UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54371

GRUBB & ELLIS HEALTHCARE REIT II, INC.

(Exact name of registrant as specified in its charter)

Maryland		26-4008719
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)
1551 N. Tustin Avenue,
Suite 300, Santa Ana, California		92705
(Address of principal executive offices)		(Zip Code)

(714) 667-8252
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

As of October 31, 2011, there were 42,803,820 shares of common stock of Grubb & Ellis Healthcare REIT II, Inc. outstanding.

 

 

Grubb & Ellis Healthcare REIT II, Inc.
(A Maryland Corporation)
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			3
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)			3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)			4
Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			55
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			56
Item 1A. Risk Factors			56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			60
Item 3. Defaults Upon Senior Securities			62
Item 4. [Removed and Reserved.]			62
Item 5. Other Information			62
Item 6. Exhibits			62
Signatures			63
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements.

Grubb & Ellis Healthcare REIT II, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2011 and December 31, 2010
(Unaudited)

		September 30, 2011				December 31, 2010
ASSETS
Real estate investments:
Operating properties, net		$	366,402,000			$	163,335,000
Cash and cash equivalents			8,812,000				6,018,000
Accounts and other receivables, net			1,314,000				241,000
Restricted cash			2,389,000				2,816,000
Real estate and escrow deposits			3,650,000				649,000
Identified intangible assets, net			65,778,000				28,568,000
Other assets, net			6,194,000				2,369,000
Total assets		$	454,539,000			$	203,996,000
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans payable, net		$	64,853,000			$	58,331,000
Lines of credit			44,947,000				11,800,000
Accounts payable and accrued liabilities			7,649,000				3,356,000
Accounts payable due to affiliates			1,523,000				840,000
Derivative financial instruments			880,000				453,000
Identified intangible liabilities, net			652,000				502,000
Security deposits, prepaid rent and other liabilities			10,683,000				3,352,000
Total liabilities			131,187,000				78,634,000
Commitments and contingencies (Note 10)
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 39,919,575 and 15,452,668 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively			399,000				154,000
Additional paid-in capital			355,487,000				137,657,000
Accumulated deficit			(32,656,000	)			(12,571,000	)
Total stockholders’ equity			323,230,000				125,240,000
Noncontrolling interests (Note 12)			122,000				122,000
Total equity			323,352,000				125,362,000
Total liabilities and equity		$	454,539,000			$	203,996,000

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

Grubb & Ellis Healthcare REIT II, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2011 and 2010
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenue:
Rental income		$	12,504,000			$	2,807,000			$	27,186,000			$	4,010,000
Expenses:
Rental expenses			2,664,000				834,000				5,684,000				1,241,000
General and administrative			1,563,000				503,000				3,942,000				1,048,000
Acquisition related expenses			913,000				2,847,000				9,698,000				5,179,000
Depreciation and amortization			4,553,000				1,157,000				10,029,000				1,722,000
Total expenses			9,693,000				5,341,000				29,353,000				9,190,000
Income (loss) from operations			2,811,000				(2,534,000	)			(2,167,000	)			(5,180,000	)
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount and premium):
Interest expense			(2,199,000	)			(323,000	)			(4,767,000	)			(432,000	)
Loss in fair value of derivative financial instruments			(202,000	)			(74,000	)			(427,000	)			(194,000	)
Interest income			3,000				1,000				9,000				14,000
Net income (loss)			413,000				(2,930,000	)			(7,352,000	)			(5,792,000	)
Less: net income attributable to noncontrolling interests			—				(1,000	)			(1,000	)			(1,000	)
Net income (loss) attributable to controlling interest		$	413,000			$	(2,931,000	)		$	(7,353,000	)		$	(5,793,000	)
Net income (loss) per common share attributable to controlling interest — basic and diluted		$	0.01			$	(0.34	)		$	(0.28	)		$	(1.02	)
Weighted average number of common shares outstanding — basic and diluted			34,644,097				8,745,255				26,171,404				5,687,117
Distributions declared per common share		$	0.16			$	0.16			$	0.33			$	0.49

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

Grubb & Ellis Healthcare REIT II, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2011 and 2010
(Unaudited)

		Stockholders’ Equity
		Common Stock
		Number of								Additional				Preferred				Accumulated				Noncontrolling
		Shares				Amount				Paid-In Capital				Stock				Deficit				Interests				Total Equity
BALANCE — December 31, 2010			15,452,668			$	154,000			$	137,657,000			$	—			$	(12,571,000	)		$	122,000			$	125,362,000
Issuance of common stock			23,946,590				240,000				238,762,000				—				—				—				239,002,000
Offering costs			—				—				(25,860,000	)			—				—				—				(25,860,000	)
Issuance of vested and nonvested restricted common stock			7,500				—				15,000				—				—				—				15,000
Issuance of common stock under the DRIP			589,330				6,000				5,593,000				—				—				—				5,599,000
Repurchase of common stock			(76,513	)			(1,000	)			(718,000	)			—				—				—				(719,000	)
Amortization of nonvested common stock compensation			—				—				38,000				—				—				—				38,000
Distributions to noncontrolling interests			—				—				—				—				—				(1,000	)			(1,000	)
Distributions declared			—				—				—				—				(12,732,000	)			—				(12,732,000	)
Net (loss) income			—				—				—				—				(7,353,000	)			1,000				(7,352,000	)
BALANCE — September 30, 2011			39,919,575			$	399,000			$	355,487,000			$	—			$	(32,656,000	)		$	122,000			$	323,352,000

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

		Stockholders’ Equity
		Common Stock
		Number of								Additional				Preferred				Accumulated				Noncontrolling
		Shares				Amount				Paid-In Capital				Stock				Deficit				Interests				Total Equity
BALANCE — December 31, 2009			1,532,268			$	15,000			$	13,549,000			$	—			$	(281,000	)		$	1,000			$	13,284,000
Issuance of common stock			8,930,259				90,000				89,000,000				—				—				—				89,090,000
Offering costs			—				—				(9,605,000	)			—				—				—				(9,605,000	)
Issuance of vested and nonvested restricted common stock			7,500				—				15,000				—				—				—				15,000
Issuance of common stock under the DRIP			114,983				1,000				1,091,000				—				—				—				1,092,000
Repurchase of common stock			(11,000	)			—				(110,000	)			—				—				—				(110,000	)
Amortization of nonvested common stock compensation			—				—				27,000				—				—				—				27,000
Contribution from noncontrolling interest			—				—				—				—				—				200,000				200,000
Distributions to noncontrolling interests			—				—				—				—				—				(77,000	)			(77,000	)
Contribution from sponsor			—				—				259,000				—				—				—				259,000
Distributions declared			—				—				—				—				(2,772,000	)			—				(2,772,000	)
Net (loss) income			—				—				—				—				(5,793,000	)			1,000				(5,792,000	)
BALANCE — September 30, 2010			10,574,010			$	106,000			$	94,226,000			$	—			$	(8,846,000	)		$	125,000			$	85,611,000

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

Grubb & Ellis Healthcare REIT II, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2011 and 2010
(Unaudited)

