in an asset, and if the asset’s carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, an impairment charge would be recognized. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.
Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate relatedestate-related depreciation and amortization and impairments, provides a further understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss).

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However, FFO and modified funds from operations attributable to controlling interest, or MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.
Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed as operating expenses under GAAP. We believe these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We have used the proceeds raised in our initial offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five years after the completion of our offering stage, which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as modified funds from operations, which the IPA has recommended as a supplemental performance measure for publicly registered, non-listed REITs and which we believe to be another appropriate supplemental performance measure to reflect the operating performance of a publicly registered, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes expensed acquisition fees and expenses that affect our operations only in periods in which properties are acquired and that we consider more reflective of investing activities, as well as other non-operating items included in FFO, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering stage has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired, as it excludes expensed acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines modified funds from operations as funds from operations further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to deferred rent and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect modified funds from operations on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. We are responsible for managing interest rate, hedge and foreign exchange risk, and we do not rely on another party to manage such risk. In as much as interest rate hedges will not be a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are based on market fluctuations and may not be directly related or attributable to our operations.

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Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses (which include gains or losses on contingent consideration), amortization of above- and below-market leases, amortization of loan and closing costs, change in deferred rent, gains or losses from the early extinguishment of debt, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions and the adjustments of such items related to unconsolidated propertiesentities and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the three and nine months ended September 30, 2018March 31, 2019 and 2017. Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent redeployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt.2018. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, we may pay acquisition fees or reimburse acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets ifBy excluding expensed acquisition fees and expenses, are not paid from cash on hand.the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties.
Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. In addition, weWe view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence, that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our initial offering and other financing sources and not from operations. By excluding expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate funds from operations and modified funds from operations the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

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

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The following is a reconciliation of net income, (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three and nine months ended September 30, 2018March 31, 2019 and 2017:2018:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Net income (loss)$3,824,000
 $4,461,000
 $12,931,000
 $(1,543,000)
Add:       
Depreciation and amortization — consolidated properties23,816,000
 27,579,000
 70,190,000
 88,442,000
Depreciation and amortization — unconsolidated properties270,000
 270,000
 847,000
 795,000
Impairment of real estate investments
 
 2,542,000
 4,883,000
Net (income) loss attributable to redeemable noncontrolling interests and noncontrolling interests(212,000) 176,000
 (1,224,000) 6,051,000
Less:       
Loss (gain) on dispositions of real estate investments
 9,000
 
 (3,370,000)
Depreciation, amortization, impairments and (gain) loss on dispositions related to redeemable noncontrolling interests and noncontrolling interests(3,902,000) (4,792,000) (11,271,000) (17,083,000)
FFO attributable to controlling interest$23,796,000
 $27,703,000
 $74,015,000
 $78,175,000
        
Acquisition related expenses(1)$(1,102,000) $71,000
 $(1,657,000) $532,000
Amortization of above- and below-market leases(2)103,000
 183,000
 390,000
 538,000
Amortization of loan and closing costs(3)64,000
 57,000
 185,000
 164,000
Change in deferred rent(4)(1,896,000) (1,110,000) (4,650,000) (3,913,000)
Loss on extinguishment of mortgage loan payable(5)
 
 
 1,432,000
Loss (gain) in fair value of derivative financial instruments(6)750,000
 59,000
 1,127,000
 (44,000)
Foreign currency loss (gain)(7)619,000
 (1,384,000) 1,652,000
 (3,697,000)
Adjustments for unconsolidated properties(8)402,000
 582,000
 1,257,000
 1,520,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(8)(146,000) (495,000) (966,000) (1,659,000)
MFFO attributable to controlling interest$22,590,000
 $25,666,000
 $71,353,000
 $73,048,000
Weighted average common shares outstanding — basic and diluted199,818,444
 198,733,528
 200,120,637
 197,832,280
Net income (loss) per common share — basic and diluted$0.02
 $0.02
 $0.06
 $(0.01)
FFO attributable to controlling interest per common share — basic and diluted$0.12
 $0.14
 $0.37
 $0.40
MFFO attributable to controlling interest per common share — basic and diluted$0.11
 $0.13
 $0.36
 $0.37
 Three Months Ended March 31,
 2019 2018
Net income$6,858,000
 $8,425,000
Add:   
Depreciation and amortization related to real estate — consolidated properties25,628,000
 23,692,000
Depreciation and amortization related to real estate — unconsolidated entities225,000
 288,000
Less:   
Net income attributable to redeemable noncontrolling interests and noncontrolling interests(1,348,000) (272,000)
Depreciation and amortization related to redeemable noncontrolling interests and noncontrolling interests(4,131,000) (3,815,000)
FFO attributable to controlling interest$27,232,000
 $28,318,000
    
