Company Quick10K Filing
Quick10K
Griffin-American Healthcare REIT III
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-10-03 Regulation FD, Other Events, Exhibits
8-K 2019-09-25 Other Events
8-K 2019-09-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-08-22 Regulation FD, Exhibits
8-K 2019-06-12 Shareholder Vote, Other Events
8-K 2019-05-28 Off-BS Arrangement, Exhibits
8-K 2019-05-22 Regulation FD, Exhibits
8-K 2019-05-16 Off-BS Arrangement, Exhibits
8-K 2019-03-29 Regulation FD, Exhibits
8-K 2019-03-19 Other Events
8-K 2019-02-13 Other Events
8-K 2019-01-25 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-11 Other Events
8-K 2018-12-10 Regulation FD, Exhibits
8-K 2018-10-03 Regulation FD, Other Events, Exhibits
8-K 2018-10-01 Enter Agreement
8-K 2018-09-26 Other Events
8-K 2018-08-31 Regulation FD, Exhibits
8-K 2018-08-16 Regulation FD, Exhibits
8-K 2018-06-20 Shareholder Vote, Other Events
8-K 2018-06-11 Regulation FD, Exhibits
8-K 2018-05-17 Regulation FD, Exhibits
8-K 2018-03-26 Regulation FD, Other Events, Exhibits
8-K 2018-03-19 Regulation FD, Exhibits
8-K 2018-02-14 Other Events
HMMR Hammer Fiber Optics Holdings 24
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ABFF Ceres Abingdon 0
TOAD TOA Distribution Systems 0
CYPW Cyclone Power Technologies 0
ATPT All State Properties Holdings 0
HTBC Hotapp Blockchain 0
MBCC Mission Broadcasting 0
HRDV Health-Right Discoveries 0
HHER Her Imports 0
GAHR 2019-06-30
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex311-2019xq210xqgahr3.htm
EX-31.2 ex312-2019xq210xqgahr3.htm
EX-32.1 ex321-2019xq210xqgahr3.htm
EX-32.2 ex322-2019xq210xqgahr3.htm

Griffin-American Healthcare REIT III Earnings 2019-06-30

GAHR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 gahr3-10xq2019xq2.htm 10-Q Document

 
 
 
 
 
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 June 30, 2019
or
¨
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
None
 
None
 
None
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 every Interactive Data File required to be submitted 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 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
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 August 9, 2019, there were 195,730,548 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.
 
 
 
 
 



GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 


2


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2019 and December 31, 2018
(Unaudited)
 
June 30,
2019
 
December 31,
2018
ASSETS
Real estate investments, net
$
2,230,950,000

 
$
2,222,681,000

Real estate notes receivable and debt security investment, net
71,272,000

 
98,655,000

Cash and cash equivalents
34,026,000

 
35,132,000

Accounts and other receivables, net
131,120,000

 
122,918,000

Restricted cash
39,697,000

 
37,573,000

Real estate deposits
281,000

 
3,077,000

Identified intangible assets, net
168,187,000

 
179,521,000

Goodwill
75,309,000

 
75,309,000

Operating lease right-of-use assets
204,527,000

 

Other assets, net
130,784,000

 
114,226,000

Total assets
$
3,086,153,000

 
$
2,889,092,000

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
 
 
 
Mortgage loans payable, net(1)
$
743,564,000

 
$
688,262,000

Lines of credit and term loans(1)
757,567,000

 
738,048,000

Accounts payable and accrued liabilities(1)
143,567,000

 
139,383,000

Accounts payable due to affiliates(1)
2,582,000

 
2,103,000

Identified intangible liabilities, net
842,000

 
1,051,000

Financing obligations(1)
28,951,000

 
25,947,000

Operating lease liabilities(1)
193,390,000

 

Security deposits, prepaid rent and other liabilities(1)
38,600,000

 
37,418,000

Total liabilities
1,909,063,000

 
1,632,212,000

 
 
 
 
Commitments and contingencies (Note 11)

 

 
 
 
 
Redeemable noncontrolling interests (Note 12)
38,115,000

 
38,245,000

 
 
 
 
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; 194,736,018 and 197,557,377 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
1,946,000

 
1,975,000

Additional paid-in capital
1,739,119,000

 
1,765,840,000

Accumulated deficit
(759,520,000
)
 
(704,748,000
)
Accumulated other comprehensive loss
(2,580,000
)
 
(2,560,000
)
Total stockholders’ equity
978,965,000

 
1,060,507,000

Noncontrolling interests (Note 13)
160,010,000

 
158,128,000

Total equity
1,138,975,000

 
1,218,635,000

Total liabilities, redeemable noncontrolling interests and equity
$
3,086,153,000

 
$
2,889,092,000


3


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
As of June 30, 2019 and December 31, 2018
(Unaudited)

___________

(1)
Such liabilities of Griffin-American Healthcare REIT III, Inc. as of June 30, 2019 and December 31, 2018 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, or VIE, 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 six and five mortgage loans in the aggregate amount of $100,061,000 and $50,316,000 as of June 30, 2019 and December 31, 2018, respectively, and the 2019 Corporate Line of Credit and 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $557,000,000 and $548,500,000 as of June 30, 2019 and December 31, 2018, respectively, which is guaranteed by Griffin-American Healthcare REIT III, Inc.
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Resident fees and services
$
272,472,000

