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 March 31, 2018

¨ 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 May 4, 2018, 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	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
SIGNATURES		37
EX-31.1
EX-31.2
EX-32

Page 2 of 37

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	March 31, 2018			December 31, 2017
ASSETS
Cash and cash equivalents	$	9,806,000		$	3,851,000
Restricted cash		3,283,000			3,447,000
Real estate properties, net		69,094,000			69,063,000
Notes receivable		941,000			3,854,000
Deferred costs		7,000			9,000
Tenant and other receivables, net		4,053,000			4,106,000
Deferred leasing commissions, net		1,238,000			1,273,000
Other assets, net		246,000			225,000
Equity-method investments		9,091,000			9,241,000
Assets of Friendswood TRS held for sale		—			1,762,000
Total assets	$	97,759,000		$	96,831,000
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	$	2,325,000		$	1,902,000
Accrued salaries and benefits		50,000			96,000
Security deposits		1,208,000			1,208,000
Loans payable, net of debt issuance costs		62,648,000			60,831,000
Liabilities of Friendswood TRS held for sale		—			898,000
Total liabilities		66,231,000			64,935,000
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares  issued or outstanding at March 31, 2018 and December 31, 2017		—			—
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at March 31, 2018 and December 31, 2017		23,000			23,000
Additional paid-in capital		117,363,000			117,349,000
Accumulated deficit		(86,328,000	)		(86,040,000	)
Total stockholders’ equity		31,058,000			31,332,000
Noncontrolling interests		470,000			564,000
Total equity		31,528,000			31,896,000
Total liabilities and equity	$	97,759,000		$	96,831,000

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

Page 3 of 37

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended  March 31,
	2018			2017
Revenues:
Rental revenues	$	2,059,000		$	1,423,000
Tenant reimbursements		282,000			189,000
Acquisition and asset management fees		187,000			178,000
Interest income from notes receivable		24,000			44,000
		2,552,000			1,834,000
Expenses:
Property operating costs		353,000			292,000
General and administrative		1,089,000			1,231,000
Depreciation and amortization		795,000			730,000
		2,237,000			2,253,000
Operating income (loss)		315,000			(419,000	)
Income from equity-method investees		160,000			84,000
Other income		14,000			19,000
Interest expense		(1,069,000	)		(689,000	)
Gain on note receivable		186,000			—
Loss from continuing operations		(394,000	)		(1,005,000	)
Discontinued operations:
Gain on disposition of Friendswood TRS		109,000			—
Income from Friendswood TRS		—			505,000
Income from discontinued operations		109,000			505,000
Net loss		(285,000	)		(500,000	)
Noncontrolling interests’ share in net income		(3,000	)		(12,000	)
Net loss applicable to common stockholders	$	(288,000	)	$	(512,000	)
Basic and diluted loss per common share:
Continuing operations	$	(0.02	)	$	(0.04	)
Discontinued operations	$	—		$	0.02
Net loss applicable to common stockholders	$	(0.02	)	$	(0.02	)
Weighted average shares used to calculate basic and diluted net loss per common share		23,027,978			23,027,978

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

Page 4 of 37

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

For the Three Months Ended March 31, 2018

(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, 2018		23,027,978	$	23,000	$	117,349,000	$	(86,040,000	)	$	31,332,000		$	564,000		$	31,896,000
Stock-based compensation		—		—		14,000		—			14,000			—			14,000
Distributions paid to noncontrolling interests		—		—		—		—			—			(97,000	)		(97,000	)
Net (loss) income		—		—		—		(288,000	)		(288,000	)		3,000			(285,000	)
Balance — March 31, 2018		23,027,978	$	23,000	$	117,363,000	$	(86,328,000	)	$	31,058,000		$	470,000		$	31,528,000

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

Page 5 of 37

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(285,000	)	$	(500,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt issuance costs		71,000			34,000
Depreciation and amortization		795,000			743,000
Straight-line rents		(165,000	)		(106,000	)
Bad debt expense		—			46,000
Write-off of debt issuance costs		79,000			—
Stock-based compensation expense		14,000			31,000
Gain on disposition of Friendswood TRS		(109,000	)		—
Gain on note receivable		(186,000	)		—
Income from equity-method investees		(160,000	)		(84,000	)
Change in operating assets and liabilities:
Tenant and other receivables, net		364,000			154,000
Other assets		(21,000	)		133,000
Accounts payable and accrued liabilities		422,000			(267,000	)
Accrued salaries and benefits		(46,000	)		(90,000	)
Net cash provided by operating activities		773,000			94,000
Cash flows from investing activities:
Deferred costs and deposits		—			(3,000	)
Real estate acquisition		(715,000	)		—
Real estate additions		(74,000	)		(5,000	)
Investment in equity-method investees		(63,000	)		(1,725,000	)
Distributions received from equity-method investees		228,000			167,000
Payments from notes receivable		4,072,000			8,000
Net cash provided by (used in) investing activities		3,448,000			(1,558,000	)
Cash flows from financing activities:
Proceeds from issuance notes payable		9,017,000			—
Payments of loans payable		(7,105,000	)		(243,000	)
Distributions paid to noncontrolling interests		(97,000	)		(14,000	)
Deferred financing costs		(245,000	)		—
Net cash provided by (used in) financing activities		1,570,000			(257,000	)
Net increase (decrease) in cash, cash equivalents and restricted cash		5,791,000			(1,721,000	)
Cash, cash equivalents and restricted cash – beginning of period		7,298,000			14,563,000
Cash, cash equivalents and restricted cash – end of period (including cash of Friendswood TRS)		13,089,000			12,842,000
Cash of Friendswood TRS held for sale – end of period (see Note 12)		—			(279,000	)
Cash, cash equivalents and restricted cash – end of period	$	13,089,000		$	12,563,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	840,000		$	587,000

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

Page 6 of 37

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

(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, a 10% equity interest in an unconsolidated equity-method investment that holds nine properties and a 10% equity interest in an unconsolidated equity-method investment that holds six 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. 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 – Consolidated Joint Venture

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 March 31, 2018, 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 in the fifth JV Property.

Summit Union Life Holdings, LLC – Equity-Method Investment

In April 2015, through our Operating Partnership, we entered into a limited liability company 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. As of March 31, 2018 and December 31, 2017, we have a 10% interest in the SUL JV and the SUL JV owned 17 properties.

Summit Fantasia Holdings, LLC – Equity-Method Investment

In September 2016, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 20% interest in the Fantasia JV which owned two properties.

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, the Operating Partnership will have a 35% equity investment (see Notes 5 and 13) as of April 27, 2018.

Page 7 of 37

Summit Fantasia Holdings II, LLC – Equity-Method Investment

In December 2016, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 20% interest in the Fantasia II JV which owned two properties.

Summit Fantasia Holdings III, LLC– Equity-Method Investment

In July 2017, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 10% interest in the Fantasia III JV which owned nine properties.

Summit Fantasy Pearl Holdings, LLC– Equity-Method Investment

In October 2017, through our Operating Partnership, we entered into a limited liability company 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 condensed consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. As of March 31, 2018 and December 31, 2017, we have a 10% interest in the FPH JV which owned six properties.

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”) was our wholly-owned TRS, and is the licensed operator and tenant of Friendship Haven Healthcare and Rehabilitation Center (“Friendship Haven”). Effective as of January 1, 2018, we assigned our interests in Friendswood TRS to HMG Park Manor of Friendswood, LLC (“HMG”), the current management company of Friendship Haven. See Note 12 for further information regarding the transaction and the classification of assets, liabilities and operations for Friendswood TRS as of December 31, 2017 and for the three months ended March 31, 2017.

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, 2017 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2018. There have been no material changes to our policies since that filing except as noted under Recently Adopted Accounting Pronouncements.

The accompanying condensed consolidated balance sheet at December 31, 2017 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, 2017 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, 2017 filed with the SEC on March 16, 2018 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, 2017 have been omitted in this report.

Page 8 of 37

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, the Operating Partnership (of which the Company owns 99.88%) 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 three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.  

Recently Adopted Accounting Pronouncements

Restricted Cash

On January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  The amendments in this ASU 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. Our restricted cash consists of escrows from our tenants for property taxes, insurance and capital improvements required by and held our lenders.

The Company’s statements of cash flows for the three months ended March 31, 2017 has been retroactively restated for the effect of adopting this ASU, adding approximately $3.8 million to the beginning of the period cash, cash equivalents and restricted cash and approximately $4.0 million to the end of the period cash, cash equivalents and restricted cash. This reclassification resulted in a decrease to cash, cash equivalents and restricted cash provided by operating activities by $48,000 (related to the change in restricted cash held for operating activities) and a decrease to cash, cash equivalents and restricted cash used in investing activities by $233,000 (related to the change in restricted cash held for capital improvements).

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	9,806,000	$	3,851,000
Restricted cash		3,283,000		3,447,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows	$	13,089,000	$	7,298,000

Revenue Recognition

On January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606).  Our adoption of this new revenue recognition standard did not 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.  Additionally, interest income from our notes receivable is excluded from this standard.  

Acquisition fees arise from contractual agreements with our joint venture partners and are earned and paid at the time we close an acquisition, therefore, satisfying our performance obligations at that time.  We earn our asset management fees based on a percentage of the purchase price or equity raised.  As the manager, our duty is to manage the day-to-day operations of the special-purpose entities which own the properties.  Asset management fees are recognized as a single performance obligation (managing the properties) comprised of a series of distinct services (handling issues with our tenants, etc.). We believe that the overall service of asset management is substantially the same each day and has the same pattern of performance over the term of the agreement. As a result, each day of service represents a performance obligation satisfied at that point in time. These fees are recognized at the end of each period for services performed during that period, billed monthly and paid quarterly.

Revenue recognition for acquisition and asset management fees did not change under the new standard. The Company elected the modified retrospective transition method, however, no adjustments were required.

Page 9 of 37

Recently Issued Accounting Pronouncements

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.

Reclassifications

Certain amounts related to the assets, liabilities and operations of Friendswood TRS have been reclassified in the Company’s condensed consolidated balance sheets and condensed consolidated statements of operations for prior year due to the classification of Friendswood TRS as held for sale (see Note 12). These reclassifications had no effect on total assets or liabilities or cash flows from operating activities.  The reclassifications as of and for the three months ended March 31, 2017 increased our loss from continuing operations by $505,000, but did not change our net loss of $(500,000) or our net loss applicable to common stockholders of $(512,000).

See above under Recently Adopted Accounting Pronouncements for reclassifications due to the adoption of ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.

3. Investments in Real Estate Properties

As of March 31, 2018 and December 31, 2017, our investments in real estate properties including those held by our consolidated subsidiaries are set forth below:

	March 31, 2018			December 31, 2017
Land	$	8,003,000		$	7,318,000
Buildings and improvements		69,284,000			69,254,000
Less: accumulated depreciation		(9,556,000	)		(9,012,000	)
Buildings and improvements, net		59,728,000			60,242,000
Furniture and fixtures		6,829,000			6,755,000
Less: accumulated depreciation		(5,466,000	)		(5,252,000	)
Furniture and fixtures, net		1,363,000			1,503,000
Real estate properties, net	$	69,094,000		$	69,063,000

For the three months ended March 31, 2018 and 2017, depreciation expense (excluding leasing commission amortization) was approximately $0.8 million and $0.7 million, respectively.

Page 10 of 37

As of March 31, 2018, 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 36 properties owned by our unconsolidated Equity-Method Investments) as of March 31, 2018:

Property	Location	Date Purchased	Type(1)	Purchase  Price		Loans  Payable, Excluding Debt Issuance Costs		Number of Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,742,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,160,000		63
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012	SNF		15,000,000		9,017,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		6,935,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,612,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,188,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,703,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		3,973,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,352,000		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	$	64,532,000		854

(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.

Future Minimum Lease Payments

The future minimum lease payments to be received under existing operating leases owned as of March 31, 2018, for the period from April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years ending
April 1, 2018 to December 31, 2018	$	5,713,000
2019		7,740,000
2020		7,902,000
2021		8,068,000
2022		8,237,000
Thereafter		60,988,000
	$	98,648,000

2018 Acquisitions

Land Purchase – Redding, CA

On March 30, 2018, we purchased the land under the HP Redding facility, Sundial Assisted Living, for $685,000 plus approximately $30,000 in acquisition costs.  Additionally, the existing lease agreement for the Sundial Assisted Living tenant was amended to increase the annual rental payment by $36,000.

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 (allocated values were approximately $1.8 million to land, $10.9 million to building and improvements and $750,000 to furniture and fixtures), 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, and per the lease agreement, we received a letter of credit in lieu of a cash security deposit.

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 March 31, 2018 and December 31, 2017, total costs incurred were $1.9 million and the unamortized balance of capitalized leasing commissions was approximately $1.2 million and $1.3 million, respectively. Amortization expense for the three months ended March 31, 2018 and 2017 was approximately $35,000. 

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4. Loans Payable

As of March 31, 2018 and December 31, 2017, our loans payable consisted of the following:

	March 31, 2018			December 31, 2017
Loan payable to CIBC Bank USA in monthly installments of approximately $60,000, including cash collateral and interest at LIBOR plus 3.75% (5.63% at March 31, 2018), due in March 2021, and collateralized by Friendship Haven.	$	9,017,000		$	-
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.6% at March 31, 2018 and 4.3% at December 31, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000		$	10,050,000
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $18,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.7% at March 31, 2018 and 5.3% at December 31, 2017, 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% (8.1% as of December 31, 2017), was terminated in March 2018 and was collateralized by Friendship Haven as of December 31, 2017.		-			6,880,000
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.		42,665,000			42,889,000
		64,532,000			62,619,000
Less debt issuance costs		(1,884,000	)		(1,788,000	)
Total loans payable	$	62,648,000		$	60,831,000

As of March 31, 2018, we have total debt obligations of approximately $64.5 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 March 31, 2018, we were in compliance with all of our debt covenants.