Acquisition related expenses(1)$(696,000) $(769,000)
Amortization of above- and below-market leases(2)107,000
 199,000
Amortization of loan and closing costs(3)68,000
 59,000
Change in deferred rent(4)(704,000) (1,068,000)
Loss (gain) in fair value of derivative financial instruments(5)560,000
 (110,000)
Foreign currency gain(6)(1,042,000) (1,796,000)
Adjustments for unconsolidated entities(7)377,000
 439,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(7)(482,000) (401,000)
MFFO attributable to controlling interest$25,420,000
 $24,871,000
Weighted average common shares outstanding — basic and diluted198,400,657
 200,347,084
Net income per common share — basic and diluted$0.03
 $0.04
FFO attributable to controlling interest per common share — basic and diluted$0.14
 $0.14
MFFO attributable to controlling interest per common share — basic and diluted$0.13
 $0.12
___________
(1)In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition related expenses, we believe MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net

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income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.
(2)Under GAAP, above- and below-market leases are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, we believe that by excluding charges relating to the amortization of above- and below-market leases, MFFO may provide useful supplemental information on the performance of the real estate.
(3)Under GAAP, direct loan and closing costs are amortized over the term of our notes receivable and debt security investment as an adjustment to the yield on our notes receivable or debt security investment. This may result in income recognition that is different than the contractual cash flows under our notes receivable and debt security investment. By adjusting for the amortization of the loan and closing costs related to our real estate notes receivable and debt security investment, MFFO may provide useful supplemental information on the realized economic impact of our notes receivable and debt security investment terms, providing insight on the expected contractual cash flows of such notes receivable and debt security investment, and aligns results with our analysis of operating performance.
(4)Under GAAP, as a lessor, rental revenue or rental expense is recognized on a straight-line basis over the terms of the related lease (including rent holidays). As a lessee, we record amortization of right-of-use assets and accretion of lease liabilities for our operating leases. This may result in income or expense recognition that is significantly different than the underlying contract terms. By adjusting for the change in deferred rent, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with our analysis of operating performance.

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contract terms. By adjusting for the change in deferred rent, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with our analysis of operating performance.
(5)The loss associated with the early extinguishment of debt includes the write-off of unamortized deferred financing fees, as well as expenses, penalties or other fees incurred. We believe that adjusting for such non-recurring losses provides useful supplemental information because such charges (or losses) may not be reflective of on-going transactions and operations and is consistent with management’s analysis of our operating performance.
(6)Under GAAP, we are required to record our derivative financial instruments at fair value at each reporting period. We believe that adjusting for the change in fair value of our derivative financial instruments is appropriate because such adjustments may not be reflective of on-going operations and reflect unrealized impacts on value based only on then current market conditions, although they may be based upon general market conditions. The need to reflect the change in fair value of our derivative financial instruments is a continuous process and is analyzed on a quarterly basis in accordance with GAAP.
(7)(6)We believe that adjusting for the change in foreign currency exchange rates provides useful information because such adjustments may not be reflective of on-going operations.
(8)(7)
Includes all adjustments to eliminate the unconsolidated properties’entities’ share or redeemable noncontrolling interests and noncontrolling interests’ share, as applicable, of the adjustments described in notes (1) (7)(6) above to convert our FFO to MFFO.
Net Operating Income
Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, acquisition related expenses, depreciation and amortization, interest expense, gain or loss on dispositions, impairment of real estate investments, loss from unconsolidated entity,entities, foreign currency gain or loss, other income and income tax benefit (expense). Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore, if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. As a result, the amount of proceeds available for investment, operations and non-operating expenses would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under

