UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June~~September 30, 2019



¨	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)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

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



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of ~~August 9,~~November 8, 2019, there were ~~195,730,548~~195,346,045 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
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	5
Condensed Consolidated Statements of Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	109
Notes to Condensed Consolidated Financial Statements	1211
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5051
Item 3. Quantitative and Qualitative Disclosures About Market Risk	6567
Item 4. Controls and Procedures	6769

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	6870
Item 1A. Risk Factors	6870
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	7073
Item 3. Defaults Upon Senior Securities	7174
Item 4. Mine Safety Disclosures	7174
Item 5. Other Information	7174
Item 6. Exhibits	7275
Signatures	7376

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of ~~June~~September 30, 2019 and December 31, 2018

(Unaudited)


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
ASSETS
Real estate investments, net	$	2,230,950,000		$	2,222,681,000		$	2,249,059,000		$	2,222,681,000
Real estate notes receivable and debt security investment, net	71,272,000			98,655,000			71,986,000			98,655,000
Cash and cash equivalents	34,026,000			35,132,000			46,709,000			35,132,000
Accounts and other receivables, net	131,120,000			122,918,000			128,879,000			122,918,000
Restricted cash	39,697,000			37,573,000			37,464,000			37,573,000
Real estate deposits	281,000			3,077,000			281,000			3,077,000
Identified intangible assets, net	168,187,000			179,521,000			161,073,000			179,521,000
Goodwill	75,309,000			75,309,000			75,309,000			75,309,000
Operating lease right-of-use assets	204,527,000			—			187,900,000			—
Other assets, net	130,784,000			114,226,000			132,749,000			114,226,000
Total assets	$	3,086,153,000		$	2,889,092,000		$	3,091,409,000		$	2,889,092,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	743,564,000		$	688,262,000		$	805,257,000		$	688,262,000
Lines of credit and term loans(1)	757,567,000			738,048,000			755,279,000			738,048,000
Accounts payable and accrued liabilities(1)	143,567,000			139,383,000			150,502,000			139,383,000
Accounts payable due to affiliates(1)	2,582,000			2,103,000			2,147,000			2,103,000
Identified intangible liabilities, net	842,000			1,051,000			751,000			1,051,000
Financing obligations(1)	28,951,000			25,947,000			29,137,000			25,947,000
Operating lease liabilities(1)	193,390,000			—			178,172,000			—
Security deposits, prepaid rent and other liabilities(1)	38,600,000			37,418,000			45,853,000			37,418,000
Total liabilities	1,909,063,000			1,632,212,000			1,967,098,000			1,632,212,000

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)	38,115,000			38,245,000			37,811,000			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; 194,736,018 and 197,557,377 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	1,946,000			1,975,000
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 194,389,974 and 197,557,377 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively							1,943,000			1,975,000
Additional paid-in capital	1,739,119,000			1,765,840,000			1,735,527,000			1,765,840,000
Accumulated deficit	(759,520,000		)	(704,748,000		)	(806,427,000		)	(704,748,000		)
Accumulated other comprehensive loss	(2,580,000		)	(2,560,000		)	(2,861,000		)	(2,560,000		)
Total stockholders’ equity	978,965,000			1,060,507,000			928,182,000			1,060,507,000
Noncontrolling interests (Note 13)	160,010,000			158,128,000			158,318,000			158,128,000
Total equity	1,138,975,000			1,218,635,000			1,086,500,000			1,218,635,000
Total liabilities, redeemable noncontrolling interests and equity	$	3,086,153,000		$	2,889,092,000		$	3,091,409,000		$	2,889,092,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)

As of ~~June~~September 30, 2019 and December 31, 2018

(Unaudited)

___________

(1)

Such liabilities of Griffin-American Healthcare REIT III, Inc. as of ~~June~~September 30, 2019 and December 31, 2018 represented liabilities of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries. Griffin-American Healthcare REIT III Holdings, LP is a variable interest entity, or VIE, and a consolidated subsidiary of Griffin-American Healthcare REIT III, Inc. The creditors of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries do not have recourse against Griffin-American Healthcare REIT III, Inc., except for ~~six and five mortgage loans in the aggregate amount of $100,061,000 and $50,316,000 as of June 30, 2019 and December 31, 2018, respectively, and~~ the 2019 Corporate Line of Credit and 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of ~~$557,000,000~~$517,500,000 and $548,500,000 as of ~~June~~September 30, 2019 and December 31, 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.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Revenues:
Resident fees and services	$	272,472,000		$	247,582,000		$	540,754,000		$	492,975,000		$	273,800,000		$	251,884,000		$	814,554,000		$	744,859,000
Real estate revenue	32,459,000			32,681,000			65,235,000			65,180,000			27,962,000			32,295,000			93,197,000			97,475,000
Total revenues	304,931,000			280,263,000			605,989,000			558,155,000			301,762,000			284,179,000			907,751,000			842,334,000
Expenses:
Property operating expenses	239,890,000			218,271,000			474,842,000			435,630,000			241,858,000			223,665,000			716,700,000			659,295,000
Rental expenses	8,226,000			8,747,000			16,651,000			17,687,000			9,188,000			8,577,000			25,839,000			26,264,000
General and administrative	6,512,000			6,622,000			13,429,000			13,010,000			7,675,000			6,900,000			21,104,000			19,910,000
Acquisition related expenses	400,000			214,000			(296,000		)	(555,000		)	4,000			(1,102,000		)	(292,000		)	(1,657,000		)
Depreciation and amortization	24,743,000			22,682,000			50,371,000			46,374,000			36,778,000			23,816,000			87,149,000			70,190,000
Total expenses	279,771,000			256,536,000			554,997,000			512,146,000			295,503,000			261,856,000			850,500,000			774,002,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)	(19,560,000		)	(16,479,000		)	(38,619,000		)	(31,831,000		)
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)													(21,046,000		)	(16,538,000		)	(59,665,000		)	(48,369,000		)
Loss in fair value of derivative financial instruments	(4,117,000		)	(487,000		)	(4,677,000		)	(377,000		)	(1,169,000		)	(750,000		)	(5,846,000		)	(1,127,000		)
Impairment of real estate investments	—			(2,542,000		)	—			(2,542,000		)
Impairment of real estate investment													—			—			—			(2,542,000		)
Loss from unconsolidated entities	(493,000		)	(1,458,000		)	(947,000		)	(2,535,000		)	(766,000		)	(1,137,000		)	(1,713,000		)	(3,672,000		)
Foreign currency loss	(1,232,000		)	(2,829,000		)	(190,000		)	(1,033,000		)	(1,464,000		)	(619,000		)	(1,654,000		)	(1,652,000		)
Other income	246,000			224,000			454,000			519,000			1,923,000			501,000			2,377,000			1,020,000
Income before income taxes	4,000			156,000			7,013,000			8,210,000
(Loss) Income before income taxes													(16,263,000		)	3,780,000			(9,250,000		)	11,990,000
Income tax (expense) benefit	(159,000		)	526,000			(310,000		)	897,000			(840,000		)	44,000			(1,150,000		)	941,000
Net (loss) income	(155,000		)	682,000			6,703,000			9,107,000			(17,103,000		)	3,824,000			(10,400,000		)	12,931,000
Less: net income attributable to noncontrolling interests	(1,430,000		)	(740,000		)	(2,778,000		)	(1,012,000		)	(201,000		)	(212,000		)	(2,979,000		)	(1,224,000		)
Net (loss) income attributable to controlling interest	$	(1,585,000	)	$	(58,000	)	$	3,925,000		$	8,095,000		$	(17,304,000	)	$	3,612,000		$	(13,379,000	)	$	11,707,000
Net (loss) income per common share attributable to controlling interest — basic and diluted	$	(0.01	)	$	—		$	0.02		$	0.04		$	(0.09	)	$	0.02		$	(0.07	)	$	0.06
Weighted average number of common shares outstanding — basic and diluted	196,075,614			200,202,193			197,231,713			200,274,238			195,669,002			199,818,444			196,705,085			200,120,637

Net (loss) income	$	(155,000	)	$	682,000		$	6,703,000		$	9,107,000		$	(17,103,000	)	$	3,824,000		$	(10,400,000	)	$	12,931,000
Other comprehensive loss:
Foreign currency translation adjustments	(239,000		)	(684,000		)	(20,000		)	(238,000		)	(281,000		)	(136,000		)	(301,000		)	(374,000		)
Total other comprehensive loss	(239,000		)	(684,000		)	(20,000		)	(238,000		)	(281,000		)	(136,000		)	(301,000		)	(374,000		)
Comprehensive (loss) income	(394,000		)	(2,000		)	6,683,000			8,869,000			(17,384,000		)	3,688,000			(10,701,000		)	12,557,000
Less: comprehensive income attributable to noncontrolling interests	(1,430,000		)	(740,000		)	(2,778,000		)	(1,012,000		)	(201,000		)	(212,000		)	(2,979,000		)	(1,224,000		)
Comprehensive (loss) income attributable to controlling interest	$	(1,824,000	)	$	(742,000	)	$	3,905,000		$	7,857,000		$	(17,585,000	)	$	3,476,000		$	(13,680,000	)	$	11,333,000

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)



	Three Months Ended September 30, 2019
	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 — June 30, 2019	194,736,018		$	1,946,000		$	1,739,119,000		$	(759,520,000	)	$	(2,580,000	)	$	978,965,000		$	160,010,000				$	1,138,975,000
Issuance of vested and nonvested restricted common stock	15,000		—			28,000			—			—			28,000			—					28,000
Issuance of common stock under the DRIP	1,471,581		15,000			13,774,000			—			—			13,789,000			—					13,789,000
Amortization of nonvested common stock compensation	—		—			44,000			—			—			44,000			—					44,000
Stock based compensation	—		—			—			—			—			—			195,000					195,000
Repurchase of common stock	(1,832,625	)	(18,000		)	(17,303,000		)	—			—			(17,321,000		)	—					(17,321,000		)
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	—		—			(135,000		)	—			—			(135,000		)	(59,000		)			(194,000		)
Distributions declared ($0.15 per share)	—		—			—			(29,603,000		)	—			(29,603,000		)	—					(29,603,000		)
Net (loss) income	—		—			—			(17,304,000		)	—			(17,304,000		)	184,000			(1	)	(17,120,000		)
Other comprehensive loss	—		—			—			—			(281,000		)	(281,000		)	—					(281,000		)
BALANCE — September 30, 2019	194,389,974		$	1,943,000		$	1,735,527,000		$	(806,427,000	)	$	(2,861,000	)	$	928,182,000		$	158,318,000				$	1,086,500,000


	Three Months Ended June 30, 2019																									Three Months Ended September 30, 2018
	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 — March 31, 2019	195,188,759		$	1,951,000		$	1,743,711,000		$	(728,598,000	)	$	(2,341,000	)	$	1,014,723,000		$	160,595,000				$	1,175,318,000
Offering costs — common stock	—		—			(1,000		)	—			—			(1,000		)	—					(1,000		)
BALANCE — June 30, 2018																										198,864,815		$	1,988,000		$	1,781,514,000		$	(649,551,000	)	$	(2,209,000	)	$	1,131,742,000		$	160,639,000				$	1,292,381,000
Issuance of vested and nonvested restricted common stock	7,500		—			14,000			—			—			14,000			—					14,000			15,000		—			27,000			—			—			27,000			—					27,000
Issuance of common stock under the DRIP	1,506,395		15,000			14,100,000			—			—			14,115,000			—					14,115,000			1,617,584		16,000			14,979,000			—			—			14,995,000			—					14,995,000
Amortization of nonvested common stock compensation	—		—			43,000			—			—			43,000			—					43,000			—		—			45,000			—			—			45,000			—					45,000
Stock based compensation	—		—			—			—			—			—			195,000					195,000			—		—			—			—			—			—			195,000					195,000
Repurchase of common stock	(1,966,636	)	(20,000		)	(18,629,000		)	—			—			(18,649,000		)	—					(18,649,000		)	(1,994,354	)	(19,000		)	(18,380,000		)	—			—			(18,399,000		)	—					(18,399,000		)
Distributions to noncontrolling interests	—		—			—			—			—			—			(1,818,000		)			(1,818,000		)	—		—			—			—			—			—			(1,873,000		)			(1,873,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(195,000		)			(195,000		)	—		—			—			—			—			—			(195,000		)			(195,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(119,000		)	—			—			(119,000		)	(50,000		)			(169,000		)	—		—			(101,000		)	—			—			(101,000		)	(43,000		)			(144,000		)
Distributions declared ($0.15 per share)	—		—			—			(29,337,000		)	—			(29,337,000		)	—					(29,337,000		)	—		—			—			(30,227,000		)	—			(30,227,000		)	—					(30,227,000		)
Net (loss) income	—		—			—			(1,585,000		)	—			(1,585,000		)	1,283,000			(1	)	(302,000		)
Net income																										—		—			—			3,612,000			—			3,612,000			188,000			(1	)	3,800,000
Other comprehensive loss	—		—			—			—			(239,000		)	(239,000		)	—					(239,000		)	—		—			—			—			(136,000		)	(136,000		)	—					(136,000		)
BALANCE — June 30, 2019	194,736,018		$	1,946,000		$	1,739,119,000		$	(759,520,000	)	$	(2,580,000	)	$	978,965,000		$	160,010,000				$	1,138,975,000
BALANCE — September 30, 2018																										198,503,045		$	1,985,000		$	1,778,084,000		$	(676,166,000	)	$	(2,345,000	)	$	1,101,558,000		$	158,911,000				$	1,260,469,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)


	Three Months Ended June 30, 2018																									Nine Months Ended September 30, 2019
	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 — March 31, 2018	199,193,544		$	1,991,000		$	1,784,461,000		$	(619,538,000	)	$	(1,525,000	)	$	1,165,389,000		$	161,445,000				$	1,326,834,000
BALANCE — December 31, 2018																										197,557,377		$	1,975,000		$	1,765,840,000		$	(704,748,000	)	$	(2,560,000	)	$	1,060,507,000		$	158,128,000				$	1,218,635,000
Offering costs — common stock																										—		—			(84,000		)	—			—			(84,000		)	—					(84,000		)
Issuance of vested and nonvested restricted common stock	7,500		—			14,000			—			—			14,000			—					14,000			22,500		—			42,000			—			—			42,000			—					42,000
Issuance of common stock under the DRIP	1,641,819		17,000			15,203,000			—			—			15,220,000			—					15,220,000			4,493,074		45,000			42,055,000			—			—			42,100,000			—					42,100,000
Amortization of nonvested common stock compensation	—		—			42,000			—			—			42,000			—					42,000			—		—			130,000			—			—			130,000			—					130,000
Stock based compensation	—		—			—			—			—			—			195,000					195,000			—		—			—			—			—			—			585,000					585,000
Repurchase of common stock	(1,978,048	)	(20,000		)	(18,174,000		)	—			—			(18,194,000		)	—					(18,194,000		)	(7,682,977	)	(77,000		)	(72,379,000		)	—			—			(72,456,000		)	—					(72,456,000		)
Contributions from noncontrolling interests																										—		—			—			—			—			—			3,000,000					3,000,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(1,454,000		)			(1,454,000		)	—		—			—			—			—			—			(5,452,000		)			(5,452,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(195,000		)			(195,000		)	—		—			—			—			—			—			(585,000		)			(585,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(32,000		)	—			—			(32,000		)	(14,000		)			(46,000		)	—		—			(77,000		)	—			—			(77,000		)	(33,000		)			(110,000		)
Distributions declared ($0.15 per share)	—		—			—			(29,955,000		)	—			(29,955,000		)	—					(29,955,000		)
Distributions declared ($0.45 per share)																										—		—			—			(88,300,000		)	—			(88,300,000		)	—					(88,300,000		)
Net (loss) income	—		—			—			(58,000		)	—			(58,000		)	662,000			(1	)	604,000			—		—			—			(13,379,000		)	—			(13,379,000		)	2,675,000			(1	)	(10,704,000		)
Other comprehensive loss	—		—			—			—			(684,000		)	(684,000		)	—					(684,000		)	—		—			—			—			(301,000		)	(301,000		)	—					(301,000		)
BALANCE — June 30, 2018	198,864,815		$	1,988,000		$	1,781,514,000		$	(649,551,000	)	$	(2,209,000	)	$	1,131,742,000		$	160,639,000				$	1,292,381,000
BALANCE — September 30, 2019																										194,389,974		$	1,943,000		$	1,735,527,000		$	(806,427,000	)	$	(2,861,000	)	$	928,182,000		$	158,318,000				$	1,086,500,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)

Six Months Ended June 30, 2019
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, 2018 197,557,377
$ 1,975,000
$ 1,765,840,000
$ (704,748,000 ) $ (2,560,000 ) $ 1,060,507,000
$ 158,128,000
$ 1,218,635,000
Offering costs — common stock —
—
(84,000 ) —
—
(84,000 ) —
(84,000 )
Issuance of vested and nonvested restricted common stock 7,500
—
14,000
—
—
14,000
—
14,000
Issuance of common stock under the DRIP 3,021,493
30,000
28,281,000
—
—
28,311,000
—
28,311,000
Amortization of nonvested common stock compensation —
—
86,000
—
—
86,000
—
86,000
Stock based compensation —
—
—
—
—
—
390,000
390,000
Repurchase of common stock (5,850,352 ) (59,000 ) (55,076,000 ) —
—
(55,135,000 ) —
(55,135,000 )
Contributions from noncontrolling interests —
—
—
—
—
—
3,000,000
3,000,000
Distributions to noncontrolling interests —
—
—
—
—
—
(3,635,000 ) (3,635,000 )
Reclassification of noncontrolling interests to mezzanine equity —
—
—
—
—
—
(390,000 ) (390,000 )
Fair value adjustment to redeemable noncontrolling interests —
—
58,000
—
—
58,000
26,000
84,000
Distributions declared ($0.30 per share) —
—
—
(58,697,000 ) —
(58,697,000 ) —
(58,697,000 )
Net income —
—
—
3,925,000
—
3,925,000
2,491,000
(1 ) 6,416,000
Other comprehensive loss —
—
—
—
(20,000 ) (20,000 ) —
(20,000 )
BALANCE — June 30, 2019 194,736,018
$ 1,946,000
$ 1,739,119,000
$ (759,520,000 ) $ (2,580,000 ) $ 978,965,000
$ 160,010,000
$ 1,138,975,000

