What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 149 added, 124 removed, 406 unchanged (40% of the section changed)

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The following discussion is provided as a supplement to, and 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 2021 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 25, 2022.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2022 and December 31, 2021, together with our results of operations and cash flows for the three months ended March 31, 2022 and 2021.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of June 30, 2022 and December 31, 2021, together with our results of operations and cash flows for the three and six months ended June 30, 2022 and 2021.

In connection with the Merger (as discussed and defined below), GAHR IV was the legal acquiror of GAHR III, whereas GAHR III was the accounting acquiror of GAHR IV in accordance with accounting principles generally accepted in the United States of America, or GAAP, and as discussed in Note 1, Organization and Description of Business, to our accompanying condensed consolidated financial statements.

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and Jeffrey T.

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

Streiff, our former Executive Vice President, General Counsel and current Chief Operating Officer, or collectively, the AHI Principals.

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

Streiff, our former Executive Vice President, General Counsel and Chief Operating Officer, and current Executive Vice President, or collectively, the AHI Principals.

NewCo owned substantially all of the business and operations of AHI, as well as all of the equity interests in (i) Griffin-American Healthcare REIT IV Advisor, LLC, or GAHR IV Advisor, a subsidiary of AHI that served as the external advisor of GAHR IV, and (ii) Griffin-American Healthcare REIT III Advisor, LLC, or GAHR III Advisor, also referred to as our former advisor, a subsidiary of AHI that served as the external advisor of GAHR III.

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Following the consummation of the Merger and the AHI Acquisition, the Combined Company became self-managed.

As of March 31, 2022 and December 31, 2021 , such surviving partnership OP units are owned by AHI Group Holdings, LLC, or AHI Group Holdings, which is owned and controlled by the AHI Principals, Platform Healthcare Investor T-II, LLC, Flaherty Trust and a wholly owned subsidiary of Griffin Capital, or collectively, the NewCo Sellers.

Such surviving partnership OP units are owned by AHI Group Holdings, LLC, or AHI Group Holdings, which is owned and controlled by the AHI Principals, Platform Healthcare Investor T-II, LLC, Flaherty Trust and a wholly owned subsidiary of Griffin Capital, or collectively, the NewCo Sellers.

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

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As a result, any fees that would have otherwise been payable to our former advisor are no longer being paid.

Also, on October 1, 2021 and in connection with the AHI Acquisition, our operating partnership redeemed all 22,222 shares of our common stock owned by our former advisor and the 20,833 shares of our Class T common stock owned by GAHR IV Advisor in GAHR IV.

Also, on October 1, 2021 and in connection with the AHI Acquisition, we redeemed all 22,222 shares of our common stock owned by our former advisor and the 20,833 shares of our Class T common stock owned by GAHR IV Advisor in GAHR IV.

Prior to the Merger and the AHI Acquisition, our former advisor was 75.0% owned and managed by wholly owned subsidiaries of AHI, and 25.0% owned by a wholly owned subsidiary of Griffin Capital, or collectively, our former co-sponsors.

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We continue to offer up to $100,000,000 of shares of our common stock to be issued pursuant to the AHR DRIP under an existing Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, previously filed by GAHR IV.

As of March 31, 2022, a total of $65,941,000 in distributions were reinvested that resulted in 6,981,086 shares of common stock being issued pursuant to the AHR DRIP.

See Note 14, Equity — Distribution Reinvestment Plan, to our accompanying condensed consolidated financial statements for a further discussion.

As of June 30, 2022, a total of $77,083,000 in distributions were reinvested that resulted in 8,180,513 shares of common stock being issued pursuant to the AHR DRIP.

See Note 14, Equity — Distribution Reinvestment Pl an, to our accompanying condensed consolidated financial statements for a further discussion.

On March 24, 2022, 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 $9.29.

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The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2021.

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

The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly

Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC.

See our Current Report on Form 8-K filed with the SEC on March 25, 2022 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updated estimated per share NAV.

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We currently operate through six reportable business segments:

medical office buildings, integrated senior health campuses, skilled nursing facilities, SHOP, senior housing and hospitals.

As of March 31, 2022, we owned and/or operated 182 properties, comprising 191 buildings, and 122 integrated senior health campuses including completed development projects, or approximately 19,461,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,299,872,000, including the fair value of the properties acquired in the Merger.

In addition, as of March 31, 2022, we also owned a real estate-related debt investment purchased for $60,429,000.

integrated senior health campuses, medical office buildings, skilled nursing facilities, SHOP, senior housing — leased and hospitals.