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GAAP. All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.
NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, NOI is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which isas an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. Investors are also cautioned that NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.
We believe that NOI is an appropriate supplemental performance measure to reflect the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of the properties. We believe that NOI is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.
The
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To facilitate understanding of this financial measure, the following is a reconciliation of net income, (loss), which is the most directly comparable GAAP financial measure, to NOI for the three and nine months ended September 30, 2018March 31, 2019 and 2017:2018:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Net income (loss)$3,824,000
 $4,461,000
 $12,931,000
 $(1,543,000)
General and administrative6,900,000
 9,270,000
 19,910,000
 24,642,000
Acquisition related expenses(1,102,000) 71,000
 (1,657,000) 532,000
Depreciation and amortization23,816,000
 27,579,000
 70,190,000
 88,442,000
Interest expense17,288,000
 14,832,000
 49,496,000
 45,312,000
Loss (gain) on dispositions of real estate investments
 9,000
 
 (3,370,000)
Impairment of real estate investments
 
 2,542,000
 4,883,000
Loss from unconsolidated entity1,137,000
 1,494,000
 3,672,000
 3,668,000
Foreign currency loss (gain)619,000
 (1,384,000) 1,652,000
 (3,697,000)
Other income(501,000) (210,000) (1,020,000) (673,000)
Income tax benefit(44,000) (720,000) (941,000) (1,498,000)
Net operating income$51,937,000
 $55,402,000
 $156,775,000
 $156,698,000

Subsequent Event

For a discussion of a subsequent event, see Note 20, Subsequent Event, to our accompanying condensed consolidated financial statements.
 Three Months Ended March 31,
 2019 2018
Net income$6,858,000
 $8,425,000
General and administrative6,917,000
 6,388,000
Acquisition related expenses(696,000) (769,000)
Depreciation and amortization25,628,000
 23,692,000
Interest expense19,619,000
 15,242,000
Loss from unconsolidated entities454,000
 1,077,000
Foreign currency gain(1,042,000) (1,796,000)
Other income(208,000) (295,000)
Income tax expense (benefit)151,000
 (371,000)
Net operating income$57,681,000
 $51,593,000
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. There were no material changes in our market risk exposures, or in the methods we use to manage market risk, from those that were provided for in our 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.21, 2019. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
Interest Rate Risk
We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. We are also exposed to the effects of changes in interest rates as a result of our investments in real estate notes receivable. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows

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and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed or variable rates.
We have entered into, and in the future may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss).income. As of September 30, 2018,March 31, 2019, our interest rate swaps arecap is recorded in other assets, net in our accompanying condensed consolidated balance sheets at their aggregateits fair value of $1,239,000.$11,000. We do not enter into derivative transactions for speculative purposes.

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As of September 30, 2018,March 31, 2019, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
 Expected Maturity Date
 2018 2019 2020 2021 2022 Thereafter Total Fair Value
Assets               
Fixed-rate notes receivable — principal payments$
 $28,650,000
 $
 $
 $
 $
 $28,650,000
 $28,816,000
Weighted average interest rate on maturing fixed-rate notes receivable% 6.75% % % % % 6.75% 
Variable-rate notes receivable — principal payments$1,799,000
 $
 $
 $
 $
 $
 $1,799,000
 $1,799,000
Weighted average interest rate on maturing variable-rate notes receivable (based on rates in effect as of September 30, 2018)8.39% % % % % % 8.39% 
Debt security held-to-maturity$
 $
 $
 $
 $
 $93,433,000
 $93,433,000
 $93,396,000
Weighted average interest rate on maturing fixed-rate debt security% % % % % 4.24% 4.24% 
Liabilities               
Fixed-rate debt — principal payments$2,778,000
 $11,551,000
 $22,803,000
 $12,158,000
 $61,083,000
 $516,255,000
 $626,628,000
 $530,243,000
Weighted average interest rate on maturing fixed-rate debt3.71% 3.72% 4.84% 3.67% 4.15% 3.64% 3.73% 
Variable-rate debt — principal payments$15,000
 $683,078,000
 $60,046,000
 $40,284,000
 $
 $
 $783,423,000
 $785,098,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of September 30, 2018)6.60% 4.57% 5.70% 4.79% % % 4.66% 