 
$
247,582,000

 
$
540,754,000

 
$
492,975,000

Real estate revenue
32,459,000

 
32,681,000

 
65,235,000

 
65,180,000

Total revenues
304,931,000

 
280,263,000

 
605,989,000

 
558,155,000

Expenses:
 
 
 
 
 
 
 
Property operating expenses
239,890,000

 
218,271,000

 
474,842,000

 
435,630,000

Rental expenses
8,226,000

 
8,747,000

 
16,651,000

 
17,687,000

General and administrative
6,512,000

 
6,622,000

 
13,429,000

 
13,010,000

Acquisition related expenses
400,000

 
214,000

 
(296,000
)
 
(555,000
)
Depreciation and amortization
24,743,000

 
22,682,000

 
50,371,000

 
46,374,000

Total expenses
279,771,000


256,536,000

 
554,997,000

 
512,146,000

Other income (expense):
 
 
 
 
 
 
 
Interest expense:
 

 
 
 
 
 
Interest expense (including amortization of deferred financing costs and debt discount/premium)
(19,560,000
)
 
(16,479,000
)
 
(38,619,000
)
 
(31,831,000
)
Loss in fair value of derivative financial instruments
(4,117,000
)
 
(487,000
)
 
(4,677,000
)
 
(377,000
)
Impairment of real estate investments

 
(2,542,000
)
 

 
(2,542,000
)
Loss from unconsolidated entities
(493,000
)
 
(1,458,000
)
 
(947,000
)
 
(2,535,000
)
Foreign currency loss
(1,232,000
)
 
(2,829,000
)
 
(190,000
)
 
(1,033,000
)
Other income
246,000

 
224,000

 
454,000

 
519,000

Income before income taxes
4,000

 
156,000

 
7,013,000

 
8,210,000

Income tax (expense) benefit
(159,000
)
 
526,000

 
(310,000
)
 
897,000

Net (loss) income
(155,000
)
 
682,000

 
6,703,000

 
9,107,000

Less: net income attributable to noncontrolling interests
(1,430,000
)
 
(740,000
)
 
(2,778,000
)
 
(1,012,000
)
Net (loss) income attributable to controlling interest
$
(1,585,000
)
 
$
(58,000
)
 
$
3,925,000

 
$
8,095,000

Net (loss) income per common share attributable to controlling interest — basic and diluted
$
(0.01
)
 
$

 
$
0.02

 
$
0.04

Weighted average number of common shares outstanding — basic and diluted
196,075,614

 
200,202,193

 
197,231,713

 
200,274,238

 
 
 
 
 
 
 
 
Net (loss) income
$
(155,000
)
 
$
682,000

 
$
6,703,000

 
$
9,107,000

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(239,000
)
 
(684,000
)
 
(20,000
)
 
(238,000
)
Total other comprehensive loss
(239,000
)
 
(684,000
)
 
(20,000
)
 
(238,000
)
Comprehensive (loss) income
(394,000
)
 
(2,000
)
 
6,683,000

 
8,869,000

Less: comprehensive income attributable to noncontrolling interests
(1,430,000
)
 
(740,000
)
 
(2,778,000
)
 
(1,012,000
)
Comprehensive (loss) income attributable to controlling interest
$
(1,824,000
)
 
$
(742,000
)
 
$
3,905,000

 
$
7,857,000

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

5


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)


 
Three Months Ended June 30, 2019
 
 
 
 
 
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 — March 31, 2019
195,188,759

 
$
1,951,000

 
$
1,743,711,000

 
$
(728,598,000
)
 
$
(2,341,000
)
 
$
1,014,723,000

 
$
160,595,000

 
$
1,175,318,000

Offering costs — common stock

 

 
(1,000
)
 

 

 
(1,000
)
 

 
(1,000
)
Issuance of vested and nonvested restricted common stock
7,500

 

 
14,000

 

 

 
14,000

 

 
14,000

Issuance of common stock under the DRIP
1,506,395

 
15,000

 
14,100,000

 

 

 
14,115,000

 

 
14,115,000

Amortization of nonvested common stock compensation

 

 
43,000

 

 

 
43,000

 

 
43,000

Stock based compensation

 

 

 

 

 

 
195,000

 
195,000

Repurchase of common stock
(1,966,636
)
 
(20,000
)
 
(18,629,000
)
 

 

 
(18,649,000
)
 

 
(18,649,000
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(1,818,000
)
 
(1,818,000
)
Reclassification of noncontrolling interests to mezzanine equity

 

 

 

 

 

 
(195,000
)
 
(195,000
)
Fair value adjustment to redeemable noncontrolling interests

 

 
(119,000
)
 

 

 
(119,000
)
 
(50,000
)
 
(169,000
)
Distributions declared ($0.15 per share)

 

 

 
(29,337,000
)
 

 
(29,337,000
)
 

 
(29,337,000
)
Net (loss) income

 

 

 
(1,585,000
)
 

 
(1,585,000
)
 
1,283,000

(1
)
(302,000
)
Other comprehensive loss

 

 

 

 
(239,000
)
 
(239,000
)
 

 
(239,000
)
BALANCE — June 30, 2019
194,736,018

 
$
1,946,000

 
$
1,739,119,000

 
$
(759,520,000
)
 
$
(2,580,000
)
 
$
978,965,000

 
$
160,010,000

 
$
1,138,975,000


6


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)