~~Table of Contents~~

~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)~~

~~For the Three and Six Months Ended June 30, 2019 and 2018~~

~~(Unaudited)~~


	Six Months Ended June 30, 2018																									Nine Months Ended September 30, 2018
	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, 2017	199,343,234		$	1,993,000		$	1,785,872,000		$	(598,044,000	)	$	(1,971,000	)	$	1,187,850,000		$	158,725,000				$	1,346,575,000		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 stock	7,500		—			14,000			—			—			14,000			—					14,000			22,500		—			41,000			—			—			41,000			—					41,000
Issuance of common stock under the DRIP	3,284,653		33,000			30,416,000			—			—			30,449,000			—					30,449,000			4,902,237		49,000			45,395,000			—			—			45,444,000			—					45,444,000
Amortization of nonvested common stock compensation	—		—			85,000			—			—			85,000			—					85,000			—		—			130,000			—			—			130,000			—					130,000
Stock based compensation	—		—			—			—			—			—			390,000					390,000			—		—			—			—			—			—			585,000					585,000
Repurchase of common stock	(3,770,572	)	(38,000		)	(34,662,000		)	—			—			(34,700,000		)	—					(34,700,000		)	(5,764,926	)	(57,000		)	(53,042,000		)	—			—			(53,099,000		)	—					(53,099,000		)
Contribution from noncontrolling interest	—		—			—			—			—			—			4,470,000					4,470,000			—		—			—			—			—			—			4,470,000					4,470,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(3,373,000		)			(3,373,000		)	—		—			—			—			—			—			(5,246,000		)			(5,246,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(390,000		)			(390,000		)	—		—			—			—			—			—			(585,000		)			(585,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(205,000		)	—			—			(205,000		)	(88,000		)			(293,000		)	—		—			(306,000		)	—			—			(306,000		)	(131,000		)			(437,000		)
Distributions declared ($0.30 per share)	—		—			—			(59,602,000		)	—			(59,602,000		)	—					(59,602,000		)
Distributions declared ($0.45 per share)																										—		—			—			(89,829,000		)	—			(89,829,000		)	—					(89,829,000		)
Net income	—		—			—			8,095,000			—			8,095,000			905,000			(1	)	9,000,000			—		—			—			11,707,000			—			11,707,000			1,093,000			(1	)	12,800,000
Other comprehensive loss	—		—			—			—			(238,000		)	(238,000		)	—					(238,000		)	—		—			—			—			(374,000		)	(374,000		)	—					(374,000		)
BALANCE — June 30, 2018	198,864,815		$	1,988,000		$	1,781,514,000		$	(649,551,000	)	$	(2,209,000	)	$	1,131,742,000		$	160,639,000				$	1,292,381,000
BALANCE — September 30, 2018																										198,503,045		$	1,985,000		$	1,778,084,000		$	(676,166,000	)	$	(2,345,000	)	$	1,101,558,000		$	158,911,000				$	1,260,469,000

___________

(1)

For the three months ended ~~June~~September 30, 2019 and 2018, amounts exclude ~~$147,000~~$17,000 and ~~$78,000,~~$24,000, respectively, of the net income attributable to redeemable noncontrolling interests. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, amounts exclude ~~$287,000~~$304,000 and ~~$107,000,~~$131,000, respectively, of net income 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.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,703,000		$	9,107,000
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(10,400,000	)	$	12,931,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	50,371,000			46,374,000			87,149,000			70,190,000
Other amortization	15,211,000			2,846,000			22,625,000			3,871,000
Deferred rent	(3,403,000		)	(2,754,000		)	(1,909,000		)	(4,650,000		)
Stock based compensation	390,000			390,000			585,000			585,000
Stock based compensation — nonvested restricted common stock	100,000			99,000			172,000			171,000
Loss from unconsolidated entities	947,000			2,535,000			1,713,000			3,672,000
Bad debt expense	272,000			283,000			745,000			331,000
Foreign currency loss	189,000			1,000,000			1,653,000			1,619,000
Loss on extinguishment of debt							2,179,000			—
Change in fair value of contingent consideration	(681,000		)	(489,000		)	(681,000		)	(1,609,000		)
Change in fair value of derivative financial instruments	4,677,000			377,000			5,846,000			1,127,000
Impairment of real estate investments	—			2,542,000
Impairment of real estate investment							—			2,542,000
Changes in operating assets and liabilities:
Accounts and other receivables	(8,475,000		)	(2,200,000		)	(6,708,000		)	(5,325,000		)
Other assets	(1,322,000		)	(11,668,000		)	(5,193,000		)	(12,072,000		)
Accounts payable and accrued liabilities	2,474,000			(3,014,000		)	6,888,000			3,390,000
Accounts payable due to affiliates	429,000			(13,000		)	47,000			13,000
Security deposits, prepaid rent, operating lease and other liabilities	(14,051,000		)	1,275,000			(12,919,000		)	(489,000		)
Net cash provided by operating activities	53,831,000			46,690,000			91,792,000			76,297,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate investments	(17,457,000		)	(444,000		)	(32,793,000		)	(63,984,000		)
Proceeds from real estate dispositions	—			1,000,000			—			1,000,000
Principal repayments on real estate notes receivable	28,650,000			—			28,650,000			—
Investments in unconsolidated entities	(1,520,000		)	—			(1,520,000		)	(2,000,000		)
Capital expenditures	(38,510,000		)	(24,545,000		)	(65,740,000		)	(41,753,000		)
Real estate and other deposits	(613,000		)	(2,878,000		)	(652,000		)	(2,815,000		)
Net cash used in investing activities	(29,450,000		)	(26,867,000		)	(72,055,000		)	(109,552,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	61,472,000			1,364,000			182,417,000			177,637,000
Payments on mortgage loans payable	(6,331,000		)	(5,045,000		)	(59,706,000		)	(7,539,000		)
Payoff of mortgage loans payable							(6,286,000		)	(94,449,000		)
Borrowings under the lines of credit and term loans	692,519,000			122,596,000			955,053,000			206,664,000
Payments on the lines of credit and term loans	(673,000,000		)	(72,444,000		)	(937,822,000		)	(132,716,000		)
Payments under financing obligations	(3,731,000		)	(3,555,000		)	(6,243,000		)	(5,329,000		)
Deferred financing costs	(6,807,000		)	(187,000		)	(12,486,000		)	(4,130,000		)
Debt extinguishment costs							(251,000		)	—
Other obligations							—			(1,000,000		)
Repurchase of common stock	(55,088,000		)	(34,700,000		)	(72,200,000		)	(53,027,000		)
Repurchase of stock warrants and redeemable noncontrolling interest	(78,000		)	(77,000		)	(475,000		)	(306,000		)
Contributions from noncontrolling interests	3,000,000			4,470,000			3,000,000			4,470,000
Distributions to noncontrolling interests	(3,635,000		)	(3,373,000		)
Contributions from redeemable noncontrolling interests	—			535,000
Distributions to redeemable noncontrolling interests	(720,000		)	(332,000		)
Security deposits and other	(55,000		)	43,000

109

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

(Unaudited)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Distributions to noncontrolling interests							$	(5,449,000	)	$	(5,243,000	)
Contributions from redeemable noncontrolling interests							—			535,000
Distributions to redeemable noncontrolling interests							(1,033,000		)	(497,000		)
Security deposits and other							36,000			91,000
Distributions paid	$	(30,886,000	)	$	(29,447,000	)	(46,716,000		)	(44,702,000		)
Net cash used in financing activities	(23,340,000		)	(20,152,000		)
Net cash (used in) provided by financing activities							(8,161,000		)	40,459,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	1,041,000		$	(329,000	)	$	11,576,000		$	7,204,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(23,000		)	(24,000		)	(108,000		)	(53,000		)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	72,705,000			64,143,000			72,705,000			64,143,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	73,723,000		$	63,790,000		$	84,173,000		$	71,294,000

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period:
Cash and cash equivalents	$	35,132,000		$	33,656,000		$	35,132,000		$	33,656,000
Restricted cash	37,573,000			30,487,000			37,573,000			30,487,000
Cash, cash equivalents and restricted cash	$	72,705,000		$	64,143,000		$	72,705,000		$	64,143,000

End of period:
Cash and cash equivalents	$	34,026,000		$	33,805,000		$	46,709,000		$	34,925,000
Restricted cash	39,697,000			29,985,000			37,464,000			36,369,000
Cash, cash equivalents and restricted cash	$	73,723,000		$	63,790,000		$	84,173,000		$	71,294,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	34,783,000		$	28,103,000		$	52,171,000		$	43,016,000
Income taxes	$	544,000		$	572,000		$	634,000		$	764,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Investing Activities:
Accrued capital expenditures	$	14,332,000		$	10,062,000		$	16,440,000		$	15,162,000
Capital expenditures from financing obligations	$	6,735,000		$	4,194,000		$	8,434,000		$	5,194,000
Tenant improvement overage	$	645,000		$	355,000		$	1,016,000		$	1,014,000
Investments in unconsolidated entity	$	5,276,000		$	—		$	5,276,000		$	—
The following represents the increase in certain liabilities in connection with our acquisitions of real estate investments:
The following represents the increase (decrease) in certain liabilities in connection with our acquisitions of real estate investments:
Other assets, net							$	—		$	(1,587,000	)
Accounts payable and accrued liabilities	$	37,000		$	1,000		$	46,000		$	47,000
Prepaid rent	$	105,000		$	—		$	105,000		$	223,000
Financing Activities:
Issuance of common stock under the DRIP	$	28,311,000		$	30,449,000		$	42,100,000		$	45,444,000
Distributions declared but not paid	$	9,689,000		$	9,898,000		$	9,673,000		$	9,875,000
Payable to transfer agent	$	47,000		$	—		$	256,000		$	72,000
Reclassification of noncontrolling interests to mezzanine equity	$	390,000		$	390,000		$	585,000		$	585,000
Accrued deferred financing costs	$	51,000		$	10,000		$	77,000		$	—

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

1110

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

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

1. Organization and Description of Business

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

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we offered to the public up to $1,900,000,000 in shares of our common stock. As of April 22, 2015, the deregistration date of our initial offering, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to our initial distribution reinvestment plan, or the Initial DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the Initial DRIP. See Note 13, Equity — Common Stock, for a further discussion.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock to be issued pursuant to the Initial DRIP, or the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the 2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of common stock being issued pursuant to the 2015 DRIP Offering. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering; 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. As of ~~June~~September 30, 2019, a total of ~~$14,115,000~~$27,904,000 in distributions were reinvested that resulted in ~~1,506,395~~2,977,976 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year initial term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 13, 2019 and expires on February 26, 2020. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, or our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony Capital or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

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We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of ~~June~~September 30, 2019, we owned and/or operated 98 properties, comprising 102 buildings, and 113 integrated senior health campuses including completed development projects, or approximately ~~13,412,000~~13,462,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of ~~$2,968,740,000.~~$2,983,811,000. In addition, as of ~~June~~September 30, 2019, we had invested $60,429,000 in real estate-related investments, net of principal repayments.

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 VIEs in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance.

We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We are the sole general partner of our operating partnership, and as of ~~June~~September 30, 2019 and December 31, 2018, we owned greater than a 99.99% general partnership interest therein. As of ~~June~~September 30, 2019 and December 31, 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 2018 Annual Report on Form 10-K, as filed with the SEC on March 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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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,Leases, or ASC Topic 842. ASC Topic 842 supersedes ASC Topic 840, Leases, or ASC Topic 840. We adopted ASC Topic 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Therefore, with respect to our leases as both lessees and lessors, information is presented under ASC Topic 842 as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and under ASC Topic 840 as of December 31, 2018 and for the three and ~~six~~nine months ended ~~June~~September 30, 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 ofthan 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 (loss). 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 (loss). Further, finance lease assets are included within real estate investments, net and 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~~which: (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. In addition, such practical expedient causes an entity to assess whether a contract is predominately lease or service based, and recognize the revenue from the entire contract under the relevant accounting guidance. Effective upon our adoption of ASC Topic 842 on January 1, 2019, we 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.,

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property taxes and insurance) paid directly by a lessee to third parties on our behalf from our measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs); and ~~(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.

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

See Note 17, Leases, for a further discussion.

Revenue Recognition

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

Real estate revenue

Prior to January 1, 2019, minimum annual rental revenue was recognized on a straight-line basis over the term of the related lease (including rent holidays) in accordance with ASC Topic 840. Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements were recorded to deferred rent receivable 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 Recognition — Principal Versus Agent Consideration, or ASC Subtopic 606. ASC Subtopic 606 requires that these reimbursements be recorded on a gross basis as we are generally primarily responsible to fulfill the promise to provide specified goods and services. We recognized lease termination fees at such time when there was a signed termination letter agreement, all of the conditions of such agreement ~~have~~had been met and the tenant iswas 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

Disaggregation of Resident Fees and Services Revenue

The following ~~table disaggregates~~tables disaggregate 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 June 30,												Three Months Ended September 30,
	2019						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	$	53,390,000	$	202,651,000	$	256,041,000	$	44,657,000	$	186,864,000	$	231,521,000	$	53,215,000	$	203,833,000	$	257,048,000	$	46,525,000	$	189,080,000	$	235,605,000
Senior housing — RIDEA(1)	735,000		15,696,000		16,431,000		729,000		15,332,000		16,061,000		737,000		16,015,000		16,752,000		835,000		15,444,000		16,279,000
Total resident fees and services	$	54,125,000	$	218,347,000	$	272,472,000	$	45,386,000	$	202,196,000	$	247,582,000	$	53,952,000	$	219,848,000	$	273,800,000	$	47,360,000	$	204,524,000	$	251,884,000

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	Six Months Ended June 30,												Nine Months Ended September 30,
	2019						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	$	105,733,000	$	402,022,000	$	507,755,000	$	89,822,000	$	370,760,000	$	460,582,000	$	158,948,000	$	605,855,000	$	764,803,000	$	136,347,000	$	559,840,000	$	696,187,000
Senior housing — RIDEA(1)	1,446,000		31,553,000		32,999,000		1,497,000		30,896,000		32,393,000		2,183,000		47,568,000		49,751,000		2,332,000		46,340,000		48,672,000
Total resident fees and services	$	107,179,000	$	433,575,000	$	540,754,000	$	91,319,000	$	401,656,000	$	492,975,000	$	161,131,000	$	653,423,000	$	814,554,000	$	138,679,000	$	606,180,000	$	744,859,000

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


	Three Months Ended June 30,												Three Months Ended September 30,
	2019						2018						2019						2018
	Integrated Senior Health Campuses		Senior Housing — RIDEA(1)		Total		Integrated Senior Health Campuses(2)		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	$	84,481,000	$	—	$	84,481,000	$	76,838,000	$	—	$	76,838,000	$	81,965,000	$	—	$	81,965,000	$	75,530,000	$	—	$	75,530,000
Medicaid	46,643,000		21,000		46,664,000		40,815,000		—		40,815,000		49,746,000		11,000		49,757,000		43,101,000		11,000		43,112,000
Private and other payors	124,917,000		16,410,000		141,327,000		113,868,000		16,061,000		129,929,000		125,337,000		16,741,000		142,078,000		116,974,000		16,268,000		133,242,000
Total resident fees and services	$	256,041,000	$	16,431,000	$	272,472,000	$	231,521,000	$	16,061,000	$	247,582,000	$	257,048,000	$	16,752,000	$	273,800,000	$	235,605,000	$	16,279,000	$	251,884,000


	Six Months Ended June 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
	Integrated Senior Health Campuses		Senior Housing — RIDEA(1)		Total		Integrated Senior Health Campuses(2)		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	$	168,958,000	$	—	$	168,958,000	$	154,875,000	$	—	$	154,875,000	$	250,923,000	$	—	$	250,923,000	$	230,405,000	$	—	$	230,405,000
Medicaid	91,679,000		34,000		91,713,000		81,219,000		3,000		81,222,000		141,425,000		45,000		141,470,000		124,320,000		14,000		124,334,000
Private and other payors	247,118,000		32,965,000		280,083,000		224,488,000		32,390,000		256,878,000		372,455,000		49,706,000		422,161,000		341,462,000		48,658,000		390,120,000
Total resident fees and services	$	507,755,000	$	32,999,000	$	540,754,000	$	460,582,000	$	32,393,000	$	492,975,000	$	764,803,000	$	49,751,000	$	814,554,000	$	696,187,000	$	48,672,000	$	744,859,000

___________

(1)

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


(2)	For the three and ~~six~~nine months ended ~~June~~September 30, 2018, Medicare includes $0 and $21,881,000, respectively, 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, 2019
$ 29,160,000
$ 18,676,000
$ 39,112,000
$ 86,948,000
Ending balance — June 30, 2019
30,618,000
19,478,000
46,278,000
96,374,000
Increase $ 1,458,000
$ 802,000
$ 7,166,000
$ 9,426,000



	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 — September 30, 2019	28,172,000			22,463,000		45,139,000		95,774,000
(Decrease)/Increase	$	(988,000	)	$	3,787,000	$	6,027,000	$	8,826,000

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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			Total
Beginning balance — January 1, 2019	$	12,569,000		$	12,569,000
Ending balance — June 30, 2019	10,954,000
Ending balance — September 30, 2019				11,502,000
Decrease	$	(1,615,000	)	$	(1,067,000	)

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

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

Accounts Payable and Accrued Liabilities

As of ~~June~~September 30, 2019 and December 31, 2018, accounts payable and accrued liabilities primarily includes insurance payables of ~~$33,497,000~~$33,846,000 and $32,123,000, respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of ~~$27,607,000~~$28,967,000 and $26,428,000, respectively, accrued property taxes of ~~$15,468,000~~$17,496,000 and $15,121,000, respectively, accrued distributions of ~~$9,689,000~~$9,673,000 and $10,189,000, respectively, and accrued capital expenditures to unaffiliated third parties of ~~$14,135,000~~$16,277,000 and $12,490,000, respectively.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update, or ASU, 2016-13, Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, or ASU 2018-19, which amended the scope of ASU 2016-13 to clarify that operating lease receivables should be accounted for under the new leasing standard ASC Topic 842. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2019-04, to increase stakeholders’ awareness of the amendments and to expedite improvements to the Accounting Standards Codification. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, or ASU 2019-05, to address certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. We ~~are evaluating the impact of~~do not expect the adoption of ~~ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05~~such accounting pronouncements on January 1, 2020 will have a material impact to our consolidated financial ~~position~~statements and ~~results of operations.~~disclosures based on our ongoing evaluation.

In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements in ASC Topic 820, Fair Value 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

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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 evaluating the complete impact of~~do not expect that the adoption of ASU 2018-13 on January 1, 2020 will have a material impact to our consolidated financial statement disclosures.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of ~~June~~September 30, 2019 and December 31, 2018:


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Building, improvements and construction in process	$	2,199,377,000		$	2,160,944,000		$	2,231,745,000		$	2,160,944,000
Land and improvements	189,855,000			189,446,000			192,777,000			189,446,000
Furniture, fixtures and equipment	137,958,000			126,985,000			140,821,000			126,985,000
	2,527,190,000			2,477,375,000			2,565,343,000			2,477,375,000
Less: accumulated depreciation	(296,240,000		)	(254,694,000		)	(316,284,000		)	(254,694,000		)
	$	2,230,950,000		$	2,222,681,000		$	2,249,059,000		$	2,222,681,000

Depreciation expense for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$21,530,000~~$25,062,000 and ~~$20,287,000,~~$20,636,000, respectively. Depreciation expense for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$43,734,000~~$68,796,000 and ~~$40,687,000,~~$61,323,000, respectively. No impairment charges were recognized for the three and ~~six~~nine months ended ~~June~~September 30, 2019. ~~For both~~No impairment charges were recognized for the three ~~and six~~ months ended ~~June~~September 30, 2018. 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 considered Level 3 measurements within the fair value hierarchy. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Real Estate Investment, for a further discussion.

For the three months ended ~~June~~September 30, 2019, we incurred capital expenditures of ~~$23,106,000~~$24,714,000 for our integrated senior health campuses, ~~$4,684,000~~$3,999,000 for our medical office buildings, ~~$473,000~~$498,000 for our senior housing — RIDEA facilities ~~$126,000~~and $1,254,000 for our skilled nursing facilities. We did not incur any capital expenditures for our senior housing facilities and hospitals for the three months ended September 30, 2019.

For the nine months ended September 30, 2019, we incurred capital expenditures of $61,448,000 for our integrated senior health campuses, $10,717,000 for our medical office buildings, $1,276,000 for our senior housing —RIDEA facilities, $1,414,000 for our skilled nursing facilities and $50,000 for our hospitals. We did not incur any capital expenditures for our senior housing facilities for the ~~three~~nine months ended ~~June~~September 30, 2019.