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 Expected Maturity Date
 2019 2020 2021 2022 2023 Thereafter Total Fair Value
Assets               
Fixed-rate notes receivable — principal payments$28,650,000
 $
 $
 $
 $
 $
 $28,650,000
 $28,747,000
Weighted average interest rate on maturing fixed-rate notes receivable6.75% % % % % % 6.75% 
Debt security held-to-maturity$
 $
 $
 $
 $
 $93,433,000
 $93,433,000
 $94,083,000
Weighted average interest rate on maturing fixed-rate debt security% % % % % 4.24% 4.24% 
Liabilities               
Fixed-rate debt — principal payments$8,691,000
 $22,803,000
 $12,159,000
 $61,083,000
 $28,101,000
 $489,544,000
 $622,381,000
 $541,817,000
Weighted average interest rate on maturing fixed-rate debt3.72% 4.84% 3.67% 4.15% 4.15% 3.61% 3.74% 
Variable-rate debt — principal payments$184,926,000
 $59,967,000
 $38,518,000
 $614,500,000
 $
 $
 $897,911,000
 $905,044,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of March 31, 2019)4.97% 6.07% 4.86% % % % 5.00% 
Real Estate Notes Receivable and Debt Security Investment, Net
As of September 30, 2018,March 31, 2019, the carrying value of our real estate notes receivable and debt security investment, net was $99,813,000.$99,312,000. As we expect to hold our fixed-rate notes receivable and debt security investment to maturity and the amounts due under such notes receivable and debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate notes receivable and debt security investment, would have a significant impact on our operations. Conversely, movements in interest rates on our variable-rate notes receivable may change our future earnings and cash flows, but not significantly affect the fair value of those instruments. See Note 15, Fair Value Measurements, to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our real estate notes receivable and our investment in a held-to-maturity debt security.
The weighted average effective interest rate on our outstanding real estate notes receivable and debt security investment, net was 4.88%4.83% per annum based on rates in effect as of September 30, 2018. A decrease in the variable interest rate on our real estate notes receivable constitutes a market risk. As of September 30, 2018, a 0.50% decrease in the market rates of interest would have no impact on our future earnings and cash flows due to interest rate floors on our variable-rate real estate notes receivable.March 31, 2019.
Mortgage Loans Payable, Net and Lines of Credit and Term Loans
Mortgage loans payable were $711,978,000$716,243,000 ($686,954,000,691,896,000, including discount/premium and deferred financing costs, net) as of September 30, 2018.March 31, 2019. As of September 30, 2018,March 31, 2019, we had 57 fixed-rate mortgage loans payable and fiveseven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.07%8.49% per annum and a weighted average effective interest rate of 3.94%4.01%. In addition, as of September 30, 2018,March 31, 2019, we had $698,073,000$804,049,000 outstanding under our lines of credit and term loans, at a weighted-average interest rate of 4.57%4.85% per annum.
As of September 30, 2018,March 31, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps,cap, was 4.04%4.45% per annum. An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loans constitutes a market risk. As of September 30, 2018,March 31, 2019, we have threea fixed-rate interest rate swapscap on one of our linesvariable-rate mortgage loans payable for a notional amount of credit and term loans$20,000,000, and an increase in the variable interest rate thereon would have no effect on our overall annual interest expense. As of September 30, 2018,March 31, 2019, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and term loans by $2,690,000,$4,266,000, or 4.74%17.2% of total annualized interest expense on our mortgage loans payable and lines of credit and term loans. See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on our results for the ninethree months ended September 30, 2018,March 31, 2019, if foreign currency exchange rates were to increase or decrease by 1.00%, our net income from these investments would decrease or increase, as applicable, by approximately $17,000$5,000 for the same period.

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

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Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 2018March 31, 2019 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2018,March 31, 2019, were effective at the reasonable assurance level.
(b) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.noted.
There were no material changes from the risk factors previously disclosed in our 20172018 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018,21, 2019, except as noted below.
We have not had sufficient cash available from operations to pay distributions, and therefore, we have paid distributions from the net proceeds of our initial offering and borrowings, and in the future, may continue to pay distributions from borrowings in anticipation of future cash flows or from other sources. Any such distributions may reduce the amount of capital we ultimately invest in assets, may negatively impact the value of our stockholders’ investment and may cause subsequent investors to experience dilution.
We have used the net proceeds from our initial offering, borrowed funds or other sources, to pay cash distributions to our stockholders, which may reduce the amount of proceeds available for investment and operations, cause us to incur additional interest expense as a result of borrowed funds or cause subsequent investors to experience dilution. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated earnings and profits, the excess amount will be deemed a return of capital. Therefore, distributions payable to our stockholders may partially include a return of capital, rather than a return on capital. We have not established any limit on the amount of proceeds from our initial offering or borrowings that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences. The actual amount and timing of distributions is determined by our board, in its sole discretion and typically depends on the amount of funds available for distribution, which will depend on items such as our financial condition, current and projected capital expenditure requirements, tax considerations and annual distribution requirements needed to qualify as a REIT. As a result, our distribution rate and payment frequency may vary from time to time.
Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on December 31, 2018.June 30, 2019. The daily distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. These daily distributions were or will be aggregated and paid in cash or shares of our common stock pursuant to theour DRIP portion of our initial offering and the Secondary DRIP OfferingOfferings monthly in arrears, only from legally available funds.
The distributions paid for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, along with the amount of distributions reinvested pursuant to the Secondary2015 DRIP Offering and the sources of our distributions as compared to cash flows from operations were as follows:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Distributions paid in cash$44,702,000
   $41,526,000
  $15,227,000
   $14,377,000
  