		Nine Months Ended
		September 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(7,352,000	)		$	(5,792,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization (including deferred financing costs, above/below market leases, leasehold interests, master leases, debt discount and premium and deferred rent receivable)			9,433,000				1,598,000
Stock based compensation			53,000				42,000
Bad debt expense			250,000				—
Changes in fair value of derivative financial instruments			427,000				194,000
Changes in operating assets and liabilities:
Accounts and other receivables			(1,092,000	)			(453,000	)
Other assets			(208,000	)			(181,000	)
Accounts payable and accrued liabilities			2,809,000				1,256,000
Accounts payable due to affiliates			306,000				120,000
Security deposits, prepaid rent and other liabilities			(361,000	)			(264,000	)
Net cash provided by (used in) operating activities			4,265,000				(3,480,000	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate operating properties			(206,287,000	)			(128,761,000	)
Capital expenditures			(2,755,000	)			(18,000	)
Restricted cash			427,000				(2,225,000	)
Real estate and escrow deposits			(3,001,000	)			(759,000	)
Net cash used in investing activities			(211,616,000	)			(131,763,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on mortgage loans payable			27,700,000				34,810,000
Payments on mortgage loans payable			(55,044,000	)			(139,000	)
Borrowings under the lines of credit			274,116,000				32,400,000
Payments under the lines of credit			(240,969,000	)			(19,750,000	)
Proceeds from issuance of common stock			239,002,000				89,090,000
Deferred financing costs			(2,561,000	)			(1,311,000	)
Repurchase of common stock			(719,000	)			(110,000	)
Contribution from sponsor			—				259,000
Distributions to noncontrolling interests			(1,000	)			(77,000	)
Security deposits			48,000				8,000
Payments of offering costs			(25,535,000	)			(9,610,000	)
Distributions paid			(5,892,000	)			(1,146,000	)
Net cash provided by financing activities			210,145,000				124,424,000
NET CHANGE IN CASH AND CASH EQUIVALENTS			2,794,000				(10,819,000	)
CASH AND CASH EQUIVALENTS — Beginning of period			6,018,000				13,773,000
CASH AND CASH EQUIVALENTS — End of period		$	8,812,000			$	2,954,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest		$	3,910,000			$	277,000
Income taxes		$	3,000			$	—
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Investing Activities:
Accrued capital expenditures		$	650,000			$	22,000
The following represents the increase in certain assets and liabilities in connection with our acquisitions of operating properties:
Other receivables		$	87,000			$	—
Other assets		$	331,000			$	124,000
Mortgage loans payable, net		$	33,941,000			$	7,439,000
Derivative financial instrument		$	—			$	310,000
Accounts payable and accrued liabilities		$	235,000			$	323,000
Security deposits, prepaid rent and other liabilities		$	7,694,000			$	3,446,000
Financing Activities:
Issuance of common stock under the DRIP		$	5,599,000			$	1,092,000
Distributions declared but not paid		$	2,035,000			$	534,000
Contribution from noncontrolling interest		$	—			$	200,000
Accrued offering costs		$	950,000			$	277,000
Accrued deferred financing costs		$	3,000			$	13,000

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

Grubb & Ellis Healthcare REIT II, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30, 2011 and 2010

The use of the words “we,” “us” or “our” refers to Grubb & Ellis Healthcare REIT II, Inc. and its subsidiaries, including Grubb & Ellis Healthcare REIT II Holdings, LP, except where the context otherwise requires.

1. Organization and Description of Business

Grubb & Ellis Healthcare REIT II, Inc., a Maryland corporation, was incorporated on January 7, 2009 and therefore we consider that our date of inception. We were initially capitalized on February 4, 2009. We intend to invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings and healthcare-related facilities. We may also originate and acquire secured loans and real estate-related investments. We generally will seek investments that produce current income. We qualified to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes beginning with our taxable year ended December 31, 2010 and we intend to continue to be taxed as a REIT.

We are conducting a best efforts initial public offering, or our offering, in which we are offering to the public up to 300,000,000 shares of our common stock for $10.00 per share in our primary offering and 30,000,000 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, for a maximum offering of up to $3,285,000,000. The United States Securities and Exchange Commission, or SEC, declared our registration statement effective as of August 24, 2009. We will sell shares of our common stock in our offering until the earlier of August 24, 2012, or the date on which the maximum offering amount has been sold; provided, however, that our board of directors may extend our offering as permitted under applicable law, or we may extend our offering with respect to shares of our common stock offered pursuant to the DRIP. However, we reserve the right to terminate our offering at any time prior to such termination date. As of September 30, 2011, we had received and accepted subscriptions in our offering for 39,168,803 shares of our common stock, or $390,864,000, excluding shares of our common stock issued pursuant to the DRIP.

We conduct substantially all of our operations through Grubb & Ellis Healthcare REIT II Holdings, LP, or our operating partnership. We are externally advised by Grubb & Ellis Healthcare REIT II Advisor, LLC, or G&E Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. For a further discussion of the Advisory Agreement, see Note 18, Subsequent Events — Transition of Advisory and Dealer Manager Services. Our advisor supervises and manages our day-to-day operations and selects the properties and real estate-related investments we acquire, subject to the oversight and approval of our board of directors. Our advisor also provides marketing, sales and client services on our behalf. Our advisor engages affiliated entities to provide various services to us. Our advisor is managed by and is a wholly owned subsidiary of Grubb & Ellis Equity Advisors, LLC, or Grubb & Ellis Equity Advisors, which is a wholly owned subsidiary of Grubb & Ellis Company, or Grubb & Ellis, or our sponsor.

We currently operate through three reportable business segments — medical office buildings, hospitals and skilled nursing facilities. As of September 30, 2011, we had completed 24 acquisitions comprising 55 buildings and approximately 1,929,000 square feet of gross leasable area, or GLA, for an aggregate purchase price of $430,785,000.

Grubb & Ellis Healthcare REIT II, Inc.

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

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.

Basis of Presentation

Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries and any variable interest entities, or VIEs, as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810, which we have concluded should be consolidated pursuant to ASC Topic 810. We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership, will own substantially all of the properties acquired on our behalf. We are the sole general partner of our operating partnership and as of September 30, 2011 and December 31, 2010 own a 99.99% general partnership interest therein. Our advisor is a limited partner and as of September 30, 2011 and December 31, 2010 owns less than a 0.01% noncontrolling limited partnership interest in our operating partnership. Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions, the accounts of our operating partnership are consolidated in our condensed consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K, as filed with the SEC on March 10, 2011.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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.

Grubb & Ellis Healthcare REIT II, Inc.

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

Other Liabilities

As of September 30, 2011 and December 31, 2010, included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets is $6,058,000 and $0, respectively, of contingent purchase price consideration in connection with the acquisition of Yuma Skilled Nursing Facility, Philadelphia SNF Portfolio and Maxfield Medical Office Building. Such amounts are due upon certain criteria being met within specified timeframes. See Note 13, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, for a further discussion.

Allowance for Uncollectible Accounts

Tenant receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. We maintain an allowance for deferred rent receivables arising from the straight line recognition of rents. Such allowance is charged to bad debt expense which is included in general and administrative in our accompanying condensed consolidated statements of operations. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of September 30, 2011 and December 31, 2010, we had $111,000 and $5,000, respectively, in allowance for uncollectible accounts which was determined necessary to reduce receivables to our estimate of the amount recoverable. As of September 30, 2011 and December 31, 2010, we did not have an allowance for uncollectible accounts for deferred rent receivables. For the three and nine months ended September 30, 2011 and 2010, none of our receivables were directly written off to bad debt expense. For the three months ended September 30, 2011 and 2010, none of our deferred rent receivables were directly written off to bad debt expense and for the nine months ended September 30, 2011 and 2010, $144,000 and $0, respectively, of our deferred rent receivables were directly written off to bad debt expense.

Segment Disclosure

ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. As of September 30, 2011, we operate through three reportable business segments — medical office buildings, hospitals and skilled nursing facilities. With the continued expansion of our portfolio, we believe segregation of our operations into three reporting segments would be useful in assessing the performance of our business in the same way that management intends to review our performance and make operating decisions. Prior to 2011, we operated through one reportable segment. See Note 15, Segment Reporting, for a further discussion.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update, or ASU, 2010-06, Improving Disclosures about Fair Value Measurements, or ASU 2010-06. ASU 2010-06 amends ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820, to require additional disclosure and clarify existing disclosure requirements about fair value measurements. ASU 2010-06 requires entities to provide fair value disclosures by each class of assets and liabilities, which may be a subset of assets and liabilities within a line item in the statement of financial position. The additional requirements also include disclosure regarding the amounts and reasons for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and separate presentation of purchases, sales, issuances and settlements of items within Level 3 of the fair value hierarchy. The guidance clarifies existing disclosure requirements regarding the inputs and valuation techniques used to measure fair value for measurements that fall in either Level 2 or Level 3 of the hierarchy. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances and settlements, which disclosure requirements are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We adopted ASU 2010-06 on January 1, 2010 and January 1, 2011, as applicable, which only applies to our disclosures on the fair value of financial instruments. The adoption of ASU 2010-06 did not have a material impact on our footnote disclosures. We have provided the applicable disclosures in Note 13, Fair Value Measurements.