As of June 30, 2022, we owned and/or operated 313 buildings and integrated senior health campuses, or approximately 19,461,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,370,459,000, including the fair value of the properties acquired in the Merger.

In addition, as of June 30, 2022, we also owned a real estate-related debt investment purchased for $60,429,000.

Critical Accounting Estimates

Our accompanying condensed consolidated financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying footnotes.

These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances.

Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

The complete listing of our Critical Accounting Estimates was previously disclosed in our 2021 Annual Report on Form 10-K, as filed with the SEC on March 25, 2022, and there have been no material changes to our Critical Accounting Estimates as disclosed therein, except as noted below or included within Note 2, Summary of Significant Accounting Policies, to our accompanying condensed consolidated financial statements.

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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 2021 Annual Report on Form 10-K, as filed with the SEC on March 25, 2022.

Acquisition and Dispositions in 2022

For a discussion of our acquisition and dispositions of investments in 2022, see Note 3, Real Estate Investments, Net, and Note 4, Business Combination, to our accompanying condensed consolidated financial statements.

Acquisitions and Dispositions in 2022

For a discussion of our acquisitions and dispositions of investments in 2022, see Note 3, Real Estate Investments, Net, and Note 4, Business Combinations, to our accompanying condensed consolidated financial statements.

Factors Which May Influence Results of Operations

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Our residents, tenants, operating partners and managers, our industry and the U.S.

economy continue to be disrupted by the COVID-19 pandemic and related supply chain disruptions and labor shortages.

The timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the rate of vaccination, the emergence and severity of COVID-19 variants, the continued effectiveness of the vaccines against those variants, the frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures.

As the COVID-19 pandemic is still impacting the healthcare system to a certain extent, it continues to present challenges for us as an owner and operator of healthcare facilities, 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 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 such impacts into our assessments of liquidity, impairment and collectability from tenants and residents as of March 31, 2022.

economy continue to be adversely affected by the COVID-19 pandemic and related supply chain disruptions and labor shortages.

The timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the emergence and severity of COVID-19 variants, the continued effectiveness and frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures.

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 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 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 temporarily 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.

The COVID-19 pandemic has resulted in a significant decline in resident occupancies at our senior housing facilities, SHOP, integrated senior health campuses and skilled nursing facilities, and an increase in COVID-19 related operating expenses with more costly short-term hires due to the shortage of healthcare personnel.

The COVID-19 pandemic resulted in a significant decline in resident occupancies at our leased senior housing facilities and skilled nursing facilities, SHOP and integrated senior health campuses and an increase in COVID-19 related operating expenses with more costly short-term hires due to the shortage of healthcare personnel.

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

While resident occupancies at our integrated senior health campuses and skilled nursing facilities have gradually improved to near pre-pandemic levels, our SHOP have been slower to recover.

Based on information available to management as of April 29, 2022, resident occupancy at our SHOP has declined by approximately 11.5% since February 2020, prior to COVID-19 shutdowns.

While resident occupancies at our integrated senior health campuses and leased senior housing and skilled nursing facilities have gradually improved to near pre-pandemic levels, our SHOP have been slower to recover.

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

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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 cannot predict with reasonable certainty when demand for healthcare services at our senior housing and skilled nursing facility segments will return to pre-COVID-19 pandemic levels.

The lasting effect of the COVID-19 pandemic over the next 12 months could be significant and will largely depend on future developments, including COVID-19 vaccination and booster rates;

We cannot predict with reasonable certainty when demand for healthcare services at our senior housing and skilled nursing facilities will return to pre-COVID-19 pandemic levels.

The lasting effect of the COVID-19 pandemic over the next 12 months could be significant and will largely depend on future developments, including COVID-19 booster rates;

the long term efficacy of COVID-19 vaccinations and boosters;

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Scheduled Lease Expirations

Excluding our SHOP and integrated senior health campuses, as of March 31, 2022, our properties were 92.7% leased and during the remainder of 2022, 6.5% of the leased GLA is scheduled to expire.

Excluding our SHOP and integrated senior health campuses, as of June 30, 2022, our properties were 93.1% leased and during the remainder of 2022, 4.8% of the leased GLA is scheduled to expire.

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

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

As of March 31, 2022, our remaining weighted average lease term was 7.1 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 77.8% leased as of March 31, 2022.

As of June 30, 2022, our remaining weighted average lease term was 7.1 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 79.5% leased as of June 30, 2022.

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

Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

Comparison of Three and Six Months Ended June 30, 2022 and 2021

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, 2022, we operated through six reportable business segments:

medical office buildings, integrated senior health campuses, skilled nursing facilities, SHOP, senior housing and hospitals.

