What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-05-14 · 174 added, 117 removed, 332 unchanged (47% of the section changed)

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and its subsidiaries, including Griffin-American Healthcare REIT IV Holdings, LP, except where otherwise noted.

Capitalized terms related to a proposed merger with Griffin-American Healthcare REIT III, Inc., or GAHR III, are defined and further discussed below in the “Factors Which May Influence Results of Operations — Proposed Merger with GAHR III” section.

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 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.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of June 30, 2021 and December 31, 2020, together with our results of operations for the three and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020.

Forward-Looking Statements

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changes in interest rates;

the risk that the Merger will not be consummated within the expected time period or at all;

the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

the inability of GAHR III or us to obtain the approval of the Merger from its or our stockholders or the failure to satisfy the other conditions to completion of the Merger;

GAHR III’s inability to consummate the AHI Acquisition, as defined in the “Factors Which May Influence Results of Operations — Proposed Merger with GAHR III” section below;

risks related to disruption of management’s attention from the ongoing business operations due to the Merger;

uncertainty from the expected discontinuance of the London Inter-bank Offered Rate, or LIBOR, and the transition to any other interest rate benchmark;

competition in the real estate industry;

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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.

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Overview and Background

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.

Griffin-American Healthcare REIT IV, Inc., a Maryland corporation, invests in a diversified portfolio of healthcare 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).

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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.

On March 18, 2021, in connection with our special committee’s strategic alternative review process, our board of directors, or our board, authorized the suspension of the DRIP, effective as of April 1, 2021.

As of June 30, 2021, a total of $46,970,000 in distributions were reinvested that resulted in 4,923,550 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.

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.

We are externally advised by Griffin-American Healthcare REIT IV Advisor, LLC, or our advisor, pursuant to an advisory agreement, as amended, or the Advisory Agreement, between us, our operating partnership 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 last renewed pursuant to the mutual consent of the parties on February 11, 2021 and expires on February 16, 2022.

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Our advisor is 75.0% owned and managed by wholly owned subsidiaries of American Healthcare Investors and 25.0% owned by a wholly owned subsidiary of Griffin Capital.

American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony Capital, Inc.

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, or our dealer manager, Colony Capital or Mr.

American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Digital Bridge Group, Inc.

DBRG) (formerly known as Colony Capital, Inc.), or Digital Bridge, and 7.8% owned by James F.

Flaherty III, a former partner of Colony Capital, Inc.

We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, or our dealer manager, Digital Bridge or Mr.

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.

We currently operate through four reportable business segments:

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

As of June 30, 2021, we owned 87 properties, comprising 92 buildings, or approximately 4,799,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $1,080,381,000.

As of June 30, 2021, we also owned a 6.0% interest in a joint venture which owns a portfolio of integrated senior health campuses and ancillary businesses.

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.

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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 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

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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.

Acquisition and Disposition in 2021

For a discussion of our acquisition and disposition in 2021, 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 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.

Other than a proposed merger with GAHR III and the effects of the COVID-19 pandemic discussed below, as well as other national economic conditions affecting real estate generally, we are not aware of any material trends or uncertainties 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

Proposed Merger with GAHR III

In October 2020, our board established a special committee of our board, or 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.

On June 23, 2021, we, our operating partnership, our wholly owned subsidiary, Continental Merger Sub, LLC, or merger sub, and GAHR III, and its subsidiary Griffin-American Healthcare REIT III Holdings, LP, or GAHR III operating partnership, entered into an Agreement and Plan of Merger, or the Merger Agreement.

Subject to the terms and conditions of the Merger Agreement, (i) GAHR III will be merged with and into merger sub, with merger sub being the surviving company, or the REIT Merger, and (ii) our operating partnership will be merged with and into GAHR III operating partnership, with GAHR III operating partnership being the surviving partnership and being renamed “American Healthcare REIT Holdings, LP”, or the Partnership Merger, and, together with the REIT Merger, the Merger.

At the effective time of the REIT Merger, each issued and outstanding share of GAHR III’s common stock, $0.01 par value per share, will be converted into the right to receive 0.9266 of a share of our Class I common stock, $0.01 par value per share.

Further, at the effective time of the Partnership Merger, (i) each unit of limited partnership interest in GAHR III operating partnership outstanding as of immediately prior to the effective time of the Partnership Merger will be converted automatically into the right to receive 0.9266 of a Partnership Class I Unit, as defined in the agreement of limited partnership of the surviving partnership and (ii) each unit of limited partnership interest in our operating partnership outstanding as of immediately prior to the effective time of the Partnership Merger will be converted automatically into the right to receive one unit of limited partnership interest of the surviving partnership of like class.