In connection with our loans payable, we incurred debt issuance costs. As of March 31, 2018 and December 31, 2017, the unamortized balance of the debt issuance costs was approximately $1.9 million and $1.8 million, 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 March 31, 2018 and 2017, $150,000 and $34,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations (see below under Oxford Finance, LLC regarding the additional expense of approximately $79,000 due to the termination of that loan).

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During the three months ended March 31, 2018 and 2017, we incurred approximately $0.9 million and $0.7 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable (see below under Oxford Finance, LLC regarding the additional expense of $167,000 due to the termination of that loan).  

The principal payments due on the loans payable (excluding debt issuance costs) for the period from April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years Ending	Principal Amount
April 1, 2018 to December 31, 2018	$	13,705,000
2019		1,178,000
2020		1,224,000
2021		9,411,000
2022		1,063,000
Thereafter		37,951,000
	$	64,532,000

The following information describes our loan activity:

CIBC Bank USA

On March 30, 2018, CHP Friendswood SNF, LLC entered into $10,725,000, three-year term loan and security agreement with CIBC Bank USA, which is collateralized by the Friendship Haven facility. We received approximately $9.0 million on March 30, 2018 and the remaining $1.7 million on April 16, 2018. The loan bears interest at One Month LIBOR (London Interbank Offered Rate) plus 3.75%, and matures on March 30, 2021. The monthly payments, commencing in May 2018, consist of interest plus approximately $18,000 of cash loan guarantee payments, (increasing to $19,000 for year 2 and $20,000 for year 3), which will be held in a cash loan guarantee fund until maturity date. If the loan is refinanced prior to the maturity date, the loan payments in the cash loan guarantee fund will be released to us; otherwise at the maturity date, the loan payments in the cash loan guarantee fund will be released to the lender and applied to the outstanding principal balance. 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 a prepayment premium of 2% of the loan balance prior to the first anniversary and 1% thereafter through maturity. We incurred approximately $0.2 million in deferred financing costs. See table above listing loans payable for further information.

Capital One, National Association

In July 2017, in conjunction with the acquisition of Pennington Gardens (see Note 3), we entered into a first priority $10.1 million mortgage loan collateralized by Pennington Gardens with Capital One, National Association. The loan, which bears interest at One Month LIBOR (London Interbank Offered Rate) plus 2.95%, matures on July 17, 2018, with the option for two six-month extensions, subject to certain conditions. The loan may be prepaid with no penalty if the property is refinanced through HUD; otherwise we will be required to pay an exit fee of 2% of the loan balance. We incurred approximately $0.2 million in deferred financing costs. We are currently in negotiations to refinance this loan with a HUD-insured loan through Capital One. See table above listing loans payable for further information.

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

We have an amended loan agreement for the Sundial Assisted Living property located in Redding, California, with Healthcare Financial Solutions, LLC (“HFS”). See table above listing loans payable for further information. The loan was interest-only through January 2017 and commencing in February 2017, payments of approximately $5,000 per month are being held in a cash collateral fund until maturity date. As of March 31, 2018, the total monthly payment is approximately $18,000, including interest. If the loan is refinanced prior to the maturity date, the loan payments in the cash collateral fund will be released to us; otherwise at the maturity date, the loan payments in the cash collateral 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. We are currently in negotiations to refinance this loan with a HUD-insured loan through Lancaster Pollard.

Oxford Finance, LLC

We had a secured term loan agreement with Oxford Finance, LLC collateralized by the Friendship Haven facility that was terminated on March 30, 2018. See table above listing loans payable for further information. As we prepaid the loan prior to the maturity date of October 2019, we paid an exit fee of $87,500, a prepayment penalty of approximately $69,000 and $10,000 in other costs. These payments were expensed to interest expense in our condensed consolidated statements of operations for the three months ended March 31, 2018. Additionally, in March 2018, we expensed the unamortized balance of approximately $79,000 of debt issuance costs related to this loan and were recorded to interest expense in our condensed consolidated statements of operations.

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 March 31, 2018 and December 31, 2017, the balances of our Equity-Method Investments were approximately $9.1 million and $9.2 million, respectively, and are as follows:

Summit Union Life Holdings, LLC

The SUL JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the SUL JV (the “SUL LLC Agreement”).

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 2015, the Operating Partnership recorded a receivable for approximately $362,000 for distributions that could not be paid prior to the contribution of the original six properties contributed in April 2015 (“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. In December 2017, we received approximately $56,000 to pay down the distribution receivable from two of the JV 2 properties. As of March 31, 2018 and December 31, 2017, the receivable of $184,000, due from the JV 2 properties is included in tenant and other receivables on our condensed consolidated balance sheets.

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 March 31, 2018, we applied approximately $5,000 of this as additional capital. As of March 31, 2018 and December 31, 2017, the remaining balance of $105,000 is included in tenant and other receivables in our condensed consolidated balance sheets.

Page 14 of 37

As of March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the SUL JV was approximately $3.6 million.

Summit Fantasia Holdings, LLC

The Fantasia JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia JV (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 March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia JV was approximately $1.1 million.

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership. See Note 13.

Summit Fantasia Holdings II, LLC

The Fantasia II JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia II JV (the “Fantasia II LLC Agreement”).

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 March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia II JV was approximately $1.7 million and $1.8 million, respectively.

Summit Fantasia Holdings III, LLC

The Fantasia III JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia III JV (the “Fantasia III LLC Agreement”).

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.

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As of March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia III JV was approximately $1.8 million.

Summit Fantasy Pearl Holdings, LLC

The FPH JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the FPH JV (the “FPH LLC Agreement”).

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.

As of March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the FPH JV was approximately $0.9 million.

Distributions from Equity-Method Investments

As of March 31, 2018 and December 31, 2017, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	March 31, 2018		December 31, 2017
SUL JV	$	168,000	$	169,000
Fantasia JV		27,000		30,000
Fantasia II JV		38,000		58,000
Fantasia III JV		109,000		97,000
FPH JV		15,000		17,000
Total	$	357,000	$	371,000

For the three months ended March 31, 2018 and 2017, 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:

	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	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	$	140,000	$	72,000	$	68,000	$	206,000	$	63,000	$	143,000
Fantasia JV		45,000		2,000		43,000		31,000		7,000		24,000
Fantasia II JV		86,000		38,000		48,000		-		-		-
Fantasia III JV		93,000		39,000		54,000		-		-		-
FPH JV		24,000		9,000		15,000		-		-		-
Total	$	388,000	$	160,000	$	228,000	$	237,000	$	70,000	$	167,000

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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 March 31, 2018 and 2017, we recorded approximately $0.2 million in acquisition and asset management fees from our Equity-Method Investments.

6. Receivables

Notes Receivable

Friendswood TRS Note

The Operating Partnership entered into an amended and restated promissory note dated January 1, 2018, with Friendswood TRS for approximately $1.1 million. The note does not bear interest and is due in 48 equal payments of approximately $22,000. We recorded a discount of approximately $95,000 on the note using an imputed interest rate of 4.25%. We collected principal payments of approximately $67,000 for the three months ended March 31, 2018. As of March 31, 2018, the balance on the note was approximately $0.9 million.

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 March 31, 2018 and December 31, 2017, the balance on the note was approximately $30,000 and $38,000, respectively.

Nantucket Note

In 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.

In December 2017, we collected approximately $0.9 million related to the principal on the note and in January 2018, we received approximately $4.0 million in full payoff of the note and recorded a gain of approximately $0.2 million.

For the three months ended March 31, 2018 and 2017, we received interest payments from the note of approximately $18,000 and $44,000, respectively, 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:

	March 31, 2018		December 31, 2017
Straight-line rent receivables	$	3,211,000	$	3,046,000
Distribution receivables from Equity-Method Investments		357,000		371,000
Receivable from JV 2 properties		184,000		184,000
Asset management fees		177,000		170,000
Other receivables		124,000		335,000
Total	$	4,053,000	$	4,106,000

Page 17 of 37

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 March 31, 2018 and December 31, 2017, 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 (see Note 10).

As of March 31, 2018 and December 31, 2017, 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 March 31, 2018, 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 March 31, 2018, 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 36 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 March 31, 2018, we leased our 11 real estate properties to four different tenants under long-term triple net leases, three of which comprise 42%, 24% and 17% of our tenant rental revenue. For the three months ended March 31, 2017, we leased our 10 healthcare properties to four different tenants under long-term triple net leases, two of which comprised 58% and 34% of our tenant rental revenue.

As of March 31, 2018 and December 31, 2017, we have one tenant that constitutes a significant asset concentration, as the net assets of the tenant are approximately 33% of our total assets.

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.

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As of March 31, 2018 and December 31, 2017, the fair value of our loans payable was approximately $65.1 million and $63.3 million compared to the carrying value of approximately $64.5 million and $62.6 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 March 31, 2018, we utilized a discount rate ranging from 4.4% to 5.6% and a weighted-average discount rate of 4.7%. 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 of March 31, 2018, the fair value of the Friendswood TRS note receivable (see Note 6) was $0.9 million compared to the carrying value of $0.9 million. The fair value of the note receivable was estimated based on cash flow analysis at a weighted-average discount rate of 4.7%. 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 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 three months ended March 31, 2018 and 2017. 

At March 31, 2018 and December 31, 2017, 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 September 17, 2014, we filed a First Amended Cross-Complaint seeking compensatory damages and an accounting pursuant to Sections 10(c)(i) and 17(c)(ii) of the Advisory Agreement and including any monies Plaintiffs and Terry Roussel directly or indirectly received from or paid to the Company. On February 22, 2018, the action was assigned to a different trial judge and trial has been scheduled to commence on August 20, 2018. We continue to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend ourselves.

An involuntary bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC and Healthcare Real Estate Qualified Purchasers Fund, LLC (collectively, the “Funds”), and at that time, Summit held an interest in the same properties in which the Funds had an interest. HCRE did not timely respond to the involuntary petition and the Bankruptcy Court entered an Order of Relief making HCRE a debtor in bankruptcy. As a result, HCRE was removed as manager under the Funds’ operating agreement. Thereafter Summit became the manager of the Funds and purchased the investors’ interests in the Funds. Following the subsequent 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 Summit in the United States Bankruptcy Court of the District of Delaware. The Bankruptcy Court 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. HCRE appealed the Bankruptcy Court’s decision to the United States District Court for the District of Delaware. The appeal was fully briefed by the parties and is under submission for ruling by the District Court. The Bankruptcy Court has stayed all litigation on HCRE’s motion for damages pending resolution of the appeal on the complaint for violation of the automatic stay by the District Court. We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

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Delbert Freeman and his company, Freescan Ventures, Inc. (collectively, “Freeman”), filed an action against us and Mr. Eikanas on December 21, 2017 for breach of contract arising out of the sale of the Athens project in Georgia.  We originally guaranteed a lease for the development of the Athens project, which was ultimately sold to a third party in June of 2016, thereby releasing us from our obligation.  Freeman sued for breach of contract based on an allegation that he was not paid profits he was promised from the proceeds of the project.  Freeman is also alleging that he was promised consulting fees of $270,000 from us arising out of an alleged agreement to pay consulting fees of $10,000 per month.  We believe that his claims are without merit and are vigorously defending them. 

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, as amended, 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, 2018, the Compensation Committee of the Board of Directors approved the issuance of 41,500 stock options under our Summit Healthcare REIT, Inc. 2015 Omnibus Incentive Plan (“Incentive Plan”) to our non-executive employees. The stock options vest monthly beginning on February 1, 2018 and continuing over a three-year period through January 1, 2021. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.40.

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

	2018
Stock options granted		41,500
Expected Volatility		22.23	%
Expected lives		3.0 years
Risk-free interest rate		2.01	%
Dividends		0	%
Fair value per share		$0.40

The following table summarizes our stock options as of March 31, 2018:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at January 1, 2018		895,408	$	1.90
Granted		41,500		2.24
Exercised		—
Cancelled/forfeited		—
Options outstanding at March 31, 2018		936,908	$	1.92		8.43	$	828,000
Options exercisable at March 31, 2018		705,896	$	1.86		8.22	$	663,000

For our outstanding non-vested options as of March 31, 2018, the weighted average grant date fair value per share was $0.33. As of March 31, 2018, 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,
April 1, 2018 to December 31, 2018	$	42,000
2019		27,000
2020		6,000
2021		1,000
	$	76,000

The stock-based compensation expense reported for the three months ended March 31, 2018 and 2017 was approximately $14,000 and $31,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.

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.

Friendswood TRS

Effective January 1, 2018, we assigned our interests in Friendswood TRS, the licensed operator and tenant of Friendship Haven, to HMG, the management company of Friendship Haven.

Therefore, as of January 1, 2018, Friendswood TRS is no longer consolidated in our consolidated financial statements. The consolidated statement of operations for the three months ended March 31, 2017 has been restated to present the operations of Friendswood TRS as a discontinued operation.

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We made the decision to dispose of Friendswood TRS primarily because we are not in the business of operating facilities; we are in the business of acquiring senior housing facilities and leasing them to independent third party operators under triple-net leases. Friendswood TRS recorded the operations of Friendship Haven as resident services and fee income and resident services costs in their financial statements, which were then consolidated in our consolidated balance sheets and consolidated statements of operations and cash flows. The disposition represented a strategic shift to divest ourselves of being a tenant and licensed operator of our facilities, and had a material effect on the Company’s operations and financial results as we will no longer record resident services and fee income and resident services costs.

Prior to January 1, 2018, HMG provided management services to Friendship Haven pursuant to a management agreement with Friendswood TRS. We do not have any continuing obligations under the management agreement as of January 1, 2018.

Effective January 1, 2018, the new owners of Friendswood TRS entered into an Amended and Restated 10-year triple-net lease with two five-year renewal options, with CHP Friendswood SNF, LLC, our majority-owned consolidated subsidiary. Additionally, the Operating Partnership entered into an amended and restated promissory note with Friendswood TRS for approximately $1.1 million. The note does not bear interest and is due in 48 equal payments of approximately $22,000. We recorded a discount of approximately $95,000 on the note using an imputed interest rate of 4.25%.