For the ~~six~~nine months ended ~~June~~September 30, 2019, we ~~incurred capital expenditures~~completed the development of ~~$36,734,000 for our~~one integrated senior health ~~campuses, $6,718,000~~campus for $10,558,000, which is included in real estate investments, net, in our ~~medical office buildings, $778,000 for our senior housing —~~RIDEA facilities, $160,000 for our skilled nursing facilities and $50,000 for our hospitals. We did not incur any capital expenditures for our senior housing facilities for the six months ended June 30, 2019.accompanying condensed consolidated balance sheets.

Acquisitions of Real Estate Investments

2019 Acquisitions of Real Estate Investments

For the ~~six~~nine months ended ~~June~~September 30, 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 six buildings in North Carolina ALF Portfolio were acquired between January 2015 and August 2018. The following is a summary of our property acquisition for the ~~six~~nine months ended ~~June~~September 30, 2019:

Acquisition(1)

Location

Type

Date

Acquired

Contract

Purchase Price

Lines of Credit

and

Term Loans(2)

Acquisition

Fee(3)

North Carolina ALF Portfolio

Garner, NC

Senior Housing

03/27/19

15,000,000

338,000

___________


(1)	We own 100% of our property acquired in 2019.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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


(2)	Represents a borrowing under the 2019 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.

2019 Acquisition of Previously Leased Real Estate Investments

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~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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

~~In addition to~~For the ~~property acquisition discussed above, for the six~~nine months ended ~~June~~September 30, 2019, we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, of which we own 67.7%, acquired one previously leased real estate investment located in Indiana. The following is a summary of such acquisition for the nine months ended September 30, 2019, which is included in our integrated senior health campuses segment:



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

___________


(1)	Represents borrowings under the 2019 Trilogy Credit Facility, as defined in Note 8, Lines of Credit and Term Loans, at the time of acquisition.


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

For the nine months ended September 30, 2019, we accounted for our property acquisitions, including our acquisition of previously leased real estate investments, as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $761,000 for such acquisitions. In addition to the property acquisitions discussed above, for the nine months ended September 30, 2019, we, through a majority-owned subsidiary of Trilogy, acquired land in Michigan and Ohio for an aggregate contract purchase price of ~~$2,067,000~~$3,056,000 plus closing costs and paid to our advisor an acquisition fee of 2.25% of the portion of the contract purchase price of each land parcel attributed to our ownership interest.

For the six months ended June 30, 2019, we accounted for our real estate acquisitions as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $489,000 for such acquisitions. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our acquisitions in 2019 based on their relative fair values:

2019 Real Estate
Acquisitions
Building and improvements $ 11,700,000
Land 3,878,000
In-place leases 1,978,000
Total assets acquired $ 17,556,000

~~Completed Development~~

For the six months ended June 30, 2019, we completed the development of one integrated senior health campus for $10,558,000, which is included in real estate investments, net, in our accompanying condensed consolidated balance sheets.



	2019 Real Estate Acquisitions
Building and improvements	$	23,191,000
Land	6,565,000
In-place leases	3,596,000
Total assets acquired	$	33,352,000

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 ~~June~~September 30, 2019 and December 31, 2018:


						Balance									Balance
	Origination Date	Maturity Date	Contractual Interest Rate	Maximum Advances Available		June 30, 2019		December 31, 2018		Origination Date	Maturity Date	Contractual Interest Rate	Maximum Advances Available		September 30, 2019		December 31, 2018
Mezzanine Fixed Rate Notes(1)	02/04/15	12/09/19	6.75%	$	—	$	—	$	28,650,000	02/04/15	12/09/19	6.75%	$	—	$	—	$	28,650,000
Debt security investment(2)	10/15/15	08/25/25	4.24%	N/A		69,822,000		68,355,000		10/15/15	08/25/25	4.24%	N/A		70,573,000		68,355,000
						69,822,000		97,005,000							70,573,000		97,005,000
Unamortized loan and closing costs, net						1,450,000		1,650,000							1,413,000		1,650,000
						$	71,272,000	$	98,655,000						$	71,986,000	$	98,655,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

___________


(1)	The Mezzanine Fixed Rate 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 June 2019, the Mezzanine Fixed Rate Notes were paid in full by the borrower.

(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 ~~June~~September 30, 2019 and December 31, 2018, the net carrying amount with accretion was ~~$71,272,000~~$71,986,000 and $69,873,000, respectively. We classify our debt security investment as held-to-maturity and we have not recorded any unrealized holding gains or losses on such investment.

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~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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

The following table reflects the changes in the carrying amount of our real estate notes receivable and debt security investment for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	98,655,000		$	97,988,000		$	98,655,000		$	97,988,000
Additions:
Accretion on debt security	1,467,000			1,331,000			2,218,000			2,010,000
Deductions:
Principal repayments on real estate notes receivable	(28,650,000		)	—			(28,650,000		)	—
Amortization of loan and closing costs	(200,000		)	(121,000		)	(237,000		)	(185,000		)
Ending balance	$	71,272,000		$	99,198,000		$	71,986,000		$	99,813,000

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we did not record any impairment losses on our real estate notes receivable or debt security investment. Amortization expense on loan and closing costs for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$132,000~~$37,000 and ~~$62,000,~~$64,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, was ~~$200,000~~$237,000 and ~~$121,000,~~$185,000, respectively, which was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of ~~June~~September 30, 2019 and December 31, 2018:


	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Amortized intangible assets:
In-place leases, net of accumulated amortization of $27,499,000 and $23,497,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 10.3 years and 9.8 years as of June 30, 2019 and December 31, 2018, respectively)	$	41,810,000	$	45,815,000
In-place leases, net of accumulated amortization of $21,769,000 and $23,497,000 as of September 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 9.3 years and 9.8 years as of September 30, 2019 and December 31, 2018, respectively)					$	31,947,000	$	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		—		7,346,000
Customer relationships, net of accumulated amortization of $262,000 and $187,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 17.3 years and 18.8 years as of June 30, 2019 and December 31, 2018, respectively)	2,578,000		2,653,000
Above-market leases, net of accumulated amortization of $2,049,000 and $2,851,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 5.1 years and 5.2 years as of June 30, 2019 and December 31, 2018, respectively)	1,715,000		2,059,000
Internally developed technology and software, net of accumulated amortization of $164,000 and $117,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 3.3 years and 3.8 years as of June 30, 2019 and December 31, 2018, respectively)	306,000		353,000
Customer relationships, net of accumulated amortization of $299,000 and $187,000 as of September 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 17.0 years and 18.8 years as of September 30, 2019 and December 31, 2018, respectively)					2,541,000		2,653,000
Above-market leases, net of accumulated amortization of $2,180,000 and $2,851,000 as of September 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 5.0 years and 5.2 years as of September 30, 2019 and December 31, 2018, respectively)					1,584,000		2,059,000
Internally developed technology and software, net of accumulated amortization of $188,000 and $117,000 as of September 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 3.0 years and 3.8 years as of September 30, 2019 and December 31, 2018, respectively)					282,000		353,000
Unamortized intangible assets:
Certificates of need	90,991,000		88,590,000		93,932,000		88,590,000
Trade names	30,787,000		30,787,000		30,787,000		30,787,000
Purchase option asset(2)	—		1,918,000		—		1,918,000
	$	168,187,000	$	179,521,000	$	161,073,000	$	179,521,000

___________

(1)

Such amount related to our ownership of fee simple interests in the building and improvements of 1116 of our 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 our accompanying condensed consolidated balance sheet. See Note 2, Summary of Significant Accounting Policies — Leases, and Note 17, Leases, for a further discussion.

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~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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


(2)	For the ~~six~~nine months ended ~~June~~September 30, 2019, we exercised our right to acquire a property through our unconsolidated investment in RHS Partners, LLC, or RHS. The value of the purchase option asset utilized was $1,918,000. See Note 6, Other Assets, Net for a further discussion.

Amortization expense for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$3,094,000~~$11,566,000 and ~~$2,465,000,~~$3,227,000, respectively, which included ~~$132,000~~$131,000 and ~~$217,000,~~$210,000, respectively, of amortization recorded against real estate revenue for above-market leases and $0 and ~~$35,000,~~$34,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Amortization expense for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$6,439,000~~$18,005,000 and ~~$5,977,000,~~$9,204,000, respectively, which included ~~$344,000~~$475,000 and ~~$556,000,~~$766,000, respectively, of amortization recorded against real estate revenue for above-market leases and $0 and ~~$71,000,~~$105,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

The aggregate weighted average remaining life of the identified intangible assets was ~~10.5~~9.6 years and 15.5 years as of ~~June~~September 30, 2019 and December 31, 2018, respectively. As of ~~June~~September 30, 2019, estimated amortization expense on the identified intangible assets for the ~~six~~three months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter was as follows:


Year	Amount		Amount
2019	$	3,897,000	$	1,915,000
2020	6,075,000		6,377,000
2021	5,503,000		4,727,000
2022	4,785,000		4,014,000
2023	4,010,000		3,241,000
Thereafter	22,139,000		16,080,000
	$	46,409,000	$	36,354,000

6. Other Assets, Net

Other assets, net consisted of the following as of ~~June~~September 30, 2019 and December 31, 2018:


	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Deferred rent receivables	$	33,251,000	$	23,334,000	$	31,693,000	$	23,334,000
Prepaid expenses, deposits and other assets	28,425,000		29,803,000		26,059,000		29,803,000
Investment in unconsolidated entities	21,281,000		15,432,000		20,477,000		15,432,000
Inventory	19,247,000		21,151,000		19,457,000		21,151,000
Deferred tax assets, net(1)	9,022,000		9,461,000		12,023,000		9,461,000
Lease commissions, net of accumulated amortization of $1,700,000 and $1,274,000 as of June 30, 2019 and December 31, 2018, respectively	9,446,000		8,523,000
Deferred financing costs, net of accumulated amortization of $8,721,000 and $12,487,000 as of June 30, 2019 and December 31, 2018, respectively(2)	6,077,000		2,311,000
Lease inducement, net of accumulated amortization of $965,000 and $789,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 11.5 years and 12.0 years as of June 30, 2019 and December 31, 2018, respectively)	4,035,000		4,211,000
Lease commissions, net of accumulated amortization of $1,934,000 and $1,274,000 as of September 30, 2019 and December 31, 2018, respectively					10,403,000		8,523,000
Deferred financing costs, net of accumulated amortization of $1,356,000 and $12,487,000 as of September 30, 2019 and December 31, 2018, respectively(2)					8,690,000		2,311,000
Lease inducement, net of accumulated amortization of $1,053,000 and $789,000 as of September 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 11.2 years and 12.0 years as of September 30, 2019 and December 31, 2018, respectively)					3,947,000		4,211,000
	$	130,784,000	$	114,226,000	$	132,749,000	$	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.

~~Table of Contents~~

~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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

Amortization expense on deferred financing costs of our lines of credit and term loans for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$970,000~~$882,000 and ~~$1,612,000,~~$981,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$2,000,000~~$2,882,000 and ~~$2,597,000,~~$3,578,000, respectively. Amortization expense on deferred financing costs of our lines of credit and term loans is recorded to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Amortization expense on lease commissions for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$251,000~~$281,000 and ~~$182,000,~~$197,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$542,000~~$823,000 and ~~$337,000,~~$534,000, respectively. Amortization expense on lease inducement for both the three months ended ~~June~~September 30, 2019 and 2018 was $88,000, and ~~$87,000, respectively, and~~ for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$176,000~~$264,000 and ~~$175,000,~~$263,000, respectively. Amortization expense on lease inducement is recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Investments in unconsolidated entities primarily represents our investment in RHS, a privately-held company that owns three integrated senior health campuses and operates 13 integrated senior health campuses. Our effective ownership of RHS was 33.9% and 33.8% as of ~~June~~September 30, 2019 and December 31, 2018, respectively. As of ~~June~~September 30, 2019 and December 31, 2018, we had a receivable of ~~$3,826,000~~$3,048,000 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:


	June 30, 2019						December 31, 2018						September 30, 2019						December 31, 2018
	RHS		Other		Total		RHS		Other		Total		RHS		Other		Total		RHS		Other		Total
Balance Sheet Data:
Total assets	$	283,387,000	$	17,542,000	$	300,929,000	$	48,291,000	$	100,000	$	48,391,000	$	280,791,000	$	17,463,000	$	298,254,000	$	48,291,000	$	100,000	$	48,391,000
Total liabilities	$	255,176,000	$	16,743,000	$	271,919,000	$	25,263,000	$	—	$	25,263,000	$	253,541,000	$	17,346,000	$	270,887,000	$	25,263,000	$	—	$	25,263,000


	Three Months Ended June 30,																	Three Months Ended September 30,
	2019									2018								2019									2018
	RHS			Other			Total			RHS			Other		Total			RHS			Other			Total			RHS			Other		Total
Statement of Operations Data:
Revenues	$	35,062,000		$	1,076,000		$	36,138,000		$	31,695,000		$	—	$	31,695,000		$	35,669,000		$	2,954,000		$	38,623,000		$	32,346,000		$	—	$	32,346,000
Expenses	35,743,000			1,431,000			37,174,000			34,611,000			—		34,611,000			36,630,000			3,637,000			40,267,000			34,622,000			—		34,622,000
Net loss	$	(681,000	)	$	(355,000	)	$	(1,036,000	)	$	(2,916,000	)	$	—	$	(2,916,000	)	$	(961,000	)	$	(683,000	)	$	(1,644,000	)	$	(2,276,000	)	$	—	$	(2,276,000	)


	Six Months Ended June 30,																	Nine Months Ended September 30,
	2019									2018								2019									2018
	RHS			Other			Total			RHS			Other		Total			RHS			Other			Total			RHS			Other		Total
Statement of Operations Data:
Revenues	$	70,430,000		$	1,076,000		$	71,506,000		$	64,170,000		$	—	$	64,170,000		$	106,099,000		$	4,030,000		$	110,129,000		$	96,516,000		$	—	$	96,516,000
Expenses	71,974,000			1,477,000			73,451,000			69,239,000			—		69,239,000			108,604,000			5,114,000			113,718,000			103,861,000			—		103,861,000
Net loss	$	(1,544,000	)	$	(401,000	)	$	(1,945,000	)	$	(5,069,000	)	$	—	$	(5,069,000	)	$	(2,505,000	)	$	(1,084,000	)	$	(3,589,000	)	$	(7,345,000	)	$	—	$	(7,345,000	)

7. Mortgage Loans Payable, Net

Mortgage loans payable were ~~$768,171,000~~$829,456,000 ($~~743,564,000,~~805,257,000, including discount/premium and deferred financing costs, net) and $713,030,000 ($688,262,000, including discount/premium and deferred financing costs, net) as of ~~June~~September 30, 2019 and December 31, 2018, respectively. As of ~~June~~September 30, 2019, we had 5862 fixed-rate mortgage loans payable and ~~eight~~seven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to ~~6.94%~~6.60% per annum based on interest rates in effect as of ~~June~~September 30, 2019 and a weighted average effective interest rate of ~~4.00%~~3.92%. As of December 31, 2018, we had 57 fixed-rate mortgage loans payable and six variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 8.46% per annum based on interest rates in effect as of December 31, 2018 and a weighted average effective interest rate of 3.98%. We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ~~ratio,~~ratios, leverage ~~ratio~~ratios and reporting requirements.

For the three and nine months ended September 30, 2019, we incurred a total loss on extinguishment of debt of $2,179,000, which is recorded to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss). The loss on extinguishment was primarily related to the write-off of unamortized deferred financing fees, unamortized debt discount and a prepayment penalty associated with the payoff of a mortgage loan payable and the Trilogy OpCo Line of Credit, as defined in Note 8, Lines of Credit and Term Loans, that were due to mature in November 2047 and April 2021, respectively. The source of funds for the payoff was from the 2019 Trilogy Credit Facility, as defined in Note 8, Lines of Credit and Term Loans.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Mortgage loans payable, net consisted of the following as of ~~June~~September 30, 2019 and December 31, 2018:


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Total fixed-rate debt	$	631,575,000		$	624,616,000		$	736,796,000		$	624,616,000
Total variable-rate debt	136,596,000			88,414,000			92,660,000			88,414,000
Total fixed- and variable-rate debt	768,171,000			713,030,000			829,456,000			713,030,000
Less: deferred financing costs, net	(9,001,000		)	(8,824,000		)	(9,898,000		)	(8,824,000		)
Add: premium	484,000			663,000			394,000			663,000
Less: discount	(16,090,000		)	(16,607,000		)	(14,695,000		)	(16,607,000		)
Mortgage loans payable, net	$	743,564,000		$	688,262,000		$	805,257,000		$	688,262,000

The following table reflects the changes in the carrying amount of mortgage loans payable for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	688,262,000		$	613,558,000		$	688,262,000		$	613,558,000
Additions:
Borrowings on mortgage loans payable	61,472,000			1,364,000			182,417,000			177,637,000
Amortization of deferred financing costs	660,000			649,000			1,187,000			995,000
Amortization of discount/premium on mortgage loans payable	338,000			277,000			502,000			365,000
Deductions:
Scheduled principal payments on mortgage loans payable	(6,331,000		)	(5,045,000		)	(59,706,000		)	(7,539,000		)
Payoff of mortgage loans payable							(6,286,000		)	(94,449,000		)
Deferred financing costs	(837,000		)	(14,000		)	(1,119,000		)	(3,613,000		)
Ending balance	$	743,564,000		$	610,789,000		$	805,257,000		$	686,954,000

As of ~~June~~September 30, 2019, the principal payments due on our mortgage loans payable for the ~~six~~three months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter were as follows:


Year	Amount		Amount
2019	$	71,635,000	$	20,675,000
2020	82,209,000		83,150,000
2021	34,775,000		35,778,000
2022	61,186,000		62,227,000
2023	28,973,000		32,431,000
Thereafter	489,393,000		595,195,000
	$	768,171,000	$	829,456,000

8. Lines of Credit and Term Loans

2016 Corporate Line of Credit

On February 3, 2016, we, through certain of our subsidiaries, entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, N.A., or Bank of America, as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, National Association, or KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000, or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000, or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Line of Credit. On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and

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separate term notes with each of Bank of America, KeyBank and a syndicate of other banks. The 2016 Corporate Line of Credit would have matured on February 3, 2019.

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On August 3, 2017, we entered into a First Amendment, Waiver and Commitment Increase Agreement, or the Amendment, with Bank of America, KeyBank, and the lenders named therein, to amend the 2016 Corporate Credit Agreement. The material terms of the Amendment included: (i) an increase in the 2016 Corporate Term Loan Facility in an amount equal to $50,000,000; (ii) a revision to the definition of Term Loan Commitment, as defined in the 2016 Corporate Credit Agreement, to reflect the increase in the 2016 Corporate Term Loan Facility and specify that the aggregate principal amount of the Term Loan Commitments of all of the Term Loan Lenders, as defined in the 2016 Corporate Credit Agreement, as in effect on the effective date of the Amendment is $250,000,000; and (iii) the addition of Bank of the West, or New Lender, as a party to the 2016 Corporate Credit Agreement and a Term Loan Lender and Lender, as defined in the 2016 Corporate Credit Agreement, and New Lender’s agreement to be bound by all terms, provisions and conditions applicable to Lenders contained in the 2016 Corporate Credit Agreement. As a result of the Amendment, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was increased to $550,000,000.

On December 20, 2018, we entered into a Commitment Increase Agreement with Bank of America. The material terms of the Commitment Increase Agreement provided for an increase in the 2016 Corporate Revolving Credit Facility by an aggregate amount equal to $25,000,000. On December 20, 2018, we also entered into an Amended and Restated Revolving Note with Bank of America, whereby we promised to pay the principal amount and accrued interest of each loan to the respective lender or its registered assigns, in accordance with the terms and conditions of the 2016 Corporate Credit Agreement, as amended. As a result of the Commitment Increase Agreement, our aggregate borrowing capacity under the 2016 Corporate Line Credit was increased to $575,000,000.

As of December 31, 2018, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was $575,000,000. As of December 31, 2018, borrowings outstanding under the 2016 Corporate Line of Credit totaled $548,500,000 and the weighted average interest rate on such borrowings outstanding was 4.60% per annum.

On January 25, 2019, we terminated the 2016 Corporate Credit Agreement, as amended, and the 2016 Corporate Revolving Notes and entered into the 2019 Corporate Line of Credit as described below. We currently do not have any obligations under the 2016 Corporate Credit Agreement, as amended, or the 2016 Corporate Revolving Notes.

2019 Corporate Line of Credit

On January 25, 2019, we, through our operating partnership and certain of our subsidiaries, entered into a credit agreement, or the 2019 Corporate Credit Agreement, with Bank of America as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; Citizens Bank, National Association, as a syndication agent, a swing line lender, a letter of credit issuer, a joint lead arranger and joint bookrunner; and a syndicate of other banks, as lenders, to obtain a credit facility with an aggregate maximum principal amount of $630,000,000, or the 2019 Corporate Line of Credit. The 2019 Corporate Line of Credit consists of a senior unsecured revolving credit facility in the initial aggregate amount of $150,000,000 and a senior unsecured term loan facility in the initial aggregate amount of $480,000,000. We may obtain up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The maximum principal amount of the 2019 Corporate Line of Credit may be increased by up to $370,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2019 Corporate Credit Agreement; and (ii) at least five business days’ prior written notice to Bank of America.

At our option, the 2019 Corporate Line of Credit bears interest at per annum rates equal to (a) (i) the Eurodollar Rate, as defined in the 2019 Corporate Credit Agreement, plus (ii) a margin ranging from 1.50% to 2.20% based on our Consolidated Leverage Ratio, as defined in the 2019 Corporate Credit Agreement, or (b) (i) the greater of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate, as defined in the 2019 Corporate Credit Agreement, plus 0.50%, (3) the one-month Eurodollar Rate plus 1.00%, and (4) 0.00%, plus (ii) a margin ranging from 0.50% to 1.20% based on our Consolidated Leverage Ratio. Accrued interest on the 2019 Corporate Line of Credit is payable monthly. The loans may be repaid in whole or in part without prepayment premium or penalty, subject to certain conditions. We are required to pay a fee on the unused portion of the lenders’ commitments under the 2019 Corporate Credit Agreement at a per annum rate equal to 0.20% if the average daily used amount is greater than 50% of the commitments and 0.25% if the average daily used amount is less than or equal to 50% of the commitments, which fee shall be measured and payable on a quarterly basis.

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The 2019 Corporate Line of Credit matures on January 25, 2022, and may be extended for one 12-month period during the term of the 2019 Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee. The 2019 Corporate Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness.

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

As of ~~June~~September 30, 2019, our aggregate borrowing capacity under the 2019 Corporate Line of Credit was $630,000,000. As of ~~June~~September 30, 2019, borrowings outstanding under the 2019 Corporate Line of Credit totaled ~~$557,000,000~~$517,500,000 and the weighted average interest rate on such borrowings outstanding was ~~4.28%~~3.91% per annum.

Trilogy PropCo Line of Credit

In connection with our acquisition of Trilogy, on December 1, 2015, we, through Trilogy PropCo Finance, LLC, a Delaware limited liability company and an indirect subsidiary of Trilogy, or Trilogy PropCo Parent, and certain of its subsidiaries, or the Trilogy PropCo Co-Borrowers, and, together with Trilogy PropCo Parent, the Trilogy PropCo Borrowers, entered into a loan agreement, or the Trilogy PropCo Credit Agreement, with KeyBank, as administrative agent; Regions Bank, as syndication agent; and a syndicate of other banks, as lenders, to obtain a line of credit with an aggregate maximum principal amount of $300,000,000, or the Trilogy PropCo Line of Credit. WeOn December 1, 2015, we also entered into separate revolving notes with each of KeyBank and Regions Bank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Trilogy PropCo Credit Agreement. The ~~proceeds~~maturity date 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 matures on~~would have been 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.2019.

On October 27, 2017, we entered into an amendment to the Trilogy PropCo Credit Agreement, or the Trilogy PropCo Amendment, with KeyBank, as administrative agent, and a syndicate of other banks, as lenders, to amend the terms of the Trilogy PropCo Credit Agreement. The material terms of the Trilogy PropCo Amendment ~~included: (i)~~included 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~~$250,000,000.

On September 5, 2019, we entered into an amendment to the ~~definition~~Trilogy PropCo Credit Agreement, or the Trilogy First Amended and Restated Senior Secured Credit Agreement, to replace the terms 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, atwith the 2019 Trilogy ~~PropCo Borrowers’ option.~~Credit Facility, as further discussed below in the “2019 Trilogy Credit Facility” section.

Our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $0 and $250,000,000 as of ~~both June~~September 30, 2019 and December 31, 2018. As of ~~June~~September 30, 2019 and December 31, 2018, borrowings outstanding under the Trilogy PropCo Line of Credit totaled ~~$181,517,000~~$0 and $170,518,000, ~~respectively, and~~respectively. As of December 31, 2018, the weighted average interest rate on such ~~borrowings~~borrowing outstanding was ~~6.40% and~~ 6.45% per ~~annum, respectively.~~annum.

Trilogy OpCo Line of Credit

On March 21, 2016, we, through Trilogy Healthcare Holdings, Inc., a Delaware corporation and a direct subsidiary of Trilogy, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, or Wells Fargo, N.A., as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. ~~The Trilogy OpCo Line of Credit is secured primarily by residents’ receivables of the Trilogy OpCo Borrowers.~~

On April 1, 2016, we entered into an amendment to the Trilogy OpCo Credit Agreement to increase the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000. In April 2018, we further amended the Trilogy OpCo Credit Agreement, or the Trilogy OpCo Amendment. The material terms of the Trilogy OpCo Amendment provided 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 Trilogy OpCo Credit Agreement, or an alternate base rate plus an applicable margin of 1.75% per annum, for Base Rate Loans, as defined in the Trilogy OpCo Credit 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)~~(ii) an updated maturity date of April 27, 2021.

On September 5, 2019, we terminated the Trilogy OpCo Line of Credit, as amended, and replaced it with the 2019 Trilogy Credit Facility, described below. As a result, we currently do not have any obligations under the Trilogy OpCo Line of Credit.

Our aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $0 and $25,000,000 as of September 30, 2019 and December 31, 2018, subject to certain terms and conditions. As of September 30, 2019 and December 31, 2018, borrowings outstanding under the Trilogy OpCo Line of Credit totaled $0 and $19,030,000, respectively. As of December 31, 2018 the weighted average interest rate on such borrowings outstanding was 5.17% per annum.

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2019 Trilogy Credit Facility

On September 5, 2019, we, through Trilogy RER, LLC and certain subsidiaries of Trilogy OpCo, LLC, Trilogy RER, LLC, and Trilogy Pro Services, LLC, or the 2019 Trilogy Co-Borrowers, entered into a First Amended and Restated Senior Secured Credit Agreement, or the Trilogy First Amended and Restated Credit Agreement, with KeyBank, as administrative agent; CIT Bank, N.A., or CIT Bank, as revolving agent; Regions Bank, as syndication agent; KeyBanc Capital Markets, Inc., or KeyBanc Capital Markets, as co-lead arranger and co-book runner; Regions Capital Markets, as co-lead arranger and co-book runner; Bank of America, N.A., or Bank of America, as co-documentation agent; The Huntington National Bank, as co-documentation agent; and a syndicate of other banks, as lenders named therein, to amend and restate the terms of the Trilogy PropCo Credit Agreement to obtain a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, consisting of (i) a $325,000,000 secured revolver supported by real estate assets and ancillary business cash flow and (ii) a $35,000,000 accounts receivable revolving credit facility supported by eligible accounts receivable, or the 2019 Trilogy Credit Facility. We may obtain up to $35,000,000 in the form of swing line loans and up to $15,000,000 in the form of standby letters of credit. The proceeds of the 2019 Trilogy Credit Facility may be used for acquisitions, debt repayment and general corporate purposes. The maximum principal amount of the 2019 Trilogy Credit Facility may be increased by up to $140,000,000, for a total principal amount of $500,000,000, subject to: (i) the terms of the Trilogy First Amended and Restated Credit Agreement and (ii) at least 10 business days’ prior written notice to KeyBank.

At our option, the 2019 Trilogy Credit Facility bears interest at per annum rates equal to (a) LIBOR plus 2.75% for LIBOR Rate Loans, as defined in the Trilogy First Amended and Restated Credit Agreement, and (b) for Base Rate Loans, as defined in the Trilogy First Amended and Restated Credit Agreement, 1.75% plus the greater of: (i) the fluctuating annual rate of interest announced from time to time by KeyBank as its prime rate, (ii) 0.5% above the Federal Funds Effective Rate, as defined in the Trilogy First Amended and Restated Credit Agreement, and (iii) 1.00% above the one-month LIBOR. Accrued interest ~~under~~on the 2019 Trilogy ~~OpCo Line of~~ Credit Facility is payable monthly. ~~In addition~~The loans may be repaid in whole or in part without prepayment fees or penalty, subject to ~~paying interest on the outstanding principal under the Trilogy OpCo Line of Credit, the Trilogy OpCo Borrowers~~certain conditions. We are required to pay anfees on the unused ~~fee in an amount~~portion of the lenders’ commitments under the 2019 Trilogy Credit Facility, with respect to any day during a calendar quarter, at a per annum rate equal to ~~0.50% per annum times~~(a) 0.15% if 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~~sum of the ~~month prior~~Aggregate Real Estate Revolving Credit Obligations, as defined in the Trilogy First Amended and Restated Credit Agreement, outstanding on such day is greater than 50% of the commitments or 0.20% if the sum of the Aggregate Real Estate Revolving Credit Obligations on such day is less than or equal to 50% of the ~~date~~commitments, and (b) 0.15% if the sum of the Aggregate A/R Revolving Credit Obligations, as defined in the the Trilogy First Amended and Restated Credit Agreement, outstanding on such day is greater than 50% of the commitments or 0.20% if the sum of the Aggregate A/R Revolving Credit Obligations on such day is less than or equal to 50% of the commitments, which ~~the obligations are paid in full.~~fees shall be measured and payable on a quarterly basis.

The 2019 Trilogy ~~OpCo~~ Credit ~~Agreement, as amended, contains customary events of default, covenants~~Facility matures on September 5, 2023 and ~~other terms, including, among other things, restrictions on~~may be extended for one 12-month period during 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 outstandingterm of the Trilogy ~~OpCo Borrowers.~~First Amended and Restated Credit Agreement subject to the satisfaction of certain conditions, including payment of an extension fee.

~~Our~~As of September 30, 2019, our aggregate borrowing capacity under the 2019 Trilogy ~~OpCo Line~~Credit Facility was $360,000,000. As of ~~Credit was $25,000,000 as of both June~~September 30, 2019, ~~and December 31, 2018, subject to certain terms and conditions. As of June 30, 2019 and December 31, 2018,~~ borrowings outstanding under the 2019 Trilogy ~~OpCo Line of~~ Credit Facility totaled ~~$19,050,000 and $19,030,000, respectively,~~$237,779,000 and the weighted average interest rate on such borrowings outstanding was ~~5.16% and 5.17%~~4.81% per ~~annum, respectively.~~annum.

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

9. Derivative Financial Instruments

We 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 ~~June~~September 30, 2019 and December 31, 2018:


						Fair Value										Fair Value
Instrument	Notional Amount		Index	Interest Rate	Maturity Date	June 30, 2019			December 31, 2018		Notional Amount		Index	Interest Rate	Maturity Date	September 30, 2019			December 31, 2018
Swap	$	140,000,000	one month LIBOR	0.82%	02/03/19	$	—		$	221,000	$	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		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		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	4,000			48,000		20,000,000		one month LIBOR	3.00%	09/23/21	1,000			48,000
Swap	250,000,000		one month LIBOR	2.10%	01/25/22	(2,962,000		)	—		250,000,000		one month LIBOR	2.10%	01/25/22	(3,705,000		)	—
Swap	130,000,000		one month LIBOR	1.98%	01/25/22	(1,149,000		)	—		130,000,000		one month LIBOR	1.98%	01/25/22	(1,571,000		)	—
						$	(4,107,000	)	$	417,000						$	(5,275,000	)	$	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). As of ~~June~~September 30, 2019 and December 31, 2018, none of our derivative financial instruments were designated as hedges. Derivative financial instruments not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss). For the three months ended ~~June~~September 30, 2019 and 2018, we recorded ~~$(4,117,000)~~$(1,169,000) and ~~$(487,000)~~$(750,000), respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we recorded ~~$(4,677,000)~~$(5,846,000) and ~~$(377,000)~~$(1,127,000), respectively, as an increase 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.

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

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

10. Identified Intangible Liabilities, Net

As of ~~June~~September 30, 2019 and December 31, 2018, identified intangible liabilities consisted of below-market leases of ~~$842,000~~$751,000 and $1,051,000, respectively, net of accumulated amortization of ~~$1,244,000~~$1,255,000 and $1,229,000, respectively. Amortization expense on below-market leases for the three months ended ~~June~~September 30, 2019 and 2018 was ~~$104,000~~$91,000 and ~~$129,000,~~$107,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$209,000~~$300,000 and ~~$269,000,~~$376,000, respectively, which is recorded to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

The weighted average remaining life of below-market leases was 4.3 years as of both ~~June~~September 30, 2019 and December 31, ~~2018, respectively.~~2018. As of ~~June~~September 30, 2019, estimated amortization expense on below-market leases for the ~~six~~three months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter was as follows:


Year	Amount		Amount
2019	$	179,000	$	88,000
2020	260,000		260,000
2021	143,000		143,000
2022	93,000		93,000
2023	78,000		78,000
Thereafter	89,000		89,000
	$	842,000	$	751,000

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

11. Commitments and Contingencies

Litigation

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

Environmental Matters

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

Other

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

12. Redeemable Noncontrolling Interests

On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As of ~~June~~September 30, 2019 and December 31, 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.

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

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 both June~~September 30, 2019 and December 31, 2018, Trilogy REIT Holdings and certain members of Trilogy’s pre-closing management owned approximately ~~96.7%~~96.8% and 96.7%, respectively, and 3.2% and 3.3%, respectively, of ~~Trilogy, respectively.~~Trilogy.

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

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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	38,245,000		$	32,435,000		$	38,245,000		$	32,435,000
Additions	—			535,000			—			535,000
Reclassification from equity	390,000			390,000			585,000			585,000
Distributions	(720,000		)	(332,000		)	(1,033,000		)	(497,000		)
Repurchase of redeemable noncontrolling interest	(3,000		)	(229,000		)	(400,000		)	(229,000		)
Fair value adjustment to redemption value	(84,000		)	293,000			110,000			437,000
Net income attributable to redeemable noncontrolling interests	287,000			107,000			304,000			131,000
Ending balance	$	38,115,000		$	33,199,000		$	37,811,000		$	33,397,000

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 ~~June~~September 30, 2019 and December 31, 2018, no shares of preferred stock were issued and outstanding.

Common Stock

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

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the 2015 DRIP Offering. We did not commence offering shares to the 2015 DRIP Offering until April 22, 2015, following the deregistration of our initial offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of ~~our offering~~the 2015 DRIP Offering on March 29, 2019.

On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the 2019 DRIP Offering until April 1, 2019, following the deregistration of the 2015 DRIP Offering.

Through September 30, 2019, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial public offering and 31,313,084 shares of our common stock pursuant to our DRIP Offerings. We also repurchased 22,003,430 shares of our common stock under our share repurchase plan and granted an aggregate of 127,500 shares of our restricted common stock to our independent directors through September 30, 2019. As of September 30, 2019 and December 31, 2018, we had 194,389,974 and 197,557,377 shares of our common stock issued and outstanding, respectively.

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Through June 30, 2019, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial public offering and 29,841,503 shares of our common stock pursuant to our DRIP Offerings. We also repurchased 20,170,805 shares of our common stock under our share repurchase plan and granted an aggregate of 112,500 shares of our restricted common stock to our independent directors through June 30, 2019. As of June 30, 2019 and December 31, 2018, we had 194,736,018 and 197,557,377 shares of our common stock issued and outstanding, respectively.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance — foreign currency translation adjustments	$	(2,560,000	)	$	(1,971,000	)	$	(2,560,000	)	$	(1,971,000	)
Net change in current period	(20,000		)	(238,000		)	(301,000		)	(374,000		)
Ending balance — foreign currency translation adjustments	$	(2,580,000	)	$	(2,209,000	)	$	(2,861,000	)	$	(2,345,000	)

Noncontrolling Interests

As of ~~June~~September 30, 2019 and December 31, 2018, Trilogy REIT Holdings owned approximately 96.8% and 96.7% of ~~Trilogy.~~Trilogy, respectively. We are the indirect owner of a 70.0% interest in Trilogy REIT Holdings pursuant to a joint venture agreement, or the Trilogy JV Agreement, with an indirect, wholly-owned subsidiary of NorthStar Healthcare Income, Inc., or NHI. We serve as the sole manager of Trilogy REIT Holdings. Prior to October 1, 2018, NHI was the indirect owner of the remaining 30.0% interest in Trilogy REIT Holdings. On October 1, 2018, we amended the Trilogy JV Agreement as a result of the purchase by an indirect, wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., or GAHR IV JV Member, of 6.0% of the total membership interests in Trilogy REIT Holdings from a wholly-owned subsidiary of NHI. Both Griffin-American Healthcare REIT IV, Inc. and us are sponsored by American Healthcare Investors. Effective October 1, 2018, NHI and GAHR IV JV Member indirectly own a 24.0% and 6.0% membership interest, respectively, in Trilogy REIT Holdings. As of ~~June~~September 30, 2019 and December 31, 2018, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with our acquisition and operation of Trilogy, profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and an independent director of Trilogy, both unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests consist of time-based or performance-based commitments. The time-based Profit Interests were measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five-year period. We amortize the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). The performance-based Profit Interests are subject to a performance commitment and vest upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their grant date fair value and immediately expensed. The performance-based Profit Interests are subject to fair value measurements until vesting occurs with changes to fair value recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). For both the three months ended ~~June~~September 30, 2019 and 2018, we recognized stock compensation expense related to Profit Interests of $195,000, and for both the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we recognized stock compensation expense related to the Profit Interests of ~~$390,000.~~$585,000.

There were no canceled, expired or exercised Profit Interests during the ~~six~~nine months ended ~~June~~September 30, 2019 and 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. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.

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

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In addition, as of ~~June~~September 30, 2019 and December 31, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 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, which we deregistered on April 22, 2015. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering, following the deregistration of our initial offering on April 22, 2015. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the deregistration of such offering on March 29, 2019. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the 2019 DRIP Offering. We commenced offering shares pursuant to the 2019 DRIP Offering on April 1, 2019, following the deregistration of the 2015 DRIP Offering.

