What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-13 · 161 added, 226 removed, 288 unchanged (57% of the section changed)

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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 2020 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on March 26, 2021.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of September 30, 2020 and December 31, 2019, together with our results of operations and cash flows for the three and nine months ended September 30, 2020 and 2019.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2021 and December 31, 2020, together with our results of operations and cash flows for the three months ended March 31, 2021 and 2020.

Forward-Looking Statements

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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.

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,” “opinion,” “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 and strategies is inherently uncertain.

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the availability of financing;

the negotiation or consummation of any potential strategic transaction evaluated by our special committee of our board of directors, or our special committee;

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.

Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date on which such statements were made, and undue reliance should not be placed on such statements.

Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date on which such statements are made, and undue reliance should not be placed on such statements.

We undertake no obligation to update any such statements that may become untrue because of subsequent events.

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Overview and Background

Griffin-American Healthcare REIT IV, Inc., a Maryland corporation, was incorporated on January 23, 2015 and therefore we consider that our date of inception.

We were initially capitalized on February 6, 2015.

We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, skilled nursing facilities, senior housing and other healthcare-related facilities.

Griffin-American Healthcare REIT IV, Inc., a Maryland corporation, invests in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, skilled nursing facilities and senior housing facilities that produce current income.

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 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, 2016, and we intend to continue to qualify to be taxed as a REIT.

On February 16, 2016, we commenced our initial public offering, or our initial offering, in which we were initially offering to the public up to $3,150,000,000 in shares of our Class T common stock, consisting of up to $3,000,000,000 in shares of our Class T common stock in the primary portion of our initial offering and up to $150,000,000 in shares of our Class T common stock pursuant to our distribution reinvestment plan, as amended, or the DRIP.

Effective June 17, 2016, we reallocated certain of the unsold shares of Class T common stock being offered and began offering shares of Class I common stock, such that we were offering up to approximately $2,800,000,000 in shares of Class T common stock and $200,000,000 in shares of Class I common stock in the primary portion of our initial offering, and up to an aggregate of $150,000,000 in shares of our Class T and Class I common stock pursuant to the DRIP, aggregating up to $3,150,000,000.

On February 15, 2019, we terminated our initial offering, and as of such date, we sold 75,639,681 aggregate shares of our Class T and Class I common stock, or approximately $754,118,000, and a total of $31,021,000 in distributions were reinvested that resulted in 3,253,535 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On January 18, 2019, 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 $100,000,000 of additional shares of our common stock to be issued pursuant to the DRIP, or the 2019 DRIP Offering.

The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing.

We commenced offering shares pursuant to the 2019 DRIP Offering on March 1, 2019, following the termination of our initial offering on February 15, 2019.

As of September 30, 2020, a total of $37,290,000 in distributions were reinvested that resulted in 3,903,895 shares of our common stock being issued pursuant to the 2019 DRIP Offering.

We raised $754,118,000 through a best efforts initial public offering, or our initial offering, that commenced on February 16, 2016, and issued 75,639,681 aggregate shares of our Class T and Class I common stock.

In addition, during our initial offering, we issued 3,253,535 aggregate shares of our Class T and Class I common stock pursuant to our distribution reinvestment plan, as amended, or the DRIP, for a total of $31,021,000 in distributions reinvested.

Following the termination of our initial offering on February 15, 2019, we continued issuing shares of our common stock pursuant to the DRIP through a subsequent offering, or the 2019 DRIP Offering, which commenced on March 1, 2019.

On March 18, 2021, our board of directors, or our board, authorized the suspension of the DRIP, effective as of April 1, 2021.

As of March 31, 2021, a total of $45,577,000 in distributions were reinvested that resulted in 4,772,408 shares of our common stock being issued pursuant to the 2019 DRIP Offering.

We collectively refer to the DRIP portion of our initial offering and the 2019 DRIP Offering as our DRIP Offerings.

The COVID-19 pandemic is dramatically impacting the United States and has resulted in an aggressive worldwide effort to contain the spread of the virus.

These efforts have significantly and adversely disrupted economic markets and impacted commercial activity worldwide, including markets in which we own and/or operate properties, and the prolonged economic impact remains uncertain.

In addition, the continuously evolving nature of the COVID-19 pandemic makes it difficult to ascertain the long-term impact it will have on real estate markets and our portfolio of investments.

Considerable uncertainty still surrounds the COVID-19 pandemic and its effects on the population, as well as the effectiveness of any responses taken on a national and local level by government and public health authorities and businesses to contain and combat the outbreak and spread of the virus.

In particular, government-imposed business closures and re-opening restrictions have dramatically impacted the operations of our real estate investments and our tenants across the country, such as creating declines in resident occupancy.

Further, our senior housing facilities have also experienced dramatic increases and continue to experience increases in costs to care for residents, particularly labor costs to maintain staffing levels to care for the aged population during this crisis, costs of COVID-19 testing of employees and residents and costs to procure the volume of personal protective equipment, or PPE, and other supplies required.

We received and recognized in our accompanying condensed consolidated financial statements stimulus funds through economic relief programs of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as discussed at Note 2, Summary of Significant Accounting Policies — Government Grants, to our accompanying condensed consolidated financial statements.

We have also taken actions to strengthen our balance sheet and preserve liquidity in response to the COVID-19 pandemic risks.

Since March 2020, we have postponed non-essential capital expenditures, reduced the stockholder distribution rate and partially suspended our share repurchase plan.

We believe that the long-term stability of our portfolio will return once the virus has been controlled.

In states where lockdown orders have been lifted, the downward trends in our portfolio appear to have somewhat moderated, but we have not yet witnessed a significant rebound.

We are continuously monitoring the impact of the COVID-19 pandemic on our business, residents, tenants, operating partners, managers, portfolio of investments and on the United States and global economies.

The prolonged duration and impact of the COVID-19 pandemic has materially disrupted, and may continue to materially disrupt, our business operations and impact our financial performance.

See the “Factors Which May Influence Results of Operations,” “Results of Operations” and “Liquidity and Capital Resources” sections below for a further discussion.

On April 2, 2020, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, and after considering the uncertainties presented by the COVID-19 pandemic, unanimously approved and established an estimated per share net asset value, or NAV, of our common stock of $9.54.

We provide this estimated per share NAV to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority, or FINRA, Rule 2231 with respect to customer account statements.

The 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 December 31, 2019.

This valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, or the Practice Guideline, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC.

The valuation was calculated as of December 31, 2019, prior to the reported emergence of COVID-19 in the United States.

The impact of the COVID-19 pandemic on the value of our assets may be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

Therefore, although we intend to publish an updated estimated per share NAV on at least an annual basis, we may be required to reevaluate the estimated per share NAV sooner if the COVID-19 pandemic has a material adverse impact on our residents, tenants, operating partners, managers, portfolio of investments or us.