Distributions reinvested45,444,000
   47,453,000
  14,196,000
   15,229,000
  
$90,146,000
   $88,979,000
  $29,423,000
   $29,606,000
  
Sources of distributions:              
Cash flows from operations$76,297,000
 84.6% $88,540,000
 99.5%$25,300,000
 86.0% $25,998,000
 87.8%
Proceeds from borrowings13,849,000
 15.4
 439,000
 0.5
4,123,000
 14.0
 3,608,000
 12.2
$90,146,000
 100% $88,979,000
 100%$29,423,000
 100% $29,606,000
 100%
Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, subtracted from cash flows from operations. However, these expenses may be paid from debt.

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Any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from offering proceeds and borrowings. The payment of distributions from our initial offering proceeds and borrowings could reducehave reduced the amount of capital we ultimately investinvested in assets and negatively impactimpacted the amount of income available for future distributions.
As of September 30, 2018,March 31, 2019, we had an amount payable of $1,956,000$1,957,000 to our advisor or its affiliates primarily for asset and property management fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.
As of September 30, 2018,March 31, 2019, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to our initial offering, through June 5, 2014, the day prior to the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.
The distributions paid for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, along with the amount of distributions reinvested pursuant the Secondary2015 DRIP Offering and the sources of our distributions as compared to FFO were as follows:
Nine Months Ended September 30,Three Months Ended March 31,
2018 20172019 2018
Distributions paid in cash$44,702,000
   $41,526,000
  $15,227,000
   $14,377,000
  
Distributions reinvested45,444,000
   47,453,000
  14,196,000
   15,229,000
  
$90,146,000
   $88,979,000
  $29,423,000
   $29,606,000
  
Sources of distributions:              
FFO attributable to controlling interest$74,015,000
 82.1% $78,175,000
 87.9%$27,232,000
 92.6% $28,318,000
 95.6%
Proceeds from borrowings16,131,000
 17.9
 10,804,000
 12.1
2,191,000
 7.4
 1,288,000
 4.4
$90,146,000
 100% $88,979,000
 100%$29,423,000
 100% $29,606,000
 100%
The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations and Modified Funds from Operations.
The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment.
On October 3, 2018, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share NAV of our common stock of $9.37. We are providing this updated estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by FINRA with respect to customer account statements. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the IPA in April 2013, in addition to guidance from the SEC. The updated estimated per share NAV was determined after consultation with our advisor and an independent third-party valuation firm, the engagement of which was approved by the audit committee of our board. FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, our independent valuation firm’s methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant.