Except where otherwise noted, the changes in our consolidated results of operations for 2022 as compared to 2021 are primarily due to the acquisition of GAHR IV’s portfolio of 87 properties, comprising 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021, the disruption to our normal operations as a result of the COVID-19 pandemic and grant income received.

As of March 31, 2022 and 2021, we owned and/or operated the following types of properties:

As of June 30, 2022, we operated through six reportable business segments:

integrated senior health campuses, medical office buildings, skilled nursing facilities, SHOP, senior housing — leased and hospitals.

Except where otherwise noted, the changes in our consolidated results of operations for 2022 as compared to 2021 are primarily due to the acquisition of GAHR IV’s portfolio of 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021, the disruption to our normal operations as a result of the COVID-19 pandemic and grant income received.

As of June 30, 2022 and 2021, we owned and/or operated the following types of properties:

Campuses Aggregate

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SHOP 47 708,050,000 (2) 20 433,891,000 (2)

Senior housing 20 169,885,000 100 % 9 89,535,000 100 %

Senior housing — leased 20 169,885,000 100 % 9 89,535,000 100 %

Skilled nursing facilities 17 237,300,000 100 % 6 119,500,000 100 %

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Total/weighted average(3) 313 $ 4,370,459,000 93.1 % 220 $ 3,194,824,000 92.0 %

(1) The leased percentage for the resident units of our integrated senior health campuses was 80.0% and 70.7% as of March 31, 2022 and 2021, respectively.

(2) The leased percentage for the resident units of our SHOP was 71.9% and 70.3% as of March 31, 2022 and 2021, respectively.

(1) The leased percentage for the resident units of our integrated senior health campuses was 81.7% and 77.4% as of June 30, 2022 and 2021, respectively.

(2) The leased percentage for the resident units of our SHOP was 73.7% and 73.9% as of June 30, 2022 and 2021, respectively.

(3) Leased percentage excludes our SHOP and integrated senior health campuses.

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Revenues and grant income 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,

2022 2021 2022 2021

Resident Fees and Services Revenue

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Skilled nursing facilities 6,599,000 3,661,000 12,992,000 7,328,000

Senior housing 5,298,000 3,570,000

Senior housing — leased 5,262,000 3,606,000 10,560,000 7,176,000

Hospitals 2,411,000 2,740,000 4,826,000 5,503,000

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$ 388,299,000 $ 308,093,000 $ 764,430,000 $ 599,371,000

For the three months ended March 31, 2022 and 2021, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.

For the three months ended March 31, 2022, $14,113,000 in resident fees and services revenue for our SHOP was due to the increase in the size of our portfolio as a result of the Merger.

The remaining increase in resident fees and services revenue was primarily attributable to improved occupancy and higher reimbursement rates from both Medicare and Medicaid programs for our integrated senior health campuses and SHOP.

In addition, for the three months ended March 31, 2022, $22,332,000 of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger.

For the three months ended March 31, 2022 and 2021, we recognized $5,214,000 and $8,229,000, respectively, of grant income at our integrated senior health campuses and SHOP related to government grants received through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, economic stimulus programs.

For the three and six months ended June 30, 2022 and 2021, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.

For the three and six months ended June 30, 2022, $14,429,000 and $28,542,000, respectively, in resident fees and services revenue for our SHOP was due to the increase in the size of our portfolio as a result of the Merger.

The remaining increase in resident fees and services revenue was primarily attributable to improved occupancy for our integrated senior health campuses, as well as increases in occupancy and Medicaid reimbursement rates at our SHOP.

In addition, for the three and six months ended June 30, 2022, $22,297,000 and $44,629,000, respectively, of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger.

Such amounts were partially offset by a decrease in rental revenue for our medical office buildings segment of $1,029,000 and $910,000 for the three and six months ended June 30, 2022, respectively, primarily due to a one-time lease termination fee recognized in June 2021 for one of our medical office buildings.

For the three months ended June 30, 2022 and 2021, we recognized $10,969,000 and $1,099,000, respectively, of grant income at our integrated senior health campuses and SHOP related to government grants received through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, economic stimulus programs.

For the six months ended June 30, 2022 and 2021, we recognized $16,183,000 and $9,328,000, respectively, of grant income at our integrated senior health campuses and SHOP related to government grants received through the CARES Act economic stimulus programs.