The estimated per share NAV of our common stock of $9.54 is within the range of estimated values, but lower than the mid-point of $9.75 provided by the independent third party valuation firm that conducted a valuation analysis of our assets, and is the same estimated per share NAV previously determined by the board on April 4, 2019 and calculated as of December 31, 2018.

See our Current Report on Form 8-K filed with the SEC on April 3, 2020 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT IV Holdings, LP, or our operating partnership.

We are externally advised by Griffin-American Healthcare REIT IV Advisor, LLC, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor.

The Advisory Agreement was effective as of February 16, 2016 and had a one-year initial term, subject to successive one-year renewals upon the mutual consent of the parties.

The Advisory Agreement was

effective as of February 16, 2016 and had a one-year initial term, subject to successive one-year renewals upon the mutual consent of the parties.

The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 11, 2021 and expires on February 16, 2022.

Our advisor uses its best efforts, subject to the oversight and review 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 uses its best efforts, subject to the oversight and review of our board, to, among other things, provide asset management, property management, acquisition, disposition and other advisory services on our behalf consistent with our investment policies and objectives.

Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary.

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however, we are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings.

In October 2020, our board established our special committee, which consists of all of our independent directors, to investigate and analyze strategic alternatives, including but not limited to, the sale of our assets, a listing of our shares on a national securities exchange, or a merger with another entity, including a merger with another unlisted entity that we expect would enhance our value.

There can be no assurance that this strategic alternative review process will result in a transaction being pursued, or if pursued, that any such transaction would ultimately be consummated.

In connection with the strategic alternative review process and in order to facilitate a strategic transaction, on March 18, 2021, our board authorized the suspension of the DRIP, effective as of April 1, 2021, until such time, if any, as our board determines to reinstate the DRIP.

As a consequence of the suspension of the DRIP, beginning with the April 2021 distributions, which were paid in May 2021, there will be no further issuances of shares pursuant to the DRIP, and stockholders who are participants in the DRIP received or will receive cash distributions instead.

In addition, on March 18, 2021, our board approved the suspension of our share repurchase plan with respect to all repurchase requests received by us after February 28, 2021, including repurchases resulting from the death or qualifying disability of stockholders, until such time, if any, as our board determines to reinstate our share repurchase plan.

For a further discussion, see our Current Report on Form 8-K filed with the SEC on March 19, 2021.

On March 18, 2021, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share net asset value, or NAV, of our common stock of $9.22 calculated as of September 30, 2020.

We provide this updated estimated per share NAV to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority, or FINRA, Rule 2231 with respect to customer account statements.

The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares of Class T and Class I common stock outstanding on a fully diluted basis.

The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs , or the Practice Guideline, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC.

On April 2, 2020, the board previously determined an estimated per share NAV of our common stock of $9.54 calculated as of December 31, 2019.

See our Current Report on Form 8-K filed with the SEC on March 19, 2021 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updated estimated per share NAV.

We currently operate through four reportable business segments:

medical office buildings, senior housing, senior housing — RIDEA and skilled nursing facilities.

As of September 30, 2020, we had completed 46 property acquisitions whereby we owned 89 properties, comprising 94 buildings, or approximately 4,863,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $1,089,071,000.

As of September 30, 2020, we also owned a 6.0% interest in a joint venture which owns a portfolio of integrated senior health campuses and ancillary businesses.

As of March 31, 2021, we owned 89 properties, comprising 94 buildings, or approximately 4,871,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $1,092,381,000.

As of March 31, 2021, we also owned a 6.0% interest in a joint venture which owns a portfolio of integrated senior health campuses and ancillary businesses.

Critical Accounting Policies

The complete listing of our Critical Accounting Policies was previously disclosed in our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021, and there have been no material changes to our Critical Accounting Policies as disclosed therein, except as included within Note 2, Summary of Significant Accounting Policies, to our accompanying condensed consolidated financial statements.

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 2020

For a discussion of our property acquisitions in 2020, see Note 3, Real Estate Investments, Net, to our accompanying condensed consolidated financial statements.

Interim Unaudited Financial Data

For a discussion of interim unaudited financial data, see Note 2, Summary of Significant Accounting Policies — Interim Unaudited Financial Data, to our accompanying condensed consolidated financial statements.

Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021.

Acquisition in 2021

For a discussion of our acquisition in 2021, See Note 3, Real Estate Investments, Net to our accompanying condensed consolidated financial statements.

Factors Which May Influence Results of Operations

Due to the ongoing COVID-19 pandemic in the United States and globally, our residents, tenants, managers and operating partners have been materially impacted.

We are not aware of any material trends or uncertainties, other than the effects of the COVID-19 pandemic discussed below, the strategic alternatives review process and any potential transaction or other corporate action resulting therefrom and other 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, disposition, management and operation of our properties.

In addition, see Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q and those Risk Factors previously disclosed in our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021.

Impact of the COVID-19 Pandemic

Due to the ongoing COVID-19 pandemic in the United States and globally, since March 2020, our residents, tenants, operating partners and managers have been materially impacted, and the prolonged economic impact remains uncertain.

The situation continues to present a meaningful challenge for us as an owner and operator of healthcare facilities, as the impact of the virus continues to result in a massive strain throughout the healthcare system.

COVID-19 is particularly dangerous among the senior population and results in heightened risk to our senior housing facilities, and we continue to work diligently to implement aggressive safety and infection control protocols at such facilities in line with the Centers for Disease Control and Prevention and Centers for Medicare and Medicaid Services guidelines to limit the exposure and spread of COVID-19.

Each type of real estate asset we own has been impacted by COVID-19 to varying degrees.

The COVID-19 pandemic has negatively impacted the businesses of our medical office tenants and their ability to pay rent on a timely basis.

In the early months of the pandemic when many of the states had implemented “stay at home” orders, in excess of 50.0% of our tenants in medical office buildings had been classified by state governments as “non-essential” and were ordered to either shut down entirely, or significantly limit hours of operations, which prevented or significantly limited our tenants from seeing patients in their offices and thereby creating unprecedented revenue pressure on such tenants.

To date, the impacts of the COVID-19 pandemic have been significant, rapidly and continuously evolving and may continue into the future, making it difficult to ascertain the long-term impact it will have on real estate markets in which we own and/or operate properties and our portfolio of investments.

COVID-19 is particularly dangerous among the senior population and results in heightened risk to our senior housing and skilled nursing facilities, and we continue to work diligently to implement and maintain aggressive protocols at such facilities as well as actively collaborate with our tenants, operating partners and managers to respond and take action to mitigate the impact of the COVID-19 pandemic.

Since March 2020, we have taken actions to strengthen our balance sheet and preserve liquidity in response to the COVID-19 pandemic, including reducing the stockholder distribution rate and suspending our share repurchase plan.

We believe that the long-term stability of our portfolio of investments will return once the virus has been controlled.

Each type of real estate asset we own has been impacted by the COVID-19 pandemic to varying degrees.