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The updated estimated per share NAV was not audited or reviewed by our independent registered public accounting firm and does not represent the fair value of our assets or liabilities according to GAAP. Accordingly, with respect to the updated estimated per share NAV, we can give no assurance that:
a stockholder would be able to resell his or her shares at our updated estimated per share NAV;
a stockholder would ultimately realize distributions per share equal to our updated estimated per share NAV upon liquidation of our assets and settlement of our liabilities or a sale of the company;
our shares of common stock would trade at our updated estimated per share NAV on a national securities exchange;
an independent third-party appraiser or other third-party valuation firm, other than the third-party valuation firm engaged by the board to assist in its determination of the updated estimated per share NAV, would agree with our estimated per share NAV; or
the methodology used to estimate our updated per share NAV would be acceptable to FINRA or comply with the Employee Retirement Income Security Act of 1974, or ERISA, reporting requirements.
Further, the estimated updated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2018. The value of our shares may fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. Going forward, we intend to engage an independent valuation firm to assist us with publishing an updated estimated per share NAV on at least an annual basis.
For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of the updated estimated per share NAV, see our Current Report on Form 8-K filed with the SEC on October 4, 2018.
A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.
To the extent that weWe have a concentration of properties in any particular geographic area,areas; therefore, any adverse situation that disproportionately effects that geographic areaone of those areas would have a magnified adverse effect on our portfolio. As of November 14, 2018,May 15, 2019, properties located in Indiana accounted for approximately 35.3%33.4% of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect theprofitability of our tenants and hinder their ability to make rental payments to us, and comprehensive healthcare reform legislation could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal governmental healthcare programs are subject to reductions by state and federal legislative actions. The American Taxpayer Relief Act of 2012 prevented the reduction in physician reimbursement of Medicare from being implemented in 2013. The Protecting Access to Medicare Act of 2014 prevented the reduction of 24.4% in the physician fee schedule by replacing the scheduled reduction with a 0.5% increase to the physician fee schedule through December 31, 2014, and no increase from January 1, 2015 through March 31, 2015. The potential 21.0% cut in reimbursement that was to be effective April 1, 2015 was removed by the Medicare Access & CHIP Reauthorization Act of 2015, or MACRA, and replaced with two new methodologies that will focus upon payment based upon quality outcomes. The first model is the Merit-Based Incentive Payment System, or MIPS, which combines the Physician Quality Reporting System, or PQRS, and Meaningful Use program with the Value Based Modifier program to provide for one payment model based upon (i) quality, (ii) resource use, (iii) clinical practice improvement and (iv) advancing care information through the use of certified Electronic Health Record, or EHR, technology. The second model is the Advanced Alternative Payment Models, or APM, which requires the physician to participate in a risk share arrangement for reimbursement related to his or her patients while utilizing a certified health record and reporting on specific quality metrics. There are a number of physicians that will not qualify for the APM payment method. Therefore, this change in reimbursement models may impact our tenants’ payments and create uncertainty in the tenants’ financial condition.

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The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to reimbursement based upon value-based principles and quality driven managed care programs, and general industry trends that include pressures to control healthcare costs. The federal government's goal is to move approximately 90.0% of its reimbursement for providers to be based upon quality outcome models. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement based upon a fee for service payment to payment based upon quality outcomes have increased the uncertainty of payments.
In addition, the Patient Protection and Affordable Care Act of 2010, or the Healthcare Reform Act, is intended to reduce the number of individuals in the U.S. without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments.
Furthermore, the healthcare legislation passed in 2010 included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could have a material adverse effect on the financial condition of some of our tenants. Also, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law and repeals the individual mandate portion of the Healthcare Reform Act beginning in 2019. Therefore, our tenants may have more patients that do not have insurance coverage, which may adversely impact the tenants’ collections and revenues. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to stockholders.
Furthermore, beginning in 2016, the Centers for Medicare and Medicaid Services has applied a negative payment adjustment to individual eligible professionals, Comprehensive Primary Care practice sites, and group practices participating in the PQRS group practice reporting option (including Accountable Care Organizations) that do not satisfactorily report PQRS in 2014. Program participation during a calendar year will affect payments two years after the reporting cycle, such that individuals and groups that do not satisfy the PQRS reporting metrics in 2016 will be impacted by a two percent negative payment adjustment in 2018. Providers can appeal the determination, but if the provider is not successful, the provider’s reimbursement may be adversely impacted, which could adversely impact a tenant’s ability to make rent payments to us.
In 2014, state insurance exchanges were implemented, which provide a new mechanism for individuals to obtain insurance. At this time, the number of payors that are participating in the state insurance exchanges varies, and in some regions there are very limited insurance plans available for individuals to choose from when purchasing insurance. In addition, not all healthcare providers will maintain participation agreements with the payors that are participating in the state health insurance exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payors and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payors to healthcare providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payor, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to pay rent.
The insurance plans that participated on the health insurance exchanges created by the Healthcare Reform Act were expecting to receive risk corridor payments to address the high risk claims that they paid through the exchange product. However, the federal government currently owes the insurance companies approximately $12.3 billion under the risk corridor payment program that is currently disputed by the federal government. In addition, the health insurance exchange program included risk adjustment payments that allocated payments to insurers that had the most complex patients. Effective July 7, 2018, the federal government suspended $10.4 billion of the risk adjustment payments based upon a court order that the payment methodology was flawed. However, on July 24, 2018, the federal government reissued a previous rule regarding risk adjustment payments, including as part of the reissuance additional explanation regarding the methodology used in determining risk adjustment payments. Aspart of the reissuance, the federal government resumed its operation of the risk adjustment program. The federal government is currently defending several lawsuits from the insurance plans that participate on the health insurance exchange regarding the failure to remit payment for the risk corridor subsidies. The federal government is also subject to pending litigation regarding the risk adjustment payments. If the insurance companies do not receive payments, the insurance companies may also cease to participate on the insurance exchange, which limits insurance options for