Property Operating Expenses and Rental Expenses

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

Property Operating Expenses

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Hospitals 139,000 5.8 % 126,000 4.6 % 248,000 5.1 % 260,000 4.7 %

Senior housing 179,000 3.4 % 15,000 0.4 %

Senior housing — leased 212,000 4.0 % 30,000 0.8 % 391,000 3.7 % 45,000 0.6 %

Total rental expenses

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Integrated senior health campuses and SHOP typically have a higher percentage of direct operating expenses to revenue than medical office buildings, hospitals, and leased senior housing and skilled nursing facilities due to the nature of RIDEA — type facilities where we conduct day-to-day operations.

For the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, rental expenses increased by $6,542,000 and property operating expenses increased by $14,460,000 for our SHOP due to the increase in the size of our portfolio as a result of the Merger.

Further, the remaining increase in total property operating expenses was due to an increase in labor costs at our SHOP and integrated senior health campuses.

For the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, rental expenses increased by $6,379,000 and $12,921,000, respectively, and property operating expenses increased by $16,212,000 and $30,671,000, respectively, for our SHOP due to the increase in the size of our portfolio as a result of the Merger.

Further, the remaining increase in total property operating expenses was due to an increase in labor costs at our SHOP and integrated senior health campuses, such as a significant increase in employee wages, agency fees and temporary labor expenses.

General and Administrative

For the three months ended March 31, 2022, general and administrative expenses were $11,119,000 compared to $7,257,000 for the three months ended March 31, 2021.

For the three months ended June 30, 2022, general and administrative expenses were $10,928,000 compared to $7,343,000 for the three months ended June 30, 2021.

The increase in general and administrative expenses of $3,585,000 was primarily the result of an increase of:

(i) $6,468,000 in payroll and compensation costs for the acquired employees as a result of the AHI Acquisition;

(i) $5,398,000 in payroll and compensation costs for the personnel hired as a result of the AHI Acquisition;

(ii) $1,814,000 in professional and legal fees;

and (iii) $958,000 in corporate operating expenses.

(iii) $1,173,000 in corporate operating expenses;

and (iv) $1,001,000 in stock compensation expenses.

Such increases were partially offset by a decrease in our asset management and property management oversight fees of $5,723,000 as a result of the AHI Acquisition.

For the six months ended June 30, 2022, general and administrative expenses were $22,047,000 compared to $14,600,000 for the six months ended June 30, 2021.

The increase in general and administrative expenses;

of $7,447,000 was primarily the result of an increase of:

(i) $11,272,000 in payroll and compensation costs for the personnel hired as a result of the AHI Acquisition;

(ii) $3,133,000 in professional and legal fees;

(iii) $2,131,000 in corporate operating expenses;

and (iv) $1,226,000 in stock compensation expenses.

Such increases were partially offset by a decrease in our asset management and property management oversight fees of $11,401,000 as a result of the AHI Acquisition.

Business Acquisition Expenses

For the three months ended March 31, 2022 and 2021, we recorded business acquisition expense of $173,000 and $1,248,000, respectively.

The decrease in such expenses primarily related to a $1,195,000 decrease in third-party advisory costs and fees to our special committee related to the Merger and the AHI Acquisition.

For the three months ended June 30, 2022 and 2021, we recorded business acquisition expenses of $1,757,000 and $2,750,000, respectively, and for the six months ended June 30, 2022 and 2021, we recorded business acquisition expenses of $1,930,000 and $3,998,000, respectively.

For the three and six months ended June 30, 2022, the decrease in such expenses primarily related to a decrease of $2,487,000 and $3,682,000, respectively, in third-party legal costs and professional services incurred related to the Merger and the AHI Acquisition, partially offset by $938,000 in transaction costs related to the acquisition of a pharmaceutical business in April 2022 and $556,000 and $676,000, respectively, in dead-deal costs incurred in the pursuit of real estate investments that did not close.

See Note 4, Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisition of a pharmaceutical business.

Depreciation and Amortization

For the three months ended March 31, 2022 and 2021, depreciation and amortization was $42,311,000 and $25,723,000, respectively, which primarily consisted of depreciation on our operating properties of $34,422,000 and $24,190,000, respectively, and amortization of our identified intangible assets of $7,125,000 and $1,113,000, respectively.

The increase in depreciation and amortization of $16,588,000 was primarily the result of the increase in depreciable assets in our portfolio as a result of the Merger resulting in depreciation and amortization expense of $14,954,000.

For the three months ended June 30, 2022 and 2021, depreciation and amortization was $39,971,000 and $26,357,000, respectively, which primarily consisted of depreciation on our operating properties of $34,328,000 and $24,663,000, respectively, and amortization of our identified intangible assets of $5,008,000 and $1,244,000, respectively.