In states where lockdown orders have been lifted or modified, the downward trends in our portfolio appear to have somewhat moderated, but we have not yet witnessed a significant rebound.

In the early months of the pandemic, the businesses of our medical office tenants were negatively impacted when many of the states had implemented “stay at home” orders, thereby creating unprecedented revenue pressure on such tenants and their ability to pay rent on a timely basis.

Substantially all of our physician practices and other medical service providers of non-essential and elective services in our medical office buildings are now open.

However, the number of patients returning to such offices varies across practice types and geographic markets as people continue to delay office visits indefinitely due to the fears or uncertainties associated with COVID-19 despite the availability of services.

Additionally, while restrictions have been at least partially lifted in many states, there remains a risk of reclosures in states where infection rates continue to rise, which may put additional pressure on our operations.

For our managed senior housing — RIDEA facilities, based on preliminary information available to management as of October 31, 2020, we have experienced an approximate 14.4% decline in our resident occupancies since February 2020 largely due to a decline in move-ins of prospective residents because of shelter-in-place, re-opening and other quarantine restrictions imposed by government regulations and guidelines.

However, there remains a risk of reclosures in states where infection rates rise, or where a resurgence of COVID-19 emerges, which may put additional pressure on our operations.

For our managed senior housing — RIDEA facilities, we have experienced a significant decline in our resident occupancies largely due to a decline in move-ins of prospective residents because of shelter-in-place, re-opening and other quarantine restrictions imposed by government regulations and guidelines, as well as the resurgence of COVID-19 cases that commenced in late 2020 and continued into early 2021.

In addition, we continue to experience challenges in attracting prospective residents to our senior housing — RIDEA facilities because they are choosing to delay moving into communities until the threat posed by the virus has declined.

Our facilities have adopted phased-in approaches to facility operations depending on the market in which they operate, which range from stringent restrictions of essential visitors and frequent testing of staff and residents to allowing screened visitors and limited activities.

At the same time that our managed senior housing — RIDEA facilities are facing a reduction in revenue associated with lower resident occupancies, they are also experiencing up to a 30.0% increase in costs to care for residents, particularly increased labor costs to maintain staffing levels to care for the aged population during this crisis, costs of testing employees and residents for COVID-19 and costs to procure the volume of PPE and other supplies required to maintain health and safety measures and protocols.

Such costs have begun to moderate somewhat during the third quarter 2020.

Our leased, non-RIDEA senior housing and skilled nursing facility tenants have also experienced and may continue to experience similar pressures related to occupancy declines and expense increases, which may impact their ability to pay rent and have an adverse effect on our operations.

Therefore, our immediate focus continues to be on resident occupancy recovery and operating expense management.

The impacts of the COVID-19 pandemic have been significant, rapidly evolving and may continue into the future.

Managers of our RIDEA properties continue to evaluate their options for financial assistance such as utilizing programs within the CARES Act passed by the federal government on March 27, 2020, as well as other state and local government relief programs.

The CARES Act includes multiple opportunities for immediate cash relief in the form of grants and tax benefits.

Some of our tenants within our non-RIDEA properties have sought financial assistance from the CARES Act through programs such as the Payroll Protection Program and deferral of payroll tax payments.

However, these government assistance programs are not expected to fully offset the negative financial impact of the COVID-19 pandemic, and there can be no assurance that these programs will continue or the extent to which they will be expanded.

Therefore, the ultimate impact of such relief from the CARES Act and other enacted and future legislation and regulation, including the extent to which relief funds from such programs will provide meaningful support for lost revenue and increasing costs, is uncertain.

We expect resident occupancy recovery to be slow before we achieve pre-pandemic occupancy levels.

At the same time that our managed senior housing — RIDEA facilities are facing a reduction in revenue associated with lower resident occupancies, they experienced a dramatic increase in operating costs to care for residents, particularly increased labor costs to maintain staffing levels to care for the aged population during the crisis, costs of testing employees and residents for COVID-19 and costs to procure the volume of personal protective equipment, or PPE, and other supplies required to maintain health and safety measures and protocols.

Such operating expenses at our senior housing — RIDEA facilities significantly increased from February 2020 through the end of the third quarter of 2020, and have since declined through the end of the first quarter of 2021;

although such expenses are still higher than pre-pandemic levels.

Since March 2020, our leased, non-RIDEA senior housing and skilled nursing facility tenants have also experienced, and may continue to experience, similar pressures discussed above related to occupancy declines and expense increases, which may impact their ability to pay rent and have an adverse effect on our operations.

Therefore, our immediate focus for our senior housing and skilled nursing facilities for 2021 continues to be on resident occupancy recovery and operating expense management.

In addition, since the fourth quarter of 2020, there have been developments around the production, availability and widespread distribution and use of effective COVID-19 vaccines, which we believe will be important to a rebound in our resident occupancy levels over time.

The information in this Quarterly Report on Form 10-Q is based on data currently available to us and will likely change as the COVID-19 pandemic progresses.

We continue to closely monitor COVID-19 developments and are continuously assessing the implications to our business, residents, tenants, operating partners, managers and our portfolio of investments.

We anticipate that the government-imposed or self-imposed lockdowns and restrictions have created pent-up demand for doctors’ visits and move-ins into senior housing facilities, however, we cannot predict with reasonable certainty when such demand will return to pre-COVID-19 levels.

We anticipate that the government-imposed or self-imposed lockdowns and restrictions have created pent-up demand for doctors’ visits and move-ins into senior housing facilities;

however, we cannot predict with reasonable certainty when such demand will return to pre-COVID-19 pandemic levels.

The medical community understands COVID-19 far better today than it did at the onset of the pandemic, and we are now equipped with greater therapeutics and other treatments to mitigate its impact.

Likewise, we are optimistic about the favorable reports regarding the efficacy of vaccines.

The COVID-19 pandemic has had, and may continue to have, an adverse effect on the operations of our business, and therefore, we are unable to predict the full extent or nature of the future impact to our financial condition and results of operations at this time.

We expect the trends discussed above with respect to the impact of the COVID-19 pandemic to continue.

Thus, the lasting impact of the COVID-19 pandemic on our future results could be significant and will largely depend on future developments, including the duration of the crisis and the success of efforts to contain it, which are highly uncertain and cannot be predicted with confidence at this time.

See the “Results of Operations” and “Liquidity and Capital Resources” sections below, as well as Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q for a further discussion.

Thus, the lasting impact of the COVID-19 pandemic over the next 12 months could be significant and will largely depend on future developments, including the duration of the crisis and the success of efforts to contain or treat COVID-19, such as the widespread availability and use of effective vaccines, which cannot be predicted with confidence at this time.

See the “Results of Operations” and “Liquidity and Capital Resources” sections below for a further discussion.

Scheduled Lease Expirations

Excluding our senior housing — RIDEA facilities, as of September 30, 2020, our properties were 95.4% leased and during the remainder of 2020, 0.7% of the leased GLA is scheduled to expire.