 
Three Months Ended June 30, 2018
 
 
 
 
 
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 — 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

Issuance of vested and nonvested restricted common stock
7,500

 

 
14,000

 

 

 
14,000

 

 
14,000

Issuance of common stock under the DRIP
1,641,819

 
17,000

 
15,203,000

 

 

 
15,220,000

 

 
15,220,000

Amortization of nonvested common stock compensation

 

 
42,000

 

 

 
42,000

 

 
42,000

Stock based compensation

 

 

 

 

 

 
195,000

 
195,000

Repurchase of common stock
(1,978,048
)
 
(20,000
)
 
(18,174,000
)
 

 

 
(18,194,000
)
 

 
(18,194,000
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(1,454,000
)
 
(1,454,000
)
Reclassification of noncontrolling interests to mezzanine equity

 

 

 

 

 

 
(195,000
)
 
(195,000
)
Fair value adjustment to redeemable noncontrolling interests

 

 
(32,000
)
 

 

 
(32,000
)
 
(14,000
)
 
(46,000
)
Distributions declared ($0.15 per share)

 

 

 
(29,955,000
)
 

 
(29,955,000
)
 

 
(29,955,000
)
Net (loss) income

 

 

 
(58,000
)
 

 
(58,000
)
 
662,000

(1
)
604,000

Other comprehensive loss

 

 

 

 
(684,000
)
 
(684,000
)
 

 
(684,000
)
BALANCE — June 30, 2018
198,864,815

 
$
1,988,000

 
$
1,781,514,000

 
$
(649,551,000
)
 
$
(2,209,000
)
 
$
1,131,742,000

 
$
160,639,000

 
$
1,292,381,000



7


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)


 
Six Months Ended June 30, 2019
 
 
 
 
 
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, 2018
197,557,377

 
$
1,975,000

 
$
1,765,840,000

 
$
(704,748,000
)
 
$
(2,560,000
)
 
$
1,060,507,000

 
$
158,128,000

 
$
1,218,635,000

Offering costs — common stock

 

 
(84,000
)
 

 

 
(84,000
)
 

 
(84,000
)
Issuance of vested and nonvested restricted common stock
7,500

 

 
14,000

 

 

 
14,000

 

 
14,000

Issuance of common stock under the DRIP
3,021,493

 
30,000

 
28,281,000

 

 

 
28,311,000

 

 
28,311,000

Amortization of nonvested common stock compensation

 

 
86,000

 

 

 
86,000

 

 
86,000

Stock based compensation

 

 

 

 

 

 
390,000

 
390,000

Repurchase of common stock
(5,850,352
)
 
(59,000
)
 
(55,076,000
)
 

 

 
(55,135,000
)
 

 
(55,135,000
)
Contributions from noncontrolling interests

 

 

 

 

 

 
3,000,000

 
3,000,000

Distributions to noncontrolling interests

 

 

 

 

 

 
(3,635,000
)
 
(3,635,000
)
Reclassification of noncontrolling interests to mezzanine equity

 

 

 

 

 

 
(390,000
)
 
(390,000
)
Fair value adjustment to redeemable noncontrolling interests

 

 
58,000

 

 

 
58,000

 
26,000

 
84,000

Distributions declared ($0.30 per share)

 

 

 
(58,697,000
)
 

 
(58,697,000
)
 

 
(58,697,000
)
Net income

 

 

 
3,925,000

 

 
3,925,000

 
2,491,000

(1
)
6,416,000

Other comprehensive loss

 

 

 

 
(20,000
)
 
(20,000
)
 

 
(20,000
)
BALANCE — June 30, 2019
194,736,018

 
$
1,946,000

 
$
1,739,119,000

 
$
(759,520,000
)
 
$
(2,580,000
)
 
$
978,965,000

 
$
160,010,000

 
$
1,138,975,000


8


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)


 
Six Months Ended June 30, 2018
 
 
 
 
 
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 vested and nonvested restricted common stock
7,500

 

 
14,000

 

 

 
14,000

 

 
14,000

Issuance of common stock under the DRIP
3,284,653

 
33,000

 
30,416,000

 

 

 
30,449,000

 

 
30,449,000

Amortization of nonvested common stock compensation

 

 
85,000

 

 

 
85,000

 

 
85,000

Stock based compensation

 

 

 

 

 

 
390,000

 
390,000

Repurchase of common stock
(3,770,572
)
 
(38,000
)
 
(34,662,000
)
 

 

 
(34,700,000
)
 

 
(34,700,000
)
Contribution from noncontrolling interest

 

 

 

 

 

 
4,470,000

 
4,470,000

Distributions to noncontrolling interests

 

 

 

 

 

 
(3,373,000
)
 
(3,373,000
)
Reclassification of noncontrolling interests to mezzanine equity

 

 

 

 

 

 
(390,000
)
 
(390,000
)
Fair value adjustment to redeemable noncontrolling interests

 

 
(205,000
)
 

 

 
(205,000
)
 
(88,000
)
 
(293,000
)
Distributions declared ($0.30 per share)

 

 

 
(59,602,000
)
 

 
(59,602,000
)
 

 
(59,602,000
)
Net income

 

 

 
8,095,000

 

 
8,095,000

 
905,000

(1
)
9,000,000

Other comprehensive loss

 

 

 

 
(238,000
)
 
(238,000
)
 

 
(238,000
)
BALANCE — June 30, 2018
198,864,815

 
$
1,988,000

 
$
1,781,514,000

 
$
(649,551,000
)
 
$
(2,209,000
)
 
$
1,131,742,000

 
$
160,639,000

 
$
1,292,381,000

___________
(1)
For the three months ended June 30, 2019 and 2018, amounts exclude $147,000 and $78,000, respectively, of the net income attributable to redeemable noncontrolling interests. For the six months ended June 30, 2019 and 2018, amounts exclude $287,000 and $107,000, respectively, of net income 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.

