What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-13 · 187 added, 176 removed, 330 unchanged (52% of the section changed)

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

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT IV, Inc.

The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc.

(formerly known as Griffin-American Healthcare REIT IV, Inc.

) 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.

Capitalized terms related to the merger with Griffin-American Healthcare REIT III, Inc., or GAHR III, are defined and further discussed below in the “Overview and Background” 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 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.

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

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the success of our investment strategy;

the availability of financing;

and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors, and their affiliates.

and the availability of financing.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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Overview and Background

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.

American Healthcare REIT, Inc.

(formerly known as 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).

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.

We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2016, and we intend to continue to qualify to be taxed as a REIT.

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.

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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, 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, as amended, or the Advisory Agreement, between us, our operating partnership and our advisor.

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 September 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.

See Note 20, Subsequent Events — Reinstatement of the DRIP, to our accompanying condensed consolidated financial statements.

Until October 2021, we conducted substantially all of our operations through Griffin-American Healthcare REIT IV Holdings, LP, or our operating partnership.

Through September 30, 2021, we were 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.

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.

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 Digital Bridge Group, Inc.

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

On June 23, 2021, in anticipation of the Merger, as defined and discussed below, we entered into an amendment to the Advisory Agreement, whereby it was agreed that any acquisition fee due to our advisor is to be waived in connection with the REIT Merger, as defined and discussed below.

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

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

Prior to the Merger, our advisor was 75.0% owned and managed by wholly owned subsidiaries of American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors.

American Healthcare Investors was 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.

We currently operate through four reportable business segments:

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

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

Please see the “Merger with Griffin-American Healthcare REIT III, Inc.” and “AHI Acquisition” sections below for a further discussion of our operations effective October 1, 2021.

We 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.

As of September 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 September 30, 2021, we also owned a 6.0% interest in a joint venture which owned 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.

Merger with Griffin-American Healthcare REIT III, Inc.

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

On October 1, 2021, pursuant to the Merger Agreement, (i) GAHR III merged with and into merger sub, with merger sub being the surviving company, or the REIT Merger, and (ii) our operating partnership merged with and into the surviving partnership, with the surviving partnership being the surviving entity and being renamed American Healthcare REIT Holdings, LP, or the Partnership Merger, and, together with the REIT Merger, the Merger.

As a result of and at the effective time of the Merger, the separate corporate existence of GAHR III and our operating partnership ceased.

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, converted into the right to receive 0.9266 shares 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 the surviving partnership outstanding as of immediately prior to the effective time of the Partnership Merger was converted automatically into the right to receive 0.9266 of a Partnership Class I Unit, as defined in the agreement of limited partnership, as amended, 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 was converted automatically into the right to receive one unit of limited partnership interest of the surviving partnership of like class.

Following the Merger, our company, combined with GAHR III, or the Combined Company, was renamed “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 Code.

Based on data as of September 30, 2021, the Combined Company has a healthcare real estate portfolio consisting of 311 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 September 30, 2021 of approximately 94.1% for its leased, non-RIDEA assets, 78.1% for its senior housing-RIDEA assets and 77.8% for its integrated senior health campuses.

AHI Acquisition

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

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

Streiff, our former Executive Vice President, General Counsel, entered into a contribution and exchange agreement, or the Contribution Agreement, pursuant to which, among other things, the surviving partnership agreed to acquire a newly formed entity, or NewCo, which we refer to as the AHI Acquisition, that owned 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, or GAHR III Advisor, a subsidiary of American Healthcare Investors that served as the external advisor of GAHR III, and (ii) our advisor.

On October 1, 2021, the AHI Acquisition closed immediately prior to the consummation of the Merger.

Following the consummation of the Merger, the Combined Company has become a self-managed company.

The AHI Acquisition will be treated as a business combination for accounting purposes, with GAHR III as both the legal and accounting acquiror of NewCo.

While we are the legal acquiror of GAHR III in the REIT Merger, GAHR III was determined to be the accounting acquiror in the REIT Merger transaction in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations , after considering the relative share ownership and the composition of the governing body of the Combined Company.

As a result of the completion of the Merger and the AHI Acquisition, the historical information regarding our company’s structure, agreements and financial information presented within this Item 2 has materially changed;

however, such information did apply to us as of September 30, 2021.

See Note 20, Subsequent Events — Merger with Griffin-American Healthcare REIT III, Inc.

and AHI Acquisition, to our accompanying condensed consolidated financial statements and our Current Report on Form 8-K filed with the SEC on October 1, 2021, for additional information regarding the Merger and the AHI Acquisition.