Grubb & Ellis Healthcare REIT II, Inc.

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

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04, which changes the wording used to describe the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements in order to improve consistency in the application and description of fair value between GAAP and International Financial Reporting Standards, or IFRS. Additional disclosure requirements in ASU 2011-04 include: (i) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by an entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (ii) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (iii) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (iv) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. Early adoption is not permitted. We intend to adopt ASU 2011-04 on January 1, 2012. We do not expect the adoption of ASU 2011-04 to have a material effect on our condensed consolidated financial statements, but it will require certain additional footnote disclosures.

3. Real Estate Investments

Our investments in our consolidated properties consisted of the following as of September 30, 2011 and December 31, 2010:

		September 30, 2011				December 31, 2010
Land		$	26,326,000			$	14,592,000
Building and improvements			347,730,000				150,813,000
Furniture, fixtures and equipment			1,065,000				—
			375,121,000				165,405,000
Less: accumulated depreciation			(8,719,000	)			(2,070,000	)
		$	366,402,000			$	163,335,000

Depreciation expense for the three months ended September 30, 2011 and 2010 was $3,120,000 and $615,000, respectively, and for the nine months ended September 30, 2011 and 2010 was $6,688,000 and $902,000, respectively. In addition to the acquisitions discussed below, for the three months ended September 30, 2011 and 2010, we had capital expenditures of $1,364,000 and $37,000, respectively, and for the nine months ended September 30, 2011 and 2010, we had capital expenditures of $2,698,000 and $40,000, respectively, on our medical office buildings. For the three months ended September 30, 2011 and 2010 we had capital expenditures of $300,000 and $0, respectively, and for the nine months ended September 30, 2011 and 2010 we had capital expenditures of $300,000 and $0, respectively, on our hospitals.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating, acquiring and investing in properties. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested directors, including a majority of our independent directors. As of September 30, 2011, such fees and expenses did not exceed 6.0% of the purchase price of our acquisitions, except with respect to our acquisition of Lakewood Ranch Medical Office Building, or the Lakewood Ranch property, and Philadelphia SNF Portfolio. For a further discussion see footnote (5) and footnote (6) to the table below.

Grubb & Ellis Healthcare REIT II, Inc.

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

Acquisitions in 2011

During the nine months ended September 30, 2011, we completed 11 acquisitions comprising 30 buildings from unaffiliated parties. The aggregate purchase price of these properties was $237,343,000 and we paid $6,523,000 in acquisition fees to our advisor or its affiliates in connection with these acquisitions. The following is a summary of our acquisitions for the nine months ended September 30, 2011:

																								Acquisition Fee
								Ownership				Purchase				Mortgage Loans				Lines of				to our Advisor
Property		Location		Type		Date Acquired		Percentage				Price				Payable(1)				Credit(2)				or its Affiliates(3)
Columbia Long-Term Acute Care Hospital(4)		Columbia, MO		Hospital		01/31/11			100	%		$	12,423,000			$	—			$	11,000,000			$	336,000
St. Anthony North Medical Office Building		Westminster, CO		Medical Office		03/29/11			100	%			11,950,000				—				—				329,000
Loma Linda Pediatric Specialty Hospital		Loma Linda, CA		Skilled Nursing		03/31/11			100	%			13,000,000				—				8,700,000				358,000
Yuma Skilled Nursing Facility		Yuma, AZ		Skilled Nursing		04/13/11			100	%			11,000,000				—				9,000,000				303,000
Hardy Oak Medical Office Building		San Antonio, TX		Medical Office		04/14/11			100	%			8,070,000				5,253,000				—				222,000
Lakewood Ranch Medical Office Building(5)		Bradenton, FL		Medical Office		04/15/11			100	%			12,500,000				—				13,800,000				344,000
Dixie-Lobo Medical Office Building Portfolio		Alice, Lufkin,
		Victoria and
		Wharton, TX,
		Carlsbad and
		Hobbs, NM,
		Hope, AR and
		Lake Charles, LA		Medical Office		05/12/11			100	%			30,050,000				23,239,000				5,000,000				826,000
Milestone Medical Office Building Portfolio		Jersey City, NJ and
		Bryant and
		Benton, AR		Medical Office		05/26/11			100	%			44,050,000				5,000,000				31,115,000				1,211,000
Philadelphia SNF Portfolio(6)		Philadelphia, PA		Skilled Nursing		06/30/11			100	%			75,000,000				—				74,870,000				2,063,000
Maxfield Medical Office Building		Sarasota, FL		Medical Office		07/11/11			100	%			7,200,000				5,119,000				—				198,000
Lafayette Physical Rehabiliation Hospital		Lafayette, LA		Hospital		09/30/11			100	%			12,100,000				—				12,000,000				333,000
Total												$	237,343,000			$	38,611,000			$	165,485,000			$	6,523,000

Grubb & Ellis Healthcare REIT II, Inc.

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

Acquisitions in 2010

During the nine months ended September 30, 2010, we completed 10 acquisitions comprising 19 buildings from unaffiliated parties. The aggregate purchase price of these properties was $138,028,000 and we paid $3,808,000 in acquisition fees to our advisor or its affiliates in connection with these acquisitions. The following is a summary of our acquisitions for the nine months ended September 30, 2010:

																Mortgage								Acquisition Fee
						Date		Ownership				Purchase				Loans								to our Advisor
Property		Location		Type		Acquired		Percentage				Price				Payable(1)				Line of Credit(2)				or its Affiliates(3)
Lacombe Medical Office Building		Lacombe, LA		Medical Office		03/05/10			100	%		$	6,970,000			$	—			$	—			$	192,000
Center for Neurosurgery and Spine		Sartell, MN		Medical Office		03/31/10			100	%			6,500,000				3,341,000				—				179,000
Parkway Medical Center		Beachwood, OH		Medical Office		04/12/10			100	%			10,900,000				—				—				300,000
Highlands Ranch		Highlands
Medical Pavilion		Ranch, CO		Medical Office		04/30/10			100	%			8,400,000				4,443,000				—				231,000
Muskogee Long-Term Acute Care Hospital		Muskogee, OK		Hospital		05/27/10			100	%			11,000,000				—				—				303,000
St. Vincent Medical Office Building		Cleveland, OH		Medical Office		06/25/10			100	%			10,100,000				—				—				278,000
Livingston Medical Arts Pavilion		Livingston, TX		Medical Office		06/28/10			100	%			6,350,000				—				—				175,000
Pocatello East Medical Office Building		Pocatello, ID		Medical Office		07/27/10			98.75	%			15,800,000				—				5,000,000				435,000
Monument Long-Term Acute Care Hospital Portfolio(4)		Cape Girardeau and Joplin, MO		Hospital		Various			100	%			17,008,000				—				14,500,000				477,000
Virginia Skilled		Charlottesville,
Nursing Facility		Bastian, Lebanon,
Portfolio		Fincastle, Low Moor,
		Midlothian and Hot
		Springs, VA		Skilled Nursing		09/16/10			100	%			45,000,000				26,810,000				12,900,000				1,238,000
Total												$	138,028,000			$	34,594,000			$	32,400,000			$	3,808,000

Grubb & Ellis Healthcare REIT II, Inc.