Effective October 5, 2016, we amended and restated the Initial DRIP to amend the price at which shares of our common stock are issued pursuant to such distribution reinvestment plan. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated net asset value, or NAV, of one share of our common stock, as approved and established by our board. The Amended and Restated DRIP became effective with the distribution payment to stockholders paid in the month of November 2016. In all other material respects, the terms of the 2015 DRIP Offering remain unchanged by the Amended and Restated DRIP.

Since October 5, 2016, our board has approved and established an estimated per share ~~net asset value, or~~ NAV on at least an annual basis. Commencing with the distribution payment to stockholders paid in the month following such board approval, shares of our common stock issued pursuant to the Amended and Restated DRIP were or will be issued at the current estimated per share NAV until such time as our board determines an updated estimated per share NAV. The following is a summary of our historical and current estimated per share NAV:


Approval Date by our Board	Estimated Per Share NAV (Unaudited)		Estimated Per Share NAV (Unaudited)
10/05/16	$	9.01	$	9.01
10/04/17	$	9.27	$	9.27
10/03/18	$	9.37	$	9.37
10/03/19			$	9.40

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, ~~$14,115,000~~$13,789,000 and ~~$28,311,000,~~$42,100,000, respectively, in distributions were reinvested and ~~1,506,395~~1,471,581 and ~~3,021,493~~4,493,074 shares of our common stock, respectively, were issued pursuant to the 2015 DRIP Offering and 2019 DRIP Offering. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, ~~$15,220,000~~$14,995,000 and ~~$30,449,000,~~$45,444,000, respectively, in distributions were reinvested and ~~1,641,819~~1,617,584 and ~~3,284,653~~4,902,237 shares of our common stock, respectively, were issued pursuant to the 2015 DRIP Offering.

As of ~~June~~September 30, 2019 and December 31, 2018, a total of ~~$278,022,000~~$291,811,000 and $249,711,000, respectively, in distributions were reinvested that resulted in ~~29,841,503~~31,313,084 and 26,820,010 shares of our common stock, respectively, being issued pursuant to our DRIP Offerings.

Share Repurchase Plan

Our board has approved a share repurchase plan, which allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. Subject to the availability of the funds for share repurchases, we will generally limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. Additionally, effective with respect to share repurchase requests submitted for repurchase during the second quarter 2019, the number of shares that we will repurchase during any fiscal quarter will be limited to an amount equal to the net proceeds that we received from the sale of shares issued pursuant to the DRIP Offerings during the immediately preceding completed

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fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or “qualifying disability,” as defined in our share repurchase plan, of a stockholder will not be subject to this quarterly cap or to our existing cap on repurchases to 5.0% of the weighted average number of shares outstanding during the calendar year prior to the repurchase date. Funds for the repurchase of shares of our common stock will come from the cumulative proceeds we receive from the sale

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of shares of our common stock pursuant to our DRIP Offerings. Furthermore, our share repurchase plan, as amended, provides that if there are insufficient funds to honor all repurchase requests, pending requests may be honored among all requests for repurchase in any given repurchase period as follows: first, repurchases in full as to repurchases that would result in a stockholder owning less than $2,500 of shares; and, next, pro rata as to other repurchase requests.

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

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

Since October 5, 2016, our board has approved and established an estimated per share NAV on at least an annual basis. See summary of our historical and current estimated per share NAV in the “Distribution Reinvestment Plan” section above. Accordingly, commencing with share repurchase requests submitted during the quarter that our board has approved and established an estimated per share NAV, such NAV per share served or will serve as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than such NAV per share in our initial offering, until such time as our board determines an updated estimated per share NAV.

For the three months ended ~~June~~September 30, 2019 and 2018, we received share repurchase requests of ~~5,252,062~~3,260,198 and ~~1,978,048~~1,994,354 shares of our common stock, respectively, and repurchased ~~1,966,636~~1,832,625 and ~~1,978,048~~1,994,354 shares of our common stock, respectively, for an aggregate of ~~$18,649,000~~$17,321,000 and ~~$18,194,000,~~$18,399,000, respectively, at an average repurchase price of ~~$9.48~~$9.45 and ~~$9.20~~$9.23 per share, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we received share repurchase requests of ~~9,135,778~~12,395,976 and ~~3,770,572~~5,764,926 shares of our common stock, respectively, and repurchased ~~5,850,352~~7,682,977 and ~~3,770,572~~5,764,926 shares of our common stock, respectively, for an aggregate of ~~$55,135,000~~$72,456,000 and ~~$34,700,000,~~$53,099,000, respectively, at an average repurchase price of ~~$9.42~~$9.43 and ~~$9.20~~$9.21 per share, respectively.

As of ~~June~~September 30, 2019 and December 31, 2018, we received cumulative share repurchase requests ~~23,456,231~~26,716,429 and 14,320,453 shares of our common stock, respectively, and repurchased ~~20,170,805~~22,003,430 and 14,320,453 shares of our common stock, respectively, for an aggregate of ~~$187,070,000~~$204,391,000 and $131,935,000, respectively, at an average repurchase price of ~~$9.27~~$9.29 and $9.21 per share, respectively. Shares were repurchased using proceeds we received from the cumulative sale of shares of our common stock pursuant to our DRIP Offerings.

2013 Incentive Plan

We adopted 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.

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For ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2019, we granted an aggregate of ~~7,500~~15,000 and 22,500 shares, respectively, of our restricted common stock, at a weighted average grant date fair value of $9.37 per share, to our independent directors in connection with their re-election to our ~~board.~~board or in consideration for their past services rendered. Such shares vest as to 20.0% of the shares on the date of grant on each of the first four anniversaries of the grant date. For both the three months ended ~~June~~September 30, 2019 and 2018, we recognized stock compensation expense related to the independent director grants of ~~$57,000 and $56,000, respectively,~~$72,000, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we recognized stock compensation expense related to the director grants of ~~$100,000~~$172,000 and ~~$99,000,~~$171,000, respectively. Such stock compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

14. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings; however, we are not affiliated with Griffin Capital, our dealer manager, Colony Capital or Mr. Flaherty. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. Our board, including a majority of our independent directors, has reviewed the material transactions between our affiliates and us during the three and ~~six~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 2019 and 2018, we incurred ~~$6,477,000~~$6,105,000 and ~~$6,133,000,~~$6,705,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$12,718,000~~$18,823,000 and ~~$11,652,000,~~$18,357,000, 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 ~~June~~September 30, 2019 and 2018, we incurred ~~$440,000~~$277,000 and ~~$7,000,~~$1,069,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$798,000~~$1,075,000 and ~~$7,000,~~$1,076,000, respectively, in acquisition fees to our advisor. Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

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 months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$13,000~~$0 and ~~$45,000,~~$24,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred $163,000 and ~~$45,000,~~$69,000, respectively, in development fees to our advisor or its affiliates, which was capitalized as part of the associated investments in our 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,

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6.0% of the contract purchase price or real estate-related investments, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our acquisitions of real estate or real estate-related investments.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we did not incur any acquisition expenses to our advisor or its affiliates. Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as asset acquisitions or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying 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 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 ~~June~~September 30, 2019 and 2018, we incurred ~~$5,020,000~~$5,021,000 and ~~$4,784,000,~~$4,873,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$9,997,000~~$15,018,000 and ~~$9,565,000,~~$14,438,000, respectively, in asset management fees to our advisor or its affiliates. Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third-party property manager. We pay our advisor or its affiliates a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a property management oversight fee of 1.0% of the gross monthly cash receipts of any stand-alone, single-tenant, net leased property; (ii) a property management oversight fee of 1.5% of the gross monthly cash receipts of any property that is not a stand-alone, single-tenant, net leased property and for which our advisor or its affiliates provide oversight of a third party that performs the duties of a property manager with respect to such property; or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant, net leased property 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 ~~June~~September 30, 2019 and 2018, we incurred ~~$660,000~~$636,000 and ~~$583,000,~~$617,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$1,279,000~~$1,915,000 and ~~$1,194,000,~~$1,811,000, respectively, in property management fees to our advisor or its affiliates. Property management fees are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Lease Fees

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

For the three months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$145,000~~$68,000 and ~~$659,000,~~$36,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$169,000~~$237,000 and ~~$728,000,~~$764,000, 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 ~~June~~September 30, 2019 and 2018, we incurred ~~$162,000~~$56,000 and ~~$8,000,~~$38,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we incurred ~~$199,000~~$255,000 and ~~$14,000,~~$52,000, 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.

For the 12 months ended ~~June~~September 30, 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 for the 12 month periods then ended:


	12 months ended June 30,				12 months ended September 30,
	2019		2018		2019		2018
Operating expenses as a percentage of average invested assets	0.9	%	0.9	%	0.9	%	0.9	%
Operating expenses as a percentage of net income	19.2	%	17.6	%	20.1	%	18.4	%

For the three months ended ~~June~~September 30, 2019 and 2018, our advisor or its affiliates incurred operating expenses on our behalf of ~~$37,000~~$47,000 and ~~$47,000,~~$48,000, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, incurred ~~$113,000~~$160,000 and ~~$99,000,~~$147,000, respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Compensation for Additional Services

We pay our advisor and its affiliates for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we did not incur any disposition fees to our advisor or its affiliates.

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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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we did not pay any such distributions to our advisor.

Subordinated Distribution Upon Termination

Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to 15.0% of the amount, if any, by which: (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.

As of ~~June~~September 30, 2019 and December 31, 2018, we did not have any liability related to the subordinated distribution upon termination.

Accounts Payable Due to Affiliates

The following amounts were outstanding to our affiliates as of ~~June~~September 30, 2019 and December 31, 2018:


Fee	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Asset and property management fees	$	1,898,000	$	1,856,000	$	1,921,000	$	1,856,000
Acquisition fees	411,000		15,000
Construction management fees	186,000		58,000		163,000		58,000
Lease commissions	73,000		94,000		54,000		94,000
Operating expenses	14,000		12,000		9,000		12,000
Acquisition fees					—		15,000
Development fees	—		68,000		—		68,000
	$	2,582,000	$	2,103,000	$	2,147,000	$	2,103,000

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

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 ~~June~~September 30, 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		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instrument	$	—	$	4,000	$	—	$	4,000	$	—	$	1,000	$	—	$	1,000
Total assets at fair value	$	—	$	4,000	$	—	$	4,000	$	—	$	1,000	$	—	$	1,000
Liabilities:
Derivative financial instruments	$	—	$	4,111,000	$	—	$	4,111,000	$	—	$	5,276,000	$	—	$	5,276,000
Warrants	—		—		1,132,000		1,132,000		—		—		1,132,000		1,132,000
Total liabilities at fair value	$	—	$	4,111,000	$	1,132,000	$	5,243,000	$	—	$	5,276,000	$	1,132,000	$	6,408,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall:



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instruments	$	—	$	417,000	$	—	$	417,000
Total assets at fair value	$	—	$	417,000	$	—	$	417,000
Liabilities:
Contingent consideration obligation	$	—	$	—	$	681,000	$	681,000
Warrants	—		—		1,207,000		1,207,000
Total liabilities at fair value	$	—	$	—	$	1,888,000	$	1,888,000

There were no transfers into and out of fair value measurement levels during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

Derivative Financial Instruments

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

We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

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Although we have determined that the majority of the inputs used to value our derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of ~~June~~September 30, 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

As of ~~June~~September 30, 2019 and December 31, 2018, we have accrued $0 and $681,000, respectively, of a contingent consideration obligation in connection with our Clemmons facility within North Carolina ALF Portfolio. Such obligation was included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets and ~~may be~~would have been paid upon various conditions being met, including our tenants achieving certain operating performance metrics. In particular, the amounts may have been paid based upon the computation in the lease agreement, as amended, and receipt of notification within four years after the applicable acquisition date that the tenant has increased its earnings before interest, taxes, depreciation and rent cost, or EBITDAR, as defined in the lease agreement, for the preceding three months. There was no minimum required payment but the total maximum was capped at $11,000,000 and also limited by the tenant’s ability to increase its EBITDAR. Any payment made would have resulted in an increase in the monthly rent charged to the tenant and additional rental revenue to us. The contingent consideration obligation was not exercised and expired ~~as of~~ June ~~30,~~28, 2019, and as such, no contingent consideration amounts were due for the Clemmons facility within North Carolina ALF ~~Portfolio.~~Portfolio as of September 30, 2019.

Warrants

As of ~~June~~September 30, 2019 and December 31, 2018, we have recorded $1,132,000 and $1,207,000, respectively, related to warrants in Trilogy common units held by certain members of Trilogy’s pre-closing management, which is included in security deposits, prepaid rent and other liabilities in our accompanying 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 ~~June~~September 30, 2019 and December 31, 2018, the carrying value is a reasonable estimate of fair value.

Real Estate Investment

No impairment charges were recognized for the three and ~~six~~nine months ended ~~June~~September 30, 2019. ~~For both~~No impairment charges were recognized for the three ~~and six~~ months ended ~~June~~September 30, 2018. For the nine months ended September 30, 2018, we determined that one of our medical office buildings was impaired based upon discounted cash flow analyses where the most significant inputs were market rent, capitalization rate and discount rate. We considered these inputs as Level 3 measurements within the fair value hierarchy. The following table is a summary of the quantitative information related to the non-recurring fair value measurement for the impairment of our real estate investment as of ~~June~~September 30, 2018:



	Range of Inputs or Inputs
	~~June~~September 30, 2018
Unobservable Inputs
Market rent per square foot	$13.75 to $25.00
Capitalization rate	7.50	%
Discount rate	8.00	%

Financial Instruments Disclosed at Fair Value

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.

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

The fair value of our debt security investment is estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair value of our mortgage loans payable and our lines of credit and term loans are estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our debt security investment, mortgage loans payable and lines of credit and term loans are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of ~~June~~September 30, 2019 and December 31, 2018 were as follows:


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Debt security investment	$	71,272,000	$	93,349,000	$	69,873,000	$	94,116,000	$	71,986,000	$	93,369,000	$	69,873,000	$	94,116,000
Financial Liabilities:
Mortgage loans payable	$	743,564,000	$	701,027,000	$	688,262,000	$	618,886,000	$	805,257,000	$	758,777,000	$	688,262,000	$	618,886,000
Lines of credit and term loans	$	751,490,000	$	757,914,000	$	735,737,000	$	737,982,000	$	746,589,000	$	756,269,000	$	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,~~TRS, pursuant to the Code. ~~TRSs~~TRS 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. The Tax Act is still unclear in some respects and could be subject to potential amendments and technical corrections. The federal income tax rules dealing with U.S. federal income taxation and REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. As a result, the long-term impact of the Tax Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.

The components of (loss) income before taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Domestic	$	109,000		$	213,000		$	7,315,000		$	8,322,000		$	(16,211,000	)	$	3,926,000		$	(8,896,000	)	$	12,248,000
Foreign	(105,000		)	(57,000		)	(302,000		)	(112,000		)	(52,000		)	(146,000		)	(354,000		)	(258,000		)
Income before income taxes	$	4,000		$	156,000		$	7,013,000		$	8,210,000
(Loss) Income before income taxes													$	(16,263,000	)	$	3,780,000		$	(9,250,000	)	$	11,990,000

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

The components of income tax expense (benefit) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Federal deferred	$	(543,000	)	$	(1,146,000	)	$	(1,091,000	)	$	(2,478,000	)	$	(1,446,000	)	$	(1,291,000	)	$	(2,538,000	)	$	(3,769,000	)
State deferred	(70,000		)	(236,000		)	(140,000		)	(503,000		)	(242,000		)	(270,000		)	(381,000		)	(773,000		)
State current													—			4,000			—			4,000
Foreign current	275,000			102,000			420,000			181,000			90,000			387,000			510,000			568,000
Valuation allowances	497,000			754,000			1,121,000			1,903,000			2,438,000			1,126,000			3,559,000			3,029,000
Total income tax expense (benefit)	$	159,000		$	(526,000	)	$	310,000		$	(897,000	)	$	840,000		$	(44,000	)	$	1,150,000		$	(941,000	)

Current Income Tax

Federal and state income taxes are generally a function of the level of income recognized by our ~~TRSs.~~TRS. 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 recognize the financial statement effects of an uncertain tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of ~~June~~September 30, 2019 and December 31, 2018, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.

We assess the available evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of ~~June~~September 30, 2019 and December 31, 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.

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17. Leases

Lessor

We have operating leases with tenants that expire at various dates through 2059. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, we recognized ~~$30,898,000~~$26,668,000 and ~~$61,951,000,~~$88,619,000, respectively, of revenues related to operating lease payments, of which ~~$4,349,000~~$4,649,000 and ~~$9,090,000,~~$13,739,000, respectively, was for variable lease payments. 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 ~~six~~three months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter:


Year	Amount		Amount
2019	$	48,032,000	$	24,160,000
2020	93,555,000		95,008,000
2021	91,476,000		93,183,000
2022	84,811,000		86,812,000
2023	77,433,000		79,402,000
Thereafter	578,689,000		588,898,000
Total	$	973,996,000	$	967,463,000

Future minimum base rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2018 for each of the next five years ending December 31 and thereafter was as follows:



Year	Amount
2019	$	92,888,000
2020	88,536,000
2021	86,362,000
2022	80,233,000
2023	72,535,000
Thereafter	559,649,000
Total	$	980,203,000

Lessee

We lease certain land, buildings, furniture, fixtures, campus equipment, office equipment and automobiles. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Most leases include one or more options to renew, with renewal terms that generally can extend at various dates through 2112, excluding extension options. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property.

As of ~~June~~September 30, 2019, we have additional operating leases that have not yet commenced of $56,945,000. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of up to 15 years.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments that are adjusted periodically based on Consumer Price Index, and may also include other variable lease costs (i.e., common area maintenance, property taxes and insurance). Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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

The components of lease costs were as follows:



Lease Cost	Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost(1)	Property operating expenses and rental expenses	$	7,387,000	$	22,507,000
Finance lease cost
Amortization of leased assets	Depreciation and amortization	467,000		1,520,000
Accretion of lease liabilities	Interest expense	146,000		278,000
Total lease cost		$	8,000,000	$	24,305,000

Lease Cost Classification
Three Months Ended
June 30, 2019

Six Months Ended
June 30, 2019
Operating lease cost(1) Property operating expenses and rental expenses $ 7,664,000
$ 15,120,000
Finance lease cost
Amortization of leased assets Depreciation and amortization 79,000
1,053,000
Accretion of lease liabilities Interest expense 53,000
132,000
Total lease cost $ 7,796,000
$ 16,305,000

___________


(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	Six Months Ended June 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,087,000	$	16,602,000
Operating cash flows from finance leases	$	131,000	$	277,000
Financing cash flows from finance leases	$	1,772,000	$	2,490,000
Right-of-use assets obtained in exchange for operating lease liabilities	$	114,000	$	166,000



Lease Term and Discount Rate	As of ~~June~~September 30, 2019
Weighted average remaining lease term (in years)
Operating leases	~~13.5~~13.4
Finance leases	~~1.4~~1.3
Weighted average discount rate
Operating leases	6.13	%
Finance leases	~~7.66~~7.35	%

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~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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

Operating Leases

The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the ~~six~~three 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		Amount
2019	$	11,780,000	$	5,873,000
2020	23,103,000		21,838,000
2021	23,571,000		22,267,000
2022	23,950,000		22,605,000
2023	23,257,000		21,866,000
Thereafter	189,416,000		176,970,000
Total operating lease payments	295,077,000		271,419,000
Less: interest	101,687,000		93,247,000
Present value of operating lease liabilities	$	193,390,000	$	178,172,000

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

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

Finance Leases

The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the ~~six~~three 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 $ 1,395,000
2020 1,265,000
2021 130,000
2022 —
2023 —
Total finance lease payments 2,790,000
Less: interest 124,000
Present value of finance lease liabilities $ 2,666,000

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~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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



Year	Amount
2019	$	631,000
2020	1,265,000
2021	130,000
2022	—
2023	—
Total finance lease payments	2,026,000
Less: interest	78,000
Present value of finance lease liabilities	$	1,948,000

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.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

18. Segment Reporting

As of ~~June~~September 30, 2019, we evaluated our business and made resource allocations based on six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. Our medical office buildings are typically leased to multiple tenants under separate leases, thus requiring active management and responsibility for many of the associated operating expenses (much of which are, or can effectively be, passed through to the tenants). Our hospital investments are primarily single-tenant properties that lease the facilities to unaffiliated tenants under triple-net and generally master leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. Our skilled nursing facilities and senior housing facilities are similarly structured as our hospital investments. In addition, our senior housing segment includes our debt security investment. Our senior housing — RIDEA properties include senior housing facilities that are owned and operated utilizing a RIDEA structure. Our integrated senior health campuses include a range of assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses that are owned and operated utilizing a RIDEA structure.