Excluding our senior housing — RIDEA facilities, as of March 31, 2021, our properties were 95.7% leased and during the remainder of 2021, 2.3% of the leased GLA is scheduled to expire.

Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next 12 months.

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

As of September 30, 2020, our remaining weighted average lease term was 8.4 years, excluding our senior housing — RIDEA facilities.

For the three and nine months ended September 30, 2020, our senior housing — RIDEA facilities were 71.6% and 77.2% leased, respectively.

As of March 31, 2021, our remaining weighted average lease term was 8.0 years, excluding our senior housing — RIDEA facilities.

For the three months ended March 31, 2021, our senior housing — RIDEA facilities were 67.6% leased.

Substantially all of our leases with residents at such properties are for a term of one year or less.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

Comparison of the Three Months Ended March 31, 2021 and 2020

Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties.

In general, we expect amounts related to our portfolio of operating properties to increase in the future based on a full year of operations of recently acquired properties.

In general, and under a normal operating environment without the disruption of the COVID-19 pandemic, we expect amounts related to our portfolio of operating properties to increase in the future due to fixed annual rent escalations on our portfolio of properties and based on a full year of operations for recently acquired properties.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions.

Accordingly, when we acquired our first medical office building in June 2016;

senior housing facility in December 2016;

senior housing — RIDEA facility in November 2017;

and skilled nursing facility in March 2018, we added a new reporting segment at each such time.

As of September 30, 2020, we operated through four reportable business segments, with activities related to investing in medical office buildings, senior housing, senior housing — RIDEA and skilled nursing facilities.

The COVID-19 pandemic has had a significant impact on the operations of our real estate portfolio.

Although we have experienced a delay in receiving rent payments from our tenants, as of September 30, 2020, we have collec ted 100% of contractual rent from our leased, non-RIDEA senior housing and skilled nursing facility tenants.

As of March 31, 2021, we operated through four reportable business segments, with activities related to investing in medical office buildings, senior housing, senior housing — RIDEA and skilled nursing facilities.

The COVID-19 pandemic has had a significant adverse impact on the operations of our real estate portfolio.

Although we have experienced some delays in receiving rent payments from our tenants, as of March 31, 2021, we have collec ted 100% of contractual rent from our leased, non-RIDEA senior housing and skilled nursing facility tenants.

Most of our skilled nursing facilities provide behavioral health services with resident occupancies that are less impacted by either the COVID-19 pandemic or restrictions on elective surgeries than traditional skilled nursing facilities.

In addition, substantially all of the contractual rent through September 2020 fr om our medical office building tenants has been received.

However, given the significant uncertainty of the impact of the COVID-19 pandemic, we are unable to predict the impact it will have on such tenants’ continued ability to pay rent.

We received lease concession requests from some of our medical office building tenants primarily during the second quarter of 2020 that resulted in an insignificant number of concessions granted, such as in the form of rent abatements, in conjunction with a lease term extension for up to five years, or rent payment deferrals requiring repayment within one year.

Such lease concessions granted do not have a material impact to our consolidated financial statements.

No contractual rent for our medical office building tenants was forgiven.

Changes in our consolidated operating results are primarily due to owning 94 buildings as of September 30, 2020, as compared to owning 83 buildings as of September 30, 2019.

In addition, there are changes in our operating results by reporting segment due to transitioning the operations of the two senior housing facilities within Lafayette Assisted Living Portfolio to a RIDEA structure in February 2019 and the five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

As of September 30, 2020 and 2019, we owned the following types of properties:

September 30,

In addition, substantially all of the contractual rent through March 2021 from our medical office building tenants has been received.

However, given the significant ongoing uncertainty of the impact of the COVID-19 pandemic over the next 12 months, we are unable to predict the impact it will have on such tenants’ continued ability to pay rent.

Except where otherwise noted, the changes in our condensed consolidated results of operations for 2021 as compared to 2020 are primarily due to the disruption to our normal operations as a result of the COVID-19 pandemic.

In addition, there are changes in our operating results by reporting segment due to transitioning the operations of the five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

As of March 31, 2021 and 2020, we owned the following types of properties:

Buildings Aggregate

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Total/weighted average(2) 94 $ 1,092,381,000 95.7 % 94 $ 1,087,588,000 95.4 %

94 $ 1,089,071,000 95.4 % 83 $ 981,689,000 95.4 %

(1) Includes a $1,483,000 earn-out paid in June 2020 in connection with our property acquisition of Overland Park MOB in August 2019.

See Note 3, Real Estate Investments, Net, to our accompanying condensed consolidated financial statements for a further discussion of such earn-out.

(2) For the three months ended September 30, 2020 and 2019, the leased percentage for the resident units of our senior housing — RIDEA facilities was 71.6% and 84.2%, respectively, and for the nine months ended September 30, 2020 and 2019, the leased percentage for the resident units of our senior housing — RIDEA facilities was 77.2% and 82.8%, respectively, based on daily average occupancy of licensed beds/units.

(1) For the three months ended March 31, 2021 and 2020, the leased percentage for the resident units of our senior housing — RIDEA facilities was 67.6% and 81.7%, respectively, based on daily average occupancy of licensed beds/units.

(2) Leased percentage excludes our senior housing — RIDEA facilities.

Revenues and Grant Income

Our primary sources of revenue include rent and resident fees and services from our properties.

Our primary sources of revenue include rent generated by our leased, non – RIDEA properties, and resident fees and services revenue from our RIDEA properties.

The amount of revenue 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 market rates.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

Three Months Ended March 31,

Real Estate Revenue

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Total real estate revenue 21,946,000 21,463,000

Resident Fees and Services

Resident Fees and Services Revenue

Senior housing — RIDEA 15,895,000 16,081,000

Total resident fees and services 15,895,000 16,081,000

Senior housing — RIDEA 864,000 — 864,000 —

Total grant income 864,000 — 864,000 —

Total revenues and grant income $ 41,331,000 $ 31,118,000 $ 117,551,000 $ 87,333,000

For the three months ended September 30, 2020 and 2019, real estate revenue was primarily comprised of base rent of $15,847,000 and $14,240,000, respectively, and expense recoveries of $4,575,000 and $3,701,000, respectively.

For the nine months ended September 30, 2020 and 2019, real estate revenue was primarily comprised of base rent of $47,544,000 and $40,696,000, respectively, and expense recoveries of $13,697,000 and $10,372,000, respectively.

For the three and nine months ended September 30, 2020 and 2019, resident fees and services consisted of rental fees related to resident leases and extended health care fees.

The increase in resident fees and services for the three and nine months ended September 30, 2020, compared to the corresponding prior period, is primarily due to the acquisition of seven senior housing — RIDEA facilities subsequent to September 30, 2019 and the transition of five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

For the three and nine months ended September 30, 2020, we recognized $864,000 of grant income at our senior housing — RIDEA facilities related to government grants through CARES Act economic stimulus programs.