Following the Merger, we (as combined with GAHR III, or the Combined Company) will be named “American Healthcare REIT, Inc.” The REIT Merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code.

Based on data as of June 30, 2021, the Combined Company after the completion of the Merger would have a healthcare real estate portfolio consisting of 312 buildings and campuses in 36 states (as well as the United Kingdom & Isle of Man).

On a pro forma basis, the Combined Company portfolio would have a leased percentage rate as of June 30, 2021 of approximately 93.7% for its leased, non-RIDEA assets, 72.8% for its senior housing-RIDEA assets and 76.0% for its integrated senior health campuses.

The Merger Agreement may be terminated by either us or GAHR III under certain circumstances, including but not limited to (in each case, with the prior approval of the special committee of the respective board of directors) (i) if the REIT Merger has not been consummated on or before 11:59 p.m.

New York time on March 23, 2022;

(ii) if the approval of the Merger by our stockholders or the stockholders of GAHR III is not obtained;

or (iii) upon a material uncured breach of the respective obligations, covenants or agreements by the other party that would cause the closing conditions in the Merger Agreement not to be satisfied.

The consummation of the Merger and the AHI Acquisition is subject to substantial conditions to closing and is not expected to close until the fourth quarter of 2021;

therefore, our accompanying condensed consolidated financial statements do not include the Merger or the AHI Acquisition.

If the Merger Agreement is terminated in connection with GAHR III’s acceptance of a Superior Proposal, as defined in the Merger Agreement, or due to GAHR III making a GAHR III Adverse Recommendation Change, as defined in the Merger Agreement, then GAHR III must pay us a termination fee of $50,654,000 and reimburse up to $4,000,000 of documented expenses incurred by us in connection with the Merger.

If the Merger Agreement is terminated in connection with our acceptance of a Superior Proposal or due to us making a GAHR IV Adverse Recommendation Change, as defined in the Merger Agreement, then we must pay to GAHR III a termination fee of $23,028,000 and reimburse up to $4,000,000 of documented expenses incurred by GAHR III in connection with the Merger.

The parties to the Merger Agreement have agreed to certain limits on the conduct of their businesses between the signing of the Merger Agreement and the closing of the Merger.

Generally, transactions that are not in the ordinary course of business require the consent of the other party.

Also on June 23, 2021, GAHR III, GAHR III operating partnership, our co-sponsors, Platform Healthcare Investor T-II, LLC, Flaherty Trust, Jeffrey T.

Hanson, our Chief Executive Officer and Chairman of the Board of Directors, Danny Prosky, our President and Chief Operating Officer, and Mathieu B.

Streiff, our Executive Vice President, General Counsel, entered into a contribution and exchange agreement, or the Contribution Agreement, pursuant to which, among other things, GAHR III has

agreed to acquire a newly formed entity, or the AHI Acquisition, that will own substantially all of the business and operations of one of our co-sponsors, American Healthcare Investors, as well as all of the equity interests in (i) Griffin-American Healthcare REIT III Advisor, LLC, a subsidiary of American Healthcare Investors that serves as the external advisor of GAHR III, and (ii) our advisor, such that GAHR III will become self-managed and (if the Merger does not occur) we will become indirectly managed by GAHR III.

The AHI Acquisition is expected to close immediately prior to the consummation of the Merger.

Following the consummation of the Merger, assuming the AHI Acquisition is consummated, the Combined Company will be an entirely self-managed company.

The Merger is not subject to the consummation of the AHI Acquisition, such that the Merger may occur even if the AHI Acquisition does not.

The parties to the Contribution Agreement also may elect to proceed with the AHI Acquisition even if the Merger is not consummated.

In addition, on June 23, 2021, in connection with the Merger, we amended the Advisory Agreement with our advisor, such that our advisor agreed to waive any acquisition fee due in connection with the REIT Merger.

Except as set forth in such amendment to the Advisory Agreement, the terms of the Advisory Agreement shall continue in full force and effect.

See our Current Report on Form 8-K filed with the SEC on June 24, 2021, for additional information regarding the Merger.

Ongoing 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.

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.

As the COVID-19 pandemic is still impacting the healthcare system to a degree, it continues to present challenges for us as an owner and operator of healthcare facilities.

Since its outset, 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.

We have evaluated the impacts of the COVID-19 pandemic on our business thus far and incorporated information concerning the impact of COVID-19 into our assessments of liquidity, impairment and collectability from tenants and residents as of June 30, 2021.

We will continue to monitor such impacts and will adjust our estimates and assumptions based on the best available information.

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.

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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.

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 COVID-19 pandemic has resulted in a significant decline in the resident occupancies of our senior housing and skilled nursing facilities and an increase in COVID-19 related operating expenses;

therefore, our immediate focus at such properties continues to be on resident occupancy recovery and operating expense management.

In addition, since the fourth quarter of 2020, COVID-19 vaccines have become available to certain parts of the population, which we believe will be important to a rebound in our resident occupancy levels over time.

As of August 1, 2021, based on information provided by our operators, the majority of our residents have been fully vaccinated.

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.

Despite improving macroeconomic conditions and the emergence of vaccines, surges in COVID-19 cases, including variants of the strain, such as those recently experienced in Europe and the U.S., may cause people to self-quarantine or governments to shut down nonessential businesses again.

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;

We believe 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.

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.

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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 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.

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 and its variants, 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 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.

Excluding our senior housing — RIDEA facilities, as of June 30, 2021, our properties were 95.7% leased and during the remainder of 2021, 2.0% 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 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.

As of June 30, 2021, our remaining weighted average lease term was 8.0 years, excluding our senior housing — RIDEA facilities.

For the three and six months ended June 30, 2021, our senior housing — RIDEA facilities were 70.3% and 69.0% leased, respectively.

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 Months Ended March 31, 2021 and 2020

Comparison of the Three and Six Months Ended June 30, 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.

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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 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.

As of June 30, 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.

Although we have experienced some delays in receiving rent payments from our tenants, as of June 30, 2021, we have collected 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 March 2021 from our medical office building tenants has been received.

In addition, substantially all of the contractual rent through June 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:

As of June 30, 2021 and 2020, we owned the following types of properties:

Buildings Aggregate

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Total/weighted average(2) 92 $ 1,080,381,000 95.7 % 94 $ 1,089,071,000 95.5 %

(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.

(1) For the three months ended June 30, 2021 and 2020, the leased percentage for the resident units of our senior housing — RIDEA facilities was 70.3% and 77.4%, respectively, and for the six months ended June 30, 2021 and 2020, the leased percentage for the resident units of our senior housing — RIDEA facilities was 69.0% and 79.8%, respectively, based on daily average occupancy of licensed beds or units.

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

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

Three Months Ended March 31,

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 market rates.

Revenues by reportable segment consisted of the following for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Real Estate Revenue

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Total revenues $ 37,182,000 $ 38,676,000 $ 75,023,000 $ 76,220,000

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.

For the three months ended June 30, 2021 and 2020, real estate revenue was primarily comprised of base rent of $15,980,000 and $15,837,000, respectively, and expense recoveries of $4,826,000 and $4,700,000, respectively.

For the six months ended June 30, 2021 and 2020, real estate revenue was primarily comprised of base rent of $32,061,000 and $31,697,000, respectively, and expense recoveries of $9,603,000 and $9,122,000, respectively.

For the three and six months ended June 30, 2021 and 2020, resident fees and services revenue 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 revenue, by reportable segment consisted of the following for the periods then ended:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Rental Expenses

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Total property operating expenses $ 14,445,000 95.1 % $ 14,442,000 85.8 % $ 29,639,000 95.3 % $ 27,459,000 83.4 %

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.

For the three months ended June 30, 2021 and 2020, property operating expenses primarily consisted of administration and benefits expense of $10,951,000 and $7,897,000, respectively, and for the six months ended June 30, 2021 and 2020, property operating expenses primarily consisted of administration and benefits expense of $22,399,000 and $15,049,000, respectively.

The increase in property operating expenses for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 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 the three and six months ended 2021, compared to the three and six months ended June 30, 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 in these facilities and the costs of personal protective equipment, or 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.

General and Administrative

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

Three Months Ended March 31,

General and administrative expenses consisted of the following for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Asset management and property management oversight fees — affiliates

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89,000 64,000 165,000 129,000

Franchise taxes

72,000 40,000

Board of directors fees 61,000 74,000 130,000 142,000

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41,000 55,000 84,000 98,000

Franchise taxes

38,000 76,000 110,000 116,000

40,000 98,000 83,000 128,000

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.

$ 3,659,000 $ 3,840,000 $ 7,406,000 $ 8,288,000

The decrease in general and administrative expenses for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 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.

For the three months ended June 30, 2021 and 2020, business acquisition expenses were $2,438,000 and $8,000, respectively, and for the six months ended June 30, 2021 and 2020, business acquisition expenses were $2,752,000 and $17,000, respectively.

The increase in such expenses for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, was primarily due to $2,975,000 in third-party advisory costs and fees to our special committee related to the Merger.

Such increase was partially offset by the recovery of costs of $400,000 during the six months ended June 30, 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 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.

For the three months ended June 30, 2021 and 2020, depreciation and amortization was $10,597,000 and $12,720,000, respectively, and consisted primarily of depreciation on our operating properties of $7,930,000 and $7,893,000, respectively, and amortization on our identified intangible assets of $2,556,000 and $4,767,000, respectively.

For the six months ended June 30, 2021 and 2020, depreciation and amortization was $22,999,000 and $25,250,000, respectively, and consisted primarily of depreciation on our operating properties of $15,844,000 and $15,732,000, respectively, and amortization on our identified intangible assets of $6,938,000 and $9,413,000, respectively.

Approximately $1,531,000 of the decrease in amortization expense on our identified intangible assets for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 is related to in-place leases recognized in January 2020 and totaling $8,974,000 that were fully amortized during the six months ended June 30, 2021.

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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Interest expense:

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Total $ 3,407,000 $ 4,121,000 $ 6,678,000 $ 14,036,000

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.

The decrease in interest expense for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, is primarily related to the increase of the gain in fair value recognized on our derivative financial instruments that we entered into in February 2019.

The decrease in interest expense for the six months ended June 30, 2021, compared to the six months ended June 30, 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.

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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 $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;

We estimate that we will require approximately $4,978,000 to pay interest on our outstanding indebtedness for the remainder of 2021, based on interest rates in effect as of June 30, 2021, and that we will require $483,215,000 to pay principal on our outstanding indebtedness for the remainder of 2021.

Such principal on our outstanding indebtedness includes $482,900,000 of outstanding principal as of June 30, 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.

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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.

In connection with the Merger, we are subject to certain limitations on borrowing between the signing of the Merger Agreement and the closing of the Merger.

Generally, borrowing transactions require consent of the other party, unless such borrowing made by us (i) is in connection with existing debt facilities;

(ii) in the aggregate does not exceed $500,000;

(iii) is completed for the purpose of refinancing existing indebtedness;

or (iv) was previously disclosed upon execution of the Merger Agreement.

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 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.

Consequently, our board approved a reduced daily distribution rate for April 2020 through August 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.

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.

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.

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

As of June 30, 2021, our cash on hand was $21,336,000 and we had $47,100,000 available on our line of credit.

We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future.

A capital plan for each investment is established upon acquisition that contemplates the estimated capital needs of that investment, including costs of refurbishment, tenant improvements or other major capital expenditures.

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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.

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.

Based on the budget for the properties we own as of June 30, 2021, we estimate that our discretionary expenditures for capital and tenant improvements could require up to $5,411,000 for the remaining six months of 2021.

As of June 30, 2021, we had $532,000 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:

Three Months Ended March 31,

Six Months Ended June 30,

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

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13,886,000 19,047,000

Net cash used in investing activities

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

Net cash provided by (used in) investing activities 475,000 (72,548,000)

Net cash (used in) provided by financing activities (9,974,000) 58,947,000

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Operating Activities

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.

For the six months ended June 30, 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, interest payments on our outstanding indebtedness and business acquisition expenses.

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

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Investing Activities

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.

For the six months ended June 30, 2021 and 2020, cash flows used in investing activities related to our property acquisitions in the amount of $3,375,000 and $67,932,000, respectively, and the payment of $2,334,000 and $4,616,000, respectively, for capital expenditures.

For the six months ended June 30, 2021, cash flows used in investing activities were offset by $6,184,000 in net proceeds from the sale of two senior housing facilities, which were part of the Northern California Senior Housing Portfolio.

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 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.

For the six months ended June 30, 2021, cash flows used in financing activities related primarily to $10,772,000 in distributions to our common stockholders, the payment of offering costs of $2,705,000 primarily in connection with our initial offering and share repurchases of $1,874,000, partially offset by net borrowings on our line of credit of $6,000,000.

For the six months ended June 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 $10,042,000 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 $4,643,000.

The decrease in share repurchases paid for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily related to the partial suspension of our share repurchase plan in March 2020 by our board to protect our capital and maximize our liquidity in response to the impact of the COVID-19 pandemic.

See Note 12, Equity, to our accompanying condensed consolidated financial statements, for a further discussion regarding our share repurchase plan.

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

Distributions

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.

Prior to March 31, 2020, 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 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 rate of $0.60 per share.

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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.

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 August 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.

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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.

As a result, beginning with the April 2021 distributions, which were paid in May 2021, there were 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 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:

We have not established any limit on the amount of 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 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,

The distributions paid for the six months ended June 30, 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:

Six Months Ended June 30,

Distributions paid in cash $ 10,772,000 $ 10,042,000

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$ 16,271,000 100 % $ 21,476,000 100 %

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.

As of June 30, 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.

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,

The distributions paid for the six months ended June 30, 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:

Six Months Ended June 30,

Distributions paid in cash $ 10,772,000 $ 10,042,000

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

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

As of June 30, 2021, our aggregate borrowings were 40.0% 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 May 14, 2021 and March 31, 2021, our leverage did not exceed 300% o f the value of our net assets.

As of August 13, 2021 and June 30, 2021, our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

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

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.

As of June 30, 2021, we had $18,474,000 ($17,572,000, net of discount/premium and deferred financing costs) of fixed-rate mortgage loans payable outstanding secured by our properties.

As of June 30, 2021, we had $482,900,000 outstanding and $47,100,000 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 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.

As of June 30, 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 June 30, 2021, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 3.53% 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 March 31, 2021:

and (iii) ground lease obligations as of June 30, 2021:

Payments Due by Period

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482,900,000 — — — 482,900,000

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

Interest payments — variable-rate debt (based on rates in effect as of June 30, 2021) 4,617,000 — — — 4,617,000

Ground lease obligations 306,000 1,056,000 1,072,000 46,565,000 48,999,000

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Off-Balance Sheet Arrangements

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;

As of June 30, 2021, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

During the six months ended June 30, 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.

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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 six months ended June 30, 2021, we recognized government grants through economic stimulus programs of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, 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.

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 funds, the COVID-19 pandemic impact would have had a material adverse impact to our FFO and MFFO.

For the three months ended June 30, 2021 and 2020, FFO would have been approximately $7,856,000 and $10,485,000, respectively, excluding government grants recognized by our unconsolidated entity.

For the six months ended June 30, 2021 and 2020, FFO would have been approximately $16,713,000 and $15,901,000, respectively, excluding government grants recognized by our unconsolidated entity.

For the three months ended June 30, 2021 and 2020, MFFO would have been approximately $7,807,000 and $8,687,000, respectively, excluding government grants recognized by our unconsolidated entity.

For the six months ended June 30, 2021 and 2020, MFFO would have been approximately $14,872,000 and $17,828,000, respectively, excluding government grants recognized by our unconsolidated entity.

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net loss $ (3,876,000) $ (1,155,000) $ (7,884,000) $ (9,088,000)

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Depreciation and amortization related to real estate — unconsolidated entity 967,000 878,000 1,912,000 1,760,000

Loss on disposition of real estate investments — unconsolidated entity 3,000 — 3,000 —

Loss on disposition of real estate investments 199,000 — 199,000 —

Net loss attributable to noncontrolling interests 104,000 209,000 368,000 376,000

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

Depreciation, amortization and loss on disposition — noncontrolling interests (85,000) (249,000) (334,000) (479,000)

FFO attributable to controlling interest $ 7,909,000 $ 12,403,000 $ 17,263,000 $ 17,819,000

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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.

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.

(4) Under GAAP, we are required to include changes in fair value of our derivative financial instruments in the determination of net income or loss.

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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, business acquisition expenses, depreciation and amortization, interest expense, income or loss from unconsolidated entity and other 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, business acquisition expenses, depreciation and amortization, interest expense, loss on disposition of real estate investments, income or loss from unconsolidated entity, other income and income tax expense.

NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows.

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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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net loss $ (3,876,000) $ (1,155,000) $ (7,884,000) $ (9,088,000)

4 unchanged sentences

Interest expense 3,407,000 4,121,000 6,678,000 14,036,000

Loss on disposition of real estate investments 199,000 — 199,000 —

Loss (income) from unconsolidated entity 193,000 (1,074,000) 1,097,000 (1,329,000)

Other income (9,000) (261,000) (16,000) (270,000)

Income tax expense — 39,000 — 39,000

Net operating income $ 16,608,000 $ 18,238,000 $ 33,231,000 $ 36,943,000

Subsequent Events

For a discussion of subsequent events, see Note 20, Subsequent Events, to our accompanying condensed consolidated financial statements.

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