Critical Accounting Policies

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Factors Which May Influence Results of Operations

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.

Other than 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.

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

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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.

Since its outset, the impacts of the COVID-19 pandemic have been significant, rapidly and continuously evolving and may continue into the future, especially due to the emergence of the Delta variant which has caused

COVID-19 cases and deaths to increase significantly in the third quarter of 2021, making it difficult to ascertain the long-term impact the COVID-19 pandemic 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.

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, 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.

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;

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 and as a result, our medical office building segment rebounded quickly from the initial shock of the pandemic and has demonstrated remarkable resilience.

This trend has continued despite the emergence of the Delta variant.

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, especially in our skilled nursing segment where personal protective equipment, or PPE, costs and the shortage of healthcare personnel resulting in more costly short-term hires, present ongoing challenges.

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

While we experienced steady recovery in early 2021, the emergence of the Delta variant has slowed the recovery in our senior housing and skilled nursing segments as we are seeing case counts reach levels not seen since January 2021.

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.

As of November 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.

Despite improving macroeconomic conditions and the emergence of vaccines, surges in COVID-19 cases, including variants of the strain, such as those experienced in Europe and the U.S., could slow down the recovery of the U.S.

and the global economy.

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.

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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 and its variants, 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 use of effective vaccines and availability of vaccine boosters, 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 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.

Excluding our senior housing — RIDEA facilities, as of September 30, 2021, our properties were 95.7% leased and during the remainder of 2021, 1.5% 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 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.

As of September 30, 2021, our remaining weighted average lease term was 7.8 years, excluding our senior housing — RIDEA facilities.

For the three and nine months ended September 30, 2021, our senior housing — RIDEA facilities were 71.1% and 69.7% 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 and Six Months Ended June 30, 2021 and 2020

Comparison of the Three and Nine Months Ended September 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.

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.

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.

As of September 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 June 30, 2021, we have collected 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 September 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 June 2021 from our medical office building tenants has been received.

In addition, substantially all of the contractual rent through September 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 and costs incurred to facilitate a strategic transaction.

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

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, grant income received and costs incurred related to the Merger.

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

September 30,

Buildings Aggregate

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Total/weighted average(2) 92 $ 1,080,381,000 95.7 % 94 $ 1,089,071,000 95.4 %

(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.

(1) For the three months ended September 30, 2021 and 2020, the leased percentage for the resident units of our senior housing — RIDEA facilities was 71.1% and 71.6%, respectively, and for the nine months ended September 30, 2021 and 2020, the leased percentage for the resident units of our senior housing — RIDEA facilities was 69.7% and 77.2%, respectively, based on daily average occupancy of licensed beds or units.

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

Revenues and Grant Income

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 market rates.

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

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

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

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

2021 2020 2021 2020

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Total resident fees and services 15,090,000 18,948,000 46,179,000 51,863,000

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

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.

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

Total grant income — 864,000 — 864,000

Total revenues and grant income $ 37,210,000 $ 41,331,000 $ 112,233,000 $ 117,551,000

For the three months ended September 30, 2021 and 2020, real estate revenue was primarily comprised of base rent of $16,520,000 and $15,847,000, respectively, and expense recoveries of $4,963,000 and $4,575,000, respectively.

For the nine months ended September 30, 2021 and 2020, real estate revenue was primarily comprised of base rent of $48,581,000 and $47,544,000, respectively, and expense recoveries of $14,566,000 and $13,697,000, respectively.

For the three and nine months ended September 30, 2021 and 2020, resident fees and services revenue consisted of rental fees related to resident leases and extended health care fees.

The decrease in resident fees and services for both the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, is primarily related to lower occupancy rates in our facilities due to the prolonged operational disruption as a result of the COVID-19 pandemic.

The decrease in resident fees and services for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 was partially offset by the impact of the transition of five senior housing facilities within Northern California Senior Housing Portfolio to a RIDEA structure in March 2020 resulting in higher resident fees and services in the comparable period.

For both the three and nine months ended September 30, 2021, we did not recognize any government grants.

For both 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 the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, economic stimulus programs.

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 presented:

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

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 and grant income, by reportable segment consisted of the following for the periods presented:

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

2021 2020 2021 2020

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Total property operating expenses $ 14,540,000 96.4 % $ 17,397,000 87.8 % $ 44,179,000 95.7 % $ 44,856,000 85.1 %

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.