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

4. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of September 30, 2011 and December 31, 2010:

		September 30, 2011				December 31, 2010
In place leases, net of accumulated amortization of $2,879,000 and $1,028,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 10.7 years and 11.3 years as of September 30, 2011 and December 31, 2010, respectively)		$	28,567,000			$	13,245,000
Above market leases, net of accumulated amortization of $397,000 and $121,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 9.0 years and 9.6 years as of September 30, 2011 and December 31, 2010, respectively)			2,771,000				1,795,000
Tenant relationships, net of accumulated amortization of $1,195,000 and $377,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 20.1 years and 21.8 years as of September 30, 2011 and December 31, 2010, respectively)			22,327,000				11,912,000
Leasehold interests, net of accumulated amortization of $90,000 and $2,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 59.8 years and 62.4 years as of September 30, 2011 and December 31, 2010, respectively)			11,440,000				1,256,000
Master leases, net of accumulated amortization of $362,000 and $95,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 1.4 years and 1.6 years as of September 30, 2011 and December 31, 2010, respectively)			673,000				360,000
		$	65,778,000			$	28,568,000

Amortization expense for the three months ended September 30, 2011 and 2010 was $1,673,000 and $590,000, respectively, which included $196,000 and $47,000, respectively, of amortization recorded against rental income for above market leases and master leases and $52,000 and $1,000, respectively, of amortization recorded in rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations. Amortization expense for the nine months ended September 30, 2011 and 2010 was $3,807,000 and $894,000, respectively, which included $395,000 and $73,000, respectively, of amortization recorded against rental income for above market leases and master leases and $88,000 and $1,000, respectively, of amortization recorded in rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations.

The aggregated weighted average remaining life of the identified intangible assets is 22.3 years and 17.7 years as of September 30, 2011 and December 31, 2010, respectively. As of September 30, 2011, estimated amortization expense on the identified intangible assets for the three months ending December 31, 2011 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2011		$	1,630,000
2012			6,067,000
2013			5,458,000
2014			4,789,000
2015			4,440,000
Thereafter			43,394,000
		$	65,778,000

Grubb & Ellis Healthcare REIT II, Inc.

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

5. Other Assets, Net

Other assets, net consisted of the following as of September 30, 2011 and December 31, 2010:

		September 30, 2011				December 31, 2010
Deferred financing costs, net of accumulated amortization of $1,009,000 and $225,000 as of September 30, 2011 and December 31, 2010, respectively		$	2,974,000			$	1,390,000
Lease commissions, net of accumulated amortization of $18,000 and $1,000 as of September 30, 2011 and December 31, 2010, respectively			384,000				58,000
Deferred rent receivables			2,295,000				576,000
Prepaid expenses and deposits			541,000				345,000
		$	6,194,000			$	2,369,000

Amortization expense on deferred financing costs for the three months ended September 30, 2011 and 2010 was $410,000 and $44,000, respectively, and for the nine months ended September 30, 2011 and 2010 was $923,000 and $49,000, respectively. Amortization expense on deferred financing costs is recorded to interest expense in our accompanying condensed consolidated statements of operations.

Amortization expense on lease commissions for the three months ended September 30, 2011 and 2010 was $8,000 and $0, respectively, and for the nine months ended September 30, 2011 and 2010 was $17,000 and $0, respectively.

As of September 30, 2011, estimated amortization expense on deferred financing costs and lease commissions for the three months ending December 31, 2011 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2011		$	400,000
2012			1,113,000
2013			704,000
2014			455,000
2015			188,000
Thereafter			498,000
		$	3,358,000

6. Mortgage Loans Payable, Net

Mortgage loans payable were $64,914,000 ($64,853,000, net of discount and premium) and $58,648,000 ($58,331,000, net of discount) as of September 30, 2011 and December 31, 2010, respectively.

As of September 30, 2011, we had five fixed rate and four variable rate mortgage loans payable with effective interest rates ranging from 1.33% to 6.60% per annum and a weighted average effective interest rate of 4.88% per annum. As of September 30, 2011, we had $37,803,000 ($38,016,000, net of discount and premium) of fixed rate debt, or 58.2% of mortgage loans payable, at a weighted average effective interest rate of 5.77% per annum and $27,111,000 ($26,837,000, net of discount) of variable rate debt, or 41.8% of mortgage loans payable, at a weighted average effective interest rate of 3.64% per annum.

As of December 31, 2010, we had two fixed rate and four variable rate mortgage loans payable with effective interest rates ranging from 1.36% to 6.00% per annum and a weighted average effective interest rate of 5.12% per annum. As of December 31, 2010, we had $12,354,000 ($12,332,000, net of discount) of fixed rate debt, or 21.1% of mortgage loans payable, at a weighted average effective interest rate of 5.96% per annum and $46,294,000 ($45,999,000, net of discount) of variable rate debt, or 78.9% of mortgage loans payable, at a weighted average effective interest rate of 4.90% per annum.

Most of the mortgage loans payable may be prepaid, which in some cases are subject to a prepayment premium. We are required by the terms of certain loan documents to meet certain covenants, such as occupancy ratios, leverage ratios, net worth ratios, debt service coverage ratios, liquidity ratios, operating cash flow to fixed charges ratios, distribution ratios and reporting requirements. As of September 30, 2011 and December 31, 2010, we were in compliance with all such covenants and requirements.

Grubb & Ellis Healthcare REIT II, Inc.

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

Mortgage loans payable, net consisted of the following as of September 30, 2011 and December 31, 2010:

		Interest
Property		Rate(1)				Maturity Date		September 30, 2011				December 31, 2010
Fixed Rate Debt:
Highlands Ranch Medical Pavilion			5.88	%		11/11/12		$	4,313,000			$	4,383,000
Pocatello East Medical Office Building			6.00	%		10/01/20			7,835,000				7,971,000
Monument LTACH Portfolio			5.53	%		06/19/18			15,357,000				—
Hardy Oak Medical Office Building			6.60	%		10/10/16			5,206,000				—
Maxfield Medical Office Building			5.17	%		02/28/15			5,092,000				—
									37,803,000				12,354,000
Variable Rate Debt:
Center for Neurosurgery and Spine(2)			1.33	%		08/15/21 (callable)			3,021,000				3,184,000
Virginia Skilled Nursing Facility Portfolio(3)			5.50	%		03/14/12			9,771,000				26,810,000
Surgical Hospital of Humble(4)			—			—			—				9,000,000
Lawton Medical Office Building Portfolio			3.10	%		01/01/16			7,185,000				7,300,000
Muskogee Long-Term Acute Care Hospital			2.62	%		04/08/18			7,134,000				—
									27,111,000				46,294,000
Total fixed and variable rate debt									64,914,000				58,648,000
Less: discount									(301,000	)			(317,000	)
Add: premium									240,000				—
Mortgage loans payable, net								$	64,853,000			$	58,331,000

In addition to the mortgage loans payable noted above, on May 12, 2011, we assumed a mortgage loan payable in connection with the acquisition of Dixie-Lobo Medical Office Building Portfolio in the amount of $23,239,000. On September 29, 2011, we paid off the remaining principal balance of $23,132,000 in full without any prepayment penalties being assessed. In connection with the early extinguishment, we wrote off $32,000 of deferred financing costs and $30,000 of debt premium, which is included in interest expense in our accompanying condensed consolidated statements of operations.

Grubb & Ellis Healthcare REIT II, Inc.

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

As of September 30, 2011, the principal payments due on our mortgage loans payable for the three months ending December 31, 2011 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2011		$	3,348,000
2012			15,303,000
2013			1,306,000
2014			1,349,000
2015			5,768,000
Thereafter			37,840,000
		$	64,914,000

7. Derivative Financial Instruments

ASC Topic 815, Derivatives and Hedging, or ASC Topic 815, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. We utilize derivatives such as fixed interest rate swaps to add stability to interest expense and to manage our exposure to interest rate movements. Consistent with ASC Topic 815, we record derivative financial instruments in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. ASC Topic 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item or items or to be deferred in other comprehensive income.

As of September 30, 2011, no derivatives were designated as fair value hedges or cash flow hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in gain (loss) in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations. For the three months ended September 30, 2011 and 2010, we recorded $202,000 and $74,000, respectively, and for the nine months ended September 30, 2011 and 2010, we recorded $427,000 and $194,000, respectively, as an increase to interest expense in our accompanying condensed consolidated statements of operations related to the change in the fair value of our derivative financial instruments.

The following table lists the derivative financial instruments held by us as of September 30, 2011:

						Interest										Maturity
Notional Amount				Index		Rate				Fair Value				Instrument		Date
$	3,021,000			one month LIBOR			6.00	%		$	(490,000	)		Swap		08/15/21
	7,185,000			one month LIBOR			4.41	%			(162,000	)		Swap		01/01/14
	7,134,000			one month LIBOR			4.28	%			(228,000	)		Swap		05/01/14
$	17,340,000									$	(880,000	)

The following table lists the derivative financial instruments held by us as of December 31, 2010:

						Interest										Maturity
Notional Amount				Index		Rate				Fair Value				Instrument		Date
$	3,184,000			one month LIBOR			6.00	%		$	(372,000	)		Swap		08/15/21
	7,300,000			one month LIBOR			4.41	%			(81,000	)		Swap		01/01/14
$	10,484,000									$	(453,000	)

See Note 13, Fair Value Measurements, for a further discussion of the fair value of our derivative financial instruments.

Grubb & Ellis Healthcare REIT II, Inc.

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

8. Lines of Credit

Bank of America, N.A.

On July 19, 2010, we entered into a loan agreement with Bank of America, or the Bank of America Loan Agreement, to obtain a secured revolving credit facility with an aggregate maximum principal amount of $25,000,000, or the Bank of America line of credit. On May 4, 2011, we modified the Bank of America line of credit to increase the aggregate maximum principal amount from $25,000,000 to $45,000,000, subject to certain borrowing base conditions. The proceeds of loans made under the Bank of America line of credit may be used for working capital, capital expenditures and other general corporate purposes (including, without limitation, property acquisitions). The actual amount of credit available under the Bank of America line of credit at any given time is a function of, and is subject to, certain loan to cost, loan to value and debt service coverage ratios contained in the Bank of America Loan Agreement, as amended. The Bank of America line of credit matures on July 19, 2012 and may be extended by one 12-month period subject to satisfaction of certain conditions, including payment of an extension fee.

Prior to May 4, 2011, any loan made under the Bank of America line of credit bore interest at rates equal to either: (i) the daily floating London Interbank Offered Rate, or LIBOR, plus 3.75% per annum, subject to a minimum interest rate floor of 5.00% per annum, or (ii) if the daily floating LIBOR rate was not available, a base rate which meant, for any day, a fluctuating rate per annum equal to the prime rate for such day plus 3.75% per annum, subject to a minimum interest rate floor of 5.00% per annum. On May 4, 2011, we modified the Bank of America line of credit to: (i) reduce the interest rate to an interest rate equal to LIBOR plus 3.50% per annum or in the event the daily LIBOR rate is not available, then Bank of America’s prime rate for such day plus 3.50%; and (ii) remove the requirement of an interest rate floor of 5.00% per annum.

The Bank of America Loan Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt and limitations on distributions by properties that serve as collateral for the Bank of America line of credit in the event of default. The Bank of America Loan Agreement also provides that an event of default under any other unsecured or recourse debt that we have in excess of $5,000,000 shall constitute an event of default under the Bank of America Loan Agreement. The Bank of America Loan Agreement also imposes the following financial covenants: (i) minimum liquidity thresholds; (ii) a minimum ratio of operating cash flow to fixed charges; (iii) a maximum ratio of liabilities to asset value; (iv) a maximum distribution covenant; and (v) a minimum tangible net worth covenant. In the event of default, Bank of America has the right to terminate its obligations under the Bank of America Loan Agreement, including the funding of future loans and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon and may seek foreclosure on any properties securing the Bank of America line of credit. As of September 30, 2011 and December 31, 2010, we were in compliance with all such covenants and requirements.

Based on the value of the properties securing the Bank of America line of credit, our aggregate borrowing capacity under the Bank of America line of credit was $38,435,000 and $22,600,000, respectively, as of September 30, 2011 and December 31, 2010. Borrowings outstanding under the Bank of America line of credit totaled $29,947,000 and $11,800,000, respectively, as of September 30, 2011 and December 31, 2010. As of September 30, 2011 and December 31, 2010, $8,488,000 and $10,800,000, respectively, remained available under the Bank of America line of credit. The weighted-average interest rate of borrowings as of September 30, 2011 and December 31, 2010 was 3.74% and 5.00% per annum, respectively. The Bank of America line of credit is secured by Lacombe Medical Office Building, Parkway Medical Center, Livingston Medical Arts Pavilion, St. Vincent Medical Office Building, Sylva Medical Office Building, Ennis Medical Office Building and St. Anthony North Medical Office Building as of September 30, 2011.

KeyBank National Association

On June 30, 2011, we entered into a loan agreement with KeyBank, or the KeyBank Loan Agreement, to obtain a secured revolving credit facility with an aggregate maximum principal amount of $71,500,000, or the KeyBank line of credit. On October 6, 2011, RBS Citizens, N.A., dba Charter One, or Charter One, was added as a syndication agent to the KeyBank line of credit, whereby $35,750,000 of the aggregate maximum principal amount of the KeyBank line of credit was assigned to Charter One. The proceeds of loans made under the KeyBank line of credit may be used to acquire, finance or refinance eligible properties or for other incidental purposes as approved by KeyBank. The KeyBank line of credit matures on June 30, 2014 and may be extended by one 12-month period subject to the satisfaction of certain conditions, including payment of an extension fee.

Grubb & Ellis Healthcare REIT II, Inc.

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

During the initial and extended term of the KeyBank Loan Agreement, any loan made under the KeyBank Loan Agreement shall bear interest at a per annum rate depending on the type of designated loan being provided for under the KeyBank Loan Agreement. As a result, the interest rates shall be as follows: (i) for loans designated as LIBOR Loans, as defined in the KeyBank Loan Agreement, the interest rate shall be based on LIBOR, as defined in the KeyBank Loan Agreement, plus 3.50% per annum; (ii) for loans designated as Prime Rate Loans, as defined in the KeyBank Loan Agreement, the interest rate shall be equal to a fluctuating interest rate per annum equal to the rate of interest established by KeyBank as its Prime Rate, plus 0.75% per annum; and (iii) for loans designated as Base Rate Loans, as defined in the KeyBank Loan Agreement, the interest rate shall be equal to a fluctuating interest rate equal to 3.50% per annum plus the greater of: (a) a rate of interest established by KeyBank as its Prime Rate; (b) the Federal Funds Rate plus 0.50% per annum; or (c) the interest rate then in effect for LIBOR Loans, plus 1.00% per annum.

The KeyBank Loan Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries that own properties that serve as collateral for the KeyBank line of credit. The KeyBank Loan Agreement also imposes the following financial covenants: (i) a maximum consolidated total leverage ratio; (ii) a minimum debt service coverage ratio; (iii) a minimum consolidated net worth covenant; and (iv) a minimum rent coverage ratio. In addition, the KeyBank Loan Agreement includes events of default that are customary for credit facilities and transactions of this type. In the event of default, KeyBank has the right to assert its remedies and terminate its obligations under the KeyBank Loan Agreement, including the termination of funding of future loans, acceleration of payment on any unpaid principal amount of all outstanding loans and interest thereon and foreclosure on the properties securing the KeyBank line of credit. As of September 30, 2011, we were in compliance with all such covenants and requirements.

Based on the value of the properties securing the KeyBank line of credit, the aggregate borrowing capacity was $71,500,000 as of September 30, 2011. As of September 30, 2011, borrowings outstanding under the KeyBank line of credit totaled $15,000,000 and $56,500,000 remained available under the KeyBank line of credit. The weighted-average interest rate of borrowings as of September 30, 2011 was 4.00% per annum. The KeyBank line of credit is secured by four facilities of Virginia Skilled Nursing Facility Portfolio, Yuma Skilled Nursing Facility and Philadelphia SNF Portfolio as of September 30, 2011.

9. Identified Intangible Liabilities, Net

Identified intangible liabilities, net consisted of the following as of September 30, 2011 and December 31, 2010:

		September 30, 2011				December 31, 2010
Below market leases, net of accumulated amortization of $109,000 and $42,000 as of September 30, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 14.5 years and 16.9 years as of September 30, 2011 and December 31, 2010, respectively)		$	652,000			$	502,000

Amortization expense on below market leases for the three months ended September 30, 2011 and 2010 was $43,000 and $19,000, respectively, and for the nine months ended September 30, 2011 and 2010 was $93,000 and $24,000, respectively. Amortization expense on below market leases is recorded to rental income in our accompanying condensed consolidated statements of operations.

Grubb & Ellis Healthcare REIT II, Inc.

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

As of September 30, 2011, estimated amortization expense on below market leases for the three months ending December 31, 2011 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2011		$	29,000
2012			108,000
2013			60,000
2014			53,000
2015			36,000
Thereafter			366,000
		$	652,000

10. Commitments and Contingencies

Litigation

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

Environmental Matters

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

Other Organizational and Offering Expenses

Our organizational and offering expenses, other than selling commissions and the dealer manager fee, are being paid by our advisor or its affiliates on our behalf. Other organizational and offering expenses include all expenses (other than selling commissions and the dealer manager fee which generally represent 7.0% and 3.0%, respectively, of our gross offering proceeds) to be paid by us in connection with our offering. These other organizational and offering expenses will only become our liability to the extent they do not exceed 1.0% of the gross proceeds from the sale of shares of our common stock in our offering, other than shares of our common stock sold pursuant to the DRIP. As of September 30, 2011 and December 31, 2010, our advisor and its affiliates had incurred expenses on our behalf of $2,662,000 and $2,701,000, respectively, in excess of 1.0% of the gross proceeds of our offering, and therefore, these expenses are not recorded in our accompanying condensed consolidated financial statements as of September 30, 2011 and December 31, 2010. To the extent we raise additional funds from our offering, these amounts may become our liability.

When recorded by us, other organizational expenses will be expensed as incurred, and offering expenses are charged to stockholders’ equity as such amounts are reimbursed to our advisor or its affiliates from the gross proceeds of our offering. See Note 11, Related Party Transactions — Offering Stage, for a further discussion of other organizational and offering expenses.

Other

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

Grubb & Ellis Healthcare REIT II, Inc.

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

11. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, our sponsor, Grubb & Ellis Equity Advisors or other affiliated entities. We entered into the Advisory Agreement with our advisor and a dealer manager agreement with Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities. Until April 18, 2011, Grubb & Ellis Securities served as the dealer manager of our offering. Effective as of April 19, 2011, the dealer manager agreement with Grubb & Ellis Securities was assigned to, and assumed by, Grubb & Ellis Capital Corporation, a wholly owned subsidiary of our sponsor. Therefore, references to our dealer manager shall be deemed to refer to either Grubb & Ellis Securities or Grubb & Ellis Capital Corporation, or both, as applicable, unless otherwise specified. These agreements entitle our advisor, our dealer manager and their affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. For a further discussion of these agreements, see Note 18, Subsequent Events — Transition of Advisory and Dealer Manager Services. In the aggregate, for the three months ended September 30, 2011 and 2010, we incurred $12,592,000 and $6,206,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $35,722,000 and $14,050,000, respectively, in fees and expenses paid to our advisor or its affiliates as detailed below.

Offering Stage

Selling Commissions

Our dealer manager receives selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager may re-allow all or a portion of these fees to participating broker-dealers. For the three months ended September 30, 2011 and 2010, we incurred $6,739,000 and $2,278,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $16,316,000 and $6,041,000, respectively, in selling commissions to our dealer manager. Such commissions are charged to stockholders’ equity as such amounts are reimbursed to our dealer manager from the gross proceeds of our offering.

Dealer Manager Fee

Our dealer manager receives a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager may re-allow all or a portion of these fees to participating broker-dealers. For the three months ended September 30, 2011 and 2010, we incurred $2,944,000 and $1,016,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $7,149,000 and $2,671,000, respectively, in dealer manager fees to our dealer manager or its affiliates. Such fees and reimbursements are charged to stockholders’ equity as such amounts are reimbursed to our dealer manager or its affiliates from the gross proceeds of our offering.

Other Organizational and Offering Expenses

Our organizational and offering expenses are paid by our advisor or Grubb & Ellis Equity Advisors on our behalf. Our advisor or Grubb & Ellis Equity Advisors are reimbursed for actual expenses incurred up to 1.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended September 30, 2011 and 2010, we incurred $990,000 and $337,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $2,395,000 and $893,000, respectively, in offering expenses to our advisor or Grubb & Ellis Equity Advisors. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity as such amounts are reimbursed to our advisor or Grubb & Ellis Equity Advisors from the gross proceeds of our offering.

Acquisition and Development Stage

Acquisition Fee

Our advisor or its affiliates receive an acquisition fee of up to 2.75% of the contract purchase price for each property we acquire or 2.0% of the origination or acquisition price for any real estate-related investment we originate or acquire. Our advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our offering, including acquisitions completed after the termination of the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.

Grubb & Ellis Healthcare REIT II, Inc.

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

For the three months ended September 30, 2011 and 2010, we incurred $531,000 and $2,150,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $6,523,000 and $3,808,000, respectively, in acquisition fees to our advisor or its affiliates. Acquisition fees in connection with the acquisition of properties are expensed as incurred in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and are included in acquisition related expenses in our accompanying condensed consolidated statements of operations.

Development Fee

Our advisor or its affiliates receive, in the event our advisor or its affiliates provide development-related services, a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor elects to receive an acquisition fee based on the cost of such development.

For the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011 and 2010, we did not incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

Our advisor or its affiliates are reimbursed for acquisition expenses related to selecting, evaluating and acquiring assets, which will be reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested directors, including a majority of our independent directors, not otherwise interested in the transaction. As of September 30, 2011, such fees and expenses did not exceed 6.0% of the purchase price or total development costs, except with respect to our acquisition of the Lakewood Ranch property and Philadelphia SNF Portfolio. For a further discussion, please see footnote (5) and footnote (6) in Note 3, Real Estate Investments – Acquisitions in 2011.

For the three months ended September 30, 2011 and 2010, we incurred $0 and $13,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $19,000 and $24,000, respectively, in acquisition expenses to our advisor or its affiliates. Reimbursements of acquisition expenses are expensed as incurred in accordance with ASC Topic 805 and are included in acquisition related expenses in our accompanying condensed consolidated statements of operations.

Operational Stage

Asset Management Fee

Our advisor or its affiliates are paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.85% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of average invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and average invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan.

For the three months ended September 30, 2011 and 2010, we incurred $902,000 and $189,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $1,998,000 and $274,000, respectively, in asset management fees to our advisor or its affiliates, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

Grubb & Ellis Healthcare REIT II, Inc.

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

Property Management Fee

Our advisor or its affiliates are paid a monthly property management fee of up to 4.0% of the gross monthly cash receipts from each property managed by our advisor or its affiliates. Our advisor or its affiliates may sub-contract its duties to any third-party, including for fees less than the property management fees payable to our advisor or its affiliates. In addition to the above property management fee, for each property managed directly by entities other than our advisor or its affiliates, we will pay our advisor or its affiliates a monthly oversight fee of up to 1.0% of the gross cash receipts from the property; provided however, that in no event will we pay both a property management fee and an oversight fee to our advisor or its affiliates with respect to the same property.

For the three months ended September 30, 2011 and 2010, we incurred $258,000 and $83,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $571,000 and $127,000, respectively, in property management fees and oversight fees to our advisor or its affiliates, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

On-site Personnel and Engineering Payroll

For the three months ended September 30, 2011 and 2010, our advisor or its affiliates incurred on our behalf $23,000 and $21,000, respectively, and for the nine months ended September 30, 2011 and 2010, our advisor or its affiliates incurred on our behalf $71,000 and $23,000, respectively, in payroll for on-site personnel and engineering, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

Lease Fees

We may pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm’s-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 8.0% of the gross revenues generated during the initial term of the lease.

For the three months ended September 30, 2011 and 2010, we incurred $39,000 and $53,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $343,000 and $53,000, respectively, in lease fees to our advisor or its affiliates, which is capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates will be paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended September 30, 2011 and 2010, we incurred $49,000 and $2,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred $62,000 and $2,000, respectively, in construction management fees to our advisor or its affiliates. Construction management fees are capitalized as part of the associated asset and included in operating properties, net on our accompanying condensed consolidated balance sheets.