For the six months ended June 30, 2022 and 2021, depreciation and amortization was $82,282,000 and $52,080,000, respectively, which primarily consisted of depreciation on our operating properties of $68,750,000 and $48,853,000, respectively, and amortization of our identified intangible assets of $12,133,000 and $2,357,000, respectively.

For the three and six months ended June 30, 2022, the increase in depreciation and amortization of $13,614,000 and $30,202,000, respectively, was primarily the result of the increase in depreciable assets in our portfolio as a result of the Merger resulting in depreciation and amortization expense of $12,432,000 and $27,386,000, respectively.

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

Interest expense:

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Gain in fair value of derivative financial instruments — (1,775,000) (500,000) (3,596,000)

Loss on extinguishments of debt 4,591,000 2,288,000

(Gain) loss on extinguishments of debt (181,000) 5,000 4,410,000 2,293,000

Interest on finance lease liabilities 66,000 74,000 140,000 192,000

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Total $ 20,345,000 $ 16,715,000 $ 43,170,000 $ 35,259,000

For the three months ended March 31, 2022, interest expense was $22,825,000 compared to $18,544,000 for the three months ended March 31, 2021.

The increase in interest expense was primarily related to a decrease in the gain in fair value recognized on our derivative financial instruments of $1,321,000 and an increase in loss on debt extinguishment of $2,303,000.

For the three months ended June 30, 2022, interest expense was $20,345,000 compared to $16,715,000 for the three months ended June 30, 2021.

The increase in total interest expense was primarily related to an increase in interest expense incurred on our lines of credit and term loans and mortgage loans payable due to a larger debt portfolio as a result of the Merger, as well as a $1,775,000 decrease in the gain in fair value recognized on our interest rate swap contracts that matured on January 25, 2022.

For the six months ended June 30, 2022, interest expense was $43,170,000 compared to $35,259,000 for the six months ended June 30, 2021.

The increase in total interest expense was primarily related to an increase in interest expense incurred on our lines of credit and term loans and mortgage loans payable due to a larger debt portfolio as a result of the Merger, as well as a decrease in the gain in fair value recognized on our derivative financial instruments of $3,096,000 and an increase in loss on debt extinguishment of $2,117,000.

See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements for a further discussion on debt extinguishments.

Impairment of Real Estate Investments

For the three and six months ended June 30, 2022, we recognized an impairment charge of $17,340,000 on four of our SHOP within the Central Florida Senior Housing Portfolio.

For the three and six months ended June 30, 2021, we recognized an impairment charge of $3,335,000 on a medical office building, Mount Dora Medical Center.

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

Liquidity and Capital Resources

In the normal course of business, our material cash requirements consist of payment of operating expenses, capital improvement expenditures, interest on our indebtedness, distributions to our stockholders and repurchases of our common stock .

Our sources of funds primarily consist of operating cash flows and borrowings.

Absent our requirements to make distributions to maintain our REIT qualification, we do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Material Cash Requirements

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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.

As of March 31, 2022, we had $16,673,000 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 March 31, 2022, we estimate that our discretionary expenditures for capital and tenant improvements could require up to $96,038,000 for the remaining nine months of 2022.

As of June 30, 2022, we had $17,736,000 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 owned as of June 30, 2022, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are equal to $82,920,000 for the remaining six months of 2022, although actual expenditures are dependent on many factors which are not presently known.

Contractual Obligations

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

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

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

(iii) ground and other lease obligations;

and (iv) financing obligations as of March 31, 2022:

and (iv) financing obligations as of June 30, 2022:

Payments Due by Period

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221,000 610,976,000 413,626,000 569,345,000 1,594,168,000

Interest payments — variable-rate debt (based on rates in effect as of March 31, 2022)

Interest payments — variable-rate debt (based on rates in effect as of June 30, 2022)

29,239,000 83,219,000 51,603,000 4,235,000 168,296,000

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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 lines of credit and term loans, as well as any future indebtedness that we may incur.

As of March 31, 2022, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility was $1,410,000,000.

As of March 31, 2022, our aggregate borrowings outstanding under our credit facilities was $1,239,134,000 and we had an aggregate of $170,866,000 available on such facilities.

As of June 30, 2022, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility was $1,410,000,000.

As of June 30, 2022, our aggregate borrowings outstanding under our credit facilities was $1,267,634,000 and we had an aggregate of $142,366,000 available on such facilities.

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

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 $ 125,486,000 $ 152,190,000

Net cash provided by (used in) operating activities 22,360,000 (5,255,000)

Net cash provided by operating activities 56,138,000 3,579,000

Net cash used in investing activities (97,364,000) (124,165,000)

Net cash (used in) provided by financing activities (1,307,000) 89,605,000

Net cash provided by financing activities 19,924,000 86,471,000

Effect of foreign currency translation on cash, cash equivalents and restricted cash (8,000) (27,000)

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Operating Activities

The change from net cash used in operating activities to net cash provided by operating activities of $27,615,000 was primarily due to the increase in the size of our portfolio as a result of the Merger on October 1, 2021, thereby increasing our net operating income during the three months ended March 31, 2022, as compared to the prior year period.

In general, cash flows from operating activities is affected by the timing of cash receipts and payments.

The increase in net cash provided by operating activities of $52,559,000 was primarily due to the increase in the size of our portfolio as a result of the Merger on October 1, 2021, thereby increasing our net operating income during the six months ended June 30, 2022, as compared to the prior year period.

In general, cash flows from operating activities are affected by the timing of cash receipts and payments.

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

Investing Activities

The decrease in net cash used in investing activities of $79,474,000 was primarily due to a $58,664,000 decrease in property acquisitions, a $12,826,000 increase in proceeds from dispositions of real estate and an $8,340,000 decrease in developments and capital expenditures during the three months ended March 31, 2022 as compared to the prior year period.

The decrease in net cash used in investing activities of $26,801,000 was primarily due to a $12,602,000 increase in proceeds from dispositions of real estate, a $10,669,000 decrease in developments and capital expenditures and a $3,421,000 decrease in property acquisitions during the six months ended June 30, 2022 as compared to the prior year period.

Financing Activities

The change from net cash provided by financing activities to net cash used in financing activities of $90,912,000 was primarily due to a decrease in net borrowings under our mortgage loans payable of $82,661,000 during the three months ended March 31, 2022 as compared to the prior year period, as well as the $15,010,000 payment of distributions to our common stockholders and $4,134,000 payment to repurchase our common stock for the three months ended March 31, 2022.

Such amounts were partially offset by a decrease in net borrowings under our lines of credit and term loans of $13,900,000 during the three months ended March 31, 2022 as compared to the prior year period.

The decrease in net cash provided by financing activities of $66,547,000 was primarily due to a decrease in net borrowings under our mortgage loans payable of $55,177,000 and a $6,697,000 increase in distributions to noncontrolling interests during the six months ended June 30, 2022 as compared to the prior year period, as well as the $30,247,000 payment of distributions to our common stockholders and a $10,583,000 payment to repurchase our common stock for the six months ended June 30, 2022.

Such amounts were partially offset by an increase in net borrowings under our lines of credit and term loans of $47,400,000 during the six months ended June 30, 2022 as compared to the prior year period.

The change in distributions paid to common stockholders was due to the suspension of all stockholder distributions on May 29, 2020 in response to the impact of the COVID-19 pandemic, which the board of directors of GAHR III subsequently reinstated in June 2021.

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Consequently, the GAHR IV 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.

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.

The GAHR IV 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, equal to $0.0328767 per share of our common stock, which was equal to an annualized distribution of $0.40 per share.

Further, our board authorized record date distributions to our Class T and Class I stockholders of record as of each monthly record date from October 2021 through June 2022, equal to $0.033333333 per share of our common stock, which is equal to an annualized distribution rate of $0.40 per share.

The distributions were or will be paid in cash or shares of our common stock pursuant to the DRIP.

Further, our board authorized record date distributions to our Class T and Class I stockholders of record as of each monthly record date from October 2021 through June 2022, equal to $0.033333333 per share of our common stock, which was equal to an annualized distribution rate of $0.40 per share.

The distributions were paid in cash or shares of our common stock pursuant to the DRIP.

Beginning with the third quarter of 2022, distributions, if any, shall be authorized by our board on a quarterly basis, in such amounts as our board shall determine, and each quarterly record date for purposes of such distributions shall be determined and declared by our board in the last month of each calendar quarter until such time as our board changes such policy.

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(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.

GAHR III did not pay any distributions for the three months ended March 31, 2021.

The distributions paid for the three months ended March 31, 2022, along with the amount of distributions reinvested pursuant to the AHR DRIP, and the sources of our distributions as compared to cash flows from operations were as follows:

Three Months Ended

March 31, 2022

GAHR III did not pay any distributions for the six months ended June 30, 2021.

The following tables reflect distributions paid for the six months ended June 30, 2022, along with the amount of distributions reinvested pursuant to the AHR DRIP, and the sources of our distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure:

Six Months Ended

June 30, 2022

Distributions paid in cash $ 30,247,000

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$ 52,694,000 100 %

As of March 31, 2022, 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 borrowings.

GAHR III did not pay any distributions for the three months ended March 31, 2021.

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Distributions paid in cash $ 30,247,000

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$ 52,694,000 100 %

As of June 30, 2022, 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 some portion of a distribution to our stockholders may have been paid from borrowings.

For a further discussion of FFO, including a reconciliation of our GAAP net loss to FFO, see “Funds from Operations and Modified Funds from Operations,” below.

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

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

As of March 31, 2022, our aggregate borrowings were 46.9% of the combined market value of all of our real estate and real estate-related investments.

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

As of June 30, 2022, our aggregate borrowings were 47.4% of the combined market value of all of our real estate and real estate-related investments.

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, 2022, we had $1,121,901,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of March 31, 2022, we had $1,239,134,000 outstanding and $170,866,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt was 2.72% per annum as of March 31, 2022.

As of June 30, 2022, we had $1,152,998,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of June 30, 2022, we had $1,267,634,000 outstanding and $142,366,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt was 3.43% per annum as of June 30, 2022.

See Note 8, Mortgage Loans Payable, Net and Note 9, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

We are required by the terms of certain loan documents to meet various financial and non-financial covenants, such as leverage ratios, net worth ratios, debt service coverage ratios and fixed charge coverage ratios.

Except as explained below, as of March 31, 2022, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loans.

While the extent and severity of the COVID-19 pandemic on our business is subsiding, any potential future deterioration of operations in excess of management's projections as a result of COVID-19 could impact future compliance with these covenants.

As of June 30, 2022, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loans.

While the extent and severity of the COVID-19 pandemic on our business has been subsiding, any potential future deterioration of operations in excess of management's projections as a result of COVID-19 could impact future compliance with these covenants.

If any future covenants are violated, we anticipate seeking a waiver or amending the debt covenants with the lenders when and if such event should occur.

However, there can be no assurances that management will be able to effectively achieve such plans.

Some of our mortgage loan agreements include a standard loan term requiring lender approval for a change of control event, which was triggered upon the closing of the Merger.

All of our mortgage lenders and loan servicers approved such event, except for the servicers of two of our mortgage loans with an aggregate principal balance of $14,137,000, for which approvals were received in April 2022.

During the three months ended March 31, 2022 and 2021, inflation has not significantly affected our operations;

however, the annual rate of inflation in the United States reached 8.3% in April 2022, the highest rate in more than four decades, as measured by the Consumer Price Index, and while we believe inflation has not significantly impacted our operations, we have experienced, and continue to experience, increases in the cost of labor, services and personal protective equipment and therefore continued inflationary pressures could impact our profitability in future periods.

During the six months ended June 30, 2022 and 2021, inflation has not significantly affected our operations;

however, the annual rate of inflation in the United States reached 8.5% in July 2022, as measured by the Consumer Price Index, and while we believe inflation has not significantly impacted our operations, we have experienced, and continue to experience, increases in the cost of labor, services and personal protective equipment and therefore continued inflationary pressures could impact our profitability in future periods.

There are provisions in the majority of our tenant leases that will protect us from the impact of inflation.

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By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after the initial offering stage has been completed and our properties have been acquired.

We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry.

We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT

Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities.

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Modified Funds from Operations , or the Practice Guideline, issued by the IPA in November 2010.

The Practice Guideline defines modified funds from operations as funds from operations further

adjusted for the following items included in the determination of GAAP net income (loss):

The Practice Guideline defines modified funds from operations as funds from operations further adjusted for the following items included in the determination of GAAP net income (loss):

expensed acquisition fees and costs;

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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 the three months ended March 31, 2022 and 2021, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable, and within loss from unconsolidated entities.

For the three and six months ended June 30, 2022 and 2021, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable, and within loss from unconsolidated entities.

Such amounts were granted through federal and state government programs, such as through the CARES Act, and which 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 would have had a material adverse impact to our FFO and MFFO.

For the three months ended March 31, 2022 and 2021, FFO would have been approximately $28,244,000 and $4,458,000, respectively, excluding government grants recognized.

For the three months ended March 31, 2022 and 2021, MFFO would have been approximately $32,722,000 and $4,707,000, respectively, excluding government grants recognized.

For the three months ended June 30, 2022 and 2021, FFO would have been approximately $24,638,000 and $17,168,000, respectively, excluding government grants recognized.

For the six months ended June 30, 2022 and 2021, FFO would have been approximately $52,882,000 and $21,626,000, respectively, excluding government grants recognized.

For the three months ended June 30, 2022 and 2021, MFFO would have been approximately $28,752,000 and $17,974,000, respectively, excluding government grants recognized.

For the six months ended June 30, 2022 and 2021, MFFO would have been approximately $61,474,000 and $22,681,000, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

$ (15,542,000) $ (7,961,000) $ (16,439,000) $ (24,234,000)

Depreciation and amortization related to real estate — consolidated properties 39,939,000 26,357,000 82,250,000 52,080,000

Depreciation and amortization related to real estate — unconsolidated entities 420,000 762,000 846,000 1,568,000

(Gain) loss on dispositions of real estate investments — consolidated properties (756,000) 335,000

Impairment of real estate investments — consolidated properties 17,340,000 3,335,000 17,340,000 3,335,000

Loss (gain) on dispositions of real estate investments — consolidated properties 73,000 42,000 (683,000) 377,000

Net (income) loss attributable to noncontrolling interests (1,768,000) 283,000 (3,827,000) 4,709,000

Depreciation, amortization and gain/loss on dispositions — noncontrolling interests (6,409,000) (4,765,000)

Depreciation, amortization, impairments and gain/loss on dispositions — noncontrolling interests (7,744,000) (4,891,000) (14,153,000) (9,656,000)

FFO attributable to controlling interest $ 32,718,000 $ 17,927,000 $ 65,334,000 $ 28,179,000

$ 32,616,000 $ 10,252,000

Business acquisition expenses(1) $ 1,757,000 $ 2,750,000 $ 1,930,000 $ 3,998,000

Amortization of above- and below-market leases(2) 699,000 212,000 1,204,000 248,000

505,000 36,000

Amortization of closing costs(3) 58,000 49,000 114,000 96,000

Change in deferred rent(4) (1,278,000) (148,000) (2,304,000) (482,000)

(1,026,000) (334,000)

Loss on debt extinguishments(5) 4,591,000 2,288,000

(Gain) loss on debt extinguishments(5) (181,000) 5,000 4,410,000 2,293,000

Gain in fair value of derivative financial instruments(6) — (1,775,000) (500,000) (3,596,000)

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MFFO attributable to controlling interest $ 36,832,000 $ 18,733,000 $ 73,926,000 $ 29,234,000

$ 37,094,000 $ 10,501,000

Weighted average common shares outstanding — basic and diluted

262,516,815 179,627,778

Net loss per common share — basic and diluted $ — $ (0.09)

FFO attributable to controlling interest per common share — basic and diluted $ 0.12 $ 0.06

MFFO attributable to controlling interest per common share — basic and diluted $ 0.14 $ 0.06

Weighted average Class T and Class I common shares outstanding — basic and diluted 263,017,692 179,628,847 262,768,637 179,628,315

Net loss per Class T and Class I common share — basic and diluted $ (0.06) $ (0.04) $ (0.06) $ (0.13)

FFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 0.12 $ 0.10 $ 0.25 $ 0.16

MFFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 0.14 $ 0.10 $ 0.28 $ 0.16

(1) In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment.

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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 the three months ended March 31, 2022 and 2021, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable.

For the three and six months ended June 30, 2022 and 2021, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable.

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 would have had a material adverse impact to our NOI.

For the three months ended March 31, 2022 and 2021, NOI would have been approximately $68,470,000 and $29,852,000, respectively, excluding government grants recognized.

For the three months ended June 30, 2022 and 2021, NOI would have been approximately $66,608,000 and $48,449,000, respectively, excluding government grants recognized.

For the six months ended June 30, 2022 and 2021, NOI would have been approximately $135,078,000 and $78,301,000, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

$ (15,542,000) $ (7,961,000) $ (16,439,000) $ (24,234,000)

General and administrative 10,928,000 7,343,000 22,047,000 14,600,000

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Interest expense 20,345,000 16,715,000 43,170,000 35,259,000

(Gain) loss on dispositions of real estate investments (756,000) 335,000

Loss (gain) on dispositions of real estate investments 73,000 42,000 (683,000) 377,000

Impairment of real estate investments 17,340,000 3,335,000 17,340,000 3,335,000

(Income) loss from unconsolidated entities (638,000) 901,000 (2,024,000) 2,672,000

Foreign currency loss (gain) 3,607,000 (238,000) 4,994,000 (653,000)

(1,260,000) (272,000)

Other income (469,000) (191,000) (1,729,000) (463,000)

Income tax expense 205,000 495,000 373,000 658,000

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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