See Note 2, Summary of Significant Accounting Policies — Government Grants, to our accompanying condensed consolidated financial statements for a further discussion.

Total revenues $ 37,841,000 $ 37,544,000

For the three months ended March 31, 2021 and 2020, real estate revenue was primarily comprised of base rent of $16,081,000 and $15,860,000, respectively, and expense recoveries of $4,777,000 and $4,422,000, respectively.

For the three months ended March 31, 2021 and 2020, resident fees and services consisted of rental fees related to resident leases and extended health care fees.

Rental Expenses and Property Operating Expenses

Rental expenses and rental expenses as a percentage of real estate revenue, as well as property operating expenses and property operating expenses as a percentage of resident fees and services and grant income, by reportable segment consisted of the following for the periods then ended:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Rental expenses and rental expenses as a percentage of real estate revenue, as well as property operating expenses and property operating expenses as a percentage of resident fees and services revenue, by reportable segment consisted of the following for the periods then ended:

Three Months Ended March 31,

Rental Expenses

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Total property operating expenses $ 15,194,000 95.6 % $ 13,017,000 80.9 %

For the three months ended September 30, 2020 and 2019, property operating expenses primarily consisted of administration and benefits expense of $8,634,000 and $5,359,000, respectively, and for the nine months ended September 30, 2020 and 2019, property operating expenses primarily consisted of administration and benefits expense of $23,683,000 and $15,313,000, respectively.

The increase in property operating expenses for the three and nine months ended September 30, 2020, compared to the corresponding prior year period, is primarily due to the acquisition of seven senior housing — RIDEA facilities subsequent to September 30, 2019 and the transition of five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

Overall, property operating expenses have also significantly increased due to labor costs, the single largest expense line item for skilled nursing and senior housing facilities, as well as the costs of COVID-19 testing of employees and residents and the costs of PPE and other supplies required as a result of the COVID-19 pandemic.

For the three months ended March 31, 2021 and 2020, property operating expenses primarily consisted of administration and benefits expense of $11,448,000 and $7,152,000, respectively.

The increase in property operating expenses for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, is primarily due to the transition of five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

Overall, property operating expenses have also significantly increased in 2021, compared to the three months ended March 31, 2020, due to labor costs, the single largest expense line item for senior housing — RIDEA facilities, as well as the costs of COVID-19 testing of employees and residents and the costs of PPE and other supplies required as a result of the COVID-19 pandemic.

Senior housing — RIDEA facilities typically have a higher percentage of direct operating expenses to revenue than medical office buildings, skilled nursing facilities and leased, non – RIDEA senior housing facilities due to the nature of RIDEA facilities where we conduct day-to-day operations.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Asset management and property management oversight fees — affiliates

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124,000 134,000

Restricted stock compensation

73,000 72,000 171,000 164,000

Directors’ and officers’ liability insurance

76,000 65,000

Board of directors fees 64,000 60,000 206,000 194,000

Franchise taxes

72,000 40,000

Bad debt expense

Board of directors fees 69,000 68,000

Restricted stock compensation

43,000 43,000

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$ 3,747,000 $ 4,448,000

The decrease in general and administrative expenses for the three months ended September 30, 2020, compared to the corresponding prior year period, is primarily due to the decrease in professional and legal fees and a decrease in bad debt expense for our accounts receivable as a result of a change in lease accounting guidance in 2019.

Such decreases in general and administrative expenses were partially offset by the purchase of additional properties in 2019 and 2020 and thus, incurring higher asset management and property management oversight fees to our advisor or its affiliates.

The increase in general and

administrative expenses for the nine months ended September 30, 2020, compared to the corresponding prior year period, is primarily due to the purchase of additional properties in 2019 and 2020 and thus, incurring higher asset management and property management oversight fees to our advisor or its affiliates.

Such increases in general and administrative expenses were partially offset by a decrease in bad debt expense for our accounts receivable as a result of a change in lease accounting guidance in 2019.

The decrease in general and administrative expenses for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, is primarily due to a decrease in professional and legal fees from transitioning the operations of the five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020.

Business Acquisition Expenses

For the three months ended March 31, 2021 and 2020, business acquisition expenses were $314,000 and $9,000, respectively.

The increase in such expenses incurred for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, was primarily due to $569,000 in third-party advisory costs and fees to our special committee related to the strategic alternatives review process.

Such increase was partially offset by the recovery of costs of $400,000 during the

three months ended March 31, 2021 that were incurred in prior periods in the pursuit of a portfolio of properties that did not result in an acquisition.

Depreciation and Amortization

For the three months ended September 30, 2020 and 2019, depreciation and amortization was $12,669,000 and $9,552,000, respectively, and consisted primarily of depreciation on our operating properties of $7,966,000 and $6,806,000, respectively, and amortization on our identified intangible assets of $4,619,000 and $2,717,000, respectively.

For the nine months ended September 30, 2020 and 2019, depreciation and amortization was $37,919,000 and $35,561,000, respectively, and consisted primarily of depreciation on our operating properties of $23,698,000 and $20,256,000, respectively, and amortization on our identified intangible assets of $14,032,000 and $15,224,000, respectively.

Included during the nine months ended September 30, 2019 is $6,226,000 of amortization expense and $1,013,000 of depreciation expense related to the write-off of lease commissions and tenant improvements, respectively, in connection with the termination of a management services agreement with an operator in February 2019.

For the three months ended March 31, 2021 and 2020, depreciation and amortization was $12,402,000 and $12,530,000, respectively, and consisted primarily of depreciation on our operating properties of $7,914,000 and $7,839,000, respectively, and amortization on our identified intangible assets of $4,382,000 and $4,646,000, respectively.

Interest Expense

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Interest expense:

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Amortization of debt discount/premium 12,000 12,000

$ 3,389,000 $ 4,542,000 $ 17,425,000 $ 16,933,000

The decrease in interest expense for the three months ended September 30, 2020, compared to the corresponding prior year period, is primarily related to the gain in fair value recognized on our derivative financial instruments that we entered into in February 2019 and August 2020, compared to a loss in the prior year period, as well as a decline in interest rates on our line of credit and term loans, partially offset by an increase in debt balances on our line of credit and term loans.

The increase in interest expense for the nine months ended September 30, 2020, compared to the corresponding prior year period, is primarily related to an increase in debt balances on our line of credit and term loans, partially offset by the decrease in loss in fair value recognized on our derivative financial instruments that we entered into in February 2019 and August 2020, the January 2020 payoff of one mortgage loan payable with a principal balance of $7,738,000 and a decline in interest rates on our line of credit and term loans.

Total $ 3,271,000 $ 9,915,000

The decrease in interest expense for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, is primarily related to a change to a gain in fair value recognized on our derivative financial instruments from a loss in fair value recognized on our derivative financial instruments, respectively, as such instruments approach maturity in November 2021 and a decline in interest rates on our line of credit and term loans.