We evaluate performance based upon segment net operating income. We define segment net operating income as total revenues, less property operating expenses and rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related expenses, interest expense, gain (loss) in fair value of derivative financial instruments, impairment of real estate investment, foreign currency gain (loss), other income (expense), loss from unconsolidated entities 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 and other assets not attributable to individual properties.

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

Summary information for the reportable segments during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was as follows:

Integrated
Senior Health
Campuses

Senior
Housing
— RIDEA

Medical
Office
Buildings

Senior
Housing

Skilled
Nursing
Facilities
Hospitals
Three Months
Ended
June 30, 2019
Revenues:
Resident fees and services $ 256,041,000
$ 16,431,000
$ —
$ —
$ —
$ —
$ 272,472,000
Real estate revenue —
—
20,104,000
5,931,000
3,667,000
2,757,000
32,459,000
Total revenues 256,041,000
16,431,000
20,104,000
5,931,000
3,667,000
2,757,000
304,931,000
Expenses:
Property operating expenses 228,319,000
11,571,000
—
—
—
—
239,890,000
Rental expenses —
—
7,597,000
127,000
368,000
134,000
8,226,000
Segment net operating income $ 27,722,000
$ 4,860,000
$ 12,507,000
$ 5,804,000
$ 3,299,000
$ 2,623,000
$ 56,815,000
Expenses:
General and administrative $ 6,512,000
Acquisition related expenses 400,000
Depreciation and amortization 24,743,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium) (19,560,000 )
Loss in fair value of derivative financial instruments (4,117,000 )
Loss from unconsolidated entities (493,000 )
Foreign currency loss (1,232,000 )
Other income 246,000
Income before income taxes 4,000
Income tax expense (159,000 )
Net loss $ (155,000 )

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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		Three Months Ended June 30, 2018				Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Three Months Ended September 30, 2019
Revenues:
Resident fees and services		$	231,521,000	$	16,061,000	$	—	$	—	$	—	$	—	$	247,582,000			$	257,048,000	$	16,752,000	$	—	$	—	$	—	$	—	$	273,800,000
Real estate revenue		—		—		20,206,000		5,393,000		3,728,000		3,354,000		32,681,000				—		—		19,890,000		2,601,000		2,672,000		2,799,000		27,962,000
Total revenues		231,521,000		16,061,000		20,206,000		5,393,000		3,728,000		3,354,000		280,263,000				257,048,000		16,752,000		19,890,000		2,601,000		2,672,000		2,799,000		301,762,000
Expenses:
Property operating expenses		207,277,000		10,994,000		—		—		—		—		218,271,000				230,349,000		11,509,000		—		—		—		—		241,858,000
Rental expenses		—		—		7,748,000		185,000		395,000		419,000		8,747,000				—		—		8,140,000		553,000		346,000		149,000		9,188,000
Segment net operating income		$	24,244,000	$	5,067,000	$	12,458,000	$	5,208,000	$	3,333,000	$	2,935,000	$	53,245,000			$	26,699,000	$	5,243,000	$	11,750,000	$	2,048,000	$	2,326,000	$	2,650,000	$	50,716,000
Expenses:
General and administrative	General and administrative													$	6,622,000		General and administrative													$	7,675,000
Acquisition related expenses	Acquisition related expenses													214,000			Acquisition related expenses													4,000
Depreciation and amortization	Depreciation and amortization													22,682,000			Depreciation and amortization													36,778,000
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)														(16,479,000		)
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)																	Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)													(21,046,000		)
Loss in fair value of derivative financial instruments	Loss in fair value of derivative financial instruments													(487,000		)	Loss in fair value of derivative financial instruments													(1,169,000		)
Impairment of real estate investments														(2,542,000		)
Loss from unconsolidated entities	Loss from unconsolidated entities													(1,458,000		)	Loss from unconsolidated entities													(766,000		)
Foreign currency loss	Foreign currency loss													(2,829,000		)	Foreign currency loss													(1,464,000		)
Other income	Other income													224,000			Other income													1,923,000
Income before income taxes														156,000
Income tax benefit														526,000
Net income														$	682,000
Loss before income taxes																	Loss before income taxes													(16,263,000		)
Income tax expense																	Income tax expense													(840,000		)
Net loss																														$	(17,103,000	)

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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		Six Months Ended June 30, 2019				Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Three Months Ended September 30, 2018
Revenues:
Resident fees and services		$	507,755,000	$	32,999,000	$	—	$	—	$	—	$	—	$	540,754,000			$	235,605,000	$	16,279,000	$	—	$	—	$	—	$	—	$	251,884,000
Real estate revenue		—		—		40,658,000		11,583,000		7,326,000		5,668,000		65,235,000				—		—		20,029,000		5,472,000		3,716,000		3,078,000		32,295,000
Total revenues		507,755,000		32,999,000		40,658,000		11,583,000		7,326,000		5,668,000		605,989,000				235,605,000		16,279,000		20,029,000		5,472,000		3,716,000		3,078,000		284,179,000
Expenses:
Property operating expenses		451,647,000		23,195,000		—		—		—		—		474,842,000				212,519,000		11,146,000		—		—		—		—		223,665,000
Rental expenses		—		—		15,413,000		223,000		730,000		285,000		16,651,000				—		—		7,577,000		211,000		391,000		398,000		8,577,000
Segment net operating income		$	56,108,000	$	9,804,000	$	25,245,000	$	11,360,000	$	6,596,000	$	5,383,000	$	114,496,000			$	23,086,000	$	5,133,000	$	12,452,000	$	5,261,000	$	3,325,000	$	2,680,000	$	51,937,000
Expenses:
General and administrative	General and administrative													$	13,429,000		General and administrative													$	6,900,000
Acquisition related expenses	Acquisition related expenses													(296,000		)	Acquisition related expenses													(1,102,000		)
Depreciation and amortization	Depreciation and amortization													50,371,000			Depreciation and amortization													23,816,000
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)													(38,619,000		)	Interest expense (including amortization of deferred financing costs and debt discount/premium)													(16,538,000		)
Loss in fair value of derivative financial instruments	Loss in fair value of derivative financial instruments													(4,677,000		)	Loss in fair value of derivative financial instruments													(750,000		)
Loss from unconsolidated entities	Loss from unconsolidated entities													(947,000		)	Loss from unconsolidated entities													(1,137,000		)
Foreign currency loss	Foreign currency loss													(190,000		)	Foreign currency loss													(619,000		)
Other income	Other income													454,000			Other income													501,000
Income before income taxes	Income before income taxes													7,013,000			Income before income taxes													3,780,000
Income tax expense														(310,000		)
Income tax benefit																	Income tax benefit													44,000
Net income														$	6,703,000															$	3,824,000

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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		Six Months Ended June 30, 2018				Integrated Senior Health Campuses		Senior Housing — RIDEA		Medical Office Buildings		Senior Housing		Skilled Nursing Facilities		Hospitals		Nine Months Ended September 30, 2019
Revenues:
Resident fees and services		$	460,582,000	$	32,393,000	$	—	$	—	$	—	$	—	$	492,975,000			$	764,803,000	$	49,751,000	$	—	$	—	$	—	$	—	$	814,554,000
Real estate revenue		—		—		40,287,000		10,793,000		7,467,000		6,633,000		65,180,000				—		—		60,548,000		14,184,000		9,998,000		8,467,000		93,197,000
Total revenues		460,582,000		32,393,000		40,287,000		10,793,000		7,467,000		6,633,000		558,155,000				764,803,000		49,751,000		60,548,000		14,184,000		9,998,000		8,467,000		907,751,000
Expenses:
Property operating expenses		413,572,000		22,058,000		—		—		—		—		435,630,000				681,996,000		34,704,000		—		—		—		—		716,700,000
Rental expenses		—		—		15,678,000		372,000		816,000		821,000		17,687,000				—		—		23,553,000		776,000		1,076,000		434,000		25,839,000
Segment net operating income		$	47,010,000	$	10,335,000	$	24,609,000	$	10,421,000	$	6,651,000	$	5,812,000	$	104,838,000			$	82,807,000	$	15,047,000	$	36,995,000	$	13,408,000	$	8,922,000	$	8,033,000	$	165,212,000
Expenses:
General and administrative	General and administrative													$	13,010,000		General and administrative													$	21,104,000
Acquisition related expenses	Acquisition related expenses													(555,000		)	Acquisition related expenses													(292,000		)
Depreciation and amortization	Depreciation and amortization													46,374,000			Depreciation and amortization													87,149,000
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)														(31,831,000		)
Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)																	Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)													(59,665,000		)
Loss in fair value of derivative financial instruments	Loss in fair value of derivative financial instruments													(377,000		)	Loss in fair value of derivative financial instruments													(5,846,000		)
Impairment of real estate investments														(2,542,000		)
Loss from unconsolidated entities	Loss from unconsolidated entities													(2,535,000		)	Loss from unconsolidated entities													(1,713,000		)
Foreign currency loss	Foreign currency loss													(1,033,000		)	Foreign currency loss													(1,654,000		)
Other income	Other income													519,000			Other income													2,377,000
Income before income taxes														8,210,000
Income tax benefit														897,000
Net income														$	9,107,000
Loss before income taxes																	Loss before income taxes													(9,250,000		)
Income tax expense																	Income tax expense													(1,150,000		)
Net loss																														$	(10,400,000	)

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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 investment													(2,542,000		)
Loss from unconsolidated entities													(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

Total assets by reportable segment as of ~~June~~September 30, 2019 and December 31, 2018 were as follows:


	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Integrated senior health campuses	$	1,691,133,000	$	1,478,147,000	$	1,714,145,000	$	1,478,147,000
Medical office buildings	621,700,000		646,784,000		621,240,000		646,784,000
Senior housing — RIDEA	265,119,000		271,381,000		265,572,000		271,381,000
Senior housing	258,424,000		242,686,000		242,790,000		242,686,000
Skilled nursing facilities	126,155,000		127,809,000		126,664,000		127,809,000
Hospitals	115,623,000		118,685,000		115,152,000		118,685,000
Other	7,999,000		3,600,000		5,846,000		3,600,000
Total assets	$	3,086,153,000	$	2,889,092,000	$	3,091,409,000	$	2,889,092,000

As of both ~~June~~September 30, 2019 and December 31, 2018, goodwill of $75,309,000 was allocated to integrated senior health campuses, and no other segments had goodwill.

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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 June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Revenues:
United States	$	303,721,000	$	279,015,000	$	603,543,000	$	555,626,000	$	300,609,000	$	282,977,000	$	904,152,000	$	838,603,000
International	1,210,000		1,248,000		2,446,000		2,529,000		1,153,000		1,202,000		3,599,000		3,731,000
	$	304,931,000	$	280,263,000	$	605,989,000	$	558,155,000	$	301,762,000	$	284,179,000	$	907,751,000	$	842,334,000

The following is a summary of real estate investments, net by geographic regions as of ~~June~~September 30, 2019 and December 31, 2018:


	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Real estate investments, net:
United States	$	2,181,809,000	$	2,173,395,000	$	2,201,702,000	$	2,173,395,000
International	49,141,000		49,286,000		47,357,000		49,286,000
	$	2,230,950,000	$	2,222,681,000	$	2,249,059,000	$	2,222,681,000

19. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily 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 debt security investment, but we believe collection of the outstanding amount is probable. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of ~~June~~September 30, 2019 and December 31, 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 ~~June~~September 30, 2019, properties in two states in the United States accounted for 10.0% or more of our total property portfolio’s annualized base rent or annualized net operating income. Properties located in Indiana and Ohio accounted for ~~33.8%~~35.1% and ~~10.3%~~10.7%, respectively, of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in each such state’s economy.

Based on leases in effect as of ~~June~~September 30, 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 ~~48.5%~~49.1%, ~~26.8%~~26.4%, ~~8.8%~~8.7%, ~~6.8%~~6.7%, ~~5.3%~~5.4% and ~~3.8%~~3.7%, respectively, of our total property portfolio’s annualized base rent or annualized net operating income. As of ~~June~~September 30, 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 ~~June~~September 30, 2019.

20. Per Share Data

Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $7,000 ~~and $6,000~~ for both the three months ended ~~June~~September 30, 2019 and 2018, ~~respectively,~~ and ~~$14,000~~$21,000 and ~~$13,000,~~$20,000, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2019 and 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.

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

As of ~~June~~September 30, 2019 and 2018, there were 46,500 and ~~44,500~~47,500 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 both ~~June~~September 30, 2019 and 2018, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

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

The following discussion should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 2018 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 21, 2019. Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of ~~June~~September 30, 2019 and December 31, 2018, together with our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2019 and 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; changes in accounting principles generally accepted in the United States, or GAAP, policies or guidelines applicable to REITs; the success of our investment strategy; the availability of financing; and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the 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.

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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. As of ~~June~~September 30, 2019, a total of ~~$14,115,000~~$27,904,000 in distributions were reinvested that resulted in ~~1,506,395~~2,977,976 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings.

On October 3, ~~2018,~~2019, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established ~~the most recent~~an updated estimated per share net asset value, or NAV, of our common stock of ~~$9.37.~~$9.40. We provide an updated estimated per share NAV on at least an annual basis to assist broker-dealers in connection with their obligations under ~~National Association of Securities Dealers Conduct Rule 2340, as required by the~~ Financial Industry Regulatory Authority, or FINRA, Rule 2231 with respect to customer account statements. The ~~most recent~~updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, ~~2018.~~2019. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC. We intend to continue to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 4, ~~2018~~2019 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our ~~most recent~~updated estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year initial term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 13, 2019 and expires on February 26, 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.

Critical Accounting Policies

The complete listing of our Critical Accounting Policies was previously disclosed in our 2018 Annual Report on Form 10-K, as filed with the SEC on March 21, 2019, and there have been no material changes to our Critical Accounting Policies as disclosed therein, except as noted 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 2018 Annual Report on Form 10-K, as filed with the SEC on March 21, 2019.

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Recently Issued Accounting Pronouncements

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

Acquisitions in 2019

For a discussion of our acquisitions of real estate investments 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 2018 Annual Report on Form 10-K, as filed with the SEC on March 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 available space 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 ~~June~~September 30, 2019, our properties were ~~93.0%~~92.4% leased and during the remainder of 2019, ~~4.6%~~2.7% of the leased GLA is scheduled to expire. Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy. As of ~~June~~September 30, 2019, our remaining weighted average lease term was ~~8.2~~8.4 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.

Our senior housing — RIDEA facilities and integrated senior health campuses were ~~82.7%~~82.3% and ~~87.5%~~86.9% leased, respectively, for the three months ended ~~June~~September 30, 2019 and ~~83.1%~~82.8% and ~~85.6%~~86.1% leased, respectively, for the ~~six~~nine months ended ~~June~~September 30, 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 Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018

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

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of ~~June~~September 30, 2019, we operated through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

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Except where otherwise noted, the changes in our results of operations for 2019 as compared to 2018 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 of ~~June~~September 30, 2019 and 2018, we owned and/or operated the following types of properties:


	June 30,										September 30,
	2019					2018					2019					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 campuses	113	$	1,513,399,000	(1	)	110	$	1,444,062,000	(1	)	113	$	1,528,470,000	(1	)	111	$	1,493,028,000	(1	)
Medical office buildings	64	664,135,000		89.9	%	64	664,135,000		89.3	%	64	664,135,000		89.1	%	64	664,135,000		89.3	%
Senior housing	16	203,391,000		100	%	14	173,391,000		100	%	16	203,391,000		100	%	15	188,391,000		100	%
Senior housing — RIDEA	13	320,035,000		(2	)	13	320,035,000		(2	)	13	320,035,000		(2	)	13	320,035,000		(2	)
Skilled nursing facilities	7	128,000,000		100	%	7	128,000,000		100	%	7	128,000,000		100	%	7	128,000,000		100	%
Hospitals	2	139,780,000		100	%	2	139,780,000		100	%	2	139,780,000		100	%	2	139,780,000		100	%
Total/weighted average(3)	215	$	2,968,740,000	93.0	%	210	$	2,869,403,000	92.4	%	215	$	2,983,811,000	92.4	%	212	$	2,933,369,000	92.5	%

___________

(1)

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the leased percentage for the resident units of our integrated senior health campuses was ~~87.5%~~86.9% and ~~85.6%~~86.1%, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, the leased percentage for the resident units of our integrated senior health campuses was ~~86.7%~~83.8% and ~~84.5%~~84.2%, respectively.

(2)

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the leased percentage for the resident units of our senior housing — RIDEA facilities was ~~82.7%~~82.3% and ~~83.1%~~82.8%, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, the leased percentage for the resident units of our senior housing — RIDEA facilities was ~~84.3%~~84.5% and ~~84.9%~~84.8%, respectively.


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

Revenues

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Resident Fees and Services
Integrated senior health campuses	$	256,041,000	$	231,521,000	$	507,755,000	$	460,582,000	$	257,048,000	$	235,605,000	$	764,803,000	$	696,187,000
Senior housing — RIDEA	16,431,000		16,061,000		32,999,000		32,393,000		16,752,000		16,279,000		49,751,000		48,672,000
Total resident fees and services	272,472,000		247,582,000		540,754,000		492,975,000		273,800,000		251,884,000		814,554,000		744,859,000
Real Estate Revenue
Medical office buildings	20,104,000		20,206,000		40,658,000		40,287,000		19,890,000		20,029,000		60,548,000		60,316,000
Senior housing	5,931,000		5,393,000		11,583,000		10,793,000		2,601,000		5,472,000		14,184,000		16,265,000
Skilled nursing facilities	3,667,000		3,728,000		7,326,000		7,467,000		2,672,000		3,716,000		9,998,000		11,183,000
Hospitals	2,757,000		3,354,000		5,668,000		6,633,000		2,799,000		3,078,000		8,467,000		9,711,000
Total real estate revenue	32,459,000		32,681,000		65,235,000		65,180,000		27,962,000		32,295,000		93,197,000		97,475,000
Total revenues	$	304,931,000	$	280,263,000	$	605,989,000	$	558,155,000	$	301,762,000	$	284,179,000	$	907,751,000	$	842,334,000

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, real estate revenue primarily consisted of base rent and expense recoveries.