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patients. If patients do not have access to insurance coverage, it may adversely impact the tenants’ revenues and the tenants’ ability to pay rent.
In addition to the failure to remit payment for the risk corridor payment and the recent suspension of the risk adjustment payments, the federal government also ceased to provide the cost-share subsidies to the insurance companies that offered the silver plan benefits on the Health Information Exchange. The termination of the cost-share subsidies would impact the subsidy payments due in 2017 and will likely adversely impact the insurance companies, causing an increase in the premium payments for the individual beneficiaries in 2018. Nineteen State Attorneys General filed suit to force the Trump Administration to reinstate the cost share subsidy payments. On October 25, 2017, a California Judge ruled in favor of the Trump Administration and found that the federal government was not required to immediately reinstate payment for the cost shares subsidy. The injunction sought by the Attorneys’ General lawsuit was denied. Subsequently, several insurers filed suit in the U.S. Court of Federal Claims to recover cost-share reduction payments, and in two of the matters, the Court of Federal Claims ruled in favor of the insurers. Nevertheless, because of the government’s refusal to make cost-share reduction payments, our tenants will likely see an increase in individuals who are self-pay or have a lower health benefit plan due to the increase in the premium payments. Our tenants’ collections and revenues may be adversely impacted by the change in the payor mix of their patients and it may adversely impact the tenants’ ability to make rent payments.
There are multiple lawsuits in several judicial districts brought by qualified health plans, or QHPs, to recover the prior risk corridor payments that were anticipated to be paid as part of the health insurance exchange program. In June 2018, the Court of Appeals for the Federal Circuit issued an opinion in Moda Health Plan v. United States, concluding that the government does not have to pay health insurers that offered QHPs the full amount owed to them in risk corridors payments. Several insurers have requested a rehearing as to the matters addressed in the Moda case in front of a full panel of appellate judges. At this time, at least two key cases have been determined in favor of the government withholding payment of the risk corridor payment. If the Administration or the court system decisions that risk corridor or risk share payments are not required to be paid to the QHPs offering insurance coverage on the health insurance exchange program remain in effect and binding, the insurance companies may cease offering the Health Insurance Exchange product to the current beneficiaries. Therefore, our tenants may have an increase of self-pay patients and collections may decline, adversely impacting the tenants’ ability to pay rent.
In 2017, Congressional activities to attempt to repeal the Healthcare Reform Act failed. However, President Trump signed several Executive Orders that address different aspects of the Healthcare Reform Act. First, on January 20, 2017 an Executive Order was signed to “ease the burden of Obamacare.” Furthermore, on October 12, 2017, President Trump signed an Executive Order the purpose of which was to, among other things, (i) cut healthcare cost-sharing reduction subsidies, (ii) allow more small businesses to join together to purchase insurance coverage, (iii) extend short-term coverage policies, and (iv) expand employers’ ability to provide workers cash to buy coverage elsewhere. The Executive Order required the government agencies to draft regulations for consideration related to Associated Health Plans (AHP), short term limited duration insurance (STLDI) and health reimbursement arrangements (HRA). Some, but not all, of the required regulations have been drafted. If the Healthcare Reform Act is modified through Executive Orders, the healthcare industry will continue to change and new regulations may further modify payment models, jeopardizing our tenants’ ability to remit the rental payments.
On January 11, 2018, the Centers for Medicare and Medicaid Services, or CMS, issued guidance to support state efforts to improve Medicaid enrollee health outcomes by incentivizing community engagement among able-bodied, working-age Medicaid beneficiaries. The policy excludes individuals eligible for Medicaid due to a disability, elderly beneficiaries, children and pregnant women. CMS has received proposals from 10 states seeking requirements for able bodied Medicaid beneficiaries to engage in employment and community engagement initiatives. Kentucky, Indiana, Arkansas and New Hampshire have been granted a waiver for their programs and require Medicaid beneficiaries to work or get ready for employment. However, in June 2018, the Federal District Court in the District of Columbia vacated the CMS approval of the Kentucky waiver, finding the approval was arbitrary and capricious and the Court referred it back to CMS. In response to CMS’s willingness to entertain Medicaid program waivers, states are seeking waivers to impose other Medicaid eligibility requirements, such as drug testing and eligibility time limits. If the “work requirement” and other eligibility requirements expand to the states’ Medicaid programs, it may decrease the number of patients eligible for Medicaid. The patients that are no longer eligible for Medicaid may become self-pay patients, which may adversely impact our tenant’s ability to receive reimbursement. If our tenants’ patient payor mix becomes more self-pay patients, it may impact our tenants’ ability to collect revenues and pay rent. In addition, beginning in 2018, CMS cut funding to the 340B Program, which is intended to lower drug costs for certain healthcare providers. The cuts in the 340B Program may result in some of our tenants having less money available to cover operational costs.

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In February of 2018, Congress passed the Bipartisan Balanced Budget Act of 2018. Some of the most notable provisions of the Bipartisan Balanced Budget Act include: (i) the permanent extension of Medicare Special Needs Plans, or SNPs, which provide tailored care for certain qualifying Medicare beneficiaries; (ii) guaranteed funding for the Children’s Health Insurance Program, or CHIP, through 2027; (iii) expansion of Medicare coverage for tele-medicine services; and (iv) expanded testing of certain value-based care models. The extension of SNPs and funding for CHIP secure coverage for patients of our tenants and may reduce the number of uninsured patients treated by our tenants. The expansion of coverage for tele-medicine services could impact the demand for medical properties. If more patients can be treated remotely, providers may have less demand for real property.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
On July 1, 2018, we issued an aggregateNone.

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

Purchase of Equity Securities by the Issuer and Affiliated Purchasers
Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. All share repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan, and will be repurchased at a price between 92.5% and 100% of each stockholder’s “Repurchase Amount,” as defined in our share repurchase plan, depending on the period of time their shares have been held. The numbers of shares that we will repurchase is generally limited during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to the DRIP portionOfferings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or qualifying disability of a stockholder will not be subject to this quarterly cap or to our initial offering andexisting cap on repurchases to 5.0% of the Secondary DRIP Offering.weighted average number of shares outstanding during the calendar year prior to the repurchase date.
Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the repurchase price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).
During the three months ended September 30, 2018,March 31, 2019, we repurchased shares of our common stock as follows:
Period 

Total Number of
Shares Purchased
 

Average Price
Paid per Share
 

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

Total Number of
Shares Purchased
 

Average Price
Paid per Share
 

Total Number of Shares
Purchased As Part of
Publicly Announced
Plan or Program
 
Maximum Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the
Plans or Programs
January 1, 2019 to January 31, 2019 5,000
 $10.00
 5,000
 (1)
February 1, 2019 to February 28, 2019 
 $
 
 (1)
March 1, 2019 to March 31, 2019 3,878,716
 $9.39
 3,878,716
 (1)
Total 3,883,716
 $9.39
 3,883,716
  
___________
(1)Subject to funds being available, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, shares of our common stock subject to a repurchase requested upon the death or a qualifying disability of a stockholder will not be subject to this cap.
Item 3. Defaults Upon Senior Securities.
None.

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Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.

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Item 6. Exhibits.
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the period ended September 30, 2018March 31, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).
  
  
  
  
  
  
  
  
101.INS*XBRL Instance Document
  
101.SCH*XBRL Taxonomy Extension Schema Document
  
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
  
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
  
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
___________
*Filed herewith.
**Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.



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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
Griffin-American Healthcare REIT III, Inc.
(Registrant)
       
November 14, 2018May 15, 2019 By: 
/s/ JEFFREY T. HANSON
 
Date    Jeffrey T. Hanson 
     Chief Executive Officer and Chairman of the Board of Directors
     (Principal Executive Officer) 
       
November 14, 2018May 15, 2019 By: 
/s/ BRIAN S. PEAY
 
Date    Brian S. Peay 
     Chief Financial Officer
     (Principal Financial Officer and Principal Accounting Officer)



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