See Note 6, Mortgage Loans Payable, Net, Note 7, Line of Credit and Term Loans and Note 8, Derivative Financial Instruments, to our accompanying condensed consolidated financial statements, for a further discussion.

Impairment of Real Estate Investments

For both the three and nine months ended September 30, 2020, we recognized an aggregate impairment charge of $3,064,000 on two senior housing facilities within Northern California Senior Housing Portfolio.

The remaining carrying values of such facilities were then reclassified to properties held for sale.

See Note 3, Real Estate Investments, Net, to our accompanying condensed consolidated financial statements for a further discussion.

No impairment charges on real estate investments were recognized for both the three and nine months ended September 30, 2019.

Liquidity and Capital Resources

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In the normal course of business, our principal demands for funds are for payment of operating expenses, capital improvement expenditures, interest on our indebtedness, distributions to our stockholders and repurchases of our common stock.

We estimate that we will require approximately $2,760,000 to pay interest on our outstanding indebtedness for the remainder of 2020, based on interest rates in effect as of September 30, 2020, and that we will require $151,000 to pay principal on our outstanding indebtedness for the remainder of 2020.

We estimate that we will require approximately $7,282,000 to pay interest on our outstanding indebtedness for the remainder of 2021, based on interest rates in effect as of March 31, 2021, and that we will require $481,869,000 to pay principal on our outstanding indebtedness for the remainder of 2021.

Such principal on our outstanding indebtedness includes $481,400,000 of outstanding principal as of March 31, 2021 on our line of credit and term loans that are scheduled to mature on November 19, 2021;

however, we have the ability and intend to pursue a new credit facility or alternatively satisfy certain conditions pursuant to the related credit agreement and pay the required fee in order to exercise our option to extend the maturity date for one year.

We also require resources to make certain payments to our advisor and its affiliates.

See Note 13, 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.

See Note 13, Related Party Transactions, to our accompanying condensed consolidated financial statements, and Note 13, Related Party Transactions of our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021, for a summary of our payments to our advisor and its affiliates.

Generally, cash needs for such items will be met primarily from operations or borrowings, as needed.

Our total capacity to pay operating expenses, capital improvement expenditures, interest, distributions and repurchases is a function of our current cash position, our borrowing capacity on our line of credit, as well as any future indebtedness that we may incur.

Due to the impact the COVID-19 pandemic has had on the United States and globally, and the uncertainty of the severity and duration of the COVID-19 pandemic and its effects, beginning in March 2020, our board decided to take steps to protect our capital and maximize our liquidity in an effort to strengthen our long-term financial prospects by decreasing our distributions to stockholders and partially suspending our share repurchase plan.

Consequently, our board approved a daily distribution rate for April 2020 through November 2020 equal to $0.001095890 per share of our Class T and Class I common stock, which is equal to an annualized distribution rate of $0.40 per share, a decrease from the annualized rate of $0.60 per share previously paid by us.

See the “Distributions” section below for a fur ther discussion.

In addition, on March 31, 2020, our board suspended our share repurchase plan with respect to all repurchase requests other than repurchases resulting from the death or qualifying disability of stockholders, beginning with share repurchase requests submitted for repurchase during the second quarter of 2020.

Our board shall determine if and when it is in the best interest of our company and stockholders to reinstate our share repurchase plan for additional stockholders.

As of September 30, 2020, our cash on hand was $22,690,000 and we had $50,500,000 available on our line of credit.

Consequently, our board approved a reduced daily distribution rate for April 2020 through April 2021 equal to $0.001095890 per share of our Class T and Class I common stock, which is equal to an annualized distribution rate of $0.40 per share, a decrease from the annualized rate of $0.60 per share previously paid by us.

See the “Distributions” section below for a further discussion.

second quarter of 2020.

Furthermore, in connection with our special committee’s strategic alternative review process and in order to facilitate a strategic transaction, on March 18, 2021, our board authorized the suspension of the DRIP, effective as of April 1, 2021, and also approved the suspension of our share repurchase plan with respect to all repurchase requests received by us after February 28, 2021, including repurchases resulting from the death or qualifying disability of stockholders.

Our board shall determine if and when it is in the best interest of our company and stockholders to reinstate our DRIP or share repurchase plan.

As of March 31, 2021, our cash on hand was $19,167,000 and we had $48,600,000 available on our line of credit.

We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months.

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The capital plan also sets forth the anticipated sources of the necessary capital, which may include operating cash generated by the investment, capital reserves, a line of credit or other loan established with respect to the investment, other borrowings or additional equity investments from us or joint venture partners.

As of September 30, 2020, we had $413,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.

The capital plan for each investment is adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

In light of the COVID-19 pandemic and to further preserve cash, since March 2020, we suspended all non-essential, discretionary expenditures for capital improvements that were anticipated during 2020 throughout our portfolio.

In particular, we suspended capital expenditures that are not directly associated with the maintenance or expansion of tenant occupancy and the enhancement of net operating income, or NOI.

The duration of our suspension of capital expenditures is uncertain and an update to the actual amounts forecasted to be expended for the remainder of the year cannot be estimated at this time.

Based on the budget for the properties we own as of March 31, 2021, we estimate that our discretionary expenditures for capital and tenant improvements could require up to $8,294,000 for the remaining nine months of 2021.

As of March 31, 2021, we had $492,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.

Other Liquidity Needs

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The following table sets forth changes in cash flows:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash, cash equivalents and restricted cash — beginning of period $ 18,125,000 $ 15,846,000

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(4,273,000) (68,297,000)

Net cash provided by financing activities

52,368,000 133,376,000

Net cash (used in) provided by financing activities (2,043,000) 63,522,000

Cash, cash equivalents and restricted cash — end of period $ 19,902,000 $ 20,864,000

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Operating Activities

For the nine months ended September 30, 2020 and 2019, cash flows provided by operating activities primarily related to the cash flows provided by our property operations and $864,000 of grant income, offset by payments of general and administrative expenses.

For the three months ended March 31, 2021 and 2020, cash flows provided by operating activities primarily related to the cash flows provided by our property operations, offset by payments of general and administrative expenses and business acquisition expenses.

See the “Results of Operations” section above for a further discussion.

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Investing Activities

For the nine months ended September 30, 2020, cash flows used in investing activities related to our property acquisitions in the amount of $68,032,000 and the payment of $6,729,000 for capital expenditures.

For the nine months ended September 30, 2019, cash flows used in investing activities related primarily to our property acquisitions in the amount of $153,923,000 and the payment of $4,388,000 for capital expenditures.

We anticipate that cash flows used in investing activities will primarily be affected by the timing of capital expenditures, and generally will decrease as compared to prior years as we have completed the acquisition phase of our real estate investment strategy.

For the three months ended March 31, 2021 and 2020, cash flows used in investing activities related to our property acquisitions in the amount of $3,188,000 and $65,531,000, respectively, and the payment of $1,085,000 and $2,766,000, respectively, for capital expenditures.

We anticipate that cash flows used in investing activities will primarily be affected by the timing of capital expenditures, and generally will decrease as compared to prior years as we have substantially completed the acquisition phase of our real estate investment strategy.

Financing Activities

For the nine months ended September 30, 2020, cash flows provided by financing activities related primarily to net borrowings on our line of credit of $82,700,000, partially offset by $13,932,000 in distributions to our common stockholders, the January 2020 payoff of one mortgage loan payable with a principal balance of $7,738,000 and share repurchases of $5,349,000.

For the nine months ended September 30, 2019, cash flows provided by financing activities related primarily to funds raised from investors in our initial offering in the amount of $90,438,000 as well as net borrowings on our line of credit of $82,500,000, partially offset by the payment of offering costs of $17,457,000 in connection with our initial offering and 2019 DRIP Offering, $15,446,000 in distributions to our common stockholders and $6,192,000 in share repurchases.

Overall, we anticipate cash flows from financing activities to decrease in the future since we terminated our initial offering in February 2019.

For the three months ended March 31, 2021, cash flows used in financing activities related primarily to $3,926,000 in distributions to our common stockholders, the payment of offering costs of $1,420,000 in connection with our initial offering

and share repurchases of $714,000, partially offset by borrowings on our line of credit of $4,500,000.

For the three months ended March 31, 2020, cash flows provided by financing activities related primarily to net borrowings on our line of credit of $76,300,000, partially offset by the January 2020 payoff of one mortgage loan payable with a principal balance of $7,738,000 and $5,561,000 in distributions to our common stockholders.

The decrease in distributions paid in 2021 compared to 2020 was primarily related to actions taken by our board to protect our capital and maximize our liquidity in response to the impact of the COVID-19 pandemic, such as the decrease in our daily distribution rate approved by our board in March 2020.

See the “Distributions” section below for a further discussion.

Overall, we anticipate cash flows from financing activities to decrease in the future.

Distributions

Our board authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on May 1, 2016 and ending on March 31, 2020.

The daily distributions were calculated based on 365 days in the calendar year and were equal to $0.001643836 per share of our Class T and Class I common stock, which was equal to an annualized distribution of $0.60 per share.

Prior to March 31, 2020, our board authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on May 1, 2016 and ending on March 31, 2020.

These distributions were aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to our DRIP Offerings, only from legally available funds.

Due to the impact the COVID-19 pandemic has had on the United States and globally, and the uncertainty of the severity and duration of the COVID-19 pandemic and its effects, our board decided to take steps to protect our capital and maximize our liquidity in an effort to strengthen our long-term financial prospects by decreasing our distributions to stockholders.

Consequently, our board authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on April 1, 2020 and ending on November 30, 2020, which was or will be calculated based on 365 days in the calendar year and is equal to $0.001095890 per share of our Class T and Class I common stock.

In response to the COVID-19 pandemic and its effects to our business and operations, at the end of the first quarter of 2020 our board decided to take steps to protect our capital and maximize our liquidity in an effort to strengthen our long-term financial prospects by reducing our distribution payments to stockholders.

Consequently, our board authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on April 1, 2020 and ending on May 31, 2021, which was or will be calculated based on 365 days in the calendar year and is equal to $0.001095890 per share of our Class T and Class I common stock.

Such daily distribution is equal to an annualized distribution rate of $0.40 per share.

The distributions were or will be aggregated and paid in cash or shares of our common stock pursuant to the DRIP, on a monthly basis, in arrears, only from legally available funds.

As discussed above, in connection with our special committee’s strategic alternative review process, on March 18, 2021, our board authorized the suspension of the DRIP, effective as of April 1, 2021, until such time, if any, as our board determines to reinstate the DRIP.

As a result, beginning with the April 2021 distributions, which were paid in May 2021, there will be no further issuances of shares pursuant to the DRIP, and stockholders who are participants in the DRIP received or will receive cash distributions instead.

The amount of distributions paid to our stockholders is determined 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:

We have not established any limit on the amount of net offering 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 distributions paid for the nine months ended September 30, 2020 and 2019, along with the amount of distributions reinvested pursuant to our DRIP Offerings and the sources of distributions as compared to cash flows from operations were as follows:

Nine Months Ended September 30,

The distributions paid for the three months ended March 31, 2021 and 2020, along with the amount of distributions reinvested pursuant to our DRIP Offerings and the sources of distributions as compared to cash flows from operations were as follows:

Three Months Ended March 31,

Distributions paid in cash $ 3,926,000 $ 5,561,000

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Cash flows from operations $ 8,032,000 100 % $ 9,793,000 81.6 %

Offering proceeds — — 5,396,000 15.6

Proceeds from borrowings — — 2,205,000 18.4

$ 8,032,000 100 % $ 11,998,000 100 %

As of September 30, 2020, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from net offering proceeds and borrowings.

As of March 31, 2021, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from net offering proceeds and borrowings.

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

As of September 30, 2020, we had an amount payable of $956,000 to our advisor or its affiliates primarily for asset management fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.

See Note 13, Related Party Transactions — Operational Stage, to our accompanying condensed consolidated financial statements, for a further discussion.

The distributions paid for the nine months ended September 30, 2020 and 2019, along with the amount of distributions reinvested pursuant to our DRIP Offerings and the sources of our distributions as compared to funds from operations attributable to controlling interest, or FFO, were as follows:

Nine Months Ended September 30,

The distributions paid for the three months ended March 31, 2021 and 2020, along with the amount of distributions reinvested pursuant to our DRIP Offerings and the sources of our distributions as compared to funds from operations attributable to controlling interest, or FFO, were as follows:

Three Months Ended March 31,

Distributions paid in cash $ 3,926,000 $ 5,561,000

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Proceeds from borrowings — — 6,582,000 54.9

Offering proceeds — — 13,053,000 37.8

$ 8,032,000 100 % $ 11,998,000 100 %

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Our policies do not limit the amount we may borrow with respect to any individual investment.

As of September 30, 2020, our aggregate borrowings were 39.3% of the combined market value of all of our real estate investments.

As of March 31, 2021, our aggregate borrowings were 39.7% of the combined market value of all of our real estate 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.

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Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.

As of November 13, 2020 and September 30, 2020, our leverage did not exceed 300% of the value of our net assets.

As of May 14, 2021 and March 31, 2021, our leverage did not exceed 300% o f the value of our net assets.

Mortgage Loans Payable, Net

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In order to maintain our qualification as a REIT for federal income tax purposes, we are required to distribute to our stockholders a minimum of 90.0% of our annual taxable income, excluding net capital gains.

Such distributions are required to be paid at least 20.0% in cash and 80.0% in stock.

In response to the COVID-19 pandemic, the Internal Revenue Service, or IRS, temporarily reduced the cash distribution requirement to a minimum of 10.0%, which is applicable with respect to the aggregate distributions declared on or after April 1, 2020 until December 31, 2020.