For the three months ended September 30, 2021 and 2020, property operating expenses primarily consisted of administration and benefits expense of $10,921,000 and $8,634,000, respectively, and for the nine months ended September 30, 2021 and 2020, property operating expenses primarily consisted of administration and benefits expense of $33,320,000 and $23,683,000, respectively.

The decrease in property operating expenses for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is primarily because we experienced a significant increase in labor costs, as well as the costs of COVID-19 testing of employees and residents in our facilities and the costs of PPE and other supplies required as a result of the COVID-19 pandemic in the prior year, which decreased in the current year in line with the normalization of such costs and with the decline in COVID-19 case counts and increase in vaccination rates.

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 presented:

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

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

2021 2020 2021 2020

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$ 4,304,000 $ 3,672,000 $ 11,710,000 $ 11,960,000

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.

The increase in general and administrative expenses for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is primarily due to an increase in professional and legal fees from transitioning the operator at Central Florida Senior Housing Portfolio in September 2021.

Business Acquisition Expenses

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.

For the three months ended September 30, 2021 and 2020, business acquisition expenses were $3,800,000 and $57,000, respectively, and for the nine months ended September 30, 2021 and 2020, business acquisition expenses were $6,552,000 and $74,000, respectively.

The increase in such expenses for the nine months ended September 30, 2021, compared to the nine

months ended September 30, 2020, was primarily due to $6,753,000 in third-party legal costs and professional services fees incurred related to the Merger.

Such increase was partially offset by the recovery of costs of $400,000 during the nine months ended September 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 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.

For the three months ended September 30, 2021 and 2020, depreciation and amortization was $10,746,000 and $12,669,000, respectively, and consisted primarily of depreciation on our operating properties of $8,181,000 and $7,966,000, respectively, and amortization on our identified intangible assets of $2,261,000 and $4,619,000, respectively.

For the nine months ended September 30, 2021 and 2020, depreciation and amortization was $33,745,000 and $37,919,000, respectively, and consisted primarily of depreciation on our operating properties of $24,025,000 and $23,698,000, respectively, and amortization on our identified intangible assets of $9,199,000 and $14,032,000, respectively.

Approximately $3,333,000 of the decrease in amortization expense on our identified intangible assets for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is related to in-place leases recognized in January 2020 and totaling $8,974,000 that were fully amortized during the nine months ended September 30, 2021.

Interest Expense

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,

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

2021 2020 2021 2020

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Total $ 3,447,000 $ 3,389,000 $ 10,125,000 $ 17,425,000

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.

The decrease in interest expense for the nine months ended September 30, 2021, compared to the nine months ended September 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, as well as 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 $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.

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, 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.

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 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.

Upon consummation of the Merger, on October 1, 2021, we assumed GAHR III's obligations, through the surviving partnership, with respect to a credit facility with a maximum principal amount of $480,000,000, or the 2019 Corporate Line of Credit.

In addition, on October 1, 2021, upon consummation of the Merger, we assumed GAHR III's obligations under an amended and restated loan agreement regarding a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, or the 2019 Trilogy Credit Facility.

We also entered into an amendment to our credit agreement for our line of credit and term loans, as amended, or the 2018 Credit Facility.

We refer to the 2019 Corporate Line of Credit, 2019 Trilogy Credit Facility and the 2018 Credit Facility as the Credit Facilities.

See Note 20, Subsequent Events — Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements, for a further discussion, and our Current Report on Form 8-K filed with the SEC on October 5, 2021 for more information on the amendments to or assumption of the Credit Facilities.

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 Credit Facilities, as well as any future indebtedness that we may incur.

As of October 31, 2021, the Combined Company’s aggregate borrowing capacity under the Credit Facilities was $1,370,000,000.

As of October 31, 2021, the Combined Company’s aggregate borrowings outstanding under the Credit Facilities was $1,205,634,000.

The 2018 Credit Facility is scheduled to mature on November 19, 2021.

We intend to extend the maturity date of the 2018 Credit Facility for an additional 12 months pursuant to the terms of the 2018 Credit Agreement, as amended, and expect to pay an extension fee of approximately $795,000.

The 2019 Corporate Line of Credit is scheduled to mature on January 25, 2022;

however, we intend to combine our 2019 Corporate Line of Credit and the 2018 Credit Facility into one joint credit facility and pay any related fees.

As of October 31, 2021, we had an aggregate of $164,366,000 available on the Credit Facilities.

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

Consequently, our board approved a reduced distribution rate for April 2020 through October 2021 for 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.