The decrease in real estate revenue for the ~~hospital~~senior housing segment for the three and ~~six~~nine months ended ~~June~~September 30, 2019, compared to the corresponding prior year periods, is primarily due to the write-off of deferred rent receivables in connection with the termination of a management services agreement with an operator during the three months ended September 30, 2019.

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The decrease in real estate revenue for the skilled nursing facilities segment for the three and nine months ended September 30, 2019, compared to the corresponding prior year periods, is primarily due to a reduction of tenant receivables that we estimated to be uncollectible during the three months ended September 30, 2019.

The decrease in real estate revenue for the hospitals segment for the three and nine months ended September 30, 2019, compared to the corresponding prior year periods, is primarily due to the exclusion of property tax recoveries that resulted upon our adoption of Financial Accounting Standards Board Accounting Standards Codification ~~or ASC,~~ Topic 842, Leases~~, or ASC Topic 842,~~ on January 1, 2019. See Note 2, Summary of Significant Accounting Policies — Leases, to our accompanying condensed consolidated financial statements.

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Property Operating Expenses and Rental Expenses

For the three months ended ~~June~~September 30, 2019 and 2018, property operating expenses primarily consisted of administration and benefits expense of ~~$210,125,000~~$212,791,000 and ~~$189,973,000,~~$196,321,000, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, property operating expenses primarily consisted of administration and benefits expense of ~~$414,826,000~~$627,617,000 and ~~$379,409,000,~~$575,730,000, 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 June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018				2019				2018				2019				2018
Property Operating Expenses
Integrated senior health campuses	$	228,319,000	89.2	%	$	207,277,000	89.5	%	$	451,647,000	88.9	%	$	413,572,000	89.8	%	$	230,349,000	89.6	%	$	212,519,000	90.2	%	$	681,996,000	89.2	%	$	626,091,000	89.9	%
Senior housing — RIDEA	11,571,000		70.4	%	10,994,000		68.5	%	23,195,000		70.3	%	22,058,000		68.1	%	11,509,000		68.7	%	11,146,000		68.5	%	34,704,000		69.8	%	33,204,000		68.2	%
Total property operating expenses	$	239,890,000	88.0	%	$	218,271,000	88.2	%	$	474,842,000	87.8	%	$	435,630,000	88.4	%	$	241,858,000	88.3	%	$	223,665,000	88.8	%	$	716,700,000	88.0	%	$	659,295,000	88.5	%

Rental Expenses
Medical office buildings	$	7,597,000	37.8	%	$	7,748,000	38.3	%	$	15,413,000	37.9	%	$	15,678,000	38.9	%	$	8,140,000	40.9	%	$	7,577,000	37.8	%	$	23,553,000	38.9	%	$	23,255,000	38.6	%
Skilled nursing facilities	368,000		10.0	%	395,000		10.6	%	730,000		10.0	%	816,000		10.9	%	346,000		12.9	%	391,000		10.5	%	1,076,000		10.8	%	1,207,000		10.8	%
Hospitals	134,000		4.9	%	419,000		12.5	%	285,000		5.0	%	821,000		12.4	%	149,000		5.3	%	398,000		12.9	%	434,000		5.1	%	1,219,000		12.6	%
Senior housing	127,000		2.1	%	185,000		3.4	%	223,000		1.9	%	372,000		3.4	%	553,000		21.3	%	211,000		3.9	%	776,000		5.5	%	583,000		3.6	%
Total rental expenses	$	8,226,000	25.3	%	$	8,747,000	26.8	%	$	16,651,000	25.5	%	$	17,687,000	27.1	%	$	9,188,000	32.9	%	$	8,577,000	26.6	%	$	25,839,000	27.7	%	$	26,264,000	26.9	%

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 consisted of the following for the periods then ended:

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Asset management fees — affiliates $ 5,020,000
$ 4,784,000
$ 9,997,000
$ 9,565,000
Professional and legal fees 631,000
543,000
1,165,000
933,000
Transfer agent services 335,000
284,000
657,000
623,000
Stock compensation expense 195,000
195,000
390,000
390,000
Postage and delivery 124,000
228,000
141,000
259,000
Directors’ and officers’ liability insurance 79,000
79,000
158,000
158,000
Franchise taxes 76,000
72,000
198,000
247,000
Board of directors fees 68,000
57,000
140,000
118,000
Restricted stock compensation 57,000
56,000
100,000
99,000
Bank charges 43,000
101,000
102,000
218,000
Bad debt expense (176,000 ) 157,000
272,000
283,000
Other 60,000
66,000
109,000
117,000
Total $ 6,512,000
$ 6,622,000
$ 13,429,000
$ 13,010,000

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Asset management fees — affiliates	$	5,021,000	$	4,873,000	$	15,018,000	$	14,438,000
Professional and legal fees	1,226,000		1,030,000		2,391,000		1,963,000
Bad debt expense	473,000		48,000		745,000		331,000
Transfer agent services	348,000		305,000		1,005,000		928,000
Stock compensation expense	195,000		195,000		585,000		585,000
Directors’ and officers’ liability insurance	78,000		78,000		236,000		236,000
Restricted stock compensation	72,000		72,000		172,000		171,000
Bank charges	72,000		113,000		174,000		331,000
Board of directors fees	68,000		72,000		208,000		190,000
Franchise taxes	56,000		101,000		254,000		348,000
Other	66,000		13,000		316,000		389,000
Total	$	7,675,000	$	6,900,000	$	21,104,000	$	19,910,000

The ~~decrease~~increase in general and administrative expense for the three months ended ~~June~~September 30, 2019 as compared to the three months ended ~~June~~September 30, 2018 was primarily due to the ~~decrease~~increase in bad debt expense ~~due~~as a result of write-offs of receivables that were determined to ~~recoveries of accounts receivable previously written-off.~~be uncollectible during the period. The increase in general and administrative expenses for the ~~six~~nine months ended ~~June~~September 30, 2019 as compared to the ~~six~~nine months ended ~~June~~September 30, 2018 was primarily due to increase in bad debt expense and an increase in asset management fees and 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 ~~six~~nine months ended ~~June~~September 30, 2019, we completed ~~$17,067,000~~$32,138,000 in property acquisitions that we accounted for as asset acquisitions; however, the direct acquisition related expenses of ~~$489,000~~$761,000 associated with such property acquisitions were capitalized in our condensed consolidated balance sheets. For the ~~six~~nine months ended ~~June~~September 30, 2018, we ~~purchased land~~completed $62,775,000 in property acquisitions, including our acquisition of previously leased real estate investments, as ~~part of our existing Southern Illinois MOB Portfolio for a contract purchase price of $300,000, which we accounted for as an~~ asset ~~acquisition;~~acquisitions; however, the direct acquisition related expenses of $2,936,000 associated with such ~~land purchase~~acquisitions were capitalized in our condensed consolidated balance sheets.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, acquisition related expenses were ~~$400,000~~$4,000 and ~~$(296,000)~~$(292,000), respectively, which are primarily related to indirect transaction costs and fair value adjustments to contingent consideration obligations. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration Liability, for a further discussion. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, acquisition related expenses were ~~$214,000~~$(1,102,000) and ~~$(555,000)~~$(1,657,000), respectively, which primarily related to fair value adjustments to contingent consideration obligations.

Depreciation and Amortization

For the three months ended ~~June~~September 30, 2019 and 2018, depreciation and amortization was ~~$24,743,000~~$36,778,000 and ~~$22,682,000,~~$23,816,000, respectively, which primarily consisted of depreciation on our operating properties of ~~$21,530,000~~$25,062,000 and ~~$20,287,000,~~$20,636,000, respectively, and amortization on our identified intangible assets of ~~$2,962,000~~$11,435,000 and ~~$2,213,000,~~$2,983,000, respectively.

For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, depreciation and amortization was ~~$50,371,000~~$87,149,000 and ~~$46,374,000,~~$70,190,000, respectively, which primarily consisted of depreciation on our operating properties of ~~$43,734,000~~$68,796,000 and ~~$40,687,000,~~$61,323,000, respectively, and amortization of our identified intangible assets of ~~$6,095,000~~$17,530,000 and ~~$5,350,000,~~$8,333,000, respectively.

The increase in depreciation and amortization for the three and nine months ended September 30, 2019, compared to the corresponding prior year periods, is primarily due to the write-off of certain assets in connection with the termination of a management services agreement with an operator during the three months ended September 30, 2019.

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Interest Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Interest expense — lines of credit and term loans and derivative financial instruments	$	9,612,000	$	7,007,000	$	19,218,000	$	13,471,000	$	8,757,000	$	7,646,000	$	27,975,000	$	21,117,000
Interest expense — mortgage loans payable	8,157,000		7,165,000		15,871,000		14,262,000		8,383,000		7,186,000		24,254,000		21,448,000
Amortization of deferred financing costs — lines of credit and term loans	970,000		1,612,000		2,000,000		2,597,000		882,000		981,000		2,882,000		3,578,000
Amortization of deferred financing costs — mortgage loans payable	381,000		324,000		639,000		649,000		483,000		346,000		1,122,000		995,000
Amortization of debt discount/premium, net	169,000		138,000		338,000		277,000		164,000		88,000		502,000		365,000
Loss in fair value of derivative financial instruments	4,117,000		487,000		4,677,000		377,000		1,169,000		750,000		5,846,000		1,127,000
Loss on extinguishment of debt									2,179,000		—		2,179,000		—
Accretion of finance lease liabilities	52,000		—		131,000		—		146,000		—		277,000		—
Interest expense on financing obligations and other liabilities	219,000		233,000		422,000		575,000		52,000		291,000		474,000		866,000
Total	$	23,677,000	$	16,966,000	$	43,296,000	$	32,208,000	$	22,215,000	$	17,288,000	$	65,511,000	$	49,496,000

Liquidity and Capital Resources

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

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Our total capacity to pay operating expenses, capital improvement expenditures, interest, distributions and repurchases, as well as acquire and/or develop real estate investments, is a function of our current cash position, our borrowing capacity on our lines of credit and term loans, as well as any future indebtedness that we may incur. As of ~~June~~September 30, 2019, our cash on hand was ~~$34,026,000~~$46,709,000 and we had ~~$147,433,000~~$234,721,000 available on our lines of credit and term loans. We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months.

We estimate that we will require approximately ~~$33,482,000~~$15,938,000 to pay interest on our outstanding indebtedness in the remainder of 2019, based on interest rates in effect and borrowings outstanding as of ~~June~~September 30, 2019. In addition, we estimate that we will require ~~$253,153,000~~$20,675,000 to pay principal on our outstanding indebtedness in the remainder of 2019. Our Trilogy PropCo Line of Credit Agreement with KeyBank, as administrative agent; Regions Bank, as a syndication agent; and a syndicate of other banks, as lenders, or the Trilogy PropCo Line of Credit, matures on December 1, 2019, unless extended for a one-year period subject to satisfaction of certain conditions, including payment of an extension fee. As of June 30, 2019, borrowings outstanding under the Trilogy PropCo Line of Credit totaled $181,517,000. See Note 8, Lines of Credit and Term Loans — Trilogy PropCo Line of Credit, to our accompanying condensed consolidated financial statements, for further discussion. We are currently engaged in discussions with lenders to refinance the Trilogy PropCo Line of Credit prior to its maturity date; however, we can give no assurance that the refinancing will occur within this time frame, or at all. 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.

Based on the budget for the properties we owned as of ~~June~~September 30, 2019, we estimate that our discretionary capital improvement and tenant improvement expenditures could require up to ~~$85,129,000~~$53,820,000 for the remaining ~~six~~three months of 2019. As of ~~June~~September 30, 2019, we had ~~$14,223,000~~$13,743,000 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.

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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.

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Cash Flows

The following table sets forth changes in cash flows:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Cash, cash equivalents and restricted cash — beginning of period	$	72,705,000		$	64,143,000		$	72,705,000		$	64,143,000
Net cash provided by operating activities	53,831,000			46,690,000			91,792,000			76,297,000
Net cash used in investing activities	(29,450,000		)	(26,867,000		)	(72,055,000		)	(109,552,000		)
Net cash used in financing activities	(23,340,000		)	(20,152,000		)
Net cash (used in) provided by financing activities							(8,161,000		)	40,459,000
Effect of foreign currency translation on cash, cash equivalents and restricted cash	(23,000		)	(24,000		)	(108,000		)	(53,000		)
Cash, cash equivalents and restricted cash — end of period	$	73,723,000		$	63,790,000		$	84,173,000		$	71,294,000

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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, 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 ~~six~~nine months ended ~~June~~September 30, 2019, cash flows used in investing activities primarily related to our 2019 property acquisitions in the amount of ~~$17,457,000~~$32,793,000 and capital expenditures of ~~$38,510,000,~~$65,740,000, partially offset by principal repayments on real estate notes receivable of $28,650,000. For the ~~six~~nine months ended ~~June~~September 30, 2018, cash flows used in investing activities primarily related to our 2018 property acquisitions, including our acquisitions of previously leased real estate investments, in the amount of $63,984,000 and capital expenditures of ~~$24,545,000 and real estate and other deposits of $2,878,000, partially offset by $1,000,000 in proceeds from a prior year real estate acquisition.~~$41,753,000. In general, cash flows used in investing activities will be affected by the number of acquisitions we complete in future years as compared to prior years and the timing of capital expenditures.

Financing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2019, cash flows used in financing activities primarily related to share repurchases of ~~$55,088,000~~$72,200,000 and distributions to our common stockholders of ~~$30,886,000,~~$46,716,000, partially offset by borrowings under mortgage loans payable in the amount of ~~$61,472,000.~~$182,417,000. For the ~~six~~nine months ended ~~June~~September 30, 2018, cash flows ~~used in~~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 ~~$50,152,000,~~$73,948,000, partially offset by the payoff of mortgage loans payable of $94,449,000, share repurchases of ~~$34,700,000~~$53,027,000 and distributions to our common stockholders of ~~$29,447,000.~~$44,702,000. Overall, we anticipate cash flows from financing activities to decrease in the future. However, we anticipate borrowings under our lines of credit and term loans and other indebtedness to increase if we acquire additional real estate and real estate-related investments.

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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 ~~September 30,~~December 31, 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 our DRIP Offerings, only from legally available funds.

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

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The distributions paid for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, along with the amount of distributions reinvested pursuant to the 2015 DRIP Offering and 2019 DRIP Offering, and the sources of our distributions as compared to cash flows from operations were as follows:


	Six Months Ended June 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
Distributions paid in cash	$	30,886,000			$	29,447,000			$	46,716,000			$	44,702,000
Distributions reinvested	28,311,000				30,449,000				42,100,000				45,444,000
	$	59,197,000			$	59,896,000			$	88,816,000			$	90,146,000
Sources of distributions:
Cash flows from operations	$	53,831,000	90.9	%	$	46,690,000	78.0	%	$	88,816,000	100	%	$	76,297,000	84.6	%
Proceeds from borrowings	5,366,000		9.1		13,206,000		22.0		—		—		13,849,000		15.4
	$	59,197,000	100	%	$	59,896,000	100	%	$	88,816,000	100	%	$	90,146,000	100	%

~~Any~~As of September 30, 2019, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from offering proceeds and borrowings. The payment of distributions from our initial offering proceeds and borrowings ~~could~~ have reduced the amount of capital we ultimately invested in assets and negatively impacted the amount of income available for future distributions.

As of ~~June~~September 30, 2019, we had an amount payable of ~~$2,385,000~~$1,984,000 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 ~~June~~September 30, 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. 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 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.

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	Six Months Ended June 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
Distributions paid in cash	$	30,886,000			$	29,447,000			$	46,716,000			$	44,702,000
Distributions reinvested	28,311,000				30,449,000				42,100,000				45,444,000
	$	59,197,000			$	59,896,000			$	88,816,000			$	90,146,000
Sources of distributions:
FFO attributable to controlling interest	$	46,509,000	78.6	%	$	50,219,000	83.8	%	$	62,244,000	70.1	%	$	74,015,000	82.1	%
Proceeds from borrowings	12,688,000		21.4		9,677,000		16.2		26,572,000		29.9		16,131,000		17.9
	$	59,197,000	100	%	$	59,896,000	100	%	$	88,816,000	100	%	$	90,146,000	100	%

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

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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 ~~June~~September 30, 2019, our aggregate borrowings were ~~43.5%~~44.9% 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 ~~August~~November 14, 2019 and ~~June~~September 30, 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 ~~June~~September 30, 2019, we had ~~$768,171,000~~$829,456,000 ($~~743,564,000,~~805,257,000, including discount/premium and deferred financing costs, net) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of ~~June~~September 30, 2019, we had ~~$757,567,000~~$755,279,000 outstanding and ~~$147,433,000~~$234,721,000 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 ~~August~~November 14, 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 ~~June~~September 30, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed interest rate swaps and interest rate cap, was ~~4.40%~~4.05% per annum.

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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, fixed interest rate swaps and interest rate cap;~~loans; (iii) ground and other lease obligations; (iv) financing and other obligations; and (v) finance leases as of ~~June~~September 30, 2019:


	Payments Due by Period										Payments Due by Period
	2019		2020-2021		2022-2023		Thereafter		Total		2019		2020-2021		2022-2023		Thereafter		Total
Principal payments — fixed-rate debt	$	5,937,000	$	46,851,000	$	89,394,000	$	489,393,000	$	631,575,000	$	3,131,000	$	48,793,000	$	91,518,000	$	593,354,000	$	736,796,000
Interest payments — fixed-rate debt	11,903,000		44,325,000		38,746,000		279,403,000		374,377,000		6,800,000		52,233,000		46,493,000		284,603,000		390,129,000
Principal payments — variable-rate debt	247,216,000		89,182,000		557,765,000		—		894,163,000		17,544,000		70,135,000		758,419,000		1,841,000		847,939,000
Interest payments — variable-rate debt (based on rates in effect as of June 30, 2019)	21,579,000		53,279,000		2,096,000		—		76,954,000
Interest payments — variable-rate debt (based on rates in effect as of September 30, 2019)											9,138,000		68,191,000		22,268,000		42,000		99,639,000
Ground and other lease obligations	11,780,000		46,674,000		47,207,000		189,416,000		295,077,000		5,873,000		44,105,000		44,471,000		176,970,000		271,419,000
Financing and other obligations	3,002,000		23,606,000		2,007,000		—		28,615,000		965,000		25,324,000		2,007,000		—		28,296,000
Finance leases	1,395,000		1,395,000		—		—		2,790,000		631,000		1,395,000		—		—		2,026,000
Total	$	302,812,000	$	305,312,000	$	737,215,000	$	958,212,000	$	2,303,551,000	$	44,082,000	$	310,176,000	$	965,176,000	$	1,056,810,000	$	2,376,244,000

Off-Balance Sheet Arrangements

As of ~~June~~September 30, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, inflation has not significantly affected our operations because of the moderate inflation rate; however, we expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements 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, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of certain real estate assets and impairment writedowns of certain real estate assets and investments, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. 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

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required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, we believe it is appropriate to exclude impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. Testing for an impairment of an asset is a continuous process and is analyzed on a quarterly basis. If certain impairment indications exist in an asset, and if the asset’s carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, an impairment charge would be recognized. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.

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

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

Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that may be 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

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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 Practice 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 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 entities and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 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. 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.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. We view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence, that the use of such measures may be useful to investors.