9


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)

 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
6,703,000

 
$
9,107,000

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
50,371,000

 
46,374,000

Other amortization
15,211,000

 
2,846,000

Deferred rent
(3,403,000
)
 
(2,754,000
)
Stock based compensation
390,000

 
390,000

Stock based compensation — nonvested restricted common stock
100,000

 
99,000

Loss from unconsolidated entities
947,000

 
2,535,000

Bad debt expense
272,000

 
283,000

Foreign currency loss
189,000

 
1,000,000

Change in fair value of contingent consideration
(681,000
)
 
(489,000
)
Change in fair value of derivative financial instruments
4,677,000

 
377,000

Impairment of real estate investments

 
2,542,000

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
(8,475,000
)
 
(2,200,000
)
Other assets
(1,322,000
)
 
(11,668,000
)
Accounts payable and accrued liabilities
2,474,000

 
(3,014,000
)
Accounts payable due to affiliates
429,000

 
(13,000
)
Security deposits, prepaid rent, operating lease and other liabilities
(14,051,000
)
 
1,275,000

Net cash provided by operating activities
53,831,000

 
46,690,000

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisitions of real estate investments
(17,457,000
)
 
(444,000
)
Proceeds from real estate dispositions

 
1,000,000

Principal repayments on real estate notes receivable
28,650,000

 

Investments in unconsolidated entities
(1,520,000
)
 

Capital expenditures
(38,510,000
)
 
(24,545,000
)
Real estate and other deposits
(613,000
)
 
(2,878,000
)
Net cash used in investing activities
(29,450,000
)

(26,867,000
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Borrowings under mortgage loans payable
61,472,000

 
1,364,000

Payments on mortgage loans payable
(6,331,000
)
 
(5,045,000
)
Borrowings under the lines of credit and term loans
692,519,000

 
122,596,000

Payments on the lines of credit and term loans
(673,000,000
)
 
(72,444,000
)
Payments under financing obligations
(3,731,000
)
 
(3,555,000
)
Deferred financing costs
(6,807,000
)
 
(187,000
)
Repurchase of common stock
(55,088,000
)
 
(34,700,000
)
Repurchase of stock warrants and redeemable noncontrolling interest
(78,000
)
 
(77,000
)
Contributions from noncontrolling interests
3,000,000

 
4,470,000

Distributions to noncontrolling interests
(3,635,000
)
 
(3,373,000
)
Contributions from redeemable noncontrolling interests

 
535,000

Distributions to redeemable noncontrolling interests
(720,000
)
 
(332,000
)
Security deposits and other
(55,000
)
 
43,000


10


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)

 
Six Months Ended June 30,
 
2019
 
2018
Distributions paid
$
(30,886,000
)
 
$
(29,447,000
)
Net cash used in financing activities
(23,340,000
)
 
(20,152,000
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
$
1,041,000

 
$
(329,000
)
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(23,000
)
 
(24,000
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period
72,705,000

 
64,143,000

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period
$
73,723,000

 
$
63,790,000

 
 
 
 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
Beginning of period:
 
 
 
Cash and cash equivalents
$
35,132,000

 
$
33,656,000

Restricted cash
37,573,000

 
30,487,000

Cash, cash equivalents and restricted cash
$
72,705,000

 
$
64,143,000

 
 
 
 
End of period:
 
 
 
Cash and cash equivalents
$
34,026,000

 
$
33,805,000

Restricted cash
39,697,000

 
29,985,000

Cash, cash equivalents and restricted cash
$
73,723,000

 
$
63,790,000

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash paid for:
 
 
 
Interest
$
34,783,000

 
$
28,103,000

Income taxes
$
544,000

 
$
572,000

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
 
 
 
Investing Activities:
 
 
 
Accrued capital expenditures
$
14,332,000

 
$
10,062,000

Capital expenditures from financing obligations
$
6,735,000

 
$
4,194,000

Tenant improvement overage
$
645,000

 
$
355,000

Investments in unconsolidated entity
$
5,276,000

 
$

The following represents the increase in certain liabilities in connection with our acquisitions of real estate investments:
 
 
 
Accounts payable and accrued liabilities
$
37,000

 
$
1,000

Prepaid rent
$
105,000

 
$

Financing Activities:
 
 
 