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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.

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.

On October 4, 2021, our board authorized the reinstatement of the DRIP and a partial reinstatement of our share repurchase plan with respect to repurchase requests resulting from the death or qualifying disability of stockholders.

See Note 20, Subsequent Events — Reinstatement of the DRIP and — Amendments to and Partial Reinstatement of Share Repurchase Plan, to our accompanying condensed consolidated financial statements for a further discussion, and our Current Report on Form 8-K filed with the SEC on October 5, 2021 for more information on the reinstatement of the DRIP and partial reinstatement of our share repurchase plan.

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 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.

Based on the budget for the properties of the Combined Company, we estimate that our discretionary expenditures for capital and tenant improvements could require up to $33,809,000 for the remaining three months of 2021.

Other Liquidity Needs

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The following table sets forth changes in cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

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

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16,556,000 29,943,000

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

Net cash used in investing activities (1,573,000) (74,761,000)

Net cash (used in) provided by financing activities (15,939,000) 52,368,000

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Operating Activities

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.

In general, cash flows provided by operating activities will be affected by the timing of cash receipts and payments.

For the nine months ended September 30, 2021, cash flows provided by operating activities was $16,556,000, compared to cash flows provided by operating activities of $29,943,000 for the nine months ended September 30, 2020.

The decrease in cash provided by operating activities of $13,387,000 was primarily due to payments of general and administrative expenses, interest payments on our outstanding indebtedness and payment of costs related to the Merger of $6,753,000 during the nine months ended September 30, 2021, as well as grant income of $864,000 recognized during the nine months ended September 30, 2020 .

Investing Activities

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.

For the nine months ended September 30, 2021 and 2020, cash flows used in investing activities related to our property acquisitions in the amount of $3,385,000 and $68,032,000, respectively, and the payment of $4,384,000 and $6,729,000, respectively, for capital expenditures.

For the nine months ended September 30, 2021, cash flows used in investing activities were offset by $6,196,000 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 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.

For the nine months ended September 30, 2021, cash flows used in financing activities was $15,939,000, compared to cash flows provided by financing activities of $52,368,000 for the nine months ended September 30, 2020.

The $68,307,000 change from cash provided by financing activities to cash used in financing activities was primarily due to the decrease in net borrowing proceeds on our 2018 Credit Facility of $70,700,000 and an increase of $7,768,000 in distributions paid to our common stockholders, partially offset by the January 2020 payoff of one mortgage loan payable with a principal balance of $7,738,000 and a decrease in share repurchases of $3,475,000.

The increase in distributions paid in cash for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to the suspension of the DRIP by our board on March 18, 2021, resulting in no further issuances of shares pursuant to the DRIP, and stockholders who were participants in the DRIP received cash distributions instead beginning with the May 2021 payment date.

The decrease in share repurchases paid in the nine months ended September 30, 2021 compared to the nine months ended September 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, and Note 20, Subsequent Events — Reinstatement of the DRIP and — Amendments to and Partial Reinstatement of Share Repurchase Plan, to our accompanying condensed consolidated financial statements, for a further discussion regarding our share repurchase plan and DRIP distributions.

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

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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 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.

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.

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 calculated based on 365 days in the calendar year and was equal to $0.001095890 per share of our Class T and Class I common stock.

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

The distributions were 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.

Our board of directors also authorized distributions to our Class T and Class I stockholders of record as of the close of business on September 17, 2021 and October 27, 2021.

The distributions were equal to $0.0328767 and $0.033333333 per share of our common stock for the months of September 2021 and October 2021, respectively, which was equal to an annualized distribution of $0.40 per share.

The distributions were paid in cash in September 2021 and November 2021, respectively, only from legally available funds.

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.

As also discussed above, on October 4, 2021, our board authorized the reinstatement of the DRIP and as a result, beginning with the October 2021 distribution, which were paid in November 2021, stockholders who previously enrolled as participants in the DRIP (including former GAHR III stockholders who participated in the GAHR III distribution reinvestment plan) received distributions in shares of our common stock pursuant to the terms of the DRIP, instead of cash distributions.

See Note 20, Subsequent Events — Reinstatement of the DRIP, to our accompanying condensed consolidated financial statements, for a further discussion, and our Current Report on Form 8-K filed with the SEC on October 5, 2021 for more information on the reinstatement of the DRIP and the declaration of October 2021 distribution.

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.

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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 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,

The distributions paid for the nine months ended September 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:

Nine Months Ended September 30,

Distributions paid in cash $ 21,700,000 $ 13,932,000

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$ 27,199,000 100 % $ 29,613,000 100 %

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.

As of September 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 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,

The distributions paid for the nine months ended September 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:

Nine Months Ended September 30,

Distributions paid in cash $ 21,700,000 $ 13,932,000

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For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see the “Funds from Operations and Modified Funds from Operations” section below.

We anticipate that our overall leverage will not exceed 50.0% of the combined market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year.

We anticipate that our overall leverage will not exceed 50.0% of the combined market value of all of our properties, including the properties acquired as part of the Merger, and other real estate-related investments, as determined at the end of each calendar year.

For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset.

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

As of June 30, 2021, our aggregate borrowings were 40.0% of the combined market value of all of our real estate investments.

As of September 30, 2021, our aggregate borrowings were 40.5% 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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In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital.

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

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

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

As of September 30, 2021, our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 6, Mortgage Loans Payable, Net, to our accompanying condensed consolidated financial statements.

Line of Credit and Term Loans

For a discussion of our line of credit and term loans, see Note 7, Line of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

Lines of Credit and Term Loans

For a discussion of our line of credit and term loans, see Note 7, Line of Credit and Term Loans and Note 20, Subsequent Events — Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

REIT Requirements

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

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.

As of September 30, 2021, we had $18,291,000 ($17,409,000, net of discount/premium and deferred financing costs) of fixed-rate mortgage loans payable outstanding secured by our properties.

As of September 30, 2021, we had $488,900,000 outstanding and $41,100,000 remained available under the 2018 Credit Facility.

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 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.

As of September 30, 2021, we

were in compliance with all such covenants and requirements on our Combined Company mortgage loans payable and the Credit Facilities.

As of September 30, 2021, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 3.32% per annum.

Contractual Obligations

The following table provides information with respect to:

(i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our line of credit and term loans;

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

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

(i) the maturity and scheduled principal repayment of our secured mortgage loans payable and the 2018 Credit Facility;

(ii) interest payments on our mortgage loans payable and the 2018 Credit Facility;

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

Payments Due by Period

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488,900,000 — — — 488,900,000

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

Interest payments — variable-rate debt (based on rates in effect as of September 30, 2021) 1,691,000 — — — 1,691,000

Ground lease obligations 213,000 1,056,000 1,072,000 46,565,000 48,906,000

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Off-Balance Sheet Arrangements

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;

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

During the nine months ended September 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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Historical accounting for real estate involves the use of GAAP.

Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP.

Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate

valuation found in GAAP.

Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a further understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss).

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FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance.

MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete.

MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating

periods, and in particular, after the offering and acquisition stages are complete.

FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

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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.

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 or 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.

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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.

For the three months ended September 30, 2021 and 2020, FFO would have been approximately $5,809,000 and $10,662,000, respectively, and for the nine months ended September 30, 2021 and 2020, FFO would have been approximately $22,522,000 and $26,563,000, respectively, excluding government grants recognized.

For the three months ended September 30, 2021 and 2020, MFFO would have been approximately $7,659,000 and $8,200,000, respectively, and for the nine months ended September 30, 2021 and 2020, MFFO would have been approximately $22,531,000 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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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Depreciation and amortization related to real estate — unconsolidated entity 977,000 880,000 2,889,000 2,640,000

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

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

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

(Gain) loss on disposition of real estate investments — consolidated properties (15,000) — 184,000 —

Impairments and gain or loss on disposition of real estate investments, net — unconsolidated entity 4,000 99,000 7,000 99,000

Net loss attributable to noncontrolling interests 121,000 232,000 489,000 608,000

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(3) Under GAAP, as a lessor, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays).

As a lessee, we record amortization of right-of-use assets and accretion of lease liabilities for our operating leases.

As a lessee, we record amortization of right-of-use assets and accretion of lease liabilities for

our operating leases.

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

By adjusting for 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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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, 2021, we did not recognize any government grants.

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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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Interest expense 3,447,000 3,389,000 10,125,000 17,425,000

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)

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

(Gain) loss on disposition of real estate investments (15,000) — 184,000 —

(Income) loss from unconsolidated entity (70,000) 377,000 1,027,000 (952,000)

Other income (33,000) (8,000) (49,000) (278,000)

Income tax expense — 39,000 — 39,000

Income tax benefit — (39,000) — —

Net operating income $ 16,281,000 $ 18,029,000 $ 49,512,000 $ 54,972,000

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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