Existin g Internal Revenue Service, or IRS, guidance includes a safe harbor pursuant to which publicly offered REITs ca n satisfy the distribution requirement by distributing a combination of cash and stock to stockholders.

In general, to qualify under the safe harbor, each stockholder must elect to receive either cash or stock, and the aggregate cash component of the distribution to stockholders must represent at least 20.0% of the total distribution .

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.

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A significant liquidity need is the payment of principal and interest on our outstanding indebtedness.

As of September 30, 2020, we had $18,933,000 ($17,974,000, net of discount/premium and deferred financing costs) of fixed-rate mortgage loans payable outstanding secured by our properties.

As of September 30, 2020, we had $479,500,000 outstanding and $50,500,000 remained available under our line of credit.

As of March 31, 2021, we had $18,628,000 ($17,708,000, net of discount/premium and deferred financing costs) of fixed-rate mortgage loans payable outstanding secured by our properties.

As of March 31, 2021, we had $481,400,000 outstanding and $48,600,000 remained available under our line of credit.

See Note 6, Mortgage Loans Payable, Net, and Note 7, Line 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 reporting requirements and covenants, such as leverage ratios, net worth ratios, debt service coverage ratios and fixed charge coverage ratios.

As of September 30, 2020, we were in compliance with all such covenants and requirements on our mortgage loans payable and our line of credit and term loans.

As of September 30, 2020, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 3.37% per annum.

As of March 31, 2021, we were in compliance with all such covenants and requirements on our mortgage loans payable and our line of credit and term loans.

As of March 31, 2021, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 3.35% per annum.

Contractual Obligations

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(ii) interest payments on our mortgage loans payable and our line of credit and term loans;

and (iii) ground lease obligations as of September 30, 2020:

and (iii) ground lease obligations as of March 31, 2021:

Payments Due by Period

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481,400,000 — — — 481,400,000

Interest payments — variable-rate debt (based on rates in effect as of September 30, 2020)

2,574,000 9,474,000 — — 12,048,000

Interest payments — variable-rate debt (based on rates in effect as of March 31, 2021) 6,737,000 — — — 6,737,000

Ground lease obligations 417,000 1,056,000 1,072,000 46,565,000 49,110,000

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Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

During the nine months ended September 30, 2020 and 2019, 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.

As of March 31, 2021, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

During the three months ended March 31, 2021 and 2020, 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 tenant 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.

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Related Party Transactions

For a discussion of related party transactions, see Note 13, Related Party Transactions, to our accompanying condensed consolidated financial statements.

For a summary of related party transactions, see Note 13, Related Party Transactions, to our accompanying condensed consolidated financial statements and Note 13, Related Party Transactions of our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021.

Funds from Operations and Modified Funds from Operations

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Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our initial offering stage has been completed and properties have been acquired, as it excludes expensed acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the Practice Guideline issued by the IPA in November 2010.

We define MFFO, a non-GAAP measure, consistent with the Practice Guideline issued by the IPA.

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;

expensed acquisition fees and costs;

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);

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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.

Our MFFO calculation complies with the IPA’s Practice Guideline described above.

In calculating MFFO, we exclude acquisition related expenses, amortization of above- and below-market leases, change in deferred rent, fair value adjustments of derivative financial instruments and the adjustments of such items related to our joint venture investment in an unconsolidated entity and noncontrolling interests.

The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the periods presented in the table below.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations.

We view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

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

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter.

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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.

For both the three and nine months ended September 30, 2020, we recognized government grants through economic stimulus programs of the CARES Act as grant income and within income or loss from an unconsolidated entity.

Such amounts were established for eligible healthcare providers to preserve liquidity in response to the COVID-19 pandemic.

See the “Results of Operations” section above for a further discussion.

The government grants helped mitigate some of the negative impact that the COVID-19 pandemic had on our financial condition and results of operations.

Without such relief proceeds, the COVID-19 pandemic impact would have had a material adverse impact to our FFO and MFFO.

For the three and nine months ended September 30, 2020, FFO would have been approximatel y $10,662,000 and $26,563,000, respectively, excluding government grants recognized.

For the three and nine months ended September 30, 2020, MFFO would have been approximately $8,200,000 and $26,028,000, respectively, excluding government grants recognized.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net loss $ (4,008,000) $ (7,933,000)

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Depreciation and amortization related to real estate — unconsolidated entity 945,000 882,000

Impairment of real estate investments — consolidated properties 3,064,000 — 3,064,000 —

Impairments and gain on disposition of real estate investments, net — unconsolidated entity 99,000 — 99,000 —

Net loss attributable to noncontrolling interests 264,000 167,000

Depreciation, amortization and impairments —noncontrolling interests (250,000) (23,000) (729,000) (89,000)

Depreciation and amortization — noncontrolling interests (249,000) (230,000)

FFO attributable to controlling interest $ 9,354,000 $ 5,416,000

Acquisition related expenses(1) $ 57,000 $ 74,000 $ 74,000 $ 1,492,000

Business acquisition expenses(1) $ 314,000 $ 9,000

Amortization of above- and below-market leases(2) 40,000 18,000

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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.

By excluding business acquisition expenses that have been deducted as expenses in the determination of GAAP net income or loss, 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.

Business acquisition 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.

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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.

This may result in income or expense recognition that is significantly different than the underlying contract terms.

By adjusting for such amounts, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with management’s analysis of operating performance.

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Net Operating Income

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

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, business acquisition expenses, depreciation and amortization, interest expense, income or loss from unconsolidated entity and other income.

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.

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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.

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 business acquisition expenses.

We believe that NOI is an appropriate supplemental performance measure to reflect the performance of our operating assets because NOI excludes certain items that are not associated with the operations of the properties.

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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.

For both the three and nine months ended September 30, 2020, we recognized government grants through economic stimulus programs of the CARES Act as grant income.

The government grants helped mitigate some of the negative impact that the COVID-19 pandemic had on our financial condition.

Without such relief proceeds, the negative impact of the COVID-19 pandemic would have had a material adverse impact to our NOI.

For the three and nine months ended September 30, 2020, NOI would have been approximately $17,165,000 and $54,108,000, respectively, excluding government grants recognized.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net loss $ (4,008,000) $ (7,933,000)

1 unchanged sentence

3,747,000 4,448,000

Acquisition related expenses 57,000 74,000 74,000 1,492,000

Business acquisition expenses 314,000 9,000

Depreciation and amortization 12,402,000 12,530,000

Interest expense 3,271,000 9,915,000

Impairment of real estate investments 3,064,000 — 3,064,000 —

Loss (income) from unconsolidated entity 904,000 (255,000)

Other income (7,000) (9,000)

Income tax (benefit) expense (39,000) 7,000 — 17,000

Net operating income $ 16,623,000 $ 18,705,000

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis