10-Q

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 September 30, 2017 

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

Commission File Number 000-52566

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

(Exact name of registrant as specified in its charter)

MARYLAND	73-1721791
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2 SOUTH POINTE DRIVE,  SUITE 100, LAKE FOREST, CA	92630
(Address of principal executive offices)	(Zip Code)

800-978-8136

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the 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 (Sec.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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨   (Do not check if a smaller reporting company)	Smaller reporting company	x
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 Act).  ¨ Yes     x No

As of November 7, 2017, we had 23,027,978 shares of common stock of Summit Healthcare REIT, Inc. outstanding.

FORM 10-Q

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Condensed Consolidated Balance Sheets (unaudited)	3
	Condensed Consolidated Statements of Operations (unaudited)	4
	Condensed Consolidated Statement of Equity (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
SIGNATURES		36
EX-31.1
EX-31.2
EX-32

Page 2 of 36

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	4,235,000		$	10,757,000
Restricted cash		3,575,000			3,806,000
Real estate properties, net		70,111,000			58,739,000
Notes receivable		4,777,000			4,801,000
Deferred costs and deposits		500,000			240,000
Tenant and other receivables, net		4,315,000			4,262,000
Deferred leasing commissions, net		1,308,000			1,413,000
Other assets, net		250,000			290,000
Equity-method investments		8,369,000			5,095,000
Total assets	$	97,440,000		$	89,403,000
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	$	3,438,000		$	2,979,000
Accrued salaries and benefits		210,000			256,000
Security deposits		1,208,000			1,208,000
Loans payable, net of debt issuance costs		61,002,000			51,717,000
Total liabilities		65,858,000			56,160,000
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2017 and December 31, 2016		—			—
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at September 30, 2017 and December 31, 2016		23,000			23,000
Additional paid-in capital		117,326,000			117,243,000
Accumulated deficit		(86,468,000	)		(84,767,000	)
Total stockholders’ equity		30,881,000			32,499,000
Noncontrolling interest		701,000			744,000
Total equity		31,582,000			33,243,000
Total liabilities and equity	$	97,440,000		$	89,403,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 3 of 36

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Rental revenues	$	1,644,000		$	1,639,000		$	4,488,000		$	5,183,000
Resident services and fee income, net		2,413,000			2,017,000			6,829,000			6,162,000
Tenant reimbursements and other income		224,000			217,000			596,000			665,000
Acquisition and asset management fees		293,000			206,000			594,000			338,000
Interest income from notes receivable		44,000			44,000			132,000			119,000
		4,618,000			4,123,000			12,639,000			12,467,000
Expenses:
Property operating costs		395,000			404,000			1,187,000			1,332,000
Resident services costs		1,658,000			1,750,000			4,917,000			5,267,000
General and administrative		1,688,000			1,411,000			4,004,000			3,524,000
Depreciation and amortization		823,000			898,000			2,307,000			2,791,000
		4,564,000			4,463,000			12,415,000			12,914,000
Operating income (loss)		54,000			(340,000	)		224,000			(447,000	)
Income from equity-method investees		73,000			68,000			251,000			167,000
Other income		5,000			21,000			37,000			93,000
Interest expense		(806,000	)		(755,000	)		(2,173,000	)		(2,344,000	)
Net loss		(674,000	)		(1,006,000	)		(1,661,000	)		(2,531,000	)
Noncontrolling interests’ share in net income		(15,000	)		(19,000	)		(40,000	)		(53,000	)
Net loss applicable to common stockholders	$	(689,000	)	$	(1,025,000	)	$	(1,701,000	)	$	(2,584,000	)
Basic and diluted loss per common share:
Net loss applicable to common stockholders	$	(0.03	)	$	(0.04	)	$	(0.07	)	$	(0.11	)
Weighted average shares used to calculate basic and diluted net loss per common share		23,027,978			23,027,978			23,027,978			23,027,978

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 4 of 36

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

For the Nine Months Ended September 30, 2017

(Unaudited)

	Common Stock
	Number of Shares		Common Stock Par Value		Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance — January 1, 2017		23,027,978	$	23,000	$	117,243,000	$	(84,767,000	)	$	32,499,000		$	744,000		$	33,243,000
Stock-based compensation		—		—		83,000		—			83,000			—			83,000
Distributions paid to noncontrolling interests		—		—		—		—			—			(83,000	)		(83,000	)
Net (loss) income		—		—		—		(1,701,000	)		(1,701,000	)		40,000			(1,661,000	)
Balance — September 30, 2017		23,027,978	$	23,000	$	117,326,000	$	(86,468,000	)	$	30,881,000		$	701,000		$	31,582,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 5 of 36

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(1,661,000	)	$	(2,531,000	)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:
Amortization of debt issuance costs		136,000			103,000
Depreciation and amortization		2,307,000			2,791,000
Straight-line rents		(337,000	)		(466,000	)
Bad debt expense		148,000			32,000
Stock-based compensation expense		83,000			22,000
Income from equity-method investees		(251,000	)		(167,000	)
Change in operating assets and liabilities:
Restricted cash related to current activities		116,000			(87,000	)
Tenant and other receivables, net		398,000			269,000
Other assets		62,000			203,000
Accounts payable and accrued liabilities		235,000			525,000
Accrued salaries and benefits		(46,000	)		(198,000	)
Net cash and cash equivalents provided by operating activities		1,190,000			496,000
Cash flows from investing activities:
Restricted cash		340,000			293,000
Deferred costs and deposits		(482,000	)		(345,000	)
Real estate acquisitions		(13,452,000	)		—
Real estate improvements		(122,000	)		(144,000	)
Proceeds from contribution of properties, net of cash and restricted cash contributed		—			2,814,000
Investment in equity-method investees		(3,694,000	)		(1,845,000	)
Distributions received from equity-method investees		608,000			173,000
Payments from notes receivable		24,000			24,000
Net cash and cash equivalents (used in) provided by investing activities		(16,778,000	)		970,000
Cash flows from financing activities:
Proceeds from issuance of loans payable		10,050,000			—
Payments of loans payable		(729,000	)		(710,000	)
Distributions paid to noncontrolling interests		(83,000	)		(41,000	)
Deferred financing costs		(172,000	)		(29,000	)
Net cash and cash equivalents provided by (used in) financing activities		9,066,000			(780,000	)
Net (decrease) increase in cash and cash equivalents		(6,522,000	)		686,000
Cash and cash equivalents – beginning of period		10,757,000			6,603,000
Cash and cash equivalents – end of period	$	4,235,000		$	7,289,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,800,000		$	2,214,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 6 of 36

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

1. Organization

Summit Healthcare REIT, Inc. (“Summit”) is a real estate investment trust that owns 100% of six properties, 95.3% of four properties, 95% of one property, a 10% equity interest in an unconsolidated equity-method investment that holds 17 properties, a 20% equity interest in two unconsolidated equity-method investments that each hold two properties and a 10% equity interest in an unconsolidated equity-method investment that holds nine properties. Summit is a Maryland corporation, formed in 2004 under the General Corporation Law of Maryland for the purpose of investing in and owning real estate. As used in these notes, the “Company”, “we”, “us” and “our” refer to Summit and its consolidated subsidiaries, except where the context otherwise requires.

We conduct substantially all of our operations through Summit Healthcare Operating Partnership, L.P. (the “Operating Partnership”), which is a Delaware limited partnership. As of September 30, 2017, we own a 99.88% general partner interest in the Operating Partnership, and Cornerstone Realty Advisors, LLC (“CRA”), a former affiliate, owns a 0.12% limited partnership interest. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements.

Cornerstone Healthcare Partners LLC

We own 95% of Cornerstone Healthcare Partners LLC (“CHP LLC”), which was formed in 2012, and the remaining 5% non-controlling interest is owned by Cornerstone Healthcare Real Estate Fund, Inc. (“CHREF”), an affiliate of CRA. CHP LLC is consolidated with our financial statements and owns five properties (the “JV Properties”).

As of September 30, 2017, we own a 95.3% interest in four of the JV Properties, and CHREF owns a 4.7% interest. We continue to own a 95% interest in the fifth JV Property, and CHREF owns a 5% interest.

Summit Union Life Holdings, LLC

On April 29, 2015, through our Operating Partnership, we entered into a limited liability company agreement (as amended, the “SUL LLC Agreement”) with Best Years, LLC (“Best Years”), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and formed Summit Union Life Holdings, LLC (the “SUL JV”). The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements (see Note 5). As of September 30, 2017 and December 31, 2016, we have a 10% interest in the SUL JV. As of September 30, 2017 and December 31, 2016, the SUL JV owned 17 properties.

Summit Fantasia Holdings, LLC

On September 27, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia LLC Agreement”) with Fantasia Investment III LLC (“Fantasia”), an unrelated entity and a U.S.-based affiliate of Fantasia Holdings Group Co., Limited (a Chinese corporation listed on the Stock Exchange of Hong Kong (HKEX)), and formed Summit Fantasia Holdings, LLC (the “Fantasia JV”). The Fantasia JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements. As of September 30, 2017 and December 31, 2016, we have a 20% interest in the Fantasia JV. As of September 30, 2017 and December 31, 2016, the Fantasia JV owned two properties.

Page 7 of 36

Summit Fantasia Holdings II, LLC

On December 23, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia II LLC Agreement”) with Fantasia, and formed Summit Fantasia Holdings II, LLC (the “Fantasia II JV”). The Fantasia II JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements. As of September 30, 2017 and December 31, 2016, we have a 20% interest in the Fantasia II JV. As of September 30, 2017, the Fantasia II JV owned two properties.

Summit Fantasia Holdings III, LLC

On July 27, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“Fantasia III LLC Agreement”) with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements. As of September 30, 2017, we have a 10% interest in the Fantasia III JV. As of September 30, 2017, the Fantasia III JV owned nine properties.

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“FPH LLC Agreement”) with Fantasia, Atlantis Senior Living 9, LLC, a Delaware limited liability company (“Atlantis”), and Fantasy Pearl LLC, a Delaware limited liability company (“Fantasy”), and formed Summit Fantasy Pearl Holdings, LLC (the “FPH JV”). The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. See Note 13 – Subsequent Event for further information.

Summit Healthcare Asset Management, LLC (TRS)

Summit Healthcare Asset Management, LLC (“SAM TRS”) is our wholly-owned taxable REIT subsidiary (“TRS”). We serve as the manager of the SUL JV, Fantasia JV, Fantasia II JV, Fantasia III JV and FPH JV, (collectively, our “Equity-Method Investments”), and provide management services in exchange for fees and reimbursements. All acquisition fees and asset management fees earned by us are paid to SAM TRS and expenses incurred by us, as the manager, are reimbursed from SAM TRS. See Notes 5 and 7 for further information.

Friendswood TRS

Friendswood TRS (“Friendswood TRS”) is our wholly-owned TRS and the licensed operator and tenant of Friendship Haven Healthcare and Rehabilitation Center (“Friendship Haven”) (see Note 3).

2. Summary of Significant Accounting Policies

For more information regarding our significant accounting policies and estimates, please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on March 29, 2017. There have been no material changes to our policies since that filing.

The accompanying condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date. We assume that users of these condensed consolidated financial statements have read or have access to the audited December 31, 2016 consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 29, 2017 and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate those contained in our most recent Annual Report on Form 10-K for the year ended December 31, 2016 have been omitted in this report.

Page 8 of 36

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and CHP LLC (of which the Company owns 95%). All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying financial information reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-13. This ASU adds, amends, and supersedes SEC paragraphs of the Accounting Standards Codification (ASC) related to the adoption and transition provisions of ASU No. 2014-09, Revenue From Contracts with Customers and ASU 2016-02, Leases, for public business entities. The ASU is titled ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.

ASU 2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially delaying the effective date of the revenue recognition and leases standards for a subset of public entities. The SEC Observer made the following SEC Staff Announcement, “Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02,” at the July 20, 2017 EITF meeting:

The SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity, except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC, adopting: (1) ASC Topic 606, Revenue from Contracts with Customers for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and (2) ASC Topic 842, Leases for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC may still elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates.

This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This announcement is not applicable to other public business entities. As we include our significant tenant’s financials as an exhibit to our Form 10-K report, we will adopt this ASU as it relates to those financial statements.

In November 2016, FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows.

The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents.

Page 9 of 36

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements; however, once adopted, restricted cash will be presented with cash and cash equivalents in our condensed consolidated statements of cash flows and, at September 30, 2017, that amount was approximately $3.6 million.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We continue to evaluate the impact of our adoption of this new standard in 2019 and we estimate the effect on our condensed consolidated financial statements could be approximately $0.3 million, as we have an operating lease that will be added to the assets and liabilities of our condensed consolidated balance sheet. As generally accepted accounting principles for lessors remains mostly unchanged, we do not expect it to have an impact on our leases from our tenants.

The FASB has issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

We have evaluated the impact that our adoption of this new revenue recognition standard in the first quarter of 2018 will have on our rental revenues and we do not expect this to have a significant impact on our condensed consolidated financial statements as our rental revenue relates to triple net leases and related tenant reimbursements, which are excluded from this standard.  Non-lease components will be evaluated under this standard upon adoption of ASU No. 2016-02.  Additionally, we continue to evaluate the impact this standard may have on our interest income revenue and acquisition and asset management fees, which have historically been less than five percent of our total revenue.

We continue to evaluate the impact the adoption of this ASU will have on our resident services and fee income. Approximately 80% of this revenue is related to Medicare and Medicaid, for which the recorded revenue is already reduced to the net expected amounts we will be entitled to receive from these parties. Additional estimations using a portfolio approach may be required for certain insurance payors and private payments.

The Company has elected the modified retrospective transition method. Upon adoption of this ASU in 2018, the Company anticipates that additional disclosures will be necessary to separately disclose the components of our total revenue. The Company expects to complete its evaluation of this ASU during the fourth quarter of 2017.

3. Investments in Real Estate Properties

As of September 30, 2017 and December 31, 2016, our investments in our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, were as follows:

Page 10 of 36

	September 30, 2017			December 31, 2016
Land	$	7,318,000		$	5,548,000
Buildings and improvements		69,467,000			58,450,000
Less: accumulated depreciation		(8,496,000	)		(7,011,000	)
Buildings and improvements, net		60,971,000			51,439,000
Furniture and fixtures		6,943,000			6,165,000
Less: accumulated depreciation		(5,121,000	)		(4,413,000	)
Furniture and fixtures, net		1,822,000			1,752,000
Real estate properties, net	$	70,111,000		$	58,739,000

For the three months ended September 30, 2017 and 2016, depreciation and amortization expense (excluding leasing commission amortization) was approximately $0.8 million and $0.9 million, respectively. For the nine months ended September 30, 2017 and 2016, depreciation and amortization expense (excluding leasing commission amortization) was approximately $2.2 million and $2.7 million, respectively.

As of September 30, 2017, our portfolio consisted of 11 real estate properties which were 100% leased to the tenants of the related facilities. The following table provides summary information regarding our portfolio (excluding the 30 properties owned by our unconsolidated Equity-Method Investments) as of September 30, 2017:

Property	Location	Date Purchased	Type(2)	Purchase  Price		Loans  Payable, Excluding Debt Issuance Costs		Number of Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,813,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,222,000		63
Friendship Haven Healthcare and Rehabilitation Center (1)	Galveston County, TX	September 14, 2012	SNF		15,000,000		6,904,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		7,038,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,671,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,244,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,740,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		4,005,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,379,000		64
Sundial Assisted Living	Redding, CA	December 18, 2013	AL		3,500,000		2,800,000		65
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC		13,400,000		10,050,000		90
Total:				$	82,265,000	$	62,866,000		854

(1) We became the licensed operator and tenant of the facility on May 1, 2014 through Friendswood TRS. Upon becoming the licensed operator and tenant of the facility, we entered into a management agreement with an affiliate of Stonegate Senior Living (“Stonegate”). As of December 31, 2016, we terminated the management agreement with Stonegate and entered into a new three-year management agreement with HMG Services, L.L.C. (“HMG”), whereby HMG will receive a management fee of up to 5% of certain adjusted gross revenues from operations of the facility (see Note 10).

(2) SNF is an abbreviation for skilled nursing facility.

AL is an abbreviation for assisted living facility.

MC is an abbreviation for memory care facility.

Page 11 of 36

Future Minimum Lease Payments

The future minimum lease payments to be received under existing operating leases for our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows ⁽¹⁾:

Years ending
October 1, 2017 to December 31, 2017	$	1,555,000
2018		6,296,000
2019		6,429,000
2020		6,565,000
2021		6,703,000
Thereafter		51,195,000
	$	78,743,000

(1) This schedule does not reflect future rental revenues from the potential renewal or replacement of existing and future leases, tenant reimbursements, and the rental revenues for the tenant (Friendswood TRS) of Friendship Haven.

2017 Acquisition - Chandler, AZ

On July 17, 2017, we acquired a 100% interest in Pennington Gardens, a 90-bed assisted living/memory care facility located in Chandler, Arizona (“Pennington Gardens”) for a purchase price of $13.4 million plus approximately $52,000 in acquisition costs, which was funded through cash on hand plus a collateralized loan (see Note 4). Pennington Gardens is leased pursuant to a 15-year triple net lease with two five-year renewal options.

Leasing Commissions

As a self-managed REIT, we no longer pay leasing commissions. Leasing commissions are capitalized at cost and amortized on a straight-line basis over the related lease term. As of September 30, 2017 and December 31, 2016, total costs incurred were $1.9 million and $1.9 million, respectively, and the unamortized balance of capitalized leasing commissions was approximately $1.3 million and $1.4 million, respectively. Amortization expense for the three months ended September 30, 2017 and 2016 was $35,000 and $40,000, respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $0.1 million and $0.1 million, respectively.

4. Loans Payable

As of September 30, 2017 and December 31, 2016, our loans payable consisted of the following:

	September 30, 2017			December 31, 2016
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.2% at September 30, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000		$	-
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $15,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.3% at September 30, 2017 and 5.0% at December 31, 2016, respectively), due in October 2018, and collateralized by Sundial Assisted Living.	$	2,800,000		$	2,800,000
Loan payable to Oxford Finance, LLC in monthly installments of approximately $53,000, including interest at LIBOR (floor of 0.75%) plus 6.50% (7.8% as of September 30, 2017 and 7.25% as of December 31, 2016, respectively) due in October 2019, collateralized by Friendship Haven.		6,904,000			6,978,000
Loans payable to Lancaster Pollard (insured by HUD) in monthly installments of approximately $209,000, including interest, ranging from a fixed rate of 3.70% to 3.78%, due in September 2039 through January 2051, and collateralized by Sheridan, Fernhill, Pacific Health, Shelby, Hamlet, Carteret, Aledo and Danby.		43,112,000			43,768,000
		62,866,000			53,546,000
Less debt issuance costs		(1,864,000	)		(1,829,000	)
Total loans payable	$	61,002,000		$	51,717,000

Page 12 of 36

As of September 30, 2017, we have total debt obligations of approximately $62.9 million that will mature between 2018 and 2051. See Note 3 for loans payable balance for each property. All of the loans payable have certain financial and non-financial covenants, including ratios and financial statement considerations. As of September 30, 2017, we were in compliance with all of those covenants.

In connection with our loans payable, we incurred debt issuance costs. The unamortized balance of the debt issuance costs was approximately $1.9 million and $1.8 million as of September 30, 2017 and December 31, 2016, respectively. These debt issuance costs are being amortized over the life of their respective financing agreements using the straight-line basis which approximates the effective interest rate method. For the three months ended September 30, 2017 and 2016, $69,000 and $34,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, $0.1 million and $0.1 million, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations.

During the three months ended September 30, 2017 and 2016, we incurred approximately $0.7 million and $0.7 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable.  During the nine months ended September 30, 2017 and 2016, we incurred approximately $2.0 million and $2.2 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable.

The principal payments due on the loans payable (excluding debt issuance costs) for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows:

Years Ending	Principal Amount
October 1, 2017 to December 31, 2017	$	249,000
2018		13,870,000
2019		7,725,000
2020		986,000
2021		1,024,000
Thereafter		39,012,000
	$	62,866,000

The following information describes our loan activity for the nine months ended September 30, 2017 and as of September 30, 2017 and December 31, 2016:

Page 13 of 36

Capital One, National Association

In July 2017, in conjunction with the acquisition of Pennington Gardens (see Note 3), we entered into a $10.1 million first priority mortgage loan collateralized by Pennington Gardens with Capital One, National Association. The loan, which bears interest at the One Month LIBOR (London Interbank Offered Rate) plus 2.95%, matures on July 17, 2018, with the option for two six-month extensions. The loan may be prepaid with no penalty if the property is refinanced through United States Department of Housing and Urban Development (“HUD”); otherwise we will be required to pay an exit fee, as defined in the loan agreement. We incurred approximately $0.2 million in deferred financing costs.

Healthcare Financial Solutions, LLC (a.k.a. Capital One)

We have an amended loan agreement for the Sundial Assisted Living property located in Redding with Healthcare Financial Solutions, LLC (“HFS”). See table above listing loans payable for further information. The loan was interest-only through January 2017 and then the loan payments increased to approximately $15,000 a month, including interest. The principal payment portion of this loan payment commencing in February 2017 is being held in a sinking fund until maturity date. If the loan is refinanced prior to the maturity date, the loan payments in the sinking fund will be released to us; otherwise at the maturity date, the loan payments in the sinking fund will be released to the lender and applied to the outstanding principal balance. Additionally, the loan is collateralized by the property and cross-guaranteed with several properties owned by the SUL JV, which will be released from the guarantee when the property is refinanced with a HUD-insured loan or upon repayment at the maturity date.

Oxford Finance, LLC

We have a secured term loan agreement with Oxford Finance, LLC collateralized by the Friendship Haven facility. See table above listing loans payable for further information. Prior to the maturity date, we may prepay the loan, in whole, subject to certain terms and by paying an exit fee as further described in the loan agreement.

Lancaster Pollard Mortgage Company, LLC

We have several properties with HUD-insured loans from the Lancaster Pollard Mortgage Company, LLC (“Lancaster Pollard”). See table above listing loans payable for further information.

All of the HUD-insured loans are subject to customary representations, warranties and ongoing covenants and agreements with respect to the operation of the facilities, including the provision for certain maintenance and other reserve accounts for property tax, insurance, and capital expenditures, with respect to the facilities all as described in the HUD agreements. These reserves are included in restricted cash in our condensed consolidated balance sheets.

5. Equity-Method Investments

As of September 30, 2017 and December 31, 2016, the balances of our Equity-Method Investments were approximately $8.4 million and $5.1 million, respectively, and are as follows:

Summit Union Life Holdings, LLC

In April 2015, we formed the SUL JV, which is owned 10% by the Operating Partnership and 90% by Best Years. The SUL JV will continue until an event of dissolution occurs, as defined in the SUL LLC Agreement.

During 2015, we contributed our limited liability company interests in six properties (“JV 2 Properties”) to the SUL JV and retained a 10% interest in those six properties. Concurrent with this contribution, the Operating Partnership recorded a receivable for approximately $362,000 for distributions that could not be paid prior to the contribution of the JV 2 Properties due to cash restrictions related to the loans payable for the contributed JV 2 Properties. In April 2017, we received approximately $122,000 to pay down the distribution receivable from one of the JV 2 properties. As of September 30, 2017 and December 31, 2016, the receivable of $240,000 and $362,000, respectively, due from the JV 2 properties, is included in tenant and other receivables in our condensed consolidated balance sheets.

Under the SUL LLC Agreement, net operating cash flow of the SUL JV will be distributed monthly, first to the Operating Partnership and Best Years pari passu up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing or another capital event will be paid first to the Operating Partnership and Best Years pari passu until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.

Page 14 of 36

In April 2017, one of the JV 2 properties that owed Summit approximately $110,000 in distributions payable was able to repay the funds; however, the cash was retained by the property to fund future capital calls. Through September 2017, we applied approximately $5,000 of this as additional capital. As of September 30, 2017, the remaining balance of $105,000 is included in tenant and other receivables in our condensed consolidated balance sheets.

As of September 30, 2017, the balance of our equity-method investment related to the SUL JV was approximately $3.5 million.

Summit Fantasia Holdings, LLC

In September 2016, we formed the Fantasia JV, which is owned 20% by the Operating Partnership and 80% by Fantasia. The Fantasia JV will continue until an event of dissolution occurs, as defined in the Fantasia LLC Agreement.

Under the Fantasia LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia JV was approximately $1.1 million.

Summit Fantasia Holdings II, LLC

In December 2016, we formed the Fantasia II JV, which is owned 20% by the Operating Partnership and 80% by Fantasia. The Fantasia II JV will continue until an event of dissolution occurs, as defined in the Fantasia II LLC Agreement.

On February 28, 2017, through the Fantasia II JV, we acquired a 20% interest in two skilled nursing facilities, located in Rhode Island, for a total aggregate purchase price of $27 million, which was funded through capital contributions from the members of the Fantasia II JV plus the proceeds from a collateralized loan. The facilities consist of a total of 318 licensed beds, and are operated by and leased to a third party operator. We contributed approximately $1.9 million for the acquisition, which includes approximately $0.2 million of acquisition costs paid in 2016.

Under the Fantasia II LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia II JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia II JV was approximately $1.8 million.

Summit Fantasia Holdings III, LLC

On July 27, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“Fantasia III LLC Agreement”) with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements.

Page 15 of 36

On August 10, 2017, through the Fantasia III JV, we acquired a 10% interest in nine skilled nursing facilities, located in Connecticut, for a total aggregate purchase price of $60 million for the properties, which was funded through capital contributions from the members of the Fantasia III JV plus the proceeds from a collateralized loan. The facilities consist of a total of 1,285 licensed beds, and will be operated by and leased to a third party operator. We contributed approximately $2.0 million to the Fantasia III JV in connection with the acquisition.

Under the Fantasia III LLC Agreement, net operating cash flow of the Fantasia III JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 75% to Fantasia and 25% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia III JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 75% to Fantasia and 25% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia III JV was approximately $1.9 million.

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into the FPH LLC Agreement with Fantasia, Atlantis and Fantasy, and formed the FPH JV. The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. See Note 13 for further information.

Distributions from Equity-Method Investments

As of September 30, 2017 and December 31, 2016, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	September 30, 2017		December 31, 2016
SUL JV	$	168,000	$	365,000
Fantasia JV		29,000		31,000
Fantasia II JV		60,000		-
Fantasia III JV		59,000		-
Total	$	316,000	$	396,000

For the nine months ended September 30, 2017 and 2016, we have received cash distributions, which are included in our cash flows from operating activities in tenant and other receivables, and cash flows from investing activities, as follows:

	Nine Months Ended September 30, 2017						Nine months Ended September 30, 2016
	Total Cash Distributions Received		Cash Flow from Operating		Cash Flow  from Investing		Total Cash Distributions Received		Cash Flow from Operating		Cash Flow from Investing
SUL JV	$	556,000	$	117,000	$	439,000	$	340,000	$	167,000	$	173,000
Fantasia JV		136,000		19,000		117,000		-		-		-
Fantasia II JV		148,000		96,000		52,000		-		-		-
Fantasia III JV		-		-		-		-		-		-
Total	$	840,000	$	232,000	$	608,000	$	340,000	$	167,000	$	173,000

Page 16 of 36

Acquisition and Asset Management Fees

We serve as the manager of our Equity-Method Investments and provide management services in exchange for fees and reimbursements. As the manager, we are paid an acquisition fee, as defined in the agreements. Additionally, we are paid an annual asset management fee for managing the properties held by our Equity-Method Investments, as defined in the agreements. For the three months ended September 30, 2017 and 2016, we recorded approximately $0.3 million and $0.2 million, respectively, in acquisition and asset management fees from our Equity-Method Investments. For the nine months ended September 30, 2017 and 2016, we recorded approximately $0.6 million and $0.3 million, respectively, in acquisition and asset management fees from our Equity-Method Investments.

6. Receivables

Notes Receivable

Fernhill Note

In September 2014, we loaned approximately $140,000 to the operator of the Fernhill facility for certain property improvements at a fixed rate of interest of 6% payable in monthly installments through January 2019. As of September 30, 2017 and December 31, 2016, the balance on the note was approximately $47,000 and $71,000, respectively.

Nantucket Note

On January 7, 2015, through our Operating Partnership, we sold Sherburne Commons to The Residences at Sherburne Commons, Inc. (“Sherburne Buyer”), an unaffiliated Massachusetts non-profit corporation, in exchange for $5.0 million, as evidenced by a purchase money note from Sherburne Buyer to us as the lender.

The $5.0 million purchase money note is collateralized by the Sherburne Commons property, bears an annual interest rate of 3.5% and matures on December 31, 2017. Interest payments on the note are due monthly and are recorded as payments are received. Outstanding and unpaid principal due shall be paid from the net proceeds payable to Sherburne Buyer from the sale of the residential cottages in Sherburne Commons. We may also participate in additional interest of up to $1 million from 50% of the net proceeds of cottage sales through December 31, 2018.

As of September 30, 2017, we have not collected any funds related to the principal on the note and the net carrying amount of the note receivable was approximately $4.7 million. For the three months ended September 30, 2017 and 2016, we received interest payments from the note of approximately $43,000 and $43,000, which is recorded as interest income from notes receivable in our condensed consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, we received interest payments from the note of approximately $129,000 and $115,000, which is recorded as interest income from notes receivable in our condensed consolidated statements of operations.

Tenant and Other Receivables, Net

Tenant and other receivables, net consists of:

	September 30, 2017		December 31, 2016
Accounts receivable from resident services, net of allowance for doubtful accounts of $332,000 and $267,000, respectively	$	775,000	$	866,000
Straight-line rent receivables		2,721,000		2,384,000
Distribution receivables from Equity-Method Investments		316,000		396,000
Receivable from JV 2 properties		240,000		362,000
Other receivables		263,000		254,000
Total	$	4,315,000	$	4,262,000

Page 17 of 36

7. Related Party Transactions

CRA

Prior to the termination of our advisory agreement on April 1, 2014 with CRA (our former advisor, a related party), we incurred costs related to fees paid and costs reimbursed for services rendered to us by CRA through March 31, 2014. Some of the fees we had paid to CRA were considered to be in excess of allowed amounts and, therefore, CRA was required to reimburse us for the amount of the excess costs we paid to them. As of September 30, 2017 and December 31, 2016, the receivables from CRA are fully reserved due to the uncertainty of collectability and are included in tenant and other receivables in our condensed consolidated balance sheets.

As of September 30, 2017 and December 31, 2016, we had the following receivables and reserves:

	Receivables		Reserves			Balance
Organizational and offering costs	$	738,000	$	(738,000	)	$	-
Asset management fees and expenses		32,000		(32,000	)		-
Operating expenses (direct and indirect)		189,000		(189,000	)		-
Operating expenses (2%/25% Test)		1,717,000		(1,717,000	)		-
Total	$	2,676,000	$	(2,676,000	)	$	-

Equity-Method Investments

See Note 5 for further discussion of distributions and acquisition and asset management fees related to our Equity-Method Investments. 

8. Concentration of Risk

Our cash is generally invested in short-term money market instruments. As of September 30, 2017, we had cash and cash equivalent accounts in excess of FDIC-insured limits. However, we do not believe the risk associated with this excess is significant.

As of September 30, 2017, we owned one property in California, three properties in Oregon, four properties in North Carolina, one property in Texas, one property in Illinois, and one property in Arizona (excluding the 30 properties held by our Equity-Method Investments). Accordingly, there is a geographic concentration of risk subject to economic conditions in certain states.

Additionally, for the three months ended September 30, 2017, we leased our 11 real estate properties to four different tenants under long-term triple net leases, three of which comprise 50%, 30% and 19% of our tenant rental revenue. For the three months ended September 30, 2016, we leased our 11 healthcare properties to five different tenants under long-term triple net leases, two of which comprised 51% and 30% of our tenant rental revenue. For the nine months ended September 30, 2017, we leased our 11 healthcare properties to four different tenants under long-term triple net leases, three of which comprise 55%, 33% and 11% of our tenant rental revenue. For the nine months ended September 30, 2016, we leased our 11 healthcare properties to five different tenants under long-term triple net leases, two of which comprise 48% and 28% of our tenant rental revenue.

As of September 30, 2017 and December 31, 2016, we have one tenant that constitutes a significant asset concentration, as the net assets of the tenant are 36% and 38%, respectively, of our total assets as of December 31, 2016.

Page 18 of 36

9. Fair Value Measurements of Financial Instruments

Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, notes receivable, deposits, tenant and other receivables, certain other assets, accounts payable and accrued liabilities, accrued salaries and benefits, security deposits and loans payable. With the exception of the Nantucket note receivable (see Note 6) and loans payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.

As of September 30, 2017 and December 31, 2016, the fair value of the Nantucket note receivable (see Note 6) was approximately $4.9 million compared to the carrying value of approximately $4.7 million. The fair value of the note receivable was estimated based on cash flow analysis at an assumed market rate of interest. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes receivable are classified as Level 3 assets within the fair value hierarchy.

As of September 30, 2017 and December 31, 2016, the fair value of our loans payable was approximately $63.4 million and $54.3 million compared to the carrying value of approximately $62.9 million and $53.5 million, respectively. The fair value of our loans payable is estimated using lending rates available to us for financial instruments with similar terms and maturities. To estimate fair value as of September 30, 2017, we utilized a discount rate ranging from 4.4% to 7.8% and a weighted-average discount rate of 4.9%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our loans payable are classified as Level 3 assets within the fair value hierarchy.

As a result of our ongoing analysis for potential impairment of our investments in real estate, we may be required to adjust the carrying value of certain assets to their estimated fair values, or estimated fair value less selling costs, under certain circumstances. No impairments were recorded during the nine months ended September 30, 2017 and 2016.

At September 30, 2017 and December 31, 2016, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

10. Commitments and Contingencies

We conduct a Phase I assessment for each of our properties at acquisition to evaluate whether hazardous or toxic substances are present on the properties. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our consolidated financial condition, results of operations and cash flows. Further, we are not aware of any 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.

Our commitments and contingencies include the usual obligations of real estate owners and licensed operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial condition, results of operations and cash flows. We are also subject to contingent losses resulting from litigation against the Company.

On April 1, 2014, CRA and Cornerstone Ventures, Inc. filed a complaint in the Superior Court of California for the County of Orange-Central Justice Center, Case No. 30-2014-00714004-CU-BT-CJC, naming the Company, its directors and two of its officers as defendants, seeking declaratory and injunctive relief and compensatory and punitive damages. On April 17, 2014, Judge Nakamura denied in its entirety plaintiffs’ ex parte application for a temporary restraining order to show cause why a preliminary injunction against the defendants should not issue.  On May 19, 2014, the Company filed a counter claim against plaintiffs and certain individuals affiliated with CRA and affiliated entities. The Company continues to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend itself. .. We filed motions for summary adjudication on plaintiffs’ claims and on our cross claims. The court heard oral argument on the motions for summary adjudication and granted the motions in part and denied the motions part. A trial is scheduled to commence on March 26, 2018.

Page 19 of 36

A bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC or Healthcare Real Estate Qualified Purchasers Fund, LLC.  Following the dismissal of the involuntary bankruptcy petition filed against it, HCRE filed a motion for attorneys’ fees and damages and a separate complaint for violation of the automatic stay against the petitioning creditors and the Company in the United States Bankruptcy Court of the District of Delaware.  At a status hearing, the Bankruptcy Court expressed concern about HCRE commencing this litigation and urged the parties to mediate the issues. A mediation was held but the parties did not reach a settlement. The Bankruptcy Court recently granted a motion to dismiss the complaint for violation of the automatic stay filed jointly by the petitioning creditors and us, and dismissed the complaint with prejudice.  We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

Friendship Haven and HMG Services Management Agreement

Under our three-year management agreement with HMG (see Note 3), dated January 1, 2017, either party may terminate the agreement by written notice to the other party. However, if we terminate the agreement within one year, we are obligated to pay a termination fee up to three times the highest monthly management fee paid to HMG prior to the termination. For 2017, if we terminated the agreement, we expect the termination fee could be approximately $130,000.

Indemnification and Employment Agreements

We have entered into indemnification agreements with certain of our executive officers and directors which indemnify them against all judgments, penalties, fines and amounts paid in settlement and all expenses actually and reasonably incurred by him or her in connection with any proceeding. Additionally, in September 2015, we entered into three-year employment agreements with our officers which include customary terms relating to salary, bonus, position, duties and benefits (including eligibility for equity compensation), as well as a cash payment following a change in control of the Company, as defined in such agreements.

Management of our Equity-Method Investments

As the manager of our Equity-Method Investments, we are responsible for managing the day-to-day operations and are, thus, subject to contingencies that may arise in the normal course of their operations. Additionally, we could be subject to a capital call from our Equity-Method Investments.

11. Equity

Upon the grant of stock options, we determine the exercise price by using our estimated per-share value, which is calculated by aggregating the estimated fair value of our investments in real estate and the estimated fair value of our other assets, subtracting the estimated fair value of our liabilities, which approximate book value, utilizing a discount for the fact that the shares are not currently traded on a national securities exchange and a control premium, and divided by the total by the number of our common shares outstanding at the time the options were granted.

The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions required by the model include the risk-free interest rate, the expected life of the options, the expected stock price volatility over the expected life of the options, and the expected distribution yield. Compensation expense for employee stock options is recognized ratably over the vesting term. The expected life of the options was based on evaluations of expected future exercise behavior. The risk-free interest rate was based on the U.S. Treasury yield curve at the date of grant with maturity dates approximating the expected term of the options at the date of grant. Volatility was based on historical volatility of the stock prices for a sample of publicly traded companies with risk profiles similar to ours. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time, including the expected stock price volatility and the expected life of an option.

On January 1, 2017, the Compensation Committee of the Board of Directors approved the issuance of 99,000 stock options under our Summit Healthcare REIT, Inc. 2015 Omnibus Incentive Plan (“Incentive Plan”) to our directors and employees. The stock options vest monthly beginning on February 1, 2017 and continuing over a three-year period through January 1, 2020. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.35.

Page 20 of 36

In March 2017, 182,796 stock options were issued under our Incentive Plan to executive management as part of their 2016 performance bonus arrangement. The options vested 33% on the grant date and the remaining 67% will vest in equal monthly installments beginning January 1, 2017 and continuing over a two-year period through December 31, 2018. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.29.

On April 3, 2017, the Compensation Committee of the Board of Directors approved the issuance of 170,000 stock options to executive management related to their performance goals for 2016. The stock options were granted under the Incentive Plan, with 33% vesting on the grant date and the remaining 67% vesting in equal monthly installments beginning May 1, 2017 and continuing over a two-year period through April 2019. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.30.

The estimated fair value using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2017
Stock options granted		451,796
Expected Volatility		23.58	%
Expected lives		2.22 years
Risk-free interest rate		1.24	%
Dividends		0	%
Fair value per share	$	0.31

The following table summarizes our stock options as of September 30, 2017:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at January 1, 2017		400,000	$	1.72
Granted		451,796		2.03
Exercised		—
Cancelled/forfeited		—
Options outstanding at September 30, 2017		851,796	$	1.88		9.05	$	551,000
Options exercisable at September 30, 2017		575,409	$	1.83		8.62	$	402,000

For our outstanding non-vested options as of September 30, 2017, the weighted average grant date fair value per share was $0.29. As of September 30, 2017, we have unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures, which is expected to be recognized as follows:

Years Ending December 31,
October 1, 2017 to December 31, 2017	$	18,000
2018		46,000
2019		17,000
2020		1,000
	$	82,000

The stock-based compensation expense reported for the three months ended September 30, 2017 and 2016 was approximately $18,000 and $7,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations. The stock-based compensation expense reported for the nine months ended September 30, 2017 and 2016 was approximately $83,000 and $22,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.

Page 21 of 36

12. Dispositions

In accordance with ASC 360, Property, Plant & Equipment, we report results of operations from real estate assets that meet the definition of a component of an entity that have been sold, or meet the criteria to be classified as held for sale, as discontinued operations.

Disposal of Real Estate

On April 29, 2016, we contributed Riverglen to the SUL JV (see Note 5) and, therefore, Riverglen is no longer consolidated in our condensed consolidated financial statements. The aggregate net value of Riverglen at the date of the contribution was approximately $3.9 million, which approximated the Operating Partnership’s carrying value on the date of contribution (total assets were approximately $9.2 million less liabilities of approximately $5.3 million, which included approximately $4.7 million in a HUD insured loan payable).

Medford Purchase Option and Sale

In September 2016, the option holder for our Medford property provided notice to us to exercise its option to purchase the property. On October 31, 2016, we sold the Medford property. The total sale price was $10.8 million, of which we received approximately $3.8 million in cash. The aggregate carrying value of Medford at the date of the sale was approximately $1.3 million, (total assets were approximately $8.0 million less liabilities of approximately $6.7 million, which included approximately $6.7 million in a HUD-insured loan payable). As a result of the sale, as of November 1, 2016, Medford is no longer consolidated in our consolidated financial statements. Additionally, in October 2016, we recorded a net gain of approximately $2.8 million related to the sale.

13. Subsequent Event

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into the FPH LLC Agreement with Fantasia, Atlantis, and Fantasy and formed the FPH JV. The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements.

In November 2017, through the FPH JV, we acquired a 10% interest in six skilled nursing facilities, located in Iowa, for a total aggregate purchase price of $29.5 million for the properties, which was funded through capital contributions from the members of the FPH JV plus the proceeds from a collateralized loan. The facilities consist of a total of 551 licensed beds, and will be operated by and leased to a third party operator.

Under the FPH LLC Agreement, net operating cash flow of the FPH JV will be distributed quarterly, first to the members pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.

We serve as the manager of the FPH JV and provide management services in exchange for fees and reimbursements. Under the FPH LLC Agreement, as the manager, we are paid an acquisition fee upon closing of an acquisition, as defined in the agreement, based on the purchase price paid for the properties. Additionally, we are paid on a quarterly basis an annual asset management fee equal to 0.75% of the initial capital contribution of the members.

We contributed approximately $1.0 million for the acquisition.

Page 22 of 36

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to numerous risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 29, 2017.

Overview

As of September 30, 2017, our ownership interests in our 11 real estate properties of senior housing facilities was as follows: 100% ownership of six properties, five properties in a consolidated joint venture, Cornerstone Healthcare Partners LLC, of which we have a 95.3% interest in four properties and a 95% interest in the fifth property. Additionally, we have a 10% interest in an unconsolidated equity-method investment that owns 17 properties, a 20% interest in two unconsolidated equity-method investments that each own two properties, and a 10% interest in an unconsolidated equity-method investment that holds nine properties (collectively, our “Equity-Method Investments”). As used in this report, the “Company,” “we,” “us” and “our” refer to Summit Healthcare REIT, Inc. and its consolidated subsidiaries, except where the context otherwise requires.

Our revenues are comprised largely of tenant rental income from our 11 real estate properties, including rents reported on a straight-line basis over the initial term of each tenant lease, acquisition and asset management fees resulting from our Equity-Method Investments, and fees earned for resident care from Friendship Haven (see Note 3 to the accompanying Notes to Condensed Consolidated Financial Statements). We also receive cash distributions from our Equity-Method Investments, which are included in net cash provided by operating activities and net cash provided by investing activities in our condensed consolidated statements of cash flows. Our growth depends, in part, on our ability to continue to raise joint venture equity, acquire new healthcare properties at attractive prices, negotiate long-term tenant leases with favorable rental rate escalation terms and control our expenses. Our operations are impacted by property-specific, market-specific, general economic, regulatory and other conditions.

We believe that investing in senior housing facilities is accretive to earnings and stockholder value. Senior housing facilities include independent living facilities (“IL”), skilled-nursing facilities (“SNF”), assisted living facilities (“AL”), memory care facilities (“MC”) and continuing care retirement communities (“CCRC”). Each of these types of facilities caters to different segments of the senior population.

Summit Portfolio Properties

At September 30, 2017, our portfolio consisted of 11 real estate properties as noted above. All of the properties are 100% leased on a triple net basis. The following table provides summary information (excluding the 30 properties held by our unconsolidated Equity-Method Investments) regarding these properties as of September 30, 2017:

	Properties		Beds		Square Footage		Purchase Price
SNF		4		337		109,306	$	31,740,000
AL or AL/MC		7		517		250,750		50,525,000
Total Real Estate Properties		11		854		360,056	$	82,265,000

Page 23 of 36

Property	Location	Date Purchased	Type	Beds		2017 Revenue1
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF		51	$	369,000
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		63		394,000
Friendship Haven Healthcare and Rehabilitation Center	Galveston County TX	September 14, 2012	SNF		150		—	2
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		73		726,000
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		100		721,000
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		66		573,000
The Shelby House	Shelby, NC	October 4, 2013	AL		72		342,000
The Hamlet House	Hamlet, NC	October 4, 2013	AL		60		493,000
The Carteret House	Newport, NC	October 4, 2013	AL		64		326,000
Sundial Assisted Living	Redding, CA	December 18, 2013	AL		65		269,000
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC		90		221,000
Total					854

¹ Represents year-to-date through September 30, 2017 revenue based on in-place leases, including straight-line rent.

² Rent due under a lease between us and our wholly-owned taxable REIT subsidiary (“Friendswood TRS”) was approximately $1.2 million year-to-date through September 30, 2017. Such rental income is eliminated in consolidation.

Summit Equity-Method Investment Portfolio Properties

We continue to believe that raising institutional joint venture equity to make acquisitions will be accretive to shareholder value and will move us closer to our goal of resuming shareholder distributions. Our sole source of equity since 2015 has been institutional funds raised through a joint venture structure and accounted for as equity-method investments. We believe this is the most prudent strategy for growth and our shareholders benefit for the following reasons:

· We have not incurred the expense of organizational and offering costs, including brokerage commissions, that could amount to 15% or more of the actual capital raised through a registered secondary offering;

· We have not diluted our shareholders;

· We earn acquisition fees and asset management fees from our joint venture partners, as opposed to paying fees to an advisor, broker or other third party; and

· We have attractive waterfall terms for both net operating cash flow and all sales proceeds, which increases our cash on cash return and our internal rate of return considerably compared to our non-joint venture assets.

Summit Union Life Holdings, LLC

In April 2015, through our operating partnership (“Operating Partnership”), we formed Summit Union Life Holdings, LLC (“SUL JV”) with Best Years, LLC (“Best Years”), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and entered into a limited liability company with Best Years with respect to the SUL JV (the “SUL LLC Agreement”). The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements.

Page 24 of 36

Under the SUL LLC Agreement, as amended, net operating cash flow of the SUL JV will be distributed monthly, first to the Operating Partnership and Best Years pari passu up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing, or another capital event will be paid first to the Operating Partnership and Best Years pari passu until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.

The following reconciles our 10% equity investment in the SUL JV from inception through September 30, 2017:

JV 2 Properties (Colorado, Oregon and Virginia) – April 2015	$	1,007,000
Creative Properties (Texas) – October 2015		837,000
Cottage Properties (Wisconsin) – December 2015		544,000
Riverglen (New Hampshire) – April 2016		392,000
Delaware Properties – September 2016		1,783,000
Total investments		4,563,000
Income from equity-method investee		417,000
Distributions		(1,468,000	)
Total investment at September 30, 2017	$	3,512,000

A summary of the unaudited condensed consolidated financial data for the balance sheets and statements of income for the unconsolidated SUL JV, of which we own a 10% equity interest, is as follows:

Condensed Consolidated Balance Sheets of SUL JV:	September 30, 2017		December 31, 2016
Real estate properties and intangibles, net	$	147,210,000	$	151,439,000
Cash and cash equivalents		7,832,000		4,750,000
Other assets		7,222,000		4,860,000
Total Assets:	$	162,264,000	$	161,049,000
Loans payable, net	$	109,443,000	$	104,717,000
Other liabilities		11,883,000		13,185,000
Members’ equity:
Best Years		37,313,000		39,186,000
Summit		3,625,000		3,961,000
Total Liabilities and Members’ Equity	$	162,264,000	$	161,049,000

Condensed Consolidated Statements of Income of SUL JV:

	Three Months Ended September 30,						Nine months Ended September 30,
	2017			2016			2017			2016
Revenues:
Revenue	$	3,853,000		$	3,149,000		$	11,773,000		$	8,195,000
Property and general expenses		(412,000	)		(321,000	)		(1,337,000	)		(1,016,000	)
Depreciation and amortization expense		(1,432,000	)		(1,068,000	)		(4,292,000	)		(2,682,000	)
Income from operations		2,009,000			1,760,000			6,144,000			4,497,000
Interest expense		(1,480,000	)		(994,000	)		(4,241,000	)		(2,589,000	)
Amortization and write-off of debt issuance costs		(449,000	)		(90,000	)		(731,000	)		(239,000	)
Net Income	$	80,000		$	676,000		$	1,172,000		$	1,669,000
Summit equity interest in SUL JV net income	$	8,000		$	68,000		$	117,000		$	167,000

Page 25 of 36

As of September 30, 2017, the 17 properties held by our unconsolidated 10% equity-method investment in SUL JV are as follows:

Property	Location	Type	Number of Beds
Lamar Estates	Lamar, CO	SNF		60
Monte Vista Estates	Monte Vista, CO	SNF		60
Myrtle Point Care Center	Myrtle Point, OR	SNF		55
Gateway Care and Retirement Center	Portland, OR	SNF/IL		91
Applewood Retirement Community	Salem, OR	IL		69
Loving Arms Assisted Living	Front Royal, VA	AL		78
Pine Tree Lodge Nursing Center	Longview, TX	SNF		92
Granbury Care Center	Granbury, TX	SNF		181
Twin Oaks Nursing Center	Jacksonville, TX	SNF		116
Dogwood Trails Manor	Woodville, TX	SNF		90
Carolina Manor	Appleton, WI	AL		45
Carrington Manor	Green Bay, WI	AL		20
Marla Vista Manor	Green Bay, WI	AL		40
Marla Vista Gardens	Green Bay, WI	AL		20
Riverglen House of Littleton	Littleton, NH	AL		59
Atlantic Shore Rehabilitation and Health Center	Millsboro, DE	SNF		181
Pinnacle Rehabilitation and Health Center	Smyrna, DE	SNF		151
Total:				1,408

Summit Fantasia Holdings, LLC

On September 27, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia LLC Agreement”) with Fantasia Investment III LLC (“Fantasia”), an unrelated entity and a U.S.-based affiliate of Fantasia Holdings Group Co., Limited (a Chinese corporation listed on the Stock Exchange of Hong Kong (HKEX)), and formed Summit Fantasia Holdings, LLC (the “Fantasia JV”). The Fantasia JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements.

On October 31, 2016, through the Fantasia JV, we acquired a 20% interest in two senior housing facilities, one located in Citrus Heights, California and one located in Corvallis, Oregon, for a total purchase price of $23 million.

Under the Fantasia LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

The following reconciles our 20% equity investment in the Fantasia JV from inception through September 30, 2017:

Summit Citrus Heights ( California) – October 2016	$	663,000
Summit Corvallis (Oregon) – October 2016		611,000
Total investment		1,274,000
Income from equity-method investee		24,000
Distributions		(166,000	)
Total investment at September 30, 2017	$	1,132,000

As of September 30, 2017, the two properties of our unconsolidated 20% equity-method investment in Fantasia JV are as follows:

Property	Location	Type	Number of Beds
Sun Oak Assisted Living	Citrus Heights, CA	AL/MC		78
Regent Court Senior Living	Corvallis, OR	MC		48
Total:				126

Page 26 of 36

Summit Fantasia Holdings II, LLC

On December 23, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia II LLC Agreement”) with Fantasia, and formed Summit Fantasia Holdings II, LLC (the “Fantasia II JV”). The Fantasia II JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements.

On February 28, 2017, through the Fantasia II JV, we acquired a 20% interest in two skilled nursing facilities, located in Rhode Island, for a total purchase price of $27 million.

Under the Fantasia II LLC Agreement, net operating cash flow of the Fantasia II JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

The following reconciles our 20% equity investment in the Fantasia II JV from inception through September 30, 2017:

Summit Woonsocket (Rhode Island) – February 2017	$	1,285,000
Summit Smithfield (Rhode Island) – February 2017		638,000
Total investment		1,923,000
Income from equity-method investee		96,000
Distributions		(207,000	)
Total investment at September 30, 2017	$	1,812,000

As of September 30, 2017, the two properties of our unconsolidated 20% equity-method investment in Fantasia II JV are as follows:

Property	Location	Type	Number of Beds
Trinity Health and Rehabilitation Center	Woonsocket, Rhode Island	SNF		185
Hebert Nursing Home	Smithfield, Rhode Island	SNF		133
Total:				318

Summit Fantasia Holdings III, LLC

On July 27, 2017, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia III LLC Agreement”) with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements.

On August 10, 2017, through the Fantasia III JV, we acquired a 10% interest in nine skilled nursing facilities, located in Connecticut, for a total aggregate purchase price of $60 million for the properties.

Under the Fantasia III LLC Agreement, net operating cash flow of the Fantasia III JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 75% to Fantasia and 25% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia III JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 75% to Fantasia and 25% to the Operating Partnership.

Page 27 of 36

The following reconciles our 10% equity investment in the Fantasia III JV from inception through September 30, 2017:

Connecticut properties	$	1,953,000
Total investment		1,953,000
Income from equity-method investee		19,000
Distributions		(59,000	)
Total investment at September 30, 2017	$	1,913,000

As of September 30, 2017, the nine properties of our unconsolidated 10% equity-method investment in Fantasia III JV are as follows:

Property	Location	Type	Number of Beds
Chelsea Place Care Center	Hartford, CT	SNF		234
Touchpoints at Manchester	Manchester, CT	SNF		131
Touchpoints at Farmington	Farmington, CT	SNF		105
Fresh River Healthcare	East Windsor, CT	SNF		140
Trinity Hill Care Center	Trinity Hill, CT	SNF		144
Touchpoints at Bloomfield	Bloomfield, CT	SNF		150
Westside Care Center	Westside, CT	SNF		162
Silver Springs Care Center	Meriden, CT	SNF		159
Touchpoints of Chestnut	Chestnut, CT	SNF		60
Total:				1,285

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into a limited liability company agreement (the “FPH LLC Agreement”) with Fantasia, Atlantis Senior Living 9, LLC, a Delaware limited liability company (“Atlantis”), and Fantasy Pearl LLC, a Delaware limited liability company (“Fantasy”), and formed Summit Fantasy Pearl Holdings, LLC (the “FPH JV”). The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s consolidated financial statements.

In November 2017, through the FPH JV, we acquired a 10% interest in six senior housing facilities, located in Iowa, for a total aggregate purchase price of $29.5 million for the properties, which was funded through capital contributions from the members of the FPH JV plus the proceeds from a collateralized loan. The facilities consist of a total of 551 licensed beds, and will be operated by and leased to a third party operator.

Under the FPH LLC Agreement, net operating cash flow of the FPH JV will be distributed quarterly, first to the members pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.

We serve as the manager of the FPH JV and provide management services in exchange for fees and reimbursements. Under the FPH LLC Agreement, as the manager, we are paid an acquisition fee upon closing of an acquisition, as defined in the agreement, based on the purchase price paid for the properties. Additionally, we are paid on a quarterly basis an annual asset management fee equal to 0.75% of the initial capital contribution of the members.

We contributed approximately $1.0 million for this acquisition.

Page 28 of 36

Distributions from Equity-Method Investments

For the three and nine months ended September 30, 2017 and 2016, we recorded distributions and cash received for distributions from our Equity-Method Investments as follows:

	Three Months Ended September 30,				Nine months Ended September 30,
	2017		2016		2017		2016
Distributions	$	323,000	$	163,000	$	870,000	$	458,000
Cash received for distributions	$	312,000	$	126,000	$	840,000	$	340,000

Acquisition and Asset Management Fees

We serve as the manager of our Equity-Method Investments and provide management services in exchange for fees and reimbursements. As the manager, we are paid an acquisition fee, as defined in the agreements. Additionally, we are paid an annual asset management fee for managing the properties owned by our Equity-Method Investments, as defined in the agreements. For the three months ended September 30, 2017 and 2016, we recorded approximately $0.3 million and $0.2 million, respectively, in acquisition and asset management fees. For the nine months ended September 30, 2017 and 2016, we recorded approximately $0.6 million and $0.3 million, respectively, in acquisition and asset management fees.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC on March 29, 2017.

Results of Operations

Our results of operations are described below:

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

	Three Months Ended September 30,
	2017			2016			$ Change
Rental revenues	$	1,644,000		$	1,639,000		$	5,000
Tenant reimbursements and other income		224,000			217,000			7,000
Resident services and fee income		2,413,000			2,017,000			396,000
Total revenues		4,281,000			3,873,000			408,000
Less expenses:
Property operating costs		(395,000	)		(404,000	)		9,000
Resident services costs		(1,658,000	)		(1,750,000	)		92,000
Net operating income (1)		2,228,000			1,719,000			509,000
Acquisition & asset management fees		293,000			206,000			87,000
Interest income from notes receivable		44,000			44,000			-
General and administrative		(1,688,000	)		(1,411,000	)		(277,000	)
Depreciation and amortization		(823,000	)		(898,000	)		75,000
Income from equity-method investees		73,000			68,000			5,000
Other income		5,000			21,000			(16,000	)
Interest expense		(806,000	)		(755,000	)		(51,000	)
Net loss		(674,000	)		(1,006,000	)		332,000
Noncontrolling interests’ share in income		(15,000	)		(19,000	)		4,000
Net loss applicable to common stockholders	$	(689,000	)	$	(1,025,000	)	$	336,000

Page 29 of 36

(1) Net operating income (“NOI”) is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as rental revenues, tenant reimbursements and other income, resident services and fee income, less property operating and resident services costs. NOI excludes acquisition and asset management fees, interest income from notes receivable, general and administrative expense, depreciation and amortization, income from equity-method investees, other income and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI.

Total rental revenue for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Property operating costs include insurance, property taxes and other operating expenses, including management fees. Resident service and fee income and resident services costs are generated from Friendswood TRS. Net operating income increased for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to the $0.4 million increase in revenue from resident services and fee income and by a corresponding $0.1 million decrease in resident services costs due to improvements in facility management at Friendship Haven.

The net increase in general and administrative expenses of $0.3 million is primarily due to an increase of approximately $0.2 million in legal expenses associated with the CRA litigation (see Notes 7 and 10 to the accompanying Notes to Condensed Consolidated Financial Statements).

The decrease in depreciation and amortization for the three months ended September 30, 2017 is primarily due to the three months ended September 30, 2016 included two months for Medford (sold in October 2016) (see Note 12 to the accompanying Notes to Condensed Consolidated Financial Statements) and none for the three months ended September 30, 2017.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

	Nine Months Ended September 30,
	2017			2016			$ Change
Rental revenues	$	4,488,000		$	5,183,000		$	(695,000	)
Tenant reimbursements and other income		596,000			665,000			(69,000	)
Resident services and fee income		6,829,000			6,162,000			667,000
Total revenues		11,913,000			12,010,000			(97,000	)
Less expenses:
Property operating costs		(1,187,000	)		(1,332,000	)		145,000
Resident services costs		(4,917,000	)		(5,267,000	)		350,000
Net operating income (1)		5,809,000			5,411,000			398,000
Acquisition and asset management fees		594,000			338,000			256,000
Interest income from notes receivable		132,000			119,000			13,000
General and administrative		(4,004,000	)		(3,524,000	)		(480,000	)
Depreciation and amortization		(2,307,000	)		(2,791,000	)		484,000
Income from equity-method investees		251,000			167,000			84,000
Other income		37,000			93,000			(56,000	)
Interest expense		(2,173,000	)		(2,344,000	)		171,000
Net loss		(1,661,000	)		(2,531,000	)		870,000
Noncontrolling interests’ share in income		(40,000	)		(53,000	)		13,000
Net loss applicable to common stockholders	$	(1,701,000	)	$	(2,584,000	)	$	883,000

Page 30 of 36

(1) NOI is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as rental revenues, tenant reimbursements and other income, and resident services and fee income, less property operating costs and resident services costs. NOI excludes acquisition and asset management fees, interest income from notes receivable, general and administrative expense, depreciation and amortization, income from equity-method investees, other income, and interest expense,. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI.

Total rental revenue for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Property operating costs include insurance, property taxes and other operating expenses, including management fees. Resident services and fee income and resident services costs are generated from Friendswood TRS. Net operating income increased by approximately $0.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. This was primarily due to a $0.8 million decrease in rental revenues and tenant reimbursements, as the rental revenue for the nine months ended September 30, 2016 included four months of Riverglen (contributed to the SUL JV in April 2016) and nine months of rental revenue and costs for Medford (sold in October 2016) (see Note 12 to the accompanying Notes to Condensed Consolidated Financial Statements) and none for the nine months ended September 30, 2017, offset by a $0.7 million increase in resident service and fee income, due to improvement in facility management at Friendship Haven. The decrease in property operating costs and resident services costs are due to the same factors related to the revenues.

The increase in the acquisition and asset management fees of approximately $0.3 million is due to the acquisition fees earned on the Fantasia II properties of approximately $0.1 million (acquired in February 2017) and Fantasia III properties of approximately $0.1 million (acquired in August 2017) and an increase in asset management fees due to the addition of the Fantasia JV and SUL JV properties acquired in late 2016, Fantasia II JV properties acquired in February 2017 and Fantasia III JV properties acquired in August 2017.

The net increase in general and administrative expenses of $0.5 million is primarily due to an increase of approximately $0.4 million in legal expenses associated with the CRA litigation (see Notes 7 and 10 to the accompanying Notes to Condensed Consolidated Financial Statements).

The decrease in depreciation and amortization and interest expense for the nine months ended September 30, 2017 is primarily due to nine months ended September 30, 2016 included four months for Riverglen (contributed to the SUL JV in April 2016) and nine months for Medford (sold in October 2016) (see Note 12 to the accompanying Notes to Condensed Consolidated Financial Statements) and none for the nine months ended September 30, 2017.

Liquidity and Capital Resources

As of September 30, 2017, we had approximately $4.2 million in cash and cash equivalents on hand. Based on current conditions, we believe that we have sufficient capital resources to sustain operations.

Going forward, we expect our primary sources of cash to be rental revenues, joint venture distributions, asset management fees and tenant reimbursements. In addition, we may increase cash through the sale of additional properties, which may result in the deconsolidation of properties we already own, or borrowing against currently-owned properties. For the foreseeable future, we expect our primary uses of cash to be for funding future acquisitions, operating expenses, interest expense on outstanding indebtedness, and the repayment of principal on loans payable. We may also incur expenditures for renovations of our existing properties, such as increasing the size of the properties by developing additional rentable square feet and/or making the space more appealing.

We continue to pursue options for repaying and/or refinancing debt obligations with long-term, fixed rate U.S. Department of Housing and Urban Development (“HUD”) insured loans. In October and December 2015, we successfully refinanced two of our existing loan arrangements with Lancaster Pollard (HUD-insured) loans (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements). We are currently in negotiations to refinance our two outstanding loans that mature in 2018 with HUD-insured loans and expect these to close within the next 12 months. Additionally, in September and October 2017, as the manager of our Equity-Method Investments, we successfully refinanced four existing loan arrangements of our Equity-Method Investments with Lancaster Pollard (HUD-insured) loans.

Page 31 of 36

We believe that market conditions may be acceptable to continue to raise capital through additional joint venture arrangements with either our existing joint venture partners or new partners, although there can be no assurances that any such transactions will have terms acceptable to us or will be consummated.

Our liquidity will increase if cash from operations exceeds expenses, we receive net proceeds from the sale of whole or partial interest in a property or properties, or refinancing results in excess loan proceeds. Our liquidity will decrease as proceeds are expended in connection with our acquisitions and operation of properties.

Credit Facilities and Loan Agreements

As of September 30, 2017, we had the following debt obligations, which have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, except for the addition of the Capital One loan (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements):

· Capital One, National Association –approximately $10.1 million maturing July 2018

· Healthcare Financial Solutions, LLC–approximately $2.8 million maturing October 2018

· Oxford Finance, LLC– approximately $6.9 million maturing October 2019

· Lancaster Pollard (HUD insured)–approximately $43.1 million maturing from September 2039 through January 2051

Distributions

We made no stockholder distributions during the nine months ended September 30, 2017.

Funds from Operations (“FFO”)

FFO is a non-GAAP supplemental financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments and extraordinary items, and as a result, when compared period to period, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

Page 32 of 36

The following is the reconciliation from net loss applicable to common stockholders, the most direct comparable financial measure calculated and presented with GAAP, to FFO for the three and nine months ended September 30, 2017 and 2016: 

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss applicable to common stockholders (GAAP)	$	(689,000	)	$	(1,025,000	)	$	(1,701,000	)	$	(2,584,000	)
Adjustments:
Depreciation and amortization		823,000			898,000			2,307,000			2,791,000
Depreciation and amortization related to non-controlling interests		(20,000	)		(24,000	)		(60,000	)		(72,000	)
Depreciation related to SUL JV		143,000			107,000			429,000			268,000
Depreciation related to Fantasia, Fantasia II and III JV		90,000			—			208,000			—
Funds provided by operations (FFO) applicable to common stockholders	$	347,000		$	(44,000	)	$	1,183,000		$	403,000
Weighted-average number of common shares outstanding - basic and diluted		23,027,978			23,027,978			23,027,978			23,027,978
FFO per weighted average common shares	$	0.02		$	0.00		$	0.05		$	0.02

Subsequent Event

See Note 13 to the accompanying Notes to Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, including our President (Principal Executive Officer) and our Chief Financial Officer (Principal Financial Officer), to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our President (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) evaluated the effectiveness of our disclosure controls and procedures and concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On April 1, 2014, CRA and Cornerstone Ventures, Inc. filed a complaint in the Superior Court of California for the County of Orange-Central Justice Center, Case No. 30-2014-00714004-CU-BT-CJC, naming the Company, its directors and two of its officers as defendants, seeking declaratory and injunctive relief and compensatory and punitive damages. On April 17, 2014, Judge Nakamura denied in its entirety plaintiffs’ ex parte application for a temporary restraining order to show cause why a preliminary injunction against the defendants should not issue.  On May 19, 2014, we filed a counter claim against plaintiffs and certain individuals affiliated with CRA and affiliated entities. The Company continues to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend itself. Plaintiffs and defendants are conducting discovery. We filed motions for summary adjudication on plaintiffs’ claims and on our cross claims. The court heard oral argument on the motions for summary adjudication and granted the motions in part and denied the motions part. A trial is scheduled to commence on March 26, 2018.

Page 33 of 36

A bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC or Healthcare Real Estate Qualified Purchasers Fund, LLC.  Following the dismissal of the involuntary bankruptcy petition filed against it, HCRE filed a motion for attorneys’ fees and damages and a separate complaint for violation of the automatic stay against the petitioning creditors and the Company in the United States Bankruptcy Court of the District of Delaware.  At a status hearing, the Bankruptcy Court expressed concern about HCRE commencing this litigation and urged the parties to mediate the issues. A mediation was held but the parties did not reach a settlement. The Bankruptcy Court recently granted a motion to dismiss the complaint for violation of the automatic stay filed jointly by the petitioning creditors and us, and dismissed the complaint with prejudice.  We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

Item 1A. Risk Factors.

Not applicable.

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

(a) We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the periods covered by this Form 10-Q.

(b) Not applicable.

(c) During the nine months ended September 30, 2017, we redeemed no shares pursuant to our stock repurchase program.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Page 34 of 36

Item 6. Exhibits

Ex.	Description
3.1	Amendment and Restatement of Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed on March 24, 2006).
3.2	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 23, 2005).
3.3	Articles of Amendment of the Company dated October 16, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 22, 2013).
3.4	Second Articles of Amendment and Restatement of Articles of Incorporation of the Company dated June 30, 2010 (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed on March 20, 2015).
4.1	Subscription Agreement (incorporated by reference to Appendix A to the prospectus included on Post-Effective Amendment No. 2 to the Registration Statement on Form S-11 (No. 333-155640) filed on April 16, 2010 (“Post-Effective Amendment No. 2”)).
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 14, 2004).
4.3	Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix B to the prospectus dated April 16, 2010 included on Post-Effective Amendment No. 2).
4.4	2015 Omnibus Incentive Plan dated October 28, 2015 (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on September 28, 2015).
10.1	Loan Agreement between Summit Chandler, LLC, as borrower and Capital One, National Association, dated July 17, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 18, 2017).
10.2	Purchase and Sale Agreement between Summit Healthcare REIT, Inc. and Family Healthreach, Inc. dated as of April 5, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 18, 2017).
31.1	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	The following information from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows.

Page 35 of 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 9th day of November, 2017.

SUMMIT HEALTHCARE REIT, INC.
By:	/s/ Kent Eikanas
	Kent Eikanas
	President
	(Principal Executive Officer)
By:	/s/ Elizabeth A. Pagliarini
	Elizabeth A. Pagliarini
	Chief Financial Officer
	(Principal Financial Officer )

Page 36 of 36

EX-31.1

Exhibit 31.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

I, Kent Eikanas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Summit Healthcare REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Kent Eikanas
Date: November 9, 2017	Kent Eikanas
	President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER

I, Elizabeth A. Pagliarini, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Summit Healthcare REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Elizabeth A. Pagliarini
Date: November 9, 2017	Elizabeth A. Pagliarini
	Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATIONS PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Kent Eikanas and Elizabeth A. Pagliarini, do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge, the Quarterly Report of Summit Healthcare REIT, Inc. on Form 10-Q for the period ended September 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Summit Healthcare REIT, Inc.

	/s/ Kent Eikanas
Date: November 9, 2017	Kent Eikanas
	President (Principal Executive Officer)
	/s/ Elizabeth A. Pagliarini
Date: November 9, 2017	Elizabeth A. Pagliarini
	Chief Financial Officer (Principal Financial Officer)

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 07, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Entity Registrant Name	Summit Healthcare REIT, Inc
Entity Central Index Key	0001310383
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		23,027,978

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents	$ 4,235,000	$ 10,757,000
Restricted cash	3,575,000	3,806,000
Real estate properties, net	70,111,000	58,739,000
Notes receivable	4,777,000	4,801,000
Deferred costs and deposits	500,000	240,000
Tenant and other receivables, net	4,315,000	4,262,000
Deferred leasing commissions, net	1,308,000	1,413,000
Other assets, net	250,000	290,000
Equity-method investments	8,369,000	5,095,000
Total assets	97,440,000	89,403,000
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	3,438,000	2,979,000
Accrued salaries and benefits	210,000	256,000
Security deposits	1,208,000	1,208,000
Loans payable, net of debt issuance costs	61,002,000	51,717,000
Total liabilities	65,858,000	56,160,000
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2017 and December 31, 2016	0	0
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at September 30, 2017 and December 31, 2016	23,000	23,000
Additional paid-in capital	117,326,000	117,243,000
Accumulated deficit	(86,468,000)	(84,767,000)
Total stockholders’ equity	30,881,000	32,499,000
Noncontrolling interest	701,000	744,000
Total equity	31,582,000	33,243,000
Total liabilities and equity	$ 97,440,000	$ 89,403,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	290,000,000	290,000,000
Common stock, shares issued	23,027,978	23,027,978
Common stock, shares outstanding	23,027,978	23,027,978

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues:
Rental revenues	$ 1,644,000	$ 1,639,000	$ 4,488,000	$ 5,183,000
Resident services and fee income, net	2,413,000	2,017,000	6,829,000	6,162,000
Tenant reimbursements and other income	224,000	217,000	596,000	665,000
Acquisition and asset management fees	293,000	206,000	594,000	338,000
Interest income from notes receivable	44,000	44,000	132,000	119,000
Revenues, Total	4,618,000	4,123,000	12,639,000	12,467,000
Expenses:
Property operating costs	395,000	404,000	1,187,000	1,332,000
Resident services costs	1,658,000	1,750,000	4,917,000	5,267,000
General and administrative	1,688,000	1,411,000	4,004,000	3,524,000
Depreciation and amortization	823,000	898,000	2,307,000	2,791,000
Costs and Expenses, Total	4,564,000	4,463,000	12,415,000	12,914,000
Operating income (loss)	54,000	(340,000)	224,000	(447,000)
Income from equity-method investees	73,000	68,000	251,000	167,000
Other income	5,000	21,000	37,000	93,000
Interest expense	(806,000)	(755,000)	(2,173,000)	(2,344,000)
Net loss	(674,000)	(1,006,000)	(1,661,000)	(2,531,000)
Noncontrolling interests’ share in net income	(15,000)	(19,000)	(40,000)	(53,000)
Net loss applicable to common stockholders	$ (689,000)	$ (1,025,000)	$ (1,701,000)	$ (2,584,000)
Basic and diluted loss per common share:
Net loss applicable to common stockholders	$ (0.03)	$ (0.04)	$ (0.07)	$ (0.11)
Weighted average shares used to calculate basic and diluted net loss per common share	23,027,978	23,027,978	23,027,978	23,027,978

XML

CONDENSED CONSOLIDATED STATEMENT OF EQUITY - 9 months ended Sep. 30, 2017 - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total Stockholders' Equity [Member]	Noncontrolling Interests [Member]
Balance at Dec. 31, 2016	$ 33,243,000	$ 23,000	$ 117,243,000	$ (84,767,000)	$ 32,499,000	$ 744,000
Balance (in shares) at Dec. 31, 2016		23,027,978
Stock-based compensation	83,000	$ 0	83,000	0	83,000	0
Distributions paid to noncontrolling interests	(83,000)	0	0	0	0	(83,000)
Net (loss) income	(1,661,000)	0	0	(1,701,000)	(1,701,000)	40,000
Balance at Sep. 30, 2017	$ 31,582,000	$ 23,000	$ 117,326,000	$ (86,468,000)	$ 30,881,000	$ 701,000
Balance (in shares) at Sep. 30, 2017		23,027,978

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net loss	$ (1,661,000)	$ (2,531,000)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:
Amortization of debt issuance costs	136,000	103,000
Depreciation and amortization	2,307,000	2,791,000
Straight-line rents	(337,000)	(466,000)
Bad debt expense	148,000	32,000
Stock-based compensation expense	83,000	22,000
Income from equity-method investees	(251,000)	(167,000)
Change in operating assets and liabilities:
Restricted cash related to current activities	116,000	(87,000)
Tenant and other receivables, net	398,000	269,000
Other assets	62,000	203,000
Accounts payable and accrued liabilities	235,000	525,000
Accrued salaries and benefits	(46,000)	(198,000)
Net cash and cash equivalents provided by operating activities	1,190,000	496,000
Cash flows from investing activities:
Restricted cash	340,000	293,000
Deferred costs and deposits	(482,000)	(345,000)
Real estate acquisitions	(13,452,000)	0
Real estate improvements	(122,000)	(144,000)
Proceeds from contribution of properties, net of cash and restricted cash contributed	0	2,814,000
Investment in equity-method investees	(3,694,000)	(1,845,000)
Distributions received from equity-method investees	608,000	173,000
Payments from notes receivable	24,000	24,000
Net cash and cash equivalents (used in) provided by investing activities	(16,778,000)	970,000
Cash flows from financing activities:
Proceeds from issuance of loans payable	10,050,000	0
Payments of loans payable	(729,000)	(710,000)
Distributions paid to noncontrolling interests	(83,000)	(41,000)
Deferred financing costs	(172,000)	(29,000)
Net cash and cash equivalents provided by (used in) financing activities	9,066,000	(780,000)
Net (decrease) increase in cash and cash equivalents	(6,522,000)	686,000
Cash and cash equivalents - beginning of period	10,757,000	6,603,000
Cash and cash equivalents - end of period	4,235,000	7,289,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 1,800,000	$ 2,214,000

XML

Organization

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Organization

Summit Healthcare REIT, Inc. (“Summit”) is a real estate investment trust that owns 100% of six properties, 95.3% of four properties, 95% of one property, a 10% equity interest in an unconsolidated equity-method investment that holds 17 properties, a 20% equity interest in two unconsolidated equity-method investments that each hold two properties and a 10% equity interest in an unconsolidated equity-method investment that holds nine properties. Summit is a Maryland corporation, formed in 2004 under the General Corporation Law of Maryland for the purpose of investing in and owning real estate. As used in these notes, the “Company”, “we”, “us” and “our” refer to Summit and its consolidated subsidiaries, except where the context otherwise requires.

We conduct substantially all of our operations through Summit Healthcare Operating Partnership, L.P. (the “Operating Partnership”), which is a Delaware limited partnership. As of September 30, 2017, we own a  99.88% general partner interest in the Operating Partnership, and Cornerstone Realty Advisors, LLC (“CRA”), a former affiliate, owns a  0.12% limited partnership interest. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements.

Cornerstone Healthcare Partners LLC

We own 95% of Cornerstone Healthcare Partners LLC (“CHP LLC”), which was formed in 2012, and the remaining 5% non-controlling interest is owned by Cornerstone Healthcare Real Estate Fund, Inc. (“CHREF”), an affiliate of CRA. CHP LLC is consolidated with our financial statements and owns five properties (the “JV Properties”).

As of September 30, 2017, we own a 95.3% interest in four of the JV Properties, and CHREF owns a  4.7% interest. We continue to own a 95% interest in the fifth JV Property, and CHREF owns a 5% interest.

Summit Union Life Holdings, LLC

On April 29, 2015, through our Operating Partnership, we entered into a limited liability company agreement (as amended, the “SUL LLC Agreement”) with Best Years, LLC (“Best Years”), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and formed Summit Union Life Holdings, LLC (the “SUL JV”). The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements (see Note 5). As of September 30, 2017 and December 31, 2016, we have a 10% interest in the SUL JV. As of September 30, 2017 and December 31, 2016, the SUL JV owned 17 properties.

Summit Fantasia Holdings, LLC

On September 27, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia LLC Agreement”) with Fantasia Investment III LLC (“Fantasia”), an unrelated entity and a U.S.-based affiliate of Fantasia Holdings Group Co., Limited (a Chinese corporation listed on the Stock Exchange of Hong Kong (HKEX)), and formed Summit Fantasia Holdings, LLC (the “Fantasia JV”). The Fantasia JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements. As of September 30, 2017 and December 31, 2016, we have a 20% interest in the Fantasia JV. As of September 30, 2017 and December 31, 2016, the Fantasia JV owned two properties.

Summit Fantasia Holdings II, LLC

On December 23, 2016, through our Operating Partnership, we entered into a limited liability company agreement (the “Fantasia II LLC Agreement”) with Fantasia, and formed Summit Fantasia Holdings II, LLC (the “Fantasia II JV”). The Fantasia II JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in our condensed consolidated financial statements. As of September 30, 2017 and December 31, 2016, we have a 20% interest in the Fantasia II JV. As of September 30, 2017, the Fantasia II JV owned two properties.

Summit Fantasia Holdings III, LLC

On July 27, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“Fantasia III LLC Agreement”) with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements. As of September 30, 2017, we have a 10% interest in the Fantasia III JV. As of September 30, 2017, the Fantasia III JV owned nine properties.

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“FPH LLC Agreement”) with Fantasia, Atlantis Senior Living 9, LLC, a Delaware limited liability company (“Atlantis”), and Fantasy Pearl LLC, a Delaware limited liability company (“Fantasy”), and formed Summit Fantasy Pearl Holdings, LLC (the “FPH JV”). The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. See Note 13 – Subsequent Event for further information.

Summit Healthcare Asset Management, LLC (TRS)

Summit Healthcare Asset Management, LLC (“SAM TRS”) is our wholly-owned taxable REIT subsidiary (“TRS”). We serve as the manager of the SUL JV, Fantasia JV, Fantasia II JV, Fantasia III JV and FPH JV, (collectively, our “Equity-Method Investments”), and provide management services in exchange for fees and reimbursements. All acquisition fees and asset management fees earned by us are paid to SAM TRS and expenses incurred by us, as the manager, are reimbursed from SAM TRS. See Notes 5 and 7 for further information.

Friendswood TRS

Friendswood TRS (“Friendswood TRS”) is our wholly-owned TRS and the licensed operator and tenant of Friendship Haven Healthcare and Rehabilitation Center (“Friendship Haven”) (see Note 3).

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

For more information regarding our significant accounting policies and estimates, please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on March 29, 2017. There have been no material changes to our policies since that filing.

The accompanying condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date. We assume that users of these condensed consolidated financial statements have read or have access to the audited December 31, 2016 consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 29, 2017 and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate those contained in our most recent Annual Report on Form 10-K for the year ended December 31, 2016 have been omitted in this report.

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and CHP LLC (of which the Company owns  95%). All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying financial information reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-13. This ASU adds, amends, and supersedes SEC paragraphs of the Accounting Standards Codification (ASC) related to the adoption and transition provisions of ASU No. 2014-09, Revenue From Contracts with Customers and ASU 2016-02, Leases, for public business entities. The ASU is titled ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.

ASU 2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially delaying the effective date of the revenue recognition and leases standards for a subset of public entities. The SEC Observer made the following SEC Staff Announcement, “Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02,” at the July 20, 2017 EITF meeting:

The SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity, except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC, adopting: (1) ASC Topic 606,  Revenue from Contracts with Customers for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and (2) ASC Topic 842, Leases for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC may still elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates.

This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This announcement is not applicable to other public business entities. As we include our significant tenant’s financials as an exhibit to our Form 10-K report, we will adopt this ASU as it relates to those financial statements.

In November 2016, FASB issued ASU No. 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash. The amendments apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows.

The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements; however, once adopted, restricted cash will be presented with cash and cash equivalents in our condensed consolidated statements of cash flows and, at September 30, 2017, that amount was approximately $3.6 million.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We continue to evaluate the impact of our adoption of this new standard in 2019 and we estimate the effect on our condensed consolidated financial statements could be approximately $0.3 million, as we have an operating lease that will be added to the assets and liabilities of our condensed consolidated balance sheet. As generally accepted accounting principles for lessors remains mostly unchanged, we do not expect it to have an impact on our leases from our tenants.

The FASB has issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

We have evaluated the impact that our adoption of this new revenue recognition standard in the first quarter of 2018 will have on our rental revenues and we do not expect this to have a significant impact on our condensed consolidated financial statements as our rental revenue relates to triple net leases and related tenant reimbursements, which are excluded from this standard.  Non-lease components will be evaluated under this standard upon adoption of ASU No. 2016-02.  Additionally, we continue to evaluate the impact this standard may have on our interest income revenue and acquisition and asset management fees, which have historically been less than five percent of our total revenue.

We continue to evaluate the impact the adoption of this ASU will have on our resident services and fee income. Approximately 80% of this revenue is related to Medicare and Medicaid, for which the recorded revenue is already reduced to the net expected amounts we will be entitled to receive from these parties. Additional estimations using a portfolio approach may be required for certain insurance payors and private payments.

The Company has elected the modified retrospective transition method. Upon adoption of this ASU in 2018, the Company anticipates that additional disclosures will be necessary to separately disclose the components of our total revenue. The Company expects to complete its evaluation of this ASU during the fourth quarter of 2017.

XML

Investments in Real Estate Properties

9 Months Ended

Sep. 30, 2017

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

3. Investments in Real Estate Properties

As of September 30, 2017 and December 31, 2016, our investments in our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, were as follows:

	September 30,		December 31,
	2017		2016
Land	$	7,318,000	$	5,548,000
Buildings and improvements		69,467,000		58,450,000
Less: accumulated depreciation		(8,496,000)		(7,011,000)
Buildings and improvements, net		60,971,000		51,439,000
Furniture and fixtures		6,943,000		6,165,000
Less: accumulated depreciation		(5,121,000)		(4,413,000)
Furniture and fixtures, net		1,822,000		1,752,000
Real estate properties, net	$	70,111,000	$	58,739,000

For the three months ended September 30, 2017 and 2016, depreciation and amortization expense (excluding leasing commission amortization) was approximately $0.8 million and $0.9 million, respectively. For the nine months ended September 30, 2017 and 2016, depreciation and amortization expense (excluding leasing commission amortization) was approximately $2.2 million and $2.7 million, respectively.

As of September 30, 2017, our portfolio consisted of 11 real estate properties which were  100% leased to the tenants of the related facilities. The following table provides summary information regarding our portfolio (excluding the 30 properties owned by our unconsolidated Equity-Method Investments) as of September 30, 2017:

						Loans
						Payable,
						Excluding
						Debt
				Purchase		Issuance		Number of
Property	Location	Date Purchased	Type(2)	Price		Costs		Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,813,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,222,000		63
Friendship Haven Healthcare and Rehabilitation Center (1)	Galveston County, TX	September 14, 2012	SNF		15,000,000		6,904,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		7,038,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,671,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,244,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,740,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		4,005,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,379,000		64
Sundial Assisted Living	Redding, CA	December 18, 2013	AL		3,500,000		2,800,000		65
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC		13,400,000		10,050,000		90
Total:				$	82,265,000	$	62,866,000		854

(1) We became the licensed operator and tenant of the facility on May 1, 2014 through Friendswood TRS. Upon becoming the licensed operator and tenant of the facility, we entered into a management agreement with an affiliate of Stonegate Senior Living (“Stonegate”). As of December 31, 2016, we terminated the management agreement with Stonegate and entered into a new three-year management agreement with HMG Services, L.L.C. (“HMG”), whereby HMG will receive a management fee of up to 5% of certain adjusted gross revenues from operations of the facility (see Note 10).

(2) SNF is an abbreviation for skilled nursing facility.

AL is an abbreviation for assisted living facility.

MC is an abbreviation for memory care facility.

Future Minimum Lease Payments

The future minimum lease payments to be received under existing operating leases for our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows ⁽¹⁾:

Years ending
October 1, 2017 to December 31, 2017	$	1,555,000
2018		6,296,000
2019		6,429,000
2020		6,565,000
2021		6,703,000
Thereafter		51,195,000
	$	78,743,000

(1) This schedule does not reflect future rental revenues from the potential renewal or replacement of existing and future leases, tenant reimbursements, and the rental revenues for the tenant (Friendswood TRS) of Friendship Haven.

2017 Acquisition - Chandler, AZ

On July 17, 2017, we acquired a 100% interest in Pennington Gardens, a 90-bed assisted living/memory care facility located in Chandler, Arizona (“Pennington Gardens”) for a purchase price of $13.4 million plus approximately $52,000 in acquisition costs, which was funded through cash on hand plus a collateralized loan (see Note 4). Pennington Gardens is leased pursuant to a 15-year triple net lease with two five-year renewal options.

Leasing Commissions

As a self-managed REIT, we no longer pay leasing commissions. Leasing commissions are capitalized at cost and amortized on a straight-line basis over the related lease term. As of September 30, 2017 and December 31, 2016, total costs incurred were $1.9 million and $1.9 million, respectively, and the unamortized balance of capitalized leasing commissions was approximately $1.3 million and $1.4 million, respectively. Amortization expense for the three months ended September 30, 2017 and 2016 was $35,000 and $40,000, respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $0.1 million and $0.1 million, respectively.

XML

Loans Payable

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

4. Loans Payable

As of September 30, 2017 and December 31, 2016, our loans payable consisted of the following:

	September 30, 2017		December 31, 2016
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.2% at September 30, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000	$	-
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $15,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.3% at September 30, 2017 and 5.0% at December 31, 2016, respectively), due in October 2018, and collateralized by Sundial Assisted Living.	$	2,800,000	$	2,800,000
Loan payable to Oxford Finance, LLC in monthly installments of approximately $53,000, including interest at LIBOR (floor of 0.75%) plus 6.50% (7.8% as of September 30, 2017 and 7.25% as of December 31, 2016, respectively) due in October 2019, collateralized by Friendship Haven.		6,904,000		6,978,000
Loans payable to Lancaster Pollard (insured by HUD) in monthly installments of approximately $209,000, including interest, ranging from a fixed rate of 3.70% to 3.78%, due in September 2039 through January 2051, and collateralized by Sheridan, Fernhill, Pacific Health, Shelby, Hamlet, Carteret, Aledo and Danby.		43,112,000		43,768,000
		62,866,000		53,546,000
Less debt issuance costs		(1,864,000)		(1,829,000)
Total loans payable	$	61,002,000	$	51,717,000

As of September 30, 2017, we have total debt obligations of approximately $62.9 million that will mature between 2018 and 2051. See Note 3 for loans payable balance for each property. All of the loans payable have certain financial and non-financial covenants, including ratios and financial statement considerations. As of September 30, 2017, we were in compliance with all of those covenants.

In connection with our loans payable, we incurred debt issuance costs. The unamortized balance of the debt issuance costs was approximately $1.9 million and $1.8 million as of September 30, 2017 and December 31, 2016, respectively. These debt issuance costs are being amortized over the life of their respective financing agreements using the straight-line basis which approximates the effective interest rate method. For the three months ended September 30, 2017 and 2016, $69,000 and $34,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, $0.1 million and $0.1 million, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations.

During the three months ended September 30, 2017 and 2016, we incurred approximately $0.7 million and $0.7 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable.  During the nine months ended September 30, 2017 and 2016, we incurred approximately $2.0 million and $2.2 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable.

The principal payments due on the loans payable (excluding debt issuance costs) for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows:

	Principal
Years Ending	Amount
October 1, 2017 to December 31, 2017	$	249,000
2018		13,870,000
2019		7,725,000
2020		986,000
2021		1,024,000
Thereafter		39,012,000
	$	62,866,000

The following information describes our loan activity for the nine months ended September 30, 2017 and as of September 30, 2017 and December 31, 2016:

Capital One, National Association

In July 2017, in conjunction with the acquisition of Pennington Gardens (see Note 3), we entered into a $10.1 million first priority mortgage loan collateralized by Pennington Gardens with Capital One, National Association. The loan, which bears interest at the One Month LIBOR (London Interbank Offered Rate) plus 2.95%, matures on July 17, 2018, with the option for two six-month extensions. The loan may be prepaid with no penalty if the property is refinanced through United States Department of Housing and Urban Development (“HUD”); otherwise we will be required to pay an exit fee, as defined in the loan agreement. We incurred approximately $0.2 million in deferred financing costs.

Healthcare Financial Solutions, LLC (a.k.a. Capital One)

We have an amended loan agreement for the Sundial Assisted Living property located in Redding with Healthcare Financial Solutions, LLC (“HFS”). See table above listing loans payable for further information. The loan was interest-only through January 2017 and then the loan payments increased to approximately $15,000 a month, including interest. The principal payment portion of this loan payment commencing in February 2017 is being held in a sinking fund until maturity date. If the loan is refinanced prior to the maturity date, the loan payments in the sinking fund will be released to us; otherwise at the maturity date, the loan payments in the sinking fund will be released to the lender and applied to the outstanding principal balance. Additionally, the loan is collateralized by the property and cross-guaranteed with several properties owned by the SUL JV, which will be released from the guarantee when the property is refinanced with a HUD-insured loan or upon repayment at the maturity date.

Oxford Finance, LLC

We have a secured term loan agreement with Oxford Finance, LLC collateralized by the Friendship Haven facility. See table above listing loans payable for further information. Prior to the maturity date, we may prepay the loan, in whole, subject to certain terms and by paying an exit fee as further described in the loan agreement.

Lancaster Pollard Mortgage Company, LLC

We have several properties with HUD-insured loans from the Lancaster Pollard Mortgage Company, LLC (“Lancaster Pollard”). See table above listing loans payable for further information.

All of the HUD-insured loans are subject to customary representations, warranties and ongoing covenants and agreements with respect to the operation of the facilities, including the provision for certain maintenance and other reserve accounts for property tax, insurance, and capital expenditures, with respect to the facilities all as described in the HUD agreements. These reserves are included in restricted cash in our condensed consolidated balance sheets.

XML

Equity-Method Investments

9 Months Ended

Sep. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

5. Equity-Method Investments

As of September 30, 2017 and December 31, 2016, the balances of our Equity-Method Investments were approximately $8.4 million and $5.1 million, respectively, and are as follows:

Summit Union Life Holdings, LLC

In April 2015, we formed the SUL JV, which is owned 10% by the Operating Partnership and 90% by Best Years. The SUL JV will continue until an event of dissolution occurs, as defined in the SUL LLC Agreement.

During 2015, we contributed our limited liability company interests in six properties (“JV 2 Properties”) to the SUL JV and retained a 10% interest in those six properties. Concurrent with this contribution, the Operating Partnership recorded a receivable for approximately $362,000 for distributions that could not be paid prior to the contribution of the JV 2 Properties due to cash restrictions related to the loans payable for the contributed JV 2 Properties. In April 2017, we received approximately $122,000 to pay down the distribution receivable from one of the JV 2 properties. As of September 30, 2017 and December 31, 2016, the receivable of $240,000 and $362,000, respectively, due from the JV 2 properties, is included in tenant and other receivables in our condensed consolidated balance sheets.

Under the SUL LLC Agreement, net operating cash flow of the SUL JV will be distributed monthly, first to the Operating Partnership and Best Years pari passu up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing or another capital event will be paid first to the Operating Partnership and Best Years pari passu until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.

In April 2017, one of the JV 2 properties that owed Summit approximately $110,000 in distributions payable was able to repay the funds; however, the cash was retained by the property to fund future capital calls. Through September 2017, we applied approximately $5,000 of this as additional capital. As of September 30, 2017, the remaining balance of $105,000 is included in tenant and other receivables in our condensed consolidated balance sheets.

As of September 30, 2017, the balance of our equity-method investment related to the SUL JV was approximately $3.5 million.

Summit Fantasia Holdings, LLC

In September 2016, we formed the Fantasia JV, which is owned 20% by the Operating Partnership and 80% by Fantasia. The Fantasia JV will continue until an event of dissolution occurs, as defined in the Fantasia LLC Agreement.

Under the Fantasia LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia JV was approximately $1.1 million.

Summit Fantasia Holdings II, LLC

In December 2016, we formed the Fantasia II JV, which is owned 20% by the Operating Partnership and 80% by Fantasia. The Fantasia II JV will continue until an event of dissolution occurs, as defined in the Fantasia II LLC Agreement.

On February 28, 2017, through the Fantasia II JV, we acquired a 20% interest in two skilled nursing facilities, located in Rhode Island, for a total aggregate purchase price of $27 million, which was funded through capital contributions from the members of the Fantasia II JV plus the proceeds from a collateralized loan. The facilities consist of a total of 318 licensed beds, and are operated by and leased to a third party operator. We contributed approximately $1.9 million for the acquisition, which includes approximately $0.2 million of acquisition costs paid in 2016.

Under the Fantasia II LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia II JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia II JV was approximately $1.8 million.

Summit Fantasia Holdings III, LLC

On July 27, 2017, through our Operating Partnership, we entered into a limited liability company agreement (“Fantasia III LLC Agreement”) with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method in the Company’s condensed consolidated financial statements.

On August 10, 2017, through the Fantasia III JV, we acquired a 10% interest in nine skilled nursing facilities, located in Connecticut, for a total aggregate purchase price of $60 million for the properties, which was funded through capital contributions from the members of the Fantasia III JV plus the proceeds from a collateralized loan. The facilities consist of a total of 1,285 licensed beds, and will be operated by and leased to a third party operator. We contributed approximately $2.0 million to the Fantasia III JV in connection with the acquisition.

Under the Fantasia III LLC Agreement, net operating cash flow of the Fantasia III JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 75% to Fantasia and 25% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia III JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 75% to Fantasia and 25% to the Operating Partnership.

As of September 30, 2017, the balance of our equity-method investment related to the Fantasia III JV was approximately $1.9 million.

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into the FPH LLC Agreement with Fantasia, Atlantis and Fantasy, and formed the FPH JV. The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. See Note 13 for further information.

Distributions from Equity-Method Investments

As of September 30, 2017 and December 31, 2016, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	September 30,		December 31,
	2017		2016
SUL JV	$	168,000	$	365,000
Fantasia JV		29,000		31,000
Fantasia II JV		60,000		-
Fantasia III JV		59,000		-
Total	$	316,000	$	396,000

For the nine months ended September 30, 2017 and 2016, we have received cash distributions, which are included in our cash flows from operating activities in tenant and other receivables, and cash flows from investing activities, as follows:

	Nine Months Ended September 30, 2017						Nine months Ended September 30, 2016
	Total Cash		Cash Flow		Cash Flow		Total Cash		Cash Flow		Cash Flow
	Distributions		from		from		Distributions		from		from
	Received		Operating		Investing		Received		Operating		Investing
SUL JV	$	556,000	$	117,000	$	439,000	$	340,000	$	167,000	$	173,000
Fantasia JV		136,000		19,000		117,000		-		-		-
Fantasia II JV		148,000		96,000		52,000		-		-		-
Fantasia III JV		-		-		-		-		-		-
Total	$	840,000	$	232,000	$	608,000	$	340,000	$	167,000	$	173,000

Acquisition and Asset Management Fees

We serve as the manager of our Equity-Method Investments and provide management services in exchange for fees and reimbursements. As the manager, we are paid an acquisition fee, as defined in the agreements. Additionally, we are paid an annual asset management fee for managing the properties held by our Equity-Method Investments, as defined in the agreements. For the three months ended September 30, 2017 and 2016, we recorded approximately $0.3 million and $0.2 million, respectively, in acquisition and asset management fees from our Equity-Method Investments. For the nine months ended September 30, 2017 and 2016, we recorded approximately $0.6 million and $0.3 million, respectively, in acquisition and asset management fees from our Equity-Method Investments.

XML

Receivables

9 Months Ended

Sep. 30, 2017

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

6. Receivables

Notes Receivable

Fernhill Note

In September 2014, we loaned approximately $140,000 to the operator of the Fernhill facility for certain property improvements at a fixed rate of interest of 6% payable in monthly installments through January 2019. As of September 30, 2017 and December 31, 2016, the balance on the note was approximately $47,000 and $71,000, respectively.

Nantucket Note

On January 7, 2015, through our Operating Partnership, we sold Sherburne Commons to The Residences at Sherburne Commons, Inc. (“Sherburne Buyer”), an unaffiliated Massachusetts non-profit corporation, in exchange for $5.0 million, as evidenced by a purchase money note from Sherburne Buyer to us as the lender.

The $5.0 million purchase money note is collateralized by the Sherburne Commons property, bears an annual interest rate of 3.5% and matures on December 31, 2017. Interest payments on the note are due monthly and are recorded as payments are received. Outstanding and unpaid principal due shall be paid from the net proceeds payable to Sherburne Buyer from the sale of the residential cottages in Sherburne Commons. We may also participate in additional interest of up to $1 million from 50% of the net proceeds of cottage sales through December 31, 2018.

As of September 30, 2017, we have not collected any funds related to the principal on the note and the net carrying amount of the note receivable was approximately $4.7 million. For the three months ended September 30, 2017 and 2016, we received interest payments from the note of approximately $43,000 and $43,000, which is recorded as interest income from notes receivable in our condensed consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, we received interest payments from the note of approximately $129,000 and $115,000, which is recorded as interest income from notes receivable in our condensed consolidated statements of operations.

Tenant and Other Receivables, Net

Tenant and other receivables, net consists of:

	September 30,		December 31,
	2017		2016
Accounts receivable from resident services, net of allowance for doubtful accounts of $332,000 and $267,000, respectively	$	775,000	$	866,000
Straight-line rent receivables		2,721,000		2,384,000
Distribution receivables from Equity-Method Investments		316,000		396,000
Receivable from JV 2 properties		240,000		362,000
Other receivables		263,000		254,000
Total	$	4,315,000	$	4,262,000

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2017

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

7. Related Party Transactions

CRA

Prior to the termination of our advisory agreement on April 1, 2014 with CRA (our former advisor, a related party), we incurred costs related to fees paid and costs reimbursed for services rendered to us by CRA through March 31, 2014. Some of the fees we had paid to CRA were considered to be in excess of allowed amounts and, therefore, CRA was required to reimburse us for the amount of the excess costs we paid to them. As of September 30, 2017 and December 31, 2016, the receivables from CRA are fully reserved due to the uncertainty of collectability and are included in tenant and other receivables in our condensed consolidated balance sheets.

As of September 30, 2017 and December 31, 2016, we had the following receivables and reserves:

	Receivables		Reserves		Balance
Organizational and offering costs	$	738,000	$	(738,000)	$	-
Asset management fees and expenses		32,000		(32,000)		-
Operating expenses (direct and indirect)		189,000		(189,000)		-
Operating expenses (2%/25% Test)		1,717,000		(1,717,000)		-
Total	$	2,676,000	$	(2,676,000)	$	-

Equity-Method Investments

See Note 5 for further discussion of distributions and acquisition and asset management fees related to our Equity-Method Investments. 

XML

Concentration of Risk

9 Months Ended

Sep. 30, 2017

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

8. Concentration of Risk

Our cash is generally invested in short-term money market instruments. As of September 30, 2017, we had cash and cash equivalent accounts in excess of FDIC-insured limits. However, we do not believe the risk associated with this excess is significant.

As of September 30, 2017, we owned one property in California, three properties in Oregon, four properties in North Carolina, one property in Texas, one property in Illinois, and one property in Arizona (excluding the 30 properties held by our Equity-Method Investments). Accordingly, there is a geographic concentration of risk subject to economic conditions in certain states.

Additionally, for the three months ended September 30, 2017, we leased our 11 real estate properties to four different tenants under long-term triple net leases, three of which comprise 50%, 30% and 19% of our tenant rental revenue. For the three months ended September 30, 2016, we leased our 11 healthcare properties to five different tenants under long-term triple net leases, two of which comprised 51% and 30% of our tenant rental revenue. For the nine months ended September 30, 2017, we leased our 11 healthcare properties to four different tenants under long-term triple net leases, three of which comprise 55%, 33% and 11% of our tenant rental revenue. For the nine months ended September 30, 2016, we leased our 11 healthcare properties to five different tenants under long-term triple net leases, two of which comprise 48% and 28% of our tenant rental revenue.

As of September 30, 2017 and December 31, 2016, we have one tenant that constitutes a significant asset concentration, as the net assets of the tenant are 36% and 38%, respectively, of our total assets as of December 31, 2016.

XML

Fair Value Measurements of Financial Instruments

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

9. Fair Value Measurements of Financial Instruments

Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, notes receivable, deposits, tenant and other receivables, certain other assets, accounts payable and accrued liabilities, accrued salaries and benefits, security deposits and loans payable. With the exception of the Nantucket note receivable (see Note 6) and loans payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.

As of September 30, 2017 and December 31, 2016, the fair value of the Nantucket note receivable (see Note 6) was approximately $4.9 million compared to the carrying value of approximately $4.7 million. The fair value of the note receivable was estimated based on cash flow analysis at an assumed market rate of interest. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes receivable are classified as Level 3 assets within the fair value hierarchy.

As of September 30, 2017 and December 31, 2016, the fair value of our loans payable was approximately $63.4 million and $54.3 million compared to the carrying value of approximately $62.9 million and $53.5 million, respectively. The fair value of our loans payable is estimated using lending rates available to us for financial instruments with similar terms and maturities. To estimate fair value as of September 30, 2017, we utilized a discount rate ranging from 4.4% to 7.8% and a weighted-average discount rate of 4.9%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our loans payable are classified as Level 3 assets within the fair value hierarchy.

As a result of our ongoing analysis for potential impairment of our investments in real estate, we may be required to adjust the carrying value of certain assets to their estimated fair values, or estimated fair value less selling costs, under certain circumstances. No impairments were recorded during the nine months ended September 30, 2017 and 2016.

At September 30, 2017 and December 31, 2016, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

10. Commitments and Contingencies

We conduct a Phase I assessment for each of our properties at acquisition to evaluate whether hazardous or toxic substances are present on the properties. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our consolidated financial condition, results of operations and cash flows. Further, we are not aware of any 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.

Our commitments and contingencies include the usual obligations of real estate owners and licensed operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial condition, results of operations and cash flows. We are also subject to contingent losses resulting from litigation against the Company.

On April 1, 2014, CRA and Cornerstone Ventures, Inc. filed a complaint in the Superior Court of California for the County of Orange-Central Justice Center, Case No. 30-2014-00714004-CU-BT-CJC, naming the Company, its directors and two of its officers as defendants, seeking declaratory and injunctive relief and compensatory and punitive damages. On April 17, 2014, Judge Nakamura denied in its entirety plaintiffs’ ex parte application for a temporary restraining order to show cause why a preliminary injunction against the defendants should not issue.  On May 19, 2014, the Company filed a counter claim against plaintiffs and certain individuals affiliated with CRA and affiliated entities. The Company continues to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend itself. . We filed motions for summary adjudication on plaintiffs’ claims and on our cross claims. The court heard oral argument on the motions for summary adjudication and granted the motions in part and denied the motions part. A trial is scheduled to commence on March 26, 2018.

A bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC or Healthcare Real Estate Qualified Purchasers Fund, LLC.  Following the dismissal of the involuntary bankruptcy petition filed against it, HCRE filed a motion for attorneys’ fees and damages and a separate complaint for violation of the automatic stay against the petitioning creditors and the Company in the United States Bankruptcy Court of the District of Delaware.  At a status hearing, the Bankruptcy Court expressed concern about HCRE commencing this litigation and urged the parties to mediate the issues. A mediation was held but the parties did not reach a settlement. The Bankruptcy Court recently granted a motion to dismiss the complaint for violation of the automatic stay filed jointly by the petitioning creditors and us, and dismissed the complaint with prejudice.  We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

Friendship Haven and HMG Services Management Agreement

Under our three-year management agreement with HMG (see Note 3), dated January 1, 2017, either party may terminate the agreement by written notice to the other party. However, if we terminate the agreement within one year, we are obligated to pay a termination fee up to three times the highest monthly management fee paid to HMG prior to the termination. For 2017, if we terminated the agreement, we expect the termination fee could be approximately $130,000.

Indemnification and Employment Agreements

We have entered into indemnification agreements with certain of our executive officers and directors which indemnify them against all judgments, penalties, fines and amounts paid in settlement and all expenses actually and reasonably incurred by him or her in connection with any proceeding. Additionally, in September 2015, we entered into three-year employment agreements with our officers which include customary terms relating to salary, bonus, position, duties and benefits (including eligibility for equity compensation), as well as a cash payment following a change in control of the Company, as defined in such agreements.

Management of our Equity-Method Investments

As the manager of our Equity-Method Investments, we are responsible for managing the day-to-day operations and are, thus, subject to contingencies that may arise in the normal course of their operations. Additionally, we could be subject to a capital call from our Equity-Method Investments.

XML

Equity

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

11. Equity

Upon the grant of stock options, we determine the exercise price by using our estimated per-share value, which is calculated by aggregating the estimated fair value of our investments in real estate and the estimated fair value of our other assets, subtracting the estimated fair value of our liabilities, which approximate book value, utilizing a discount for the fact that the shares are not currently traded on a national securities exchange and a control premium, and divided by the total by the number of our common shares outstanding at the time the options were granted.

The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions required by the model include the risk-free interest rate, the expected life of the options, the expected stock price volatility over the expected life of the options, and the expected distribution yield. Compensation expense for employee stock options is recognized ratably over the vesting term. The expected life of the options was based on evaluations of expected future exercise behavior. The risk-free interest rate was based on the U.S. Treasury yield curve at the date of grant with maturity dates approximating the expected term of the options at the date of grant. Volatility was based on historical volatility of the stock prices for a sample of publicly traded companies with risk profiles similar to ours. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time, including the expected stock price volatility and the expected life of an option.

On January 1, 2017, the Compensation Committee of the Board of Directors approved the issuance of 99,000 stock options under our Summit Healthcare REIT, Inc. 2015 Omnibus Incentive Plan (“Incentive Plan”) to our directors and employees. The stock options vest monthly beginning on February 1, 2017 and continuing over a three-year period through January 1, 2020. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.35.

In March 2017, 182,796 stock options were issued under our Incentive Plan to executive management as part of their 2016 performance bonus arrangement. The options vested 33% on the grant date and the remaining 67% will vest in equal monthly installments beginning January 1, 2017 and continuing over a two-year period through December 31, 2018. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.29.

On April 3, 2017, the Compensation Committee of the Board of Directors approved the issuance of 170,000 stock options to executive management related to their performance goals for 2016. The stock options were granted under the Incentive Plan, with 33% vesting on the grant date and the remaining 67% vesting in equal monthly installments beginning May 1, 2017 and continuing over a two-year period through April 2019. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.30.

The estimated fair value using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2017
Stock options granted		451,796
Expected Volatility		23.58	%
Expected lives		2.22 years
Risk-free interest rate		1.24	%
Dividends		0	%
Fair value per share	$	0.31

The following table summarizes our stock options as of September 30, 2017:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
Options outstanding at January 1, 2017		400,000	$	1.72
Granted		451,796		2.03
Exercised		—
Cancelled/forfeited		—
Options outstanding at September 30, 2017		851,796	$	1.88		9.05	$	551,000
Options exercisable at September 30, 2017		575,409	$	1.83		8.62	$	402,000

For our outstanding non-vested options as of September 30, 2017, the weighted average grant date fair value per share was $0.29. As of September 30, 2017, we have unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures, which is expected to be recognized as follows:

Years Ending December 31,
October 1, 2017 to December 31, 2017	$	18,000
2018		46,000
2019		17,000
2020		1,000
	$	82,000

The stock-based compensation expense reported for the three months ended September 30, 2017 and 2016 was approximately $18,000 and $7,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations. The stock-based compensation expense reported for the nine months ended September 30, 2017 and 2016 was approximately $83,000 and $22,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.

XML

Dispositions

9 Months Ended

Sep. 30, 2017

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

12. Dispositions

In accordance with ASC 360, Property, Plant & Equipment, we report results of operations from real estate assets that meet the definition of a component of an entity that have been sold, or meet the criteria to be classified as held for sale, as discontinued operations.

Disposal of Real Estate

On April 29, 2016, we contributed Riverglen to the SUL JV (see Note 5) and, therefore, Riverglen is no longer consolidated in our condensed consolidated financial statements. The aggregate net value of Riverglen at the date of the contribution was approximately $3.9 million, which approximated the Operating Partnership’s carrying value on the date of contribution (total assets were approximately $9.2 million less liabilities of approximately $5.3 million, which included approximately $4.7 million in a HUD insured loan payable).

Medford Purchase Option and Sale

In September 2016, the option holder for our Medford property provided notice to us to exercise its option to purchase the property. On October 31, 2016, we sold the Medford property. The total sale price was $10.8 million, of which we received approximately $3.8 million in cash. The aggregate carrying value of Medford at the date of the sale was approximately $1.3 million, (total assets were approximately $8.0 million less liabilities of approximately $6.7 million, which included approximately $6.7 million in a HUD-insured loan payable). As a result of the sale, as of November 1, 2016, Medford is no longer consolidated in our consolidated financial statements. Additionally, in October 2016, we recorded a net gain of approximately $2.8 million related to the sale.

XML

Subsequent Event

9 Months Ended

Sep. 30, 2017

Subsequent Events [Abstract]

Subsequent Events [Text Block]

13. Subsequent Event

Summit Fantasy Pearl Holdings, LLC

On October 2, 2017, through our Operating Partnership, we entered into the FPH LLC Agreement with Fantasia, Atlantis, and Fantasy and formed the FPH JV. The FPH JV is not consolidated in our consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements.

In November 2017, through the FPH JV, we acquired a 10% interest in six skilled nursing facilities, located in Iowa, for a total aggregate purchase price of $29.5 million for the properties, which was funded through capital contributions from the members of the FPH JV plus the proceeds from a collateralized loan. The facilities consist of a total of 551 licensed beds, and will be operated by and leased to a third party operator.

Under the FPH LLC Agreement, net operating cash flow of the FPH JV will be distributed quarterly, first to the members pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.

We serve as the manager of the FPH JV and provide management services in exchange for fees and reimbursements. Under the FPH LLC Agreement, as the manager, we are paid an acquisition fee upon closing of an acquisition, as defined in the agreement, based on the purchase price paid for the properties. Additionally, we are paid on a quarterly basis an annual asset management fee equal to 0.75% of the initial capital contribution of the members.

We contributed approximately $1.0 million for the acquisition.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and CHP LLC (of which the Company owns  95%). All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying financial information reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-13. This ASU adds, amends, and supersedes SEC paragraphs of the Accounting Standards Codification (ASC) related to the adoption and transition provisions of ASU No. 2014-09, Revenue From Contracts with Customers and ASU 2016-02, Leases, for public business entities. The ASU is titled ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.

ASU 2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially delaying the effective date of the revenue recognition and leases standards for a subset of public entities. The SEC Observer made the following SEC Staff Announcement, “Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02,” at the July 20, 2017 EITF meeting:

The SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity, except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC, adopting: (1) ASC Topic 606,  Revenue from Contracts with Customers for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and (2) ASC Topic 842, Leases for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC may still elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates.

This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This announcement is not applicable to other public business entities. As we include our significant tenant’s financials as an exhibit to our Form 10-K report, we will adopt this ASU as it relates to those financial statements.

In November 2016, FASB issued ASU No. 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash. The amendments apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows.

The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements; however, once adopted, restricted cash will be presented with cash and cash equivalents in our condensed consolidated statements of cash flows and, at September 30, 2017, that amount was approximately $3.6 million.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We continue to evaluate the impact of our adoption of this new standard in 2019 and we estimate the effect on our condensed consolidated financial statements could be approximately $0.3 million, as we have an operating lease that will be added to the assets and liabilities of our condensed consolidated balance sheet. As generally accepted accounting principles for lessors remains mostly unchanged, we do not expect it to have an impact on our leases from our tenants.

The FASB has issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

We have evaluated the impact that our adoption of this new revenue recognition standard in the first quarter of 2018 will have on our rental revenues and we do not expect this to have a significant impact on our condensed consolidated financial statements as our rental revenue relates to triple net leases and related tenant reimbursements, which are excluded from this standard.  Non-lease components will be evaluated under this standard upon adoption of ASU No. 2016-02.  Additionally, we continue to evaluate the impact this standard may have on our interest income revenue and acquisition and asset management fees, which have historically been less than five percent of our total revenue.

We continue to evaluate the impact the adoption of this ASU will have on our resident services and fee income. Approximately 80% of this revenue is related to Medicare and Medicaid, for which the recorded revenue is already reduced to the net expected amounts we will be entitled to receive from these parties. Additional estimations using a portfolio approach may be required for certain insurance payors and private payments.

The Company has elected the modified retrospective transition method. Upon adoption of this ASU in 2018, the Company anticipates that additional disclosures will be necessary to separately disclose the components of our total revenue. The Company expects to complete its evaluation of this ASU during the fourth quarter of 2017.

XML

Investments in Real Estate Properties (Tables)

9 Months Ended

Sep. 30, 2017

Real Estate [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

As of September 30, 2017 and December 31, 2016, our investments in our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, were as follows:

	September 30,		December 31,
	2017		2016
Land	$	7,318,000	$	5,548,000
Buildings and improvements		69,467,000		58,450,000
Less: accumulated depreciation		(8,496,000)		(7,011,000)
Buildings and improvements, net		60,971,000		51,439,000
Furniture and fixtures		6,943,000		6,165,000
Less: accumulated depreciation		(5,121,000)		(4,413,000)
Furniture and fixtures, net		1,822,000		1,752,000
Real estate properties, net	$	70,111,000	$	58,739,000

Schedule of Real Estate Properties [Table Text Block]

As of September 30, 2017, our portfolio consisted of 11 real estate properties which were  100% leased to the tenants of the related facilities. The following table provides summary information regarding our portfolio (excluding the 30 properties owned by our unconsolidated Equity-Method Investments) as of September 30, 2017:

						Loans
						Payable,
						Excluding
						Debt
				Purchase		Issuance		Number of
Property	Location	Date Purchased	Type(2)	Price		Costs		Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,813,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,222,000		63
Friendship Haven Healthcare and Rehabilitation Center (1)	Galveston County, TX	September 14, 2012	SNF		15,000,000		6,904,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		7,038,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,671,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,244,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,740,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		4,005,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,379,000		64
Sundial Assisted Living	Redding, CA	December 18, 2013	AL		3,500,000		2,800,000		65
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC		13,400,000		10,050,000		90
Total:				$	82,265,000	$	62,866,000		854

(1) We became the licensed operator and tenant of the facility on May 1, 2014 through Friendswood TRS. Upon becoming the licensed operator and tenant of the facility, we entered into a management agreement with an affiliate of Stonegate Senior Living (“Stonegate”). As of December 31, 2016, we terminated the management agreement with Stonegate and entered into a new three-year management agreement with HMG Services, L.L.C. (“HMG”), whereby HMG will receive a management fee of up to 5% of certain adjusted gross revenues from operations of the facility (see Note 10).

(2) SNF is an abbreviation for skilled nursing facility.

AL is an abbreviation for assisted living facility.

MC is an abbreviation for memory care facility.

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

The future minimum lease payments to be received under existing operating leases for our 11 real estate properties, which include those acquired through our subsidiaries and CHP, LLC, but excluding the 30 properties owned by our unconsolidated Equity-Method Investments, for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows ⁽¹⁾:

Years ending
October 1, 2017 to December 31, 2017	$	1,555,000
2018		6,296,000
2019		6,429,000
2020		6,565,000
2021		6,703,000
Thereafter		51,195,000
	$	78,743,000

(1) This schedule does not reflect future rental revenues from the potential renewal or replacement of existing and future leases, tenant reimbursements, and the rental revenues for the tenant (Friendswood TRS) of Friendship Haven.

XML

Loans Payable (Tables)

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

As of September 30, 2017 and December 31, 2016, our loans payable consisted of the following:

	September 30, 2017		December 31, 2016
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.2% at September 30, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000	$	-
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $15,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.3% at September 30, 2017 and 5.0% at December 31, 2016, respectively), due in October 2018, and collateralized by Sundial Assisted Living.	$	2,800,000	$	2,800,000
Loan payable to Oxford Finance, LLC in monthly installments of approximately $53,000, including interest at LIBOR (floor of 0.75%) plus 6.50% (7.8% as of September 30, 2017 and 7.25% as of December 31, 2016, respectively) due in October 2019, collateralized by Friendship Haven.		6,904,000		6,978,000
Loans payable to Lancaster Pollard (insured by HUD) in monthly installments of approximately $209,000, including interest, ranging from a fixed rate of 3.70% to 3.78%, due in September 2039 through January 2051, and collateralized by Sheridan, Fernhill, Pacific Health, Shelby, Hamlet, Carteret, Aledo and Danby.		43,112,000		43,768,000
		62,866,000		53,546,000
Less debt issuance costs		(1,864,000)		(1,829,000)
Total loans payable	$	61,002,000	$	51,717,000

Schedule of Maturities of Long-term Debt [Table Text Block]

The principal payments due on the loans payable (excluding debt issuance costs) for the period from October 1, 2017 to December 31, 2017 and for each of the four following years and thereafter ending December 31 are as follows:

	Principal
Years Ending	Amount
October 1, 2017 to December 31, 2017	$	249,000
2018		13,870,000
2019		7,725,000
2020		986,000
2021		1,024,000
Thereafter		39,012,000
	$	62,866,000

XML

Equity-Method Investments (Tables)

9 Months Ended

Sep. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

Schedule of Distribution from Equity Method Investments [Table Text Block]

As of September 30, 2017 and December 31, 2016, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	September 30,		December 31,
	2017		2016
SUL JV	$	168,000	$	365,000
Fantasia JV		29,000		31,000
Fantasia II JV		60,000		-
Fantasia III JV		59,000		-
Total	$	316,000	$	396,000

Schedule of Cash Distributions Included in Cash Flows from Operating and Investing Activities [Table Text Block]

For the nine months ended September 30, 2017 and 2016, we have received cash distributions, which are included in our cash flows from operating activities in tenant and other receivables, and cash flows from investing activities, as follows:

	Nine Months Ended September 30, 2017						Nine months Ended September 30, 2016
	Total Cash		Cash Flow		Cash Flow		Total Cash		Cash Flow		Cash Flow
	Distributions		from		from		Distributions		from		from
	Received		Operating		Investing		Received		Operating		Investing
SUL JV	$	556,000	$	117,000	$	439,000	$	340,000	$	167,000	$	173,000
Fantasia JV		136,000		19,000		117,000		-		-		-
Fantasia II JV		148,000		96,000		52,000		-		-		-
Fantasia III JV		-		-		-		-		-		-
Total	$	840,000	$	232,000	$	608,000	$	340,000	$	167,000	$	173,000

XML

Receivables (Tables)

9 Months Ended

Sep. 30, 2017

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Tenant and other receivables, net consists of:

	September 30,		December 31,
	2017		2016
Accounts receivable from resident services, net of allowance for doubtful accounts of $332,000 and $267,000, respectively	$	775,000	$	866,000
Straight-line rent receivables		2,721,000		2,384,000
Distribution receivables from Equity-Method Investments		316,000		396,000
Receivable from JV 2 properties		240,000		362,000
Other receivables		263,000		254,000
Total	$	4,315,000	$	4,262,000

XML

Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2017

Related Party Transactions [Abstract]

Schedule of Related Party Transactions [Table Text Block]

As of September 30, 2017 and December 31, 2016, we had the following receivables and reserves:

	Receivables		Reserves		Balance
Organizational and offering costs	$	738,000	$	(738,000)	$	-
Asset management fees and expenses		32,000		(32,000)		-
Operating expenses (direct and indirect)		189,000		(189,000)		-
Operating expenses (2%/25% Test)		1,717,000		(1,717,000)		-
Total	$	2,676,000	$	(2,676,000)	$	-

XML

Equity (Tables)

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The estimated fair value using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2017
Stock options granted		451,796
Expected Volatility		23.58	%
Expected lives		2.22 years
Risk-free interest rate		1.24	%
Dividends		0	%
Fair value per share	$	0.31

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following table summarizes our stock options as of September 30, 2017:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
Options outstanding at January 1, 2017		400,000	$	1.72
Granted		451,796		2.03
Exercised		—
Cancelled/forfeited		—
Options outstanding at September 30, 2017		851,796	$	1.88		9.05	$	551,000
Options exercisable at September 30, 2017		575,409	$	1.83		8.62	$	402,000

Schedule of Unrecognized Compensation Cost, Nonvested Awards [Table Text Block]

As of September 30, 2017, we have unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures, which is expected to be recognized as follows:

Years Ending December 31,
October 1, 2017 to December 31, 2017	$	18,000
2018		46,000
2019		17,000
2020		1,000
	$	82,000

XML

Organization (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Feb. 28, 2017
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	20.00%
Equity Method Investment, Ownership Percentage			20.00%
Real Estate Investment Trust [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage	0.00%
Cornerstone Operating Partnership [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	99.88%
Cornerstone Operating Partnership [Member] | Cornerstone Realty Advisors, LLC [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest by Affiliates	0.12%
Cornerstone Healthcare Partners [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	95.00%
Cornerstone Healthcare Real Estate Fund [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest by Affiliates	5.00%
JV Properties [Member] | Chref Two [Member]
Organization [Line Items]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	5.00%
JV Properties [Member] | Chref One [Member]
Organization [Line Items]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	4.70%
Summit Union Life Holding [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	10.00%
Five JV Propertie [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	95.00%
Summit Healthcare Six Properties [Member]
Organization [Line Items]
Real Estate Investment Trust Own Percentage	100.00%
Summit Health Care Two Properties [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage	20.00%
Four JV Properties [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	95.30%
Real Estate Investment Trust Own Percentage	95.30%
Fantasia Two Jv [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	20.00%	20.00%
One JV Property [Member]
Organization [Line Items]
Real Estate Investment Trust Own Percentage	0.00%
Summit Healthcare Nine Properties [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage	10.00%
Fantasia Three Jv [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	10.00%

XML

Summary of Significant Accounting Policies (Details Textual) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Summary of Significant Accounting Policies [Line Items]
Restricted Cash and Cash Equivalents	$ 3,575,000	$ 3,806,000
Operating Leases, Future Minimum Payments Receivable, Total	78,743,000
Accounting Standards Update 2016-02 [Member]
Summary of Significant Accounting Policies [Line Items]
Operating Leases, Future Minimum Payments Receivable, Total	$ 300,000
Cornerstone Healthcare Partners LLC [Member]
Summary of Significant Accounting Policies [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	95.00%

XML

Investments in Real Estate Properties (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Real Estate Properties [Line Items]
Real estate properties, net	$ 70,111,000	$ 58,739,000
Land [Member]
Real Estate Properties [Line Items]
Real estate properties, net	7,318,000	5,548,000
Building Improvements [Member]
Real Estate Properties [Line Items]
Investments in real estate	69,467,000	58,450,000
Less: accumulated depreciation	(8,496,000)	(7,011,000)
Real estate properties, net	60,971,000	51,439,000
Furniture and Fixture [Member]
Real Estate Properties [Line Items]
Investments in real estate	6,943,000	6,165,000
Less: accumulated depreciation	(5,121,000)	(4,413,000)
Real estate properties, net	$ 1,822,000	$ 1,752,000

XML

Investments in Real Estate Properties (Details 1)	9 Months Ended
	Sep. 30, 2017 USD ($)
Real Estate Properties [Line Items]
Purchase Price	$ 82,265,000
Loans Payable, excluding debt issuance costs	$ 62,866,000
Number of Beds	854
Sheridan Care Center [Member]
Real Estate Properties [Line Items]
Location	Sheridan, OR
Date Purchased	Aug. 03, 2012
Type of Property	SNF	[1]
Purchase Price	$ 4,100,000
Loans Payable, excluding debt issuance costs	$ 4,813,000
Number of Beds	51
Fernhill Care Center [Member]
Real Estate Properties [Line Items]
Location	Portland, OR
Date Purchased	Aug. 03, 2012
Type of Property	SNF	[1]
Purchase Price	$ 4,500,000
Loans Payable, excluding debt issuance costs	$ 4,222,000
Number of Beds	63
Friendship Haven Healthcare and Rehabilitation Center [Member]
Real Estate Properties [Line Items]
Location	Galveston County, TX	[2]
Date Purchased	Sep. 14, 2012	[2]
Type of Property	SNF	[1],[2]
Purchase Price	$ 15,000,000	[2]
Loans Payable, excluding debt issuance costs	$ 6,904,000	[2]
Number of Beds	150	[2]
Pacific Health and Rehabilitation Center [Member]
Real Estate Properties [Line Items]
Location	Tigard, OR
Date Purchased	Dec. 24, 2012
Type of Property	SNF	[1]
Purchase Price	$ 8,140,000
Loans Payable, excluding debt issuance costs	$ 7,038,000
Number of Beds	73
Danby House [Member]
Real Estate Properties [Line Items]
Location	Winston-Salem, NC
Date Purchased	Jan. 31, 2013
Type of Property	AL/MC	[1]
Purchase Price	$ 9,700,000
Loans Payable, excluding debt issuance costs	$ 7,671,000
Number of Beds	100
Brookstone of Aledo [Member]
Real Estate Properties [Line Items]
Location	Aledo, IL
Date Purchased	Jul. 02, 2013
Type of Property	AL	[1]
Purchase Price	$ 8,625,000
Loans Payable, excluding debt issuance costs	$ 7,244,000
Number of Beds	66
The Shelby House [Member]
Real Estate Properties [Line Items]
Location	Shelby, NC
Date Purchased	Oct. 04, 2013
Type of Property	AL	[1]
Purchase Price	$ 4,500,000
Loans Payable, excluding debt issuance costs	$ 4,740,000
Number of Beds	72
The Hamlet House [Member]
Real Estate Properties [Line Items]
Location	Hamlet, NC
Date Purchased	Oct. 04, 2013
Type of Property	AL	[1]
Purchase Price	$ 6,500,000
Loans Payable, excluding debt issuance costs	$ 4,005,000
Number of Beds	60
The Carteret House [Member]
Real Estate Properties [Line Items]
Location	Newport, NC
Date Purchased	Oct. 04, 2013
Type of Property	AL	[1]
Purchase Price	$ 4,300,000
Loans Payable, excluding debt issuance costs	$ 3,379,000
Number of Beds	64
Sundial Assisted Living [Member]
Real Estate Properties [Line Items]
Location	Redding, CA
Date Purchased	Dec. 18, 2013
Type of Property	AL	[1]
Purchase Price	$ 3,500,000
Loans Payable, excluding debt issuance costs	$ 2,800,000
Number of Beds	65
Pennington Gardens [Member]
Real Estate Properties [Line Items]
Location	Chandler, AZ
Date Purchased	Jul. 17, 2017
Type of Property	AL/MC	[1]
Purchase Price	$ 13,400,000
Loans Payable, excluding debt issuance costs	$ 10,050,000
Number of Beds	90

[1] SNF is an abbreviation for skilled nursing facility. AL is an abbreviation for assisted living facility. MC is an abbreviation for memory care facility.

[2] We became the licensed operator and tenant of the facility on May 1, 2014 through Friendswood TRS. Upon becoming the licensed operator and tenant of the facility, we entered into a management agreement with an affiliate of Stonegate Senior Living (“Stonegate”). As of December 31, 2016, we terminated the management agreement with Stonegate and entered into a new three-year management agreement with HMG Services, L.L.C. (“HMG”), whereby HMG will receive a management fee of up to 5% of certain adjusted gross revenues from operations of the facility (see Note 10).

XML

Investments in Real Estate Properties (Details 2)	Sep. 30, 2017 USD ($)
Real Estate Properties [Line Items]
October 1, 2017 to December 31, 2017	$ 1,555,000
2018	6,296,000
2019	6,429,000
2020	6,565,000
2021	6,703,000
Thereafter	51,195,000
Operating Leases, Future Minimum Payments Receivable	$ 78,743,000

XML

Investments in Real Estate Properties (Details Textual)	1 Months Ended	3 Months Ended		9 Months Ended
	Jul. 17, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Real Estate Properties [Line Items]
Number of Real Estate Properties		11		11		11
Percentage of Real Estate Properties				100.00%
Depreciation and amortization		$ 823,000	$ 898,000	$ 2,307,000	$ 2,791,000
Deferred Costs, Total		1,900,000		1,900,000		$ 1,900,000
Deferred Costs, Leasing, Net, Total		1,308,000		1,308,000		$ 1,413,000
Amortization of Deferred Leasing Commissions		$ 35,000	$ 40,000	$ 100,000	$ 100,000
Pennington Gardens [Member]
Real Estate Properties [Line Items]
Lessor Leasing Arrangements, Operating Leases, Term of Contract	15 years
Business Acquisition, Percentage of Voting Interests Acquired	100.00%
Business Combination, Consideration Transferred	$ 13,400,000
Business Combination, Acquisition Related Costs	$ 52,000
Stonegate [Member]
Real Estate Properties [Line Items]
Management Fee Rate				5.00%

XML

Loans Payable (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 62,866,000	$ 53,546,000
Less debt discounts	(1,864,000)	(1,829,000)
Total loans payable	61,002,000	51,717,000
Healthcare Financial Solutions, LLC [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	2,800,000	2,800,000
Oxford Finance, LLC [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	6,904,000	6,978,000
Lancaster Pollard Mortgage Company, LLC [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	43,112,000	43,768,000
Capital One, National Association Loan [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 10,050,000	$ 0

XML

Loans Payable (Details) (Parenthetical) - USD ($)	1 Months Ended		9 Months Ended
	Jul. 31, 2017	Jan. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Capital One, National Association Loan [Member]
Debt Instrument, Periodic Payment			$ 36,000
Debt Instrument, Description of Variable Rate Basis			LIBOR plus 2.95%
Debt Instrument, Basis Spread on Variable Rate	2.95%		2.95%
Debt Instrument, Interest Rate, Stated Percentage			4.20%
Debt Instrument, Maturity Date, Description			due in July 2018
Healthcare Financial Solutions, LLC [Member]
Debt Instrument, Periodic Payment		$ 15,000	$ 15,000
Debt Instrument, Description of Variable Rate Basis			LIBOR (floor of 0.50%) plus 4.0%
Debt Instrument, Basis Spread on Variable Rate			4.00%
Debt Instrument, Interest Rate, Stated Percentage			5.30%	5.00%
Debt Instrument, Maturity Date, Description			due in October 2018
Oxford Finance, LLC [Member]
Debt Instrument, Periodic Payment			$ 53,000
Debt Instrument, Description of Variable Rate Basis			LIBOR (floor of 0.75%) plus 6.50%
Debt Instrument, Basis Spread on Variable Rate			6.50%
Debt Instrument, Interest Rate, Stated Percentage			7.80%	7.25%
Debt Instrument, Maturity Date, Description			due in October 2019
Lancaster Pollard Mortgage Company, LLC [Member]
Debt Instrument, Periodic Payment			$ 209,000
Debt Instrument, Maturity Date, Description			due in September 2039 through January 2051
Lancaster Pollard Mortgage Company, LLC [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage			3.70%
Lancaster Pollard Mortgage Company, LLC [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage			3.78%

XML

Loans Payable (Details 1)	Sep. 30, 2017 USD ($)
Debt Instrument [Line Items]
October 1, 2017 to December 31, 2017	$ 249,000
2018	13,870,000
2019	7,725,000
2020	986,000
2021	1,024,000
Thereafter	39,012,000
Total	$ 62,866,000

XML

Loans Payable (Details Textual) - USD ($)	1 Months Ended		3 Months Ended		9 Months Ended
	Jul. 31, 2017	Jan. 31, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Debt Instrument [Line Items]
Interest Expense, Debt			$ 700,000	$ 700,000	$ 2,000,000	$ 2,200,000
Long-term Debt, Gross			62,866,000		62,866,000		$ 53,546,000
Debt Instrument, Unamortized Discount			1,864,000		1,864,000		1,829,000
Amortization of Debt Discount (Premium)			69,000	$ 34,000	0.1	0.1
Payments of Financing Costs					172,000	$ 29,000
Healthcare Financial Solutions, LLC [Member]
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment		$ 15,000			15,000
Long-term Debt, Gross			2,800,000		$ 2,800,000		2,800,000
Debt Instrument, Basis Spread on Variable Rate					4.00%
Capital One, National Association Loan [Member]
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment					$ 36,000
Debt Instrument, Face Amount	$ 10,100,000
Debt Instrument, Maturity Date	Jul. 17, 2018
Long-term Debt, Gross			$ 10,050,000		$ 10,050,000		$ 0
Debt Instrument, Basis Spread on Variable Rate	2.95%				2.95%
Payments of Financing Costs	$ 200,000

XML

Equity-Method Investments (Detail) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Dividends Receivable	$ 316,000	$ 396,000
Sul Jv [Member]
Dividends Receivable	168,000	365,000
Fantasia Jv [Member]
Dividends Receivable	29,000	31,000
Fantasia Two Jv [Member]
Dividends Receivable	60,000	0
Fantasia Three Jv [Member]
Dividends Receivable	$ 59,000	$ 0

XML

Equity-Method Investments (Detail 1) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Total Cash Distributions Received	$ 840,000	$ 340,000
Cash Flow from Operating	232,000	167,000
Cash Flow from Investing	608,000	173,000
SUL JV [Member]
Total Cash Distributions Received	556,000	340,000
Cash Flow from Operating	117,000	167,000
Cash Flow from Investing	439,000	173,000
Fantasia JV [Member]
Total Cash Distributions Received	136,000	0
Cash Flow from Operating	19,000	0
Cash Flow from Investing	117,000	0
Fantasia II JV [Member]
Total Cash Distributions Received	148,000	0
Cash Flow from Operating	96,000	0
Cash Flow from Investing	52,000	0
Fantasia III JV [Member]
Total Cash Distributions Received	0	0
Cash Flow from Operating	0	0
Cash Flow from Investing	$ 0	$ 0

XML

Equity-Method Investments (Details Textual) - USD ($)		1 Months Ended			3 Months Ended		9 Months Ended
	Aug. 10, 2017	Sep. 30, 2017	Apr. 30, 2017	Feb. 28, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Apr. 30, 2015
Equity Method Investment, Ownership Percentage				20.00%
Equity Method Investments		$ 8,369,000			$ 8,369,000		$ 8,369,000		$ 5,095,000
Dividends Receivable		316,000			316,000		316,000		396,000
Proceeds from Dividends Received							232,000	$ 167,000
Payments to Acquire Businesses, Gross							$ 82,265,000
Summit Fantasia Holdings II LLC [Member]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation							Under the Fantasia II LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia II JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.
Summit Fantasia Holdings III, LLC [Member]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation							Under the Fantasia III LLC Agreement, net operating cash flow of the Fantasia III JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 75% to Fantasia and 25% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia III JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 75% to Fantasia and 25% to the Operating Partnership.
Equity Method Investment, Ownership Percentage	10.00%
Equity Method Investments	$ 2,000,000	1,900,000			1,900,000		$ 1,900,000
Payments to Acquire Businesses, Gross	$ 60,000,000
Operating Partnership Llc [Member]
Equity Method Investment, Ownership Percentage											10.00%
Summit Healthcare Asset Management Llc [Member]
Equity Method Investments		3,500,000			3,500,000		3,500,000
Best Years Llc [Member]
Equity Method Investment, Ownership Percentage											90.00%
JV 2 Properties [Member]
Dividends Receivable		240,000	$ 110,000		240,000		$ 240,000		$ 362,000	$ 362,000
Adjustment To Additional Paid In Capital, Increase From Cash Addition		5,000
SUL JV acquired [Member]
Proceeds from Dividends Received			$ 122,000
Summit Fantasia Holdings, LLC [Member]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation							Under the Fantasia LLC Agreement, net operating cash flow of the Fantasia JV will be distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.
Equity Method Investment, Ownership Percentage						80.00%		80.00%
Equity Method Investments		1,100,000			1,100,000		$ 1,100,000
Noncontrolling Interest, Ownership Percentage By Parent						20.00%		20.00%
Summit Fantasia ll Holdings LLC [Member]
Asset Management Fees					300,000	$ 200,000	600,000	$ 300,000
Equity Method Investments		$ 1,800,000		$ 1,900,000	$ 1,800,000		$ 1,800,000
Payments to Acquire Businesses, Gross				27,000,000
Other Payments to Acquire Businesses				$ 200,000
Summit Union Life Holdings, LLC [Member]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation							Under the SUL LLC Agreement, net operating cash flow of the SUL JV will be distributed monthly, first to the Operating Partnership and Best Years pari passu up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing or another capital event will be paid first to the Operating Partnership and Best Years pari passu until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.

XML

Receivables (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable from resident services, net of allowance for doubtful accounts of $332,000 and $267,000, respectively	$ 775,000	$ 866,000
Straight-line rent receivables	2,721,000	2,384,000
Distribution receivables from the Equity-Method Investments	316,000	396,000
Receivable from JV 2 properties	240,000	362,000
Other receivables	263,000	254,000
Total	$ 4,315,000	$ 4,262,000

XML

Receivables (Details Textual) - USD ($)		3 Months Ended		9 Months Ended
	Jan. 07, 2015	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016	Sep. 30, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income Note Receivable		$ 43,000	$ 43,000	$ 129,000	$ 115,000
Financing Receivable, Net		4,777,000		4,777,000		$ 4,801,000
Resident Services [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for Doubtful Accounts Receivable		332,000		332,000		267,000
Nantucket Note [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts and Notes Receivable, Net		4,700,000		$ 4,700,000
Sherburne Commons, Inc., Money Note [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Receivable with Imputed Interest, Effective Yield (Interest Rate)	3.50%
Receivable with Imputed Interest, Face Amount	$ 5,000,000
Receivable with Imputed Interest, Description				We may also participate in additional interest of up to $1 million from 50% of the net proceeds of cottage sales through December 31, 2018.
Receivable with Imputed Interest, Due Date	Dec. 31, 2017
Operator [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net		$ 47,000		$ 47,000		$ 71,000	$ 140,000
Debt Instrument, Interest Rate, Stated Percentage							6.00%

XML

Related Party Transactions (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Receivable [Line Items]
Balance	$ 775,000	$ 866,000
Cornerstone Realty Advisors, LLC [Member]
Receivable [Line Items]
Receivables	2,676,000
Reserves	(2,676,000)
Balance	0
Organizational and offering costs [Member] | Cornerstone Realty Advisors, LLC [Member]
Receivable [Line Items]
Receivables	738,000
Reserves	(738,000)
Balance	0
Asset management fees and expenses [Member] | Cornerstone Realty Advisors, LLC [Member]
Receivable [Line Items]
Receivables	32,000
Reserves	(32,000)
Balance	0
Operating expenses (direct and indirect) [Member] | Cornerstone Realty Advisors, LLC [Member]
Receivable [Line Items]
Receivables	189,000
Reserves	(189,000)
Balance	0
Operating expenses (2%/25% Test) [Member] | Cornerstone Realty Advisors, LLC [Member]
Receivable [Line Items]
Receivables	1,717,000
Reserves	(1,717,000)
Balance	$ 0

XML

Related Party Transactions (Details Textual)	9 Months Ended
	Sep. 30, 2017
Minimum [Member]
Related Party Transaction [Line Items]
Percentage Of Restricted Operating Expenses	2.00%
Maximum [Member]
Related Party Transaction [Line Items]
Percentage Of Restricted Operating Expenses	25.00%

XML

Concentration of Risk (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Tenant three,Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	19.00%		11.00%
Tenant one, Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	50.00%	51.00%	55.00%	48.00%
Tenant two, Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	30.00%	30.00%	33.00%	28.00%
Assets, Total [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage			36.00%		38.00%

XML

Fair Value Measurements of Financial Instruments (Details Textual) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Notes Receivable, Fair Value Disclosure	$ 4,900,000
Fair Value Inputs Discount Rate Notes Payable	4.90%
Financing Receivable, Net	$ 4,777,000	$ 4,801,000
Loans Payable, Fair Value Disclosure	63,400,000	54,300,000
Long-term Debt, Gross	$ 62,866,000	$ 53,546,000
Minimum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value Inputs Discount Rate Notes Payable	4.40%
Maximum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value Inputs Discount Rate Notes Payable	7.80%

XML

Commitments and Contingencies (Details Textual)	Dec. 31, 2017 USD ($)
Hmg Services Llc [Member] | Scenario, Forecast [Member]
Operating Lease, Termination Fee	$ 130,000

XML

Equity (Details)	9 Months Ended
	Sep. 30, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted | shares	451,796
Expected Volatility	23.58%
Expected lives	2 years 2 months 19 days
Risk-free interest rate	1.24%
Dividends	0.00%
Fair value per share | $ / shares	$ 0.31

XML

Equity (Details 1)	9 Months Ended
	Sep. 30, 2017 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding at January 1, 2017	400,000
Options, Granted	451,796
Options, Exercised	0
Options, Cancelled/forfeited	0
Options outstanding at September 30, 2017	851,796
Options exercisable at September 30, 2017	575,409
Weighted Average Exercise Price, Options outstanding at January 1, 2017 | $ / shares	$ 1.72
Weighted Average Exercise Price, Granted | $ / shares	2.03
Options outstanding at September 30, 2017 | $ / shares	1.88
Options exercisable at September 30, 2017 | $ / shares	$ 1.83
Weighted Average remaining Contractual Term, Options outstanding at September 30,2017	9 years 18 days
Weighted Average Remaining Contractual Term, Options exercisable at September 30,2017	8 years 7 months 13 days
Aggregate Intrinsic Value, Options outstanding at September 30,2017 | $	$ 551,000
Aggregate Intrinsic Value, Options exercisable at September 30,2017 | $	$ 402,000

XML

Equity (Details 2)	Sep. 30, 2017 USD ($)
Schedule of Equity Method Investments [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 82,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost To Be Recognized, October 1, 2017 to December 31, 2017 [Member]
Schedule of Equity Method Investments [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	18,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost To Be Recognized, in 2018 [Member]
Schedule of Equity Method Investments [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	46,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost To Be Recognized, in 2019 [Member]
Schedule of Equity Method Investments [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	17,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost To Be Recognized, in 2020 [Member]
Schedule of Equity Method Investments [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 1,000

XML

Equity (Details Textual) - USD ($)	1 Months Ended			3 Months Ended		9 Months Ended
	Apr. 03, 2017	Mar. 31, 2017	Jan. 02, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						451,796
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value						$ 0.31
Share-based Compensation, Total						$ 83,000	$ 22,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term						9 years 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Exercise Price, Beginning Balance				$ 0.29		$ 0.29
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price						$ 2.03
General and Administrative Expense [Member]
Schedule of Equity [Line Items]
Share-based Compensation, Total				$ 18,000	$ 7,000	$ 83,000	$ 22,000
Executive Management [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		182,796
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage		33.00%
Executive Management [Member] | Vest in Equal Monthly Installment [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage		67.00%
Omnibus Incentive Plan [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value		$ 0.29
Omnibus Incentive Plan [Member] | Executive Management [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	33.00%
Omnibus Incentive Plan [Member] | Executive Management [Member] | Vest in Equal Monthly Installment [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	67.00%
Omnibus Incentive Plan [Member] | Directors And Employees [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	170,000		99,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 0.35
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	10 years		10 years
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 0.30
Director Incentive Stock Plan [Member]
Schedule of Equity [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		10 years

XML

Dispositions (Details Textual) - USD ($)	1 Months Ended
	Oct. 31, 2016	Sep. 30, 2016	Sep. 30, 2017	Dec. 31, 2016	Apr. 29, 2016
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Loans Payable, Total			$ 61,002,000	$ 51,717,000
Gain (Loss) on Sale of Properties	$ 2,800,000
Assets, Total			$ 97,440,000	$ 89,403,000
Medford property [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Right to Purchase the Property, Value		$ 10,800,000
Cash		3,800,000
Loans Payable Transferred Upon Disposition Of Properties		6,700,000
Property, Plant and Equipment, Net		1,300,000
Assets, Total		$ 8,000,000
Operating Partnership [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Loans Payable, Total					$ 4,700,000
Equity Method Investment, Summarized Financial Information, Assets					9,200,000
Equity Method Investment, Summarized Financial Information, Liabilities					5,300,000
Riverglen [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net Value Of Properties					$ 3,900,000

XML

Subsequent Event (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Nov. 30, 2017	Sep. 30, 2017	Dec. 31, 2016
Subsequent Event [Line Items]
Equity Method Investments		$ 8,369,000	$ 5,095,000
Payments to Acquire Businesses, Gross		$ 82,265,000
Subsequent Event [Member] | Summit Fantasy Pearl Holdings, LLC [Member]
Subsequent Event [Line Items]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation	Under the FPH LLC Agreement, net operating cash flow of the FPH JV will be distributed quarterly, first to the members pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.
Equity Method Investments	$ 1,000,000
Percentage of Asset Management Fees	0.75%
Subsequent Event [Member] | Summit Fantasy Pearl Holdings, LLC [Member] | Six Skilled Nursing Facilities [Member]
Subsequent Event [Line Items]
Noncontrolling Interest, Ownership Percentage By Parent	10.00%
Payments to Acquire Businesses, Gross	$ 29,500,000