Griffin-American Healthcare REIT III, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Griffin-American Healthcare REIT III, Inc.	ex322-2018xq110xqgahr3.htm
EX-32.1 - EXHIBIT 32.1 - Griffin-American Healthcare REIT III, Inc.	ex321-2018xq110xqgahr3.htm
EX-31.2 - EXHIBIT 31.2 - Griffin-American Healthcare REIT III, Inc.	ex312-2018xq110xqgahr3.htm
EX-31.1 - EXHIBIT 31.1 - Griffin-American Healthcare REIT III, Inc.	ex311-2018xq110xqgahr3.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 000-55434

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(Exact name of registrant as specified in its charter)



Maryland		46-1749436
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

18191 Von Karman Avenue, Suite 300, Irvine, California		92612
(Address of principal executive offices)		(Zip Code)

(949) 270-9200

(Registrant’s telephone number, including area code)

Not Applicable

(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. x Yes ¨ 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). x Yes ¨ No

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



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of May 11, 2018, there were 200,286,194 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(A Maryland Corporation)

TABLE OF CONTENTS



	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2018 and 2017	5
Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2018 and 2017	6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017	8
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3. Quantitative and Qualitative Disclosures About Market Risk	58
Item 4. Controls and Procedures	60

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	61
Item 1A. Risk Factors	61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3. Defaults Upon Senior Securities	67
Item 4. Mine Safety Disclosures	67
Item 5. Other Information	67
Item 6. Exhibits	67
Signatures	69

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2018 and December 31, 2017

(Unaudited)



	March 31, 2018			December 31, 2017
ASSETS
Real estate investments, net	$	2,160,495,000		$	2,163,258,000
Real estate notes receivable and debt security investment, net	98,586,000			97,988,000
Cash and cash equivalents	37,926,000			33,656,000
Accounts and other receivables, net	118,633,000			117,188,000
Restricted cash	31,888,000			30,487,000
Real estate deposits	3,190,000			3,261,000
Identified intangible assets, net	177,398,000			180,308,000
Goodwill	75,309,000			75,309,000
Other assets, net	103,312,000			99,020,000
Total assets	$	2,806,737,000		$	2,800,475,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	611,960,000		$	613,558,000
Lines of credit and term loans(1)	650,556,000			624,125,000
Accounts payable and accrued liabilities(1)	122,204,000			124,503,000
Accounts payable due to affiliates(1)	1,986,000			2,057,000
Identified intangible liabilities, net	1,429,000			1,568,000
Capital lease obligations(1)	17,633,000			16,193,000
Security deposits, prepaid rent and other liabilities(1)	40,860,000			39,461,000
Total liabilities	1,446,628,000			1,421,465,000

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)	33,275,000			32,435,000

Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 199,193,544 and 199,343,234 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively	1,991,000			1,993,000
Additional paid-in capital	1,784,461,000			1,785,872,000
Accumulated deficit	(619,538,000		)	(598,044,000		)
Accumulated other comprehensive loss	(1,525,000		)	(1,971,000		)
Total stockholders’ equity	1,165,389,000			1,187,850,000
Noncontrolling interests (Note 13)	161,445,000			158,725,000
Total equity	1,326,834,000			1,346,575,000
Total liabilities, redeemable noncontrolling interests and equity	$	2,806,737,000		$	2,800,475,000

___________

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)

As of March 31, 2018 and December 31, 2017

(Unaudited)

(1)

Such liabilities of Griffin-American Healthcare REIT III, Inc. as of March 31, 2018 and December 31, 2017 represented liabilities of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries. Griffin-American Healthcare REIT III Holdings, LP is a variable interest entity and a consolidated subsidiary of Griffin-American Healthcare REIT III, Inc. The creditors of Griffin-American Healthcare REIT III Holdings, LP or its consolidated subsidiaries do not have recourse against Griffin-American Healthcare REIT III, Inc., except for the 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $469,500,000 and $444,000,000 as of March 31, 2018 and December 31, 2017, respectively, which is guaranteed by Griffin-American Healthcare REIT III, Inc.

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2018 and 2017

(Unaudited)



	Three Months Ended March 31,
	2018			2017
Revenues:
Resident fees and services	$	245,393,000		$	225,053,000
Real estate revenue	32,499,000			31,348,000
Total revenues	277,892,000			256,401,000
Expenses:
Property operating expenses	217,359,000			199,099,000
Rental expenses	8,940,000			8,395,000
General and administrative	6,388,000			7,863,000
Acquisition related expenses	(769,000		)	318,000
Depreciation and amortization	23,692,000			29,822,000
Total expenses	255,610,000			245,497,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)	(15,352,000		)	(14,595,000		)
Gain in fair value of derivative financial instruments	110,000			336,000
Impairment of real estate investment	—			(3,969,000		)
Loss from unconsolidated entity	(1,077,000		)	(962,000		)
Foreign currency gain	1,796,000			513,000
Other income, net	295,000			33,000
Income (loss) before income taxes	8,054,000			(7,740,000		)
Income tax benefit	371,000			213,000
Net income (loss)	8,425,000			(7,527,000		)
Less: net (income) loss attributable to noncontrolling interests	(272,000		)	4,008,000
Net income (loss) attributable to controlling interest	$	8,153,000		$	(3,519,000	)
Net income (loss) per common share attributable to controlling interest — basic and diluted	$	0.04		$	(0.02	)
Weighted average number of common shares outstanding — basic and diluted	200,347,084			196,897,807
Distributions declared per common share	$	0.15		$	0.15

Net income (loss)	$	8,425,000		$	(7,527,000	)
Other comprehensive income:
Foreign currency translation adjustments	446,000			142,000
Total other comprehensive income	446,000			142,000
Comprehensive income (loss)	8,871,000			(7,385,000		)
Less: comprehensive (income) loss attributable to noncontrolling interests	(272,000		)	4,008,000
Comprehensive income (loss) attributable to controlling interest	$	8,599,000		$	(3,377,000	)

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended March 31, 2018 and 2017

(Unaudited)



	Stockholders’ Equity
	Common Stock
	Number of Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests					Total Equity
BALANCE — December 31, 2017	199,343,234		$	1,993,000		$	1,785,872,000		$	(598,044,000	)	$	(1,971,000	)	$	1,187,850,000		$	158,725,000				$	1,346,575,000
Offering costs — common stock	—		—			(6,000		)	—			—			(6,000		)	—					(6,000		)
Issuance of common stock under the DRIP	1,642,834		16,000			15,213,000			—			—			15,229,000			—					15,229,000
Amortization of nonvested common stock compensation	—		—			43,000			—			—			43,000			—					43,000
Stock based compensation	—		—			—			—			—			—			195,000					195,000
Repurchase of common stock	(1,792,524	)	(18,000		)	(16,488,000		)	—			—			(16,506,000		)	—					(16,506,000		)
Contribution from noncontrolling interest	—		—			—			—			—			—			4,470,000					4,470,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(1,919,000		)			(1,919,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(195,000		)			(195,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(173,000		)	—			—			(173,000		)	(74,000		)			(247,000		)
Distributions declared	—		—			—			(29,647,000		)	—			(29,647,000		)	—					(29,647,000		)
Net income	—		—			—			8,153,000			—			8,153,000			243,000			(1	)	8,396,000
Other comprehensive income	—		—			—			—			446,000			446,000			—					446,000
BALANCE — March 31, 2018	199,193,544		$	1,991,000		$	1,784,461,000		$	(619,538,000	)	$	(1,525,000	)	$	1,165,389,000		$	161,445,000				$	1,326,834,000




	Stockholders’ Equity
	Common Stock
	Number of Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests					Total Equity
BALANCE — December 31, 2016	195,780,039		$	1,957,000		$	1,754,160,000		$	(490,298,000	)	$	(3,029,000	)	$	1,262,790,000		$	155,763,000				$	1,418,553,000
Offering costs — common stock	—		—			(9,000		)	—			—			(9,000		)	—					(9,000		)
Issuance of common stock under the DRIP	1,740,384		18,000			15,663,000			—			—			15,681,000			—					15,681,000
Amortization of nonvested common stock compensation	—		—			43,000			—			—			43,000			—					43,000
Repurchase of common stock	(802,393	)	(8,000		)	(7,120,000		)	—			—			(7,128,000		)	—					(7,128,000		)
Contribution from noncontrolling interest	—		—			—			—			—			—			5,334,000					5,334,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(453,000		)			(453,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(195,000		)			(195,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(325,000		)	—			—			(325,000		)	(139,000		)			(464,000		)
Distributions declared	—		—			—			(29,137,000		)	—			(29,137,000		)	—					(29,137,000		)
Net loss	—		—			—			(3,519,000		)	—			(3,519,000		)	(3,596,000		)	(1	)	(7,115,000		)
Other comprehensive income	—		—			—			—			142,000			142,000			—					142,000
BALANCE — March 31, 2017	196,718,030		$	1,967,000		$	1,762,412,000		$	(522,954,000	)	$	(2,887,000	)	$	1,238,538,000		$	156,714,000				$	1,395,252,000

___________

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three Months Ended March 31, 2018 and 2017

(Unaudited)


(1)	For the three months ended March 31, 2018 and 2017, amount excludes $29,000 and $(412,000), respectively, of net income (loss) attributable to redeemable noncontrolling interests. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2018 and 2017

(Unaudited)



	Three Months Ended March 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	8,425,000		$	(7,527,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	23,692,000			29,822,000
Other amortization (including deferred financing costs, above/below-market leases, leasehold interests, debt discount/premium, real estate notes receivable loan costs and debt security investment accretion and closing costs)	1,174,000			1,718,000
Deferred rent	(1,068,000		)	(1,341,000		)
Stock based compensation	195,000			—
Stock based compensation — nonvested restricted common stock	43,000			43,000
Loss from unconsolidated entity	1,077,000			962,000
Bad debt expense, net	126,000			1,659,000
Foreign currency gain	(1,791,000		)	(530,000		)
Change in fair value of contingent consideration	(743,000		)	1,000
Change in fair value of derivative financial instruments	(110,000		)	(336,000		)
Impairment of real estate investment	—			3,969,000
Changes in operating assets and liabilities:
Accounts and other receivables	(1,571,000		)	(7,494,000		)
Other assets	(2,831,000		)	(2,461,000		)
Accounts payable and accrued liabilities	(2,404,000		)	1,574,000
Accounts payable due to affiliates	15,000			(52,000		)
Security deposits, prepaid rent and other liabilities	1,769,000			3,125,000
Net cash provided by operating activities	25,998,000			23,132,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate investments	—			(89,264,000		)
Principal repayments on real estate notes receivable	—			25,499,000
Capital expenditures	(12,662,000		)	(6,225,000		)
Real estate and other deposits	(2,352,000		)	185,000
Proceeds from insurance settlements	—			22,000
Net cash used in investing activities	(15,014,000		)	(69,783,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	458,000			970,000
Payments on mortgage loans payable	(2,506,000		)	(1,549,000		)
Settlement of mortgage loan payable	—			(7,625,000		)
Borrowings under the lines of credit and term loans	71,531,000			205,699,000
Payments on the lines of credit and term loans	(45,100,000		)	(141,300,000		)
Deferred financing costs	(21,000		)	(182,000		)
Repurchase of common stock	(16,506,000		)	(7,128,000		)
Payments under capital leases	(1,754,000		)	(1,810,000		)
Contribution from noncontrolling interest	4,470,000			5,334,000
Distributions to noncontrolling interests	(1,915,000		)	(449,000		)
Contribution from redeemable noncontrolling interests	535,000			635,000
Distribution to redeemable noncontrolling interests	(166,000		)	(223,000		)
Security deposits	(15,000		)	63,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Three Months Ended March 31, 2018 and 2017

(Unaudited)



	Three Months Ended March 31,
	2018			2017
Payment of offering costs	$	(6,000	)	$	(9,000	)
Distributions paid	(14,377,000		)	(13,401,000		)
Net cash (used in) provided by financing activities	(5,372,000		)	39,025,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	5,612,000		$	(7,626,000	)
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	59,000			20,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	64,143,000			55,677,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	69,814,000		$	48,071,000

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period	$	33,656,000		$	29,123,000
Restricted cash at beginning of period	30,487,000			26,554,000
Cash, cash equivalents and restricted cash at beginning of period	$	64,143,000		$	55,677,000

Cash and cash equivalents at end of period	$	37,926,000		$	29,085,000
Restricted cash at end of period	31,888,000			18,986,000
Cash, cash equivalents and restricted cash at end of period	$	69,814,000		$	48,071,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest (including interest on capital leases)	$	13,774,000		$	19,486,000
Income taxes	$	453,000		$	197,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Investing Activities:
Accrued capital expenditures	$	5,957,000		$	1,576,000
Capital expenditures from capital leases	$	3,194,000		$	—
Tenant improvement overage	$	353,000		$	—
Exercise purchase options — attributable to intangible asset	$	—		$	11,454,000
Disposition of real estate investment	$	—		$	2,400,000
Reduction of capital lease obligations, net	$	—		$	28,236,000
The following represents the increase in certain assets and liabilities in connection with our acquisitions and disposition of real estate investments:
Other assets, net	$	—		$	360,000
Prepaid rent	$	—		$	206,000
Financing Activities:
Issuance of common stock under the DRIP	$	15,229,000		$	15,681,000
Distributions declared but not paid	$	10,233,000		$	10,064,000
Reclassification of noncontrolling interests to mezzanine equity	$	195,000		$	195,000
Accrued deferred financing costs	$	—		$	5,000
Settlement of mortgage loan payable	$	—		$	2,040,000

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three Months Ended March 31, 2018 and 2017

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.

1. Organization and Description of Business

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT.

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we offered to the public up to $1,900,000,000 in shares of our common stock. As of April 22, 2015, the deregistration date of our initial offering, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to our distribution reinvestment plan, or the DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the DRIP, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the United States Securities and Exchange Commission, or SEC, upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion. As of March 31, 2018, a total of $186,399,000 in distributions were reinvested and 20,049,849 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2018 and expires on February 26, 2019. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, or our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony NorthStar, Inc. (NYSE: CLNS), or Colony NorthStar, and 7.8% owned by James F. Flaherty III, a former partner of Colony NorthStar. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony NorthStar or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of March 31, 2018, we owned and/or operated 96 properties, comprising 100 buildings, and 108 integrated senior health campuses including completed development projects, or approximately 12,826,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,866,099,000. In addition, as of March 31, 2018, we had invested $90,878,000 in real estate-related investments, net of principal repayments.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, 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 accompanying 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 in which we have control, as well as any variable interest entities, or VIEs, in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or 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 and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We are the sole general partner of our operating partnership, and as of March 31, 2018 and December 31, 2017, we owned greater than a 99.99% general partnership interest therein. As of March 31, 2018 and December 31, 2017, our advisor owned less than a 0.01% 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 (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements. All 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 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.

Use of Estimates

The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Revenue Recognition and Tenant and Resident Receivables

Resident fees and services

Prior to January 1, 2018, we recognized resident fees and service revenue in accordance with ASC Topic 605, Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. Tenant receivables were placed on nonaccrual status when management determined that collectability was not reasonably assured, and thus such revenue was recognized using the cash basis method.

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC Topic 606 did not have a material impact on the measurement nor on the recognition of resident fees and service revenue as of January 1, 2018; therefore, no cumulative adjustment has been made to the opening balance of retained earnings at the beginning of 2018.

A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), other healthcare facilities, and others and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, we bill the patients, third-party payors and other healthcare facilities several days after the services are performed. Revenue is recognized as performance obligations are satisfied.

Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campuses receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.

Because all of its performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, are not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The performance obligations for these contracts are generally completed within months of the end of the reporting period.

We determine the transaction price based on standard charges for goods and services provided, reduced, where applicable, by contractual adjustments provided to third-party payors, implicit price concessions provided to uninsured patients, and estimates of goods to be returned. We also determine the estimates of contractual adjustments based on Medicare and Medicaid pricing tables and historical experience. We determine the estimate of implicit price concessions based on the historical collection experience with each class of payor.

Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:


•	Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.

•

Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates. In the state of Indiana, we participate in an Upper Payment Limit program with various county hospital partners (“IGT”) which provides supplemental Medicaid payments to skilled nursing facilities that are licensed to non-state, government-owned entities such as county hospital districts. We have operational responsibility through management agreements for facilities retained by the county hospital districts including this IGT.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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


•	Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various healthcare organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.

Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations. Adjustments arising from a change in the transaction price were not significant for the three months ended March 31, 2018.

In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption on our condensed consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2018 was as follows:



	As Reported		Balances Without Adoption of ASC Topic 606		Effect of Change Lower
Resident fees and services	$	245,393,000	$	246,934,000	$	(1,541,000	)
Property operating expenses	$	217,359,000	$	217,440,000	$	(81,000	)
General and administrative	$	6,388,000	$	7,808,000	$	(1,420,000	)
Net income	$	8,425,000	$	8,465,000	$	(40,000	)

In accordance with the disclosure requirements of the new revenue standard, the impact of the adoption on our condensed consolidated balance sheet as of March 31, 2018 was as follows:



	As Reported			Balances Without Adoption of ASC Topic 606			Effect of Change Higher/(Lower)
Assets
Other assets, net	$	103,312,000		$	103,231,000		$	81,000
Liabilities
Accounts payable and accrued liabilities	$	122,204,000		$	122,084,000		$	120,000
Equity
Accumulated deficit	$	(619,538,000	)	$	(619,498,000	)	$	(40,000	)

The change in reported balances is primarily based on the fact that substantially all of the amounts recorded to bad debt expense pursuant to our previous accounting policy pursuant to ASC Topic 605 are now recorded as direct reductions of net patient service revenue or other operating revenues as contractual adjustments provided to third-party payors or implicit price concessions pursuant to the new revenue standard.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Disaggregation of Healthcare Service Revenue

We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. This distinction is discussed in further detail below. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following table disaggregates our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time:



	Three Months Ended March 31, 2018
	Point in Time		Over Time		Total
Integrated senior health campuses	$	45,165,000	$	183,896,000	$	229,061,000
Senior housing — RIDEA(1)	768,000		15,564,000		16,332,000
Total resident fees and services	$	45,933,000	$	199,460,000	$	245,393,000

The following table disaggregates our resident fees and revenue by payor class:



	Three Months Ended March 31, 2018
	Integrated Senior Health Campuses		Senior Housing — RIDEA(1)		Total
Medicare	$	56,156,000	$	—	$	56,156,000
Medicaid	40,404,000		3,000		40,407,000
Private and other payors	132,501,000		16,329,000		148,830,000
Total resident fees and services	$	229,061,000	$	16,332,000	$	245,393,000

___________

(1)

This includes fees for basic housing and assisted living care. We record revenue when services are rendered on the date services are provided at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.

Accounts Receivable, Net — Resident Fees and Services

The beginning and ending balances of accounts receivable, net — resident fees and services are as follows:



	Medicare		Medicaid			Private and Other Payors			Total
Beginning balance — January 1, 2018	$	29,979,000	$	15,640,000		$	35,379,000		$	80,998,000
Ending balance — March 31, 2018	31,908,000		14,657,000			34,163,000			80,728,000
Increase/(decrease)	$	1,929,000	$	(983,000	)	$	(1,216,000	)	$	(270,000	)

Deferred Revenue — Resident Fees and Services

The beginning and ending balances of deferred revenue — resident fees and services, all of which relates to private payors, are as follows:



	Total
Beginning balance — January 1, 2018	$	9,801,000
Ending balance — March 31, 2018	11,495,000
Increase	$	1,694,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

All amounts included in the beginning balance of deferred revenue — resident fees and services at January 1, 2018 were recognized as revenue during the three months ended March 31, 2018.

Financing Component

We have elected the practical expedient allowed under FASB ASC 606-10-32-18 and, therefore, we do not adjust the promised amount of consideration from patients and third-party payors for the effects of a significant financing component due to our expectation that the period between the time the service is provided to a patient and the time that the patient or a third-party payor pays for that service will be one year or less.

Contract Costs

We have applied the practical expedient provided by FASB ASC 340-40-25-4 and, therefore, all incremental customer contract acquisition costs are expensed as they are incurred since the amortization period of the asset that we otherwise would have recognized is one year or less in duration.

Accounts Payable and Accrued Liabilities

As of March 31, 2018 and December 31, 2017, accounts payable and accrued liabilities primarily includes insurance payables of $27,191,000 and $27,208,000, respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $24,842,000 and $23,737,000, respectively, accrued property taxes of $13,883,000 and $13,406,000, respectively, accrued distributions of $10,233,000 and $10,192,000, respectively, and accrued capital expenditures to unaffiliated third parties of $5,949,000 and $5,988,000, respectively.

Statement of Cash Flows

Cash flows from investing activities for the three months ended March 31, 2017 includes $24,111,000 related to a partial payoff on our real estate note receivable that was received in January 2017. Such cash collection was previously presented as a cash flow from operating activities.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02, which amends the guidance on accounting for leases, including extensive amendments to the disclosure requirements. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02 from a lessor perspective, the guidance will require bifurcation of lease revenues into lease components and non-lease components and to separately recognize and disclose non-lease components that are executory in nature. Lease components will continue to be recognized on a straight-line basis over the lease term and certain non-lease components may be accounted for under the new revenue recognition guidance in ASC Topic 606. Although not yet finalized, the FASB has proposed an option for lessors to elect a practical expedient allowing them to not separate lease and non-lease components in a contract for the purpose of revenue recognition and disclosure. This practical expedient is limited to circumstances in which: (i) the timing and pattern of revenue recognition are the same for the non-lease component and the related lease component; and (ii) the combined single lease component would be classified as an operating lease. If finalized, we plan to elect this practical expedient. In addition, ASU 2016-02 provides a practical expedient that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) the lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. We plan to elect this practical expedient.

We are still evaluating the complete impact of the adoption of ASU 2016-02 and its related expedients on January 1, 2019 to our consolidated financial statements and disclosures. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with a few optional practical expedients. As a result of the adoption of ASU 2016-02 on January 1, 2019, we: (i) will recognize all of our operating leases for which we are the lessee, including facilities leases and ground leases, on our consolidated balance sheets; and (ii) may be required to increase our revenue and expense for the amount of real estate taxes and insurance paid by our tenant under triple-net leases.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted after December 15, 2018. We do not expect the adoption of ASU 2016-13 on January 1, 2020 to have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, or ASU 2018-02, which amends the reclassification requirements from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, or Tax Act. Under ASU 2018-02, an entity will be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-18 on January 1, 2019 to have a material impact on our consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, Amendments to the SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, or ASU 2018-05, which updates the income tax accounting in GAAP to reflect the SEC’s interpretive guidance with regards to the Tax Act. See Note 16, Income Taxes, for a further discussion.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of March 31, 2018 and December 31, 2017:



	March 31, 2018			December 31, 2017
Building, improvements and construction in process	$	2,068,216,000		$	2,058,312,000
Land and improvements	178,424,000			177,999,000
Furniture, fixtures and equipment	107,091,000			99,897,000
	2,353,731,000			2,336,208,000
Less: accumulated depreciation	(193,236,000		)	(172,950,000		)
	$	2,160,495,000		$	2,163,258,000

Depreciation expense for the three months ended March 31, 2018 and 2017 was $20,400,000 and $20,009,000, respectively. No impairment charges were recognized for the three months ended March 31, 2018. For the three months ended March 31, 2017, we determined an integrated senior health campus was impaired and recognized an impairment charge of $3,969,000, which reduced the total carrying value of such investment to $400,000. The fair value of the integrated senior health campus was based on its projected sales price, which was considered to be a Level 2 measurement within the fair value hierarchy.

For the three months ended March 31, 2018 and 2017, we incurred capital expenditures of $12,978,000 and $5,937,000, respectively, on our integrated senior health campuses, $1,919,000 and $1,061,000, respectively, on our medical office buildings, $464,000 and $175,000, respectively, on our skilled nursing facilities, $222,000 and $246,000, respectively, on our senior housing — RIDEA facilities, and $22,000 and $0, respectively, on our hospitals. We did not incur any capital expenditures on our senior housing facilities for the three months ended March 31, 2018 and 2017.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees, total development costs and real estate commissions and other fees paid to unaffiliated third parties will not exceed, in the aggregate, 6.0% of the contract purchase price, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three months ended March 31, 2018 and 2017, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our property acquisitions.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

4. Real Estate Notes Receivable and Debt Security Investment, Net

The following is a summary of our notes receivable and debt security investment, including unamortized loan and closing costs, net as of March 31, 2018 and December 31, 2017:



						Balance
	Origination Date	Maturity Date	Contractual Interest Rate(1)	Maximum Advances Available		March 31, 2018		December 31, 2017
Mezzanine Fixed Rate Notes(2)(3)	02/04/15	12/09/19	6.75%	$	28,650,000	$	28,650,000	$	28,650,000
Mezzanine Floating Rate Notes(2)(3)	02/04/15	12/09/18	8.03%	$	31,567,000	1,799,000		1,799,000
Debt security investment(4)	10/15/15	08/25/25	4.24%	N/A		66,295,000		65,638,000
						96,744,000		96,087,000
Unamortized loan and closing costs, net						1,842,000		1,901,000
						$	98,586,000	$	97,988,000

___________


(1)	Represents the per annum interest rate in effect as of March 31, 2018.

(2)

The Mezzanine Fixed Rate Notes and the Mezzanine Floating Rate Notes, or collectively, the Mezzanine Notes, evidence interests in a portion of a mezzanine loan that is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such owners are themselves owned indirectly by a non-wholly owned subsidiary of Colony NorthStar. The maturity date of the Mezzanine Floating Rate Notes may be extended by three successive one-year extension periods at the borrower’s option, subject to the satisfaction of certain conditions. In November 2017, the borrower last exercised its right to extend the maturity date of the Mezzanine Floating Rate Notes for one year, to December 2018.


(3)	Balance represents the original principal balance, decreased by any subsequent principal paydowns. The Mezzanine Notes only require monthly interest payments and are subject to certain prepayment restrictions if repaid before the respective maturity dates.

(4)

The commercial mortgage-backed debt security, or the debt security, bears an interest rate on the stated principal amount thereof equal to 4.24% per annum, the terms of which security provide for monthly interest-only payments. The debt security matures on August 25, 2025 at a stated amount of $93,433,000, resulting in an anticipated yield-to-maturity of 10.0% per annum. The debt security was issued by an unaffiliated mortgage trust and represents a 10.0% beneficial ownership interest in such mortgage trust. The debt security is subordinate to all other interests in the mortgage trust and is not guaranteed by a government-sponsored entity. As of March 31, 2018 and December 31, 2017, the net carrying amount with accretion was $67,904,000 and $67,275,000, respectively. We classify our debt security investment as held-to-maturity and we have not recorded any unrealized holding gains or losses on such investment.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated third parties will not exceed, in the aggregate, 6.0% of the contract purchase price or in the case of a loan, funds advanced in a loan, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three months ended March 31, 2018 and 2017, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our real estate-related investments.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

The following table shows the changes in the carrying amount of real estate notes receivable and debt security investment, net for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Beginning balance	$	97,988,000		$	101,117,000
Additions:
Accretion on debt security	657,000			596,000
Deductions:
Principal repayment on real estate notes receivable	—			(1,388,000		)
Amortization of loan and closing costs	(59,000		)	(53,000		)
Ending balance	$	98,586,000		$	100,272,000

For the three months ended March 31, 2018 and 2017, we did not record any impairment losses on our real estate notes receivable and debt security investment. Amortization expense on loan and closing costs was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of March 31, 2018 and December 31, 2017:



	March 31, 2018		December 31, 2017
Amortized intangible assets:
In-place leases, net of accumulated amortization of $18,448,000 and $25,967,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 10.4 years and 10.2 years as of March 31, 2018 and December 31, 2017, respectively)	$	47,595,000	$	50,520,000
Leasehold interests, net of accumulated amortization of $443,000 and $407,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 54.4 years and 54.6 years as of March 31, 2018 and December 31, 2017, respectively)	7,451,000		7,487,000
Customer relationships, net of accumulated amortization of $75,000 and $37,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 19.5 years and 19.8 years as of March 31, 2018 and December 31, 2017, respectively)	2,765,000		2,803,000
Above-market leases, net of accumulated amortization of $2,510,000 and $3,335,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 5.3 years and 5.2 years as of March 31, 2018 and December 31, 2017, respectively)	2,687,000		3,026,000
Internally developed technology and software, net of accumulated amortization of $47,000 and $23,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 4.5 years and 4.8 years as of March 31, 2018 and December 31, 2017, respectively)	423,000		447,000
Unamortized intangible assets:
Certificates of need	83,772,000		83,320,000
Trade names	30,787,000		30,787,000
Purchase option asset(1)	1,918,000		1,918,000
	$	177,398,000	$	180,308,000

___________


(1)	Under one of our integrated senior health campus leases, in which we are the lessee, we have the right to acquire the property at a date in the future and at our option. We estimated the fair value of this purchase option asset by discounting the difference between the property’s acquisition date fair value and an estimate of its future option price. We do not

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

amortize the resulting intangible asset over the term of the lease, but rather adjust the recognized value of the asset upon purchase.

Amortization expense for the three months ended March 31, 2018 and 2017 was $3,512,000 and $10,061,000, respectively, which included $339,000 and $372,000, respectively, of amortization recorded against real estate revenue for above-market leases and $36,000 and $36,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

The aggregate weighted average remaining life of the identified intangible assets was 15.9 years and 15.5 years as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, estimated amortization expense on the identified intangible assets for the nine months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2018	$	7,094,000
2019	7,205,000
2020	6,029,000
2021	5,457,000
2022	4,736,000
Thereafter	30,400,000
	$	60,921,000

6. Other Assets, Net

Other assets, net consisted of the following as of March 31, 2018 and December 31, 2017:



	March 31, 2018		December 31, 2017
Prepaid expenses, deposits and other assets	$	27,712,000	$	21,796,000
Deferred rent receivables	18,691,000		17,458,000
Inventory	17,971,000		19,311,000
Investment in unconsolidated entity	16,182,000		17,259,000
Deferred tax assets, net(1)	7,354,000		6,882,000
Lease commissions, net of accumulated amortization of $750,000 and $606,000 as of March 31, 2018 and December 31, 2017, respectively	5,580,000		5,426,000
Deferred financing costs, net of accumulated amortization of $8,835,000 and $7,850,000 as of March 31, 2018 and December 31, 2017, respectively(2)	5,348,000		6,327,000
Lease inducement, net of accumulated amortization of $526,000 and $439,000 as of March 31, 2018 and December 31, 2017, respectively (with a weighted average remaining life of 12.8 years and 13.0 years as of March 31, 2018 and December 31, 2017, respectively)	4,474,000		4,561,000
	$	103,312,000	$	99,020,000

___________


(1)	See Note 16, Income Taxes, for a further discussion.


(2)	In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, or ASU 2015-15, deferred financing costs, net only include costs related to our lines of credit and term loans.

Amortization expense on lease commissions for the three months ended March 31, 2018 and 2017 was $155,000 and $76,000, respectively. Amortization expense on deferred financing costs of our lines of credit and term loans for the three months ended March 31, 2018 and 2017 was $985,000 and $917,000, respectively. Amortization expense on deferred financing costs of our lines of credit and term loans is recorded to interest expense in our accompanying condensed consolidated

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

statements of operations and comprehensive income (loss). Amortization expense on lease inducement for both the three months ended March 31, 2018 and 2017 was $88,000, which was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss). As of March 31, 2018, we have a receivable of $3,144,000 due from our investment in unconsolidated entity.

7. Mortgage Loans Payable, Net

Mortgage loans payable were $634,280,000 ($611,960,000, including discount/premium and deferred financing costs, net) and $636,329,000 ($613,558,000, including discount/premium and deferred financing costs, net) as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, we had 47 fixed-rate and four variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 7.89% per annum based on interest rates in effect as of March 31, 2018 and a weighted average effective interest rate of 4.08%. As of December 31, 2017, we had 47 fixed-rate mortgage loans and four variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 7.57% per annum based on interest rates in effect as of December 31, 2017 and a weighted average effective interest rate of 4.02%. We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ratio, leverage ratio and reporting requirements.

Mortgage loans payable, net consisted of the following as of March 31, 2018 and December 31, 2017:



	March 31, 2018			December 31, 2017
Total fixed-rate debt	$	524,525,000		$	526,503,000
Total variable-rate debt	109,755,000			109,826,000
Total fixed- and variable-rate debt	634,280,000			636,329,000
Less: deferred financing costs, net(1)	(5,978,000		)	(6,290,000		)
Add: premium	1,051,000			1,176,000
Less: discount	(17,393,000		)	(17,657,000		)
Mortgage loans payable, net	$	611,960,000		$	613,558,000

___________


(1)	In accordance with ASU 2015-03 and ASU 2015-15, deferred financing costs, net only include costs related to our mortgage loans payable.

The following table shows the changes in the carrying amount of mortgage loans payable, net for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Beginning balance	$	613,558,000		$	495,717,000
Additions:
Borrowings on mortgage loans payable	458,000			970,000
Amortization of deferred financing costs	325,000			475,000
Amortization of discount/premium on mortgage loans payable	139,000			574,000
Deductions:
Scheduled principal payments on mortgage loans payable	(2,506,000		)	(1,549,000		)
Settlement of mortgage loans payable	—			(9,665,000		)
Deferred financing costs	(14,000		)	(13,000		)
Ending balance	$	611,960,000		$	486,509,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

As of March 31, 2018, the principal payments due on our mortgage loans payable for the nine months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter were as follows:



Year	Amount
2018	$	85,523,000
2019	26,714,000
2020	33,860,000
2021	13,236,000
2022	59,540,000
Thereafter	415,407,000
	$	634,280,000

8. Lines of Credit and Term Loans

2016 Corporate Line of Credit

On February 3, 2016, we, through certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, N.A., or Bank of America, as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, National Association, or Key Bank, as syndication agent, a swing line lender and a letter of credit issuer; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000, or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000, or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Line of Credit. Pursuant to the terms of the 2016 Corporate Credit Agreement, we may borrow up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The 2016 Corporate Line of Credit matures on February 3, 2019, and may be extended for one 12-month period during the term of the 2016 Corporate Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee. On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and separate term notes, or the Term Notes, with each of Bank of America, KeyBank and a syndicate of other banks.

The maximum principal amount of the 2016 Corporate Line of Credit can be increased by up to $500,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2016 Corporate Credit Agreement; and (ii) such additional financing being offered and provided by existing lenders or new lenders under the 2016 Corporate Credit Agreement. On August 3, 2017, we entered into a First Amendment, Waiver and Commitment Increase Agreement, or the Amendment, with Bank of America, KeyBank, and the lenders named therein, to amend the 2016 Corporate Credit Agreement. The material terms of the Amendment provide for: (i) an increase in the 2016 Corporate Term Loan Facility in an amount equal to $50,000,000; (ii) the establishment of an additional capitalization rate of 8.75% for any Real Property Asset, as defined in the 2016 Corporate Credit Agreement, with mixed uses consisting of both assisted living and independent living properties and skilled nursing facilities, but specifically excluding medical office buildings and life science buildings; (iii) a revision to the definition of Term Loan Commitment, as defined in the 2016 Corporate Credit Agreement, to reflect the increase in the 2016 Corporate Term Loan Facility and specify that the aggregate principal amount of the Term Loan Commitments of all of the Term Loan Lenders, as defined in the 2016 Corporate Credit Agreement, as in effect on the effective date of the Amendment is $250,000,000; (iv) an agreement by each Term Loan Lender severally, but not jointly, to fund its pro rata share of the Initial Term Loan, as defined in the Amendment, and Incremental Term Loan, as defined in the Amendment, subject to the terms and conditions set forth in the Amendment; (v) the obligation of the Credit Parties, as defined in the 2016 Corporate Credit Agreement, to cause the Consolidated Secured Leverage Ratio, as defined in the 2016 Corporate Credit Agreement, as of the end of any fiscal quarter, to be equal to or less than 40.0%; (vi) the Lenders’ waiver of the notice requirement regarding the change in name and form of organization of certain subsidiary guarantors, as set forth in the Amendment; and (vii) the addition of Bank of the West, or New Lender, as a party to the 2016 Corporate Credit Agreement and a Term Loan Lender and Lender, as defined in the 2016 Corporate Credit Agreement, and New Lender’s agreement to be bound by all terms, provisions and conditions applicable to Lenders contained in the 2016 Corporate Credit Agreement. As a result of the Amendment, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was increased to $550,000,000.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Until such time as we or our operating partnership have obtained two investment grade ratings from any of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and/or Fitch Ratings, loans under the 2016 Corporate Line of Credit bear interest at per annum rates equal to, at our option, either: (i)(a) the Eurodollar Rate, as defined in the 2016 Corporate Credit Agreement, as amended, plus (b) in the case of revolving loans, a margin ranging from 1.55% to 2.20% per annum based on our and our consolidated subsidiaries’ consolidated leverage ratio and in the case of term loans, a margin ranging from 1.50% to 2.10% per annum based on our and our consolidated subsidiaries’ consolidated leverage ratio; or (ii)(a) the greatest of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 0.50% per annum, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum and (4) 0.00%, plus (b) in the case of revolving loans, a margin ranging from 0.55% to 1.20% per annum based on our consolidated leverage ratio and in the case of term loans, a margin ranging from 0.50% to 1.10% per annum based on our consolidated leverage ratio.

After such time as we or our operating partnership have obtained two investment grade ratings from any of Moody’s Investors Service, Inc., Standard & Poor’s Rating Services and/or Fitch Ratings and submitted a written election to the administrative agent, loans under the 2016 Corporate Line of Credit shall bear interest at per annum rates equal to, at the option of our operating partnership, either: (i)(a) the Eurodollar Rate, as defined in the 2016 Corporate Credit Agreement, as amended, plus (b) in the case of revolving loans, a margin ranging from 0.925% to 1.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 1.00% to 1.95% per annum based on our or our operating partnership’s debt ratings; or (ii)(a) the greatest of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 0.50% per annum, (3) the one-month Eurodollar Rate (as defined in the 2016 Corporate Credit Agreement, as amended) plus 1.00% per annum and (4) 0.00%, plus (b) in the case of revolving loans, a margin ranging from 0.00% to 0.70% per annum based on our or our operating partnership’s debt ratings and in the case of term loans, a margin ranging from 0.00% to 0.95% per annum based on our or our operating partnership’s debt ratings. Accrued interest under the 2016 Corporate Credit Agreement, as amended, is payable monthly.

We are required to pay a fee on the unused portion of the lenders’ commitments under the 2016 Corporate Revolving Credit Facility in an amount equal to 0.30% per annum on the actual average daily unused portion of the available commitments if the average daily amount of actual usage is less than 50.0% and in an amount equal to 0.20% per annum on the actual average daily unused portion of the available commitments if the actual average daily usage is greater than 50.0%. Such fee is payable quarterly in arrears. We are also required to pay a fee on the unused portion of the lenders’ commitments under the 2016 Corporate Term Loan Facility in an amount equal to: (i) 0.25% per annum multiplied by (ii) the actual daily amount of the unused Term Loan Commitments, as defined in the 2016 Corporate Credit Agreement, as amended, during the period for which payment is made. The unused fee on Term Loan Facility is payable quarterly in arrears.

The 2016 Corporate Credit Agreement, as amended, 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 and limitations on secured recourse indebtedness.

As of March 31, 2018 and December 31, 2017, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was $550,000,000. As of March 31, 2018 and December 31, 2017, borrowings outstanding under the 2016 Corporate Line of Credit totaled $469,500,000 and $444,000,000, respectively, and the weighted average interest rate on such borrowings outstanding was 3.54% and 3.23% per annum, respectively.

Trilogy PropCo Line of Credit

On December 1, 2015, in connection with the acquisition of Trilogy Investors, LLC, or Trilogy, our majority-owned subsidiary, we, through Trilogy PropCo Finance, LLC, a Delaware limited liability company and an indirect subsidiary of Trilogy, or Trilogy PropCo Parent, and certain of its subsidiaries, or the Trilogy PropCo Co-Borrowers, and, together with Trilogy PropCo Parent, the Trilogy PropCo Borrowers, entered into a loan agreement, or the Trilogy PropCo Credit Agreement, with KeyBank, as administrative agent; Regions Bank, as syndication agent; and a syndicate of other banks, as lenders, to obtain a line of credit with an aggregate maximum principal amount of $300,000,000, or the Trilogy PropCo Line of Credit.

On December 1, 2015, we also entered into separate revolving notes with each of KeyBank and Regions Bank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Trilogy PropCo Credit Agreement. The proceeds of the loans made under the Trilogy PropCo Line of Credit may be used for working capital, capital expenditures, acquisition of properties and fee interests in leasehold properties and general corporate purposes. The Trilogy PropCo Line of Credit has a four-year term,

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

maturing on December 1, 2019, unless extended for a one-year period subject to satisfaction of certain conditions, including payment of an extension fee, or otherwise terminated in accordance with the terms thereunder. Availability of the total commitment under the Trilogy PropCo Line of Credit is subject to a borrowing base based on, among other things, the appraised value of certain real estate and villa units constructed on such real estate.

In addition to paying interest on the outstanding principal under the Trilogy PropCo Line of Credit, the Trilogy PropCo Borrowers are required to pay an unused fee to the lenders in respect of the unutilized commitments at a rate equal to an initial rate of 0.25% per annum, subject to adjustment depending on usage. Outstanding amounts under the Trilogy PropCo Line of Credit may be prepaid, in whole or in part, at any time, without penalty or premium, subject to customary breakage costs. The Trilogy PropCo Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including incurrence of debt and limitations on secured recourse indebtedness.

Provided that no default or event of default has occurred and subject to certain terms and conditions set forth in the Trilogy PropCo Credit Agreement, the Trilogy PropCo Borrowers had the option, at any time and from time to time, before the maturity date, to request an increase of the total maximum principal amount by $100,000,000 to $400,000,000. On October 27, 2017, we entered into an amendment to the Trilogy PropCo Credit Agreement, or the Trilogy PropCo Amendment, with KeyBank, as administrative agent, and a syndicate of other banks, as lenders, to amend the terms of the Trilogy PropCo Credit Agreement. The material terms of the Trilogy PropCo Amendment provide for: (i) a reduction of the total commitment under the Trilogy PropCo Line of Credit from $300,000,000 to $250,000,000; (ii) a revision to the definition of applicable margin, pursuant to which the Trilogy PropCo Line of Credit bears interest at a floating rate based on an adjusted London Interbank Offered Rate, or LIBOR, plus an applicable margin of 4.00% per annum or an alternate base rate plus an applicable margin of 3.00% per annum, at the Trilogy PropCo Borrowers’ option; and (iii) the Trilogy PropCo Borrowers’ obligation to pay to KeyBank the unused fee that has accrued with respect to the portion of the total commitment being reduced.

Our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $250,000,000 as of March 31, 2018 and December 31, 2017. As of March 31, 2018 and December 31, 2017, borrowings outstanding under the Trilogy PropCo Line of Credit totaled $169,376,000 and $179,376,000, respectively, and the weighted average interest rate on such borrowings outstanding was 5.72% and 5.39% per annum, respectively.

Trilogy OpCo Line of Credit

On March 21, 2016, we, through Trilogy Healthcare Holdings, Inc., a Delaware corporation and a direct subsidiary of Trilogy, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, or Wells Fargo, N.A., as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. The Trilogy OpCo Line of Credit is secured primarily by residents’ receivables of the Trilogy OpCo Borrowers. The terms of the Trilogy OpCo Credit Agreement provided for a one-time increase during the term of the agreement by up to $18,000,000, for a maximum principal amount of $60,000,000, subject to certain conditions. In April 2016, we entered into an amendment to the Trilogy OpCo Credit Agreement to increase the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000. Subsequently, in April 2018, we further amended the Trilogy OpCo Credit Agreement to decrease the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $25,000,000. See Note 20, Subsequent Event — Amendment to Trilogy OpCo Credit Agreement, for a further discussion.

The Trilogy OpCo Line of Credit has a five-year term, maturing on March 21, 2021, unless otherwise terminated in accordance with the terms thereunder. The Trilogy OpCo Line of Credit bears interest at a floating rate based on, at the Trilogy OpCo Borrowers’ option, an adjusted LIBOR plus an Applicable Margin relative to LIBOR Rate Loans, or a Base Rate plus an Applicable Margin relative to Base Rate Loans, as such terms are defined and in accordance with the terms of the Trilogy OpCo Credit Agreement. Accrued interest under the Trilogy Opco Line of Credit is payable monthly.

In addition to paying interest on the outstanding principal under the Trilogy OpCo Line of Credit, the Trilogy OpCo Borrowers are required to pay an unused fee in an amount equal to 0.50% per annum times the average monthly unutilized commitment. The unused fee is payable monthly in arrears, commencing on the first day of each month from and after the closing date up to the first day of the month prior to the date on which the obligations are paid in full. If the commitment is terminated prior to the second anniversary of the closing date, a prepayment premium of 1.00% of the total commitment applies.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

The Trilogy OpCo Credit Agreement, as amended, contains customary events of default, covenants and other terms, including, among other things, restrictions on the payment of dividends and other distributions, incurrence of indebtedness, creation of liens and transactions with affiliates. Availability of the total commitment under the Trilogy OpCo Line of Credit is subject to a borrowing base based on, among other things, the eligible accounts receivable outstanding of the Trilogy OpCo Borrowers.

Our aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $60,000,000 as of March 31, 2018 and December 31, 2017, subject to certain terms and conditions. As of March 31, 2018 and December 31, 2017, borrowings outstanding under the Trilogy OpCo Line of Credit totaled $11,680,000 and $749,000, respectively, and the weighted average interest rate on such borrowings outstanding was 5.24% and 5.84% per annum, respectively.

9. Derivative Financial Instruments

Consistent with ASC Topic 815, Derivatives and Hedging, or 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 (loss).

The following table lists the derivative financial instruments held by us as of March 31, 2018 and December 31, 2017:



						Fair Value
Instrument	Notional Amount		Index	Interest Rate	Maturity Date	March 31, 2018		December 31, 2017
Cap	$	17,075,000	one month LIBOR	2.25%	02/01/18	$	—	$	—
Swap	140,000,000		one month LIBOR	0.82%	02/03/19	1,512,000		1,486,000
Swap	60,000,000		one month LIBOR	0.78%	02/03/19	667,000		661,000
Swap	50,000,000		one month LIBOR	1.39%	02/03/19	297,000		219,000
	$	267,075,000				$	2,476,000	$	2,366,000

As of March 31, 2018 and December 31, 2017, none of our derivatives were designated as 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 and comprehensive income (loss). For the three months ended March 31, 2018 and 2017, we recorded $110,000 and $336,000, respectively, as a decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss) related to the change in the fair value of our derivative financial instruments.

See Note 15, Fair Value Measurements, for a further discussion of the fair value of our derivative financial instruments.

10. Identified Intangible Liabilities, Net

As of March 31, 2018 and December 31, 2017, identified intangible liabilities consisted of below-market leases of $1,429,000 and $1,568,000, respectively, net of accumulated amortization of $1,244,000 and $1,135,000, respectively. Amortization expense on below-market leases for the three months ended March 31, 2018 and 2017 was $140,000 and $203,000, respectively. Amortization expense on below-market leases is recorded to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

The weighted average remaining life of below-market leases was 4.7 years and 4.8 years as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, estimated amortization expense on below-market leases for the nine months ending December 31, 2018 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2018	$	343,000
2019	392,000
2020	263,000
2021	146,000
2022	97,000
Thereafter	188,000
	$	1,429,000

11. 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

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. 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.

12. Redeemable Noncontrolling Interests

On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As of March 31, 2018 and December 31, 2017, we owned greater than 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 our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as a redeemable noncontrolling interest and is presented outside of permanent equity in our accompanying condensed consolidated balance sheets. See Note 14, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 14, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.

On December 1, 2015, we, through Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings, in which we indirectly hold a 70.0% ownership interest, pursuant to an equity purchase agreement with Trilogy and other seller parties thereto, completed the acquisition of approximately 96.7% of the outstanding equity interests of Trilogy. Pursuant to the equity purchase agreement, at the closing of the acquisition, certain members of Trilogy’s pre-closing management retained a portion of the outstanding equity interests of Trilogy held by such members of Trilogy’s pre-closing management, representing in the aggregate approximately 3.3% of the outstanding equity interests of Trilogy. The noncontrolling interests held by Trilogy’s pre-closing management have redemption features outside of our control and are accounted for as redeemable noncontrolling

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

interests in our accompanying condensed consolidated balance sheets. As of March 31, 2018, Trilogy REIT Holdings and certain members of Trilogy’s pre-closing management owned approximately 96.7% and 3.3% of Trilogy, respectively.

We record the carrying amount of redeemable noncontrolling interests at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interests consisted of the following for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Beginning balance	$	32,435,000		$	31,507,000
Additions	535,000			635,000
Reclassification from equity	195,000			195,000
Distribution	(166,000		)	(223,000		)
Fair value adjustment to redemption value	247,000			464,000
Net income (loss) attributable to redeemable noncontrolling interests	29,000			(412,000		)
Ending balance	$	33,275,000		$	32,166,000

13. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of March 31, 2018 and December 31, 2017, no shares of preferred stock were issued and outstanding.

Common Stock

Our charter authorizes us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share. On January 15, 2013, our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our 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 March 12, 2015, we terminated the primary portion of our initial offering. We continued to offer shares of our common stock in our initial offering pursuant to the DRIP, until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering.

Through March 31, 2018, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial offering and 21,998,412 shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering. We also repurchased 7,840,188 shares of our common stock under our share repurchase plan and granted an aggregate of 82,500 shares of our restricted common stock to our independent directors through March 31, 2018. As of March 31, 2018 and December 31, 2017, we had 199,193,544 and 199,343,234 shares of our common stock issued and outstanding, respectively.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Beginning balance — foreign currency translation adjustments	$	(1,971,000	)	$	(3,029,000	)
Net change in current period	446,000			142,000
Ending balance — foreign currency translation adjustments	$	(1,525,000	)	$	(2,887,000	)

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Noncontrolling Interests

As of March 31, 2018 and December 31, 2017, Trilogy REIT Holdings owned approximately 96.7% of Trilogy. We are the indirect owner of a 70.0% interest in Trilogy REIT Holdings and serve as the sole manager of Trilogy REIT Holdings. NorthStar Healthcare Income, Inc., through certain of its subsidiaries, owns a 30.0% ownership interest in Trilogy REIT Holdings. As of March 31, 2018 and December 31, 2017, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with the acquisition and operation of Trilogy, profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and an independent director of Trilogy, both unaffiliated third parties that manage or direct the day-to day operations of Trilogy. The Profit Interests consist of time-based or performance-based commitments. The time-based Profit Interests were measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five-year period. We amortize the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). The performance-based Profit Interests are subject to a performance commitment and vest upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their grant date fair value and immediately expensed. The performance-based Profit Interests are subject to fair value measurements until vesting occurs with changes to fair value recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). For the three months ended March 31, 2018 and 2017, we recognized stock compensation expense related to the Profit Interests of $195,000 and $0, respectively.

There were no canceled, expired or exercised Profit Interests during the three months ended March 31, 2018 and 2017. The nonvested awards are presented as noncontrolling interests and are re-classified to redeemable noncontrolling interests upon vesting as they have redemption features outside of our control similar to the common stock units held by Trilogy’s pre-closing management once vested. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.

On January 6, 2016, one of our consolidated subsidiaries issued non-voting preferred shares of beneficial interests to qualified investors for total proceeds of $125,000. These preferred shares of beneficial interests are entitled to receive cumulative preferential cash dividends at the rate of 12.5% per annum. In accordance with ASC Topic 810, we classify the value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying condensed consolidated balance sheets and the dividends of the preferred shares of beneficial interests as net loss attributable to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

In addition, as of March 31, 2018 and December 31, 2017, we owned an 86.0% interest in a consolidated limited liability company that owns the Lakeview IN Medical Plaza property we acquired on January 21, 2016. As such, 14.0% of the net earnings of the Lakeview IN Medical Plaza property were allocated to noncontrolling interests for the three months ended March 31, 2018 and 2017.

Distribution Reinvestment Plan

We adopted the DRIP that allowed stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our initial offering, subject to certain conditions. We had registered and reserved $35,000,000 in shares of our common stock for sale pursuant to the DRIP in our initial offering at an offering price of $9.50 per share, which we terminated on April 22, 2015. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering.

Effective October 5, 2016, the Amended and Restated DRIP amended the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated value of one share of our common stock, as approved and established by our board. The Amended and Restated DRIP became effective with the distribution payment to stockholders paid in the month of November 2016, which distributions were reinvested at $9.01 per share, the initial estimated per share net asset value, or NAV, unanimously approved and established by our board on October 5, 2016. Formerly, shares were issued pursuant to the

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Secondary DRIP Offering at 95.0% of the estimated value of one share of our common stock, as estimated by our board. In all other material respects, the terms of the Secondary DRIP Offering remain unchanged by the Amended and Restated DRIP.

On October 4, 2017, our board approved and established an updated estimated per share NAV of our common stock of $9.27. Accordingly, commencing with the distribution payment to stockholders paid in the month of November 2017, shares of our common stock issued pursuant to the Amended and Restated DRIP were or will be issued at $9.27 per share, until such time as our board determines a new estimated per share NAV.

For the three months ended March 31, 2018 and 2017, $15,229,000 and $15,681,000, respectively, in distributions were reinvested that resulted in 1,642,834 and 1,740,384 shares of our common stock, respectively, being issued pursuant to the Secondary DRIP Offering. As of March 31, 2018 and December 31, 2017, a total of $204,910,000 and $189,681,000, respectively, in distributions were reinvested that resulted in 21,998,412 and 20,355,578 shares of our common stock, respectively, being issued pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

Share Repurchase Plan

Our board 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. 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 portion of our initial offering and the Secondary DRIP Offering. 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.

All repurchases will be 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. Further, all share repurchases will be repurchased following a one-year holding period at a price between 92.5% and 100% of each stockholder’s repurchase amount, depending on the period of time their shares have been held. Until October 4, 2016, the repurchase amount for shares repurchased under our share repurchase plan was equal to the lesser of the amount a stockholder paid for their shares of our common stock or the most recent per share offering price. However, if shares of our common stock were repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price was no less than 100% of the price paid to acquire the shares of our common stock from us.

Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount, as such term is defined in our share repurchase plan, as amended, is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, commencing with the share repurchase requests submitted during the fourth quarter 2016, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

On October 5, 2016, our board approved and established an initial estimated per share NAV of our common stock of $9.01. Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2016, the updated estimated per share NAV of $9.01 served as the Repurchase Amount for stockholders who purchased their shares at a price equal to or greater than $9.01 per share, in our initial offering, until such time as our board determined a new estimated per share NAV. On October 4, 2017, our board approved and established an updated estimated per share NAV of our common stock of $9.27. Accordingly, commencing with share repurchase requests submitted during the fourth quarter of 2017, the updated estimated per share NAV of $9.27 has or will serve as the Repurchase Amount for stockholders who purchased their shares at a

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

price equal to or greater than $9.27 per share, in our initial offering, until such time as our board determines a new estimated per share NAV.

For the three months ended March 31, 2018 and 2017, we received share repurchase requests and repurchased 1,792,524 and 802,393 shares of our common stock, respectively, for an aggregate of $16,506,000 and $7,128,000, respectively, at an average repurchase price of $9.21 and $8.88 per share, respectively.

As of March 31, 2018 and December 31, 2017, we received share repurchase requests and repurchased 7,840,188 and 6,047,664 shares of our common stock, respectively, for an aggregate of $71,864,000 and $55,358,000, respectively, at an average repurchase price of $9.17 and $9.15 per share, respectively. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

2013 Incentive Plan

We adopted the 2013 Incentive Plan, or our incentive plan, pursuant to which our board or a committee of our independent directors may make grants of options, shares of our 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 shares. For the three months ended March 31, 2018 and 2017, we did not issue any shares of our restricted common stock pursuant to our incentive plan and none of the previously issued shares of our restricted common stock were vested. For the three months March 31, 2018 and 2017, we recognized stock compensation expense of $43,000, which is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

14. 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, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings; however, we are not affiliated with Griffin Capital, our dealer manager, Colony NorthStar or Mr. Flaherty. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. Our board, including a majority of our independent directors, has reviewed the material transactions between our affiliates and us during the three months ended March 31, 2018. Set forth below is a description of the transactions with affiliates. We believe that we have executed all of the transactions set forth below on terms that are fair and reasonable to us and on terms no less favorable to us than those available from unaffiliated third parties. In the aggregate, for the three months ended March 31, 2018 and 2017, we incurred $5,519,000 and $6,765,000, respectively, in fees and expenses to our affiliates as detailed below.

Acquisition and Development Stage

Acquisition Fee

We pay our advisor or its affiliates an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.00% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Since January 31, 2015, acquisition fees are and have been paid in cash. 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 initial 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.

For the three months ended March 31, 2018 and 2017, we incurred $0 and $1,437,000, respectively, in acquisition fees to our advisor. Acquisition fees in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01, Clarifying the Definition of a Business, or ASU 2017-01, or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Development Fee

In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive 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 or its affiliates elect to receive an acquisition fee based on the cost of such development.

For the three months ended March 31, 2018 and 2017, we did not incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets, which are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees, total development costs and real estate commissions paid to unaffiliated third parties will not exceed, in the aggregate, 6.0% of the contract purchase price or real estate-related investments, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three months ended March 31, 2018 and 2017, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions or real estate-related investments.

For the three months ended March 31, 2018 and 2017, we did not incur any acquisition expenses to our advisor or its affiliates. Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as business combinations in accordance with ASC Topic 805 are expensed as incurred and included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Reimbursements of acquisition expenses in connection with the acquisition of properties accounted for as asset acquisitions in accordance with ASU 2017-01 or the acquisition of real estate-related investments are capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

Operational Stage

Asset Management Fee

We pay our advisor or its affiliates a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of 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 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 March 31, 2018 and 2017, we incurred $4,781,000 and $4,646,000, respectively, in asset management fees to our advisor or its affiliates. Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third-party property manager. We pay our advisor or its affiliates a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a property management oversight fee of 1.0% of the gross monthly cash receipts of any stand-alone, single-tenant, net leased property; (ii) a property management oversight fee of 1.5% of the gross monthly cash receipts of any property that is not a stand-alone, single-tenant, net leased property and for which our advisor or its affiliates provide oversight of a third party that performs the duties of a property manager with respect to such property; or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant, net leased property and for which our advisor or its affiliates will directly serve as the property manager without sub-contracting such duties to a third party.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

For the three months ended March 31, 2018 and 2017, we incurred $611,000 and $597,000, respectively, in property management fees to our advisor or its affiliates. Property management fees are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Lease Fees

We 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 6.0% of the gross revenues generated during the initial term of the lease.

For the three months ended March 31, 2018 and 2017, we incurred $69,000 and $27,000, respectively, in lease fees to our advisor or its affiliates. Lease fees are 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 are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended March 31, 2018 and 2017, we incurred $6,000 and $4,000, 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 real estate investments, net in our accompanying condensed consolidated balance sheets or are expensed and included in our accompanying condensed consolidated statements of operations and comprehensive income (loss), as applicable.

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 determined that such excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient.

Our operating expenses as a percentage of average invested assets and as a percentage of net income were 0.9% and 16.3%, respectively, for the 12 months ended March 31, 2018; therefore, our operating expenses did not exceed the aforementioned limitation.

For the three months ended March 31, 2018 and 2017, our advisor or its affiliates incurred operating expenses on our behalf of $52,000 and $54,000, respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

Compensation for Additional Services

We pay our advisor and its affiliates 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 has to be approved by a majority of our board, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the three months ended March 31, 2018 and 2017, our advisor and its affiliates were not compensated for any additional services.

Liquidity Stage

Disposition Fees

For services relating to the sale of one or more properties, we pay our advisor or its affiliates a disposition fee of 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, 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 third 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.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

For the three months ended March 31, 2018, we did not incur any disposition fees to our advisor or its affiliates. For the three months ended March 31, 2017, we disposed of one land parcel within our integrated senior health campus segment and our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement. Our advisor did not receive any additional securities, shares of our stock or any other form of consideration or any repayment as a result of the waiver of such disposition fee.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

In the event of liquidation, we will pay our advisor a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the remaining 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 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three months ended March 31, 2018 and 2017, we did not pay any such distributions to our advisor.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor’s limited partnership units, we will pay our advisor 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 7.0% 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 paid depend upon the market value of our outstanding stock at the time of listing, among other factors. For the three months ended March 31, 2018 and 2017, we did not pay any such distributions to our advisor.

Subordinated Distribution Upon Termination

Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units 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 equal to an annual 7.0% 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 March 31, 2018 and 2017, we did not have any liability related to the subordinated distribution upon termination.

Accounts Payable Due to Affiliates

The following amounts were outstanding to our affiliates as of March 31, 2018 and December 31, 2017:



Fee	March 31, 2018		December 31, 2017
Asset and property management fees	$	1,814,000	$	1,783,000
Acquisition fees	98,000		115,000
Development fees	—		104,000
Lease commissions	54,000		31,000
Operating expenses	12,000		10,000
Construction management fees	8,000		14,000
	$	1,986,000	$	2,057,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

15. 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 March 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall:



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instruments	$	—	$	2,476,000	$	—	$	2,476,000
Contingent consideration receivable	—		—		—		—
Total assets at fair value	$	—	$	2,476,000	$	—	$	2,476,000
Liabilities:
Contingent consideration obligations	$	—	$	—	$	4,364,000	$	4,364,000
Warrants	—		—		1,155,000		1,155,000
Total liabilities at fair value	$	—	$	—	$	5,519,000	$	5,519,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall:



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instruments	$	—	$	2,366,000	$	—	$	2,366,000
Contingent consideration receivable	—		—		—		—
Total assets at fair value	$	—	$	2,366,000	$	—	$	2,366,000
Liabilities:
Contingent consideration obligations	$	—	$	—	$	5,107,000	$	5,107,000
Warrants	—		—		1,155,000		1,155,000
Total liabilities at fair value	$	—	$	—	$	6,262,000	$	6,262,000

There were no transfers into or out of fair value measurement levels during the three months ended March 31, 2018 and 2017.

Derivative Financial Instruments

We use interest rate swaps and interest rate caps to manage interest rate risk associated with variable-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, as well as option volatility. The fair values of interest rate swaps are determined by 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 derived from observable market interest rate curves.

To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, or 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.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Although we have determined that the majority of the inputs used to value our derivative financial instruments 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 March 31, 2018, 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 derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Contingent Consideration

Asset

As of March 31, 2018, we have not recorded any contingent consideration receivables. In connection with our acquisition of Mt. Juliet TN MOB in March 2015, there was a contingent consideration receivable in the range of $0 up to a maximum of $73,000. We would have received payment of contingent consideration in the event that a tenant occupying 6,611 square feet of GLA terminated their lease prior to March 31, 2018, and to the extent there was a shortfall in rent from any replacement tenant. As of March 31, 2018, such tenant was current on all rental payments and the lease expired with no amounts due to us.

Liabilities

As of March 31, 2018 and December 31, 2017, we have accrued $4,364,000 and $5,107,000, respectively, of contingent consideration obligations in connection with our property acquisitions, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Such consideration is paid upon various conditions being met, including our tenants achieving certain operating performance metrics.

Of the amounts accrued as of March 31, 2018 and December 31, 2017, $4,364,000 and $5,107,000, respectively, primarily relates to our acquisition of two senior housing facilities within North Carolina ALF Portfolio in January and June 2015. The amounts will be paid based upon the computation in the lease agreement and receipt of notification within three years after the applicable acquisition date that the tenant has increased its earnings before interest, taxes, depreciation, and rent cost, or EBITDAR, as defined in the lease agreement, for the preceding three months. Effective January 2018, the lease agreement was amended to extend the contingent consideration payout period to four years from the original three years for the two facilities with other terms of the amendment remaining consistent with the original lease agreement. There is no minimum required payment, but the total maximum payment is capped at $20,318,000 for the two senior housing facilities and is also limited by the tenant’s ability to increase its EBITDAR. Any payment made will result in an increase in the monthly rent charged to the tenant and additional rental revenue to us. As of March 31, 2018, we estimate that we will pay the contingent consideration of $4,364,000 for these two facilities within North Carolina ALF Portfolio.

Warrants

As of both March 31, 2018 and December 31, 2017, we have recorded $1,155,000 related to warrants in Trilogy common units held by certain members of Trilogy’s pre-closing management, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Once exercised, these warrants have redemption features similar to the common units held by members of Trilogy’s pre-closing management. See Note 12, Redeemable Noncontrolling Interests, for a further discussion. As of March 31, 2018 and December 31, 2017, the carrying value is a reasonable estimate of fair value.

Financial Instruments Disclosed at Fair Value

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC Topic 820.

Our accompanying condensed consolidated balance sheets include the following financial instruments: real estate notes receivable, debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits, accounts payable and accrued liabilities, accounts payable due to affiliates, mortgage loans payable and borrowings under our lines of credit and term loans.

We consider the carrying values of cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. The fair value of accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable. The fair values of the other financial instruments are classified in Level 2 of the fair value hierarchy.

The fair value of our real estate notes receivable and debt security investment are estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair value of our mortgage loans payable and our lines of credit and term loans are estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our real estate notes receivable, debt security investment, mortgage loans payable and lines of credit and term loans are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of March 31, 2018 and December 31, 2017 were as follows:



	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Real estate notes receivable	$	30,682,000	$	31,298,000	$	30,713,000	$	31,414,000
Debt security investment	$	67,904,000	$	94,181,000	$	67,275,000	$	94,202,000
Financial Liabilities:
Mortgage loans payable	$	611,960,000	$	557,775,000	$	613,558,000	$	570,918,000
Lines of credit and term loans	$	645,208,000	$	651,157,000	$	617,798,000	$	624,102,000

16. Income Taxes

As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. We have elected to treat certain of our consolidated subsidiaries as taxable REIT subsidiaries, or TRSs, pursuant to the Code. TRSs may participate in services that would otherwise be considered impermissible for REITs and are subject to federal and state income tax at regular corporate tax rates.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35.0% to 21.0%, eliminating the corporate alternative minimum tax and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

We adopted ASU 2018-05 which allows us to record provisional amounts during the period of enactment. Any change to the provisional amounts will be recorded as an adjustment to the provision for income taxes in the period the amounts are determined. The measurement period ends when we have obtained, prepared and analyzed the information necessary to finalize the provision, but cannot extend beyond one year of the enactment date.

The components of income (loss) before taxes for the three months ended March 31, 2018 and 2017 were as follows:



	Three Months Ended March 31,
	2018			2017
Domestic	$	8,109,000		$	(7,262,000	)
Foreign	(55,000		)	(478,000		)
Income (loss) before income taxes	$	8,054,000		$	(7,740,000	)

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

The components of income tax benefit for the three months ended March 31, 2018 and 2017 were as follows:



	Three Months Ended March 31,
	2018			2017
Federal deferred	$	(1,332,000	)	$	(2,343,000	)
State deferred	(267,000		)	(232,000		)
Foreign deferred	—			(63,000		)
Federal current	—			—
Foreign current	79,000			64,000
Valuation allowances	1,149,000			2,361,000
Total income tax benefit	$	(371,000	)	$	(213,000	)

Current Income Tax

Federal and state income taxes are generally a function of the level of income recognized by our TRSs. Foreign income taxes are generally a function of our income on our real estate and real estate-related investments located in the United Kingdom, or UK, and Isle of Man.

Deferred Taxes

Deferred income tax is generally a function of the period’s temporary differences (primarily basis differences between tax and financial reporting for real estate assets and equity investments) and generation of tax net operating losses that may be realized in future periods depending on sufficient taxable income.

We apply the rules under ASC 740-10, Accounting for Uncertainty in Income Taxes, for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of March 31, 2018 and December 31, 2017, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of March 31, 2018 and December 31, 2017, our valuation allowance substantially reserves the net deferred tax assets due to inherent uncertainty of future income. We will continue to monitor industry and economic conditions, and our ability to generate taxable income based on our business plan and available tax planning strategies, which would allow us to utilize the tax benefits of the net deferred tax assets and thereby allow us to reverse all, or a portion of, our valuation allowance in the future.

17. Segment Reporting

ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we established a new reportable business segment at such time. As of March 31, 2018, we evaluated our business and made resource allocations based on six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Our medical office buildings are typically leased to multiple tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). In addition, our medical office buildings segment includes the Mezzanine Notes. Our hospital investments are primarily single-tenant properties that lease the facilities to unaffiliated tenants under triple-net and generally master leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes,

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

insurance and capital expenditures) to the tenant. Our skilled nursing facilities and senior housing facilities are similarly structured as our hospital investments. In addition, our senior housing segment includes our debt security investment. Our senior housing — RIDEA properties include senior housing facilities that are owned and operated utilizing a RIDEA structure. Our integrated senior health campuses include a range of assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses.

We evaluate performance based upon segment net operating income. We define segment net operating income as total revenues, less property operating expenses and rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related expenses, interest expense, gain (loss) on disposition of real estate investments, impairment of real estate investments, foreign currency gain (loss), other income (expense), loss from unconsolidated entity and income tax benefit (expense) for each segment. We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment net operating income serves as an appropriate supplemental performance measure to net income (loss) because it allows investors and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis.

Interest expense, depreciation and amortization and other expenses not attributable to individual properties are not allocated to individual segments for purposes of assessing segment performance. Non-segment assets primarily consist of corporate assets including cash and cash equivalents, other receivables, deferred financing costs, interest rate swap assets and other assets not attributable to individual properties.

Summary information for the reportable segments during the three months ended March 31, 2018 and 2017 was as follows:



	Medical Office Buildings		Skilled Nursing Facilities		Hospitals		Senior Housing		Senior Housing — RIDEA		Integrated Senior Health Campuses		Three Months Ended March 31, 2018
Revenues:
Resident fees and services	$	—	$	—	$	—	$	—	$	16,332,000	$	229,061,000	$	245,393,000
Real estate revenue	20,081,000		3,739,000		3,279,000		5,400,000		—		—		32,499,000
Total revenues	20,081,000		3,739,000		3,279,000		5,400,000		16,332,000		229,061,000		277,892,000
Expenses:
Property operating expenses	—		—		—		—		11,064,000		206,295,000		217,359,000
Rental expenses	7,930,000		421,000		402,000		187,000		—		—		8,940,000
Segment net operating income	$	12,151,000	$	3,318,000	$	2,877,000	$	5,213,000	$	5,268,000	$	22,766,000	$	51,593,000
Expenses:
General and administrative													$	6,388,000
Acquisition related expenses													(769,000		)
Depreciation and amortization													23,692,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(15,352,000		)
Gain in fair value of derivative financial instruments													110,000
Loss from unconsolidated entity													(1,077,000		)
Foreign currency gain													1,796,000
Other income, net													295,000
Income before income taxes													8,054,000
Income tax benefit													371,000
Net income													$	8,425,000

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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



	Medical Office Buildings		Skilled Nursing Facilities		Hospitals		Senior Housing		Senior Housing — RIDEA		Integrated Senior Health Campuses		Three Months Ended March 31, 2017
Revenues:
Resident fees and services	$	—	$	—	$	—	$	—	$	15,864,000	$	209,189,000	$	225,053,000
Real estate revenue	19,525,000		3,691,000		3,023,000		5,109,000		—		—		31,348,000
Total revenues	19,525,000		3,691,000		3,023,000		5,109,000		15,864,000		209,189,000		256,401,000
Expenses:
Property operating expenses	—		—		—		—		10,920,000		188,179,000		199,099,000
Rental expenses	7,451,000		400,000		384,000		160,000		—		—		8,395,000
Segment net operating income	$	12,074,000	$	3,291,000	$	2,639,000	$	4,949,000	$	4,944,000	$	21,010,000	$	48,907,000
Expenses:
General and administrative													$	7,863,000
Acquisition related expenses													318,000
Depreciation and amortization													29,822,000
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(14,595,000		)
Gain in fair value of derivative financial instruments													336,000
Impairment of real estate investment													(3,969,000		)
Loss from unconsolidated entity													(962,000		)
Foreign currency gain													513,000
Other income, net													33,000
Loss before income taxes													(7,740,000		)
Income tax benefit													213,000
Net loss													$	(7,527,000	)

Assets by reportable segment as of March 31, 2018 and December 31, 2017 were as follows:



	March 31, 2018		December 31, 2017
Integrated senior health campuses	$	1,378,265,000	$	1,366,245,000
Medical office buildings	659,026,000		662,959,000
Senior housing — RIDEA	277,789,000		279,388,000
Senior housing	232,889,000		231,559,000
Skilled nursing facilities	129,181,000		129,359,000
Hospitals	122,882,000		123,431,000
Other	6,705,000		7,534,000
Total assets	$	2,806,737,000	$	2,800,475,000

As of both March 31, 2018 and December 31, 2017, goodwill of $75,309,000 was allocated to integrated senior health campuses and no other segments had goodwill.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Our portfolio of properties and other investments are located in the United States, Isle of Man and the UK. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for our operations for the periods presented:



	Three Months Ended March 31,
	2018		2017
Revenues:
United States	$	276,611,000	$	255,274,000
International	1,281,000		1,127,000
Total revenues	$	277,892,000	$	256,401,000

The following is a summary of real estate investments, net by geographic regions as of March 31, 2018 and December 31, 2017:



	March 31, 2018		December 31, 2017
Real estate investments, net:
United States	$	2,105,853,000	$	2,110,280,000
International	54,642,000		52,978,000
Total real estate investments, net	$	2,160,495,000	$	2,163,258,000

18. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily real estate notes receivable and debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash and real estate deposits. We are exposed to credit risk with respect to the real estate notes receivable and debt security investment, but we believe collection of the outstanding amount is probable. We believe that the risk is further mitigated as the real estate notes receivable are secured by property and there is a guarantee of completion agreement executed between the parent company of the borrowers and us. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of March 31, 2018 and December 31, 2017, we had cash and cash equivalents in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants and security deposits are obtained at the time of property acquisition and upon lease execution.

Based on leases in effect as of March 31, 2018, properties in one state in the United States accounted for 10.0% or more of the annualized base rent or annualized net operating income of our total property portfolio. Properties located in Indiana accounted for 36.1% of the annualized base rent or annualized net operating income of our total property portfolio. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Based on leases in effect as of March 31, 2018, our six reportable business segments, integrated senior health campuses, medical office buildings, senior housing — RIDEA, senior housing, skilled nursing facilities and hospitals accounted for 46.6%, 27.8%, 10.1%, 6.1%, 5.6% and 3.8%, respectively, of our annualized base rent or annualized net operating income. As of March 31, 2018, none of our tenants at our properties accounted for 10.0% or more of our aggregate annualized base rent or annualized net operating income, which is based on contractual base rent from leases in effect inclusive of our senior housing — RIDEA facilities and integrated senior health campuses operations as of March 31, 2018.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

19. Per Share Data

We report earnings (loss) per share pursuant to ASC Topic 260, Earnings per Share. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $7,000 and $6,000, respectively, for the three months ended March 31, 2018 and 2017. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock. As of March 31, 2018 and 2017, there were 45,000 and 39,000 nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of March 31, 2018 and 2017, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

20. Subsequent Event

Amendment to Trilogy OpCo Credit Agreement

On April 27, 2018, we entered into an amendment to the Trilogy OpCo Credit Agreement, or the Trilogy OpCo Amendment, with Wells Fargo, N.A., as administrative agent and lender, to amend the terms of the Trilogy OpCo Credit Agreement. The material terms of the Trilogy OpCo Amendment provide for: (i) a reduction in the aggregate maximum principal amount from $60,000,000 to $25,000,000; (ii) a reduced floating interest rate based on LIBOR, plus an applicable margin of 2.75% per annum, for LIBOR Rate Loans, as defined in the agreement, or an alternate base rate plus an applicable margin of 1.75% per annum, for Base Rate Loans, as defined in the agreement, at the Trilogy OpCo Borrowers’ option; (iii) a reduced letter of credit fee of 2.75% per annum times the undrawn amount of outstanding letters of credit; and (iv) an updated maturity date of April 27, 2021.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 2017 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 16, 2018. Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2018 and December 31, 2017, together with our results of operations and cash flows for the three months ended March 31, 2018 and 2017.

Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical factual statements are “forward-looking statements.” Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” “seek” and any other comparable and derivative terms or the negatives thereof. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest and foreign currency exchange rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States of America, or GAAP, policies or guidelines applicable to REITs; the availability of financing; and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Company, LLC, or Griffin Capital, or collectively, our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview and Background

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013, and therefore, we consider that our date of inception. We were initially capitalized on January 15, 2013. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We qualified to be taxed as a REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, to our accompanying condensed consolidated financial statements for a further discussion. As of March 31, 2018, a total of $186,399,000 in distributions were reinvested and 20,049,849 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

Table of Contents

On October 4, 2017, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an updated estimated per share net asset value, or NAV, of our common stock of $9.27. We provide the updated estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2017. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC. We intend to continue to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 5, 2017 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updated estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2018 and expires on February 26, 2019. Our advisor uses its best efforts, subject to the oversight, review and approval of our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital. American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings, 45.1% indirectly owned by Colony NorthStar, Inc. (NYSE: CLNS), or Colony NorthStar, and 7.8% owned by James F. Flaherty III, a former partner of Colony NorthStar. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony NorthStar, or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

Critical Accounting Policies

The complete listing of our Critical Accounting Policies was previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018, and there have been no material changes to our Critical Accounting Policies as disclosed therein, except as noted below.

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. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.

Revenue Recognition and Tenant and Resident Receivables

Resident fees and services

Prior to January 1, 2018, we recognized resident fees and service revenue in accordance with Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an

Table of Contents

arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. Tenant receivables were placed on nonaccrual status when management determined that collectability was not reasonably assured, and thus such revenue was recognized using the cash basis method.

Performance obligations are determined based on the nature of the services provided by us. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. This method provides a depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in our integrated senior health campus receiving long-term healthcare services, including rehabilitation services. We measure the performance obligation from admission into the integrated senior health campus to the point when we are no longer required to provide services to that patient. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and we do not believe it is required to provide additional goods or services to the patient. Generally, performance obligations satisfied at a point in time relate to sales of our pharmaceuticals business or to sales of ancillary supplies.

Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:


•	Medicare: Certain healthcare services are paid at prospectively determined rates based on cost-reimbursement methodologies subject to certain limits.

•


•	Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges and prospectively determined periodic rates.

Table of Contents

including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge our compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon us.

Disaggregation of Healthcare Service Revenue

We disaggregate revenue from contracts with customers according to lines of business and payor classes. The transfer of goods and services may occur at a point in time or over time; in other words, revenue may be recognized over the course of the underlying contract, or may occur at a single point in time based upon a single transfer of control. We determine that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Financing Component

Contract Costs

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements, to our accompanying condensed consolidated financial statements.

Factors Which May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q and those Risk Factors previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018.

Revenues

The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations at the then existing rental rates. Negative trends in one or more of these factors could adversely affect our revenue in future periods.

Scheduled Lease Expirations

Excluding our senior housing — RIDEA facilities and our integrated senior health campuses, as of March 31, 2018, our properties were 93.0% leased and during the remainder of 2018, 3.4% of the leased GLA is scheduled to expire. For the three months ended March 31, 2018, our senior housing — RIDEA facilities and integrated senior health campuses were 85.5% and 82.3% leased, respectively. Substantially all of our leases with residents at such properties are for a term of one year or less. Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.

As of March 31, 2018, our remaining weighted average lease term was 8.5 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.

Table of Contents

Results of Operations

Comparison of Three Months Ended March 31, 2018 and 2017

Our primary sources of revenue include rent and resident fees and services from our properties. Our primary expenses include property operating expenses and rental expenses. In general, we expect amounts related to our portfolio of operating properties to increase in the future based on a full year of operations as well as any additional real estate and real estate-related investments we may acquire.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we added a new reportable business segment at each such time. As of March 31, 2018, we operated through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Except where otherwise noted, the changes in our results of operations are primarily due to owning 100 buildings and 108 integrated senior health campuses as of March 31, 2018, as compared to owning 98 buildings and 108 integrated senior health campuses as of March 31, 2017. As of March 31, 2018 and 2017, we owned the following types of properties:



	March 31,
	2018					2017
	Number of Buildings/ Campuses	Aggregate Contract Purchase Price		Leased %		Number of Buildings/ Campuses	Aggregate Contract Purchase Price		Leased %
Integrated senior health campuses	108	$	1,441,058,000	(1	)	108	$	1,437,230,000	(1	)
Medical office buildings	64	663,835,000		90.1	%	62	654,245,000		92.0	%
Senior housing	14	173,391,000		100	%	14	173,391,000		100	%
Senior housing — RIDEA	13	320,035,000		(2	)	13	320,035,000		(2	)
Skilled nursing facilities	7	128,000,000		100	%	7	128,000,000		100	%
Hospitals	2	139,780,000		100	%	2	139,780,000		100	%
Total/weighted average(3)	208	$	2,866,099,000	93.0	%	206	$	2,852,681,000	94.4	%

___________


(1)	For the three months ended March 31, 2018 and 2017, the leased percentage for the resident units of our integrated senior health campuses was 82.3% and 85.2%, respectively.


(2)	For the three months ended March 31, 2018 and 2017, the leased percentage for the resident units of our senior housing — RIDEA facilities was 85.5% and 83.9%, respectively.


(3)	Leased percentage excludes our senior housing — RIDEA facilities and integrated senior health campuses.

Revenues

For the three months ended March 31, 2018 and 2017, resident fees and services primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services. For the three months ended March 31, 2018 and 2017, real estate revenue primarily consisted of base rent and expense recoveries.

Table of Contents

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



	Three Months Ended March 31,
	2018		2017
Resident Fees and Services
Integrated senior health campuses	$	229,061,000	$	209,189,000
Senior housing — RIDEA	16,332,000		15,864,000
Total resident fees and services	245,393,000		225,053,000
Real Estate Revenue
Medical office buildings	20,081,000		19,525,000
Senior housing	5,400,000		5,109,000
Skilled nursing facilities	3,739,000		3,691,000
Hospitals	3,279,000		3,023,000
Total real estate revenue	32,499,000		31,348,000
Total revenues	$	277,892,000	$	256,401,000

Property Operating Expenses and Rental Expenses

For the three months ended March 31, 2018 and 2017, property operating expenses primarily consisted of administration and benefits expense of $189,436,000 and $172,120,000, respectively. Property operating expenses and property operating expenses as a percentage of resident fees and services, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:



	Three Months Ended March 31,
	2018				2017
Property Operating Expenses
Integrated senior health campuses	$	206,295,000	90.1	%	$	188,179,000	90.0	%
Senior housing — RIDEA	11,064,000		67.7	%	10,920,000		68.8	%
Total property operating expenses	$	217,359,000	88.6	%	$	199,099,000	88.5	%

Rental Expenses
Medical office buildings	$	7,930,000	39.5	%	$	7,451,000	38.2	%
Skilled nursing facilities	421,000		11.3	%	400,000		10.8	%
Hospitals	402,000		12.3	%	384,000		12.7	%
Senior housing	187,000		3.5	%	160,000		3.1	%
Total rental expenses	$	8,940,000	27.5	%	$	8,395,000	26.8	%

Integrated senior health campuses and senior housing — RIDEA facilities typically have a higher percentage of operating expenses to revenue than multi-tenant medical office buildings, hospitals, senior housing facilities and skilled nursing facilities. We anticipate that the percentage of operating expenses to revenue may fluctuate based on the types of property we own and/or operate in the future.

Table of Contents

General and Administrative

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



	Three Months Ended March 31,
	2018		2017
Asset management fees — affiliates	$	4,781,000	$	4,646,000
Bad debt expense	126,000		1,659,000
Professional and legal fees	390,000		554,000
Transfer agent services	339,000		352,000
Franchise taxes	175,000		277,000
Stock compensation expense	195,000		—
Bank charges	117,000		98,000
Directors’ and officers’ liability insurance	79,000		80,000
Restricted stock compensation	43,000		43,000
Board of directors fees	61,000		58,000
Other	82,000		96,000
Total	$	6,388,000	$	7,863,000

The decrease in general and administrative expenses for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 was primarily due to the decrease in bad debt expense as a result of adoption of ASC Topic 606.

Acquisition Related Expenses

For the three months ended March 31, 2018, acquisition related expenses were $(769,000), which primarily related to fair value adjustments to contingent consideration obligations. For the three months ended March 31, 2017, acquisition related expenses were $318,000, which primarily related to additional expenses associated with prior year property acquisitions accounted for as business combinations.

Depreciation and Amortization

For the three months ended March 31, 2018 and 2017, depreciation and amortization was $23,692,000 and $29,822,000, respectively, which primarily consisted of depreciation on our operating properties of $20,400,000 and $20,009,000, respectively, and amortization on our identified intangible assets of $3,137,000 and $9,653,000, respectively.

Interest Expense

For the three months ended March 31, 2018 and 2017, interest expense, including gain in fair value of derivative financial instruments, consisted of the following for the periods then ended:



	Three Months Ended March 31,
	2018			2017
Interest expense — mortgage loans payable	$	7,097,000		$	6,012,000
Interest expense — lines of credit and term loans and derivative financial instruments	6,464,000			6,617,000
Amortization of deferred financing costs — lines of credit and term loans	985,000			917,000
Amortization of deferred financing costs — mortgage loans payable	325,000			475,000
Amortization of debt discount/premium, net	139,000			574,000
Gain in fair value of derivative financial instruments	(110,000		)	(336,000		)
Interest expense on other liabilities	342,000			—
Total	$	15,242,000		$	14,259,000

Table of Contents

Liquidity and Capital Resources

Our sources of funds primarily consist of operating cash flows and borrowings. We terminated the primary portion of our initial offering on March 12, 2015. In the normal course of business, our principal demands for funds are for our payment of operating expenses, interest on our current and future indebtedness and distributions to our stockholders and for acquisitions of real estate and real estate-related investments.

Our total capacity to pay operating expenses, interest and distributions and acquire real estate and real estate-related investments is a function of our current cash position, our borrowing capacity on our lines of credit, as well as any future indebtedness that we may incur. As of March 31, 2018, our cash on hand was $37,926,000 and we had $209,444,000 available on our lines of credit and term loans. We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months.

We estimate that we will require approximately $38,282,000 to pay interest on our outstanding indebtedness in the remainder of 2018, based on interest rates in effect and borrowings outstanding as of March 31, 2018. In addition, we estimate that we will require $85,523,000 to pay principal on our outstanding indebtedness in the remainder of 2018. We also require resources to make certain payments to our advisor and its affiliates. See Note 14, Related Party Transactions, to our accompanying condensed consolidated financial statements, for a further discussion of our payments to our advisor and its affiliates. Generally, cash needs for such items will be met from operations and borrowings.

Our advisor evaluates potential investments and engages in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. When we acquire a property, our advisor prepares a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from proceeds from sales of other investments, borrowings, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

Other Liquidity Needs

In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, or our advisor or its affiliates. We may also pay distributions from cash from capital transactions, including without limitation, the sale of one or more of our properties.

Based on the properties we owned as of March 31, 2018, we estimate that our expenditures for capital improvements and tenant improvements will require up to $65,910,000 for the remaining nine months of 2018. As of March 31, 2018, we had $11,675,000 of restricted cash in loan impounds and reserve accounts for capital expenditures, some of which may be used to fund our estimated expenditures for capital improvements and tenant improvements. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.

If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewed leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.

Table of Contents

Cash Flows

The following table sets forth changes in cash flows:



	Three Months Ended March 31,
	2018			2017
Cash, cash equivalents and restricted cash — beginning of period	$	64,143,000		$	55,677,000
Net cash provided by operating activities	25,998,000			23,132,000
Net cash used in investing activities	(15,014,000		)	(69,783,000		)
Net cash (used in) provided by financing activities	(5,372,000		)	39,025,000
Effect of foreign currency translation on cash, cash equivalents and restricted cash	59,000			20,000
Cash, cash equivalents and restricted cash — end of period	$	69,814,000		$	48,071,000

The following summary discussion of our changes in our cash flows is based on our accompanying condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Operating Activities

For the three months ended March 31, 2018 and 2017, cash flows provided by operating activities primarily related to the cash flows provided by our property operations, offset by the payment of general and administrative expenses. See “Results of Operations” above for a further discussion. We anticipate cash flows from operating activities to increase as we acquire additional real estate and real estate-related investments.

Investing Activities

For the three months ended March 31, 2018, cash flows used in investing activities primarily related to capital expenditures of $12,662,000 and real estate and other deposits $2,352,000. For the three months ended March 31, 2017, cash flows used in investing activities primarily related to our 2017 property acquisitions and our acquisition of previously leased real estate investments in the amount of $89,264,000, partially offset by principal repayments on real estate notes receivable in the amount of $25,499,000. We may continue to acquire additional real estate and real estate-related investments, but generally anticipate that cash flows used in investing activities will continue to decrease due to fewer anticipated acquisitions as a result of the termination of the primary portion of our initial offering on March 12, 2015.

Financing Activities

For the three months ended March 31, 2018, cash flows used in financing activities primarily related to net borrowings under our lines of credit and term loans in the amount of $26,431,000, partially offset by distributions to our common stockholders of $14,377,000 and share repurchases of $16,506,000. For the three months ended March 31, 2017, cash flows provided by financing activities primarily related to net borrowings under our lines of credit and term loan in the amount of $64,399,000, partially offset by distributions to our common stockholders of $13,401,000, settlement of a mortgage loan payable of $7,625,000 and share repurchases of $7,128,000. Overall, we anticipate cash flows from financing activities to decrease in the future since we terminated the primary portion of our initial offering on March 12, 2015. However, we anticipate borrowings under our lines of credit and term loans and other indebtedness to increase if we acquire additional real estate and real estate-related investments.

Distributions

Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on June 30, 2018. The distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. The daily distributions were or will be aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering, only from legally available funds.

The amount of the distributions paid to our stockholders is determined quarterly by our board and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code. We have not established any limit on the amount of offering proceeds that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our

Table of Contents

debts as they become due in the usual course of business or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.

The distributions paid for the three months ended March 31, 2018 and 2017, along with the amount of distributions reinvested pursuant to the Secondary DRIP Offering, and the sources of our distributions as compared to cash flows from operations were as follows:



	Three Months Ended March 31,
	2018				2017
Distributions paid in cash	$	14,377,000			$	13,401,000
Distributions reinvested	15,229,000				15,681,000
	$	29,606,000			$	29,082,000
Sources of distributions:
Cash flows from operations	$	25,998,000	87.8	%	$	23,132,000	79.5	%
Proceeds from borrowings	3,608,000		12.2		5,950,000		20.5
	$	29,606,000	100	%	$	29,082,000	100	%

Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from debt.

Any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may have been paid from offering proceeds. The payment of distributions from our initial offering proceeds could reduce the amount of capital we ultimately invest in assets and negatively impact the amount of income available for future distributions.

As of March 31, 2018, we had an amount payable of $1,978,000 to our advisor or its affiliates primarily for asset and property management fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.

As of March 31, 2018, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to our initial offering, through June 5, 2014, the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

Table of Contents



	Three Months Ended March 31,
	2018				2017
Distributions paid in cash	$	14,377,000			$	13,401,000
Distributions reinvested	15,229,000				15,681,000
	$	29,606,000			$	29,082,000
Sources of distributions:
FFO attributable to controlling interest	$	28,318,000	95.6	%	$	23,745,000	81.6	%
Proceeds from borrowings	1,288,000		4.4		5,337,000		18.4
	$	29,606,000	100	%	$	29,082,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see Funds from Operations and Modified Funds from Operations section below.

Financing

We intend to continue to finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that our overall leverage will not exceed 45.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the contract purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of March 31, 2018, our aggregate borrowings were 38.5% of the combined market value of all of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of May 15, 2018 and March 31, 2018, our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net, to our accompanying condensed consolidated financial statements.

Lines of Credit and Term Loans

For a discussion of our lines of credit and term loans, see Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

REIT Requirements

In order to maintain our qualification as a REIT for federal income tax purposes, we are required to make distributions to our stockholders of at least 90.0% of our annual taxable income, excluding net capital gains. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured and unsecured debt financing through one or more unaffiliated third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties or from the proceeds of our initial offering.

Table of Contents

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 11, Commitments and Contingencies, to our accompanying condensed consolidated financial statements.

Debt Service Requirements

A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of March 31, 2018, we had $634,280,000 ($611,960,000, including discount/premium and deferred financing costs, net) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of March 31, 2018, we had $650,556,000 outstanding and $209,444,000 remained available under our lines of credit and term loans. See Note 7, Mortgage Loans Payable, Net and Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

We are required by the terms of certain loan documents to meet certain covenants, such as leverage ratios, net worth ratios, debt service coverage ratios, fixed charge coverage ratios and reporting requirements. As of May 15, 2018, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loans. As of March 31, 2018, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 4.11% per annum.

Contractual Obligations

The following table provides information with respect to: (i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our lines of credit and term loans; (ii) interest payments on our mortgage loans payable, lines of credit and term loans and fixed interest rate swaps; and (iii) ground and other lease obligations, capital leases and other liabilities as of March 31, 2018:



	Payments Due by Period
	2018		2019-2020		2021-2022		Thereafter		Total
Principal payments — fixed-rate debt	$	7,323,000	$	31,576,000	$	70,219,000	$	415,407,000	$	524,525,000
Interest payments — fixed-rate debt	14,132,000		36,381,000		33,650,000		218,357,000		302,520,000
Principal payments — variable-rate debt	78,200,000		667,874,000		14,237,000		—		760,311,000
Interest payments — variable-rate debt (based on rates in effect as of March 31, 2018)	24,150,000		15,899,000		272,000		—		40,321,000
Ground and other lease obligations	15,806,000		44,445,000		45,538,000		203,413,000		309,202,000
Capital leases	5,769,000		10,251,000		3,429,000		43,000		19,492,000
Other liabilities	1,087,000		1,037,000		—		—		2,124,000
Total	$	146,467,000	$	807,463,000	$	167,345,000	$	837,220,000	$	1,958,495,000

The table above does not reflect any payments expected under our contingent consideration obligations in the estimated amount of $4,364,000, the majority of which we expect to pay during 2019. For a further discussion of our contingent consideration obligations, see Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, to our accompanying condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of March 31, 2018, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

Table of Contents

Inflation

During the three months ended March 31, 2018 and 2017, inflation has not significantly affected our operations because of the moderate inflation rate; however, we expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions will include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Related Party Transactions

For a discussion of related party transactions, see Note 14, Related Party Transactions, to our accompanying condensed consolidated financial statements.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. The use of funds from operations is recommended by the REIT industry as a supplemental performance measure, and our management uses FFO to evaluate our performance over time. FFO is not equivalent to our net income (loss) as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on funds from operations approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which is the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, we believe it is appropriate to exclude impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. Testing for an impairment of an asset is a continuous process and is analyzed on a quarterly basis. If certain impairment indications exist in an asset, and if the asset’s carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, an impairment charge would be recognized. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a further understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss).

However, FFO and modified funds from operations attributable to controlling interest, or MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real

Table of Contents

estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed as operating expenses under GAAP. We believe these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We have used the proceeds raised in our initial offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five years after the completion of our offering stage, which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as modified funds from operations, which the IPA has recommended as a supplemental performance measure for publicly registered, non-listed REITs and which we believe to be another appropriate supplemental performance measure to reflect the operating performance of a publicly registered, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes expensed acquisition fees and expenses that affect our operations only in periods in which properties are acquired and that we consider more reflective of investing activities, as well as other non-operating items included in FFO, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering stage has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired, as it excludes expensed acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines modified funds from operations as funds from operations further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to deferred rent and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect modified funds from operations on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. We are responsible for managing interest rate, hedge and foreign exchange risk, and we do not rely on another party to manage such risk. In as much as interest rate hedges will not be a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are based on market fluctuations and may not be directly related or attributable to our operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses (which include gains or losses on contingent consideration), amortization of above- and below-market leases, amortization of loan and closing costs, change in deferred rent, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions and the adjustments of such items related to unconsolidated properties and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us

Table of Contents

for the three months ended March 31, 2018 and 2017. Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent redeployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, we may pay acquisition fees or reimburse acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence, that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our initial offering and other financing sources and not from operations. By excluding expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate funds from operations and modified funds from operations the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

Table of Contents

The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Net income (loss)	$	8,425,000		$	(7,527,000	)
Add:
Depreciation and amortization — consolidated properties	23,692,000			29,822,000
Depreciation and amortization — unconsolidated properties	288,000			264,000
Impairment of real estate investment	—			3,969,000
Loss on disposition of real estate investment	—			227,000
Net (income) loss attributable to redeemable noncontrolling interests and noncontrolling interests	(272,000		)	4,008,000
Less:
Depreciation, amortization, impairment and loss on disposition related to redeemable noncontrolling interests and noncontrolling interests	(3,815,000		)	(7,018,000		)
FFO attributable to controlling interest	$	28,318,000		$	23,745,000

Acquisition related expenses(1)	$	(769,000	)	$	318,000
Amortization of above- and below-market leases(2)	199,000			169,000
Amortization of loan and closing costs(3)	59,000			53,000
Change in deferred rent(4)	(1,068,000		)	(1,341,000		)
Gain in fair value of derivative financial instruments(5)	(110,000		)	(336,000		)
Foreign currency gain(6)	(1,796,000		)	(513,000		)
Adjustments for unconsolidated properties(7)	439,000			478,000
Adjustments for redeemable noncontrolling interests and noncontrolling interests(7)	(401,000		)	(110,000		)
MFFO attributable to controlling interest	$	24,871,000		$	22,463,000
Weighted average common shares outstanding — basic and diluted	200,347,084			196,897,807
Net income (loss) per common share — basic and diluted	$	0.04		$	(0.04	)
FFO attributable to controlling interest per common share — basic and diluted	$	0.14		$	0.12
MFFO attributable to controlling interest per common share — basic and diluted	$	0.12		$	0.11

___________

(1)

In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition related expenses, we believe MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

(2)

Under GAAP, above- and below-market leases are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, we believe that by excluding charges relating to the amortization of above- and below-market leases, MFFO may provide useful supplemental information on the performance of the real estate.

Table of Contents

(3)

Under GAAP, direct loan and closing costs are amortized over the term of our notes receivable and debt security investment as an adjustment to the yield on our notes receivable or debt security investment. This may result in income recognition that is different than the contractual cash flows under our notes receivable and debt security investment. By adjusting for the amortization of the loan and closing costs related to our real estate notes receivable and debt security investment, MFFO may provide useful supplemental information on the realized economic impact of our notes receivable and debt security investment terms, providing insight on the expected contractual cash flows of such notes receivable and debt security investment, and aligns results with our analysis of operating performance.

(4)

Under GAAP, rental revenue or rental expense is recognized on a straight-line basis over the terms of the related lease (including rent holidays). This may result in income or expense recognition that is significantly different than the underlying contract terms. By adjusting for the change in deferred rent, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with our analysis of operating performance.

(5)

Under GAAP, we are required to record our derivative financial instruments at fair value at each reporting period. We believe that adjusting for the change in fair value of our derivative financial instruments is appropriate because such adjustments may not be reflective of on-going operations and reflect unrealized impacts on value based only on then current market conditions, although they may be based upon general market conditions. The need to reflect the change in fair value of our derivative financial instruments is a continuous process and is analyzed on a quarterly basis in accordance with GAAP.


(6)	We believe that adjusting for the change in foreign currency exchange rates provides useful information because such adjustments may not be reflective of on-going operations.


(7)	Includes all adjustments to eliminate the unconsolidated properties’ share or redeemable noncontrolling interests and noncontrolling interests’ share, as applicable, of the adjustments described in notes (1) – (6) above to convert our FFO to MFFO.

Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, acquisition related expenses, depreciation and amortization, interest expense, gain or loss on dispositions, impairment of real estate investments, loss from unconsolidated entity, foreign currency gain or loss, other income and income tax benefit (expense). Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore, if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. As a result, the amount of proceeds available for investment, operations and non-operating expenses would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, NOI is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. Investors are also cautioned that NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.

Table of Contents

We believe that NOI is an appropriate supplemental performance measure to reflect the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of the properties. We believe that NOI is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to NOI for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018			2017
Net income (loss)	$	8,425,000		$	(7,527,000	)
General and administrative	6,388,000			7,863,000
Acquisition related expenses	(769,000		)	318,000
Depreciation and amortization	23,692,000			29,822,000
Interest expense	15,242,000			14,259,000
Impairment of real estate investment	—			3,969,000
Loss from unconsolidated entity	1,077,000			962,000
Foreign currency gain	(1,796,000		)	(513,000		)
Other income, net	(295,000		)	(33,000		)
Income tax benefit	(371,000		)	(213,000		)
Net operating income	$	51,593,000		$	48,907,000

Subsequent Event

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. There were no material changes in our market risk exposures, or in the methods we use to manage market risk, from those that were provided for in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

Interest Rate Risk

We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. We are also exposed to the effects of changes in interest rates as a result of our investments in real estate notes receivable. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed or variable rates.

We have entered into, and in the future may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss). As of March 31, 2018, our interest rate swaps are recorded in other assets, net in our accompanying condensed consolidated balance sheets at their aggregate fair value of $2,476,000. We do not enter into derivative transactions for speculative purposes.

Table of Contents

The table below presents, as of March 31, 2018, the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.



	Expected Maturity Date
	2018			2019			2020			2021			2022			Thereafter			Total			Fair Value
Assets
Fixed-rate notes receivable — principal payments	$	—		$	28,650,000		$	—		$	—		$	—		$	—		$	28,650,000		$	29,478,000
Weighted average interest rate on maturing fixed-rate notes receivable	—		%	6.75		%	—		%	—		%	—		%	—		%	6.75		%	—
Variable-rate notes receivable — principal payments	$	1,799,000		$	—		$	—		$	—		$	—		$	—		$	1,799,000		$	1,820,000
Weighted average interest rate on maturing variable-rate notes receivable (based on rates in effect as of March 31, 2018)	8.03		%	—		%	—		%	—		%	—		%	—		%	8.03		%	—
Debt security held-to-maturity	$	—		$	—		$	—		$	—		$	—		$	93,433,000		$	93,433,000		$	94,181,000
Weighted average interest rate on maturing fixed-rate debt security	—		%	—		%	—		%	—		%	—		%	4.24		%	4.24		%	—
Liabilities
Fixed-rate debt — principal payments	$	7,323,000		$	10,191,000		$	21,385,000		$	10,679,000		$	59,540,000		$	415,407,000		$	524,525,000		$	446,139,000
Weighted average interest rate on maturing fixed-rate debt	3.65		%	3.66		%	4.88		%	3.60		%	4.15		%	3.28		%	3.46		%	—
Variable-rate debt — principal payments	$	78,200,000		$	655,399,000		$	12,475,000		$	14,237,000		$	—		$	—		$	760,311,000		$	762,793,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of March 31, 2018)	5.90		%	4.19		%	7.80		%	5.80		%	—		%	—		%	4.43		%	—

Real Estate Notes Receivable and Debt Security Investment, Net

As of March 31, 2018, the carrying value of our real estate notes receivable and debt security investment, net was $98,586,000. As we expect to hold our fixed-rate notes receivable and debt security investment to maturity and the amounts due under such notes receivable and debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate notes receivable and debt security investment, would have a significant impact on our operations. Conversely, movements in interest rates on our variable-rate notes receivable may change our future earnings and cash flows, but not significantly affect the fair value of those instruments. See Note 15, Fair Value Measurements, to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our real estate notes receivable and our investment in a held-to-maturity debt security.

The weighted average effective interest rate on our outstanding real estate notes receivable and debt security investment, net was 4.87% per annum based on rates in effect as of March 31, 2018. A decrease in the variable interest rate on our real estate notes receivable constitutes a market risk. As of March 31, 2018, a 0.50% decrease in the market rates of interest would have no impact on our future earnings and cash flows due to interest rate floors on our variable-rate real estate notes receivable.

Mortgage Loans Payable, Net and Lines of Credit and Term Loans

Mortgage loans payable were $634,280,000 ($611,960,000, including discount/premium and deferred financing costs, net) as of March 31, 2018. As of March 31, 2018, we had 47 fixed-rate and four variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 7.89% per annum and a weighted average effective interest rate of 4.08%. In addition, as of March 31, 2018, we had $650,556,000 outstanding under our lines of credit and term loans, at a weighted-average interest rate of 4.14% per annum.

As of March 31, 2018, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 4.11% per annum. An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loans constitutes a market risk. As of March 31, 2018, we have three fixed-rate interest rate swaps on one of our lines of credit and term loans and an increase in the variable interest rate thereon would have no effect on our overall annual interest expense. As of March 31, 2018, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and term loans by $2,591,000, or 4.78% of total annualized interest expense on our mortgage loans payable and lines of credit and term

Table of Contents

loans. See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on our results for the three months ended March 31, 2018, if foreign currency exchange rates were to increase or decrease by 1.00%, our net income from these investments would decrease or increase, as applicable, by approximately $7,000 for the same period.

Other Market Risk

In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, 2018 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of March 31, 2018, were effective at the reasonable assurance level.

(b) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There were no material changes from the risk factors previously disclosed in our 2017 Annual Report on Form 10-K, as filed with the SEC on March 16, 2018, except as noted below.

We have not had sufficient cash available from operations to pay distributions, and therefore, we have paid distributions from the net proceeds of our initial offering, and in the future, may pay distributions from borrowings in anticipation of future cash flows or from other sources. Any such distributions may reduce the amount of capital we ultimately invest in assets, may negatively impact the value of our stockholders’ investment and may cause subsequent investors to experience dilution.

We have used the net proceeds from our initial offering, borrowed funds or other sources, to pay cash distributions to our stockholders, which may reduce the amount of proceeds available for investment and operations, cause us to incur additional interest expense as a result of borrowed funds or cause subsequent investors to experience dilution. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated earnings and profits, the excess amount will be deemed a return of capital. Therefore, distributions payable to our stockholders may include a return of capital, rather than a return on capital. We have not established any limit on the amount of proceeds from our initial offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences. The actual amount and timing of distributions is determined by our board, in its sole discretion and typically depends on the amount of funds available for distribution, which will depend on items such as our financial condition, current and projected capital expenditure requirements, tax considerations and annual distribution requirements needed to qualify as a REIT. As a result, our distribution rate and payment frequency may vary from time to time.

Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on June 30, 2018. The daily distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution of $0.60 per share. These daily distributions were or will be aggregated and paid in cash or shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering monthly in arrears, only from legally available funds.

The distributions paid for the three months ended March 31, 2018 and 2017, along with the amount of distributions reinvested pursuant to the Secondary DRIP Offering and the sources of our distributions as compared to cash flows from operations were as follows:



	Three Months Ended March 31,
	2018				2017
Distributions paid in cash	$	14,377,000			$	13,401,000
Distributions reinvested	15,229,000				15,681,000
	$	29,606,000			$	29,082,000
Sources of distributions:
Cash flows from operations	$	25,998,000	87.8	%	$	23,132,000	79.5	%
Proceeds from borrowings	3,608,000		12.2		5,950,000		20.5
	$	29,606,000	100	%	$	29,082,000	100	%

Under GAAP, certain acquisition related expenses, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore, subtracted from cash flows from operations. However, these expenses may be paid from debt.

Table of Contents

As of March 31, 2018, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to the initial offering, through June 5, 2014, the day prior to the date we acquired our first property. In addition, our advisor agreed to waive the disposition fees that may otherwise have been due to our advisor pursuant to the Advisory Agreement for the dispositions of investments within our integrated senior health campuses segment in 2017. See Note 14, Related Party Transactions — Liquidity Stage — Disposition Fees, to our accompanying condensed consolidated financial statements for a further discussion. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees and disposition fees. Other than the waiver of asset management fees in 2014 and disposition fees in 2017 by our advisor discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

The distributions paid for the three months ended March 31, 2018 and 2017, along with the amount of distributions reinvested pursuant the Secondary DRIP Offering and the sources of our distributions as compared to FFO were as follows:



	Three Months Ended March 31,
	2018				2017
Distributions paid in cash	$	14,377,000			$	13,401,000
Distributions reinvested	15,229,000				15,681,000
	$	29,606,000			$	29,082,000
Sources of distributions:
FFO attributable to controlling interest	$	28,318,000	95.6	%	$	23,745,000	81.6	%
Proceeds from borrowings	1,288,000		4.4		5,337,000		18.4
	$	29,606,000	100	%	$	29,082,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations and Modified Funds from Operations.

A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.

To the extent that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately effects that geographic area would have a magnified adverse effect on our portfolio. As of May 15, 2018, properties located in Indiana accounted for approximately 36.3% of the annualized base rent or annualized net operating income of our total property portfolio. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Reductions in reimbursement from third-party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.

Sources of revenue for our tenants include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply

Table of Contents

with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal governmental healthcare programs are subject to reductions by state and federal legislative actions. The Medicare Access & CHIP Reauthorization Act of 2015, or MACRA, introduced two new methodologies that will focus upon payment based upon quality outcomes. The first model is the Merit-Based Incentive Payment System, or MIPS, which combines the Physician Quality Reporting System, or PQRS, and Meaningful Use program with the Value Based Modifier program to provide for one payment model based upon (i) quality, (ii) resource use, (iii) clinical practice improvement and (iv) advancing care information through the use of certified Electronic Health Record, or EHR, technology. The second model is the Advanced Alternative Payment Models, or APM, which requires the physician to participate in a risk share arrangement for reimbursement related to his or her patients while utilizing a certified health record and reporting on specific quality metrics. There are a number of physicians that will not qualify for the APM payment method. Therefore, this change in reimbursement models may impact our tenants’ payments and create uncertainty in the tenants’ financial condition.

Furthermore, beginning in 2016, the Centers for Medicare and Medicaid Services has applied a negative payment adjustment to individual eligible professionals, Comprehensive Primary Care practice sites, and group practices participating in the PQRS group practice reporting option (including Accountable Care Organizations) that do not satisfactorily report PQRS in 2014. Program participation during a calendar year will affect payments two years later. Providers can appeal the determination, but if the provider is not successful, the provider’s reimbursement may be adversely impacted, which would adversely impact a tenant’s ability to make rent payments to us.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to reimbursement based upon value based principles and quality driven managed care programs, and general industry trends that include pressures to control healthcare costs. The federal government’s goal is to move approximately 90.0% of its reimbursement for providers to be based upon quality outcome models. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement to payments based upon quality outcomes have increased the uncertainty of payments.

In addition, the healthcare legislation passed in 2010 (discussed below) included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could have a material adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to you.

In 2014, state insurance exchanges were implemented which provide a new mechanism for individuals to obtain insurance. At this time, the number of payors that are participating in the state insurance exchanges varies, and in some regions there are very limited insurance plans available for individuals to choose from when purchasing insurance. In addition, not all healthcare providers will maintain participation agreements with the payors that are participating in the state health insurance exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payors and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payors to healthcare providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payor, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to pay rent.

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act, or the Reconciliation Act and the Patient Protection and Affordable Care Act collectively, the Healthcare Reform Act. The insurance plans that participated on the health insurance exchanges created by the Healthcare Reform Act were expecting to receive risk corridor payments to address the high risk claims that they paid through the exchange product. However, the federal government currently owes the insurance companies approximately $12.3 billion under the risk corridor payment program that is currently disputed by the federal government. The federal government is currently defending several lawsuits from the insurance plans that participate on the health insurance exchange. If the insurance companies do not receive the payments, the insurance companies may cease to participate on the insurance exchange which limits insurance options for patients. If patients do not have access to insurance coverage, it may adversely impact the tenants’ revenues and the tenants’ ability to pay rent.

Table of Contents

On October 12, 2017, President Trump signed an Executive Order the purpose of which was to, among other things, (i) cut healthcare cost-sharing reduction subsidies, (ii) allow more small businesses to join together to purchase insurance coverage, (iii) extend short-term coverage policies, and (iv) expand employers’ ability to provide workers cash to buy coverage elsewhere. The Executive Order required the government agencies to draft regulations for consideration related to Associated Health Plans, short-term limited duration insurance and health reimbursement arrangements. At this time, the contemplated legislation has not been proposed. The Trump Administration also ceased to provide the cost-share subsidies to the insurance companies that offered the silver plan benefits on the Health Information Exchange. The termination of the cost-share subsidies would impact the subsidy payments due in 2017 and will likely adversely impact the insurance companies, causing an increase in the premium payments for the individual beneficiaries in 2018. 19 State Attorney Generals filed suit to force the Trump Administration to reinstate the cost-share subsidy payments. On October 25, 2017, a California judge ruled in favor of the Trump Administration and found that the federal government was not required to immediately reinstate payment for the cost-share subsidy. The injunction sought by the Attorney Generals’ lawsuit was denied. Subsequently, Maine Community Health Options filed suit against The United States of America in the United States Court of Federal Claims, Case No. 17-2057C (December 28, 2017) seeking damages and payment for the cost-sharing reduction payment. This claim is currently pending. Therefore, our tenants will likely see an increase in individuals who are self-pay or have a lower health benefit plan due to the increase in the premium payments. Our tenants’ collections and revenues may be adversely impacted by the change in the payor mix of their patients and it may adversely impact the tenants’ ability to make rent payments.

There are multiple lawsuits in several judicial districts brought by qualified health plans to recover the prior risk corridor payments that were anticipated to be paid as part of the health insurance exchange program. The multiple lawsuits are moving through the judicial process. If the Trump Administration or the court system determines that risk corridor or risk share payments are not required to be paid to the qualified health plans offering insurance coverage on the health insurance exchange program, the insurance companies may cease participation, causing millions of beneficiaries to lose insurance coverage. Therefore, our tenants may have an increase of self-pay patients and collections may decline, adversely impacting the tenants’ ability to pay rent.

On January 11, 2018, the Centers for Medicare and Medicaid Services, or CMS, issued guidance to support state efforts to improve Medicaid enrollee health outcomes by incentivizing community engagement among able-bodied, working-age Medicaid beneficiaries. The policy excludes individuals eligible for Medicaid due to a disability, elderly beneficiaries, children and pregnant women. CMS received proposals from 10 states seeking requirements for able-bodied Medicaid beneficiaries to engage in employment and community engagement initiatives. Kentucky and Indiana are the first states to obtain a waiver for their programs and require Medicaid beneficiaries to work or get ready for employment. If the “work requirement” expands to the states’ Medicaid programs it may decrease the number of patients eligible for Medicaid. The patients that are no longer eligible for Medicaid may become self-pay patients, which may adversely impact our tenants’ ability to receive reimbursement. If our tenants’ patient payor mix becomes more self-pay patients, it may impact our tenants’ ability to collect revenues and pay rent.

Comprehensive healthcare reform legislation could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

The Healthcare Reform Act is intended to reduce the number of individuals in the United States without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments. The Healthcare Reform Act changes continue to impact reimbursement models from the state and federal, healthcare programs, the changes in reimbursement may adversely impact our tenants. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and repeals the individual mandate beginning in 2019. Therefore, our tenants may have more patients that do not have insurance overage, which may adversely impact the tenants’ collections and revenues.

Furthermore, on October 12, 2017, President Trump signed an Executive Order the purpose of which was to, among other things, (i) cut healthcare cost-sharing reduction subsidies, (ii) allow more small businesses to join together to purchase insurance coverage, (iii) extend short-term coverage policies, and (iv) expand employers’ ability to provide workers cash to buy coverage elsewhere. If our tenants’ patients do not have insurance, it could adversely impact the tenants’ ability to pay rent and operate a practice.

Table of Contents

exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payors and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payors to healthcare providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payor, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to pay rent.

There are also multiple lawsuits in several judicial districts brought by qualified health plans to recover the prior risk corridor payments that were anticipated to be paid as part of the health insurance exchange program. The multiple lawsuits are moving through the judicial process. Further, there is a current lawsuit, United States House of Representatives v. Price, which alleges that the Executive Branch of the United States of America exceeded its authority in implementing the risk corridor payments under the Healthcare Reform Act and therefore the payments should not be made. At this time, the case is pending. If the Trump Administration or the court system determines that risk corridor or risk share payments are not required to be paid to the qualified health plans offering insurance coverage on the health insurance exchange program, the insurance companies may cease participation, causing millions of beneficiaries to lose insurance coverage. Therefore, our tenants may have an increase of self-pay patients and collections may decline, adversely impacting the tenants’ ability to pay rent.

On January 11, 2018, CMS issued guidance to support state efforts to improve Medicaid enrollee health outcomes by incentivizing community engagement among able-bodied, working-age Medicaid beneficiaries. The policy excludes individuals eligible for Medicaid due to a disability, elderly beneficiaries, children and pregnant women. CMS received proposals from 10 states seeking requirements for able-bodied Medicaid beneficiaries to engage in employment and community engagement initiatives. Kentucky and Indiana are the first states to obtain a waiver for their programs and require Medicaid beneficiaries to work or get ready for employment. If the “work requirement” expands to the states’ Medicaid programs it may decrease the number of patients eligible for Medicaid. The patients that are no longer eligible for Medicaid may become self-pay patients, which may adversely impact our tenants’ ability to receive reimbursement. If our tenants’ patient payor mix becomes more self-pay patients, it may impact our tenants’ ability to collect revenues and pay rent.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility, including the recently passed Tax Cuts and Jobs Act.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of federal and state income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect our taxation and our ability to continue to qualify as a REIT or the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their tax advisor with respect to the impact of recent legislation on their investment in our stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a regular corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interests of our stockholders.

In addition, on December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act makes significant changes to the U.S. federal income tax rules for taxation of individuals and businesses, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and individual tax rates, the Tax Cuts and Jobs Act eliminates or restricts various deductions. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The Tax Cuts and Jobs Act makes numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly but may otherwise affect us or our stockholders.

While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be revisited in subsequent tax legislation. At this point, it is not clear if or when Congress will

Table of Contents

address these issues or when the Internal Revenue Service will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.

We urge our stockholders to consult with their own tax advisor with respect to the status of the Tax Cuts and Jobs Act and other legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

The change in accounting standards in the United States for leases could reduce the overall demand to lease our properties.

The existing accounting standards for leases require lessees to classify their leases as either capital or operating leases. Under a capital lease, both the leased asset, which represents the tenant’s right to use the property, and the contractual lease obligation are recorded on the tenant’s balance sheet if one of the following criteria are met: (i) the lease transfers ownership of the property to the lessee by the end of the lease term; (ii) the lease contains a bargain purchase option; (iii) the non-cancelable lease term is more than 75.0% of the useful life of the asset; or (iv) if the present value of the minimum lease payments equals 90.0% or more of the leased property’s fair value. If the terms of the lease do not meet these criteria, the lease is considered an operating lease, and no leased asset or contractual lease obligation is recorded by the tenant.

In order to address concerns raised by the SEC regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02, in February 2016, which substantially changes the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation will be recorded on the tenant’s balance sheet for all lease arrangements. In addition, ASU 2016-02 will impact the method in which contractual lease payments will be recorded. In order to mitigate the effect of the proposed lease accounting, tenants may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms or fewer extension options, which would generally have less impact on tenant balance sheets. Also, tenants may reassess their lease-versus-buy strategies. This could result in a greater renewal risk, a delay in investing proceeds from our initial offering, or shorter lease terms, all of which may negatively impact our operations and ability to pay distributions. ASU 2016-02 will be effective for us on January 1, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

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. All share 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, and will be repurchased at a price between 92.5% and 100% of each stockholder’s “Repurchase Amount,” as defined in our share repurchase plan, depending on the period of time their shares have been held. 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 portion of our initial offering and the Secondary DRIP Offering.

Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount is equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the repurchase price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).

Table of Contents

During the three months ended March 31, 2018, we repurchased shares of our common stock as follows:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plan or Program	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2018 to January 31, 2018	—	$	—	—	(1	)
February 1, 2018 to February 28, 2018	—	$	—	—	(1	)
March 1, 2018 to March 31, 2018	1,792,524	$	9.21	1,792,524	(1	)
Total	1,792,524	$	9.21	1,792,524

___________


(1)	Subject to funds being available, 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, shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the period ended March 31, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).



3.1	Articles of Amendment and Restatement of Griffin-American Healthcare REIT III, Inc. dated January 15, 2014 (included as Exhibit 3.1 to Pre-Effective Amendment No. 5 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 16, 2014 and incorporated herein by reference)

3.2	Bylaws of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 3.2 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)

4.1	Amended and Restated Distribution Reinvestment Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-55434) filed October 7, 2016 and incorporated herein by reference)

31.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema Document

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

___________

Table of Contents



*	Filed herewith.
**	Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		Griffin-American Healthcare REIT III, Inc. (Registrant)

May 15, 2018	By:	/s/ JEFFREY T. HANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)

May 15, 2018	By:	/s/ BRIAN S. PEAY
Date		Brian S. Peay
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

Griffin-American Healthcare REIT III, Inc. - FORM 10-Q - May 15, 2018

Attached files

Griffin-American Healthcare REIT III, Inc. Reports