The income from discontinued operations presented in the consolidated statements of operations related to Friendswood TRS consisted of the following for the three months ended March 31, 2017:

	March 31, 2017
Revenues:
Resident services and fee income	$	2,304,000
Other revenues		1,000
		2,305,000
Expenses:
Property operating costs		139,000
Resident services costs		1,630,000
General and administrative		18,000
Depreciation and amortization		13,000
		1,800,000
Income from discontinued operations	$	505,000

The assets and liabilities of the discontinued operations are presented separately under the captions “Assets of Friendswood TRS held for sale” and “Liabilities of Friendswood TRS held for sale,” respectively, in the accompanying condensed consolidated balance sheets at December 31, 2017 and consist of the following:

	December 31, 2017
ASSETS:
Cash and cash equivalents	$	459,000
Real estate properties, net		320,000
Tenant and other receivables, net		947,000
Other assets		36,000
Total assets	$	1,762,000
LIABILITIES:
Accounts payable and accrued liabilities		821,000
Accrued salaries and benefits		77,000
Total liabilities of property held for sale	$	898,000

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For the three months ended March 31, 2017, total cash flows of the discontinued operations provided by operating activities was $299,000 and cash flows used in investing activities was $20,000.

13. Subsequent Events

Stock Option Grants

On April 1, 2018, the Compensation Committee of the Board of Directors approved the issuance of 200,000 stock options under our Incentive Plan to executive management related to their performance goals for 2017. 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, 2018 and continuing over a two-year period through May 1, 2020. The options expire 10 years from the grant date.

On April 1, 2018, the Compensation Committee of the Board of Directors approved the issuance of 100,000 stock options under our Incentive Plan to our directors. The stock options vest monthly beginning on May 1, 2018 and continuing over a three-year period through May 1, 2021. The options expire 10 years from the grant date.

Summit Fantasia Holdings, LLC

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership. See Note 5.

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, 2017 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2018.

Overview

As of March 31, 2018, 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 two unconsolidated equity-method investments that hold nine properties and six properties, respectively, (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.

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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, and acquisition and asset management fees resulting from our Equity-Method Investments. 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 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 sustainable 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 continued 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 focuses on to different segments of the senior population.

Summit Portfolio Properties

At March 31, 2018, 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 36 properties held by our unconsolidated Equity-Method Investments) regarding these properties as of March 31, 2018:

	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

Property	Location	Date Purchased	Type	Beds		2018 Revenue
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF		51	$	123,000
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		63		131,000
Friendship Haven Healthcare and Rehabilitation Center	Galveston County TX	September 14, 2012	SNF		150		353,000
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		73		242,000
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		100		265,000
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		66		191,000
The Shelby House	Shelby, NC	October 4, 2013	AL		72		114,000
The Hamlet House	Hamlet, NC	October 4, 2013	AL		60		164,000
The Carteret House	Newport, NC	October 4, 2013	AL		64		109,000
Sundial Assisted Living	Redding, CA	December 18, 2013	AL		65		90,000
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC		90		277,000
Total					854

¹ Represents year-to-date through March 31, 2018 revenue based on in-place leases, including straight-line rent.

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. Currently, our two largest joint venture partners are Chinese companies and face restrictions on overseas investments by the Chinese government. Accordingly, the size and frequency of our joint venture investments may change. We still believe this is the most prudent strategy for growth and our shareholders benefit for the following reasons:

Page 24 of 37

· 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 receive acquisition fees and asset management fees from our joint ventures; and

· We have negotiated waterfall terms, with respect to both net operating cash flow and all sales proceeds, for our joint ventures, which increases our cash on cash return and our internal rate of return considerably.

A summary of the combined financial data for the balance sheets and statements of income for all unconsolidated Equity-Method Investments are as follows:

Condensed Combined Balance Sheets:	March 31, 2018		December 31, 2017
Total Assets	$	302,814,000	$	307,951,000
Total Liabilities	$	218,721,000	$	223,271,000
Members Equity:
Summit	$	9,204,000	$	9,353,000
JV Partners		74,889,000		75,327,000
Total Members Equity	$	84,093,000	$	84,680,000

Condensed Combined Statements of Income:	March 31, 2018		March 31, 2017
Total Revenue:	$	8,200,000	$	4,760,000
Net Operating Income	$	7,061,000	$	4,325,000
Income from Operations	$	4,319,000	$	2,519,000
Net Income	$	1,395,000	$	737,000
Summit interest in Equity-Method Investments net income	$	160,000	$	84,000
JV Partners interest in Equity-Method Investments net income	$	1,235,000	$	653,000

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.

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 March 31, 2018:

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		1,846,000
Total investments		4,626,000
Income from equity-method investee		727,000
Distributions		(1,743,000	)
Total investment at March 31, 2018	$	3,610,000

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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:	March 31, 2018		December 31, 2017
Real estate properties and intangibles, net	$	144,676,000	$	146,065,000
Cash and cash equivalents		4,687,000		8,253,000
Other assets		8,729,000		8,095,000
Total Assets:	$	158,092,000	$	162,413,000
Loans payable, net	$	109,867,000	$	110,089,000
Other liabilities		6,436,000		10,629,000
Members’ equity:
Best Years		38,064,000		37,967,000
Summit		3,725,000		3,728,000
Total Liabilities and Members’ Equity	$	158,092,000	$	162,413,000

Condensed Consolidated Statements of Income of SUL JV:	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Total revenue	$	4,021,000		$	3,988,000
Property operating expenses		(360,000	)		(350,000	)
Net operating income		3,661,000			3,638,000
General and administrative expense		(102,000	)		(103,000	)
Depreciation and amortization expense		(1,433,000	)		(1,428000	)
Income from operations		2,126,000			2,107,000
Interest expense		(1,355,000	)		(1,357,000	)
Amortization of deferred financing costs		(63,000	)		(119,000	)
Interest income		4,000			-
Net Income	$	712,000		$	631,000
Summit equity interest in SUL JV net income	$	71,000		$	63,000

As of March 31, 2018, the 17 properties held by SUL JV, our unconsolidated 10% equity-method investment, all of which are 100% leased on a triple net basis, 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

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Equity-Method Partner - Fantasia Investment III LLC

In 2016 and 2017, through our Operating Partnership, we entered into three separate limited liability company agreements (collectively, the “Fantasia Agreements”) 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 three separate companies, Summit Fantasia Holdings, LLC (“Fantasia I”), Summit Fantasia Holdings II, LLC (“Fantasia II”)and Summit Fantasia Holdings III, LLC (“Fantasia III”) (collectively, the “Fantasia JVs”). The Fantasia JVs are not consolidated in our consolidated financial statements and are accounted for under the equity-method in the Company’s consolidated financial statements. Through the Fantasia JVs, we own a 20% interest in two senior housing facilities, one located in California and one located Oregon; a 20% interest in two skilled nursing facilities located in Rhode Island; and a 10% interest in nine skilled nursing facilities located in Connecticut.

Under the Fantasia Agreements, net operating cash flow of the Fantasia JVs will be distributed monthly, first to the Operating Partnership and Fantasia pari passu (8% for Fantasia I and II and 9% for Fantasia III) until each member has received an amount equal to its accrued, but unpaid return, and thereafter 70% to Fantasia and 30% to the Operating Partnership for Fantasia I and II, and 75% to Fantasia and 25% to the Operating Partnership for Fantasia III. All capital proceeds from the sale of the properties held by the Fantasia JVs, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu as noted above until each has received an amount equal to its accrued but unpaid return plus its total capital contribution, and thereafter to Fantasia and to the Operating Partnership, as noted above.

The following reconciles our equity investments in the Fantasia JVs from inception through March 31, 2018:

Summit Fantasia Holdings, LLC – October 2016	$	1,274,000
Summit Fantasia Holdings II, LLC – February 2017	$	1,923,000
Summit Fantasia Holdings III, LLC – August 2017	$	1,953,000
Total investment		5,150,000
Income from Fantasia JVs		310,000
Distributions		(884,000	)
Total Fantasia investments at March 31, 2018	$	4,576,000

A summary of the consolidated financial data for the balance sheets and statements of income for the unconsolidated Fantasia JVs, of which we own a 10% to 20% equity interest, is as follows:

Condensed Combined Balance Sheets of Fantasia JVs:	March 31, 2018		December 31, 2017
Real estate properties, net	$	109,328,000	$	110,055,000
Cash and cash equivalents		3,813,000		4,317,000
Other assets		1,245,000		755,000
Total Assets:	$	114,386,000	$	115,127,000
Loans payable, net	$	76,941,000	$	76,825,000
Other liabilities		4,202,000		4,507,000
Members’ equity:
Fantasia JVs		28,667,000		29,087,000
Summit		4,576,000		4,708,000
Total Liabilities and Members’ Equity	$	114,386,000	$	115,127,000

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Condensed Combined Statements of Income of Fantasia  JVs:	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Total revenue	$	3,286,000		$	772,000
Property operating expenses		(648,000	)		(85,000	)
Net operating income		2,638,000			687,000
General and administrative expense		(134,000	)		(46,000	)
Depreciation and amortization expense		(727,000	)		(229,000	)
Income from operations		1,777,000			412,000
Interest expense		(1,068,000	)		(263,000	)
Amortization of debt issuance costs		(116,000	)		(43,000	)
Net Income	$	593,000		$	106,000
Summit equity interest in Fantasia JVs net income	$	80,000		$	21,000

As of March 31, 2018, the 13 properties in Fantasia JVs, our unconsolidated equity-method investments, are all 100% leased on a triple net basis, and 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
Trinity Health and Rehabilitation Center	Woonsocket, Rhode Island	SNF		185
Hebert Nursing Home	Smithfield, Rhode Island	SNF		133
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:				1,729

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 582 licensed beds, and are 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.

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The following reconciles our equity investment in the FPH JV from inception through March 31, 2018:

Iowa properties – November 2017	$	929,000
Total investment		929,000
Income from equity-method investee		14,000
Distributions		(39,000	)
Total Fantasia investments at March 31, 2018	$	904,000

A summary of the consolidated financial data for the balance sheet and statement of income for the unconsolidated FPH JV is as follows:

Condensed Combined Balance Sheets of FPH JV:	March 31, 2018		December 31, 2017
Real estate properties, net	$	29,445,000	$	29,752,000
Cash and cash equivalents		472,000		590,000
Other assets		419,000		69,000
Total Assets:	$	30,336,000	$	30,411,000
Loans payable, net	$	20,664,000	$	20,632,000
Other liabilities		611,000		589,000
Members’ equity:
Fantasia JVs		8,157,000		8,272,000
Summit		904,000		918,000
Total Liabilities and Members’ Equity	$	30,336,000	$	30,411,000

Condensed Combined Statements of Income of FPH  JV:	Three Months Ended March 31, 2018
Total revenue	$	893,000
Property operating expenses		(131,000	)
Net operating income		762,000
General and administrative expense		(39,000	)
Depreciation and amortization expense		(307,000	)
Income from operations		416,000
Interest expense		(294,000	)
Amortization of debt issuance costs		(32,000	)
Net Income	$	90,000
Summit equity interest in Fantasia JVs net income	$	9,000

As of March 31, 2018, the six properties of our unconsolidated equity-method investments in FPH JV, all of which are 100% leased on a triple net basis, are as follows:

Property	Location	Type	Number of Beds
Hawkeye Care Center Bancroft	Bancroft, Iowa	SNF/AL		57
Hawkeye Care Center/Hawkeye Assisted Living	Milford, Iowa	SNF/AL		94
Hawkeye Care Center Carroll	Carroll, Iowa	SNF/IL		138
Hawkeye Care Center Cresco	Cresco, Iowa	SNF		63
Hawkeye Care Center Marshalltown	Marshalltown, Iowa	SNF		110
Hawkeye Care Center Spirit Lake	Spirit Lake, Iowa	SNF		120
Total:				582

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Distributions from Equity-Method Investments

For the three months ended March 31, 2018 and 2017, we recorded distributions and cash received for distributions from our Equity-Method Investments as follows:

	Three Months Ended March 31,
	2018		2017
Distributions	$	374,000	$	268,000
Cash received for distributions	$	388,000	$	237,000

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 March 31, 2018 and 2017, we recorded approximately $0.2 million 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, 2017 as filed with the SEC on March 16, 2018.

Results of Operations

Our results of operations are described below:

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

	Three Months Ended March 31,
	2018			2017			$ Change
Rental revenues	$	2,059,000		$	1,423,000		$	636,000
Tenant reimbursements		282,000			189,000			93,000
Total rental revenues		2,341,000			1,612,000			729,000
Less expenses:
Property operating costs		(353,000	)		(292,000	)		(61,000	)
Net operating income (1)		1,988,000			1,320,000			668,000
Acquisition & asset management fees		187,000			178,000			9,000
Interest income from notes receivable		24,000			44,000			(20,000	)
General and administrative		(1,089,000	)		(1,231,000	)		142,000
Depreciation and amortization		(795,000	)		(730,000	)		(65,000	)
Income from equity-method investees		160,000			84,000			76,000
Other income		14,000			19,000			(5,000	)
Interest expense		(1,069,000	)		(689,000	)		(380,000	)
Gain on note receivable		186,000			-			186,000
Loss from continuing operations		(394,000	)		(1,005,000	)		611,000
Income from discontinued operations		109,000			505,000			(396,000	)
Net loss		(285,000	)		(500,000	)		215,000
Noncontrolling interests’ share in income		(3,000	)		(12,000	)		9,000
Net loss applicable to common stockholders	$	(288,000	)	$	(512,000	)	$	224,000

(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 and tenant reimbursements less property operating 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, interest expense, and gain from note receivable. 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.

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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. Net operating income increased for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to the $0.4 million in rental revenue from Friendswood TRS (no longer eliminated due to the disposal effective January 1, 2018 - see Note 12 to the accompanying Notes to Condensed Consolidated Financial Statements) and $0.3 million in rental revenue from Chandler, our property acquired in July 2017. There are three months of revenue for both properties for the three months ended March 31, 2018 and none for the three months ended March 31, 2017.

The net decrease in general and administrative expenses of $0.1 million is primarily due to a decrease in legal expenses associated with the CRA litigation (see Notes 7 and 10 to the accompanying Notes to Condensed Consolidated Financial Statements) offset by an increase in travel expenses related to asset management.

The increase in depreciation and amortization for the three months ended March 31, 2018 is primarily due to the acquisition of Chandler (see Note 3 to the accompanying Notes to Condensed Consolidated Financial Statements) in the third quarter of 2017, therefore there was none recorded for the three months ended March 31, 2017.

The increase in income from equity-method investees is mainly due the addition of Fantasia III JV and FPH JV in August 2017 and November 2017, respectively.

The increase in interest expense for the three months ended March 31, 2018 is primarily due to the payment of approximately $0.2 million in termination fees to Oxford Finance, LLC and the write off of approximately $0.1 million in deferred financing costs related to our loan for CHP Friendswood SNF, LLC, which was terminated on March 30, 2018. Additionally, we acquired Chandler in the third quarter of 2017 (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements), therefore, there was no interest expense recorded for the three months ended March 31, 2017.

We recorded a $0.2 million gain related to the payoff of the note receivable from Sherburne Commons. The note was recorded at $4.8 million at inception and we collected the total face value of $5.0 million of the note receivable.

The decrease in income from discontinued operations is related to Friendswood TRS which was recorded to discontinued operation for the periods from December 31, 2017 and prior. As of January 1, 2018, Friendswood TRS is no longer consolidated in our condensed consolidated financial statements and we recorded a gain of approximately $0.1 million in January 2018.

Liquidity and Capital Resources

As of March 31, 2018, we had approximately $9.8 million in cash and cash equivalents on hand. Additionally, in April 2018, we received an additional $1.7 million from the CIBC loan (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements). Based on current conditions, we believe that we have sufficient capital resources to sustain operations.

Page 31 of 37

Going forward, we expect our primary sources of cash to be rental revenues, joint venture distributions and acquisition and asset management fees. 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, investments in joint ventures, 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, making our facilities more appealing in their market.

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. We are currently working to refinance our two outstanding loans that mature in 2018 with HUD-insured loans and expect to complete those refinancings within the next six months. The Capital One loan (see below) has a scheduled maturity date of July 2018; however, as part of the loan agreement, we have the right to elect to extend the scheduled maturity date with two six-month options, which could extend the scheduled maturity date through July 2019, subject to certain terms and conditions, which do not include any fees or other conditions that we believe would prohibit us from successfully extending the maturity date. The Healthcare Financial Solutions, LLC loan (see below) has a scheduled maturity date of October 2018, and, if the refinancing with our HUD-insured lender were not to close prior to the maturity date, we believe we would have cash on hand to pay off the loan. Additionally, in 2017, as part of our responsibilities under the operating agreements as the manager of our Equity-Method Investments, we refinanced seven existing loans of our Equity-Method Investments with Lancaster Pollard (HUD-insured) loans.

Although our current joint venture partners are facing government restrictions on new overseas investments, we believe that market conditions may be favorable to continue to raise capital through additional joint venture arrangements with new partners.

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 March 31, 2018, we had debt obligations of approximately $64.5 million. The outstanding balance by loan agreement is as follows (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements for further information regarding our refinancing arrangements):

· CIBC Bank USA – approximately $9.0 million maturing March 2021

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

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

· Lancaster Pollard (HUD insured) – approximately $42.7 million maturing from September 2039 through January 2051

Distributions

We made no stockholder distributions during the three months ended March 31, 2018.

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.

Page 32 of 37

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.

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 months ended March 31, 2018 and 2017: 

	Three months ended
	March 31,
	2018			2017
Net loss applicable to common stockholders (GAAP)	$	(288,000	)	$	(512,000	)
Adjustments:
Depreciation and amortization		795,000			730,000
Depreciation and amortization related to non-controlling interests		(18,000	)		(20,000	)
Depreciation related to SUL JV		143,000			143,000
Depreciation related to Fantasia, Fantasia II, III and FPH JVs		140,000			46,000
Funds provided by operations (FFO) applicable to common stockholders	$	772,000		$	387,000
Weighted-average number of common shares outstanding - basic and diluted		23,027,978			23,027,978
FFO per weighted average common shares	$	0.03		$	0.02

Subsequent Events

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.

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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 September 17, 2014, we filed a First Amended Cross-Complaint seeking compensatory damages and an accounting pursuant to Sections 10(c)(i) and 17(c)(ii) of the Advisory Agreement and including any monies Plaintiffs and Terry Roussel directly or indirectly received from or paid to the Company. On February 22, 2018, the action was assigned to a different trial judge and trial has been scheduled to commence on August 20, 2018. We continue to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend ourselves.

An involuntary bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC and Healthcare Real Estate Qualified Purchasers Fund, LLC (collectively, the “Funds”), and at that time, Summit held an interest in the same properties in which the Funds had an interest. HCRE did not timely respond to the involuntary petition and the Bankruptcy Court entered an Order of Relief making HCRE a debtor in bankruptcy. As a result, HCRE was removed as manager under the Funds’ operating agreement. Thereafter Summit became the manager of the Funds and purchased the investors’ interests in the Funds. Following the subsequent 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 Summit in the United States Bankruptcy Court of the District of Delaware. The Bankruptcy Court 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. HCRE appealed the Bankruptcy Court’s decision to the United States District Court for the District of Delaware. The appeal was fully briefed by the parties and is under submission for ruling by the District Court. The Bankruptcy Court has stayed all litigation on HCRE’s motion for damages pending resolution of the appeal on the complaint for violation of the automatic stay by the District Court. We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

Delbert Freeman and his company, Freescan Ventures, Inc. (collectively, “Freeman”), filed an action against us and Mr. Eikanas on December 21, 2017 for breach of contract arising out of the sale of the Athens project in Georgia.  We originally guaranteed a lease for the development of the Athens project, which was ultimately sold to a third party in June of 2016, thereby releasing us from our obligation.  Freeman sued for breach of contract based on an allegation that he was not paid profits he was promised from the proceeds of the project.  Freeman is also alleging that he was promised consulting fees of $270,000 from us arising out of an alleged agreement to pay consulting fees of $10,000 per month.  We believe that his claims are without merit and are vigorously defending them. 

Item 1A. Risk Factors.

Not applicable.

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

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(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 three months ended March 31, 2018, 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 35 of 37

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	Term Loan and Security Agreement between CHP Friendswood SNF, LLC, as borrower and CIBC Bank USA, dated March 30, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 4, 2018).
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 March 31, 2018, 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 36 of 37

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.

	SUMMIT HEALTHCARE REIT, INC.
		/s/ Kent Eikanas
Date: May 9, 2018		Kent Eikanas
		President (Principal Executive Officer)
		/s/ Elizabeth A. Pagliarini
Date: May 9, 2018		Elizabeth A. Pagliarini
		Chief Financial Officer (Principal Financial Officer)

Page 37 of 37

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: May 9, 2018	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: May 9, 2018	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 March 31, 2018 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: May 9, 2018	Kent Eikanas
	President (Principal Executive Officer)
	/s/ Elizabeth A. Pagliarini
Date: May 9, 2018	Elizabeth A. Pagliarini
	Chief Financial Officer (Principal Financial Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 04, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
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 ($)	Mar. 31, 2018	Dec. 31, 2017
ASSETS
Cash and cash equivalents	$ 9,806,000	$ 3,851,000
Restricted cash	3,283,000	3,447,000
Real estate properties, net	69,094,000	69,063,000
Notes receivable	941,000	3,854,000
Deferred costs	7,000	9,000
Tenant and other receivables, net	4,053,000	4,106,000
Deferred leasing commissions, net	1,238,000	1,273,000
Other assets, net	246,000	225,000
Equity-method investments	9,091,000	9,241,000
Assets of Friendswood TRS held for sale	0	1,762,000
Total assets	97,759,000	96,831,000
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	2,325,000	1,902,000
Accrued salaries and benefits	50,000	96,000
Security deposits	1,208,000	1,208,000
Loans payable, net of debt issuance costs	62,648,000	60,831,000
Liabilities of Friendswood TRS held for sale	0	898,000
Total liabilities	66,231,000	64,935,000
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at March 31, 2018 and December 31, 2017	0	0
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at March 31, 2018 and December 31, 2017	23,000	23,000
Additional paid-in capital	117,363,000	117,349,000
Accumulated deficit	(86,328,000)	(86,040,000)
Total stockholders’ equity	31,058,000	31,332,000
Noncontrolling interests	470,000	564,000
Total equity	31,528,000	31,896,000
Total liabilities and equity	$ 97,759,000	$ 96,831,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
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
	Mar. 31, 2018	Mar. 31, 2017
Revenues:
Rental revenues	$ 2,059,000	$ 1,423,000
Tenant reimbursements	282,000	189,000
Acquisition and asset management fees	187,000	178,000
Interest income from notes receivable	24,000	44,000
Revenues, Total	2,552,000	1,834,000
Expenses:
Property operating costs	353,000	292,000
General and administrative	1,089,000	1,231,000
Depreciation and amortization	795,000	730,000
Costs and Expenses, Total	2,237,000	2,253,000
Operating income (loss)	315,000	(419,000)
Income from equity-method investees	160,000	84,000
Other income	14,000	19,000
Interest expense	(1,069,000)	(689,000)
Gain on note receivable	186,000	0
Loss from continuing operations	(394,000)	(1,005,000)
Discontinued operations:
Gain on disposition of Friendswood TRS	109,000	0
Income from Friendswood TRS	0	505,000
Income from discontinued operations	109,000	505,000
Net loss	(285,000)	(500,000)
Noncontrolling interests' share in net income	(3,000)	(12,000)
Net loss applicable to common stockholders	$ (288,000)	$ (512,000)
Basic and diluted loss per common share:
Continuing operations	$ (0.02)	$ (0.04)
Discontinued operations	0	0.02
Net loss applicable to common stockholders	$ (0.02)	$ (0.02)
Weighted average shares used to calculate basic and diluted net loss per common share	23,027,978	23,027,978

XML

CONDENSED CONSOLIDATED STATEMENT OF EQUITY - 3 months ended Mar. 31, 2018 - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total Stockholders' Equity [Member]	Noncontrolling Interests [Member]
Balance at Dec. 31, 2017	$ 31,896,000	$ 23,000	$ 117,349,000	$ (86,040,000)	$ 31,332,000	$ 564,000
Balance (in shares) at Dec. 31, 2017		23,027,978
Stock-based compensation	14,000	$ 0	14,000	0	14,000	0
Distributions paid to noncontrolling interests	(97,000)	0	0	0	0	(97,000)
Net (loss) income	(285,000)	0	0	(288,000)	(288,000)	3,000
Balance at Mar. 31, 2018	$ 31,528,000	$ 23,000	$ 117,363,000	$ (86,328,000)	$ 31,058,000	$ 470,000
Balance (in shares) at Mar. 31, 2018		23,027,978

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (285,000)	$ (500,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt issuance costs	71,000	34,000
Depreciation and amortization	795,000	743,000
Straight-line rents	(165,000)	(106,000)
Bad debt expense	0	46,000
Write-off of debt issuance costs	79,000	0
Stock-based compensation expense	14,000	31,000
Gain on disposition of Friendswood TRS	(109,000)	0
Gain on note receivable	(186,000)	0
Income from equity-method investees	(160,000)	(84,000)
Change in operating assets and liabilities:
Tenant and other receivables, net	364,000	154,000
Other assets	(21,000)	133,000
Accounts payable and accrued liabilities	422,000	(267,000)
Accrued salaries and benefits	(46,000)	(90,000)
Net cash provided by operating activities	773,000	94,000
Cash flows from investing activities:
Deferred costs and deposits	0	(3,000)
Real estate acquisition	(715,000)	0
Real estate additions	(74,000)	(5,000)
Investment in equity-method investees	(63,000)	(1,725,000)
Distributions received from equity-method investees	228,000	167,000
Payments from notes receivable	4,072,000	8,000
Net cash provided by (used in) investing activities	3,448,000	(1,558,000)
Cash flows from financing activities:
Proceeds from issuance notes payable	9,017,000	0
Payments of loans payable	(7,105,000)	(243,000)
Distributions paid to noncontrolling interests	(97,000)	(14,000)
Deferred financing costs	(245,000)	0
Net cash provided by (used in) financing activities	1,570,000	(257,000)
Net increase (decrease) in cash, cash equivalents and restricted cash	5,791,000	(1,721,000)
Cash, cash equivalents and restricted cash - beginning of period	7,298,000	14,563,000
Cash, cash equivalents and restricted cash - end of period (including cash of Friendswood TRS)	13,089,000	12,842,000
Cash of Friendswood TRS held for sale - end of period (see Note 12)	0	(279,000)
Cash, cash equivalents and restricted cash - end of period	13,089,000	12,563,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 840,000	$ 587,000

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Organization

3 Months Ended

Mar. 31, 2018

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, a 10% equity interest in an unconsolidated equity-method investment that holds nine properties and a 10% equity interest in an unconsolidated equity-method investment that holds six 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. 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 – Consolidated Joint Venture

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 March 31, 2018, 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 in the fifth JV Property.

Summit Union Life Holdings, LLC – Equity-Method Investment

In April 2015, through our Operating Partnership, we entered into a limited liability company 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. As of March 31, 2018 and December 31, 2017, we have a 10% interest in the SUL JV and the SUL JV owned 17 properties. 

Summit Fantasia Holdings, LLC – Equity-Method Investment

In September 2016, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 20% interest in the Fantasia JV which owned two properties.

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, the Operating Partnership will have a 35% equity investment (see Notes 5 and 13) as of April 27, 2018.

Summit Fantasia Holdings II, LLC – Equity-Method Investment

In December 2016, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 20% interest in the Fantasia II JV which owned two properties.

Summit Fantasia Holdings III, LLC– Equity-Method Investment

In July 2017, through our Operating Partnership, we entered into a limited liability company 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 March 31, 2018 and December 31, 2017, we have a 10% interest in the Fantasia III JV which owned nine properties.

Summit Fantasy Pearl Holdings, LLC– Equity-Method Investment

In October 2017, through our Operating Partnership, we entered into a limited liability company 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 condensed consolidated financial statements and will be accounted for under the equity-method in the Company’s condensed consolidated financial statements. As of March 31, 2018 and December 31, 2017, we have a 10% interest in the FPH JV which owned six properties.

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”) was our wholly-owned TRS, and is the licensed operator and tenant of Friendship Haven Healthcare and Rehabilitation Center (“Friendship Haven”). Effective as of January 1, 2018, we assigned our interests in Friendswood TRS to HMG Park Manor of Friendswood, LLC (“HMG”), the current management company of Friendship Haven. See Note 12 for further information regarding the transaction and the classification of assets, liabilities and operations for Friendswood TRS as of December 31, 2017 and for the three months ended March 31, 2017.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

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, 2017 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2018. There have been no material changes to our policies since that filing except as noted under Recently Adopted Accounting Pronouncements.

The accompanying condensed consolidated balance sheet at December 31, 2017 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, 2017 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, 2017 filed with the SEC on March 16, 2018 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, 2017 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, the Operating Partnership (of which the Company owns 99.88%) 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 three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.  

Recently Adopted Accounting Pronouncements

Restricted Cash

On January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  The amendments in this ASU 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. Our restricted cash consists of escrows from our tenants for property taxes, insurance and capital improvements required by and held our lenders.

The Company’s statements of cash flows for the three months ended March 31, 2017 has been retroactively restated for the effect of adopting this ASU, adding approximately $3.8 million to the beginning of the period cash, cash equivalents and restricted cash and approximately $4.0 million to the end of the period cash, cash equivalents and restricted cash. This reclassification resulted in a decrease to cash, cash equivalents and restricted cash provided by operating activities by $48,000 (related to the change in restricted cash held for operating activities) and a decrease to cash, cash equivalents and restricted cash used in investing activities by $233,000 (related to the change in restricted cash held for capital improvements). 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	9,806,000	$	3,851,000
Restricted cash		3,283,000		3,447,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows	$	13,089,000	$	7,298,000

Revenue Recognition

On January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606).  Our adoption of this new revenue recognition standard did not 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.  Additionally, interest income from our notes receivable is excluded from this standard.  

Acquisition fees arise from contractual agreements with our joint venture partners and are earned and paid at the time we close an acquisition, therefore, satisfying our performance obligations at that time.  We earn our asset management fees based on a percentage of the purchase price or equity raised.  As the manager, our duty is to manage the day-to-day operations of the special-purpose entities which own the properties.  Asset management fees are recognized as a single performance obligation (managing the properties) comprised of a series of distinct services (handling issues with our tenants, etc.). We believe that the overall service of asset management is substantially the same each day and has the same pattern of performance over the term of the agreement. As a result, each day of service represents a performance obligation satisfied at that point in time. These fees are recognized at the end of each period for services performed during that period, billed monthly and paid quarterly.

Revenue recognition for acquisition and asset management fees did not change under the new standard. The Company elected the modified retrospective transition method, however, no adjustments were required.

Recently Issued Accounting Pronouncements

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.

Reclassifications

Certain amounts related to the assets, liabilities and operations of Friendswood TRS have been reclassified in the Company’s condensed consolidated balance sheets and condensed consolidated statements of operations for prior year due to the classification of Friendswood TRS as held for sale (see Note 12). These reclassifications had no effect on total assets or liabilities or cash flows from operating activities.  The reclassifications as of and for the three months ended March 31, 2017 increased our loss from continuing operations by $505,000, but did not change our net loss of $(500,000) or our net loss applicable to common stockholders of $(512,000).

See above under Recently Adopted Accounting Pronouncements for reclassifications due to the adoption of ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.

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Investments in Real Estate Properties

3 Months Ended

Mar. 31, 2018

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

3. Investments in Real Estate Properties

As of March 31, 2018 and December 31, 2017, our investments in real estate properties including those held by our consolidated subsidiaries are set forth below:

	March 31, 2018		December 31, 2017
Land	$	8,003,000	$	7,318,000
Buildings and improvements		69,284,000		69,254,000
Less: accumulated depreciation		(9,556,000)		(9,012,000)
Buildings and improvements, net		59,728,000		60,242,000
Furniture and fixtures		6,829,000		6,755,000
Less: accumulated depreciation		(5,466,000)		(5,252,000)
Furniture and fixtures, net		1,363,000		1,503,000
Real estate properties, net	$	69,094,000	$	69,063,000

For the three months ended March 31, 2018 and 2017, depreciation expense (excluding leasing commission amortization) was approximately $0.8 million and $0.7 million, respectively.

As of March 31, 2018, 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 36 properties owned by our unconsolidated Equity-Method Investments) as of March 31, 2018:

Property	Location	Date Purchased	Type(1)	Purchase Price		Loans Payable, Excluding Debt Issuance Costs		Number of Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,742,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,160,000		63
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012	SNF		15,000,000		9,017,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		6,935,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,612,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,188,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,703,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		3,973,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,352,000		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	$	64,532,000		854

(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.

Future Minimum Lease Payments

The future minimum lease payments to be received under existing operating leases owned as of March 31, 2018, for the period from April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years ending
April 1, 2018 to December 31, 2018	$	5,713,000
2019		7,740,000
2020		7,902,000
2021		8,068,000
2022		8,237,000
Thereafter		60,988,000
	$	98,648,000

2018 Acquisitions

Land Purchase – Redding, CA

On March 30, 2018, we purchased the land under the HP Redding facility, Sundial Assisted Living, for $685,000 plus approximately $30,000 in acquisition costs.  Additionally, the existing lease agreement for the Sundial Assisted Living tenant was amended to increase the annual rental payment by $36,000.

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 (allocated values were approximately $1.8 million to land, $10.9 million to building and improvements and $750,000 to furniture and fixtures), 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, and per the lease agreement, we received a letter of credit in lieu of a cash security deposit.

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 March 31, 2018 and December 31, 2017, total costs incurred were $1.9 million and the unamortized balance of capitalized leasing commissions was approximately $1.2 million and $1.3 million, respectively. Amortization expense for the three months ended March 31, 2018 and 2017 was approximately $35,000. 

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Loans Payable

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

4. Loans Payable

As of March 31, 2018 and December 31, 2017, our loans payable consisted of the following:

	March 31, 2018		December 31, 2017
Loan payable to CIBC Bank USA in monthly installments of approximately $60,000, including cash collateral and interest at LIBOR plus 3.75% (5.63% at March 31, 2018), due in March 2021, and collateralized by Friendship Haven.	$	9,017,000	$	-
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.6% at March 31, 2018 and 4.3% at December 31, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000	$	10,050,000
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $18,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.7% at March 31, 2018 and 5.3% at December 31, 2017, 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% (8.1% as of December 31, 2017), was terminated in March 2018 and was collateralized by Friendship Haven as of December 31, 2017.		-		6,880,000
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.		42,665,000		42,889,000
		64,532,000		62,619,000
Less debt issuance costs		(1,884,000)		(1,788,000)
Total loans payable	$	62,648,000	$	60,831,000

As of March 31, 2018, we have total debt obligations of approximately $64.5 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 March 31, 2018, we were in compliance with all of our debt covenants.

In connection with our loans payable, we incurred debt issuance costs. As of March 31, 2018 and December 31, 2017, the unamortized balance of the debt issuance costs was approximately $1.9 million and $1.8 million, 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 March 31, 2018 and 2017, $150,000 and $34,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations (see below under Oxford Finance, LLC regarding the additional expense of approximately $79,000 due to the termination of that loan).

 

During the three months ended March 31, 2018 and 2017, we incurred approximately $0.9 million and $0.7 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable (see below under Oxford Finance, LLC regarding the additional expense of $167,000 due to the termination of that loan).   

The principal payments due on the loans payable (excluding debt issuance costs) for the period from April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years Ending	Principal Amount
April 1, 2018 to December 31, 2018	$	13,705,000
2019		1,178,000
2020		1,224,000
2021		9,411,000
2022		1,063,000
Thereafter		37,951,000
	$	64,532,000

The following information describes our loan activity:

CIBC Bank USA

On March 30, 2018, CHP Friendswood SNF, LLC entered into $10,725,000, three-year term loan and security agreement with CIBC Bank USA, which is collateralized by the Friendship Haven facility. We received approximately $9.0 million on March 30, 2018 and the remaining $1.7 million on April 16, 2018. The loan bears interest at One Month LIBOR (London Interbank Offered Rate) plus 3.75%, and matures on March 30, 2021. The monthly payments, commencing in May 2018, consist of interest plus approximately $18,000 of cash loan guarantee payments, (increasing to $19,000 for year 2 and $20,000 for year 3), which will be held in a cash loan guarantee fund until maturity date. If the loan is refinanced prior to the maturity date, the loan payments in the cash loan guarantee fund will be released to us; otherwise at the maturity date, the loan payments in the cash loan guarantee fund will be released to the lender and applied to the outstanding principal balance. 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 a prepayment premium of 2% of the loan balance prior to the first anniversary and 1% thereafter through maturity. We incurred approximately $0.2 million in deferred financing costs. See table above listing loans payable for further information.

Capital One, National Association

In July 2017, in conjunction with the acquisition of Pennington Gardens (see Note 3), we entered into a first priority $10.1 million mortgage loan collateralized by Pennington Gardens with Capital One, National Association. The loan, which bears interest at One Month LIBOR (London Interbank Offered Rate) plus 2.95%, matures on July 17, 2018, with the option for two six-month extensions, subject to certain conditions. The loan may be prepaid with no penalty if the property is refinanced through HUD; otherwise we will be required to pay an exit fee of 2% of the loan balance. We incurred approximately $0.2 million in deferred financing costs. We are currently in negotiations to refinance this loan with a HUD-insured loan through Capital One. See table above listing loans payable for further information.

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

We have an amended loan agreement for the Sundial Assisted Living property located in Redding, California, with Healthcare Financial Solutions, LLC (“HFS”). See table above listing loans payable for further information. The loan was interest-only through January 2017 and commencing in February 2017, payments of approximately $5,000 per month are being held in a cash collateral fund until maturity date. As of March 31, 2018, the total monthly payment is approximately $18,000, including interest. If the loan is refinanced prior to the maturity date, the loan payments in the cash collateral fund will be released to us; otherwise at the maturity date, the loan payments in the cash collateral 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. We are currently in negotiations to refinance this loan with a HUD-insured loan through Lancaster Pollard.

Oxford Finance, LLC

We had a secured term loan agreement with Oxford Finance, LLC collateralized by the Friendship Haven facility that was terminated on March 30, 2018. See table above listing loans payable for further information. As we prepaid the loan prior to the maturity date of October 2019, we paid an exit fee of $87,500, a prepayment penalty of approximately $69,000 and $10,000 in other costs. These payments were expensed to interest expense in our condensed consolidated statements of operations for the three months ended March 31, 2018. Additionally, in March 2018, we expensed the unamortized balance of approximately $79,000 of debt issuance costs related to this loan and were recorded to interest expense in our condensed consolidated statements of operations.

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.

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Equity-Method Investments

3 Months Ended

Mar. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

5. Equity-Method Investments

As of March 31, 2018 and December 31, 2017, the balances of our Equity-Method Investments were approximately $9.1 million and $9.2 million, respectively, and are as follows:

Summit Union Life Holdings, LLC

The SUL JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the SUL JV (the “SUL LLC Agreement”).

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 2015, the Operating Partnership recorded a receivable for approximately $362,000 for distributions that could not be paid prior to the contribution of the original six properties contributed in April 2015 (“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. In December 2017, we received approximately $56,000 to pay down the distribution receivable from two of the JV 2 properties. As of March 31, 2018 and December 31, 2017, the receivable of $184,000, due from the JV 2 properties is included in tenant and other receivables on our condensed consolidated balance sheets.

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 March 31, 2018, we applied approximately $5,000 of this as additional capital. As of March 31, 2018 and December 31, 2017, the remaining balance of $105,000 is included in tenant and other receivables in our condensed consolidated balance sheets.

As of March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the SUL JV was approximately $3.6 million.

Summit Fantasia Holdings, LLC

The Fantasia JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia JV (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 March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia JV was approximately $1.1 million.

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership. See Note 13.

Summit Fantasia Holdings II, LLC

The Fantasia II JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia II JV (the “Fantasia II LLC Agreement”).

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 March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia II JV was approximately $1.7 million and $1.8 million, respectively.

Summit Fantasia Holdings III, LLC

The Fantasia III JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia III JV (the “Fantasia III LLC Agreement”).

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 March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the Fantasia III JV was approximately $1.8 million.

Summit Fantasy Pearl Holdings, LLC

The FPH JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the FPH JV (the “FPH LLC Agreement”).

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.

As of March 31, 2018 and December 31, 2017, the balance of our equity-method investment related to the FPH JV was approximately $0.9 million.

Distributions from Equity-Method Investments

As of March 31, 2018 and December 31, 2017, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	March 31, 2018		December 31, 2017
SUL JV	$	168,000	$	169,000
Fantasia JV		27,000		30,000
Fantasia II JV		38,000		58,000
Fantasia III JV		109,000		97,000
FPH JV		15,000		17,000
Total	$	357,000	$	371,000

For the three months ended March 31, 2018 and 2017, 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:

	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	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	$	140,000	$	72,000	$	68,000	$	206,000	$	63,000	$	143,000
Fantasia JV		45,000		2,000		43,000		31,000		7,000		24,000
Fantasia II JV		86,000		38,000		48,000		-		-		-
Fantasia III JV		93,000		39,000		54,000		-		-		-
FPH JV		24,000		9,000		15,000		-		-		-
Total	$	388,000	$	160,000	$	228,000	$	237,000	$	70,000	$	167,000

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 March 31, 2018 and 2017, we recorded approximately $0.2 million in acquisition and asset management fees from our Equity-Method Investments.

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Receivables

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

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

6. Receivables

Notes Receivable

Friendswood TRS Note

The Operating Partnership entered into an amended and restated promissory note dated January 1, 2018, with Friendswood TRS for approximately $1.1 million. The note does not bear interest and is due in 48 equal payments of approximately $22,000. We recorded a discount of approximately $95,000 on the note using an imputed interest rate of 4.25%. We collected principal payments of approximately $67,000 for the three months ended March 31, 2018. As of March 31, 2018, the balance on the note was approximately $0.9 million.

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 March 31, 2018 and December 31, 2017, the balance on the note was approximately $30,000 and $38,000, respectively.

Nantucket Note

In 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.

In December 2017, we collected approximately $0.9 million related to the principal on the note and in January 2018, we received approximately $4.0 million in full payoff of the note and recorded a gain of approximately $0.2 million.

For the three months ended March 31, 2018 and 2017, we received interest payments from the note of approximately $18,000 and $44,000, respectively, 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:

	March 31, 2018		December 31, 2017
Straight-line rent receivables	$	3,211,000	$	3,046,000
Distribution receivables from Equity-Method Investments		357,000		371,000
Receivable from JV 2 properties		184,000		184,000
Asset management fees		177,000		170,000
Other receivables		124,000		335,000
Total	$	4,053,000	$	4,106,000

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Related Party Transactions

3 Months Ended

Mar. 31, 2018

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 March 31, 2018 and December 31, 2017, 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 (see Note 10).

As of March 31, 2018 and December 31, 2017, 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.   

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Concentration of Risk

3 Months Ended

Mar. 31, 2018

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 March 31, 2018, 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 March 31, 2018, 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 36 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 March 31, 2018, we leased our 11 real estate properties to four different tenants under long-term triple net leases, three of which comprise 42%, 24% and 17% of our tenant rental revenue. For the three months ended March 31, 2017, we leased our 10 healthcare properties to four different tenants under long-term triple net leases, two of which comprised 58% and 34% of our tenant rental revenue.

As of March 31, 2018 and December 31, 2017, we have one tenant that constitutes a significant asset concentration, as the net assets of the tenant are approximately 33% of our total assets.

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Fair Value Measurements of Financial Instruments

3 Months Ended

Mar. 31, 2018

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 March 31, 2018 and December 31, 2017, the fair value of our loans payable was approximately $65.1 million and $63.3 million compared to the carrying value of approximately $64.5 million and $62.6 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 March 31, 2018, we utilized a discount rate ranging from 4.4% to 5.6% and a weighted-average discount rate of 4.7%. 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 of March 31, 2018, the fair value of the Friendswood TRS note receivable (see Note 6) was $0.9 million compared to the carrying value of $0.9 million. The fair value of the note receivable was estimated based on cash flow analysis at a weighted-average discount rate of 4.7%. 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 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 three months ended March 31, 2018 and 2017. 

At March 31, 2018 and December 31, 2017, 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.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

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 September 17, 2014, we filed a First Amended Cross-Complaint seeking compensatory damages and an accounting pursuant to Sections 10(c)(i) and 17(c)(ii) of the Advisory Agreement and including any monies Plaintiffs and Terry Roussel directly or indirectly received from or paid to the Company. On February 22, 2018, the action was assigned to a different trial judge and trial has been scheduled to commence on August 20, 2018. We continue to believe that all of plaintiffs’ claims are without merit and will continue to vigorously defend ourselves.

An involuntary bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC and Healthcare Real Estate Qualified Purchasers Fund, LLC (collectively, the “Funds”), and at that time, Summit held an interest in the same properties in which the Funds had an interest. HCRE did not timely respond to the involuntary petition and the Bankruptcy Court entered an Order of Relief making HCRE a debtor in bankruptcy. As a result, HCRE was removed as manager under the Funds’ operating agreement. Thereafter Summit became the manager of the Funds and purchased the investors’ interests in the Funds. Following the subsequent 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 Summit in the United States Bankruptcy Court of the District of Delaware. The Bankruptcy Court 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. HCRE appealed the Bankruptcy Court’s decision to the United States District Court for the District of Delaware. The appeal was fully briefed by the parties and is under submission for ruling by the District Court. The Bankruptcy Court has stayed all litigation on HCRE’s motion for damages pending resolution of the appeal on the complaint for violation of the automatic stay by the District Court. We believe that all of HCRE’s remaining alleged claims are without merit and will vigorously defend ourselves.

Delbert Freeman and his company, Freescan Ventures, Inc. (collectively, “Freeman”), filed an action against us and Mr. Eikanas on December 21, 2017 for breach of contract arising out of the sale of the Athens project in Georgia.  We originally guaranteed a lease for the development of the Athens project, which was ultimately sold to a third party in June of 2016, thereby releasing us from our obligation.  Freeman sued for breach of contract based on an allegation that he was not paid profits he was promised from the proceeds of the project.  Freeman is also alleging that he was promised consulting fees of $270,000 from us arising out of an alleged agreement to pay consulting fees of $10,000 per month.  We believe that his claims are without merit and are vigorously defending them. 

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, as amended, 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.

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Equity

3 Months Ended

Mar. 31, 2018

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, 2018, the Compensation Committee of the Board of Directors approved the issuance of 41,500 stock options under our Summit Healthcare REIT, Inc. 2015 Omnibus Incentive Plan (“Incentive Plan”) to our non-executive employees. The stock options vest monthly beginning on February 1, 2018 and continuing over a three-year period through January 1, 2021. The options expire 10 years from the grant date. The weighted-average fair value per share of the stock options granted was $0.40.

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

	2018
Stock options granted		41,500
Expected Volatility		22.23	%
Expected lives		3.0 years
Risk-free interest rate		2.01	%
Dividends		0	%
Fair value per share		$0.40

The following table summarizes our stock options as of March 31, 2018:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at January 1, 2018		895,408	$	1.90
Granted		41,500		2.24
Exercised		—
Cancelled/forfeited		—
Options outstanding at March 31, 2018		936,908	$	1.92		8.43	$	828,000
Options exercisable at March 31, 2018		705,896	$	1.86		8.22	$	663,000

For our outstanding non-vested options as of March 31, 2018, the weighted average grant date fair value per share was $0.33. As of March 31, 2018, 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,
April 1, 2018 to December 31, 2018	$	42,000
2019		27,000
2020		6,000
2021		1,000
	$	76,000

The stock-based compensation expense reported for the three months ended March 31, 2018 and 2017 was approximately $14,000 and $31,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.

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Dispositions

3 Months Ended

Mar. 31, 2018

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.

Friendswood TRS

Effective January 1, 2018, we assigned our interests in Friendswood TRS, the licensed operator and tenant of Friendship Haven, to HMG, the management company of Friendship Haven.

Therefore, as of January 1, 2018, Friendswood TRS is no longer consolidated in our consolidated financial statements. The consolidated statement of operations for the three months ended March 31, 2017 has been restated to present the operations of Friendswood TRS as a discontinued operation.

We made the decision to dispose of Friendswood TRS primarily because we are not in the business of operating facilities; we are in the business of acquiring senior housing facilities and leasing them to independent third party operators under triple-net leases. Friendswood TRS recorded the operations of Friendship Haven as resident services and fee income and resident services costs in their financial statements, which were then consolidated in our consolidated balance sheets and consolidated statements of operations and cash flows. The disposition represented a strategic shift to divest ourselves of being a tenant and licensed operator of our facilities, and had a material effect on the Company’s operations and financial results as we will no longer record resident services and fee income and resident services costs.

Prior to January 1, 2018, HMG provided management services to Friendship Haven pursuant to a management agreement with Friendswood TRS. We do not have any continuing obligations under the management agreement as of January 1, 2018.

Effective January 1, 2018, the new owners of Friendswood TRS entered into an Amended and Restated 10-year triple-net lease with two five-year renewal options, with CHP Friendswood SNF, LLC, our majority-owned consolidated subsidiary. Additionally, the Operating Partnership entered into an amended and restated promissory note with Friendswood TRS for approximately $1.1 million. The note does not bear interest and is due in 48 equal payments of approximately $22,000. We recorded a discount of approximately $95,000 on the note using an imputed interest rate of 4.25%.

The income from discontinued operations presented in the consolidated statements of operations related to Friendswood TRS consisted of the following for the three months ended March 31, 2017:

	March 31, 2017
Revenues:
Resident services and fee income	$	2,304,000
Other revenues		1,000
		2,305,000
Expenses:
Property operating costs		139,000
Resident services costs		1,630,000
General and administrative		18,000
Depreciation and amortization		13,000
		1,800,000
Income from discontinued operations	$	505,000

The assets and liabilities of the discontinued operations are presented separately under the captions “Assets of Friendswood TRS held for sale” and “Liabilities of Friendswood TRS held for sale,” respectively, in the accompanying condensed consolidated balance sheets at December 31, 2017 and consist of the following:

	December 31, 2017
ASSETS:
Cash and cash equivalents	$	459,000
Real estate properties, net		320,000
Tenant and other receivables, net		947,000
Other assets		36,000
Total assets	$	1,762,000
LIABILITIES:
Accounts payable and accrued liabilities		821,000
Accrued salaries and benefits		77,000
Total liabilities of property held for sale	$	898,000

For the three months ended March 31, 2017, total cash flows of the discontinued operations provided by operating activities was $299,000 and cash flows used in investing activities was $20,000.

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Subsequent Events

3 Months Ended

Mar. 31, 2018

Subsequent Events [Abstract]

Subsequent Events [Text Block]

13. Subsequent Events

Stock Option Grants

On April 1, 2018, the Compensation Committee of the Board of Directors approved the issuance of 200,000 stock options under our Incentive Plan to executive management related to their performance goals for 2017. 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, 2018 and continuing over a two-year period through May 1, 2020. The options expire 10 years from the grant date.

On April 1, 2018, the Compensation Committee of the Board of Directors approved the issuance of 100,000 stock options under our Incentive Plan to our directors. The stock options vest monthly beginning on May 1, 2018 and continuing over a three-year period through May 1, 2021. The options expire 10 years from the grant date.

Summit Fantasia Holdings, LLC

In April 2018, we made an additional capital contribution of $1.25 million to the Fantasia JV.  As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership. See Note 5.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

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, the Operating Partnership (of which the Company owns 99.88%) 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 three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.  

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

On January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  The amendments in this ASU 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. Our restricted cash consists of escrows from our tenants for property taxes, insurance and capital improvements required by and held our lenders.

The Company’s statements of cash flows for the three months ended March 31, 2017 has been retroactively restated for the effect of adopting this ASU, adding approximately $3.8 million to the beginning of the period cash, cash equivalents and restricted cash and approximately $4.0 million to the end of the period cash, cash equivalents and restricted cash. This reclassification resulted in a decrease to cash, cash equivalents and restricted cash provided by operating activities by $48,000 (related to the change in restricted cash held for operating activities) and a decrease to cash, cash equivalents and restricted cash used in investing activities by $233,000 (related to the change in restricted cash held for capital improvements). 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	9,806,000	$	3,851,000
Restricted cash		3,283,000		3,447,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows	$	13,089,000	$	7,298,000

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

On January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606).  Our adoption of this new revenue recognition standard did not 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.  Additionally, interest income from our notes receivable is excluded from this standard.  

Acquisition fees arise from contractual agreements with our joint venture partners and are earned and paid at the time we close an acquisition, therefore, satisfying our performance obligations at that time.  We earn our asset management fees based on a percentage of the purchase price or equity raised.  As the manager, our duty is to manage the day-to-day operations of the special-purpose entities which own the properties.  Asset management fees are recognized as a single performance obligation (managing the properties) comprised of a series of distinct services (handling issues with our tenants, etc.). We believe that the overall service of asset management is substantially the same each day and has the same pattern of performance over the term of the agreement. As a result, each day of service represents a performance obligation satisfied at that point in time. These fees are recognized at the end of each period for services performed during that period, billed monthly and paid quarterly.

Revenue recognition for acquisition and asset management fees did not change under the new standard. The Company elected the modified retrospective transition method, however, no adjustments were required.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

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.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain amounts related to the assets, liabilities and operations of Friendswood TRS have been reclassified in the Company’s condensed consolidated balance sheets and condensed consolidated statements of operations for prior year due to the classification of Friendswood TRS as held for sale (see Note 12). These reclassifications had no effect on total assets or liabilities or cash flows from operating activities.  The reclassifications as of and for the three months ended March 31, 2017 increased our loss from continuing operations by $505,000, but did not change our net loss of $(500,000) or our net loss applicable to common stockholders of $(512,000).

See above under Recently Adopted Accounting Pronouncements for reclassifications due to the adoption of ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Restrictions on Cash and Cash Equivalents [Table Text Block]

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	9,806,000	$	3,851,000
Restricted cash		3,283,000		3,447,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows	$	13,089,000	$	7,298,000

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Investments in Real Estate Properties (Tables)

3 Months Ended

Mar. 31, 2018

Real Estate [Abstract]

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

As of March 31, 2018 and December 31, 2017, our investments in real estate properties including those held by our consolidated subsidiaries are set forth below:

	March 31, 2018		December 31, 2017
Land	$	8,003,000	$	7,318,000
Buildings and improvements		69,284,000		69,254,000
Less: accumulated depreciation		(9,556,000)		(9,012,000)
Buildings and improvements, net		59,728,000		60,242,000
Furniture and fixtures		6,829,000		6,755,000
Less: accumulated depreciation		(5,466,000)		(5,252,000)
Furniture and fixtures, net		1,363,000		1,503,000
Real estate properties, net	$	69,094,000	$	69,063,000

Schedule of Real Estate Properties [Table Text Block]

The following table provides summary information regarding our portfolio (excluding the 36 properties owned by our unconsolidated Equity-Method Investments) as of March 31, 2018:

Property	Location	Date Purchased	Type(1)	Purchase Price		Loans Payable, Excluding Debt Issuance Costs		Number of Beds
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	$	4,100,000	$	4,742,000		51
Fernhill Care Center	Portland, OR	August 3, 2012	SNF		4,500,000		4,160,000		63
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012	SNF		15,000,000		9,017,000		150
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF		8,140,000		6,935,000		73
Danby House	Winston-Salem, NC	January 31, 2013	AL/MC		9,700,000		7,612,000		100
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL		8,625,000		7,188,000		66
The Shelby House	Shelby, NC	October 4, 2013	AL		4,500,000		4,703,000		72
The Hamlet House	Hamlet, NC	October 4, 2013	AL		6,500,000		3,973,000		60
The Carteret House	Newport, NC	October 4, 2013	AL		4,300,000		3,352,000		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	$	64,532,000		854

(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.

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

The future minimum lease payments to be received under existing operating leases owned as of March 31, 2018, for the period from April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years ending
April 1, 2018 to December 31, 2018	$	5,713,000
2019		7,740,000
2020		7,902,000
2021		8,068,000
2022		8,237,000
Thereafter		60,988,000
	$	98,648,000

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Loans Payable (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

As of March 31, 2018 and December 31, 2017, our loans payable consisted of the following:

	March 31, 2018		December 31, 2017
Loan payable to CIBC Bank USA in monthly installments of approximately $60,000, including cash collateral and interest at LIBOR plus 3.75% (5.63% at March 31, 2018), due in March 2021, and collateralized by Friendship Haven.	$	9,017,000	$	-
Loan payable to Capital One, National Association in monthly installments of approximately $36,000, including interest at LIBOR plus 2.95% (4.6% at March 31, 2018 and 4.3% at December 31, 2017), due in July 2018, and collateralized by Pennington Gardens.	$	10,050,000	$	10,050,000
Loan payable to Healthcare Financial Solutions, LLC in monthly installments of approximately $18,000, including interest at LIBOR (floor of 0.50%) plus 4.0% (5.7% at March 31, 2018 and 5.3% at December 31, 2017, 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% (8.1% as of December 31, 2017), was terminated in March 2018 and was collateralized by Friendship Haven as of December 31, 2017.		-		6,880,000
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.		42,665,000		42,889,000
		64,532,000		62,619,000
Less debt issuance costs		(1,884,000)		(1,788,000)
Total loans payable	$	62,648,000	$	60,831,000

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 April 1, 2018 to December 31, 2018 and for each of the four following years and thereafter ending December 31 are as follows:

Years Ending	Principal Amount
April 1, 2018 to December 31, 2018	$	13,705,000
2019		1,178,000
2020		1,224,000
2021		9,411,000
2022		1,063,000
Thereafter		37,951,000
	$	64,532,000

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Equity-Method Investments (Tables)

3 Months Ended

Mar. 31, 2018

Schedule Of Distribution From Equity Method Investments [Table Text Block]

As of March 31, 2018 and December 31, 2017, we have distributions receivable, which is included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

	March 31, 2018		December 31, 2017
SUL JV	$	168,000	$	169,000
Fantasia JV		27,000		30,000
Fantasia II JV		38,000		58,000
Fantasia III JV		109,000		97,000
FPH JV		15,000		17,000
Total	$	357,000	$	371,000

Schedule Of Cash Distributions Included In Cash Flows From Operating And Investing Activities [Table Text Block]

For the three months ended March 31, 2018 and 2017, 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:

	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	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	$	140,000	$	72,000	$	68,000	$	206,000	$	63,000	$	143,000
Fantasia JV		45,000		2,000		43,000		31,000		7,000		24,000
Fantasia II JV		86,000		38,000		48,000		-		-		-
Fantasia III JV		93,000		39,000		54,000		-		-		-
FPH JV		24,000		9,000		15,000		-		-		-
Total	$	388,000	$	160,000	$	228,000	$	237,000	$	70,000	$	167,000

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Receivables (Tables)

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

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

Tenant and other receivables, net consists of:

	March 31, 2018		December 31, 2017
Straight-line rent receivables	$	3,211,000	$	3,046,000
Distribution receivables from Equity-Method Investments		357,000		371,000
Receivable from JV 2 properties		184,000		184,000
Asset management fees		177,000		170,000
Other receivables		124,000		335,000
Total	$	4,053,000	$	4,106,000

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Related Party Transactions (Tables)

3 Months Ended

Mar. 31, 2018

Related Party Transactions [Abstract]

Schedule of Related Party Transactions [Table Text Block]

As of March 31, 2018 and December 31, 2017, 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)	$	-

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Equity (Tables)

3 Months Ended

Mar. 31, 2018

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:

	2018
Stock options granted		41,500
Expected Volatility		22.23	%
Expected lives		3.0 years
Risk-free interest rate		2.01	%
Dividends		0	%
Fair value per share		$0.40

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

The following table summarizes our stock options as of March 31, 2018:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at January 1, 2018		895,408	$	1.90
Granted		41,500		2.24
Exercised		—
Cancelled/forfeited		—
Options outstanding at March 31, 2018		936,908	$	1.92		8.43	$	828,000
Options exercisable at March 31, 2018		705,896	$	1.86		8.22	$	663,000

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

For our outstanding non-vested options as of March 31, 2018, the weighted average grant date fair value per share was $0.33. As of March 31, 2018, 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,
April 1, 2018 to December 31, 2018	$	42,000
2019		27,000
2020		6,000
2021		1,000
	$	76,000

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Dispositions (Tables)

3 Months Ended

Mar. 31, 2018

Disposal Groups, Including Discontinued Operations [Table Text Block]

The income from discontinued operations presented in the consolidated statements of operations related to Friendswood TRS consisted of the following for the three months ended March 31, 2017:

	March 31, 2017
Revenues:
Resident services and fee income	$	2,304,000
Other revenues		1,000
		2,305,000
Expenses:
Property operating costs		139,000
Resident services costs		1,630,000
General and administrative		18,000
Depreciation and amortization		13,000
		1,800,000
Income from discontinued operations	$	505,000

The assets and liabilities of the discontinued operations are presented separately under the captions “Assets of Friendswood TRS held for sale” and “Liabilities of Friendswood TRS held for sale,” respectively, in the accompanying condensed consolidated balance sheets at December 31, 2017 and consist of the following:

	December 31, 2017
ASSETS:
Cash and cash equivalents	$	459,000
Real estate properties, net		320,000
Tenant and other receivables, net		947,000
Other assets		36,000
Total assets	$	1,762,000
LIABILITIES:
Accounts payable and accrued liabilities		821,000
Accrued salaries and benefits		77,000
Total liabilities of property held for sale	$	898,000

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Organization (Details Textual) - USD ($)		3 Months Ended
	Apr. 01, 2018	Mar. 31, 2018	Mar. 31, 2017	Apr. 30, 2018	Dec. 31, 2017
Organization [Line Items]
Equity Method Investment, Ownership Percentage		10.00%
Payments to Acquire Equity Method Investments		$ 63,000	$ 1,725,000
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]
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%
Summit Healthcare Five Properties One [Member]
Organization [Line Items]
Real Estate Investment Trust Owne Percentage		100.00%
Summit Healthcare Five Properties Two [Member]
Organization [Line Items]
Real Estate Investment Trust Owne Percentage		95.00%
Five Jv Propertie [Member] | Chref One [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest		95.00%
Five Jv Propertie [Member] | Chref Two [Member]
Organization [Line Items]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners		5.00%
Four Jv Propertie [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest		95.30%
Summit Health Care Two Properties [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage		20.00%
Summit Fantasia Holdings Llc [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest		20.00%
Fantasia Three Jv [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest		10.00%
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest by Affiliates		10.00%
Fantasia Two Jv [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest by Affiliates		20.00%
Summit Fantasy Pearl Holdings, LLC [Member]
Organization [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest by Affiliates		10.00%
Fantasia JV [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage					10.00%
Fantasia JV [Member] | Subsequent Event [Member]
Organization [Line Items]
Payments to Acquire Equity Method Investments	$ 1,250,000
Fantasia JV [Member] | Subsequent Event [Member] | Operating Partnership [Member]
Organization [Line Items]
Equity Method Investment, Ownership Percentage				35.00%

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Summary of Significant Accounting Policies (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Cash and cash equivalents	$ 9,806,000	$ 3,851,000
Restricted cash	3,283,000	3,447,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows	$ 13,089,000	$ 7,298,000	$ 12,563,000

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Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2016
Summary of Significant Accounting Policies [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	95.00%
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent		$ 505,000
Net Income (Loss) Available to Common Stockholders, Basic		(512,000)
Net Income (Loss), Including Portion Attributable To Noncontrolling Interest	$ (285,000)	(500,000)
New Accounting Pronouncement or Change in Accounting Principle Decrease In Cash, Cash Equivalents And Restricted Cash Operating Activity		48,000
New Accounting Pronouncement or Change in Accounting Principle Decrease in Cash, Cash Equivalents and Restricted Cash Investing Activities		233,000
Adjustments for New Accounting Pronouncement [Member]
Summary of Significant Accounting Policies [Line Items]
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect		$ 4,000,000	$ 3,800,000
Operating Partnership [Member]
Summary of Significant Accounting Policies [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	99.88%

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Investments in Real Estate Properties (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Real Estate Properties [Line Items]
Real estate properties, net	$ 69,094,000	$ 69,063,000
Land [Member]
Real Estate Properties [Line Items]
Real estate properties, net	8,003,000	7,318,000
Buildings and improvements
Real Estate Properties [Line Items]
Investments in real estate	69,284,000	69,254,000
Less: accumulated depreciation	(9,556,000)	(9,012,000)
Real estate properties, net	59,728,000	60,242,000
Furniture and Fixture [Member]
Real Estate Properties [Line Items]
Investments in real estate	6,829,000	6,755,000
Less: accumulated depreciation	(5,466,000)	(5,252,000)
Real estate properties, net	$ 1,363,000	$ 1,503,000

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Investments in Real Estate Properties (Details 1)	3 Months Ended
	Mar. 31, 2018 USD ($)
Real Estate Properties [Line Items]
Purchase Price	$ 82,265,000
Loans Payable, excluding debt discounts	$ 64,532,000
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 discounts	$ 4,742,000
Number Of Beds	51
Fern Hill 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 discounts	$ 4,160,000
Number Of Beds	63
Friendship Haven Healthcare and Rehabilitation Center [Member]
Real Estate Properties [Line Items]
Location	Galveston County, TX
Date Purchased	Sep. 14, 2012
Type Of property	SNF	[1]
Purchase Price	$ 15,000,000
Loans Payable, excluding debt discounts	$ 9,017,000
Number Of Beds	150
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 discounts	$ 6,935,000
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 discounts	$ 7,612,000
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 discounts	$ 7,188,000
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 discounts	$ 4,703,000
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 discounts	$ 3,973,000
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 discounts	$ 3,352,000
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 discounts	$ 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 discounts	$ 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.

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Investments in Real Estate Properties (Details 2)	Mar. 31, 2018 USD ($)
Real Estate Properties [Line Items]
April 1, 2018 to December 31, 2018	$ 5,713,000
2019	7,740,000
2020	7,902,000
2021	8,068,000
2022	8,237,000
Thereafter	60,988,000
Operating Leases, Future Minimum Payments Receivable	$ 98,648,000

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Investments in Real Estate Properties (Details Textual)	1 Months Ended	3 Months Ended
	Jul. 17, 2017 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Dec. 31, 2017 USD ($)
Real Estate Properties [Line Items]
Number of Real Estate Properties		11
Percentage of Real Estate Properties		100.00%
Depreciation		$ 800,000	$ 700,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Land	$ 1,800,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Buildings	$ 10,900,000
Payments to Acquire Land		685,000
Acquisition Costs, Period Cost		30,000
Increase In Annual Rental Payments		36,000
Deferred Costs, Leasing, Net, Total		1,238,000		$ 1,273,000
Amortization of Deferred Leasing Commissions		35,000	$ 35,000
Deferred Costs		$ 1,900,000		$ 1,900,000
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
Furniture and Fixtures [Member] | Pennington Gardens [Member]
Real Estate Properties [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment	$ 750,000

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Loans Payable (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 64,532,000	$ 62,619,000
Less debt issuance costs	(1,884,000)	(1,788,000)
Total loans payable	62,648,000	60,831,000
General Electric Capital Corporation [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	10,050,000	10,050,000
Lancaster Pollard Mortgage Company, LLC [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	42,665,000	42,889,000
Oxford Finance, LLC [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	2,800,000	2,800,000
Housing and Healthcare Finance [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	0	6,880,000
Cibc Bank [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross	$ 9,017,000	$ 0

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Loans Payable (Details) [Parenthetical] - USD ($)	1 Months Ended	3 Months Ended
	Jul. 31, 2017	Mar. 31, 2018
Capital One National Association Loan [Member]
Debt Instrument, Periodic Payment		$ 36,000
Debt Instrument, Basis Spread on Variable Rate	2.95%
Healthcare Financial Solutions Llc [Member]
Debt Instrument, Periodic Payment		18,000
Oxford Finance, LLC [Member]
Debt Instrument, Periodic Payment		53,000
Lancaster Pollard Mortgage Company, LLC Sheridan Loan [Member]
Debt Instrument, Periodic Payment		209,000
Cibc Bank [Member]
Debt Instrument, Periodic Payment		$ 60,000
Debt Instrument, Description of Variable Rate Basis		LIBOR plus 3.75%
Debt Instrument, Basis Spread on Variable Rate		3.75%
Debt Instrument, Interest Rate, Stated Percentage		5.63%
Debt Instrument, Maturity Date, Description		due in March 2021

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Loans Payable (Details 1)	Mar. 31, 2018 USD ($)
Debt Instrument [Line Items]
April 1, 2018 to December 31, 2018	$ 13,705,000
2019	1,178,000
2020	1,224,000
2021	9,411,000
2022	1,063,000
Thereafter	37,951,000
Total	$ 64,532,000

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Loans Payable (Details Textual) - USD ($)	1 Months Ended		3 Months Ended
	Apr. 16, 2018	Jul. 31, 2017	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2017	Mar. 30, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Amortization Of Financing Costs					$ 71,000	$ 34,000
Interest Expense, Debt					900,000	700,000
Long-term Debt, Gross					64,532,000			$ 62,619,000
Debt Instrument, Unamortized Discount					1,884,000			1,788,000
Amortization of Debt Discount (Premium)					150,000	34,000
Proceeds From Notes Payable					9,017,000	$ 0
Prepaid Penalty					69,000
Prepaid Penalty One					10,000
Hfs Formerly Ge Capital [Member]
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment					5,000
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
Debt Instrument, Basis Spread on Variable Rate		2.95%
Payments of Financing Costs		$ 200,000
Debt Extinguishment Percentage					2.00%
Cibc Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment					$ 60,000
Debt Instrument, Interest Rate, Stated Percentage					5.63%
Debt Instrument, Maturity Date					Mar. 30, 2021
Long-term Debt, Gross					$ 9,017,000			$ 0
Debt Instrument, Basis Spread on Variable Rate					3.75%
Payments of Financing Costs					$ 200,000
Long-term Debt, Fair Value							$ 10,725,000
Proceeds From Notes Payable					$ 9,000,000
Debt Instrument, Redemption, Description					we will be required to pay a prepayment premium of 2% of the loan balance prior to the first anniversary and 1% thereafter through maturity
Cibc Bank [Member] | Scenario, Forecast [Member]
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment			$ 20,000	$ 19,000
Cibc Bank [Member] | Subsequent Event [Member]
Debt Instrument [Line Items]
Proceeds From Notes Payable	$ 1,700,000
Cibc Bank [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage							3.75%
Oxford Finance [Member]
Debt Instrument [Line Items]
Amortization Of Financing Costs					$ 79,000
Payment for Debt Extinguishment or Debt Prepayment Cost					$ 87,500

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Equity-Method Investments (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Dividends Receivable	$ 357,000	$ 371,000
SUL JV
Dividends Receivable	168,000	169,000
Fantasia JV
Dividends Receivable	27,000	30,000
Fantasia II JV
Dividends Receivable	38,000	58,000
Fantasia III JV
Dividends Receivable	109,000	97,000
FPH JV
Dividends Receivable	$ 15,000	$ 17,000

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Equity-Method Investments (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Total Cash Distributions Received	$ 388,000	$ 237,000
Cash Flow from Operating	160,000	70,000
Cash Flow from Investing	228,000	167,000
SUL JV
Total Cash Distributions Received	140,000	206,000
Cash Flow from Operating	72,000	63,000
Cash Flow from Investing	68,000	143,000
Fantasia JV
Total Cash Distributions Received	45,000	31,000
Cash Flow from Operating	2,000	7,000
Cash Flow from Investing	43,000	24,000
Fantasia II JV
Total Cash Distributions Received	86,000	0
Cash Flow from Operating	38,000	0
Cash Flow from Investing	48,000	0
Fantasia III JV
Total Cash Distributions Received	93,000	0
Cash Flow from Operating	39,000	0
Cash Flow from Investing	54,000	0
FPH JV
Total Cash Distributions Received	24,000	0
Cash Flow from Operating	9,000	0
Cash Flow from Investing	$ 15,000	$ 0

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Equity-Method Investments (Details Textual) - USD ($)		1 Months Ended	3 Months Ended		12 Months Ended
	Apr. 01, 2018	Apr. 30, 2017	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017	Apr. 30, 2018	Apr. 30, 2015
Equity Method Investment, Ownership Percentage			10.00%
Equity Method Investments			$ 9,091,000		$ 9,241,000
Dividends Receivable			357,000		371,000
Proceeds from Dividends Received			$ 160,000	$ 70,000
Disposal Group, Including Discontinued Operation, Accounts, Notes and Loans Receivable, Net					947,000
Summit Fantasia Holdings III, LLC [Member]
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			$ 1,800,000		1,800,000
SUL JV acquired [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%.
Proceeds from Dividends Received		$ 122,000
Disposal Group, Including Discontinued Operation, Accounts, Notes and Loans Receivable, Net			$ 105,000		312,018
Summit Fantasia ll Holdings 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.
Asset Management Fees			$ 200,000	$ 200,000
Equity Method Investments			$ 1,700,000		1,800,000
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 Investments			$ 1,100,000		1,100,000
Summit Fantasia Holdings Llc [Member] | Subsequent Event [Member]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation	As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership
Additional Paid in Capital						$ 1,250,000
Summit Fantasy Pearl Holdings, LLC [Member]
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			$ 900,000		900,000
Summit Union Life Holdings, LLC [Member]
Equity Method Investments			$ 3,600,000		3,600,000
Best Years Llc [Member] | Minimum [Member]
Equity Method Investment, Ownership Percentage			9.00%
Best Years Llc [Member] | Maximum [Member]
Equity Method Investment, Ownership Percentage			10.00%
JV 2 Properties [Member]
Dividends Receivable		$ 110,000	$ 184,000				$ 362,000
Proceeds from Dividends Received					$ 56,000
Adjustment To Additional Paid In Capital Increase From Cash Addition			$ 5,000

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Receivables (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Straight-line rent receivables	$ 3,211,000	$ 3,046,000
Distribution receivables from Equity-Method Investments	357,000	371,000
Receivable from JV 2 properties	184,000	184,000
Asset management fees	177,000	170,000
Other receivables	124,000	335,000
Total	$ 4,053,000	$ 4,106,000

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Receivables (Details Textual) - USD ($)	1 Months Ended		3 Months Ended
	Jan. 31, 2018	Dec. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2015	Sep. 30, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income Note Receivable			$ 18,000	$ 44,000
Financing Receivable, Net		$ 3,854,000	$ 941,000
Receivable with Imputed Interest, Effective Yield (Interest Rate)			4.25%
Debt Instrument, Frequency of Periodic Payment			22,000
Receivable with Imputed Interest, Face Amount			$ 1,100,000
Receivable with Imputed Interest, Due Date			Dec. 31, 2022
Proceeds from Sale of Notes Receivable			$ 4,072,000	8,000
Gain (Loss) on Sale of Notes Receivable			186,000	$ 0
Receivable with Imputed Interest, Discount			95,000
Nantucket Note [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Proceeds from Sale of Notes Receivable	$ 4,000,000
Gain (Loss) on Sale of Notes Receivable	$ 200,000
Friendswood TRS [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net			$ 900,000
Receivable with Imputed Interest, Due Date			Jan. 01, 2018
Sherburne Commons, Inc., Money Note [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Receivable with Imputed Interest, Face Amount					$ 5,000,000
Proceeds from Sale of Notes Receivable		900,000
Operator [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net		$ 38,000	$ 30,000			$ 140,000
Debt Instrument, Interest Rate, Stated Percentage						6.00%
Notes Receivable [Member] | Friendswood TRS [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt Instrument, Periodic Payment, Principal			$ 67,000

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Related Party Transactions (Details) - Cornerstone Realty Advisors, LLC [Member]	Mar. 31, 2018 USD ($)
Receivables	$ 2,676,000
Reserves	(2,676,000)
Balance	0
Organizational and offering costs [Member]
Receivables	738,000
Reserves	(738,000)
Balance	0
Asset management fees and expenses [Member]
Receivables	32,000
Reserves	(32,000)
Balance	0
Operating expenses (direct and indirect) [Member]
Receivables	189,000
Reserves	(189,000)
Balance	0
Operating expenses (2%/25% Test) [Member]
Receivables	1,717,000
Reserves	(1,717,000)
Balance	$ 0

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Related Party Transactions (Details Textual)	3 Months Ended
	Mar. 31, 2018
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%

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Concentration of Risk (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Tenant One, Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	42.00%	58.00%
Tenant Two, Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	24.00%	34.00%
Tenant Three, Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	17.00%
Assets, Total [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	33.00%		33.00%

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Fair Value Measurements of Financial Instruments (Details Textual) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans Payable, Fair Value Disclosure	$ 65,100,000	$ 63,300,000
Long-term Debt, Gross	64,532,000	$ 62,619,000
Friendswood TRS [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans Payable, Fair Value Disclosure	900,000
Long-term Debt, Gross	$ 900,000
Fair Value, Inputs Discount Rate, Loans payable	4.70%
Minimum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value, Inputs Discount Rate, Loans payable	4.40%
Maximum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value, Inputs Discount Rate, Loans payable	5.60%
Weighted Average [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value, Inputs Discount Rate, Loans payable	4.70%

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Commitments and Contingencies (Details Textual)	Dec. 21, 2017 USD ($)
consulting fees	$ 270,000
Alleged agreement [Member]
consulting fees	$ 10,000

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Equity (Details)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted | shares	41,500
Expected Volatility	22.23%
Expected lives	3 years
Risk-free interest rate	2.01%
Dividends	0.00%
Fair value per share | $ / shares	$ 0.40

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Equity (Details 1)	3 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, Beginning Balance	895,408
Options, Granted	41,500
Options, Exercised	0
Options, Cancelled/forfeited	0
Options outstanding, Ending Balance	936,908
Options exercisable, Ending Balance	705,896
Weighted Average Exercise Price, Outstanding at Beginning Balance | $ / shares	$ 1.9
Weighted Average Exercise Price, Granted | $ / shares	2.24
Weighted Average Exercise Price, Outstanding at Ending Balance | $ / shares	1.92
Weighted Average Exercise Price, Exercisable at Ending Balance | $ / shares	$ 1.86
Options outstanding, Weighted Average Remaining Contractual Term	8 years 5 months 5 days
Options exercisable, Weighted Average Remaining Contractual Term	8 years 2 months 19 days
Options outstanding, Aggregate Intrinsic Value | $	$ 828,000
Options exercisable, Aggregate Intrinsic Value | $	$ 663,000

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Equity (Details 2)	Mar. 31, 2018 USD ($)
Schedule of Equity Method Investments [Line Items]
Unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures	$ 76,000
April 1, 2018 to December 31, 2018 [Member]
Schedule of Equity Method Investments [Line Items]
Unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures	42,000
2019 [Member]
Schedule of Equity Method Investments [Line Items]
Unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures	27,000
2020 [Member]
Schedule of Equity Method Investments [Line Items]
Unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures	6,000
2021 [Member]
Schedule of Equity Method Investments [Line Items]
Unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures	$ 1,000

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Equity (Details Textual) - USD ($)		3 Months Ended
	Jan. 02, 2018	Mar. 31, 2018	Mar. 31, 2017
Schedule of Equity [Line Items]
Options, Granted		41,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value		$ 0.40
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		8 years 5 months 5 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Exercise Price		$ 0.33
General and Administrative Expense [Member]
Schedule of Equity [Line Items]
Allocated Share-based Compensation Expense		$ 14,000	$ 31,000
Omnibus Incentive Plan [Member]
Schedule of Equity [Line Items]
Options, Granted	41,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 0.40
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	10 years

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Dispositions (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues:
Resident services and fee income		$ 2,304,000
Other revenues		1,000
Disposal Group, Including Discontinued Operation, Revenue		2,305,000
Expenses:
Property operating costs		139,000
Resident services costs		1,630,000
General and administrative		18,000
Depreciation and amortization		13,000
Disposal Group, Including Discontinued Operation, Total Expenses		1,800,000
Income from discontinued operations	$ 109,000	$ 505,000

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Dispositions (Details 1) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
ASSETS:
Cash and cash equivalents	$ 0	$ 459,000	$ 279,000
Real estate properties, net		320,000
Tenant and other receivables, net		947,000
Other assets		36,000
Total assets	0	1,762,000
LIABILITIES:
Accounts payable and accrued liabilities		821,000
Accrued salaries and benefits		77,000
Total liabilities of property held for sale	$ 0	$ 898,000

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Dispositions (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Receivable with Imputed Interest, Face Amount	$ 1,100,000
Receivable with Imputed Interest, Due Date	Dec. 31, 2022
Receivable with Imputed Interest, Periodic payment	$ 22,000
Receivable with Imputed Interest, Effective Yield (Interest Rate)	4.25%
Cash Provided by (Used in) Operating Activities, Discontinued Operations		$ 299,000
Cash Provided by (Used in) Investing Activities, Discontinued Operations		$ 20,000

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Subsequent Events (Details Textual) - USD ($) $ in Thousands			1 Months Ended	3 Months Ended
	Apr. 01, 2018	Jan. 02, 2018	May 31, 2018	Mar. 31, 2018	Apr. 30, 2018
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				41,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term				8 years 5 months 5 days
Omnibus Incentive Plan [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		41,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		10 years
Summit Fantasia Holdings Llc [Member]
Subsequent Event [Line Items]
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.
Subsequent Event [Member] | Omnibus Incentive Plan [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	200,000
Subsequent Event [Member] | Director Incentive Stock Plan [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	10 years
Subsequent Event [Member] | Executive Management [Member] | Omnibus Incentive Plan [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	33.00%
Subsequent Event [Member] | Executive Management [Member] | Omnibus Incentive Plan [Member] | Vest in Equal Monthly Installment [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			67.00%
Subsequent Event [Member] | Incentive Plan [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Subsequent Event [Member] | Incentive Plan [Member] | Employee [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	100,000
Subsequent Event [Member] | Summit Fantasia Holdings Llc [Member]
Subsequent Event [Line Items]
Limited Liability Company or Limited Partnership, Managing Member or General Partner, Compensation	As a result of this capital contribution, as of April 27, 2018, the Operating Partnership will have a 35% equity investment and each member will each receive a distribution of net operating cash flow and capital proceeds after the pari passu of 50% instead of 70% for Fantasia and 30% for the Operating Partnership
Additional Paid in Capital					$ 1,250