Issuance of common stock under the DRIP
$
28,311,000

 
$
30,449,000

Distributions declared but not paid
$
9,689,000

 
$
9,898,000

Payable to transfer agent
$
47,000

 
$

Reclassification of noncontrolling interests to mezzanine equity
$
390,000

 
$
390,000

Accrued deferred financing costs
$
51,000

 
$
10,000

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


11


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended June 30, 2019 and 2018
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 otherwise noted.
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 may also originate and acquire other 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 initial distribution reinvestment plan, or the Initial 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 Initial DRIP. See Note 13, Equity — Common Stock, for a further discussion.
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 to be issued pursuant to the Initial DRIP, or the 2015 DRIP Offering. We commenced offering shares pursuant to the 2015 DRIP Offering following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the Initial DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the 2015 DRIP Offering. We continued to offer shares of our common stock pursuant to the 2015 DRIP Offering until the termination and deregistration of such offering on March 29, 2019. As of March 29, 2019, a total of $245,396,000 in distributions were reinvested that resulted in 26,386,545 shares of common stock being issued pursuant to the 2015 DRIP Offering. On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the Amended and Restated DRIP, or the 2019 DRIP Offering; however, we did not commence offering shares pursuant to the 2019 DRIP Offering until April 1, 2019, following the deregistration of the 2015 DRIP Offering. As of June 30, 2019, a total of $14,115,000 in distributions were reinvested that resulted in 1,506,395 shares of common stock being issued pursuant to the 2019 DRIP Offering. We collectively refer to the Initial DRIP portion of our initial offering, the 2015 DRIP Offering and the 2019 DRIP Offering as our DRIP Offerings. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion.
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 13, 2019 and expires on February 26, 2020. 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 Capital, Inc. (NYSE: CLNY), or Colony Capital, and 7.8% owned by James F. Flaherty III, a former partner of Colony Capital. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, the dealer manager for our initial offering, or our dealer manager, Colony Capital or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

12


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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 June 30, 2019, we owned and/or operated 98 properties, comprising 102 buildings, and 113 integrated senior health campuses including completed development projects, or approximately 13,412,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,968,740,000. In addition, as of June 30, 2019, we had invested $60,429,000 in real estate-related investments, net of principal repayments.
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, 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 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.
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 June 30, 2019 and December 31, 2018, we owned greater than a 99.99% general partnership interest therein. As of June 30, 2019 and December 31, 2018, 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 United States Securities and Exchange Commission, or 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 2018 Annual Report on Form 10-K, as filed with the SEC on March 21, 2019.
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

13


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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.
Leases
On January 1, 2019, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 842, or ASC Topic 842. ASC Topic 842 supersedes ASC Topic 840, Leases, or ASC Topic 840. We adopted ASC Topic 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Therefore, with respect to our leases as both lessees and lessors, information is presented under ASC Topic 842 as of and for the three and six months ended June 30, 2019 and under ASC Topic 840 as of December 31, 2018 and for the three and six months ended June 30, 2018. In addition, ASC Topic 842 provides a practical expedient package 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 elected such practical expedient package upon our adoption of ASC Topic 842 on January 1, 2019. We determine if a contract is a lease upon inception of the lease. We maintain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance.
Lessee: Pursuant to ASC Topic 842, lessees are required to recognize the following for all leases with terms greater of 12 months 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. The lease liability is calculated by using either the implicit rate of the lease or the incremental borrowing rate. As a result of the adoption of ASC Topic 842 on January 1, 2019, we recognized an initial amount of lease liability of $198,453,000 in our condensed consolidated balance sheet for all of our operating leases for which we are the lessee, including facilities leases and ground leases. In addition, we recorded a corresponding right-of-use asset of $211,679,000, which is the lease liability, net of the existing prepaid rent asset and accrued straight-line rent liability balance and adjusted for unamortized above/below market ground lease intangibles. The accretion of lease liability and amortization expense on right-of-use assets for our operating leases are included in property operating expenses and rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income (loss). The operating lease liability was calculated using our incremental borrowing rate based on the information available as of our adoption date.
The accounting for our existing capital (finance) leases upon adoption of ASC Topic 842 remains substantially unchanged. For our finance leases, the accretion of lease liability is included in interest expense and the amortization expense on right-of-use assets is included in depreciation and amortization in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Further, finance lease assets are included within real estate investments, net and finance lease liabilities are included within financing obligations in our accompanying condensed consolidated balance sheets.
Lessor: Pursuant to ASC Topic 842, lessors bifurcate lease revenues into lease components and non-lease components and separately recognize and disclose non-lease components that are executory in nature. Lease components 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, Revenue from Contracts with Customers, or ASC Topic 606. See “Revenue Recognition” section below. ASC Topic 842 also provides for a practical expedient package that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. Such practical expedient is limited to circumstances in which (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. In addition, such practical expedient causes an entity to assess whether a contract is predominately lease or service based, and recognize the revenue from the entire contract under the relevant accounting guidance. Effective upon our adoption of ASC Topic 842 on January 1, 2019, we recognize revenue for our medical office buildings, senior housing, skilled nursing facilities and hospitals segments under ASC Topic 842 as real estate revenue. Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements are recorded to deferred rent receivable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, are considered non-lease components. We qualified for and elected the practical expedient as outlined above to combine the non-lease component with the lease component, which is the predominant component, and therefore is recognized as part of real estate revenue. In addition as lessors, we exclude certain lessor costs (i.e.,