Operating Expenses

We reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determine that such excess expenses are justified based on unusual and nonrecurring factors. For the 12 months ended September 30, 2011, our operating expenses did not exceed this limitation. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.4% and 88.9%, respectively, for the 12 months ended September 30, 2011.

Grubb & Ellis Healthcare REIT II, Inc.

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

For the three months ended September 30, 2011 and 2010, Grubb & Ellis Equity Advisors incurred operating expenses on our behalf of $10,000 and $8,000, respectively, and for the nine months ended September 30, 2011 and 2010, Grubb & Ellis Equity Advisors incurred operating expenses on our behalf of $19,000 and $22,000, respectively, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

Related Party Services Agreement

We entered into a services agreement, effective September 21, 2009, or the Transfer Agent Services Agreement, with Grubb & Ellis Equity Advisors, Transfer Agent, LLC, formerly known as Grubb & Ellis Investor Solutions, LLC, or our transfer agent, for transfer agent and investor services. Since our transfer agent is an affiliate of our advisor, the terms of the Transfer Agent Services Agreement were approved and determined by a majority of our directors, including a majority of our independent directors, as fair and reasonable to us and at fees which are no greater than that which would be paid to an unaffiliated party for similar services. For a further discussion of the Transfer Agent Services Agreement, see Note 18, Subsequent Events — Termination of Transfer Agent Services Agreement.

For the three months ended September 30, 2011 and 2010, we incurred expenses of $81,000 and $30,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred expenses of $210,000 and $73,000, respectively, for investor services that our transfer agent provided to us, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

For the three months ended September 30, 2011 and 2010, Grubb & Ellis Equity Advisors incurred expenses of $33,000 and $14,000, respectively, and for the nine months ended September 30, 2011 and 2010, Grubb & Ellis Equity Advisors incurred expenses of $80,000 and $37,000, respectively, for subscription agreement processing services that our transfer agent provided to us. As an other organizational and offering expense, these subscription agreement processing expenses will only become our liability to the extent cumulative other organizational and offering expenses do not exceed 1.0% of the gross proceeds from the sale of shares of our common stock in our offering, other than shares of our common stock sold pursuant to the DRIP.

Compensation for Additional Services

Our advisor or its affiliates are paid for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services must be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated parties for similar services. For the three months ended September 30, 2011 and 2010, we incurred expenses of $26,000 and $26,000, respectively, and for the nine months ended September 30, 2011 and 2010, we incurred expenses of $46,000 and $39,000, respectively, for internal controls compliance services our advisor or its affiliates provided to us.

Liquidity Stage

Disposition Fees

For services relating to the sale of one or more properties, our advisor or its affiliates will be paid a disposition fee up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. For the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011 and 2010, we did not incur any disposition fees to our advisor or its affiliates.

Grubb & Ellis Healthcare REIT II, Inc.

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

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

In the event of liquidation, our advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) plus (ii) an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sale proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011 and 2010, we did not incur any such distributions to our advisor.

Subordinated Distribution upon Listing

Upon the listing of shares of our common stock on a national securities exchange, our advisor will be paid a distribution equal to 15.0% of the amount by which (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be received depend upon the market value of our outstanding stock at the time of listing among other factors. For the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011 and 2010, we did not incur any such distributions to our advisor.

Subordinated Distribution Upon Termination

Upon termination or non-renewal of the Advisory Agreement, our advisor will be entitled to a subordinated distribution from our operating partnership equal to 15.0% of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash that, if distributed to them as of the termination date, would have provided them an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive, in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.

As of September 30, 2011 and December 31, 2010, we had not recorded any charges to earnings related to the subordinated distribution upon termination.

Executive Stock Purchase Plan

On April 7, 2011, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey T. Hanson, and our President and Chief Operating Officer, Danny Prosky, each executed an executive stock purchase plan, or the Plan, whereby each executive has irrevocably agreed to invest 100% and 50.0%, respectively, of their net after-tax cash compensation as employees of our sponsor directly into our company by purchasing shares of our common stock on a regular basis, corresponding to regular payroll periods and the payment of any other net after-tax cash compensation, including bonuses. Their first investment under the Plan began with their regularly scheduled payroll payment on April 29, 2011 and will terminate on the earlier of (i) December 31, 2011, (ii) the termination

Grubb & Ellis Healthcare REIT II, Inc.

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

of our offering, (iii) any suspension of our offering by our board of directors or regulatory body, or (iv) the date upon which the number of shares of our common stock owned by Mr. Hanson or Mr. Prosky, when combined with all their other investments in our common stock, exceeds the ownership limits set forth in our charter. The shares will be purchased pursuant to our offering at a price of $9.00 per share, reflecting the elimination of selling commissions and the dealer manager fee in connection with such transactions. For the three and nine months ended September 30, 2011, Mr. Hanson invested $50,000 and $95,000, respectively, of his compensation and we issued 5,593 and 10,606 shares of our common stock, respectively, pursuant to his Plan. For the three and nine months ended September 30, 2011, Mr. Prosky invested $65,000 and $82,000, respectively, of his compensation and we issued 7,182 and 9,086 shares of our common stock, respectively, pursuant to his Plan.

On November 7, 2011, Messrs. Hanson and Prosky tendered their resignations from our sponsor and intend to enter into replacement executive stock purchase programs similar to their respective Plans. For a further discussion, see Note 18, Subsequent Events — Transition of Advisory and Dealer Manager Services.

Accounts Payable Due to Affiliates

The following amounts were outstanding to affiliates as of September 30, 2011 and December 31, 2010:

Fee		September 30, 2011				December 31, 2010
Selling commissions and dealer manager fees		$	790,000			$	539,000
Asset and property management fees			393,000				166,000
Offering costs			160,000				86,000
Construction management fees			73,000				21,000
Operating expenses			50,000				16,000
Lease commissions			37,000				5,000
Acquisition expenses			11,000				—
On-site personnel and engineering payroll			9,000				7,000
		$	1,523,000			$	840,000

12. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. As of September 30, 2011 and December 31, 2010, no shares of preferred stock were issued and outstanding.

Common Stock

We are offering and selling to the public up to 300,000,000 shares of our common stock, par value $0.01 per share, for $10.00 per share and up to 30,000,000 shares of our common stock, par value $0.01 per share, to be issued pursuant to the DRIP for $9.50 per share. Our charter authorizes us to issue 1,000,000,000 shares of our common stock.

On February 4, 2009, our advisor purchased 20,000 shares of common stock for total cash consideration of $200,000 and was admitted as the initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership.

On October 21, 2009, we granted an aggregate of 15,000 shares of our restricted common stock to our independent directors. On each of June 8, 2010 and June 14, 2011, in connection with their re-election, we granted an aggregate of 7,500 shares of our restricted common stock to our independent directors. Through September 30, 2011, we had issued 39,168,803 shares of our common stock in connection with our offering and 798,285 shares of our common stock pursuant to the DRIP, and we had also repurchased 97,513 shares of our common stock under our share repurchase plan. As of September 30, 2011 and December 31, 2010, we had 39,919,575 and 15,452,668 shares of our common stock issued and outstanding, respectively.

Grubb & Ellis Healthcare REIT II, Inc.

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

Noncontrolling Interests

On February 4, 2009, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 200 partnership units.

As of September 30, 2011 and December 31, 2010, we owned a 99.99% general partnership interest in our operating partnership and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. As such, less than 0.01% of the earnings of our operating partnership are allocated to noncontrolling interests, subject to certain limitations.

In addition, as of September 30, 2011 and December 31, 2010, we owned a 98.75% interest in the consolidated limited liability company that owns Pocatello East Medical Office Building, or the Pocatello East MOB property, that was purchased on July 27, 2010. As such, 1.25% of the earnings of the Pocatello East MOB property are allocated to noncontrolling interests.

Distribution Reinvestment Plan

We adopted the DRIP that allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions, subject to certain conditions. We have registered and reserved 30,000,000 shares of our common stock for sale in our offering pursuant to the DRIP. For the three months ended September 30, 2011 and 2010, $2,478,000 and $590,000, respectively, in distributions were reinvested and 260,834 and 62,098 shares of our common stock, respectively, were issued pursuant to the DRIP. For the nine months ended September 30, 2011 and 2010, $5,599,000 and $1,092,000, respectively, in distributions were reinvested and 589,330 and 114,983 shares of our common stock, respectively, were issued pursuant to the DRIP. As of September 30, 2011 and December 31, 2010, a total of $7,584,000 and $1,985,000, respectively, in distributions were reinvested and 798,285 and 208,955 shares of our common stock, respectively, were issued pursuant to the DRIP.

Share Repurchase Plan

Our board of directors has approved a share repurchase plan. Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. All repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Subject to the availability of the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP.

Under our share repurchase plan, repurchase prices range from $9.25, or 92.5% of the price paid per share, following a one year holding period to an amount not less than 100% of the price paid per share following a four year holding period. However, if shares of our common stock are to be repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price will be no less than 100% of the price paid to acquire the shares of our common stock from us. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period, as follows: first, pro rata as to repurchases sought upon a stockholder’s death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

For the three months ended September 30, 2011, we received share repurchase requests and repurchased 23,377 shares of our common stock for an aggregate of $218,000 at an average repurchase price of $9.30 per share, and for the nine months ended September 30, 2011, we received share repurchase requests and repurchased 76,513 shares of our common stock for an aggregate of $719,000 at an average repurchase price of $9.40 per share, using proceeds we received from the sale of shares of our common stock pursuant to the DRIP. For the three and nine months ended September 30, 2010, we received share repurchase requests and repurchased 11,000 shares of our common stock for an aggregate of $110,000 at an average repurchase price of $10.00 per share, using proceeds we received from the sale of shares of our common stock pursuant to the DRIP.

Grubb & Ellis Healthcare REIT II, Inc.

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

As of September 30, 2011 and December 31, 2010, we had received share repurchase requests and had repurchased 97,513 shares of our common stock for an aggregate of $929,000 at an average price of $9.53 per share and 21,000 shares of our common stock for an aggregate of $210,000 at an average price of $10.00 per share, respectively, using proceeds we received from the sale of shares of our common stock pursuant to the DRIP.

2009 Incentive Plan

We adopted the 2009 Incentive Plan, or our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000.

On October 21, 2009, we granted an aggregate of 15,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election to our board of directors, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant. On each of June 8, 2010 and June 14, 2011, in connection with their re-election, we granted an aggregate of 7,500 shares of our restricted common stock, as defined in our incentive plan, to our independent directors, which will vest over the same period described above. The fair value of each share of our restricted common stock was estimated at the date of grant at $10.00 per share, the per share price of shares in our offering, and with respect to the initial 20.0% of shares that vested on the grant date, expensed as compensation immediately, and with respect to the remaining shares, amortized on a straight-line basis over the vesting period. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to dividends. For the three months ended September 30, 2011 and 2010, we recognized compensation expense of $15,000 and $11,000, respectively, and for the nine months ended September 30, 2011 and 2010, we recognized compensation expense of $53,000 and $42,000, respectively, related to the restricted common stock grants ultimately expected to vest. ASC Topic 718, Compensation — Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three and nine months ended September 30, 2011 and 2010, we did not assume any forfeitures. Stock compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations.

As of September 30, 2011 and December 31, 2010, there was $158,000 and $136,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. This expense is expected to be recognized over a remaining weighted average period of 2.71 years.

Grubb & Ellis Healthcare REIT II, Inc.

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

As of September 30, 2011 and December 31, 2010, the fair value of the nonvested shares of our restricted common stock was $195,000 and $150,000, respectively. A summary of the status of the nonvested shares of our restricted common stock as of September 30, 2011 and December 31, 2010, and the changes for the nine months ended September 30, 2011, is presented below:

						Weighted
						Average Grant
		Number of Nonvested Shares of				Date Fair
		our Restricted Common Stock				Value
Balance — December 31, 2010			15,000			$	10.00
Granted			7,500			$	10.00
Vested			(3,000	)		$	10.00
Forfeited			—				—
Balance — September 30, 2011			19,500			$	10.00
Expected to vest — September 30, 2011			19,500			$	10.00

13. Fair Value Measurements

Assets and Liabilities Reported at Fair Value

The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

		Quoted Prices in
		Active Markets for								Significant
		Identical Assets				Significant Other				Unobservable
		and Liabilities				Observable Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Liabilities:
Derivative financial instruments		$	—			$	880,000			$	—			$	880,000
Contigent consideration			—				—				6,058,000				6,058,000
Total liabilities at fair value		$	—			$	880,000			$	6,058,000			$	6,938,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

		Quoted Prices in
		Active Markets for								Significant
		Identical Assets				Significant Other				Unobservable
		and Liabilities				Observable Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Liabilities:
Derivative financial instruments		$	—			$	453,000			$	—			$	453,000
Total liabilities at fair value		$	—			$	453,000			$	—			$	453,000

There were no transfers into and out of fair value measurement levels during the nine months ended September 30, 2011 and 2010.

Grubb & Ellis Healthcare REIT II, Inc.

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

Derivative Financial Instruments

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

To comply with the provisions of ASC Topic 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of September 30, 2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our interest rate swaps. As a result, we have determined that our interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy.

Contingent Consideration

On April 13, 2011, we purchased Yuma Skilled Nursing Facility and in connection with such purchase we accrued $1,500,000 as contingent consideration. Such payment will be made to the seller upon receipt of notification within three years of the acquisition date that (i) the tenant has achieved a certain specified lease coverage ratio for two consecutive calendar quarters and (ii) that the tenant has completed an estimated $3,500,000 renovation project. If such notification is not received, no payment will be made. The payment will be either $0 or $1,500,000.

On June 30, 2011, we purchased Philadelphia SNF Portfolio and in connection with such purchase we accrued $1,402,000 and $2,500,000 as contingent consideration. An estimated $1,402,000 of such amount will be paid upon receipt of notification within six years of the acquisition date that the tenant has achieved a certain specified rent coverage ratio for the preceding 12 months. There is no minimum or maximum required payment, however such payment is limited by the tenant’s rent coverage ratio and will result in additional rental revenue to us. Up to $2,500,000 of such contingent consideration will be paid within two years of the acquisition date upon notification that (i) the tenant has achieved a certain specified rent coverage ratio for the three most recent calendar months and (ii) the tenant has completed improvements in an amount up to $2,500,000. The range of payment is between $0 and up to a maximum of $2,500,000.

On July 11, 2011, we purchased Maxfield Medical Office Building and in connection with such purchase we accrued $656,000 as contingent consideration. Such consideration will be paid to the seller if, within 12 months of the acquisition date, the seller is able to lease approximately 4,000 square feet of GLA to a tenant. Such payment will be a function of the annual increase in net operating income of the property as a result of such lease, less leasing commissions, tenant improvements and rent abatement, if any. There is no minimum or maximum required payment, however such payment is limited by the new tenant’s rental rate and will result in additional rental revenue to us.

The fair value of the contingent consideration obligations is determined based on the facts and circumstances existing at each reporting date and the likelihood of the counterparty achieving the necessary conditions based on a probability weighted discounted cash flow analysis based, in part, on significant inputs which are not observable in the market. As a result, we have determined that our contingent consideration valuations are classified in Level 3 of the fair value hierarchy. Our contingent consideration obligations are included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets and any changes in their fair value subsequent to their acquisition date valuations are charged to earnings. We did not recognize any gain or loss with respect to our contingent consideration obligations during the three and nine months ended September 30, 2011, as no adjustments to the acquisition date fair values were deemed necessary.

Grubb & Ellis Healthcare REIT II, Inc.

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

The following is a reconciliation of the beginning and ending balances of our contingent consideration obligations for the three and nine months ended September 30, 2011 and 2010:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Beginning balance		$	5,402,000			$	—			$	—			$	—
Additions to contingent consideration obligations			656,000				—				6,058,000				—
Ending balance		$	6,058,000			$	—			$	6,058,000			$	—