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

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

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The following is a reconciliation of net (loss) income, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Net (loss) income	$	(155,000	)	$	682,000		$	6,703,000		$	9,107,000		$	(17,103,000	)	$	3,824,000		$	(10,400,000	)	$	12,931,000
Add:
Depreciation and amortization related to real estate — consolidated properties	24,743,000			22,682,000			50,371,000			46,374,000			36,778,000			23,816,000			87,149,000			70,190,000
Depreciation and amortization related to real estate — unconsolidated entities	227,000			289,000			452,000			577,000			367,000			270,000			819,000			847,000
Impairment of real estate investments	—			2,542,000			—			2,542,000
Impairment of real estate investment													—			—			—			2,542,000
Less:
Net income attributable to redeemable noncontrolling interests and noncontrolling interests	(1,430,000		)	(740,000		)	(2,778,000		)	(1,012,000		)	(201,000		)	(212,000		)	(2,979,000		)	(1,224,000		)
Depreciation, amortization and impairments related to redeemable noncontrolling interests and noncontrolling interests	(4,108,000		)	(3,554,000		)	(8,239,000		)	(7,369,000		)
Depreciation, amortization and impairment related to redeemable noncontrolling interests and noncontrolling interests													(4,106,000		)	(3,902,000		)	(12,345,000		)	(11,271,000		)
FFO attributable to controlling interest	$	19,277,000		$	21,901,000		$	46,509,000		$	50,219,000		$	15,735,000		$	23,796,000		$	62,244,000		$	74,015,000

Acquisition related expenses(1)	$	400,000		$	214,000		$	(296,000	)	$	(555,000	)	$	4,000		$	(1,102,000	)	$	(292,000	)	$	(1,657,000	)
Amortization of above- and below-market leases(2)	28,000			88,000			135,000			287,000			40,000			103,000			175,000			390,000
Amortization of loan and closing costs(3)	132,000			62,000			200,000			121,000			37,000			64,000			237,000			185,000
Change in deferred rent(4)	(610,000		)	(1,686,000		)	(1,314,000		)	(2,754,000		)	2,450,000			(1,896,000		)	1,136,000			(4,650,000		)
Loss in fair value of derivative financial instruments(5)	4,117,000			487,000			4,677,000			377,000
Foreign currency loss(6)	1,232,000			2,829,000			190,000			1,033,000
Adjustments for unconsolidated entities(7)	378,000			416,000			755,000			855,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(7)	(443,000		)	(419,000		)	(925,000		)	(820,000		)
Loss on extinguishment of debt(5)													2,179,000			—			2,179,000			—
Loss in fair value of derivative financial instruments(6)													1,169,000			750,000			5,846,000			1,127,000
Foreign currency loss(7)													1,464,000			619,000			1,654,000			1,652,000
Adjustments for unconsolidated entities(8)													344,000			402,000			1,099,000			1,257,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(8)													(1,110,000		)	(146,000		)	(2,035,000		)	(966,000		)
MFFO attributable to controlling interest	$	24,511,000		$	23,892,000		$	49,931,000		$	48,763,000		$	22,312,000		$	22,590,000		$	72,243,000		$	71,353,000
Weighted average common shares outstanding — basic and diluted	196,075,614			200,202,193			197,231,713			200,274,238			195,669,002			199,818,444			196,705,085			200,120,637
Net income per common share — basic and diluted	$	—		$	—		$	0.03		$	0.05
Net (loss) income per common share — basic and diluted													$	(0.09	)	$	0.02		$	(0.05	)	$	0.06
FFO attributable to controlling interest per common share — basic and diluted	$	0.10		$	0.11		$	0.24		$	0.25		$	0.08		$	0.12		$	0.32		$	0.37
MFFO attributable to controlling interest per common share — basic and diluted	$	0.13		$	0.12		$	0.25		$	0.24		$	0.11		$	0.11		$	0.37		$	0.36

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(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.

(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.

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(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 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.

(5)

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

(6)

Under GAAP, we are required to ~~record~~include changes in fair value of our derivative financial instruments ~~at fair value at each reporting period.~~in the determination of net income or loss. 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.


~~(6)~~(7)	We believe that adjusting for the change in foreign currency exchange rates provides useful information because such adjustments may not be reflective of on-going operations.


~~(7)~~(8)	Includes all adjustments to eliminate the unconsolidated entities’ share or redeemable noncontrolling interests and noncontrolling interests’ share, as applicable, of the adjustments described in notes (1) – ~~(6)~~(7) above to convert our FFO to MFFO.

Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, acquisition related expenses, depreciation and amortization, interest expense, ~~gain or loss on dispositions,~~ impairment of real estate investments, loss from unconsolidated entities, foreign currency gain or loss, other income and income tax benefit (expense). 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 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.

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

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.

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To facilitate understanding of this financial measure, the following is a reconciliation of net (loss) income, which is the most directly comparable GAAP financial measure, to NOI for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Net (loss) income	$	(155,000	)	$	682,000		$	6,703,000		$	9,107,000		$	(17,103,000	)	$	3,824,000		$	(10,400,000	)	$	12,931,000
General and administrative	6,512,000			6,622,000			13,429,000			13,010,000			7,675,000			6,900,000			21,104,000			19,910,000
Acquisition related expenses	400,000			214,000			(296,000		)	(555,000		)	4,000			(1,102,000		)	(292,000		)	(1,657,000		)
Depreciation and amortization	24,743,000			22,682,000			50,371,000			46,374,000			36,778,000			23,816,000			87,149,000			70,190,000
Interest expense	23,677,000			16,966,000			43,296,000			32,208,000			22,215,000			17,288,000			65,511,000			49,496,000
Impairment of real estate investments	—			2,542,000			—			2,542,000
Impairment of real estate investment													—			—			—			2,542,000
Loss from unconsolidated entities	493,000			1,458,000			947,000			2,535,000			766,000			1,137,000			1,713,000			3,672,000
Foreign currency loss	1,232,000			2,829,000			190,000			1,033,000			1,464,000			619,000			1,654,000			1,652,000
Other income	(246,000		)	(224,000		)	(454,000		)	(519,000		)	(1,923,000		)	(501,000		)	(2,377,000		)	(1,020,000		)
Income tax expense (benefit)	159,000			(526,000		)	310,000			(897,000		)	840,000			(44,000		)	1,150,000			(941,000		)
Net operating income	$	56,815,000		$	53,245,000		$	114,496,000		$	104,838,000		$	50,716,000		$	51,937,000		$	165,212,000		$	156,775,000

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 2018 Annual Report on Form 10-K, as filed with the SEC on March 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. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed or variable rates.

We have entered into, and in the future may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss). As of ~~June~~September 30, 2019, our interest rate cap and interest rate swaps are recorded in other assets, net and security deposits, prepaid rent and other liabilities, in our accompanying condensed consolidated balance sheets at their fair value of ~~$4,000~~$1,000 and ~~$(4,111,000)~~$(5,276,000), respectively. We do not enter into derivative transactions for speculative purposes.

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As of ~~June~~September 30, 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																							Expected Maturity Date
	2019			2020			2021			2022			2023			Thereafter			Total			Fair Value		2019			2020			2021			2022			2023			Thereafter			Total			Fair Value
Assets
Debt security held-to-maturity	$	—		$	—		$	—		$	—		$	—		$	93,433,000		$	93,433,000		$	93,349,000	$	—		$	—		$	—		$	—		$	—		$	93,433,000		$	93,433,000		$	93,369,000
Weighted average interest rate on maturing fixed-rate debt security	—		%	—		%	—		%	—		%	—		%	4.24		%	4.24		%	—		—		%	—		%	—		%	—		%	—		%	4.24		%	4.24		%	—
Liabilities
Fixed-rate debt — principal payments	$	5,937,000		$	34,594,000		$	12,257,000		$	61,186,000		$	28,208,000		$	489,393,000		$	631,575,000		$	564,228,000	$	3,131,000		$	35,535,000		$	13,258,000		$	62,227,000		$	29,291,000		$	593,354,000		$	736,796,000		$	665,921,000
Weighted average interest rate on maturing fixed-rate debt	3.75		%	5.14		%	3.68		%	4.15		%	4.15		%	3.61		%	3.77		%	—		3.76		%	5.11		%	3.70		%	4.14		%	4.14		%	3.62		%	3.76		%	—
Variable-rate debt — principal payments	$	247,216,000		$	47,615,000		$	41,567,000		$	557,000,000		$	765,000		$	—		$	894,163,000		$	894,713,000	$	17,544,000		$	47,615,000		$	22,520,000		$	517,500,000		$	240,919,000		$	1,841,000		$	847,939,000		$	849,125,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of June 30, 2019)	5.97		%	5.39		%	5.07		%	4.28		%	5.28		%	—		%	4.85		%	—
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of September 30, 2019)																								5.85		%	5.05		%	4.96		%	3.91		%	4.81		%	5.38		%	4.31		%	—

Debt Security Investment, Net

As of ~~June~~September 30, 2019, the carrying value of our debt security investment, net was ~~$71,272,000.~~$71,986,000. As we expect to hold our debt security investment to maturity and the amounts due under such debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our debt security investment, would have a significant impact on our operations. See Note 15, Fair Value Measurements, to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our investment in a held-to-maturity debt security. The weighted average effective interest rate on our outstanding debt security investment, net was 4.24% per annum as of ~~June~~September 30, 2019.

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

Mortgage loans payable were ~~$768,171,000~~$829,456,000 ($~~743,564,000,~~805,257,000, including discount/premium and deferred financing costs, net) as of ~~June~~September 30, 2019. As of ~~June~~September 30, 2019, we had 5862 fixed-rate mortgage loans payable and ~~eight~~seven variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to ~~6.94%~~6.60% per annum and a weighted average effective interest rate of ~~4.00%~~3.92%. In addition, as of ~~June~~September 30, 2019, we had ~~$757,567,000~~$755,279,000 outstanding under our lines of credit and term loans, at a weighted average interest rate of ~~4.81%~~4.19% per annum.

As of ~~June~~September 30, 2019, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps and interest rate cap, was ~~4.40%~~4.05% 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 ~~June~~September 30, 2019, we have a fixed-rate interest rate cap on one of our variable-rate mortgage loans payable and two fixed-rate interest rate swaps on one of our lines of credit and term loan; an increase in the variable interest rate thereon would have no effect on our overall annual interest expense. As of ~~June~~September 30, 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 ~~$2,607,000,~~$2,372,000, or ~~3.7%~~3.39% 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 ~~six~~nine months ended ~~June~~September 30, 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 ~~$9,000~~$15,000 for the same period.

Other Market Risk

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

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Item 4. Controls and Procedures.

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

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of ~~June~~September 30, 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 ~~June~~September 30, 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 ~~June~~September 30, 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.

There were no material changes from the risk factors previously disclosed in our 2018 Annual Report on Form 10-K, as filed with the SEC on March 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 ~~September 30,~~December 31, 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 our DRIP Offerings monthly in arrears, only from legally available funds.


	Six Months Ended June 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
Distributions paid in cash	$	30,886,000			$	29,447,000			$	46,716,000			$	44,702,000
Distributions reinvested	28,311,000				30,449,000				42,100,000				45,444,000
	$	59,197,000			$	59,896,000			$	88,816,000			$	90,146,000
Sources of distributions:
Cash flows from operations	$	53,831,000	90.9	%	$	46,690,000	78.0	%	$	88,816,000	100	%	$	76,297,000	84.6	%
Proceeds from borrowings	5,366,000		9.1		13,206,000		22.0		—		—		13,849,000		15.4
	$	59,197,000	100	%	$	59,896,000	100	%	$	88,816,000	100	%	$	90,146,000	100	%

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

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As of ~~June~~September 30, 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. 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, along with the amount of distributions reinvested pursuant the 2015 DRIP Offering and 2019 DRIP Offering, and the sources of our distributions as compared to FFO were as follows:


	Six Months Ended June 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
Distributions paid in cash	$	30,886,000			$	29,447,000			$	46,716,000			$	44,702,000
Distributions reinvested	28,311,000				30,449,000				42,100,000				45,444,000
	$	59,197,000			$	59,896,000			$	88,816,000			$	90,146,000
Sources of distributions:
FFO attributable to controlling interest	$	46,509,000	78.6	%	$	50,219,000	83.8	%	$	62,244,000	70.1	%	$	74,015,000	82.1	%
Proceeds from borrowings	12,688,000		21.4		9,677,000		16.2		26,572,000		29.9		16,131,000		17.9
	$	59,197,000	100	%	$	59,896,000	100	%	$	88,816,000	100	%	$	90,146,000	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, 2019, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share NAV of our common stock of $9.40. We are providing this estimated per share NAV to assist broker-dealers in connection with their obligations under FINRA Rule 2231, with respect to customer account statements. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the IPA in April 2013, in addition to guidance from the SEC.

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The updated estimated per share NAV was determined after consultation with our advisor and an independent third-party valuation firm, the engagement of which was approved by the audit committee of our board. FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, our independent valuation firm’s methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant.

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

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

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

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

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

the methodology used to estimate our updated per share NAV would be acceptable to FINRA or comply with reporting requirements under the Employee Retirement Income Security Act of 1974, or ERISA, the Code, other applicable law, or the applicable provisions of a retirement plan or individual retirement account, or IRA.

Further, the updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2019. The value of our shares may fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. 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, 2019.

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

We have a concentration of properties in particular geographic areas; therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio. As of ~~August~~November 14, 2019, properties located in Indiana and Ohio accounted for approximately ~~33.8%~~35.0% and ~~10.3%~~10.6%, respectively, of our total property portfolio’s annualized base rent or annualized net operating income. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

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

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

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

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

A severe cold and flu season, epidemics or any other widespread illnesses could adversely affect the occupancy of our senior housing facilities.

Our revenues and our operators’ revenues are dependent on occupancy. It is impossible to predict the severity of the cold and flu season or the occurrence of epidemics or any other widespread illnesses. The occupancy of our senior housing facilities could significantly decrease in the event of a severe cold and flu season, an epidemic or any other widespread illness. Such a decrease could affect the operating income of our senior housing facilities and the ability of our operators to make payments to us. In addition, a flu pandemic could significantly increase the cost burdens faced by our operators, including if they are required to implement quarantines for residents, and adversely affect their ability to meet their obligations to us, which would have a material adverse effect on our financial results.

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

Recent Sales of Unregistered Securities

On ~~June 12,~~July 1, 2019, we issued an aggregate of ~~7,500~~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. 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.

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Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. All share repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan, and will be repurchased at a price between 92.5% and 100% of each stockholder’s “Repurchase Amount,” as defined in our share repurchase plan, depending on the period of time their shares have been held. The number of shares that we will repurchase is 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. 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 Offerings during the immediately preceding completed fiscal quarter; provided however, that shares subject to a repurchase requested upon the death or qualifying disability of a stockholder will not be subject to this quarterly cap or to our existing cap on

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repurchases to 5.0% of the weighted average number of shares outstanding during the calendar year prior to the repurchase date. Funds for the repurchase of shares of our common stock will come from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings.

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 ~~June~~September 30, 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
April 1, 2019 to April 30, 2019 —
$ —
—
(1 )
May 1, 2019 to May 31, 2019 —
$ —
—
(1 )
June 1, 2019 to June 30, 2019 1,966,636
$ 9.48
1,966,636
(1 )
Total 1,966,636
$ 9.48
1,966,636



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, 2019 to July 31, 2019	—	$	—	—	(1	)
August 1, 2019 to August 31, 2019	—	$	—	—	(1	)
September 1, 2019 to September 30, 2019	1,855,118	$	9.45	1,855,118	(1	)
Total	1,855,118	$	9.45	1,855,118

___________


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

Item 3. Defaults Upon Senior Securities.

None.

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 ~~June~~September 30, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).



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

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

4.1	Amended and Restated Distribution Reinvestment Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 4.7 to our Registration Statement on Form S-3 (File No. 333-229427) filed January 30, 2019 and incorporated herein by reference)

10.1	~~Confirmation~~First Amended and Restated Senior Secured Credit Agreement dated as of ~~swap transaction, dated May 16,~~September 5, 2019, among Trilogy RER, LLC, and certain subsidiaries of Trilogy RER, LLC, Trilogy OpCo, LLC and Trilogy Pro Services, LLC, KeyBank National Association and the other lenders which are parties thereto from ~~Fifth Third~~time to time, CIT Bank, ~~to Griffin-American Healthcare REIT III Holdings, LP~~N.A., Regions Bank, KeyBanc Capital Markets, Inc., Regions Capital Markets, Bank of America, N.A. and The Huntington National Bank (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed ~~May 22,~~September 11, 2019 and incorporated herein by reference)

10.2	~~Confirmation~~Unconditional Guaranty of ~~swap transaction,~~Payment dated ~~May 29,~~as of September 5, 2019, by Trilogy Investors, LLC, Trilogy Healthcare Holdings, Inc., Trilogy Pro Services, LLC and Trilogy OpCo, LLC for the benefit of KeyBank National Association and the other lenders which are parties thereto from ~~Fifth Third~~time to time, CIT Bank, ~~to Griffin-American Healthcare REIT III Holdings, LP~~N.A., Regions Bank, KeyBanc Capital Markets, Inc., Regions Capital Markets, Bank of America, N.A. and The Huntington National Bank (included as Exhibit ~~10.1~~10.2 to our Current Report on Form 8-K (File No. 000-55434) filed ~~June 3,~~September 11, 2019 and incorporated herein by reference)

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

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

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

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

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema Document

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

___________



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

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SIGNATURES

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



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

~~August~~November 14, 2019	By:	/s/ JEFFREY T. HANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)

~~August~~November 14, 2019	By:	/s/ BRIAN S. PEAY
Date		Brian S. Peay
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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	Six Months Ended June 30, 2019
	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, 2018	197,557,377		$	1,975,000		$	1,765,840,000		$	(704,748,000	)	$	(2,560,000	)	$	1,060,507,000		$	158,128,000				$	1,218,635,000
Offering costs — common stock	—		—			(84,000		)	—			—			(84,000		)	—					(84,000		)
Issuance of vested and nonvested restricted common stock	7,500		—			14,000			—			—			14,000			—					14,000
Issuance of common stock under the DRIP	3,021,493		30,000			28,281,000			—			—			28,311,000			—					28,311,000
Amortization of nonvested common stock compensation	—		—			86,000			—			—			86,000			—					86,000
Stock based compensation	—		—			—			—			—			—			390,000					390,000
Repurchase of common stock	(5,850,352	)	(59,000		)	(55,076,000		)	—			—			(55,135,000		)	—					(55,135,000		)
Contributions from noncontrolling interests	—		—			—			—			—			—			3,000,000					3,000,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(3,635,000		)			(3,635,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(390,000		)			(390,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			58,000			—			—			58,000			26,000					84,000
Distributions declared ($0.30 per share)	—		—			—			(58,697,000		)	—			(58,697,000		)	—					(58,697,000		)
Net income	—		—			—			3,925,000			—			3,925,000			2,491,000			(1	)	6,416,000
Other comprehensive loss	—		—			—			—			(20,000		)	(20,000		)	—					(20,000		)
BALANCE — June 30, 2019	194,736,018		$	1,946,000		$	1,739,119,000		$	(759,520,000	)	$	(2,580,000	)	$	978,965,000		$	160,010,000				$	1,138,975,000



	2019 Real Estate Acquisitions
Building and improvements	$	11,700,000
Land	3,878,000
In-place leases	1,978,000
Total assets acquired	$	17,556,000



Lease Cost	Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost(1)	Property operating expenses and rental expenses	$	7,664,000	$	15,120,000
Finance lease cost
Amortization of leased assets	Depreciation and amortization	79,000		1,053,000
Accretion of lease liabilities	Interest expense	53,000		132,000
Total lease cost		$	7,796,000	$	16,305,000