14


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

property taxes and insurance) paid directly by a lessee to third parties on our behalf from our measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs); and (ii) include lessor costs that we paid and are reimbursed by the lessee in our measurement of variable lease revenue and associated expense (i.e., gross up revenue and expense for these costs). Therefore, we no longer record revenue or expense when the lessee pays the property taxes and insurance directly to a third party.
Our senior housing — RIDEA facilities offer residents room and board (lease component), standard meals and monthly healthcare services (non-lease component), and certain ancillary services that are not contemplated in the lease with each resident (i.e., laundry, guest meals, etc.). For our senior housing — RIDEA facilities, we recognize revenue under ASC Topic 606 as resident fees and services, based on our predominance assessment from electing the practical expedient outlined above. See “Revenue Recognition” below.
See Note 17, Leases, for a further discussion.
Revenue Recognition
On January 1, 2018, we adopted 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 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.
Real estate revenue
Prior to January 1, 2019, minimum annual rental revenue was recognized on a straight-line basis over the term of the related lease (including rent holidays) in accordance with ASC Topic 840. Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements were recorded to deferred rent receivable or deferred rent liability, as applicable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, was recognized as revenue in the period in which the related expenses were incurred. Tenant reimbursements were recognized and presented in accordance with ASC Subtopic 606-10-55-36, Revenue RecognitionPrincipal Versus Agent Consideration, or ASC Subtopic 606. ASC Subtopic 606 requires that these reimbursements be recorded on a gross basis as we are generally primarily responsible to fulfill the promise to provide specified goods and services. We recognized lease termination fees at such time when there was a signed termination letter agreement, all of the conditions of such agreement have been met and the tenant is no longer occupying the property.
Effective January 1, 2019, we recognize real estate revenue in accordance with ASC Topic 842. See “Leases” section above.
Resident fees and services revenue
Disaggregation of Resident Fees and Services Revenue
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 June 30,
 
 
2019
 
2018
 
 
Point in Time
 
Over Time
 
Total
 
Point in Time
 
Over Time
 
Total
Integrated senior health campuses
 
$
53,390,000

 
$
202,651,000

 
$
256,041,000

 
$
44,657,000

 
$
186,864,000

 
$
231,521,000

Senior housing — RIDEA(1)
 
735,000

 
15,696,000

 
16,431,000

 
729,000

 
15,332,000

 
16,061,000

Total resident fees and services
 
$
54,125,000

 
$
218,347,000

 
$
272,472,000

 
$
45,386,000

 
$
202,196,000

 
$
247,582,000


15


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

 
 
Six Months Ended June 30,
 
 
2019
 
2018
 
 
Point in Time
 
Over Time
 
Total
 
Point in Time
 
Over Time
 
Total
Integrated senior health campuses
 
$
105,733,000

 
$
402,022,000

 
$
507,755,000

 
$
89,822,000

 
$
370,760,000

 
$
460,582,000

Senior housing — RIDEA(1)
 
1,446,000

 
31,553,000

 
32,999,000

 
1,497,000

 
30,896,000

 
32,393,000

Total resident fees and services
 
$
107,179,000

 
$
433,575,000

 
$
540,754,000

 
$
91,319,000

 
$
401,656,000

 
$
492,975,000

The following table disaggregates our resident fees and services revenue by payor class:
 
 
Three Months Ended June 30,
 
 
2019
 
2018
 
 
Integrated
Senior Health
Campuses
 
Senior
Housing
 — RIDEA(1)
 
Total
 
Integrated
Senior Health
Campuses(2)
 
Senior
Housing
 — RIDEA(1)
 
Total
Medicare
 
$
84,481,000

 
$

 
$
84,481,000

 
$
76,838,000

 
$

 
$
76,838,000

Medicaid
 
46,643,000

 
21,000

 
46,664,000

 
40,815,000

 

 
40,815,000

Private and other payors
 
124,917,000

 
16,410,000

 
141,327,000

 
113,868,000

 
16,061,000

 
129,929,000

Total resident fees and services
 
$
256,041,000

 
$
16,431,000

 
$
272,472,000

 
$
231,521,000


$
16,061,000


$
247,582,000

 
 
Six Months Ended June 30,
 
 
2019
 
2018
 
 
Integrated
Senior Health
Campuses
 
Senior
Housing
 — RIDEA(1)
 
Total
 
Integrated
Senior Health
Campuses(2)
 
Senior
Housing
 — RIDEA(1)
 
Total
Medicare
 
$
168,958,000

 
$

 
$
168,958,000

 
$
154,875,000

 
$

 
$
154,875,000

Medicaid
 
91,679,000

 
34,000

 
91,713,000

 
81,219,000

 
3,000

 
81,222,000

Private and other payors
 
247,118,000

 
32,965,000

 
280,083,000

 
224,488,000

 
32,390,000

 
256,878,000

Total resident fees and services
 
$
507,755,000

 
$
32,999,000

 
$
540,754,000

 
$
460,582,000

 
$
32,393,000

 
$
492,975,000


___________
(1)
This includes fees for basic housing and assisted living care. We record revenue when services are rendered 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.
(2)
For the three and six months ended June 30, 2018, Medicare includes $0 and $21,881,000, respectively, of revenue that was previously disclosed as Private and other payors. There was no net change in previously disclosed total resident fees and services.
Accounts Receivable, Net Resident Fees and Services Revenue
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, 2019
 
$
29,160,000

 
$
18,676,000

 
$
39,112,000

 
$
86,948,000

Ending balance — June 30, 2019
 
30,618,000

 
19,478,000

 
46,278,000

 
96,374,000

Increase
 
$
1,458,000

 
$
802,000

 
$
7,166,000

 
$
9,426,000


16


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Deferred Revenue Resident Fees and Services Revenue
The beginning and ending balances of deferred revenue resident fees and services, all of which relates to private and other payors, are as follows:
 
 
Total
Beginning balance — January 1, 2019
 
$
12,569,000

Ending balance — June 30, 2019
 
10,954,000

Decrease
 
$
(1,615,000
)
Tenant and Resident Receivables and Allowance for Uncollectible Accounts
Resident receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Upon our adoption of ASC Topic 606, substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions and other relevant factors.
Prior to our adoption of ASC Topic 842, tenant receivables and unbilled deferred rent receivables were reduced for uncollectible amounts. Such amounts were charged to bad debt expense, which was included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Effective upon our adoption of ASC Topic 842 on January 1, 2019, such amounts are recognized as direct reductions of real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss).
Accounts Payable and Accrued Liabilities
As of June 30, 2019 and December 31, 2018, accounts payable and accrued liabilities primarily includes insurance payables of $33,497,000 and $32,123,000, respectively, reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $27,607,000 and $26,428,000, respectively, accrued property taxes of $15,468,000 and $15,121,000, respectively, accrued distributions of $9,689,000 and $10,189,000, respectively, and accrued capital expenditures to unaffiliated third parties of $14,135,000 and $12,490,000, respectively.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update, or 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. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses, or ASU 2018-19, which amended the scope of ASU 2016-13 to clarify that operating lease receivables should be accounted for under the new leasing standard ASC Topic 842. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2019-04, to increase stakeholders’ awareness of the amendments and to expedite improvements to the Accounting Standards Codification. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, or ASU 2019-05, to address certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact of the adoption of ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 on January 1, 2020 to our consolidated financial position and results of operations.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements in ASC Topic 820, Fair Value Measurements and Disclosures, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of

17


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. ASU 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are evaluating the complete impact of the adoption of ASU 2018-13 on January 1, 2020 to our consolidated financial statement disclosures.
3. Real Estate Investments, Net
Our real estate investments, net consisted of the following as of June 30, 2019 and December 31, 2018:
 
June 30,
2019
 
December 31,
2018
Building, improvements and construction in process
$
2,199,377,000

 
$
2,160,944,000

Land and improvements
189,855,000

 
189,446,000

Furniture, fixtures and equipment
137,958,000

 
126,985,000

 
2,527,190,000

 
2,477,375,000

Less: accumulated depreciation
(296,240,000
)
 
(254,694,000
)
 
$
2,230,950,000

 
$
2,222,681,000

Depreciation expense for the three months ended June 30, 2019 and 2018 was $21,530,000 and $20,287,000, respectively. Depreciation expense for the six months ended June 30, 2019 and 2018 was $43,734,000 and $40,687,000, respectively. No impairment charges were recognized for the three and six months ended June 30, 2019. For both the three and six months ended June 30, 2018, we determined that one of our medical office buildings was impaired and recognized an impairment charge of $2,542,000, which reduced the total carrying value of such investment to $7,387,000. The fair value of such medical office building was based upon a discounted cash flow analysis where the most significant inputs were considered Level 3 measurements within the fair value hierarchy. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Real Estate Investment, for a further discussion.
For the three months ended June 30, 2019, we incurred capital expenditures of $23,106,000 for our integrated senior health campuses, $4,684,000 for our medical office buildings, $473,000 for our senior housing — RIDEA facilities, $126,000 for our skilled nursing facilities and $50,000 for our hospitals. We did not incur any capital expenditures for our senior housing facilities for the three months ended June 30, 2019.
For the six months ended June 30, 2019, we incurred capital expenditures of $36,734,000 for our integrated senior health campuses, $6,718,000 for our medical office buildings, $778,000 for our senior housing — RIDEA facilities, $160,000 for our skilled nursing facilities and $50,000 for our hospitals. We did not incur any capital expenditures for our senior housing facilities for the six months ended June 30, 2019.
Acquisitions of Real Estate Investments
For the six months ended June 30, 2019, using cash on hand and debt financing, we completed the acquisition of one building from an unaffiliated third party, which we added to our existing North Carolina ALF Portfolio. The other six buildings in North Carolina ALF Portfolio were acquired between January 2015 and August 2018. The following is a summary of our property acquisition for the six months ended June 30, 2019:
Acquisition(1)
 
Location
 
Type
 
Date
Acquired
 
Contract
Purchase Price
 
Lines of Credit
and
Term Loans(2)
 
Acquisition
Fee(3)
North Carolina ALF Portfolio
 
Garner, NC
 
Senior Housing
 
03/27/19
 
$
15,000,000

 
$
15,000,000

 
$
338,000

___________
(1)
We own 100% of our property acquired in 2019.
(2)
Represents a borrowing under the 2019 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loans, at the time of acquisition.
(3)
Our advisor was paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our property, an acquisition fee of 2.25% of the contract purchase price of such property.

18


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

In addition to the property acquisition discussed above, for the six months ended June 30, 2019, we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, of which we own 67.7%, acquired land in Michigan and Ohio for an aggregate contract purchase price of $2,067,000 plus closing costs and paid to our advisor an acquisition fee of 2.25% of the portion of the contract purchase price of each land parcel attributed to our ownership interest.
For the six months ended June 30, 2019, we accounted for our real estate acquisitions as asset acquisitions. We incurred and capitalized closing costs and direct acquisition related expenses of $489,000 for such acquisitions. The following table summarizes the purchase price of the assets acquired and liabilities assumed at the time of acquisition from our acquisitions in 2019 based on their relative fair values:
 
 
2019 Real Estate
Acquisitions
Building and improvements
 
$
11,700,000

Land
 
3,878,000

In-place leases
 
1,978,000

Total assets acquired
 
$
17,556,000

Completed Development
For the six months ended June 30, 2019, we completed the development of one integrated senior health campus for $10,558,000, which is included in real estate investments, net, in our accompanying condensed consolidated balance sheets.
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 June 30, 2019 and December 31, 2018:
 
 
 
 
 
 
 
 
 
Balance
 
Origination
Date
 
Maturity
Date
 
Contractual
Interest
Rate
 
Maximum
Advances
Available
 
June 30,
2019
 
December 31,
2018
Mezzanine Fixed Rate Notes(1)
02/04/15
 
12/09/19
 
6.75%
 
$

 
$

 
$
28,650,000

Debt security investment(2)
10/15/15
 
08/25/25
 
4.24%
 
N/A
 
69,822,000

 
68,355,000

 
 
 
 
 
 
 
 
 
69,822,000

 
97,005,000

Unamortized loan and closing costs, net
 
 
 
 
 
 
 
 
1,450,000

 
1,650,000

 
 
 
 
 
 
 
 
 
$
71,272,000

 
$
98,655,000

___________
(1)
The Mezzanine Fixed Rate 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 Capital. In June 2019, the Mezzanine Fixed Rate Notes were paid in full by the borrower.
(2)
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 June 30, 2019 and December 31, 2018, the net carrying amount with accretion was $71,272,000 and $69,873,000, 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.

19


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following table reflects the changes in the carrying amount of our real estate notes receivable and debt security investment for the six months ended June 30, 2019 and 2018:
 
Six Months Ended June 30,
 
2019
 
2018
Beginning balance
$
98,655,000

 
$
97,988,000

Additions:
 
 
 
Accretion on debt security
1,467,000

 
1,331,000

Deductions:
 
 
 
Principal repayments on real estate notes receivable
(28,650,000
)
 

Amortization of loan and closing costs
(200,000
)
 
(121,000
)
Ending balance
$
71,272,000


$
99,198,000

For the three and six months ended June 30, 2019 and 2018, we did not record any impairment losses on our real estate notes receivable or debt security investment. Amortization expense on loan and closing costs for the three months ended June 30, 2019 and 2018 was $132,000 and $62,000, respectively, and for the six months ended June 30, 2019 and 2018, was $200,000 and $121,000, respectively, which 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 June 30, 2019 and December 31, 2018:
 
June 30,
2019
 
December 31,
2018
Amortized intangible assets:
 
 
 
In-place leases, net of accumulated amortization of $27,499,000 and $23,497,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 10.3 years and 9.8 years as of June 30, 2019 and December 31, 2018, respectively)
$
41,810,000

 
$
45,815,000

Leasehold interests, net of accumulated amortization of $548,000 as of December 31, 2018 (with a weighted average remaining life of 53.6 years as of December 31, 2018)(1)

 
7,346,000

Customer relationships, net of accumulated amortization of $262,000 and $187,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 17.3 years and 18.8 years as of June 30, 2019 and December 31, 2018, respectively)
2,578,000

 
2,653,000

Above-market leases, net of accumulated amortization of $2,049,000 and $2,851,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 5.1 years and 5.2 years as of June 30, 2019 and December 31, 2018, respectively)
1,715,000

 
2,059,000

Internally developed technology and software, net of accumulated amortization of $164,000 and $117,000 as of June 30, 2019 and December 31, 2018, respectively (with a weighted average remaining life of 3.3 years and 3.8 years as of June 30, 2019 and December 31, 2018, respectively)
306,000

 
353,000

Unamortized intangible assets:
 
 
 
Certificates of need
90,991,000

 
88,590,000

Trade names
30,787,000

 
30,787,000

Purchase option asset(2)

 
1,918,000

 
$
168,187,000

 
$
179,521,000

___________
(1)
Such amount related to our ownership of fee simple interests in the building and improvements of 11 of our buildings that are subject to respective ground leases. Upon our adoption of ASC Topic 842 on January 1, 2019, such amount was reclassed to operating lease right-of-use assets in our accompanying condensed consolidated balance sheet. See Note 2, Summary of Significant Accounting Policies — Leases, and Note 17, Leases, for a further discussion.

20


GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

(2)
For the six months ended June 30, 2019, we exercised our right to acquire a property through our unconsolidated investment in RHS Partners, LLC, or RHS. The value of the purchase option asset utilized was $1,918,000. See Note 6, Other Assets, Net for a further discussion.
Amortization expense for the three months ended June 30, 2019 and 2018 was $3,094,000 and $2,465,000, respectively, which included $132,000 and $217,000, respectively, of amortization recorded against real estate revenue for above-market leases and $0 and $35,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income (loss).
Amortization expense for the six months ended June 30, 2019 and 2018 was $6,439,000 and $5,977,000, respectively, which included $344,000 and $556,000, respectively, of amortization recorded against real estate revenue for above-market leases and $0 and $71,000, 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 10.5 years and 15.5 years as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, estimated amortization expense on the identified intangible assets for the six months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter was as follows: