10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

or

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

For the transition period from            to            

Commission File Number 000-53969

SENTIO HEALTHCARE PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	20-5721212
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
189 South Orange Avenue, Suite 1700, Orlando, FL	32801
(Address of principal executive offices)	(Zip Code)

407-999-7679

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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. Check one:

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

As of August 17, 2012, there were 12,853,819 shares of common stock of Sentio Healthcare Properties, Inc. outstanding.

Table of Contents

PART I — FINANCIAL INFORMATION

FORM 10-Q

SENTIO HEALTHCARE PROPERTIES, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December  31, 2011 (unaudited)	1
Condensed Consolidated Statements of Operations for the Three and Six months ended June  30, 2012 (unaudited) and 2011 (unaudited)	2
Condensed Consolidated Statements of Equity for the Six months ended June 30, 2012 (unaudited)  and 2011 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the Six months ended June  30, 2012 (unaudited) and 2011 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	38
Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION	39
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6. Exhibits	41
SIGNATURES	42
EX-31
EX-32

SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	31,958,000		$	27,972,000
Investments in real estate:
Land		20,713,000			20,713,000
Buildings and improvements, net		115,649,000			100,687,000
Furniture, fixtures and equipment, net		2,352,000			2,562,000
Intangible lease assets, net		4,696,000			3,865,000
		143,410,000			127,827,000
Deferred financing costs, net		1,508,000			824,000
Investment in unconsolidated entities		3,629,000			3,387,000
Tenant and other receivables, net		2,159,000			1,366,000
Restricted cash		3,424,000			3,806,000
Deferred costs and other assets		2,357,000			1,938,000
Goodwill		6,510,000			5,965,000
Total assets	$	194,955,000		$	173,085,000
LIABILITIES AND EQUITY
Liabilities:
Notes payable	$	111,446,000		$	85,978,000
Accounts payable and accrued liabilities		2,306,000			3,899,000
Prepaid rent and security deposits		1,598,000			1,535,000
Distributions payable		799,000			814,000
Total liabilities		116,149,000			92,226,000
Commitments and contingencies (Note 13)
Equity:
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value per share; 20,000,000 shares authorized; no shares were issued or outstanding at June 30, 2012 and December 31, 2011		—			—
Common stock, $0.01 par value per share; 580,000,000 shares authorized; 12,856,819, and 12,916,612 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		129,000			129,000
Additional paid-in capital		94,372,000			96,542,000
Accumulated deficit		(16,762,000	)		(17,054,000	)
Total stockholders’ equity		77,739,000			79,617,000
Noncontrolling interests		1,067,000			1,242,000
Total equity		78,806,000			80,859,000
Total liabilities and equity	$	194,955,000		$	173,085,000

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

1

SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue:
Rental revenue	$	8,249,000		$	7,861,000		$	16,094,000		$	15,071,000
Resident services and fee income		2,311,000			2,020,000			4,589,000			3,722,000
Tenant reimbursements and other income		447,000			234,000			809,000			513,000
		11,007,000			10,115,000			21,492,000			19,306,000
Expenses:
Property operating and maintenance		6,921,000			6,372,000			13,447,000			12,001,000
General and administrative expenses		370,000			1,292,000			1,204,000			1,958,000
Asset management fees and expenses		503,000			376,000			984,000			807,000
Real estate acquisition costs and contingent consideration		190,000			514,000			206,000			1,431,000
Depreciation and amortization		1,530,000			1,974,000			2,963,000			3,712,000
		9,514,000			10,528,000			18,804,000			19,909,000
Income (loss) from operations		1,493,000			(413,000	)		2,688,000			(603,000	)
Other income (expense):
Interest income		1,000			3,000			1,000			7,000
Interest expense		(1,597,000	)		(1,403,000	)		(3,024,000	)		(2,726,000	)
Other income/expense		(146,000	)		—			(152,000	)		—
Net (loss) income from unconsolidated entities		(442,000	)		99,000			(376,000	)		(15,000	)
Fair value adjustment for equity method investment		1,282,000			—			1,282,000			—
Net income (loss)		591,000			(1,714,000	)		419,000			(3,337,000	)
Net income (loss) attributable to noncontrolling interests		50,000			(16,000	)		127,000			(46,000	)
Net income (loss) attributable to common stockholders	$	541,000		$	(1,698,000	)	$	292,000		$	(3,291,000	)
Basic and diluted net income (loss) per common share attributable to common stockholders	$	0.04		$	(0.13	)	$	0.02		$	(0.26	)
Weighted-average number of common shares		12,870,880			13,004,904			12,884,712			12,488,389
Distribution declared, per common share	$	0.06		$	0.19		$	0.06		$	0.38

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

2

SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Six Months Ended June 30, 2012 and 2011

(Unaudited)

	Common Stock
	Number of Shares			Common Stock Par Value			Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance — December 31, 2011		12,916,612		$	129,000		$	96,542,000		$	(17,054,000	)	$	79,617,000		$	1,242,000		$	80,859,000
Redeemed shares		(59,793	)		—			(570,000	)		—			(570,000	)		—			(570,000	)
Distributions		—			—			(1,600,000	)		—			(1,600,000	)		(302,000	)		(1,902,000	)
Net income		—			—			—			292,000			292,000			127,000			419,000
Balance — June 30, 2012		12,856,819		$	129,000		$	94,372,000		$	(16,762,000	)	$	77,739,000		$	1,067,000		$	78,806,000
	Common Stock
	Number of Shares			Common Stock Par Value			Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance — December 31, 2010		11,592,883		$	116,000		$	91,588,000		$	(11,722,000	)	$	79,982,000		$	1,709,000		$	81,691,000
Issuance of common stock		1,575,250			16,000			15,628,000			—			15,644,000			—			15,644,000
Redeemed shares		(167,308	)		(2,000	)		(1,602,000	)		—			(1,604,000	)		—			(1,604,000	)
Offering costs		—			—			(1,890,000	)		—			(1,890,000	)		—			(1,890,000	)
Distributions		—			—			(4,712,000	)		—			(4,712,000	)		—			(4,712,000	)
Net (loss)		—			—			—			(3,291,000	)		(3,291,000	)		(46,000	)		(3,337,000	)
Balance — June 30, 2011		13,000,825		$	130,000		$	99,012,000		$	(15,013,000	)	$	84,129,000		$	1,663,000		$	85,792,000

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

3

SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	419,000		$	(3,337,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred financing costs		290,000			120,000
Depreciation and amortization		2,963,000			3,712,000
Straight-line rent amortization		(253,000	)		(251,000	)
Real estate earn out costs		110,000			511,000
Fair value adjustment for equity method investment		(1,282,000	)		—
Equity loss from unconsolidated entities		376,000			15,000
Bad debt expense		26,000			1,630,000
Change in deferred taxes		(191,000	)		—
Changes in operating assets and liabilities:
Tenant and other receivables		(573,000	)		39,000
Prepaid expenses and other assets		163,000			(1,033,000	)
Restricted cash		103,000			(154,000	)
Prepaid rent and tenant security deposits		63,000			352,000
Payable to related parties		—			(38,000	)
Receivable from related parties		—			(1,630,000	)
Accounts payable and accrued liabilities		1,704,000			1,739,000
Net cash provided by operating activities		3,918,000			1,675,000
Cash flows from investing activities:
Real estate acquisitions		(5,672,000	)		(19,741,000	)
Additions to real estate		(361,000	)		(371,000	)
Payments for construction in progress		—			(81,000	)
Purchase of an interest in an unconsolidated entity		(2,490,000	)		(897,000	)
Changes in restricted cash		279,000			(118,000	)
Acquisition deposits		(392,000	)		100,000
Distributions from unconsolidated joint ventures		—			227,000
Net cash used in investing activities		(8,636,000	)		(20,881,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		—			14,160,000
Redeemed shares		(570,000	)		(1,604,000	)
Proceeds from notes payable		32,481,000			14,571,000
Repayments of notes payable		(19,936,000	)		(399,000	)
Offering costs		—			(1,917,000	)
Deferred financing costs		(974,000	)		(150,000	)
Payment of real estate earn out costs		(380,000	)		(1,000,000	)
Distributions paid to stockholders		(1,615,000	)		(3,149,000	)
Distributions paid to noncontrolling interests		(302,000	)		—
Net cash provided by financing activities		8,704,000			20,512,000
Net increase in cash and cash equivalents		3,986,000			1,306,000
Cash and cash equivalents — beginning of period		27,972,000			29,718,000
Cash and cash equivalents — end of period	$	31,958,000		$	31,024,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,170,000		$	2,364,000
Cash paid for income taxes		404,000			441,000
Supplemental disclosure of non-cash financing and investing activities:
Distributions declared not paid		799,000			801,000
Distribution reinvested		—			1,484,000

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

4

SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(UNAUDITED)

1. Organization

Sentio Healthcare Properties, Inc., a Maryland corporation, was formed on October 16, 2006 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in and owning commercial real estate. As used in this report, the “Company”, “we”, “us” and “our” refer to Sentio Healthcare Properties, Inc. and its consolidated subsidiaries, except where context otherwise requires. Effective January 1, 2012, subject to certain restrictions and limitations, our business is managed by Sentio Investments, LLC, a Florida limited liability company that was formed on December 20, 2011 (the “Advisor”). Sentio Investments, LLC is controlled by John Mark Ramsey, our Chief Executive Officer and formerly an owner of our prior sub-advisor, Servant Healthcare Investments, LLC. Prior to January 1, 2012, Cornerstone Leveraged Realty Advisors, LLC, a Delaware limited liability company that was formed on October 16, 2006, was our advisor (the “Prior Advisor”).

Sentio Healthcare Properties OP, LP, a Delaware limited partnership (the “Operating Partnership”), was formed on October 17, 2006. At June 30, 2012, we owned 100% of the interest in the Operating Partnership and HC Operating Partnership, LP, a subsidiary of the Operating Partnership. We anticipate that we will conduct all or a portion of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership and its subsidiaries are consolidated in the accompanying condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.

For federal income tax purposes, we have elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended December 31, 2008. REIT status imposes limitations related to operating assisted-living properties. Generally, to qualify as a REIT, we cannot directly operate assisted-living facilities. However, such facilities may generally be operated by a taxable REIT subsidiary (“TRS”) pursuant to a lease with the Company. Therefore, we have formed Master HC TRS, LLC (“Master TRS”), a wholly owned subsidiary of HC Operating Partnership, LP, to lease any assisted-living properties we acquire and to operate the assisted-living properties pursuant to contracts with unaffiliated management companies. Master TRS and the Company have made the applicable election for Master TRS to qualify as a TRS. Under the management contracts, the management companies have direct control of the daily operations of these assisted-living properties.

2. Public Offering

Our charter authorizes the issuance of up to 580,000,000 shares of common stock with a par value of $0.01 per share and 20,000,000 shares of preferred stock with a par value of $0.01 per share.

On June 20, 2008, we commenced an initial public offering of up to 50,000,000 shares of our common stock, consisting of 40,000,000 shares for sale pursuant to a primary offering and 10,000,000 shares for sale pursuant to our distribution reinvestment plan. We stopped making offers under our initial public offering on February 3, 2011 after raising gross offering proceeds of $123.9 million from the sale of 12.4 million shares, including shares sold under the distribution reinvestment plan.

On February 4, 2011, the U.S. Securities and Exchange Commission (“SEC”) declared the registration statement for our follow-on offering effective and we commenced a follow-on offering of up to 55,000,000 shares of our common stock, consisting of 44,000,000 shares for sale pursuant to a primary offering and 11,000,000 shares for sale pursuant to our dividend reinvestment plan. As of June 30, 2012, we had sold a total of 12.7 million shares of our common stock pursuant to our initial and follow-on public offerings for aggregate gross proceeds of $127.0 million.

On April 29, 2011 we informed our stockholders that the Independent Directors Committee of our board of directors had directed us to suspend our follow-on offering, our dividend reinvestment program and our stock repurchase program (except repurchases due to death) because of the uncertainty associated with our Independent Directors Committee consideration of various strategic alternatives to enhance our stockholders’ value. On October 18, 2011, we announced that the Independent Directors Committee had suspended its analysis of strategic alternatives for the Company and concluded that the Company was well positioned as an investment program with a continued focus on healthcare real estate. The Independent Directors

5

Committee identified strategies in its evaluation process that it believes will enhance this position and is implementing operating changes designed to increase portfolio cash flow and increase shareholder value. In particular, the Company is focused on enhancing portfolio performance by identifying investment and financing opportunities, implementing operational efficiencies and evaluating the potential for growth in the future. As of June 30, 2012, sales pursuant to our follow-on offering remained suspended.

3. 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, 2011.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the guidance for the consolidation of variable interest entities (“VIEs”), we analyze our variable interests, including investments in partnerships and joint ventures, to determine if the entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews, based on our review of the design of the entity, its organizational structure including decision-making ability, risk and reward sharing experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions and financial agreements. We also use quantitative and qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary.

Investments in Unconsolidated Entities

We account for our investments in an unconsolidated joint ventures under the equity method of accounting. We exercise significant influence, but do not control these entities or direct the activities that most significantly impact the venture’s performance. Investments in unconsolidated entities are recorded initially at cost and subsequently adjusted for cash contributions and distributions. We recognize our allocable share of the equity in earnings of our unconsolidated entities based on the respective venture’s structure and preferences.

Use of Estimates

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.

Comprehensive Income

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Comprehensive Income: Presentation of Comprehensive Income, which eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity and requires the presentation of components of net income and components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements.

As of June 30, 2012, the Company had no components of other comprehensive income. Accordingly, net income (loss) is equal to comprehensive income (loss) for all periods presented.

Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the SEC. Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of our 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. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited condensed consolidated financial statements and the notes thereto included on our 2011 Annual Report on Form 10-K, as filed with the SEC.

Fair Value of Financial Instruments and Fair Value Measurements

FASB Accounting Standards Codification (“ASC”) 825-10, “Financial Instruments”, requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). The amendments in this update result in additional fair value measurement and disclosure requirements within U.S. GAAP and International Financial Reporting Standards. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The adoption of ASU 2011-04 on January 1, 2012 did not have a material impact on the Company’s consolidated financial position or results of operations. The impact on the Company’s disclosures was not material. Financial assets and liabilities recorded at fair value on the condensed consolidated balance sheets and disclosed in the financial statements are categorized based on the inputs to the valuation techniques as follows:

Level 1. Quoted prices in active markets for identical instruments.

6

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified according to the lowest level input that is significant to their valuation. A financial instrument that has a significant unobservable input along with significant observable inputs may still be classified as a Level 3 instrument.

We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.

Our balance sheets include the following financial instruments: cash and cash equivalents, tenant and other receivables, restricted cash, security deposits, accounts payable and accrued liabilities, distributions payable, and notes payable. With the exception of an equity method the Company obtained control of in April 2012 and notes payable discussed below, we consider the carrying values of our financial instruments to approximate fair value because they generally expose the Company to limited credit risk and because of the short period of time between origination of the financial assets and liabilities and their expected settlement.

Under the fair value hierarchy, cash and cash equivalents and restricted cash are classified as Level 1. Tenant and other receivables, security deposits and accounts payable and accrued liabilities (except for the accrued promote liabilities) are classified as Level 2.

The fair market value of notes payable is estimated using lending rates available to us for financial instruments with similar terms and maturities and are classified as Level 2. As of June 30, 2012 and December 31, 2011, the fair value of notes payable was $113.2 million and $87.0 million, compared to the carrying values of $111.4 million and $86.0 million, respectively. Upon acquiring control of a previously unconsolidated entity, the Company recorded their equity method investment at fair value of $6.0 million, and recorded a gain of approximately $1.3 million. The fair value of the equity method investment was estimated using appraisals on the respective investment.

There were no transfers between Levels 1 or 2 during the three months and six months ended June 30, 2012. The Company has no financial instruments classified using level 3 measurements as of June 30, 2012.

7

4. Investment in Real Estate and Unconsolidated Entities

The following table provides summary information regarding our current property portfolio.

Property	Location	Date Purchased	Gross Square Feet		Purchase Price		June 30, 2012 Debt		June 30, 2012 % Occupancy
Caruth Haven Court	Highland Park, TX	01/22/09		74,647	$	20,500,000	$	9,736,000		97	%
The Oaks Bradenton	Bradenton, FL	05/01/09		18,172	$	4,500,000	$	4,095,000		100	%
GreenTree at Westwood (1)	Columbus, IN	12/30/09		50,249	$	5,150,000	$	3,865,000		99	%
Mesa Vista Inn Health Center	San Antonio, TX	12/31/09		55,525	$	13,000,000	$	7,033,000		100	%
Rome LTACH Project	Rome, GA	01/12/10		52,944	$	18,900,000	$	13,509,000		100	%
Oakleaf Village Portfolio
Oakleaf Village at — Lexington	Lexington, SC	04/30/10		67,000	$	14,512,000	$	9,420,000		83	%
Oakleaf Village at — Greenville	Greer, SC	04/30/10		65,000	$	12,488,000	$	8,118,000		70	%
Global Rehab Inpatient Rehab Facility	Dallas, TX	08/19/10		40,828	$	14,800,000	$	7,396,000		100	%
Terrace at Mountain Creek (3)	Chattanooga, TN	09/03/10		109,643	$	8,500,000	$	8,775,000		89	%
Littleton Specialty Rehabilitation Facility	Littleton, CO	12/16/10		26,808		(4)		(4)		100	%
Carriage Court of Hilliard	Hilliard, OH	12/22/10		69,184	$	17,500,000	$	13,364,000		91	%
Hedgcoxe Health Plaza	Plano, TX	12/22/10		32,109	$	9,094,000	$	5,060,000		100	%
River’s Edge of Yardley	Yardley, PA	12/22/10		26,146	$	4,500,000	$	6,500,000		98	%
Forestview Manor	Meredith, NH	01/14/11		34,270	$	10,750,000	$	8,775,000		98	%
Woodland Terrace at the Oaks	Allentown, PA	04/14/11		50,400	$	9,000,000	$	5,800,000		74	%
Physicians Centre MOB	Bryan, TX	04/02/12		114,583		(5)		(5)		68	%

⁽¹⁾  The earn-out agreement associated with this acquisition was estimated to have a fair value of $1.0 million as of December 31, 2011 and an earn-out payment of approximately $1.0 million was made in January of 2012. For the three month periods ended June 30, 2012 and 2011, expense of $0 and approximately $0.2 million related to the increased earn-out liability associated with the earn-out payment have been included in the condensed consolidated statements of operations under real estate acquisition costs and contingent consideration. For the six month periods ended June 30, 2012 and 2011, expense of $0 and approximately $0.5 million related to the increased earn-out liability associated with the earn-out payment have been included in the condensed consolidated statements of operations under real estate acquisition costs and contingent consideration.

⁽²⁾ Rome LTACH, a development project, was completed in February 2011 and its first tenant moved in on February 1, 2011. As of June 30, 2012 the real estate assets costs for the property were $16.2 million. In April 2012, the Company acquired the interests of Cornerstone Private Equity Fund Operating Partnership, LP and the Cirrus Group affiliates in Rome LTH Partners, LP for a total payment of approximately $5.2 million. We previously held an equity method investment in this property. Therefore, as of April 2012, the Company owned 100% of Rome LTH Partners, LP and consolidated its existing equity method investment and the acquired interest at fair value in the amount of $18.9 million. Refer to Note 5 and 14 for more information on the acquisition and preliminary purchase price allocation.

⁽³⁾ Under the purchase and sale agreement executed in connection with the acquisition, a portion of the purchase price for the property was to be calculated and paid to the seller as earn-out payments based upon the net operating income, as defined, of the property during each of the three years following our acquisition of the property. The earn-out value of $1.0 million was paid during the second quarter of 2011.

⁽⁴⁾ Littleton Specialty Rehabilitation Facility, a development project and unconsolidated entity accounted for on the equity method, was completed in April 2012, and the single tenant began paying rent in July 2012, in accordance with the terms of the lease. Tenant operations will commence upon licensure of the facility. As of June 30, 2012, real estate asset costs for the property were approximately $7.1 million and we had invested a total of approximately $1.6 million in this project.

⁽⁵⁾  On April 2, 2012, through a wholly owned subsidiary, the Company invested $2.5 million to acquire an interest in the Physicians Centre MOB along with Caddis Partners and related affiliates. This investment is accounted for on the equity method and discussed further in Note 5.

As of June 30, 2012, cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:

	Land		Buildings and improvements			Furniture, fixtures and equipment			Intangible  lease assets
Cost	$	20,713,000	$	122,564,000		$	3,733,000		$	12,552,000
Accumulated depreciation and amortization		—		(6,915,000	)		(1,381,000	)		(7,856,000	)
Net	$	20,713,000	$	115,649,000		$	2,352,000		$	4,696,000

8

As of December 31, 2011, accumulated depreciation and amortization related to investments in real estate and related lease intangibles were as follows:

	Land		Buildings and improvements			Furniture, fixtures and equipment			Intangible  lease assets
Cost	$	20,713,000	$	105,340,000		$	3,578,000		$	10,649,000
Accumulated depreciation and amortization		—		(4,653,000	)		(1,016,000	)		(6,784,000	)
Net	$	20,713,000	$	100,687,000		$	2,562,000		$	3,865,000

Depreciation expense associated with buildings and improvements, site improvements and furniture and fixtures for the three months ended June 30, 2012 and 2011 was approximately $1.1 million and $0.9 million, respectively. Depreciation expense associated with building and improvements, site improvements and furniture and fixtures for the six months ended June 30, 2012 and 2011 was $2.0 million and $1.7 million, respectively.

Amortization associated with intangible assets for the three months ended June 30, 2012 and 2011 was $0.4 million and $1.1 million, respectively. Amortization associated with intangible assets for the six months ended June 30, 2012 and 2011 was $1.0 million and $2.0 million, respectively. Estimated amortization for July 1, 2012 through December 31, 2012 and each of the subsequent years is as follows:

	Intangible assets
July 2012 — December 2012	$	322,000
2013	$	355,000
2014	$	355,000
2015	$	355,000
2016	$	355,000
2017	$	354,000
2018 and thereafter	$	2,600,000

The estimated useful lives for intangible assets range from approximately one to twenty years. As of June 30, 2012, the weighted-average amortization period for intangible assets was 13 years.

5. Investments in Consolidated Joint Ventures and Unconsolidated Entities

Consolidated Joint Ventures

Oakleaf Joint Venture

On April 30, 2010, we invested approximately $21.6 million to acquire 80% equity interests in Royal Cornerstone South Carolina Portfolio, LLC (“Portfolio LLC”) and Royal Cornerstone South Carolina Tenant Portfolio, LLC (“Tenant LLC”) (collectively, we refer to the Portfolio LLC and the Tenant LLC as the “Oakleaf Joint Venture”). In accordance with the joint venture agreement, the Company is deemed the managing member and consolidates these entities. The Oakleaf Joint Venture owns and operates two assisted-living properties located in Lexington and Greenville, South Carolina. As of June 30, 2012, total assets related to Oakleaf Joint Venture were approximately $25.4 million, which includes approximately $23.8 million of real estate assets and total liabilities were approximately $18.1 million, which includes approximately $17.5 million of secured mortgage debt. We may be required to fund additional capital contributions, including funding of any capital expenditures deemed necessary to continue to operate the entity and any operating cash shortfalls that the entity may experience.

Rome LTACH Project

On January 12, 2010, we funded an investment in a joint venture with affiliates of The Cirrus Group, an unaffiliated entity, to develop a $16.3 million free-standing medical facility on the campus of the Floyd Medical Center in Rome, Georgia. We contributed approximately $2.7 million of capital to acquire a 75% limited partnership interest in Rome LTH Partners, LP (“Rome LTH”). Cornerstone Private Equity Fund Operating Partnership, LP, an affiliate of our Prior Advisor, contributed approximately $0.5 million of capital to acquire a 15% limited partnership interest in Rome LTH. Three affiliates of The Cirrus Group contributed an aggregate of approximately $0.3 million to acquire an aggregate 9.5% limited partnership interest in Rome LTH. A fourth affiliate of the Cirrus Group acted as the general partner and held the remaining 0.5% interest in Rome LTH. The terms of the Rome LTH operating agreement included provisions obligating the joint venture to monetize a portion of our partners’ interest in the appreciation of value in the joint venture property. The obligation was exercisable by our partners at their sole discretion between years two and four of the joint venture. In February 2011, construction of the Rome LTACH project was completed.

9

In December 2011, The Cirrus Group notified us of their intended exercise of the promote monetization provisions of the Rome LTH operating agreement. On April 6, 2012, we acquired the interests of Cornerstone Private Equity Fund Operating Partnership, LP in the Rome LTH for $1.1 million. On April 12, 2012, we acquired the interests of The Cirrus Group in Rome LTH for $4.1 million, which included a $3.0 million payment of the promote termination amount. As of April 12, 2012, we owned 100% of Rome LTH. Upon acquiring control of Rome LTH, the Company recorded a gain on the fair value adjustment of this previously recorded equity method investment in the amount of $1.3 million during the period ended June 30, 2012. The acquisition of interests was funded by approximately $2.6 million of equity raised in our offerings and $2.6 million of debt proceeds, which is presented as fair value adjustment for equity method investment in our statement of operations.

As of June 30, 2012, total assets related to this project were $18.9 million, which includes $18.0 million of net real estate related assets. Total liabilities were $13.6 million at June 30, 2012, which includes $13.5 million of secured mortgage debt. As of December 31, 2011, total assets related to this project were $16.5 million, which included $15.6 million of net real estate related assets. Total liabilities were $14.1 million at December 31, 2011, which includes $10.9 million of secured mortgage debt. For the three and six months ended June 30, 2011, Rome LTH recorded revenue of $0.6 million and $1.0 million, and net income (loss) of $0.1 million and $0.1 million, respectively.

Unconsolidated Entities

Littleton Specialty Rehabilitation Facility

On December 16, 2010, we funded an investment in a joint venture with affiliates of The Cirrus Group, an unaffiliated entity, to develop a $7.3 million specialty rehabilitation facility in Littleton, CO. We agreed to contribute approximately $1.6 million of capital to acquire a 90.0% limited partnership interest in Littleton Med Partners, LP. Three affiliates of The Cirrus Group contributed an aggregate of approximately $0.2 million to acquire an aggregate 9.5% limited partnership interest in the Littleton Med Partners, LP. A fourth affiliate of the Cirrus Group acts as the general partner and holds the remaining 0.5% interest in the Littleton Med Partners, LP. As of June 30, 2012 and December 31, 2011, we owned a 90.0% limited partnership interest in Littleton Med Partners, LP. Our net investment in this property as of June 30, 2012 and December 31, 2011 was $1.6 million. For the three months ended June 30, 2012 and 2011, we recorded a loss from this unconsolidated entity of $0.1 million and $0, respectively. For the six months ended June 30, 2012 and 2011, we recorded a loss from this unconsolidated entity of $0.1 million and $0, respectively. As of June 30, 2012, total assets related to this project were $7.3 million, which includes $7.0 million of net real estate related assets. Total liabilities were $5.6 million at June 30, 2012, which includes $5.4 million of secured mortgage debt. As of December 31, 2011, total assets related to this project were $6.0 million, which included $5.8 million of net real estate related assets. Total liabilities were $4.2 million at December 31, 2011, which includes $3.2 million of secured mortgage debt. The joint venture began operations in July 2012.

Under the terms of the joint venture agreement, the joint venture may be obligated to monetize a portion of our partners’ interest in the appreciation of value in the joint venture property. These obligations may be exercised by our partners at their sole discretion between years two and four of the joint venture. The amount that would be paid upon monetization is subject to change based on a number of factors, including the value of the property, net income earned by the property and payment of preferred returns on equity. In April 2012, construction of the property was completed and in July 2012, the tenant began paying rent in accordance with the terms of the lease. Tenant operations will commence upon licensure of the facility. As of June 30, 2012, the license to operate the specialty rehabilitation facility had not yet been received and operations had not commenced. As of June 30, 2012, the Company believes that it is reasonably possible that it may need to fund capital contributions to Littleton Med Partners, LP so that the partnership may terminate the promote monetization feature. Therefore, the Company may be required to fund additional capital into the partnership in the future that ranges from approximately $0.3 million to $1.2 million as of the period ended June 30, 2012.

Physicians Centre MOB

On April 2, 2012, through a wholly-owned subsidiary, we entered into a joint venture with affiliates of Caddis Partners, an unaffiliated entity, and a group of unaffiliated physicians to acquire an on-campus medical office building (the “Physicians Centers MOB”) located in Bryan, Texas.

The Company invested approximately $2.5 million of capital to acquire a 71.9% limited partnership interest in Bryan MOB Partners, L.P the (“Bryan LP”). Affiliates of Caddis Partners contributed an aggregate of approximately $0.35 million to acquire an aggregate 10.1% limited partnership interest in the Bryan LP and another affiliate of the Caddis Partners acts as the Bryan LP general partner, but does not own a partnership interest. The physician partners contributed approximately $0.625 million to acquire an 18.0% interest in Bryan LP. The Company’s equity investment in the joint venture was funded from proceeds from its public offering.

For the three and six months ended June 30, 2012, we recorded a loss from this unconsolidated entity of $0.3 million. As of June 30, 2012, total assets related to this joint venture were approximately $10.3 million, which includes approximately $9.6 million of real estate assets and total liabilities were approximately $7.3 million, which includes approximately $7.2 million of secured mortgage debt. At June 30, 2012, our maximum exposure to loss for this joint venture is limited to our investment. We may be required to fund additional capital contributions, including funding of any capital expenditures deemed necessary to continue to operate the entity, and any operating cash shortfalls that the entity may experience.

10

6. Allowance for Doubtful Accounts

As of June 30, 2012 and December 31, 2011, we had recorded $65,000 and $76,000, respectively, as allowances for doubtful accounts related to tenants and other receivables.

7. Concentration of Risks

Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash investments; cash is generally invested in investment-grade short-term instruments. On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act” that includes provisions that made permanent the $250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000, and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions. As of June 30, 2012, we had cash accounts in excess of Federal Deposit Insurance Corporation insured limits. We believe this risk is not significant.

Concentration of credit risks arise when a number of operators, tenants or obligors related to our investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. We regularly monitor various segments of our portfolio to assess potential concentrations of risk. Management believes the current portfolio is reasonably diversified across healthcare related real estate and does not contain any other significant concentration of credit risks, except as disclosed herein.

Our senior living operations segment accounted for approximately 83.2% and 73.7% of total revenues for the three months ended June 30, 2012 and 2011, respectively and approximately 85.6% and 82.1% of total revenues for the six months ended June 30, 2012 and 2011. The following table provides information about our senior living operation segment concentration for the three and six months ended June 30, 2012:

	Three Months Ended						Six Months Ended
Operators	Percentage of Segment  Revenues			Percentage of Total  Revenues			Percentage of Segment  Revenues			Percentage of Total  Revenues
Good Neighbor Care		31.9	%		26.6	%		31.9	%		27.3	%
Royal Senior Care		19.1	%		15.9	%		19.0	%		16.3	%
Woodbine Senior Living		20.2	%		16.8	%		20.6	%		17.6	%
12 Oaks Senior Living		18.3	%		15.2	%		18.1	%		15.5	%
Provision Living		5.5	%		4.6	%		5.4	%		4.7	%
Legend Senior Living		5.0	%		4.1	%		5.0	%		4.2	%
		100.0	%		83.2	%		100.0	%		85.6	%

11

Our triple-net leased segment accounted for approximately 14.1% and 18.7% of total revenues for the three months ended June 30, 2012 and 2011, respectively and approximately 11.7% and 15.2% of total revenues for the six months ended June 30, 2012 and 2011, respectively. The following table provides information about our triple-net leased segment for the three and six months ended June 30, 2012:

	Three Months Ended						Six Months Ended
Tenant	Percentage of Segment  Revenues			Percentage of Total  Revenues			Percentage of Segment  Revenues			Percentage of Total  Revenues
Babcock PM Management		32.2	%		4.5	%		39.8	%		4.7	%
Global Rehab Hospitals		29.7	%		4.2	%		36.6	%		4.3	%
The Specialty Hospital		30.5	%		4.3	%		18.8	%		2.2	%
Floyd Healthcare Management		7.6	%		1.1	%		4.81	%		0.5	%
		100.0	%		14.1	%		100.0	%		11.7	%

Our medical office building segment accounted for approximately 2.7% and 2.4% of total revenues for the three months ended June 30, 2012 and 2011, respectively, and approximately 2.8% and 2.7% of total revenues for the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, we owned 14 properties, geographically located in nine states. The following table provides information about our geographic risks by operating segment for the three and six months ended June 30, 2012:

	Three Months Ended						Six Months Ended
State	Percentage of Segment Revenues			Percentage of Total Revenues			Percentage of Segment Revenues			Percentage of Total Revenues
Senior living operations
South Carolina		19.0	%		15.9	%		19.1	%		16.3	%
Texas		18.3	%		15.2	%		18.1	%		15.5	%
Ohio		13.2	%		11.0	%		13.1	%		11.2	%
Pennsylvania		17.4	%		14.4	%		17.5	%		15.0	%
New Hampshire		10.9	%		9.1	%		11.1	%		9.5	%
Tennessee		10.7	%		8.9	%		10.7	%		9.2	%
Indiana		5.5	%		4.6	%		5.5	%		4.7	%
Florida		5.0	%		4.1	%		4.9	%		4.2	%
Triple-net leased properties
Texas		61.9	%		8.7	%		76.5	%		8.9	%
Georgia		38.1	%		5.4	%		23.5	%		2.7	%
Medical office building
Texas		100.0	%		2.7	%		100.0	%		2.8	%

8. Income Taxes

For federal income tax purposes, we have elected to be taxed as a REIT, under Sections 856 through 860 of the Code beginning with our taxable year ended December 31, 2008, which imposes limitations related to operating assisted-living properties. As of June 30, 2012, we had acquired ten assisted-living facilities and formed ten wholly owned taxable REIT subsidiaries, or TRSs, which includes a Master TRS that consolidates our wholly owned TRSs.

Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would not be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would establish a valuation allowance which would reduce the provision for income taxes.

The TRS recognized a $0.1 million expense and benefit of $0.2 million for Federal and State income taxes in the three months ended June 30, 2012 and 2011, and of a $0.1 million expense and benefit of $0.2 million for Federal and State income taxes in the six months ended June 30, 2012 and 2011, respectively, which have been recorded in general and administrative expenses. Net deferred tax assets related to the TRS entities totaled approximately $1.3 million and $1.1 million at June 30, 2012 and December 31, 2011, respectively, related primarily to book and tax basis differences for straight-line rent and accrued liabilities. Realization of these deferred tax assets is dependent in part upon generating sufficient taxable income in future periods. These deferred tax assets are included in deferred costs and other assets in our condensed consolidated balance sheets. We have not recorded a valuation allowance against our deferred tax assets as of June 30, 2012 as we have determined the future taxable income from the operations of the TRS entities are sufficient to cover the additional future expenses resulting from these book tax differences.

12

9. Segment Reporting

As of June 30, 2012, we operated in three reportable business segments: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. Our senior living operations segment primarily consists of investments in senior housing communities located in the United States for which we engage independent third-party managers. Our triple-net leased properties segment consists of investments in skilled nursing and hospital facilities in the United States. These facilities are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our medical office building operations segment primarily consists of investing in medical office buildings and leasing those properties to healthcare providers under long-term leases, which may require tenants to pay property-related expenses.

We evaluate performance of the combined properties in each segment based on net operating income. Net operating income is defined as total revenue less property operating and maintenance expenses. There are no intersegment sales or transfers. We use net operating income to evaluate the operating performance of our real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization, asset management fees and expenses, real estate acquisition costs, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies.

The following tables reconcile the segment activity to consolidated net income for the three months and six months ended June 30, 2012 and 2011:

	Three Months Ended June 30, 2012									Three Months Ended June 30, 2011
	Senior living operations		Triple-net leased properties		Medical office building		Consolidated			Senior living operations		Triple-net leased properties		Medical office building		Consolidated
Rental revenues	$	6,715,000	$	1,325,000	$	209,000	$	8,249,000		$	5,774,000	$	1,886,000	$	201,000	$	7,861,000
Resident services and fee income		2,311,000		—		—		2,311,000			2,020,000		—		—		2,020,000
Tenant reimbursements and other income		137,000		222,000		88,000		447,000			65,000		113,000		56,000		234,000
	$	9,163,000	$	1,547,000	$	297,000	$	11,007,000		$	7,859,000	$	1,999,000	$	257,000	$	10,115,000
Property operating and maintenance expenses		6,614,000		228,000		79,000		6,921,000			5,119,000		1,190,000		63,000		6,372,000
Net operating income	$	2,549,000	$	1,319,000	$	218,000	$	4,086,000		$	2,740,000	$	809,000	$	194,000	$	3,743,000
General and administrative expenses								370,000									1,292,000
Asset management fees and expenses								503,000									376,000
Real estate acquisition costs and contingent consideration								190,000									514,000
Depreciation and amortization								1,530,000									1,974,000
Interest income								(1,000	)								(3,000	)
Interest expense								1,597,000									1,403,000
Other expense								146,000									—
(Loss) income from unconsolidated entities								(442,000	)								99,000
Fair value adjustment for equity method investment								1,282,000									—
Net income (loss)							$	591,000								$	(1,714,000	)
Net income (loss) attributable to non controlling interests								50,000									(16,000	)
Net income (loss) attributable to common stockholders							$	541,000								$	(1,698,000	)
	Six Months Ended June 30, 2012									Six Months Ended June 30, 2011
	Senior living operations		Triple-net leased properties		Medical office building		Consolidated			Senior living operations		Triple-net leased properties		Medical office building		Consolidated
Rental revenues	$	13,540,000	$	2,134,000	$	420,000	$	16,094,000		$	11,974,000	$	2,695,000	$	402,000	$	15,071,000
Resident services and fee income		4,589,000		—		—		4,589,000			3,722,000		—		—		3,722,000
Tenant reimbursements and other income		279,000		371,000		159,000		809,000			175,000		227,000		111,000		513,000
	$	18,408,000	$	2,505,000	$	579,000	$	21,492,000		$	15,871,000	$	2,922,000	$	513,000	$	19,306,000
Property operating and maintenance expenses		12,918,000		377,000		152,000		13,447,000			10,564,000		1,304,000		133,000		12,001,000
Net operating income	$	5,490,000	$	2,128,000	$	427,000	$	8,045,000		$	5,307,000	$	1,618,000	$	380,000	$	7,305,000
General and administrative expenses								1,204,000									1,958,000
Asset management fees and expenses								984,000									807,000
Real estate acquisition costs and contingent consideration								206,000									1,431,000
Depreciation and amortization								2,963,000									3,712,000
Interest income								(1,000	)								(7,000	)
Interest expense								3,024,000									2,726,000
Other expense								152,000									—
Loss from unconsolidated entities								(376,000	)								(15,000	)
Fair value adjustment for equity method investment								1,282,000									—
Net income (loss)							$	419,000								$	(3,337,000	)
Net income (loss) attributable to the noncontrolling interests								127,000									(46,000	)
Net income (loss) attributable to common stockholders							$	292,000								$	(3,291,000	)

13

The following table reconciles the segment activity to consolidated financial position as of June 30, 2012 and December 31, 2011.

	June 30, 2012		December 31, 2011
Assets
Investment in real estate:
Senior living operations	$	91,053,000	$	92,975,000
Triple-net leased properties		44,028,000		26,366,000
Medical office building		8,329,000		8,486,000
Total reportable segments	$	143,410,000	$	127,827,000
Reconciliation to consolidated assets:
Cash and cash equivalents		31,958,000		27,972,000
Deferred financing costs, net		1,508,000		824,000
Investment in unconsolidated entities		3,629,000		3,387,000
Tenant and other receivables, net		2,159,000		1,366,000
Deferred costs and other assets		2,357,000		1,938,000
Restricted cash		3,424,000		3,806,000
Goodwill		6,510,000		5,965,000
Total assets	$	194,955,000	$	173,085,000

As of June 30, 2012 and December 31, 2011, goodwill had a balance of approximately $6.5 million and $6.0 million, respectively, all related to senior the living operations segment. The Company historically has not recorded any impairment charges for goodwill.

10. Notes Payable

Notes payable were approximately $111.4 million and $86.0 million as of June 30, 2012 and December 31, 2011, respectively. As of June 30, 2012, we had fixed and variable rate secured mortgage loans with effective interest rates ranging from 4.45% to 6.50% per annum and a weighted average effective interest rate of 5.52% per annum. As of June 30, 2012, we had $75.7 million of fixed rate debt, or approximately 68% of notes payable, at a weighted average interest rate of 5.37% per annum and $35.8 million of variable rate debt, or approximately 32% of notes payable, at a weighted average interest rate of 5.86% per annum. As of December 31, 2011, we had fixed and variable rate secured mortgage loans with effective interest rates ranging from 3.45% to 6.50% per annum and a weighted-average effective interest rate of 5.91% per annum. As of December 31, 2011, we had $32.7 million of fixed rate debt, or 38% of notes payable, at a weighted average interest rate of 6.01% per annum and $53.3 million of variable rate debt, or 62% of notes payable, at a weighted average interest rate of 5.85% per annum.

On June 11, 2012, we entered into MultiFamily Loan and Securities Agreements (the “Loans”) with KeyCorp Real Estate Capital Markets, Inc., originated under Fannie Mae’s Delegated Underwriting and Servicing Product Line, to refinance our Terrace at Mountain Creek, River’s Edge at Yardley, Forestview Manor, GreenTree at Westwood and Windsor Oaks of Bradenton properties. The Loans are at a fixed rate of 4.45% for a term of seven years. Proceeds from the Loans of $32.0 million exceeded the debt repaid and loan fees and expenses by approximately $11.5 million. The Loans are secured by first priority liens on the refinanced properties. In connection with the documentation and closing of the Loans, we paid fees and expenses totaling approximately $791,000. In addition, the Company recognized a loss on debt extinguishment of approximately $148,000, which is included in other income/expense in the accompanying condensed consolidated statements of operations.

We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As of June 30, 2012, we were in compliance with all such covenants and requirements.

14

The following table details the notes payable by property as of June 30, 2012 and December 31, 2011.

Property Name	Payment Type	Interest Rate	Outstanding Principal Balance as of June 30, 2012(1)		Outstanding Principal Balance as of December 31, 2011(1)		Maturity Date
Carriage Court of Hilliard	Principal and interest at a 35-year amortization rate	5.40%—fixed	$	13,364,000	$	13,440,000	August 1, 2044
Caruth Haven Court	Principal and interest at a 30-year amortization rate	6.43%—fixed	$	9,736,000	$	9,793,000	December 16, 2019
Greentree (2)	Principal and interest at a 30-year amortization rate	4.45%—fixed	$	3,865,000		2,832,000	July 1, 2019
Forestview Manor (2)	Principal and interest at a 30-year amortization rate	4.45%—fixed	$	8,775,000		5,935,000	July 1, 2019
Global Rehab Inpatient Rehab Facility	Principal and interest at a 30-year amortization rate	6.25%—fixed for 3 years; thereafter the greater of 6.25% and 3yr LIBOR +3.25%	$	7,396,000	$	7,441,000	December 22, 2016
Hedgcoxe Health Plaza (4)	Interest only	30-day LIBOR +4.00% with a 2% LIBOR floor	$	5,060,000	$	5,060,000	July 31, 2012
Mesa Vista Inn Health Center	Principal and interest at a 20-year amortization rate	6.50%—fixed	$	7,033,000	$	7,136,000	January 5, 2015
Oakleaf Village Portfolio (3)	Principal and interest at a 30-year amortization rate	5.45% plus the greater of 1% or the 3 month LIBOR	$	17,538,000	$	17,644,000	April 30, 2015
River’s Edge of Yardley (2)	Principal and interest at a 30-year amortization rate	4.45%—fixed	$	6,500,000	$	2,500,000	July 1, 2019
Rome LTACH Project	Principal and interest at a 30-year amortization rate	4.5%—fixed	$	13,509,000		(5)	March 31, 2017

15

The Oaks Bradenton (2)	Principal and interest at a 30-year amortization rate.	4.45%—fixed	$	4,095,000	$	2,697,000	July 1, 2019
Terrace at Mountain Creek (2)	Principal and interest at a 30-year amortization rate	4.45%—fixed	$	8,775,000	$	5,700,000	July 1, 2019
Woodland Terrace at the Oaks	Months 1-22 interest only. Month 23 to maturity principal and interests at a 25-year amortization rate	3Mo LIBOR +3.75% with a floor of 5.75%	$	5,800,000	$	5,800,000	May 1, 2014
			$	111,446,000	$	85,978,000

(1) As of June 30, 2012 and December 31, 2011, all notes payable are secured by the underlying real estate.

(2) These loans were refinanced in June 2012 under the Multifamily Loan and Securities Agreement discussed above.

(3) The aggregate loan amount is composed of a restatement date balance of approximately $12.9 million outstanding with respect to a prior loan, and an additional amount of approximately $5.1 million disbursed on the closing date.

(4) In November 2010, we entered into an agreement with KeyBank National Association, an unaffiliated financial institution (“KeyBank”), to obtain a $25,000,000 revolving credit facility. The initial term of the credit facility was 24 months, maturing on November 18, 2012, and could be extended by six months subject to satisfaction of certain conditions, including payment of an extension fee. The actual amount of credit available under the credit facility was a function of certain loan to cost, loan to value and debt service coverage ratios contained in the credit facility. The amount outstanding under the credit facility was $5.1 million and $16.3 million at June 30, 2012 and December 31, 2011, respectively. Effective August 2011, the KeyBank agreement was amended to convert the credit facility to a term loan, revised certain loan covenants and changed the maturity date July 31, 2012, which can be extended to October 30, 2012 subject to satisfaction of certain conditions, including payment of an extension fee. On August 14, 2012, the Company repaid the Key Bank credit facility with the refinancing proceeds of a $5.6 million loan from KeyBank National Association.

(5) Not applicable as this entity was an unconsolidated joint venture at December 31, 2011.

16

Principal payments due on our notes payable for July 1, 2012 to December 31, 2012 and each of the subsequent years is as follows:

Year	Principal amount
July 1, 2012 to December 31, 2012	$	5,918,000
2013	$	1,726,000
2014	$	11,459,000
2015	$	24,724,000
2016	$	1,351,000
2017 and thereafter	$	66,268,000

Interest Expense and Deferred Financing Cost

For the three months ended June 30, 2012 and 2011, the Company incurred interest expense, including amortization of deferred financing costs of $1.6 million and $1.4 million, respectively. For the six months ended June 30, 2012 and 2011, the Company incurred interest expense, including amortization of deferred financing costs of $3.0 million and $2.7 million, respectively. As of June 30, 2012 and December 31, 2011, the Company’s net deferred financing costs were approximately $1.5 million and $0.8 million, respectively. All deferred financing costs are capitalized and amortized over the life of the respective loan agreement.

11. Stockholders’ Equity

Common Stock

Our charter authorizes the issuance of 580,000,000 shares of common stock with a par value of $0.01 per share and 20,000,000 shares of preferred stock with a par value of $0.01 per share. As of June 30, 2012, including distributions reinvested, we had issued approximately 13.3 million shares of common stock for a total of approximately $132.3 million of gross proceeds in our initial and follow-on public offering. As of June 30, 2011, including distributions reinvested, we had issued approximately 13.3 million shares of common stock for total gross proceeds of approximately $132.3 million in our initial public offering and follow-on public offering.

Distributions

We have adopted a distribution reinvestment plan that allows our stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of our common stock at their election. We have registered 10,000,000 shares of our common stock for sale pursuant to the distribution reinvestment plan. The purchase price per share is 95% of the price paid by the purchaser for our common stock, but not less than $9.50 per share. As of June 30, 2012 and December 31, 2011, approximately 551,000 shares had been issued under the distribution reinvestment plan.

On April 29, 2011, we informed our stockholders that our Independent Directors Committee had directed us to suspend our offering, our dividend reinvestment plan and our stock repurchase program (except repurchases due to death) because of the uncertainty associated with our Independent Directors Committee consideration of various strategic alternatives to enhance our stockholders’ value. As a result, we suspended our distribution reinvestment plan effective as of May 10, 2011.

17

The following are the distributions declared during the six months ended June 30, 2012 and 2011:

	Distribution Declared (1)
Period	Cash		Reinvested		Total
First quarter 2011	$	1,152,000	$	1,124,000	$	2,276,000
Second quarter 2011	$	2,436,000	$	—	$	2,436,000
First quarter 2012	$	801,000	$	—	$	801,000
Second quarter 2012	$	799,000	$	—	$	799,000

18

(1) Distributions declared represented a return of capital and taxable ordinary income for tax purposes. In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our stockholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds. Until proceeds from our offering are fully invested and generating operating cash flow sufficient to fully cover distributions to stockholders, we intend to pay all or a portion of our distributions from the proceeds of our offerings or from borrowings in anticipation of future cash flow.

The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis. The amount of distributions will depend on our funds from operations, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant. On June 30, 2011, our board of directors resolved to lower our distributions to a current annualized rate of $0.25 per share (2.5% based on a share price of $10.00) from the prior annualized rate of $0.75 per share (7.5% based on a share price of $10.00), effective July 1, 2011 and continuing until and including June 30, 2012. Distributions are paid quarterly commencing with the third quarter distribution paid in October 2011. The rate and frequency of distributions is subject to the discretion of our board of directors and may change from time to time based on our operating results and cash flow.

From our inception in October 2006 through June 30, 2012, we declared aggregate distributions of $16.2 million and our cumulative net loss during the same period was $16.8 million.

Stock Repurchase Program

We adopted a stock repurchase program for investors who have held their shares for at least one year, unless the shares are being repurchased in connection with a stockholder’s death. Under our stock repurchase program, the repurchase price varies depending on the purchase price paid by the stockholder and the number of years the shares are held. Our board of directors may amend, suspend or terminate the program at any time on 30 days prior notice to stockholders. Our board of directors may modify our stock repurchase program so that we can repurchase stock using the proceeds from the sale of our real estate investments or other sources, however, we have no obligation to repurchase our stockholders’ shares. Our board of directors waived the one-year holding period in the event of the death of a stockholder and adjusted the repurchase price to 100% of such stockholders purchase price if the stockholder held the shares for less than three years. Our board of directors reserves the right in its sole discretion at any time and from time to time, upon 30 days prior notice to our stockholders, to adjust the repurchase price for our shares of stock, or suspend or terminate our stock repurchase program.

On April 29, 2011, we informed our stockholders that our Independent Directors Committee had directed us to suspend our offering, our dividend reinvestment program and our stock repurchase program (except repurchases due to death) because of the uncertainty associated with our Independent Directors Committee consideration of various strategic alternatives to enhance our stockholder value. As a result, we suspended our stock repurchase program effective as of May 29, 2011. On December 22, 2011, our Board of Directors approved a net asset valuation of $9.02 per share, and revised the share repurchase price upon the death of a shareholder to this amount.

During the three and six months ended June 30, 2012, we repurchased shares pursuant to our stock repurchase program as follows:

Period	Total Number of Shares Redeemed		Average Price Paid per Share
January		33,008	$	9.98
February		—	$	—
March		—	$	—
First quarter 2012		33,008	$	9.98
April		9,203	$	9.00
May		17,582	$	9.00
June		—	$	—
Second quarter 2012		26,785	$	9.00
		59,793

19

During the three and six months ended June 30, 2011, we repurchased 123,478 and 167,308 shares, respectively, pursuant to our stock repurchase program.

During the six months ended June 30, 2012, we received requests to have an aggregate of 62,293 shares repurchased pursuant to our stock repurchase program. Of these requests 2,500 shares were not able to be repurchased due to the limitations contained in the terms of our stock repurchase program and the suspension of our stock repurchase program as of May 29, 2011.

12. Related Party Transactions

The Company has no employees. Our Advisor is primarily responsible for managing our business affairs and carrying out the policies established by our board of directors. We have an advisory agreement that entitles the Advisor to specified fees upon the provision of certain services to us, as well as reimbursement for organizational and offering costs incurred by the Advisor on our behalf and reimbursement of certain costs and expenses incurred by the Advisor in providing services to us. Effective January 1, 2012, Sentio Investments, LLC became our Advisor under a new advisory agreement (the “2012 Advisory Agreement”). On July 29, 2011, the Company executed the Omnibus Agreement, which provided for a number of significant changes to the Company’s Advisory Agreement with the Prior Advisor (the “2011 Advisory Agreement”). The 2012 Advisory Agreement and the 2011 Advisory Agreement are collectively referred to as the “Advisory Agreements”.

Advisory Agreements

Under the terms of the 2012 Advisory Agreement, the Advisor is required to use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors. The 2012 Advisory Agreement calls for the Advisor to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties. The 2011 Advisory Agreement had similar provisions.

The fees and expense reimbursements payable to the Advisor and Prior Advisor (collectively, the “Advisors”) under the 2012 Advisory Agreement and the 2011 Advisory Agreement are described below.

Organizational and Offering Costs. Organizational and offering costs of our offerings paid by the Prior Advisor on our behalf were reimbursed to the Prior Advisor from the proceeds of our offerings. Organizational and offering costs consisted of all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with our offerings, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to, (i) amounts to reimburse the Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of the Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the offering of our shares; (iii) our costs of conducting our training and education meetings; (iv) our costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. At times during our offering stage, the amount of organization and offering expenses that we incur, or that the Advisor and its affiliates incur on our behalf, may exceed 3.5% of the gross offering proceeds then raised, but our Advisor is required to reimburse us to the extent that our organization and offering expenses exceed 3.5% of aggregate gross offering proceeds at the conclusion of our offering. In addition, the Advisor will also pay any organization and offering expenses to the extent that such expenses, plus sales commissions and the dealer manager fee (but not the acquisition fees or expenses) are in excess of 13.5% of gross offering proceeds. In no event will we have any obligation to reimburse the Advisor for organizational and offering costs totaling in excess of 3.5% of the gross proceeds from our primary offerings. As of June 30, 2012 and December 31, 2011, the Prior Advisor and its affiliates had incurred organizational and offering costs totaling approximately $5.1 million, including $0.1 million of organizational costs that have been expensed and $5.0 million of offering costs that reduce net proceeds of our offerings. Of this amount $4.0 million reduced the net proceeds of our initial public offering and $1.0 million reduced the net proceeds of our follow-on offering. Upon the execution of the Omnibus Agreement, we forgave $0.8 million of organization and offering costs in excess of the 3.5% of gross offering proceeds advanced to Prior Advisor pursuant to the 2011 Advisory Agreement. This amount reduced our offering proceeds and has therefore been treated as a reduction in additional paid-in capital in our condensed consolidated balance sheet.

20

Acquisition Fees and Expenses. The 2012 Advisory Agreement requires us to pay the Advisor acquisition fees in an amount equal to 1.0% of the investments acquired, including any debt attributable to such investments. In addition, we are required to reimburse the Advisor for direct costs the Advisor incurs and amounts the Advisor pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. The 2011 Advisory Agreement required us to pay the Prior Advisor acquisition fees in an amount equal to 2.0% of the investments acquired, including any debt attributable to such investments. A portion of the acquisition fees were paid upon receipt of offering proceeds, and the balance were paid at the time we acquired a property. However, if the 2011 Advisory Agreement was terminated or not renewed, the Prior Advisor was obligated to return acquisition fees not yet allocated to one of our investments. In addition, we were required to reimburse the Prior Advisor for direct costs the Prior Advisor incurred and amounts the Prior Advisor paid to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. For the three months and six months ended June 30, 2012 the Advisor earned approximately $0.1 million of acquisition fees. For the three months and six months ended June 30, 2011, the Prior Advisor earned approximately $0.2 million and $0.5 million in acquisition fees, respectively. As of June 30, 2011, the amount of acquisition fees that had been paid to the Prior Advisor but not allocated to one of our investments was $0.9 million. That amount was expensed and included in real estate acquisition costs and earn out costs in our condensed consolidated statements of operations. Upon the execution of the Omnibus Agreement, we forgave the advance not earned through services rendered in connection with future acquisitions.

Financing Coordination Fee. The 2012 Advisory Agreement requires us to pay the Advisor a financing coordination fee equal to 0.5% of the gross amount of any refinancing, provided, however, that the Advisor shall not be entitled to a financing coordination fee in connection with the refinancing of any debt obligations secured by any particular Asset that was previously subject to a refinancing in which the Advisor received a financing coordination fee within the immediately preceding three year period. For the three months and six months ended June 30, 2012 the Advisor earned approximately $0.2 million of financing coordination fees. The 2011 Advisory Agreement did not provide for a financing coordination fee.

Management Fees. The 2012 Advisory Agreement requires us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the greater of the of (i) the average GAAP basis book carrying value of such asset before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period (or if such specified period is a single month, then the average of such values during such month), or (ii) an amount determined as follows: (A) if such property, loan, or other permitted investment has been appraised by an independent appraiser within the immediately preceding twelve month period, the appraised value of such property, loan, or other permitted investment, or (B) if such property, loan, or other permitted investment has not been appraised by an independent appraiser within the immediately preceding twelve month period, the estimated fair market value of such property, loan, or other permitted investment, as approved by the Independent Directors Committee. The value of each property, loan, or other permitted investment owned by a joint venture shall be the product of the Company’s pro rata ownership interest in such joint venture, multiplied by the greater of (i) the average GAAP basis book carrying value of such asset before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period (or if such specified period is a single month, then the average of such values during such month), or (ii) an amount determined as follows: (A) if such property, loan, or other permitted investment has been appraised by an independent appraiser within the immediately preceding twelve month period, the appraised value of such property, loan, or other permitted Investment, or (B) if such property, loan, or other permitted investment has not been appraised by an independent appraiser within the immediately preceding twelve month period, the estimated fair market value of such property, loan, or other permitted investment, as approved by the Independent Directors Committee. These fees and expenses are in addition to management fees that we expect to pay to third party property managers.

The Prior Advisory Agreement required us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the sum of the aggregate basis in book carrying values of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, calculated in accordance with GAAP. In addition, we reimbursed the Prior Advisor for the direct and indirect costs and expenses incurred by the Prior Advisor in providing asset management services to us, including personnel and related employment costs related to providing asset management services on our behalf and amounts paid by our Advisor to Servant Investments, LLC and Servant Healthcare Investments, LLC for portfolio management services provided on our behalf. These fees and expenses are in addition to management fees paid to third party property managers.

For the three months and six months ended June 30, 2012, the Advisor earned approximately $0.5 million and $1.0 million of management fees, respectively. For the three months six months ended June 30, 2011, the Prior Advisor earned approximately $0.4 million and $0.8 million of management fees, respectively. These fees were expensed. For the three months and six months ended June 30, 2011, the Prior Advisor also incurred approximately $0.2 million and $0.4 million of direct and indirect costs and expenses, which are included in asset management fees and expensed in the condensed consolidated statement of operations. No comparable charges were made by the Advisor in 2012.

21

Operating Expenses. The 2012 Advisory Agreement does not provide for the reimbursement of the Advisor’s direct or indirect costs of providing administrative services to us. Accordingly, there were no such charges for the three months and six months ended June 30, 2012. The 2011 Advisory Agreement provided for reimbursement of the Prior Advisor’s direct and indirect costs of providing administrative and management services to us. For the three months and six months ended June 30, 2011, approximately $0.4 million and $0.8 million of such costs were reimbursed and included in general and administrative expenses on our condensed consolidated statements of operations.

22

Consistent with limitations set forth in our charter, the Advisory Agreements further provide that, commencing four fiscal quarters after the acquisition of our first real estate asset, we shall not reimburse the Advisor at the end of any fiscal quarter management fees and expenses and operating expenses that, in the four consecutive fiscal quarters then ended exceed (the “Excess Amount”) the greater of 2% of our average invested assets or 25% of our net income for such year (the “2%/25% Guidelines”) unless the Independent Directors Committee of our board of directors determines that such excess was justified, based on unusual and nonrecurring factors which it deems sufficient. If the Independent Directors Committee does not approve such excess as being so justified, the advisory agreement requires that any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. In addition, our charter provides that, if the Independent Directors Committee does not determine that the Excess Amount is justified, the Advisor shall reimburse us the amount by which the aggregate annual expenses paid to the Advisor during the four consecutive fiscal quarters then ended exceed the 2%/25% Guidelines.

For the three months ended June 30, 2012, our management fees and expenses and operating expenses exceeded the greater of 2% of our average invested assets and 25% of our net income. For the four quarters ended June 30, 2012, our management fees and expenses and operating expenses totaled $5.0 million. This amount exceeded the greater of 2% of our average invested assets and 25% of our net loss by $1.6 million. Our Independent Directors Committee determined that the Excess Amount was justified as unusual and non-recurring due to recent exploration of strategic alternatives for the Company and transition to a new advisor.

Disposition Fee. The 2012 Advisory Agreement provides that if the Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Directors, including a majority of the Independent Directors Committee) in connection with the sale of one or more properties, other than a sale in connection with a transaction in which the Company sells, grants, transfers, conveys or relinquishes its ownership of all or substantially all of the Company’s assets, the Advisor or such Affiliate shall receive at the closing of such sale a disposition fee equal to the lesser of (i) 1.0% of the sales price of such property or properties, or (ii) one-half of the Competitive Real Estate Commission for such property. Any disposition fee payable may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by the Company for each property shall not exceed an amount equal to the lesser of (i) 6.0% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property.

Subordinated Participation Provisions. The Advisor is entitled to receive a subordinated participation upon the sale of our properties, listing of our common stock or termination of the Advisor, as follows:

• After we pay stockholders cumulative distributions equal to their invested capital plus a 7% cumulative, non-compounded return, the Advisor will be paid a subordinated participation in net sale or refinancing proceeds of 10%. Following a listing, this fee will no longer be payable.

• Upon termination of the advisory agreement, other than for cause, the Advisor will receive the subordinated performance fee due upon termination in the form of a promissory note bearing simple interest at a rate of 5% per annum, in a principal amount equal to 10% the amount, if any, which the sum of the appraised value of our assets minus our liabilities on the date the advisory agreement is terminated plus total distributions (other than stock distributions) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus annualized returns of 7%, less any prior payment to the Advisor of a subordinated share of cash from sales or refinancing’s.

• In the event we list our stock for trading, the Advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds in an amount equal to 10% of the amount by which the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 7% less any prior payment to the Advisor of a subordinated share of cash from sales or refinancing’s.

23

Dealer Manager Agreements

Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of the Prior Advisor, was the dealer manager for our initial and follow-on public offerings, prior to the suspension of our follow-on offering on April 29, 2011. As such, PCC was entitled to receive a sales commission of up to 7% of gross proceeds from sales in the primary offerings. PCC is also entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the primary offerings. PCC was also entitled to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the gross proceeds from sales in the primary offerings. The 2011 Advisory Agreement required the Prior Advisor to reimburse us to the extent that offering expenses including sales commissions, dealer manager fees and organization and offering expenses (but excluding acquisition fees and acquisition expenses discussed above) were in excess of 13.5% of gross proceeds from our primary offerings. For the three months and six months ended June 30, 2011, PCC earned sales commission and dealer manager fees of approximately $0.3 million and $1.7 million, respectively. Dealer manager fees and sales commissions paid to PCC are a cost of capital raised and, as such, are included as a reduction of additional paid in capital in the accompanying condensed consolidated balance sheets.

13. Commitments and Contingencies

We monitor our properties for the presence of hazardous or toxic substances. We are not currently aware of any environmental liability with respect to the properties that we believe would have a material effect on our 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 operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our condensed consolidated financial position, cash flows and results of operations. We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against the Company which if determined unfavorably to us would have a material adverse effect on our cash flows, financial condition or results of operations.

14. Business Combinations

On January 14, 2011, through a wholly-owned subsidiary, we purchased an assisted-living property, Forestview Manor, from 153 Parade Road, LLC a non-related party, for a purchase price of approximately $10.8 million. The acquisition was funded with our revolving credit facility from KeyBank National Association and with proceeds from our initial public offering.

On April 14, 2011, through a wholly-owned subsidiary, we purchased an assisted-living property, Sunrise of Allentown, from an affiliate of Sunrise Senior Living, Inc., for $9.0 million. The property has been rebranded as Woodland Terrace at the Oaks at the Oaks Senior Living. The acquisition of Woodland Terrace at the Oaks was funded with proceeds from our public offerings and a mortgage loan from an unaffiliated lender, post-closing.

On January 12, 2010, we funded an investment in a joint venture with affiliates of The Cirrus Group, an unaffiliated entity, to develop a $16.3 million free-standing medical facility on the campus of the Floyd Medical Center in Rome, Georgia. We contributed approximately $2.7 million of capital to acquire a 75% limited partnership interest in Rome LTH Partners, LP (“Rome LTH”). Cornerstone Private Equity Fund Operating Partnership, LP, an affiliate of our Prior Advisor, contributed approximately $0.5 million of capital to acquire a 15% limited partnership interest in Rome LTH. Three affiliates of The Cirrus Group contributed an aggregate of approximately $0.3 million to acquire an aggregate 9.5% limited partnership interest in Rome LTH. A fourth affiliate of the Cirrus Group acted as the general partner and held the remaining 0.5% in Rome LTH. In April 2012, we acquired the interest of Cornerstone Private Equity Fund Operating Partnership, LP and the Cirrus Group affiliates in Rome LTH for a total payment of approximately $5.2 million. As of June 30, 2012 and December 31, 2011, we owned a 100% and 75% limited partnership interest in Rome LTH. We began consolidating Rome LTH when we obtained control of this venture in April 2012.

As of June 30, 2012, the Rome LTACH Project purchase price allocation to the fair value of assets acquired and liabilities assumed is not yet complete. Accounting and valuation activity that could impact the opening balance estimates shown below is expected to be complete by the end of the third quarter 2012.

24

The following summary provides the allocation of the acquired assets and liabilities as of the acquisition date. We have accounted for the acquisitions as business combinations under U.S. GAAP. Under business combination accounting, the assets and liabilities of the acquired property were recorded as of the acquisition date, at their respective fair values, and consolidated in our financial statements. The detail of the purchase price of the acquired property is set forth below:

	Forestview Manor		Sunrise of Allentown		Rome LTACH Project
Land	$	1,320,000	$	1,000,000	$	—
Buildings & improvements		6,803,000		6,395,000		16,300,000
Site improvements		1,040,000		350,000		—
Furniture & fixtures		350,000		220,000		—
Intangible assets		960,000		590,000		2,018,000
Goodwill		277,000		445,000		545,000
Real estate acquisition	$	10,750,000		9,000,000		18,863,000
Acquisition expenses	$	160,000	$	142,000	$	182,000

The following unaudited pro forma information for the three and six months ended June 30, 2012 and 2011 have been prepared to reflect the incremental effect of the Forestview Manor and Sunrise of Allentown acquisitions as if such acquisitions had occurred on January 1, 2011. For the three and six months ended June 30, 2011, acquisition-related costs of $0.1 million and $0.3 million, respectively, were excluded from the pro forma net loss.

	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011
Revenues	$	11,453,000		$	10,810,000
Net loss	$	(393,000	)	$	(1,618,000	)
Basic and diluted net loss per common share attributable to common stockholders	$	(0.03	)	$	(0.12	)

	Six Months Ended June 30, 2012			Six Months Ended June 30, 2011
Revenues	$	22,557,000		$	21,261,000
Net loss	$	(640,000	)	$	(3,471,000	)
Basic and diluted net loss per common share attributable to common stockholders	$	(0.05	)	$	(0.28	)

The Company recorded revenues of $1.0 million and $1.8 million for the three and six months ended June 30, 2011, respectively, and net loss of $0.1 million and $0.3 million for the three and six months ended June 30, 2011, respectively, for Forestview Manor.

The Company recorded revenues of $0.6 million for the three and six months ended June 30, 2011 and net loss of $0.3 million for the three and six months ended June 30, 2011, respectively, for Sunrise of Allentown.

The Company recorded revenues of $0.6 for the six months ended June 30, 2012 and net loss of $0.1 million for the six months ended June 30, 2012, respectively, for the Rome LTACH Project. Prior to April of 2012, the Rome LTACH Project was being accounted for under the equity method.

15. Subsequent Events

On August 14, 2012, the Company repaid the KeyBank credit facility with the refinancing proceeds of a $5.6 million loan from KeyBank National Association. This loan has a ten year term with interest at 4.9% and payments of principal on a 30 year amortization rate.

16. Immaterial Corrections to Prior Period Financial Statements

Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2011, the Company determined that it should have been accounting for certain investments in joint ventures on the equity method rather than by consolidating these investments. The Company reviewed the impact of these errors on the prior period financial statements and determined that the errors were not material to the financial statements. However, the Company has corrected the accompanying condensed consolidated financial statements and related footnotes to reflect these joint venture investments on the equity method of accounting.

25

A summary of the effects of the correction of these immaterial errors on our consolidated financial statements for the three and six month periods ended June 30, 2011 and as of December 31, 2011 are presented in the tables below:

	December 31, 2011
	As Previously Reported			As Corrected
ASSETS
Cash and cash equivalents	$	28,258,000		$	27,972,000
Investments in real estate
Land		21,270,000			20,713,000
Buildings and improvements, net		114,584,000			100,687,000
Furniture, fixtures and equipment, net		2,562,000			2,562,000
Construction in progress		5,218,000			—
Intangible lease assets, net		5,581,000			3,865,000
Total		149,215,000			127,827,000
Deferred financing costs, net		1,121,000			824,000
Investments in unconsolidated entities		—			3,387,000
Tenant and other receivables		1,808,000			1,366,000
Deferred costs and other assets		1,948,000			1,938,000
Restricted cash		3,873,000			3,806,000
Goodwill		5,965,000			5,965,000
Total assets	$	192,188,000		$	173,085,000
LIABILITIES AND EQUITY
Liabilities:
Notes payable	$	100,059,000		$	85,978,000
Accounts payable and accrued liabilities		7,683,000			3,899,000
Prepaid rent and security deposits		1,740,000			1,535,000
Dividends payable		814,000			814,000
Total liabilities		110,296,000			92,226,000
Stockholders’ equity (deficit):
Common stock		129,000			129,000
Additional paid-in capital		96,542,000			96,542,000
Accumulated deficit		(17,054,000	)		(17,054,000	)
Total controlling stockholders’ equity (deficit)		79,617,000			79,617,000
Noncontrolling interest		2,275,000			1,242,000
Total equity (deficit)		81,892,000			80,859,000
Total liabilities and equity	$	192,188,000		$	173,085,000

26

	2011 Three months ended June 30						2011 Six months ended June 30
	As Previously Reported			As Corrected			As Previously Reported			As Corrected
Revenues:
Rental revenues	$	8,371,000		$	7,861,000		$	15,931,000		$	15,071,000
Resident fees and services		2,020,000			2,020,000			3,722,000			3,722,000
Tenant reimbursements and other income		308,000			234,000			631,000			513,000
		10,699,000			10,115,000			20,284,000			19,306,000
Expenses:
Property operating and maintenance expenses		6,464,000			6,372,000			12,152,000			12,001,000
General and administrative expenses		1,297,000			1,292,000			1,961,000			1,958,000
Asset management fees and expenses		376,000			376,000			807,000			807,000
Real estate acquisition costs and contingent consideration		514,000			514,000			1,641,000			1,431,000
Depreciation and amortization		2,129,000			1,974,000			3,990,000			3,712,000
		10,780,000			10,528,000			20,551,000			19,909,000
Loss from operations		(81,000	)		(413,000	)		(267,000	)		(603,000	)
Other income (expense):
Interest income		3,000			3,000			7,000			7,000
Interest expense		(1,604,000	)		(1,403,000	)		(3,080,000	)		(2,726,000	)
Net income (loss) from unconsolidated entities		—			99,000			—			(15,000	)
Net loss		(1,682,000	)		(1,714,000	)		(3,340,000	)		(3,337,000	)
Less: Net income (loss) attributable to the noncontrolling interests		16,000			(16,000	)		(49,000	)		(46,000	)
Net loss attributable to common stockholders	$	(1,698,000	)	$	(1,698,000	)	$	(3,291,000	)	$	(3,291,000	)
Basic and diluted net loss per common share attributable to common stockholders	$	(0.13	)	$	(0.13	)	$	(0.26	)	$	(0.26	)

27

	2011 6 months ended 6/30
	As Previously Reported			As Corrected
Cash flows from operating activities:
Net loss	$	(3,340,000	)	$	(3,337,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred financing costs		283,000			120,000
Depreciation and amortization		3,990,000			3,712,000
Straight-line rent amortization		(452,000	)		(251,000	)
Real estate earn out costs		721,000			511,000
Equity loss from an unconsolidated entity					15,000
Bad debt expense		1,630,000			1,630,000
Change in operating assets/liabilities:
Tenant and other receivables		299,000			39,000
Prepaid expenses and other assets		(1,027,000	)		(1,033,000	)
Restricted cash		(221,000	)		(154,000	)
Prepaid rent and security deposits		498,000			352,000
Payable to related parties		(38,000	)		(38,000	)
Accounts payable and accrued liabilities		1,475,000			1,739,000
Receivable from related parties		(1,630,000	)		(1,630,000	)
Net cash provided by operating activities		2,188,000			1,675,000
Cash flows from investing activities:
Real estate acquisitions		(19,751,000	)		(19,741,000	)
Additions to real estate		(371,000	)		(371,000	)
Payments for construction in progress		—			(81,000	)
Purchase of an interest in an unconsolidated entity		—			(897,000	)
Changes in Restricted cash		(118,000	)		(118,000	)
Development of real estate		(2,807,000	)
Acquisition deposits		100,000			100,000
Distributions from unconsolidated joint ventures		—			227,000
Net cash used in investing activities		(22,947,000	)		(20,881,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		14,160,000			14,160,000
Redeemed shares		(1,604,000	)		(1,604,000	)
Proceeds from issuance of notes payable		16,901,000			14,571,000
Repayment of notes payable		(395,000	)		(399,000	)
Payment of real estate earn out costs		(1,000,000	)		(1,000,000	)
Offering costs		(1,917,000	)		(1,917,000	)
Deferred financing costs		(302,000	)		(150,000	)
Distributions paid to stockholders		(3,149,000	)		(3,149,000	)
Distributions paid to noncontrolling interest		(71,000	)		—
Net cash provided by financing activities		22,623,000			20,512,000
Net increase in cash and cash equivalents		1,864,000			1,306,000
Cash and cash equivalents - beginning of period		29,819,000			29,718,000
Cash and cash equivalents - end of period		31,683,000			31,024,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,718,000		$	2,364,000
Cash paid for income taxes		441,000			441,000
Supplemental disclosure of non-cash financing and investing activities:
Distribution declared not paid		801,000			801,000
Distribution reinvested		1,484,000			1,484,000
Accrued real estate development costs		279,000			—
Accrued promote monetization liability		2,018,000			—
Deferred financing amortization capitalized to real estate development		20,000			—

28

	2011
	As Previously Reported			As Corrected
Retained Earnings (Accumulated Deficit)
Beginning of period – December 31, 2010		(11,722,000	)		(11,722,000	)
End of period – June 30, 2011		(15,013,000	)		(15,013,000	)

The Company notes that certain balances within the condensed consolidated statement of equity from December 31, 2010 and June 30,2011 were corrected as a result of the correction of the immaterial error noted above. The noncontrolling interest balance at December 31, 2010 was reported as $2.8 million and has been adjusted to $1.7 million, which changed total equity from a reported balance of $82.8 million to an adjusted balance of $81.7 million. The noncontrolling interest balance at June 30, 2011 was reported as $2.7 million and has been adjusted to $1.7 million, which changed total equity from a reported balance of $86.8 million to an adjusted balance of $85.8 million. There were no other changes in the condensed consolidated statement of equity as a result of the correction of the above noted immaterial error.

29

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 financial statements and notes thereto contained elsewhere in this report. The 2011 financial information reflects the effects of the corrections described in Note 16, Immaterial Corrections to Prior Period financial statements included in Item 1. financial statements of 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 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, 2011 as filed with the SEC, and the risks identified in Part II, Item 1A of this quarterly report.

Our actual future results and trends may differ materially from expectations depending on a variety of factors discussed in our filings with the SEC. These factors include without limitation:

• Macroeconomic conditions, such as a prolonged period of weak economic growth, and volatility in capital markets.

• changes in national and local economic conditions in the real estate and healthcare markets specifically;

• legislative and regulatory changes impacting the healthcare industry, including the implementation of the healthcare reform legislation enacted in 2010;

• legislative and regulatory changes impacting real estate investment trusts, or REITs, including their taxation;

• the availability of debt and equity capital;

• changes in interest rates;

• competition in the real estate industry;

• the supply and demand for operating properties in our proposed market areas;

• changes in accounting principles generally accepted in the United States of America, or GAAP; and

• the risk factors in our Annual Report for the year ended December 31, 2011 and this quarterly report on Form 10-Q.

Overview

We were incorporated on October 16, 2006 for the purpose of engaging in the business of investing in and owning commercial real estate. We intend to invest the net proceeds from our offerings primarily in investment real estate including health care properties and other real estate related assets located in markets in the United States. As of June 30, 2012, we had raised approximately $127.0 million of gross proceeds from the sale of approximately 12.7 million shares of our common stock in our initial and follow-on public offerings.

On April 29, 2011, we informed our stockholders that our Independent Directors Committee had directed us to suspend our follow-on offering, our dividend reinvestment program and our stock repurchase program (except repurchases due to death) because of the uncertainty associated with our Independent Directors Committee evaluation of various strategic alternatives to enhance our stockholders’ value. One of the alternatives under consideration was the hiring of a new dealer manager for our follow-on offering, however the Independent Directors Committee has made no determination regarding whether or when our follow-on offering may be recommenced.

Effective January 1, 2012, our business is managed by Sentio Investments, LLC (the “Advisor”), under the terms of the 2012 Advisory Agreement. Prior to January 1, 2012, Leveraged Realty Advisors was our advisor (the “Prior Advisor”) under the terms of the. Company’s Advisory Agreement with the Prior Advisor (the “2011 Advisory Agreement”).

Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of the lease. Our growth depends, in part, on our ability to (i) increase rental income and other earned income from leases by increasing rental rates and occupancy levels; (ii) maximize tenant recoveries given the underlying lease structures; and (iii) control operating and other expenses. Our operations are impacted by property specific, market-specific, general economic and other conditions.

Market Outlook — Real Estate and Real Estate Finance Markets

In recent years, both the national and most global economies have experienced substantially increased unemployment and a downturn in economic activity. Despite certain recent more positive economic indicators and improved stock market performance, the economic environment continues to be unpredictable and to present challenges that may delay the implementation of our business strategy or force us to modify it.

30

Despite the economic conditions discussed above, the demand for health care services is projected to continue to grow for the foreseeable future. The Centers for Medicare and Medicaid Services estimates national health expenditures at 17.9% of GDP and projects that healthcare expenditures will increase at a rate of 4.2% in 2012, 3.8% in 2013, 7.4% in 2014 and an average of 6.2% from 2015 to 2019. The elderly are an important component of health care utilization, especially independent living services, assisted-living services, skilled nursing services, inpatient and outpatient hospital services and physician ambulatory care. The elderly population aged 65 and over is projected to increase to approximately 16% of the total population by 2019 from approximately 13% of the total population in 2009.

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, 2011, as filed with the SEC.

Results of Operations

As of June 30, 2012, we operated in three reportable business segments: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. Our senior living operations segment invests in and directs the operations of assisted-living, memory care and other senior housing communities located in the United States. We engage independent third party managers to operate these properties. Our triple-net leased properties segment invests in healthcare properties in the United States leased under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our MOB segment invests in medical office buildings and leases those properties to healthcare providers under long-term “full service” leases which may require tenants to reimburse property related expenses to us.

We began accepting subscriptions for shares under our initial public offering on June 20, 2008. We purchased our first senior housing property in January 2009, and as of June 30, 2012, we owned 14 properties. These properties included ten assisted-living facilities which comprise our senior housing segment, one medical office building, which comprises our MOB segment, three operating healthcare facilities, which comprise our triple-net leased segment and one medical office building and one development healthcare facility held in unconsolidated entities. One of the senior living properties, Woodland Terrace at the Oaks, was acquired in April 2011, one triple-net leased healthcare facility, Rome LTACH, began operations during the first quarter of 2011 and Physicians Centre MOB, which is held in an unconsolidated entity, was acquired in April 2012. In April 2012, we also acquired our partners’ interests in the Rome LTACH investment, and as a result of the acquisition, the investment is consolidated in our June 30, 2012 condensed consolidated financial statements. The Rome LTACH investment is presented under the equity method in periods prior to the April 2012 acquisition. During the three months ended June 30, 2011, we owned 13 properties, including ten assisted-living facilities, one medical office building and one operating healthcare facility and one development healthcare facility, which were deemed to be unconsolidated entities. In the second quarter of 2011, our Board of Directors began an evaluation of strategic alternative that was concluded in the fourth quarter of 2011 and resulted in the appointment of a new advisor, effective January 1, 2012. The results of our second quarter 2012 and 2011 operations are affected by the consolidation of the Rome LTACH investment in the second quarter of 2012 and the impact of 2011 strategic considerations on general and administrative expenses.

31

Comparison of the Three Months Ended June 30, 2012 and 2011

	Three Month Ended June 30,
	2012			2011			$ Change			% Change
Net operating income, as defined (1)
Senior living operations	$	2,549,000		$	2,740,000		$	(191,000	)		(7	)%
Triple-net leased properties		1,319,000			809,000			510,000			63	%
Medical office building		218,000			194,000			24,000			12	%
Total portfolio net operating income	$	4,086,000		$	3,743,000		$	343,000			9	%
Reconciliation to net income (loss):
Net operating income, as defined (1)	$	4,086,000		$	3,743,000		$	343,000			9	%
Unallocated (expenses) income:
General and administrative expenses		(370,000	)		(1,292,000	)		(922,000	)		71	%
Asset management fees and expenses		(503,000	)		(376,000	)		127,000			(34	)%
Real estate acquisitions costs and earn out costs		(190,000	)		(514,000	)		(324,000	)		63	%
Depreciation and amortization		(1,530,000	)		(1,974,000	)		(444,000	)		22	%
Interest income		1,000			3,000			2,000			(100	)%
Interest expense		(1,597,000	)		(1,403,000	)		194,000			14	%
Other income/expense		(146,000	)		0			146,000			100	%
(Loss) income from unconsolidated entities		(442,000	)		99,000			840,000			100	%
Fair value adjustment for equity method investment		1,282,000			0			1,282,000			100	%
Net income (loss)	$	591,000		$	(1,714,000	)	$	1,123,000			66	%

(1) Net operating income, a non-GAAP supplemental measure, is defined as total revenue less property operating and maintenance expenses. We use net operating income to evaluate the operating performance of our consolidated real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of our consolidated income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as a gain or loss from investments in unconsolidated entities depreciation and amortization, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies.

Senior Living Operations

Total revenue for senior living operations includes rental revenue and resident fees and service income. Property operating and maintenance expenses include labor, food, utilities, marketing, management and other property operating costs. Net operating income for the three months ended June 30, 2012 decreased to $2.5 million from $2.7 million for the three months ended June 30, 2011. The decrease is primarily due to the acquisition of Woodland Terrace at the Oaks in April 2011 and lower property taxes for Hilliard due to a favorable property tax settlement in 2012.

	Three Months Ended June 30,
	2012			2011			$ Change			% Change
Senior Living Operations — Net operating income
Total revenues
Rental revenue	$	6,715,000		$	5,774,000		$	941,000			16	%
Resident services and fee income		2,311,000			2,020,000			291,000			14	%
Tenant reimbursement and other income		137,000			65,000			72,000			110	%
Less:
Property operating and maintenance expenses		(6,614,000	)		(5,119,000	)		1,495,000			29	%
Total portfolio net operating income	$	2,549,000		$	2,740,000		$	(191,000	)		(7	)%

32

Triple-Net Leased Properties

Total revenue for triple-net leased properties includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include insurance and property taxes and other operating expenses reimbursed by our tenants. Net operating income increased to $1.3 million for the three months ended June 30, 2012 compared to $0.8 million for the three months ended June 30, 2011, due to the acquisition of a controlling interest in the Rome LTACH in April 2012. As a result of this acquisition, Rome LTACH operations are consolidated in our condensed consolidated financial statements and included in the operations of our Triple-net Leased Segment for the three months ended June 30, 2012. In the comparable period of 2011, Rome LTACH was accounted for as an equity investment and its operating results were not included in our Triple-net Leased Properties segment.

	Three Months Ended June 30,
	2012			2011			$ Change			% Change
Triple-Net Leased Properties — Net operating income
Total revenues
Rental revenue	$	1,325,00		$	1,886,000		$	(561,000	)		(30	)%
Tenant reimbursement and other income		222,000			113,000			109,000			96	%
Less:
Property operating and maintenance expenses		(228,000	)		(1,190,000	)		(962,000	)		(81	)%
Total portfolio net operating income	$	1,319,000		$	809,000		$	510,000			63	%

Medical Office Buildings

Total revenue for medical office buildings includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include utilities, repairs and maintenance, insurance and property taxes. Net operating income for the three months period ended June 30, 2012 of $0.2 million was comparable to net operating income for the three months ended June 30, 201l.

	Three Months Ended June  30,
	2012			2011			$ Change		% Change
Medical Office Buildings — Net operating income
Total revenues
Rental revenue	$	209,000		$	201,000		$	8,000		4	%
Tenant reimbursement and other income		88,000			56,000			32,000		57	%
Less:
Property operating and maintenance expenses		(79,000	)		(63,000	)		16,000		25	%
Total portfolio net operating income	$	218,000		$	194,000		$	24,000		12	%

Unallocated (expenses) income

General and administrative expenses decreased to $0.3 million for the three months ended June 30, 2012 from $1.3 million for the three months ended June 30, 2011. The decrease was due to lower legal, other professional fees and board of director fees (approximately $0.6 million) and the elimination of direct or indirect costs of providing administrative services reimbursed to the Prior Advisor (approximately $0.4 million). Legal, professional and board of director fees were higher in the second quarter of 2011 as a result of consideration of strategic alternatives in that period. Direct and indirect expenses incurred by the Prior Advisor were reimbursed by the Company under the terms of that 2011 Advisory Agreement. The 2012 Advisory Agreement does not have such a provision. These reductions in expenses were partially offset by higher recurring expenses in 2012, principally income taxes, tax services and insurance. The Company recognized a non-recurring tax benefit in the second quarter of 2011.

As a result of the change in calculation of asset management fees provided for in the 2012 Advisory Agreement, asset management fees for the three months ended June 30, 2012 and 2011 increased to $0.5 million from $0.4 million. Depreciation and amortization for the same periods decreased to $1.5 million from $2.0 million, as a result of lower in-place lease and tenant relationship amortization costs, partially offset by increases in depreciation of buildings, improvements and tenant improvements. In-place lease and tenant relationship costs, which relate to the allocation of property purchase price, were completely amortized in 2011 for several properties.

33

For the three months ended June 30, 2012 and 2011, real estate acquisition costs and earn out costs were $0.2 million and $0.5 million, respectively. Real estate acquisition cost in 2012 consisted primarily of costs associated with acquisition of the minority interest in the Rome LTACH property, while 2011 real estate acquisition costs consisted of fees paid to the Prior Advisor for the acquisition Woodland Terrace at the Oaks and upon the receipt of offering proceeds, acquisition costs paid directly to third-parties and, an earn out provision related to GreenTree at Westwood. A portion of the acquisition fees due to our Prior Advisor were paid upon receipt of offering proceeds and the balance was paid at the time of investment acquisition.

Interest expense for the three months ended June 30, 2012 increased to $1.6 million from $1.4 million for the three months ended June 30, 2011 principally due to higher debt levels associated with the acquisition of Woodland Terrace at the Oaks in April 2011, and a higher average balance outstanding on the Rome LTACH property which was completed during the first quarter of 2011 and refinanced at a lower interest rate and a higher loan balance in April 2012.

(Loss) income from an unconsolidated entity increased to $0.4 million for the three months ended June 30, 2012 from $0.1 million of income for the three months ended June 30, 2011. The second quarter 2012 loss related to the operations of the Physicians Centre MOB joint venture. The second quarter 2011 income related to the operations of the Rome LTACH joint venture, in which we acquired a controlling interest in April 2012 and which, as a result, was consolidated in the second quarter of 2012.

34

Comparison of the Six Months Ended June 30, 2012 and 2011

	Six Month Ended June 30,
	2012			2011			$ Change			% Change
Net operating income, as defined (1)
Senior living operations	$	5,490,000		$	5,307,000		$	183,000			3	%
Triple-net leased properties		2,128,000			1,618,000			510,000			32	%
Medical office building		427,000			380,000			47,000			12	%
Total portfolio net operating income	$	8,045,000		$	7,305,000		$	740,000			10	%
Reconciliation to net income (loss):
Net operating income, as defined (1)	$	8,045,000		$	7,305,000		$	740,000			10	%
Unallocated (expenses) income:
General and administrative expenses		(1,204,000	)		(1,958,000	)		(754,000	)		(39	)%
Asset management fees and expenses		(984,000	)		(807,000	)		177,000			22	%
Real estate acquisitions costs and earn out costs		(206,000	)		(1,431,000	)		(1,225,000	)		86	%
Depreciation and amortization		(2,963,000	)		(3,712,000	)		(749,000	)		20	%
Interest income		1,000			7,000			(6,000	)		86	%
Interest expense		(3,024,000	)		(2,726,000	)		298,000			11	%
Other income/expense		(152,000	)		0			152,000			100	%
Loss from unconsolidated entities		(376,000	)		(15,000	)		891,000			59	%
Fair value adjustment for equity method investment		1,282,000			0			1,282,000			100	%
Net income (loss)	$	419,000		$	(3,337,000	)	$	(2,918,000	)		87	%

(1) Net operating income, a non-GAAP supplemental measure, is defined as total revenue less property operating and maintenance expenses. We use net operating income to evaluate the operating performance of our consolidated real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of our consolidated income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as a gain or loss from investments in unconsolidated entities, depreciation and amortization, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies.

Senior Living Operations

Total revenue for senior living operations includes rental revenue and resident fees and service income. Property operating and maintenance expenses include labor, food, utilities, marketing, management and other property operating costs. Net operating income for the six months ended June 30, 2012 increased to $5.5 million from $5.3 million for the six months ended June 30, 2011.

	Six Months Ended June 30,
	2012			2011			$ Change		% Change
Senior Living Operations — Net operating income
Total revenues
Rental revenue	$	13,540,000		$	11,974,000		$	1,566,000		13	%
Resident services and fee income		4,589,000			3,722,000			867,000		23	%
Tenant reimbursement and other income		279,000			175,000			104,000		59	%
Less:
Property operating and maintenance expenses		(12,918,000	)		(10,564,000	)		2,354,000		22	%
Total portfolio net operating income	$	5,490,000		$	5,307,000		$	183,000		3	%

35

Triple-Net Leased Properties

Total revenue for triple-net leased properties includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include insurance and property taxes and other operating expenses reimbursed by our tenants. Net operating income increased to $2.1 million for the six months ended June 30, 2012, compared to $1.6 million for the six months ended June 30, 2011, due to the acquisition of a controlling interest in the Rome LTACH in April 2012. As a result of this acquisition, Rome LTACH operations are consolidated in our consolidated condensed financial statements and included in the operations of our Triple-net Leased Segment for the three months ended June 30, 2012. In the comparable period of 2011, Rome LTACH was presented as an equity investment and its operating results were not included in our Triple-net Leased Properties segment.

	Six Months Ended June 30,
	2012			2011			$ Change			% Change
Triple-Net Leased Properties — Net operating income
Total revenues
Rental revenue	$	2,134,000		$	2,695,000		$	(561,000	)		(21	)%
Tenant reimbursement and other income		371,000			227,000			144,000			63	%
Less:
Property operating and maintenance expenses		(377,000	)		(1,304,000	)		(927,000	)		(71	)%
Total portfolio net operating income	$	2,128,000		$	1,618,000		$	510,000			32	%

Medical Office Buildings

Total revenue for medical office buildings includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include utilities, repairs and maintenance, insurance and property taxes. Net operating income for the six months ended June 30, 2012 was comparable to the six months ended June 30, 2011.

	Six Months Ended June  30,
	2012			2011			$ Change		% Change
Medical Office Buildings — Net operating income
Total revenues
Rental revenue	$	420,000		$	402,000		$	18,000		4	%
Tenant reimbursement and other income		159,000			111,000			48,000		43	%
Less:
Property operating and maintenance expenses		(152,000	)		(133,000	)		19,000		14	%
Total portfolio net operating income	$	427,000		$	380,000		$	47,000		12	%

Unallocated (expenses) income

General and administrative expenses decreased to $1.2 million for the six months ended June 30, 2012 from $2.0 million for the six months ended June 30, 2011. The decrease was due to lower legal, other professional fees and board of director fees (approximately $0.6 million) and the elimination of direct or indirect costs of providing administrative services reimbursed to the Prior Advisor (approximately $0.8 million). Legal, professional and board of director fees were higher in the second quarter of 2011 as a result of consideration of strategic alternatives in that period. Direct and indirect expenses incurred by the Prior Advisor were reimbursed by the Company under the terms of that 2011 Advisory Agreement. The 2012 Advisory Agreement does not have such a provision. These reductions in expenses were partially offset by higher recurring expenses in 2012, principally income taxes, audit fees and insurance. The Company recognized a non recurring tax benefit in the second quarter of 2011, which decreased income tax expense.

As a result of the change in calculation of asset management fees provided for in the 2012 Advisory Agreement, asset management fees for the six months ended June 30, 2012 increased to $1.0 million from $0.8 million of asset management fees and expense reimbursement for the comparable period of 2011. Depreciation and amortization for six months ended June 30, 2012 decreased to $3.0 million from $3.7 million for the comparable period of 2011, as a result of lower in-place lease and tenant relationship amortization costs. These costs, which relate to the allocation of property purchase price, were completely amortized in 2011 for several properties.

36

For the six months ended June 30, 2012 and 2011, real estate acquisition costs and earn out costs were $0.2 million and $1.4 million, respectively. Real estate acquisition cost in 2012 consisted primarily of costs associated with the acquisition of the Rome LTACH minority interests, while 2011 real estate acquisition costs consisted of fees paid to the Prior Advisor, acquisition costs paid directly to third-parties, an earn out provision related to GreenTree at Westwood and monetization of the Rome LTACH promote. The higher 2011 acquisition costs were due to higher third party expenses related to transactions closed or in process during the first quarter of 2011, acquisition fees paid related to equity raised in the first quarter of 2011, and estimated amounts to be paid in connection with the Greentree acquisition earn out and the Rome LTACH promote monetization provision. A portion of the acquisition fees due to our Prior Advisor were paid upon receipt of offering proceeds and the balance was paid at the time of investment acquisition.

Interest expense for the six months ended June 30, 2012 increased to $3.0 million from $2.7 million for the six months ended June 30, 2011 principally due to higher debt levels associated with the acquisition of Woodland Terrace at the Oaks in April 2011 and a higher average balance outstanding on the Rome LTACH property which was completed during the first quarter of 2011 and refinanced at a lower interest rate and a higher loan balance in April 2012.

Our equity interest in the Rome LTACH joint venture was revalued in connection with the acquisition of our partners’ joint venture interests resulting in a gain of $1.3 million.

Loss from an unconsolidated entity increased to $0.4 million for the six months ended June 30, 2012 from $0 million in the comparable period of the prior year. The 2012 loss related primarily to the operations of the Physicians Centre MOB joint venture purchased in April 2012, while the 2011 amount related to the operations of Rome LTACH joint venture in which we acquired a controlling interest in April 2012 and which, as a result, was consolidated in the second quarter of 2012.

Liquidity and Capital Resources

On April 29, 2011, we informed our stockholders that our Independent Directors Committee had directed us to suspend our offering, our dividend reinvestment program and our stock repurchase program (except repurchases due to death) because of the uncertainty associated with their consideration of various strategic alternatives to enhance our stockholders’ value. One of the alternatives under consideration is the hiring of a new dealer manager for our follow-on offering, however the Independent Directors Committee has made no determination regarding whether or when our follow-on offering may be recommenced, if at all. In addition to uncertainties associated with potentially engaging a new dealer manager and possibly restarting our public offering, financial markets continue to experience volatility and uncertainty. Our ability to fund property acquisitions or development projects, as well as our ability to repay or refinance debt maturities, could be adversely affected by an inability to successfully resume our public offering and to secure financing at reasonable terms, if at all.

We expect that primary sources of capital over the long-term will include net proceeds from the sale of our common stock, debt financing, and net cash flows from operations. We expect that our primary uses of capital will be for property acquisitions, for the payment of tenant improvements and capital improvements for the payment of operating expenses, including interest expense on any outstanding indebtedness, reducing outstanding indebtedness and for the payment of distributions.

As of June 30, 2012, a total of approximately 12.7 million shares of our common stock had been sold in our initial and follow-on public offerings for aggregate gross proceeds of approximately $127.0 million. We intend to own our core plus properties with low to moderate levels of debt financing. We will incur moderate to high levels of indebtedness when acquiring our value-added and opportunistic properties and possibly other real estate investments. For our stabilized core plus properties, our long-term goal will be to use low to moderate levels of debt financing with leverage ranging from 50% to 65% of the value of the asset. For the value-added and opportunistic properties, our goal will be to acquire and develop or redevelop these properties using moderate to high levels of debt financing with leverage ranging from 65% to 75% of the cost of the asset. Once these value-added and opportunistic properties are developed, redeveloped and stabilized with tenants, we plan to reduce the levels of debt to fall within target debt ranges appropriate for core plus properties. While we seek to fall within the outlined targets on a portfolio basis, for any specific property we may exceed these estimates. To the extent sufficient proceeds from our public offering, debt financing, or a combination of the two are unavailable to repay acquisition debt financing down to the target ranges within a reasonable time as determined by our board of directors, we will endeavor to raise additional equity or sell properties to repay such debt so that we will own our properties with low to moderate levels of permanent financing. In the event that our public offering is not fully sold, our ability to diversify our investments may be diminished.

As of June 30, 2012, we had approximately $32.0 million in cash and cash equivalents on hand. Our liquidity will increase if additional subscriptions for shares are accepted in our follow-on public offering and if refinancing results in excess loan proceeds and decrease as net offering proceeds are expended in connection with the acquisition, operation of properties and distributions made in excess of cash available from operating cash flows.

The KeyBank credit facility has a maturity date in the second half of 2012. Three of the four properties financed with the KeyBank credit facility have been refinanced with longer term fixed rate financing. We are pursuing opportunities to refinance the one property remaining on the Key Bank loan, as well as refinancing other variable rate borrowings at lower borrowing rates to take advantage of favorable interest rates. Although the response to our refinancing efforts to date in 2012 has been positive, there can be no assurance that the Company will be able to refinance its obligations at favorable rates or at all. We expect to have sufficient cash available from cash on hand and operations to fund capital improvements and principal payments due on our borrowings in the next twelve months. We expect to fund stockholder distributions from the excess of cash on hand and from the excess of cash provided by operations over required capital improvements and debt payments. This excess may be insufficient to make distributions at the current level or at all.

37

On November 19, 2010, we entered into an agreement with KeyBank National Association, an unaffiliated financial institution, to obtain a $25.0 million revolving credit facility (the “Facility”). In August 2011, the terms of the agreement were amended to convert the Facility from a revolving loan commitment to a term loan and reduced the maximum amount of the commitment from $25.0 million to the current outstanding amount of $16.3 million. The amendment also changed the maturity date of the Facility from November 18, 2012 to July 31, 2012 (subject to one ninety-day extension option). On June 11, 2012, we entered into MultiFamily Loan and Securities Agreements (the “Loans”) with KeyCorp Real Estate Capital Markets, Inc., originated under Fannie Mae’s Delegated Underwriting and Servicing Product Line, to refinance five properties, including three of the properties previously on the facility. As of June 30, 2012, the Facility had a balance of approximately $5.1 million. On August 14, 2012, the Company repaid the KeyBank credit facility with refinancing proceeds of a $5.6 million loan from KeyBank National Association.

We will not rely on advances from our Advisor to acquire properties but our Advisor and its affiliates may loan funds to special purposes entities that may acquire properties on our behalf pending our raising sufficient proceeds from our offerings to purchase the properties from the special purpose entity.

There may be a delay between the sale of our shares and the purchase of properties. During this period, our public offering net proceeds will be temporarily invested in short-term, liquid investments that could yield lower returns than investments in real estate.

Potential future sources of capital include proceeds from future equity offerings, proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations.

Distributions

Through June 30, 2011, we made cash distributions to our stockholders at an annualized rate of 7.5%, based on a $10.00 per-share purchase price. On June 30, 2011, our board of directors resolved to lower our distributions to a current annualized rate of $0.25 per share (2.5% based on a share price of $10.00). The distribution rate was effective July 1, 2011. This distribution rate is expected to more closely align distributions to funds available from operations. Historically, we have used a portion of the proceeds from our distribution reinvestment plan for general corporate purposes, including capital expenditures on our real estate investments, tenant improvement costs and leasing costs related to our investments in real estate properties; reserves required by financings of our investments in real estate properties; and the repayment of debt. Because our distribution reinvestment plan was suspended on May 10, 2011, we will no longer have distribution reinvestment plan proceeds available for such general corporate purposes. Because such funds will not be available from the distribution reinvestment plan offering, we may have to use a greater proportion of our cash flow from operations to meet our general cash requirements, which would reduce cash available for distributions.

	Distributions Declared						Cash Flow from Operations
Period	Cash		Reinvested		Total
First quarter 2011	$	1,152,000	$	1,124,000	$	2,276,000	$	1,583,000
Second quarter 2011	$	2,436,000	$	0	$	2,436,000	$	92,000
First quarter 2012	$	801,000	$	0	$	801,000	$	1,544,000
Second quarter 2012	$	799,000	$	0	$	799,000	$	2,374,000

From our inception in October 2006 through June 30, 2012, we declared aggregate distributions of $16.2 million and our cumulative net loss during the same period was $16.8 million.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We invest our cash and cash equivalents in government-backed securities and FDIC-insured savings accounts, which, by their nature, are subject to interest rate fluctuations. However, we believe that the primary market risk to which we will be exposed is interest rate risk relating the variable portion of our debt financing. As of June 30, 2012, we had approximately $35.8 million of variable rate debt, the majority of which is at a rate tied to the 3-month LIBOR. A 1.0% change in 3-Month LIBOR would result in a change in annual interest expense of approximately $0.4 million per year. Our interest rate risk management objectives will be to monitor and manage the impact of interest rate changes on earnings and cash flows by using certain derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on variable rate debt. We will not enter into derivative or interest rate transactions for speculative purposes.

38

In addition to changes in interest rates, the fair value of our real estate is subject to fluctuations based on changes in the real estate capital markets, market rental rates for healthcare facilities, local, regional and national economic conditions and changes in the credit worthiness of tenants. All of these factors may also affect our ability to refinance our debt if necessary.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports 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 principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, 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.

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 1A. Risk Factors

The following risk supplements the risks disclosed in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2011.

We have paid, and may in the future pay, distributions from sources other than cash provided from operations.

Until proceeds from our offerings are invested and generating operating cash flow sufficient to support distributions to stockholders, we may pay a portion of our distributions from the proceeds of our offerings or from borrowings in anticipation of future cash flow. Our organizational documents do not limit the amount of distributions we can fund from sources other than from operating cash flow. To the extent that we use offering proceeds to fund distributions to stockholders, the amount of cash available for investment in properties will be reduced. For the four quarters ended June 30, 2012, our cash flow from operations was approximately $3.5 million. During that period we paid distributions to investors of approximately $3.2 million, all of which was paid to investors in cash.

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

(a) We did not sell any equity securities that we did not register under the Securities Act of 1933 during the period covered by this Form 10-Q.

(b) On August 10, 2007, our Registration Statement on Form S-11 (File No. 333-139704), covering a public offering of up to 40,000,000 shares of common stock for an aggregate offering amount of $400.0 million, was declared effective under the Securities Act of 1933 (the “IPO”). We stopped making offers under our IPO on February 3, 2011 after raising gross offering proceeds of approximately $123.9 million from the sale of approximately 12.4 million shares, including shares sold under the distribution reinvestment plan. On February 4, 2011, our Registration Statement on Form S-11 (File No. 333-168013), covering a public offering of up to 55,000,000 shares of our common stock for an aggregate offering amount of $550.0 million, was declared effective under the Securities Act of 1933 (the “Follow-on Offering”). The Follow-on Offering has not terminated yet. As of June 30, 2012, we had sold an aggregate of 12.7 million shares of common stock in our IPO and the Follow-on Offering and raised aggregate gross proceeds of $127.0 million. From this amount, we incurred $12.3 million in selling commissions and dealer manager fees payable to our dealer manager and $4.2 million in acquisition fees payable to the Prior Advisor. As of March 31, 2011, we had also incurred organizational and offering costs related to the IPO and the Follow-on Offering totaling $5.1 million. We had acquired 14 properties and two investments that are unconsolidated entities as of June 30, 2012.

39

(c) During the six months ended June 30, 2012, we repurchased shares pursuant to our stock repurchase program as follows:

Period	Total Number of Shares Redeemed		Average Price Paid per Share
January		33,008	$	9.98
February		0	$	0
March		0	$	0
April		9,203	$	9.00
May		17,582	$	9.00
June		0	$	0
		59,793		0

40

Item 6. Exhibits

Ex.	Description
3.1	Articles of Amendment and Restatement of the Registrant, as amended on December 29, 2009 and January 24, 2012 (incorporated by reference to Exhibit 3.1 to the Registrant’s annual report on Form 10-K for the year ended December 31, 2011).
3.2	Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s current report on Form 8-K filed January 25, 2012).
3.3	Amended and Restated Limited Partnership Agreement of Sentio Healthcare Properties OP, L.P., dated January 25, 2012 (incorporated by reference to Exhibit 3.2 to the Registrant’s current report on Form 8-K filed January 25, 2012).
4.1	Subscription Agreement (incorporated by reference to Appendix A to the Registrant’s prospectus filed on February 7, 2011).
4.2	Statement regarding restrictions on transferability of the Registrant’s 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 Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 (No. 333-139704) filed on June 15, 2007 (“Pre-Effective Amendment No. 2”).
4.3	Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix B to the Registrant’s prospectus filed on February 7, 2011).
10.1	Multifamily Loan and Security Agreement by and Between Forestview Manor, LLC, and KeyCorp Real Estate Capital Markets, Inc., dated June 11, 2012 with Schedule disclosing other essentially similar Loan and Security Agreements (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed June 14, 2012).
10.2	Purchase and Sale Agreement dated as of May 7, 2012 by and among Sentio Leah Bay, LLC, as Buyer, and Urbana Care Group LLC, Springfield Care Group LLC, Bryan Care Group, LP and Erwin Family Properties I, L.L.C., as Seller, and Fidelity National Title Agency, Inc., as Escrow Agent.
10.3	First Amendment dated as of June 21, 2012 to Purchase and Sale Agreement dated as of May 7, 2012 by and among Sentio Leah Bay, LLC, as Buyer, and Urbana Care Group LLC, Springfield Care Group LLC, Bryan Care Group, LP and Erwin Family Properties I, L.L.C., as Seller, and Fidelity National Title Agency, Inc., as Escrow Agent.
10.4	Assignment and Assumption of Purchase and Sale Agreement dated as of June 28, 2012 by and between Sentio Leah Bay LLC and Sentio Leah Bay Portfolio LLC.
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.
32.1	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.
32.2	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.

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 20th day of August 2012.

SENTIO HEALTHCARE PROPERTIES, INC.
By:	/s/ JOHN MARK RAMSEY
	John Mark Ramsey, President and Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ SHARON C. KAISER
	Sharon C. Kaiser, Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

42

EX-10.2

PURCHASE AND SALE AGREEMENT

By And Among

SENTIO LEAH BAY LLC,

a Delaware limited liability company

AS “BUYER”

AND

URBANA CARE GROUP LLC,

SPRINGFIELD CARE GROUP LLC,

NORMAL CARE GROUP LLC

BRYAN CARE GROUP, LP and

ERWIN FAMILY PROPERTIES I, L.L.C.

AS “SELLER”

And

FIDELITY NATIONAL TITLE AGENCY, INC.

a Texas corporation

AS “ESCROW AGENT”

Dated as of

May 7, 2012

TABLE OF CONTENTS

	Page
ARTICLE I TERMINOLOGY		2
1.1 Defined Terms		2
1.2 Additional Defined Terms		5
ARTICLE II PURCHASE AND SALE		6
2.1 Property		6
2.2 Assumption of Liabilities		7
2.3 Purchase Price		8
2.4 Earnest Money Deposit		8
2.5 Adjustment of Purchase Price		8
2.6 Escrow Agent		10
ARTICLE III DUE DILIGENCE PERIOD		11
3.1 Due Diligence Period		11
3.2 Buyer’s Responsibilities		11
3.3 Continuing Diligence and Inspection Rights		11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER		12
4.1 Organization Authority of Sellers		12
4.2 Consent of Third Parties		12
4.3 Authority; Enforceability		12
4.4 Absence of Conflicts		12
4.5 No Judgments		13
4.6 No Governmental Approvals		13
4.7 Insurance		13
4.8 Litigation		13
4.9 Compliance with Laws		13
4.10 Environmental Matters		13
4.11 Assessments		14
4.12 Property Agreements		14
4.13 Licenses		14
4.14 Resident Agreements		14
4.15 Medicare; Medicaid; Third Party Payor Programs		14
4.16 Condemnation		15
4.17 Condition of Property		15
4.18 Intentionally Deleted		15
4.19 Intentionally Deleted		15
4.20 Zoning		15
4.21 FIRPTA		15
4.22 Interests; Title		15
4.23 Title Encumbrances		16
4.24 Affordable Housing Units		16
4.25 [Reserved]		16
4.26 Loans		16

- i -

4.27 Patriot Act Compliance	16
4.28 Broker’s or Finder’s Fees	16
4.29 Insolvency	16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER	17
5.1 Organization and Good Standing	17
5.2 Authorization and Binding Effect of Documents	17
5.3 Absence of Conflicts	17
5.4 Consents	17
5.5 Patriot Act Compliance	17
5.6 Broker’s or Finder’s Fees	18
ARTICLE VI OTHER COVENANTS	18
6.1 Conduct of Business Prior to the Closing	18
6.2 Notification of Certain Matters	19
6.3 Title; Additional Documents	19
6.4 Other Consents	19
6.5 Inspection and Access	19
6.6 Confidentiality	20
6.7 Publicity	21
6.8 Commercially Reasonable Efforts	21
6.9 Reports	21
6.10 Post-Closing Obligations of Seller	21
6.11 Post-Closing Obligations of Buyer	21
6.12 No Other Representations or Warranties	21
6.13 Noncompetition	22
6.14 Exclusivity	22
6.15 Existing Mortgages	22
6.16 No New Survey Matters	22
6.17 Employees	23
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE	23
7.1 Accuracy of Representations and Warranties; Closing Certificate	23
7.2 Performance of Agreement	23
7.3 No Adverse Change	23
7.4 Intentionally Deleted	23
7.5 Title Insurance and Survey	23
7.6 Intentionally Deleted	25
7.7 Intentionally Deleted	25
7.8 Licenses	26
7.9 Termination of Existing Management Agreement	26
7.10 Management Agreement	26
7.11 Third-Party Consents	26
7.12 Guaranty	26
7.13 Loan Assumption Approval	26

- ii -

ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE	27
8.1 Accuracy of Representations and Warranties	27
8.2 Performance of Agreements	27
8.3 Mortgage Release. The Mortgage Holder shall have agreed to the Mortgage Release on terms that are       reasonably acceptable to Current Owners	27
ARTICLE IX CLOSING	27
9.1 Closing Date and Place	27
9.2 Deliveries of Seller	27
9.3 Deliveries of Buyer	28
9.4 Closing Costs	29
9.5 No Additional Representations; Disclaimer Notice	29
ARTICLE X INDEMNIFICATION	30
10.1 General	30
10.2 Indemnification by Seller	30
10.3 Indemnification by Buyer	30
10.4 Administration of Indemnification	31
ARTICLE XI DEFAULT AND TERMINATION	32
11.1 Right of Termination	32
11.2 Remedies upon Default	33
11.3 Specific Performance	33
11.4 Obligations Upon Termination	33
11.5 Termination Notice	34
11.6 Sole and Exclusive Remedy	34
ARTICLE XII MISCELLANEOUS	34
12.1 Further Actions	34
12.2 Notices	34
12.3 Entire Agreement	36
12.4 Binding Effect; Benefits	36
12.5 Assignment	36
12.6 Governing Law	36
12.7 Amendments and Waivers	37
12.8 Joint and Several	37
12.9 Severability	37
12.10 Headings	37
12.11 Counterparts	37
12.12 References	37
12.13 Intentionally Deleted	37
12.14 Attorneys’ Fees	37
12.15 Section 1031 Exchange/Tax Planning	37
12.16 Casualty	38
12.17 Condemnation	38

- iii -

12.18 Limited Liability	39
12.19 Survival of Defined Terms	39
12.20 Time of Essence	39
12.21 No Third-Party Beneficiary	39
12.22 WAIVER OF JURY TRIAL	39
12.23 Schedules and Exhibits	39

EXHIBITS TO THIS AGREEMENT

EXHIBIT A	Property Information
EXHIBIT B	Description of Land
EXHIBIT C	Due Diligence Materials
EXHIBIT D	Rent Roll
EXHIBIT E	Form of Management Agreement
EXHIBIT F	Form of Guaranty
EXHIBIT G	Form of Audit Letter

- iv -

SELLER SCHEDULES

Schedule 2.1(b)	Excluded Personal Property
Schedule 2.1(h)	Excluded Intellectual Property
Schedule 2.2(a)	Existing Mortgages
Schedule 2.3	Allocation of Purchase Price
Schedule 4.5	Judgments
Schedule 4.7	Seller’s Insurance
Schedule 4.8	Litigation, Proceedings and Investigations
Schedule 4.9	Compliance with Laws
Schedule 4.10	Environmental Matters
Schedule 4.12	Property Agreements
Schedule 4.13	Licenses; Citations
Schedule 4.14	Rent Roll and Resident Agreements
Schedule 4.17	Condition of the Property
Schedule 4.22	Exceptions to Seller Ownership
Schedule 4.23	Title Encumbrances
Schedule 7.11	Third Party Consents

- v -

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is dated the 7^th day of May, 2012, by and among: SENTIO LEAH BAY LLC, a Delaware limited liability company, or its successors or assigns (collectively, the “Buyer”); URBANA CARE GROUP LLC, an Illinois limited liability company, SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company, NORMAL CARE GROUP LLC, an Illinois limited liability company and BRYAN CARE GROUP, LP, a Texas limited partnership (each a “Current Owner” and collectively “Current Owners”), ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company (“EFP” and together with each Current Owner, a “Seller” and collectively with all Current Owners, “Sellers”), and FIDELITY NATIONAL TITLE AGENCY, INC., a Texas corporation (“Escrow Agent”).

RECITALS:

A. Each Current Owner owns certain real property on which is located a memory care facility, each of which is described on Exhibit A attached hereto, located on real property described on Exhibit B attached hereto. Urbana Care Group LLC owns the property described on Exhibit B as Amber Glen-Urbana Illinois (the “Urbana Property”), Springfield Care Group LLC owns the property described on Exhibit B as Mill Creek-Springfield Illinois (the “Springfield Property”), Normal Care Group LLC owns the property described on Exhibit B as Sugar Creek-Normal Illinois (the “Normal Property”) and Bryan Care Group, LP owns the property described on Exhibit B as Hudson Creek-Bryan Texas (the “Bryan Property”).

B. Prior to Closing, each Current Owner will convey a 21.5963% interest in its Property to Leah Bay Investments LLC, a Washington limited liability company (“LBI”) which currently owns 100% of the membership interests or limited partnership interests, as applicable, in the Current Owners. The conveyance to LBI will be subject to the Existing Mortgages. After the conveyance by the Current Owners to LBI, LBI will convey a 21.5963% interest in each of the Urbana Property, the Springfield Property, the Normal Property and the Bryan Property to EFP, subject to the Existing Mortgages. The conveyance to EFP will completely liquidate EFP’s interest in LBI. After the conveyance from LBI to EFP, title to the Properties will be held as follows:

Property Name	Owner	Percent Ownership
Urbana Property	Urbana Care Group LLC EFP		78.4037 21.5963	%  %
Springfield Property	Springfield Care Group LLC EFP		78.4037 21.5963	%
Normal Property	Normal Care Group LLC EFP		78.4037 21.5963	%  %
Bryan Property	Bryan Care Group, LP EFP		78.4037 21.5963	%  %

- 1 -

C. Buyer desires to acquire, and Seller is willing to convey to Buyer pursuant to the terms described herein the above referenced Property. Each Current Owner will convey to Buyer or its designee(s) its interest in its Property by a warranty deed and bill of sale in accordance with the terms of this Agreement. EFP will convey its interest in the Urbana Property, the Springfield Property and the Normal Property by contributing such interests to Buyer or its designee(s), either in accordance with a separate contribution agreement between EFP and Buyer or the contribution provisions of a partnership, limited liability company operating agreement or any other purchasing entity formation agreeement to be entered into between Buyer and EFP (the “Contribution”). EFP will convey to Buyer or its designee(s) its interest in the Bryan Property by warranty deed and bill of sale accordance with the terms of this Agreement.

Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I

TERMINOLOGY

1.1 Defined Terms. Throughout this Agreement, wherever the term “Seller” is used, the term will apply to each Seller unless otherwise stated and will apply with respect to each Seller to the Land, the Real Property and the Property owned by that Seller, as applicable. Throughout this Agreement, wherever the terms “Land”, “Real Property”, or “Property” are used, the terms will refer to each Seller’s interest in the Land, Real Property or Property, as applicable, unless otherwise stated. By way of example, references to the “Seller” with respect to the Urbana Property will mean Urbana Care Group LLC with respect to its 78.4037% interest in the Urbana Property and EFP with respect to its 21.5963% interest in the Urbana Property. Where notices are required or permitted under this Agreement, notices may be given by or to all five Sellers jointly. The term “party” shall refer either to Buyer or to Sellers collectively. As used herein, the following terms shall have the meanings indicated:

Accrued Employee Benefits: Shall mean any accrued wages, salary, vacation or other accrued paid time off or benefits for the employees of the Property, including without limitation those employees who will continue to be employed at the Property after the Closing.

Adjustment Amount: The amount computed under Section 2.5 hereof.

Affiliate: With respect to any specified person or entity, any other person or entity which, directly or indirectly, controls, is controlled by, or is under common control with, the specified person or entity. For the purposes of this Agreement, Emeritus Corporation is not an affiliate of any of the Sellers.

- 2 -

Applicable Law: Any federal, state, municipal, county, local, foreign or other statute, law, ordinance, rule or regulation or any order, writ, injunction, judgment, plan or decree of any court, arbitrator, department, commission, board, bureau, agency, authority, instrumentality or other body, whether federal, state, municipal, county, local, foreign or other.

Closing: The consummation of the purchase and sale of the Property in accordance with the terms of this Agreement on the Closing Date or at such earlier or later date and time as may be agreed upon by the parties.

Code: The Internal Revenue Code of 1986, as amended.

Documents: This Agreement, all Exhibits and Schedules hereto, and each other agreement, certificate or instrument to be delivered pursuant to this Agreement.

Due Diligence Period: The period commencing on the Effective Date and ending at 6:00 p.m. Eastern Time on June 21, 2012, during which time Buyer may perform its due diligence inspections in accordance with Article III.

Effective Date: The date first written above.

Escrow Agent: Fidelity National Title Agency, Inc., a Texas corporation

Existing Manager: Jerry Erwin Associates, Inc., a Washington corporation doing business as JEA Senior Living.

GAAP: Generally accepted accounting principles as applied in the United States.

Knowledge: As used in this Agreement, the term “knowledge” when used to refer to the knowledge of Seller shall mean the current, actual knowledge of any of Patrick McGonigle, Craig Spaulding, Jerry Erwin and Cody Erwin, after consulting with the executive director of each memory care facility and when used to refer to the knowledge of Buyer shall mean the current, actual knowledge of Scott Larche or John Mark Ramsey.

Licenses: All certificates, licenses, and permits issued by governmental authorities which are required to be held by an owner or tenant in connection with the ownership, use, occupancy, operation, and maintenance of the Property as a memory care facility.

Lien: Any mortgage, deed to secure debt, deed of trust, pledge, hypothecation, right of first refusal, security, encumbrance, charge, claim, option or lien of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any assets or property, including any agreement to give or grant any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement with respect to any assets or property under the Uniform Commercial Code or Applicable Law.

- 3 -

Loss: Any and all costs, obligations, liabilities, demands, claims, settlement payments, awards, judgments, fines, penalties, damages and reasonable out-of-pocket expenses, including court costs and reasonable attorneys’ fees, whether or not arising out of a third-party claim.

Manager: Jerry Erwin Associates, Inc., a Washington corporation doing business as JEA Senior Living.

Other Assets: The Resident Agreements, Resident Deposits, Property Agreements, Intellectual Property and all other property and assets included within the definition of “Property” in Section 2.1 of this Agreement other than Real Property and Personal Property.

Permitted Lien: Any (i) statutory liens that secure a governmentally required payment, including without limitation Taxes, not yet due, (ii) zoning regulations and restrictive covenants and easements of record that do not detract in any material respect from the present use of the Property and do not materially and adversely affect, impair or interfere with the use of any property affected thereby, (iii) public utility easements of record, in customary form, to serve the Property, (iv) the Existing Mortgages, and (v) any other condition of title as may be approved by Buyer in writing prior to the end of the Due Diligence Period.

Post-Closing Licensee: The Buyer, Tenant or their designee to whom all Licenses will be transferred or otherwise obtained in accordance with Applicable Law for the operation of the Property as a memory care facility.

Taxes: All federal, state, local and foreign taxes including, without limitation, income, gains, transfer, unemployment, withholding, payroll, social security, real property, personal property, excise, sales, use and franchise taxes, levies, assessments, imposts, duties, licenses and registration fees and charges of any nature whatsoever, whether or not recorded, including interest, penalties and additions with respect thereto and any interest in respect of such additions or penalties, but excluding all transfer, conveyance, intangibles, mortgage transfer, and documentary stamp taxes payable in connection with the transactions contemplated by this Agreement.

Tenant: That entity chosen by Buyer to lease the Property upon purchase by the Buyer.

Title Insurer: The Title Insurer is as follows:

Fidelity National Title Agency, Inc.

5430 LBJ Freeway, Suite 260

Dallas, TX 75240 ATTN: David Lawrence

Tel: 972-770-2120 (direct)

Email: DLawrence@fnflaw.com

- 4 -

1.2 Additional Defined Terms. As used herein, the following terms shall have the meanings defined in the recitals or Section indicated below:

Accrued Employee Benefits	2.2
Agreement	Preamble
Assumed Obligations	Section 2.2(c)
Bryan Property	Recital A
Buyer	Preamble
CERCLA	Section 4.10
Closing	Section 9.1
Closing Date	Section 9.1
Contribution	Recital C
Current Owners	Preamble
Earnest Money Deposit	Section 2.4
EFP	Preamble
Environmental Laws	Section 4.10
Escrowed Funds	Section 2.6
Existing Mortgages	Section 2.2(a)
Guaranty	Section 7.12
Improvements	Section 2.1(a)
Indemnified Party	Section 10.4(a)
Indemnifying Party	Section 10.4(a)
Land	Section 2.1(a)
LBI	Recital B
Management Agreement	Section 7.9
Mortgage Holder	Section 6.15
Mortgage Release	Section 6.15
Normal Property	Recital A
OFAC	Section 4.27
Other Assets	Section 1.1
Patriot Act	Section 4.27
Permitted Buyer-Assignee	Section 12.5
Permitted Exception	Section 7.5(b)
Personal Property	Section 2.1(a)
Preliminary Adjustment Amount	Section 2.5(f)
Post-Closing Adjustment Amounts	Section 2.5(f)
Property	Section 2.1
Property Agreements	Section 2.1(c)
Proration Date	Section 2.5(a)
Proration Schedule	Section 2.5(a)
Purchase Price	Section 2.3
Real Property	Section 2.1(a)
Records	Section 6.10
Released Mortgage Obligations	Section 6.15
Required Cure Items	Section 7.5(b)
Resident Agreements	Section 2.1(d)
Resident Deposits	Section 2.1(d)

- 5 -

SEC	Section 6.6(c)
Seller	Preamble
Springfield Property	Recital A
Survey	Section 7.5(d)
Title Commitment	Section 7.5(a)
Title Defect	Section 7.5(b)
Title Expenses	Section 7.5(g)
Title Notice	Section 7.5(b)
Transaction Costs	Section 9.4
Urbana Property	Recital A

ARTICLE II

PURCHASE AND SALE

2.1 Property. Upon and subject to the terms and conditions provided herein, at Closing, Seller will sell, transfer, assign and convey to Buyer, and Buyer will purchase from Seller the following (collectively, the “Property”):

(a) Real Property. All of Seller’s right, title, and interest in and to that certain parcel of real property consisting of land (“Land”) and all buildings, structures, fixtures and other improvements (“Improvements”) located thereon. The Land is more particularly described on Exhibit B attached to this Agreement. The Land and Improvements (collectively, the “Real Property”) shall be deemed to include all licenses, and all rights-of-way, beneficial easements and appurtenances related to the Real Property.

(b) Personal Property. All furnishings, machinery, equipment, vehicles, supplies, inventory, linens, medicine, foodstuffs, consumable and other personal property of any type or description, including, without limitation, all beds, chairs, sofas, wheelchairs, tables, kitchen and laundry equipment owned by Seller and present at the Property (collectively, the “Personal Property”).

(c) Property Agreements. All rights of Seller in, to and under all contracts, leases, agreements, commitments and other arrangements, and any amendments, modifications, supplements, renewals and extensions thereof, used in the operation of the Property made or entered into by Seller as of the Effective Date, or between the Effective Date and the Closing in compliance with this Agreement (the “Property Agreements”). Notwithstanding the foregoing, Property Agreements expressly excludes any contracts, leases, agreements, commitments and other arrangements, and any amendments, modifications, supplements, renewals and extensions entered into by Seller after the Effective Date and prior to the Closing in breach of Section 6.1, and any Property Agreements for which consents to the assignment thereof to the Buyer have not been obtained as of the Closing, unless waived by Buyer. Buyer will have the opportunity to review the Property Agreements during the Due Diligence Period.

(d) Resident Agreements. All rights of Seller in, to and under all occupancy, residency, leases, tenancy and similar written agreements entered into in the ordinary course of business with residents of the Property, including any amendments, modifications, supplements, renewals and extensions thereof (“Resident Agreements”), and all deposits, initial service fees and advances of any kind or nature from any resident of the Property (“Resident Deposits”).

- 6 -

(e) Records. Copies of all the books, records, accounts, files, logs, ledgers, journals and architectural, mechanical and electrical plans and specifications in Seller’s possession and pertaining to or used in the operation of the Property, however such data is stored.

(f) Licenses. Any and all Licenses now held in the name of the Seller and any renewals, extensions, amendments or modifications thereof.

(g) Claims and Causes of Action. Rights in and to any claims or causes of action to the extent they are in the nature of enforcing a guaranty, warranty, or a contract obligation to complete improvements, make repairs, or deliver services to the Property.

(h) Intellectual Property. With the exception of any intellectual property described in Schedule 2.1(h), the following (the “Intellectual Property”):

(i) any and all rights of Seller with respect to the use of (a) all trade names, trademarks, service marks, copyrights, patents, jingles, slogans, symbols, logos, inventions, computer software, operating manuals, designs, drawings, plans and specifications, marketing brochures, or other proprietary material, process, trade secret or trade right used by Seller in the operation of the Property, and (b) all registrations, applications and licenses for any of the foregoing; and

(ii) the “Amber Glen”, “Mill Creek”, Sugar Creek”, and “Hudson Creek” names, logos, symbols, and trademarks.

2.2 Assumption of Liabilities.

(a) Buyer acknowledges that, effective as of the Closing, Buyer shall assume and undertake to pay, discharge, and perform the liabilities and obligations of Seller under the existing loans secured by the applicable Property identified on Schedule 2.2(a) (the “Existing Mortgages”).

(b) Other than the Existing Mortgages or as otherwise expressly set forth in this Agreement, Buyer is assuming no liabilities attributable to the operation or ownership of the Property which accrued or occurred on or prior to the Closing, all of which Seller shall pay, discharge and perform when due. Specifically, without limiting the foregoing, Buyer shall not assume (i) any claim, action, suit, or proceeding pending as of the Closing or any subsequent claim, action, suit, or proceeding arising out of or relating to any event occurring prior to Closing, with respect to the manner in which Seller conducted its businesses on or prior to the Closing or (ii) any liability for Taxes other than real property taxes from and after Closing and Subject to Section 9.4, any transfer taxes or personal property taxes assumed by the Buyer as part of the Closing.

- 7 -

(c) Buyer acknowledges that, effective as of the Closing, Buyer shall assume and undertake to pay, discharge, and perform the liabilities and obligations of Seller under the Property Agreements (but not the Property Agreements which are entered into after the Effective Date hereof not in compliance with this Agreement, to the extent such liabilities and obligations arise during and relate to any period from and after the Closing (collectively, the “Assumed Obligations”).

2.3 Purchase Price. The purchase price for the Property shall be an amount equal to FORTY-NINE MILLION AND NO/100 U.S. DOLLARS ($49,000,000.00), (the “Purchase Price”), plus or minus (whichever is applicable) the Adjustment Amount which shall be paid to Seller for the Property, all of which shall be paid by Buyer in accordance with Section 9.3(a) as follows: (a) at the Closing (i) by the assumption by Buyer of the Existing Mortgages and (ii) with respect to each Current Owner’s interest in its Property and EFP’s interest in the Bryan Property, in cash by wire transfer of immediately available funds an amount equal to such Current Owner’s or EFP’s pro-rated portion of the Purchase Price less the outstanding principal balance of the Existing Mortgages on the Closing Date plus or minus the Preliminary Adjustment Amount, and (iii) with respect to EFP’s interest in the Urbana Property, the Springfield Property and the Normal Property, by the grant of equity interests to EFP in the purchasing entities as contemplated under the Contribution and (b) in cash by check of wire transfer of immediately available funds the Post-Closing Adjustment Amounts in the manner set forth in Section 2.5(f). Prior to the expiration of the Due Diligence Period, Buyer and Seller shall agree upon an allocation of the Purchase Price for local, state and federal tax purposes which allocation will specify the Purchase Price for each Property by Real Property, Personal Property and Other Assets. The agreed allocation will be attached to this Agreement in the form shown in Schedule 2.3.

2.4 Earnest Money Deposit. Buyer will within five (5) days after the Effective Date deposit TWO HUNDRED FORTY-FIVE THOUSAND AND NO/100 U.S. DOLLARS ($245,000.00) and, upon expiration of the Due Diligence Period so long as Buyer has not terminated this Agreement, an additional TWO HUNDRED FORTY-FIVE THOUSAND AND NO/100 U.S. DOLLARS ($245,000.00), the “Earnest Money Deposit”) with Escrow Agent. The Earnest Money Deposit will be refunded to Buyer if Buyer terminates this Agreement prior to the expiration of the Due Diligence Period as permitted under Section 11.1(a). After the expiration of the Due Diligence Period, the Earnest Money Deposit will be non-refundable to Buyer and will be paid to Seller if this Agreement is terminated for any reason other than Buyer’s termination of this Agreement under Section 11.1(b), Section 11.1(c), Section 11.1(e), Section 11.1(f) or Section 11.2(a)(i). Upon Closing, the Earnest Money Deposit shall be applied to the Purchase Price.

2.5 Adjustment of Purchase Price.

(a) All income and expenses (including prepaid expenses) of the Property shall be prorated on a daily basis between Seller and Buyer as of 11:59 p.m. Central Time, on the date (the “Proration Date”) immediately preceding the Closing. Such items to be prorated shall include, without limitation:

(i) Payments under Assumed Obligations, if any;

- 8 -

(ii) The amount of the Accrued Employee Benefits; and

(iii) Real property taxes, which for the year 2012 shall be pro-rated based upon the actual 2012 tax amounts, if available and, if not available, then upon the assessed value for 2011 as of the Proration Date and applying either (a) the applicable 2012 tax rate(s) or (b) to the extent the 2012 tax rate(s) is or are unavailable, the 2011 tax rate(s).

Buyer and Seller shall prepare a proposed schedule (the “Proration Schedule”) prior to Closing, that shall include the items listed above and any other applicable income and expenses with regard to the Property. Seller and Buyer will use all reasonable efforts to finalize and agree upon the Proration Schedule at least two (2) business days prior to Closing.

(b) Any escrow accounts held by any utility companies, and any cash deposits made by Seller or Seller’s Affiliates prior to Closing to secure obligations under Assumed Obligations shall be either paid to Seller or, if assigned to Buyer, Seller shall receive a credit at Closing for any such deposits.

(c) With respect to any amounts held by Seller in a resident escrow or trust account under any Property Agreement, Seller shall credit such amounts to Buyer at Closing, to the extent the amounts held in any such accounts have not been applied against amounts owing by the depositor thereof in accordance with the terms of the applicable Property Agreement.

(d) Seller shall receive all income from and shall be responsible for all expenses of the Property attributable to the period prior to the Proration Date, unless otherwise provided for in this Agreement. In the event Buyer receives any payment from a tenant for rent due for any period prior to the Proration Date or payment of any other receivable of Seller, Buyer shall forward such payment to Seller.

(e) Buyer shall receive all income from and shall be responsible for all expenses of the Property attributable to the period from and after the Proration Date, unless otherwise provided for in this Agreement. In the event Seller or Seller’s Affiliates receive any payment from a tenant for rent due for any period from and after the Proration Date, Seller shall forward such payment to Buyer.

(f) The parties agree that any amounts that may become due under this Section 2.5 shall be paid at Closing as can best be determined (such amount, the “Preliminary Adjustment Amount”). A post-Closing reconciliation of pro-rated items shall be made by the Buyer and Seller within ninety (90) days after Closing and any amounts due at that time shall be promptly forwarded to the respective party in a lump sum payment. Any additional amounts which may become due after such determination shall be forwarded at the time they are received. Any amounts due under this Section 2.5 which cannot be determined within ninety (90) days after Closing shall be reconciled as soon thereafter as such amounts can be determined. Any amounts due under this Section 2.5 after the Closing shall be referred to as the “Post-Closing Adjustment Amounts.” Buyer and Seller agree that each shall have the right to audit the records of the other for up to one (1) year following Closing in connection with any such post-Closing reconciliation.

- 9 -

(g) Buyer shall receive a credit towards the Purchase Price for the Accrued Employee Benefits and any other obligations as otherwise expressly agreed by the Buyer and Seller.

(h) This Section 2.5 shall survive the Closing.

2.6 Escrow Agent.

(a) By its execution and delivery of this Agreement, Escrow Agent agrees to be bound by the terms and conditions in Section 2.4 of this Agreement to the extent applicable to its duties, liabilities and obligations as “Escrow Agent.” Escrow Agent shall hold and dispose of the funds deposited with the Escrow Agent pursuant to this Agreement (“Escrowed Funds”) in accordance with the terms of this Agreement. Escrow Agent shall incur no liability in connection with the safekeeping or disposition of the Escrowed Funds for any reason other than Escrow Agent’s breach of contract, willful misconduct or gross negligence. Escrow Agent shall be reimbursed by Buyer and Seller, jointly and severally, for all out-of-pocket costs and expenses incurred in connection with its obligations hereunder. If Escrow Agent is in doubt as to its duties or obligations with regard to the Escrowed Funds, or if the Escrow Agent receives conflicting instructions from Buyer and Seller with respect to the Escrowed Funds, the Escrow Agent shall not be required to disburse the Escrowed Funds and may, at its option, continue to hold the Escrowed Funds until both Buyer and Seller agree as to their disposition, or until a final judgment is entered by a court of competent jurisdiction directing their disposition, or the Escrow Agent may interplead the Escrowed Funds in accordance with the laws of the State of Florida. Escrow Agent shall not be responsible for the preservation of principal or any interest on the Escrowed Funds except as is actually earned, or for the loss of any interest or principal resulting from the withdrawal of the Escrowed Funds prior to the date interest is posted thereon.

(b) The Escrow Agent may resign upon written notice to the Seller and Buyer. If a successor escrow agent is not appointed by the Seller and Buyer within this thirty (30) day period, the Escrow Agent may, but shall have no duty to, petition a court of competent jurisdiction to name a successor. If no successor escrow agent is appointed within thirty (30) days after such written notice, the Escrow Agent may withhold performance by it pursuant to Section 2.6(a) until such time as a successor escrow agent is appointed and, at such time, the Escrow Agent shall deliver the Escrowed Funds or other documents, instruments or items, if any, delivered to the Escrow Agent hereunder to any such successor escrow agent; provided, however, the Escrow Agent shall act in accordance with any joint written instructions from the Seller and Buyer.

(c) The Escrow Agent may be removed, with or without cause, by the Buyer and Seller acting jointly at any time by providing written notice to the Escrow Agent.

(d) This Section 2.6 shall survive the Closing or the expiration or any termination of this Agreement.

- 10 -

ARTICLE III

DUE DILIGENCE PERIOD

3.1 Due Diligence Period. During the Due Diligence Period, Buyer shall have the right to a complete physical inspection of the Property as the Buyer deems appropriate to review and evaluate the Property, the nature and extent of the Property, and operations of the Property, and all rights and liabilities related thereto. In consideration of the execution of this Agreement, Seller agrees to cause to be provided to or made available to Buyer, at no cost to Buyer, all items requested on the attached Exhibit C. Buyer may request that other items be provided by Seller in addition to those already requested or provided, which items shall be mutually agreed upon by the Buyer and Seller in their reasonable discretion. During the Due Diligence Period, Buyer shall have reasonable access to the Property at all reasonable times during normal business hours for the purpose of conducting reasonably necessary tests, including surveys and architectural, engineering, geotechnical and environmental inspections and tests, provided that, when practicable, (a) Buyer will give Seller prior notice of any such inspection or test and Seller will be entitled to have a representative accompany Buyer on such inspection or test and (b) all such tests shall be conducted by Buyer in compliance with Buyer’s responsibilities set forth in Section 3.2 below. In the course of its investigation of each Property, Buyer may make inquiries to third parties such as Existing Manager (provided, however, that from and after the Effective Date such contact will be limited to Jerry Erwin and Cody Erwin of the Existing Manager), parties to Property Agreements and municipal, local and other government officials and representatives; provided that Buyer shall not contact any parties to Property Agreements (other than the applicable Seller or the Existing Manager) without such Seller’s prior written consent (not to be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, Buyer may contact and file permit applications with any governmental authorities required to obtain the permits and approvals described in Section 7.8(a) hereof. Each Seller shall cooperate with Buyer’s due diligence during normal business hours so long as Buyer gives at least twenty-four (24) hours’ notice to such Seller, conducts such due diligence during normal business hours and is not disruptive to the operation of such Seller’s business at the applicable memory care facility.

3.2 Buyer’s Responsibilities. In conducting any inspections, investigations or tests of the Property, Buyer shall (i) not unreasonably disturb the tenants or interfere with their use of the Property; (ii) not materially or unreasonably interfere with the operation and maintenance of the Property; (iii) not materially damage any part of the Property or any personal property owned or held by any tenant or any third party; (iv) not injure or otherwise cause bodily harm to Seller or its agents, guests, invitees, contractors and employees or any tenants or their guests or invitees; (v) comply in all material respects with all Applicable Laws; and (vi) not permit any Liens to attach to the Property by reason of the exercise of its rights hereunder. Buyer will maintain proper insurance for purposes of indemnifying Seller for any damages resulting from the breach of its covenants in this Section 3.2.

3.3 Continuing Diligence and Inspection Rights. Following the expiration of the Due Diligence Period, and prior to the Closing or any earlier termination of this Agreement, at reasonable times and upon reasonable notice, Buyer or Buyer’s agent(s), consultants, or other retained professionals shall have the right, at Buyer’s expense, to perform or complete such further inspections and assessments of the Property as Buyer deems necessary or desirable to comply with Buyer’s internal requirements or the requirements of Buyer’s lenders, investors or

- 11 -

members, including, without limitation, further inspection of environmental and structural aspects, assessments of the compliance of the Property with all Applicable Laws, and customary pre-closing walk-throughs; provided, however, that nothing in this Section 3.3 shall extend the Due Diligence Period.

3.4 Contribution Agreement. During the Due Diligence Period, Buyer and EFP will negotiate in good faith and agree upon the form of limited liability company, partnership or joint venture agreement under which EFP will make the Contribution. If Buyer and EFP fail to reach agreement on such form by the expiration of the Due Diligence Period, any Seller or Buyer may elect to terminate this Agreement by giving the other parties written notice on or before the last day of the Due Diligence Period.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

The Seller hereby represents and warrants to the Buyer as of the Effective Date and as of the Closing as follows, which representations and warranties shall survive Closing for eighteen (18) months:

4.1 Organization Authority of Sellers. Each Current Owner is duly organized, validly existing and in good standing as a limited liability company in the State of Illinois, except for Bryan Care Group, LP which is duly organized, validly existing and in good standing as a limited partnership in the State of Texas. Each Current Owner is qualified to do business in the State of Illinois, except for Bryan Care Group, LP, which is qualified to do business in the State of Texas. EFP is duly organized, validly existing and in good standing as a limited liability company in the State of Washington. Each Seller has the full right, power and authority and has obtained any and all consents required to enter into this Agreement, all of the documents to be delivered by such Seller at the Closing and to consummate or cause to be consummated the transactions contemplated hereby.

4.2 Consent of Third Parties. Except for the approval of the lender under the Existing Mortgages and the Licenses listed on Schedule 4.13, no consent or approval of any third party is required as a condition to the entering into, performance or delivery of this Agreement by Seller other than such consent as has been previously obtained.

4.3 Authority; Enforceability. The execution and delivery of this Agreement has been duly authorized by Seller, and this Agreement constitutes the valid and binding obligation and agreement of Seller, enforceable against Seller in accordance with its terms.

4.4 Absence of Conflicts. Subject to obtaining the consents and approvals under the Existing Mortgage and as described in Section 7.8 below, neither the execution, delivery or performance of this Agreement will (i) conflict with or result in any breach of any of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in a violation of, or (iv) give any third party the right to modify, terminate, or accelerate any obligation under, the provisions of the articles of organization or operating agreement of Seller, any indenture, mortgage, lease, loan agreement or other agreement or instrument to which Seller is bound or affected, the Property Agreements or any Applicable Law.

- 12 -

4.5 No Judgments. Except as set forth on Schedule 4.5, there are no judgments presently outstanding and unsatisfied against the Property, the Seller or any of Seller’s assets.

4.6 No Governmental Approvals. Except as contemplated under Section 7.8 below, no order, permission, consent, approval, license, authorization, registration or validation of, or filing with, or exemption by (collectively and individually “Governmental Approval”), any governmental agency, commission, board or public authority is required to authorize, or is required in connection with the execution, delivery and performance by Seller of this Agreement or the taking of any action contemplated by this Agreement, which has not been obtained.

4.7 Insurance. Schedule 4.7 of the Seller Disclosure Letter sets forth an accurate summary of all general liability, fire, theft, professional liability and other insurance currently maintained with respect to the Property. Neither Seller nor, to Seller’s Knowledge, Existing Manager has taken any action or failed to act in a manner, including the failure of Seller or Existing Manager, to give any notice or information, which would limit or impair the rights of Seller or Existing Manager under such insurance policies. Prior to Closing Seller will promptly notify Buyer of any potential losses or claims that may be covered by the insurance and shall provide Buyer with current loss runs within fifteen (15) days after the end of each month from the Effective Date until the Closing.

4.8 Litigation. Except as set forth on Schedule 4.8, there is no pending or, to Seller’s Knowledge, threatened litigation, proceeding, investigation or inquiry (by any person, governmental or quasi-governmental agency or authority or otherwise) to which Seller or the Property is a party, including without limitation, litigation brought by Seller against any third party.

4.9 Compliance with Laws. The Property has been and is presently used and operated by Seller, and to Seller’s Knowledge was constructed, in material compliance with Applicable Laws affecting the Property or any part thereof. Neither Seller nor Existing Manager has received notice of any such violation.

4.10 Environmental Matters. Except as identified in any environmental report or survey listed on Schedule 4.10 and which Purchaser has been provided complete and accurate copies of not less than five (5) days prior to the expiration of the Due Diligence Period, neither Seller nor Existing Manager has generated, stored or disposed of any hazardous substance at or on the Property except in accordance with Applicable Law, and Seller has no Knowledge and, to Seller’s Knowledge, Existing Manager has no Knowledge of any previous or present generation, storage, disposal or existence of any hazardous substance at or on the Property other than in accordance with all Applicable Laws. The term “hazardous substance” shall mean “hazardous waste,” “toxic substances,” “petroleum products,” “pollutants,” or other similar or related terms as defined or used from time to time in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) (42 U.S.C. §§ 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. § 6921, et seq.), similar state laws and regulations (the “Environmental Laws”) adopted thereunder. Neither Seller nor, to Seller’s Knowledge, Existing Manager has filed or been required to file any notice reporting a release of any hazardous substance into the environment, and no notice pursuant to Section 103(a) or (c) of the CERCLA, 42 U.S.C. § 9601, et seq. or any other Environmental Law has

- 13 -

been or was required to be filed. Neither Seller nor, to Seller’s Knowledge, Existing Manager has received any notice letter under any Environmental Law or any notice or claim, and there is no investigation pending, contemplated, or to Seller’s Knowledge threatened, to the effect that Seller or Existing Manager is or may be liable for or as a result of the release or threatened release of hazardous substance into the environment or for the suspected unlawful presence of any hazardous waste on the Property.

4.11 Assessments. To Seller’s Knowledge and except as disclosed on any title commitment, there are no special or other assessments for public improvements or otherwise now affecting the Property, now pending or, to Seller’s Knowledge, threatened special assessments affecting the Property, and no contemplated improvements affecting the Property that may result in special assessments affecting the Property.

4.12 Property Agreements. The Property Agreements listed on Schedule 4.12 are in full force and effect and are all of the agreements relating to or affecting the Property. Seller is not in default of any of its obligations under any of the Property Agreements other than defaults which, individually or in the aggregate, would not cause a material adverse effect on the Property, and Seller has no Knowledge of any default on the part of any other party thereto.

4.13 Licenses. Attached as Schedule 4.13 is a true and complete list of all Licenses held by the Seller. The Licenses listed on Schedule 4.13 are valid and no material violations exist with respect to such Licenses. No other Licenses are required to be held by the Seller for the lawful ownership, use, occupancy, operation and maintenance of the Property as a memory care facility. No applications, complaints or proceedings are pending or, to the Knowledge of Seller, contemplated or threatened which may (i) result in the revocation, modification, non-renewal or suspension of any License or of the denial of any pending applications, (ii) the issuance of any cease and desist order, or (iii) the imposition of any fines, forfeitures, or other administrative actions with respect to the Property or its operation. A list of all unsatisfied or otherwise outstanding citations with respect to the Property or its operation is shown on Schedule 4.13.

4.14 Resident Agreements. The rent roll attached hereto as Exhibit D (the “Rent Roll”) is true and complete, and no Resident Agreement currently in effect with respect to the Property contains any material financial concession from the standard form of Resident Agreement for the Property provided to Buyer during the Due Diligence Period. Seller is not in default under any of its material obligations under any Resident Agreement or any lease, and, except as disclosed to Buyer during the Due Diligence Period, Seller has no knowledge of any material default on the part of any other party thereto. All of the Resident Agreements identified on the Rent Roll are currently in full force and effect as of the date of the Rent Roll.

4.15 Medicare; Medicaid; Third Party Payor Programs. No portion of the income from any Property is attributable to Medicare, Medicaid or any public or private third party payor or other program, except for certain payment from private insurers pursuant to long-term care policies. All billing practices of Seller and Existing Manager with respect to private insurance companies have been in compliance with all Applicable Laws.

- 14 -

4.16 Condemnation. Seller has not received any written notice of any pending or contemplated condemnation, eminent domain or similar proceeding, with respect to all or any portion of the Property.

4.17 Condition of Property

(a) Real Property. Except as described on Schedule 4.17, with regard to the Real Property Seller has no Knowledge of: (i) material structural defects, (ii) insect or rodent infestation, (iii) existing roof leaks, (iv) leaks in the foundation, or (v) toxic mold or mold-related problems. Seller has received no notice of a violation of the Real Property of any Applicable Laws.

(b) Personal Property. Except as described on Schedule 4.17: (i) the Personal Property comprises all material assets, rights or property used in the operation of the memory care facility located on the Real Property and constitutes all of the personal property used for the operation of the Property as a memory care facility, and (ii) to Seller’s Knowledge, all of the Personal Property is in good condition, working order and repair (except for ordinary wear and tear and any conditions or disrepair that, individually or in the aggregate, would not cause a material adverse effect on the Property).

(c) Intellectual Property. Except as described on Schedule 4.17, the Intellectual Property comprises all material assets, rights or property used in the operation of the memory care facility located on the Real Property and constitutes all of the intellectual property used for the operation of the Property as a memory care facility.

4.18 Intentionally Deleted.

4.19 Intentionally Deleted.

4.20 Zoning. Except as provided on Schedule 4.9, to Seller’s Knowledge the current use of the Property located in the State of Texas is permitted under the applicable municipal zoning ordinances, or special exceptions, variances, or conditions thereto, and the Property complies, to the extent required (including any waiver or grandfathering), with all conditions, restrictions and requirements of such zoning ordinances and all amendments thereto.

4.21 FIRPTA. Seller is not a “foreign person” within the meaning of Section 1445 of the Code and the Regulations issued thereunder.

4.22 Interests; Title.

(a) Title to Real Property. At Closing each Seller will own the ownership interest in its Real Property as described in Recital B, free and clear of all Liens except Permitted Exceptions and Permitted Liens. There are no outstanding options or other rights to purchase or otherwise acquire any ownership interest in the Property.

(b) Title to Personal Property. Except as described on Schedule 4.22, at Closing each Seller will own the ownership interest in its Personal Property as described in Section 2.1(b), free and clear of all Liens except Permitted Exceptions and Permitted Liens.

- 15 -

Except as described on Schedule 4.22, all Personal Property is owned free and clear of any Lien, except for Personal Property that is leased as disclosed on Schedule 4.22. There are no outstanding options or other rights to purchase or otherwise acquire any ownership interest in the Personal Property.

4.23 Title Encumbrances. Except as described on Schedule 4.23, Seller is not in default under any of its material obligations under any recorded agreement, easement or instrument encumbering title to the Property, and Seller has no knowledge of any material default on the part of any other party thereto.

4.24 Affordable Housing Units. No bedroom or unit in the Property is leased or reserved for lease as an affordable housing unit or for low- or moderate-income residents. The Property is not required to lease or reserve any unit or bedroom as an affordable housing unit or bedroom or for low-income or moderate-income residents pursuant to a presently existing agreement or Applicable Law.

4.25 [Reserved].

4.26 Loans. Except for the Existing Mortgages, there are no loans secured by the Property.

4.27 Patriot Act Compliance. To the extent applicable to Seller, to Seller’s Knowledge Seller has complied in all material respects with the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, which comprises Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) and the regulations promulgated thereunder, and the rules and regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), to the extent such laws are applicable to Seller. Seller is not included on the List of Specially Designated Nationals and Blocked Persons maintained by the OFAC, nor is it a resident in, or organized or chartered under the laws of, (A) a jurisdiction that has been designated by the U.S. Secretary of the Treasury under Section 311 or 312 of the Patriot Act as warranting special measures due to money laundering concerns or (B) any foreign country that has been designated as non-cooperative with international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur.

4.28 Broker’s or Finder’s Fees. Seller has not utilized the services of any broker, agent or other firm acting on its behalf in this transaction and Seller agrees to indemnify and hold Buyer and its Affiliates harmless from any claims made by any such party arising out of this transaction. This Section 4.28 shall survive the Closing or the expiration or any termination of this Agreement.

4.29 Insolvency. Neither Seller nor any of its Affiliates have, and to Seller’s Knowledge Existing Manager has not (i) commenced a voluntary case or had entered against them a petition for relief under any Applicable Law relative to bankruptcy, insolvency, or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee,

- 16 -

administrator, conservator, liquidator, or similar official in any federal, state or foreign judicial or nonjudicial proceeding to hold, administer, and/or liquidate all or substantially all of their respective assets, (iii) had filed against them any involuntary petition seeking relief under any Applicable Law relative to bankruptcy, insolvency, or other relief to debtors which involuntary petition is not dismissed within sixty (60) days, or (iv) made a general assignment for the benefit of creditors.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as of the Effective Date and as of the Closing as follows, which representations and warranties shall survive Closing for eighteen (18) months:

5.1 Organization and Good Standing. Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite corporate power to own, operate, and lease the Property and carry on business as it is now being conducted and as the same will be conducted following the Closing.

5.2 Authorization and Binding Effect of Documents. The execution and delivery of this Agreement has been duly authorized by Buyer, and this Agreement constitutes the valid and binding obligation and agreement of Buyer, enforceable in accordance with its terms (subject to the effect of bankruptcy, insolvency fraudulent conveyance, reorganization, moratorium and similar laws affecting creditor’s rights and remedies generally, and to limitations imposed by general principles of equity, whether applied by a court of law or of equity).

5.3 Absence of Conflicts. Neither the execution and delivery of this Agreement, nor compliance with the terms and provisions hereof, will (i) conflict with or result in any breach of any of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in a violation of, or (iv) give any third party the right to modify, terminate, or accelerate any obligation under, the provisions of the articles of organization and any applicable limited liability company agreement or operating agreement of Buyer and/or its Affiliates, any indenture, mortgage, lease, loan agreement or other agreement or instrument to which Buyer and/or its Affiliates is bound or affected, or any Applicable Law to which Buyer and/or its Affiliates is subject.

5.4 Consents. The execution, delivery and performance by Buyer and/or its Affiliates of this Agreement and the other Documents, and consummation by Buyer and/or its Affiliates of the transactions contemplated hereby and thereby, do not and will not require the authorization, consent, approval, exemption, clearance or other action by or notice or declaration to, or filing with, any court or administrative or other governmental body, or the consent, waiver or approval of any other person or entity, excluding consents that Seller is obligated to obtain under Section 7.11 below.

5.5 Patriot Act Compliance. To the extent applicable to Buyer, to Buyer’s actual knowledge upon reasonable inquiry, Buyer has complied in all material respects with the Patriot Act and the regulations promulgated thereunder, and the rules and regulations administered by OFAC, to the extent such laws are applicable to Buyer. Buyer is not included on the List of

- 17 -

Specially Designated Nationals and Blocked Persons maintained by the OFAC, nor is it a resident in, or organized or chartered under the laws of, (A) a jurisdiction that has been designated by the U.S. Secretary of the Treasury under Section 311 or 312 of the Patriot Act as warranting special measures due to money laundering concerns or (B) any foreign country that has been designated as non-cooperative with international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur.

5.6 Broker’s or Finder’s Fees. No agent, broker, investment banker, or other person or firm acting on behalf of Buyer or any of its Affiliates or under its authority, is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or indirectly, from Buyer or any of its Affiliates in connection with the transactions contemplated by this Agreement. This Section 5.6 shall survive the Closing or the expiration or any termination of this Agreement.

ARTICLE VI

OTHER COVENANTS

6.1 Conduct of Business Prior to the Closing. Seller covenants and agrees that from the Effective Date through the Closing, unless Buyer otherwise consents in writing, Seller, its Affiliates and Existing Manager shall:

(a) Operate the Property in the ordinary course of business, including (i) incurring expenses consistent with the past practices, (ii) using commercially reasonable efforts to preserve the Property’s present business operations, organization and goodwill and its relationships with residents, customers, employees, advertisers, suppliers and other contractors, and (iii) maintaining the Licenses listed on Schedule 4.13.

(b) Operate the Property and otherwise conduct business in accordance with the terms or conditions of the Licenses listed on Schedule 4.13, all Applicable Laws having jurisdiction over any aspect of the operation of the Property and all applicable insurance requirements.

(c) Maintain the books and records for the Property.

(d) Timely comply in all material respects with the Property Agreements.

(e) Except for the conveyances specifically contemplated in the Recitals to this Agreement, not sell, lease, grant any rights in or to or otherwise dispose of, or agree to sell, lease or otherwise dispose of, the Property in whole or in part, except to residents of the facility in the ordinary course of business using a form of resident agreement agreed upon by Seller and Buyer.

(f) Take commercially reasonable efforts to maintain the Personal Property currently in use in reasonably good operating condition and repair, except for ordinary wear and tear, in a manner consistent with past practices.

- 18 -

(g) Perform all covenants, terms, and conditions and make all payments in a timely fashion, under the Existing Mortgages.

(h) Not amend or modify the Property Agreements or take or fail to take any action thereunder outside the ordinary course of Seller’s business.

(i) Subject to Section 12.16 below and except for Pre-Approved Capital Improvement, not make any alterations or improvements to the Property or make any capital expenditure with respect to the Property in excess of ONE HUNDRED THOUSAND AND NO/100 U.S. DOLLARS ($100,000.00) other than those that are required by Applicable Law or that are necessary to preserve the coverage under or comply with the terms of any insurance policy with respect to the Property.

(j) Not enter into any agreement which calls for annual payments in excess of TEN THOUSAND AND NO/100 U.S. DOLLARS ($10,000.00) or for a term in excess of one year, unless such agreement can be terminated upon not more than sixty (60) days prior written notice without the payment of any termination fee or penalty payment.

(k) Provide the Buyer with a current Rent Roll on the first day of each month.

6.2 Notification of Certain Matters. Seller shall give prompt written notice to Buyer, and Buyer shall give prompt written notice to Seller, of (i) the occurrence, or failure to occur, of any event that would be likely to cause any of its respective representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time from the Effective Date to the Closing, and (ii) any failure to comply with or satisfy, in any material respect, any covenant, condition, or agreement to be complied with or satisfied under this Agreement. If, prior to Closing, either Buyer or Seller obtains Knowledge of any matter that causes the representations or warranties of the other party contained in this Agreement to be untrue or inaccurate in any material respect, such party shall promptly notify the other party thereof in writing. If Buyer obtains Knowledge of any such matter prior to Closing and does not terminate this Agreement pursuant to Section 11.1(f), Buyer will be deemed to have waived Seller’s compliance with the representation or warranty that such matter renders untrue or inaccurate solely to the extent that such matter renders such representation or warranty untrue or inaccurate.

6.3 Title; Additional Documents. At the Closing, Seller shall transfer and convey to Buyer good and indefeasible fee simple title to the Property, free and clear of any Liens except Permitted Exceptions and Permitted Liens. At the Closing, all warranties and guaranties, to the extent assignable or transferable, relating to the Property shall be transferred by Seller to and shall be held and owned by Buyer.

6.4 Other Consents. Seller shall use commercially reasonable efforts to obtain the consents or waivers to the transactions contemplated by this Agreement required under the Property Agreements.

6.5 Inspection and Access. Seller shall, commencing on the Effective Date of this Agreement, open the assets, books, accounting records, correspondence and files of Seller (to the extent related to the operation of the Property) for examination by Buyer, its officers, attorneys,

- 19 -

accountants and agents, with the right to make copies of such books, records and files or extracts therefrom, except for records or files that Seller is not permitted to release under any confidentiality agreement or any Applicable Law with respect to personal health records or employee records. Such access will be available to Buyer during normal business hours, upon notice, in such manner as will not unreasonably interfere with the conduct of the business of the Property. Seller will make available to Buyer such additional data and other available information regarding the Property as Buyer may reasonably request. Those books, records and files which relate to the Property that are not transferred to Buyer shall be preserved and maintained by Seller for two (2) years after the Closing, or such greater amount of time required by Applicable Law, and those books, records and files relating to the Property the possession of which is being transferred to Buyer hereunder shall be maintained and preserved by Buyer for a period of two (2) years after the Closing, or such greater amount of time required by Applicable Law.

6.6 Confidentiality.

(a) Confidential Information. Any and all nonpublic information, documents, and instruments delivered to Buyer by Seller or its agents or Affiliates and any and all nonpublic information, documents, and instruments delivered to Seller by Buyer or its agents or Affiliates, including, without limitation, this Agreement, the Documents and all agreements referenced herein, are of a confidential and proprietary nature. Buyer and Seller agree that prior to Closing, each will maintain the confidentiality of all such confidential information, documents or instruments delivered to each by the other party or its agents in connection with the negotiation of, or in compliance with, this Agreement, and only disclose such information, documents, and instruments to their duly authorized officers, directors, representatives and agents, or as otherwise required by Applicable Law. Buyer and Seller further agree that if the transactions contemplated hereby are not consummated and this Agreement is terminated, each will return all such documents and instruments and all copies thereof in their possession to the other party or destroy them. This Section 6.6(a) shall survive as to both Seller and Buyer in the event this Agreement is terminated prior to Closing and shall survive as to Seller (and not Buyer) following Closing.

(b) Confidentiality of Agreement. Seller and Buyer will not disclose the terms or existence of this Agreement to any third party without the prior written consent of the other party or its agents, except that Seller and Buyer may disclose such terms to their respective attorneys, accountants, consultants, engineers, other advisers, members, shareholders, lenders, Seller’s Affiliates’ lenders and related investors, the Buyer’s potential investors or lenders, and as required by Applicable Law or by Section 7.8 without such prior written consent. This Section 6.6(b) shall survive as to both Seller and Buyer following Closing or in the event this Agreement is terminated prior to Closing. Notwithstanding anything provided herein to the contrary, Buyer is expressly permitted to disclose the existence of this Agreement to the Manager and is permitted to conduct discussions with Manager regarding Manager’s cooperation with Buyer in the form of a post-closing lease or management agreement between Buyer and Manager.

(c) Permitted Uses of Information. Notwithstanding the forgoing, nothing in this Section 6.6 shall prevent the Buyer from making any disclosure regarding this Agreement to the Securities and Exchange Commission (the “SEC”) necessary to comply with any reporting, disclosure, or filing requirements imposed upon the Buyer by the SEC.

- 20 -

(d) Irreparable Harm. Seller and Buyer recognize that any breach of this Section 6.6 would result in irreparable harm to the other party; therefore, the Seller or the Buyer shall be entitled to an injunction to prohibit any such breach or anticipated breach, without the necessity of proving actual damages or posting a bond, cash or otherwise, in addition to all of other legal and equitable remedies.

6.7 Publicity. The parties agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by any party prior to Closing except as required by Applicable Law. Buyer and Seller will jointly prepare and approve announcements to staff and residents.

6.8 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, each party will use its commercially reasonable efforts to satisfy any condition for which such party is responsible hereunder and to consummate and make effective as soon as practicable the transactions contemplated by this Agreement.

6.9 Reports. Seller shall file on a current and timely basis until the Closing, all reports and documents required to be filed with respect to the Licenses. True and complete copies of all such reports filed as of the Effective Date and continuing through the Closing shall be promptly supplied to Buyer by Seller.

6.10 Post-Closing Obligations of Seller. Following Closing, Seller shall use reasonable diligent efforts to cooperate with Buyer and its Affiliates to the extent not previously transferred to Buyer, to provide any records in Seller’s custody or control which may be requested of Buyer by any authorized governmental agency. Further, upon Buyer’s request, for a period of one (1) year after Closing, Seller shall make the operating statements and any and all books, records, correspondence, financial data, leases, delinquency reports and all other documents and matters maintained by Seller or its agents and relating to receipts and expenditures pertaining to the Property for the three (3) most recent full calendar years and the current calendar year (collectively, the “Records”) available to Buyer for inspection, copying and audit by Buyer’s designated accountants, and at Buyer’s expense. This Section 6.10 shall survive the Closing for a period of one (1) year.

6.11 Post-Closing Obligations of Buyer. Following Closing, Buyer shall make pre-Closing employee records available for inspection and copying by Seller’s designated representatives at Seller’s expense. This Section 6.11 shall survive the Closing.

6.12 No Other Representations or Warranties.

(a) Buyer agrees that, except for the representations and warranties made by Seller and expressly set forth in this Agreement, neither the Seller nor any of its Affiliates or its respective representatives have made (and shall not be construed as having made) to Buyer or any representatives thereof any representation or warranty of any kind.

- 21 -

(b) Seller agrees that, except for the representations and warranties made by Buyer and expressly set forth in this Agreement, neither Buyer nor any of its Affiliates or its representatives have made (and shall not be construed as having made) to Seller or to any of Seller’s Affiliates or any respective representatives thereof any representation or warranty of any kind.

6.13 Noncompetition. From the Closing through the second anniversary of the Closing, Seller and Seller’s Affiliates shall not directly or indirectly (unless acting in accordance with Buyer’s written consent) own, manage, operate, finance or participate in the ownership, management, operation or financing of, or permit its name to be used by or in connection with, any competitive business or enterprise located within a five (5) mile radius of the Real Property. For purposes of this Section 6.13, the term “competitive business or enterprise” shall mean a memory care facility. This Section 6.13 shall survive Closing.

6.14 Exclusivity. From and after the Effective Date to the Closing or termination of this Agreement according to the terms hereof, Seller shall not take any action, directly or indirectly, to encourage, initiate or engage or participate in discussions or negotiations with, or provide any information to, any party, other than Buyer, concerning a potential transaction involving the purchase and sale of the Property, the purchase and sale of all or substantially all of the ownership interest of Seller, or any transaction similar to the foregoing.

6.15 Existing Mortgages. The parties shall use their respective commercially reasonable efforts and cooperate with each other to obtain from the current holder (the “Mortgage Holder”) of the Existing Mortgages approval of Buyer’s assumption of the Existing Mortgages at Closing and a full release (the “Mortgage Release”) of Current Owners as of the Closing Date from all obligations under the Existing Mortgages arising from and after Closing (the “Released Mortgage Obligations”), including by cooperating with the Mortgage Holder’s requests for due diligence information and legal opinions, to the extent reasonable and customary. Notwithstanding anything in this Agreement to the contrary, from and after the Effective Date, Buyer shall be permitted to discuss the assumption of the Existing Mortgages and the Mortgage Release directly with the Mortgage Holder. Buyer shall contact the Mortgage Holder regarding, and apply for approval of, the assumption of the Existing Mortgages no later than five (5) business days after the Effective Date. Buyer shall be responsible for paying all fees, costs and expenses related to the assumption of the Existing Mortgages and the Mortgage Release, including all assumption fees and costs charged by the Mortgage Holder, but specifically excluding the fees and expenses of Seller’s counsel and other advisors, which fees and expenses shall be the sole responsibility of Seller. The immediately prior sentence shall survive termination of this Agreement.

6.16 No New Survey Matters. Seller agrees that, following the dates of the most recent surveys for the Real Property obtained by Buyer pursuant to Section 7.5(d), Seller shall not take any action or allow any action to be taken which would cause any condition to exist which would be required under the applicable ALTA/ACSM standards to be shown on a survey of the Real Property which is not otherwise shown on the surveys obtained by Buyer pursuant to Section 7.5(d).

- 22 -

6.17 Employees. The Buyer or its designee, including Manager, has the right to make offers of employment to all of the employees of the Seller to commence effective upon the Closing. Seller agrees to terminate all employees who accept employment with Buyer or its designee as of the Closing and shall satisfy all accrued payroll and benefits obligations thereto as of the Closing other than the Accrued Employee Benefits.

ARTICLE VII

CONDITIONS PRECEDENT TO THE

OBLIGATION OF BUYER TO CLOSE

Buyer’s obligation to close pursuant to the terms of this Agreement is subject to the satisfaction, on or prior to the Closing, of each of the following conditions, unless waived by Buyer in writing:

7.1 Accuracy of Representations and Warranties; Closing Certificate. Except for any changes permitted by the terms of this Agreement or consented to in writing by Buyer, each of the representations and warranties made by Seller in this Agreement or in any certificate delivered pursuant to Section 9.2(e) that is qualified as to Knowledge or materiality shall be true and correct in all respects when made and shall be true and correct in all respects at and as of the Closing as though such representations and warranties were made or given on and as of the Closing, and each of such representations and warranties that is not qualified as to Knowledge or materiality shall be true and correct when made and shall be true and correct in all material respects at and as of the Closing as though such representations and warranties were made or given on and as of the Closing.

7.2 Performance of Agreement. Seller shall have performed in all material respects all of its covenants, agreements and obligations required by this Agreement to be performed or complied with by it prior to or upon the Closing.

7.3 No Adverse Change. No change or development shall have occurred which has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Property.

7.4 Intentionally Deleted.

7.5 Title Insurance and Survey.

(a) Within five (5) days after the execution of this Agreement, Buyer shall order commitments for owner’s policies of title insurance (the “Title Commitment”) issued by the Title Insurer covering fee simple title to the Property, in which the Title Insurer shall agree to insure, in such amount as Buyer deems adequate, merchantable title to such interests free from the Schedule B standard printed exceptions and all other exceptions except for (i) exceptions which, under applicable state rules and regulations, cannot be deleted or modified and (ii) Permitted Exceptions, with such endorsements as Buyer shall reasonably require and with insurance coverage over any “gap” period. Such Title Commitments shall have attached thereto complete, legible copies of all instruments noted as exceptions therein, and shall be delivered promptly to Buyer upon receipt by Seller. Buyer shall furnish Seller with a copy of the title commitment and attachments, and all subsequent revisions thereof, promptly upon receipt of same.

- 23 -

(b) If (i) any of the Title Commitments reflect any exceptions to title other than Permitted Liens which are not acceptable to Buyer in Buyer’s sole discretion, or (ii) the Survey to be obtained by Buyer pursuant to Section 7.5(d) below discloses anything not acceptable to Buyer in Buyer’s sole discretion, or (iii) at any time prior to the Closing, title to Seller’s interests in the Property is encumbered by any exception to title other than Permitted Liens, which was not on the initial Title Commitment for the Property and is not acceptable to Buyer in Buyer’s sole discretion (any such exception or unacceptable statement of fact being referred to herein as a “Title Defect”), then Buyer shall, on or before the earlier of five (5) days before the end of the Due Diligence Period or ten (10) days following receipt of such Title Commitment, as the case may be, give Seller written notice of such Title Defect (the “Title Notice”). Such Title Notice shall include a copy of the relevant Title Commitment and copies of the exceptions. Any exception to title that is (x) disclosed in the Title Commitment, or (y) identified on a Survey, which, in either case, is not identified as a Title Defect in the Title Notice, shall be deemed to be a “Permitted Exception” for purposes of this Agreement. Seller shall, within ten (10) days after receipt of any such Title Notice, notify Buyer whether Seller will take the action necessary to remove the Title Defects. On or before the Closing, Seller shall provide Buyer with reasonable evidence of removal of the items it notifies Buyer that it will cure (the “Agreed Upon Title Defects”). Notwithstanding anything contained herein to the contrary, the following items (the “Required Cure Items”) must be cured prior to or at Closing (with Seller having the right to apply the portion of the Purchase Price allocated to either such party pursuant to Section 2.3 hereof, or a portion thereof, for such purpose): (x) all mortgages, security deeds, and other security instruments except for the Existing Mortgages, (y) all past Taxes, and (z) all judgments against the Seller which may constitute a Lien.

(c) In the event (x) the Agreed Upon Title Defects specified are not cured on or before the Closing, (y) a Required Cure Item is not cured on or before the Closing, or (z) if Seller does not timely notify Buyer that Seller will remove Title Defects within the ten (10) days as specified above (in which case Buyer shall make its election pursuant to this subsection (c) prior to five (5) days following the date of such Title Notice), Buyer shall have the option to:

(i) accept Seller’s interest in the Real Property subject to such Title Defect(s) or Required Cure Item(s), in which event such Title Defect(s) or Required Cure Item(s) shall become part of the Permitted Exceptions, and to close the transaction contemplated hereby in accordance with the terms of this Agreement;

(ii) pay any amount necessary to cure the Agreed Upon Title Defect or Required Cure Item(s) and deduct such amount from the Purchase Price; provided that such deduction shall not exceed One Hundred Thousand Dollars ($100,000.00); or

(iii) by giving Seller written notice of Buyer’s election, terminate this Agreement, in which event no party shall have any further rights or obligations to the other hereunder, except for such rights and

- 24 -

obligations that, by the express terms hereof, survive any termination of this Agreement. If Buyer elects to proceed with the Closing without giving notice of its election of this option (ii), it will be deemed to have accepted such Title Defect(s) or Required Cure Item(s)as Permitted Exceptions.

Notwithstanding the foregoing, nothing contained in section shall limit the right of the Buyer to pursue any and all remedies provided in Section 11.2 of this Agreement as a result of Seller’s default.

(d) Seller will provide Buyer with copies of any existing boundary surveys for the Property. Buyer may, at its sole cost, order one or more boundary surveys for the Property (the “Survey”) prepared by a registered land surveyor or surveyors satisfactory to Buyer.

(e) Notwithstanding anything in this Agreement to the contrary, Seller covenants and agrees that at or prior to Closing, Seller shall (i) pay or cause to be paid in full and cause to be canceled and discharged or otherwise bond and discharge as liens against the Property all mechanics’, materialmen’s, repairmen’s, contractors’ or other similar Liens which encumber the Property as of the Effective Date created by, through or under Seller or which may be filed against the Property after the Effective Date created by, through or under Seller and on or prior to the Closing Date (ii) pay or cause to be paid in full all past due ad valorem taxes and assessments of any kind constituting a lien against the Property which are due and payable, and (iii) pay or cause to be paid in full, or cause to be canceled and discharged all security deeds or other security instruments encumbering the property and created by or through Seller, except for the Existing Mortgages and to the extent Buyer otherwise assumes any of the obligations secured by such instruments, and all judgments which have attached to and become a lien against the Property by, through or under Seller. In the event Seller fails to cause such liens and encumbrances to be paid and canceled at or prior to Closing, Buyer shall be entitled to pay such amount to the holder thereof as may be required to pay and cancel same, and to credit the amount so paid against the Purchase Price allocated to the Buyer pursuant to Section 2.3 hereof. Notwithstanding the foregoing, nothing contained in section shall limit the right of the Buyer to pursue any and all remedies provided in Section 11.2 of this Agreement as a result of Seller’s default.

(f) At Closing, the Title Insurer shall be prepared to issue a title insurance policy in accordance with the Title Commitment, with all endorsements reasonably required by Buyer and with coverage over any “gap” period.

(g) All Title Expenses shall be paid by the parties in accordance with Section 9.4 hereof. “Title Expenses” shall include all costs and expenses of obtaining the Survey and Title Commitment, together with any endorsements required by any lender financing the Buyer’s acquisition of the Property. “Title Expenses” shall exclude any costs and expenses incurred or required to be incurred to cure any Title Defects or Required Cure Items.

7.6 Intentionally Deleted.

7.7 Intentionally Deleted.

- 25 -

7.8 Licenses.

(a) Buyer shall have obtained, at the Buyer’s sole cost and expense, in the Post-Closing Licensee’s own name, the Licenses, and Seller shall, and shall cause Existing Manager to, reasonably cooperate with the Post-Closing Licensee in obtaining such Licenses at or prior to Closing. Buyer shall diligently pursue all required Licenses.

(b) In the event any regulatory authority (i) asserts that there are violations and require repairs or alterations to be made to cure such violations, or (ii) assesses fines as a result of operational issues and require such fines to be paid prior to issuing Licenses to the Post-Closing Licensee or prior to confirming to Buyer that the Licenses are in place, no material violations exist, and the Property is in good standing, the Seller’s performance of all such required repairs and alterations at Seller’s expense and payment of any and all such fines by Seller shall be a material obligation of Seller and condition to Buyer Closing. If any operational changes are required by any such regulatory authority as a condition to issuing a License, Seller’s implementation of such action at Seller’s expense shall be a material obligation of Seller and condition to Buyer Closing. If Seller fails to take such foregoing actions, Buyer shall have the remedy available under Section 11.2(a). Notwithstanding the foregoing, if Seller disputes the validity of any notice or claim of violation or any fine, Seller may appeal and defend against the notice, claim or fine, and Seller will have the right to extend the Closing Date as necessary to do so but in no event in excess of the maximum number of days provided for in Section 9.1.

7.9 Termination of Existing Management Agreement. Buyer shall have received from Seller evidence reasonably satisfactory to Buyer that any existing management agreement between the Existing Manager and the Seller has been terminated without fee or cost to Buyer.

7.10 Management Agreement. Buyer and Manager shall have entered into an agreement (the “Management Agreement”) for the continued management of the Property by the Manager, in the form set forth as Exhibit E hereto.

7.11 Third-Party Consents. Seller shall have obtained the consents to assignment, waivers and similar instruments described on Schedule 7.11 hereto, which schedule shall be agreed upon and completed by the parties prior to the expiration of the Due Diligence Period.

7.12 Guaranty. The Seller shall have caused Jerry Erwin and Craig Spaulding (the “Guarantors”) to execute and deliver a guaranty of the Seller’s obligations to the Buyer hereunder, including without limitation all obligations contained in ARTICLE X and ARTICLE XI hereof, in the form attached as Exhibit F to this Agreement (the “Guaranty”).

7.13 Loan Assumption Approval. Buyer shall have obtained approval from Fannie Mae for assumption of the Existing Mortgages on terms that are reasonably acceptable to Buyer with terms that, in the aggregate are substantially similar to the current terms of the Existing Mortgages, other than interest rates, which shall reflect current market rates and Buyer’s credit profile and which shall include the Mortgage Release.

- 26 -

ARTICLE VIII

CONDITIONS PRECEDENT TO THE

OBLIGATION OF SELLER TO CLOSE

The obligation of the Seller to close pursuant to the terms of this Agreement is subject to the satisfaction, on or prior to the Closing, of each of the following conditions, unless waived by Seller in writing:

8.1 Accuracy of Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on the Effective Date and as of the Closing with the same effect as though made at such time, except for changes that are not materially adverse to Seller.

8.2 Performance of Agreements. Buyer shall have performed in all material respects all of its covenants, agreements, and obligations required by this Agreement and each of the other Documents to be performed or complied with by it prior to or upon the Closing.

8.3 Mortgage Release. The Mortgage Holder shall have agreed to the Mortgage Release on terms that are reasonably acceptable to Current Owners.

ARTICLE IX

CLOSING

9.1 Closing Date and Place. The Closing shall take place on the date which is five (5) business days following the satisfaction of all conditions to Closing contained in ARTICLE VII and ARTICLE VIII but in no event later than July 31, 2012, or at such earlier or later date and time as may be expressly agreed upon in writing by the Buyer and Seller (the “Initial Closing Date”). The Closing shall be accomplished by the Buyer and Seller depositing the Closing Documents into escrow with the Title Insurer and Buyer and Seller issuing their respective instructions to the Title Insurer without the need for attending in person unless the parties mutually agree otherwise.

9.2 Deliveries of Seller. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following, in each case in form and substance reasonably satisfactory to Buyer:

(a) A governmental certificate, dated as of a date as near as practicable to the Closing, showing that Seller (i) is duly organized and in good standing in the state of organization of Seller, and (ii) is qualified to do business in the state in which the Property is located.

(b) A certificate of the secretary (or the equivalent thereto if none) of Seller attesting as to the incumbency of each manager, officer, and authorized representative of Seller who executes this Agreement and any of the other Documents, certifying that resolutions and consents necessary for Seller to act in accordance with the terms of this Agreement have been adopted or obtained (with copies thereof attached) and to similar customary matters.

- 27 -

(c) A warranty deed and bill of sale (with general warranty of title) transferring the Property to Buyer free of all Liens other than the Permitted Exceptions and Permitted Liens.

(d) A certificate of non-foreign status under Section 1445 of the Code, complying with the requirements of the Income Tax Regulations promulgated pursuant to such Section.

(e) A certificate that the conditions specified in Sections 7.1 and 7.2 are satisfied as of the Closing.

(f) A true, correct and complete Rent Roll for the Property five (5) days prior to Closing, certified by Seller, listing each resident as of the Closing, the unit, bed or room number of such resident, the amount of monthly fees to be paid by such resident, the amount of security deposit, the date of the Resident Agreement, and the expiration date of such Resident Agreement.

(g) Assignments of the Property Agreements from Seller, duly executed by Seller.

(h) All third-party consents described in Section 7.11.

(i) At no expense to Seller, unaudited and unreviewed historical financial statements and any other documents identified by Buyer that are reasonably required to allow Buyer to comply with any reporting, disclosure, or filing requirements imposed upon Buyer by the SEC with respect to the transactions contemplated by this Agreement. Additionally, Seller shall provide Buyer, but without expense to Seller, with (a) an audit letter in substantially the form as Exhibit G hereto, and (b) copies of, or access to, such factual information as may be reasonably requested by Buyer or its designated accountants, and in the possession or control of Seller, to enable Buyer to file any filings required by the SEC in connection with the purchase of the Property.

(j) Such additional and customary information, materials, affidavits and certificates as the Title Insurer may reasonably require to issue the Title Insurance policies, the gap coverage and all endorsements required by this Agreement to be delivered at Closing, or as may be reasonably required by the Title Insurer.

9.3 Deliveries of Buyer. At the Closing, Buyer shall deliver or cause to be delivered to Seller the following, in each case in form and substance reasonably satisfactory to Seller:

(a) The Purchase Price by wire transfer in accordance with Section 2.3, subject to the adjustments under Section 2.5, less an amount equal to the net proceeds EFP would be entitled to receive under this Agreement for the sale of its interest in the Urbana Property, the Springfield Property and the Normal Property if EFP were not contributing its interest to Buyer.

(b) A certificate that the conditions specified in Sections 8.1 and 8.2. are satisfied as of the Closing.

- 28 -

(c) An agreement by Buyer assuming the Assumed Obligations.

(d) A governmental certificate, dated as of a date as near as practicable to the Closing, showing that Buyer is (i) duly organized and in good standing in the state of its formation, and (ii) is qualified to do business in the state where the Property is located.

(e) A certificate of the secretary (or the equivalent thereto if none) of Buyer attesting as to the incumbency of each officer or authorized representative of Buyer who executes this Agreement and/or any of the other Documents, certifying that resolutions and consents necessary for Buyer to act in accordance with the terms of this Agreement have been adopted or obtained (with copies thereof attached) and to similar customary matters.

9.4 Closing Costs. Buyer and Seller shall each pay (a) their respective attorneys’ fees and expenses and (b) any broker commissions due to any broker engaged by such party respectively. All due diligence costs shall be borne by Buyer and all transfer taxes, title costs, recording fees and escrow fees (collectively, “Transaction Costs”) shall be borne by Buyer and Seller equally, provided, however, that Buyer shall pay all costs of any Survey obtained by Buyer as well as any endorsements required by the Lender under the Existing Mortgages. Except as provided in Section 11.4, the cost sharing referred to above shall occur only if the closing occurs. If Closing does not occur for any reason the provisions of Section 11.1 or 11.2, as applicable, shall determine each parties responsibility for the costs incurred by the parties with respect to this Agreement.

9.5 No Additional Representations; Disclaimer Notice. Pursuant to this Agreement, Buyer and its representatives (including environmental consultants, architects and engineers) have been or will be afforded the right and opportunity to enter upon the Property and to make such inspections of the Property and matters related thereto, including the conduct of soil, environmental and engineering tests, as Buyer and its representatives desire, subject to the provisions of Section 9.4. Buyer acknowledges that notwithstanding any prior or contemporaneous oral or written representations, statements, documents or understandings, this Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes any such prior or contemporaneous oral or written representations, statements, documents or understandings. Buyer further acknowledges that, except as set forth in Article IV or the conveyance documents (i) neither Seller, nor any principal, agent, attorney, employee, broker or other representative of Seller has made any representations or warranties of any kind whatsoever regarding the Property, either express or implied, and (ii) Buyer is not relying on any warranty, representation or covenant, express or implied, with respect to the Property, except as set forth in Article IV or the conveyance documents, and waives all rights and remedies available to it under state and federal law other than those permitted under this Agreement. Buyer represents that it is knowledgeable in real estate matters and the operation of senior housing and memory care facilities and that upon completion of the inspections contemplated or permitted by this Agreement, Buyer will have made all of the investigations and inspections Buyer deems necessary in connection with its purchase of the Property, and that approval by Buyer of such inspections pursuant to this Agreement will be deemed approval by Buyer without reservation of all aspects of this transaction, including but not limited to the physical condition of the Property and the use, title and the financial aspects of the operation of the Property. Except for the representations and warranties contained in Article IV and in the

- 29 -

conveyance documents Buyer hereby waives, relinquishes and releases any and all rights, claims and causes of action, including rights of contribution or indemnity which Buyer may have or may be entitled to assert against Seller under or with respect to the Property or the condition thereof.

ARTICLE X

INDEMNIFICATION

10.1 General. The rights to indemnification set forth in this ARTICLE X and the other rights described in this Agreement shall be in addition to all other rights to monetary damages that any party (or the party’s successors or permitted assigns) would otherwise have by Applicable Law in connection with the transactions contemplated by this Agreement or any other Document; provided, however, that neither party shall have the right to be compensated more than once for the same monetary damage.

10.2 Indemnification by Seller. From and after Closing, Seller shall indemnify, defend, and hold harmless Buyer and its officers, directors, employees, agents, representatives, Affiliates, successors and assigns from and against, and pay or reimburse each of them for and with respect to, any Loss relating to, arising out of or resulting from any of the following:

(a) Any breach by Seller of any of its representations, warranties, covenants or agreements in this Agreement;

(b) The ownership, operation or control of the Property prior to the Closing, including without limitation, any and all liabilities which relate to events occurring prior to the Closing, regardless of when they are asserted or whether such was disclosed to Buyer and regardless of whether such was a breach of any representation, warranty, or covenant by Seller, except for (i) Assumed Obligations, (ii) obligations, indebtedness or liabilities to the extent of any Adjustment Amount credited to Buyer, and (iii) obligations or liabilities which Seller, not later than thirty (30) days following the Effective Date, expressly disclosed to Buyer in writing and for which Seller expressly advised Buyer in writing that Seller would not agree to remain liable therefore following Closing; and

(c) Claims by any other party claiming to have represented Seller as broker or agent in connection with the transactions contemplated by this Agreement.

10.3 Indemnification by Buyer. From and after Closing, Buyer shall indemnify, defend and hold harmless Seller and its officers, directors, employees, agents, representatives, Affiliates, successors and assigns from and against, and pay or reimburse each of them for and with respect to any Loss relating to, arising out of or resulting from any of the following:

(a) Any material breach by Buyer of any of its representations, warranties, covenants or agreements in this Agreement; and

(b) The ownership, operation or control of the Property after the Closing, including without limitation, any and all liabilities which relate to events occurring after the Closing, regardless of when they are asserted and regardless of whether such was a breach of any representation, warranty, or covenant by Seller, including the Assumed Obligations, but excluding any obligations, indebtedness or liabilities to the extent of any Adjustment Amount credited to Seller.

- 30 -

10.4 Administration of Indemnification. For purposes of administering the indemnification provisions set forth in Section 10.2 and Section 10.3, the following procedure shall apply:

(a) Whenever a claim shall arise for indemnification under this ARTICLE X, the party entitled to indemnification (the “Indemnified Party”) shall give a reasonably prompt written notice to the party from whom indemnification is sought (the “Indemnifying Party”) setting forth in reasonable detail, to the extent then available, the facts concerning the nature of such claim and the basis upon which the Indemnified Party believes that it is entitled to indemnification hereunder.

(b) In the event of any claim for indemnification resulting from or in connection with any claim by a third party, the Indemnifying Party shall be entitled, at its sole expense, either (i) to participate in defending against such claim or (ii) to assume the entire defense with counsel which is selected by it and which is reasonably satisfactory to the Indemnified Party, provided that no settlement shall be made and no judgment consented to without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld. If, however, (x) the claim, action, suit or proceeding would, if successful, result in the imposition of damages for which the Indemnifying Party would not be solely responsible, or (y) representation of both parties by the same counsel would otherwise be inappropriate due to actual or potential differing interests between them, then the Indemnifying Party shall not be entitled to assume the entire defense and each party shall be entitled to retain counsel who shall cooperate with one another in defending against such claim. In the case of clause (x), the Indemnifying Party shall be obligated to bear only that portion of the expense of the Indemnified Party’s counsel that is in proportion to the damages indemnifiable by the Indemnifying Party compared to the total amount of the third-party claim against the Indemnified Party. In the case of clause (y), the Indemnifying Party shall pay all costs of defense of both itself and the actual out-of-pocket costs of the Indemnified Party.

(c) If the Indemnifying Party does not choose to defend against a claim by a third party, the Indemnified Party may defend in such manner as it deems appropriate or settle the claim (after giving notice thereof to the Indemnifying Party) on such terms as the Indemnified Party may deem appropriate, and the Indemnified Party shall be entitled to periodic reimbursement from the Indemnifying Party of defense expenses incurred and prompt indemnification from the Indemnifying Party in accordance with this ARTICLE X.

(d) Failure or delay by an Indemnified Party to give a reasonably prompt notice of any claim shall not release, waive or otherwise affect an Indemnifying Party’s obligations with respect to the claim, except to the extent that the Indemnifying Party can demonstrate actual Loss or prejudice as a result of such failure or delay. Notwithstanding anything to the contrary contained herein, the parties agree that no indemnification right or obligation shall apply to the extent any such Loss or expense is paid to an Indemnified Party by an insurance company.

- 31 -

(e) The right to pursue indemnification as set forth in Sections 10.2(a) and 10.3(a) shall survive the Closing hereunder for a period of eighteen (18) months following the Closing, and the right to pursue indemnification as set forth in all other Sections of this ARTICLE X shall survive the Closing hereunder.

(f) Notwithstanding anything to the contrary in this Agreement, the right to pursue indemnification as set forth in this ARTICLE X shall be actionable or payable only if valid claims for Losses, if any, collectively aggregate more than Fifty Thousand and No/100 U.S. Dollars ($50,000) (the “Floor”); provided, however, that the foregoing Floor shall not apply in the case of fraud on the part of Buyer, Seller or any of their respective Affiliates, or to any claims arising under Section 10.2(a) (with respect to breaches of the representations and warranties contained in Sections 4.3, 4.22, 4.28, and 4.29), Section 10.2(b) or Section 10.3(b) (none of which shall be subject to the Floor). In addition, Buyer agrees to concurrently seek recovery against Seller, under any insurance policies, the Title Policy and other applicable agreements, and Seller shall not be liable to Buyer to the extent Buyer’s claim is actually satisfied from any sums recovered from such insurance policies, Title Policy or other applicable agreements. FINALLY, IN NO EVENT SHALL EITHER PARTY EVER BE LIABLE FOR ANY CONSEQUENTIAL OR PUNITIVE DAMAGES OTHER THAN IN THE EVENT OF FRAUD.

ARTICLE XI

DEFAULT AND TERMINATION

11.1 Right of Termination. This Agreement may be terminated prior to Closing as follows:

(a) By Buyer, in its sole and absolute discretion, at any time during the Due Diligence Period for any reason or for no reason whatsoever;

(b) By written agreement of Seller and Buyer;

(c) By Buyer if, as of the Closing or such earlier date as specified in this Agreement, all conditions in ARTICLE VII have not been met, or as specifically provided for in or covered by Sections 7.5, 11.2(a)(i), 12.16, and 12.17; provided, however, that nothing contained in this Section 11.1(c) shall limit Seller’s rights pursuant to 11.2 below;

(d) By Seller if, as of Closing or such earlier date as specified in this Agreement, all conditions in ARTICLE VII have been met but the conditions in ARTICLE VIII have not been met and Buyer defaults on its obligation to close this transaction; provided, however, that nothing contained in this Section 11.1(d) shall limit Seller’s rights pursuant to 11.2 below; or

(e) By Seller or Buyer if a court of competent jurisdiction or other governmental agency shall have issued an order, decree, or ruling or taken any other action (which order, decree, or ruling the parties hereto shall use their diligent efforts to lift), in each case permanently retraining, enjoining, or otherwise prohibiting the transactions contemplated by this Agreement, or otherwise determining that the consummation of such transactions would be unlawful, and such order, decree or ruling shall have become final and nonappealable.

- 32 -

(f) By Buyer if Buyer obtains Knowledge of any matter that causes any representation or warranty of the Seller contained herein to be untrue or inaccurate in any material respect.

In the event this Agreement is terminated pursuant to this Section 11.1 or pursuant to any other express provision of this Agreement for any reason other than a default by the Seller or Buyer hereunder, then (i) this Agreement shall be of no further force or effect as of the date of delivery of such written notice of termination, (ii) the Buyer and Seller shall equally share the cancellation charges, if any, of the Escrow Agent and Title Insurer, (iii) no party shall have any further rights or obligations hereunder other than pursuant to any provision hereof which expressly survives the termination of this Agreement and (iv) all Escrowed Funds shall be released to the party entitled to the same in accordance with Section 2.4 hereof.

11.2 Remedies upon Default.

(a) If Seller defaults on any of Seller’s obligations hereunder, and such default continues for twenty (20) days after written notice thereof specifying such default, Buyer may serve notice in writing to the Seller in the manner provided in this Agreement, and either:

(i) If specific performance is unavailable, terminate this Agreement, receive a refund of the Earnest Money Deposit and receive from Seller reimbursement of all actual third-party out-of-pocket expenses incurred by Buyer in pursuing the transactions contemplated by this Agreement and pursue all legal remedies available at law against Seller for Buyer’s actual damages arising from Seller’s default hereunder up to a maximum amount of Four Hundred Ninety Thousand Dollars ($490,000); or

(ii) Waive any such conditions, title objections or defaults and consummate the transaction contemplated by this Agreement in the same manner as if there had been no title objections, conditions or defaults without any reduction in the Purchase Price and without any further claim against the Seller therefor and, if necessary, pursue an action for specific performance.

(b) If Buyer defaults on its obligation to close this transaction, Seller’s exclusive remedy shall be to terminate this Agreement and receive the Earnest Money Deposit as liquidated damages.

11.3 Specific Performance. Seller specifically agrees that Buyer shall be entitled, in the event of a default by Seller, to enforcement of this Agreement by a decree of specific performance or injunctive relief requiring Seller to fulfill its obligations under this Agreement. If Buyer pursues an action for specific performance and prevails, Buyer shall not be entitled to any monetary damages, except as set forth in Section 12.14.

11.4 Obligations Upon Termination. Except as otherwise provided herein, if this Agreement is terminated, each of the parties shall bear its own costs incurred in connection with the transactions contemplated by this Agreement. Unless this Agreement is terminated by the

- 33 -

Buyer or Seller, as applicable, in accordance with the provisions of Section 11.1 or 11.2, in the event the Closing fails to occur by the Closing Date specified in 9.1 (as such date may be extended by the parties from time to time) through no default or either party of its respective obligations hereunder, the actual out-of-pocket expenses incurred by the parties as Transaction Costs shall be borne by Buyer and Seller equally and to the extent either party has paid more than fifty percent (50%) of such Transaction Costs, the other party shall reimburse such party the cost of all such Transaction Costs in excess of such party’s fifty percent (50%) share within fifteen (15) days of scheduled Closing Date.

11.5 Termination Notice. Each notice given by a party to terminate this Agreement shall specify the Subsection of ARTICLE XI pursuant to which such notice is given. If at the time a party gives a termination notice, such party is entitled to give such notice pursuant to more than one Subsection of ARTICLE XI, the Subsection pursuant to which such notice is given and termination is effected shall be deemed to be the section specified in such notice provided that the party giving such notice is at such time entitled to terminate this Agreement pursuant to the specified section.

11.6 Sole and Exclusive Remedy. Seller and Buyer each acknowledge and agree that prior to the Closing, such party’s sole and exclusive remedy with respect to any and all claims made prior to the Closing for any breach or liability under this Agreement or otherwise relating to the subject matter of this Agreement and the transactions contemplated hereby shall be solely in accordance with, and limited to, Sections 11.1, 11.2 and 11.3. The foregoing shall in no manner limit the rights and obligations of the parties provided in ARTICLE X from and after the Closing. In addition, in no event shall the provisions of this ARTICLE XI limit the non-prevailing party’s obligation to pay the prevailing party’s attorneys’ fees and costs pursuant to Section 12.14 hereof.

ARTICLE XII

MISCELLANEOUS

12.1 Further Actions. From time to time before, at and after the Closing, each party will execute and deliver such other documents as reasonably requested by the Buyer, Seller or Escrow Agent to consummate the transactions contemplated hereby.

12.2 Notices. All notices, demands or other communications given hereunder shall be in writing and shall be sufficiently given if delivered by facsimile (with written confirmation of receipt), by courier (including overnight delivery service), by email (as to communications that are not required notices or demands hereunder), or sent by registered or certified mail, first class, postage prepaid, addressed as follows:

If to Seller, to: Urbana Care Group LLC Springfield Care Group LLC Normal Care Group LLC Bryan Care Group, LP c/o South Bay Partners, Ltd.

- 34 -

		5307 Mockingbird Lane, Suite 1010 Dallas, Texas 75206 Attn: Patrick McGonigle Phone: 214-370-2650 Fax: 214-370-2699 Erwin Family Properties I, L.L.C. 12115 NE 99th Street, Suite 1800 Vancouver, WA 98682 Attn: Gerald L. Erwin Phone:              Fax:
	With copies to:	Columbia Pacific Management 1910 Fairview Avenue East, Suite 500 Seattle, WA 98102 Attn: Kathy J. Mackey Phone: 206-453-0286 Fax: 206-694-2705
	and	Thomas A. Barkewitz Alston, Courtnage & Bassetti LLP 1000 Second Avenue, Suite 3900 Seattle, WA 98104-1045 Phone: 206-623-7600 Fax: 206-623-1752
	And	Terry Landry Cherry Petersen Landry Albert LLP 8350 North Central Expressway, Suite 800 Dallas, TX 75206 Phone: 214-265-9174 Fax:
(a)	If to Buyer, to:	Sentio Leah Bay LLC Attn: Scott Larche 189 S. Orange Ave., Suite 1700 Orlando, Florida 32801 Telephone: 407-999-2438 Fax: (407) 999-5210
	and:	Michael A. Okaty, Esq. Foley & Lardner LLP 111 N. Orange Avenue, Suite 1800 Orlando, FL 32801 Telephone: 407-423-7656 Fax: 407-648-1743 E-mail: mokaty@foley.com

- 35 -

(b) If to Escrow Agent, to: Fidelity National Title Agency, Inc. 5430 LBJ Freeway, Suite 260 Dallas, TX 75240 ATTN: David Lawrence Tel: 972-770-2120 (direct) Email: DLawrence@fnflaw.com

or such other address as a party may from time to time notify the other parties in writing (as provided above). Any such notice, demand or communication shall be deemed to have been given (i) if so sent by facsimile, upon receipt as evidenced by the sender’s written confirmation of receipt, (ii) if so mailed, as of the date delivered, (iii) if emailed, when sent (provided that e-mail does not constitute delivery of any communication that is a required notice or demand hereunder), and (iv) if so delivered by courier, on the date received.

12.3 Entire Agreement. This Agreement and the other Documents constitute the entire agreement and understanding between the parties with respect to the subject matter hereof and supersede any prior negotiations, agreements, understandings, or arrangements between the parties hereto with respect to the subject matter hereof.

12.4 Binding Effect; Benefits. Except as otherwise provided herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors or permitted assigns. Except to the extent specified herein, nothing in this Agreement, express or implied, shall confer on any person other than the parties hereto and any Indemnified Party and their respective successors or permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

12.5 Assignment. This Agreement may not be assigned by any party prior to Closing without the written consent of the Buyer and Seller, which consent may be given or withheld in each such party’s sole and absolute discretion, except that Buyer may assign this Agreement and its rights hereunder without the consent of Seller (i) to an Affiliate of Buyer, (ii) to a partnership in which Buyer or any Affiliate of Buyer is a general partner, (iii) a limited liability company in which Buyer or any Affiliate of Buyer is a manager or managing member or (iv) any other lawful entity entitled to do business in the state in which the Property is located provided such entity is controlled by, controlling or under the common control with Buyer or any Affiliate of Buyer (each, a “Permitted Buyer-Assignee”). In the event of such an assignment to a Permitted Buyer-Assignee, Buyer shall not be released from any of its duties, covenants, obligations or representations and warranties under this Agreement and, from and after any such assignment, Buyer and such Permitted Buyer-Assignee shall be jointly and severally liable under this Agreement, and from and after any such assignment, the term “Buyer” shall be deemed to mean such Permitted Buyer-Assignee under any such assignment.

12.6 Governing Law. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflicts of laws. Venue for any dispute shall be in Cook County, Illinois.

- 36 -

12.7 Amendments and Waivers. No term or provision of this Agreement may be amended, waived, discharged, or terminated orally, except by an instrument in writing signed by: (i) Buyer and Seller with respect to any provision contained herein; and (ii) Buyer, Seller, and Escrow Agent with respect to Section 2.6 hereof. Any waiver shall be effective only in accordance with its express terms and conditions.

12.8 Joint and Several. If Seller is more than one party then each such party shall be jointly and severally liable for performing all obligations of Seller under this Agreement.

12.9 Severability. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof, and any such unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the parties hereto hereby waive any provision of Applicable Law now or hereafter in effect which renders any provision hereof unenforceable in any respect.

12.10 Headings. The captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.

12.11 Counterparts. This Agreement may be executed and accepted in one or more counterparts for the convenience of the parties, each of which will be deemed an original and all of which, taken together, shall constitute one and the same instrument. Delivery of a counterpart hereof via facsimile transmission or by electronic mail transmission shall be as effective as delivery of a manually executed counterpart hereof.

12.12 References. All references in this Agreement to Articles and Sections are to Articles and Sections contained in this Agreement unless a different document is expressly specified.

12.13 Intentionally Deleted Attorneys’ Fees. In the event either party brings an action to enforce or interpret any of the provisions of this Agreement, the “prevailing party” in such action shall, in addition to any other recovery, be entitled to its reasonable attorneys’ fees and expenses arising from such action and any appeal or any bankruptcy action related thereto, whether or not such matter proceeds to trial. For purposes of this Section 12.14, “prevailing party” shall mean, in the case of a person asserting a claim, such person is successful in obtaining substantially all of the relief sought, and in the case of a person defending against or responding to a claim, such person is successful in denying substantially all of the relief sought.

12.15 Section 1031 Exchange/Tax Planning. If requested by either Buyer or Seller, the other party shall cooperate in permitting the other to accomplish an exchange under Section 1031 of the Code or to restructure this transaction in a way which is more advantageous for tax purposes; provided, however, that such exchange or restructuring shall not modify any underlying financial or other material terms of this Agreement, shall not delay the Closing, shall not relieve Buyer or Seller of any liability for their respective obligations hereunder, and shall not result in any other party incurring any greater cost or expense that it otherwise would if any such exchange had not been elected.

- 37 -

12.16 Casualty. The risk of any loss or damage to the Property by fire or other casualty before the Closing shall continue to be borne by Seller. Seller shall promptly give Buyer written notice of any fire or other casualty (in any event within five (5) days after Seller first has knowledge of the occurrence of same), which notice shall include a description thereof in reasonable detail and an estimate of the cost of time to repair. If (i) any portion of the Property is damaged by fire or casualty after the Effective Date and is not repaired and restored substantially to its original condition prior to Closing, or (ii) at the time of Closing the estimated cost of repairs as to any one the Property is ONE HUNDRED THOUSAND U.S. DOLLARS ($100,000.00) or less, as determined by an independent adjuster selected by Seller, Buyer shall be required to purchase the Property in accordance with this Agreement, and Buyer shall, at Buyer’s option, either: (x) receive a credit at Closing of the estimated cost or repairs to the Property, as determined by the aforesaid independent adjuster, plus any reasonably estimated lost revenue following Closing arising from such fire or casualty; or (y) receive from Seller at Closing (I) an assignment, without representation or warranty by or recourse against Seller, of all insurance claims and proceeds with respect thereto, plus (II) an amount equal to Seller’s insurance deductible. If the estimated cost of repairing such damage to the Property is more than ONE HUNDRED THOUSAND U.S. DOLLARS ($100,000.00), as determined by such independent adjuster, Buyer may, at its sole option: (x) terminate this Agreement by notice to Seller on or before the earlier of the Closing or the tenth (10^th) day after receipt of such notice described above, in which event no party shall have any further liability to the party under this Agreement; or (y) proceed to Closing as provided in this Section 12.16. In no event shall the amount of insurance proceeds assigned to Buyer under this subparagraph (plus the amount of the deductible) exceed the lesser of (i) the cost of repair or (ii) the Purchase Price. The parties’ obligations, if any, under this Section 12.16 shall survive the expiration or any termination of this Agreement.

12.17 Condemnation. The risk of any loss or damage to the Property by condemnation before the Closing shall continue to be borne by Seller. In the event any condemnation proceeding is commenced or threatened, Seller shall promptly give Buyer written notice thereof (in any event within five (5) days after Seller first has knowledge of the occurrence of same), together with such reasonable details with respect thereto as to which Seller may have knowledge. If, prior to Closing, there is a material taking by eminent domain at the Property, this Agreement shall become null and void at Buyer’s option, and upon receipt by Seller of the written notice of an election by Buyer to treat this Agreement as null and void, this Agreement shall be deemed null and void. If Buyer elects to proceed and to consummate the purchase despite said material taking, or if there is less than a material taking prior to Closing, there shall be no reduction in or abatement of the Purchase Price and Buyer shall be required to purchase the Property in accordance with the terms of this Agreement, and Seller shall assign to Buyer, without representation of warranty by or recourse against Seller, all of Seller’s right, title and interest in and to any award made or to be made in the condemnation proceeding (in which event Buyer shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage). For the purpose of this Section 12.17, the term “material” shall mean any taking of in excess of five percent (5%) of the square footage of the Property or ten percent (10%) of the Real Property associated with the Property. The parties’ obligations, if any, under this Section 12.17 shall survive the expiration or any termination of this Agreement.

- 38 -

12.18 Limited Liability. No past, present, or future member, partner, shareholder, director, officer of employee of any party to this Agreement shall have any liability or obligation of any nature whatsoever in connection with or under this Agreement or Document contemplated hereby or in connection with the transactions contemplated by this Agreement or any such other agreement.

12.19 Survival of Defined Terms. Where this Agreement provides that a term or provision shall survive the Closing or the expiration or earlier termination of this Agreement, any defined terms contained in ARTICLE I that are used in such surviving term or provision shall also survive.

12.20 Time of Essence. Time shall be of the essence with respect to all matters contemplated by this Agreement.

12.21 No Third-Party Beneficiary. The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of the Buyer, Seller, Guarantors and Escrow Agent only and are not for the benefit of any third party; and, accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.

12.22 WAIVER OF JURY TRIAL. EACH PARTY HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT, OR ANY OTHER DOCUMENT RELATED TO THIS AGREEMENT, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH PARTY, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. ANY PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH PARTY HERETO.

12.23 Schedules and Exhibits. Each Schedule and Exhibit referred to in this Agreement, shall be deemed to be attached hereto and incorporated by reference even though it may be completed after the Effective Date so long as it is acknowledged as a Schedule or an Exhibit to this Agreement by the parties hereto prior to or as of Closing. Any item disclosed hereunder (including in the Schedules and Exhibits hereto) shall be deemed disclosed for all purposes hereof irrespective of the specific representation or warranty to which it is explicitly referenced.

(The remainder of this page is intentionally left blank.)

- 39 -

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the Effective Date.

SELLERS
URBANA CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
NORMAL CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
BRYAN CARE GROUP, LP, a Texas limited partnership
By	BCG Texas Group, LLC, a Texas limited liability Company, its general partner

By
	Craig Spaulding, Manager

ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company
By
	Gerald L. Erwin, Manager

- 40 -

BUYER

SENTIO LEAH BAY, LLC, a Delaware limited liability company

By

Name

Title

ESCROW AGENT:

The undersigned Escrow Agent hereby accepts the foregoing Purchase and Sale Agreement and agrees to act as Escrow Agent thereunder.

FIDELITY NATIONAL TITLE AGENCY, INC.

By:

Name:

Title:

- 41 -

EXHIBIT A

Property Information

Facility/Address	Tradename	Units	Beds
1704 East Amber Lane Urbana, Illinois 61802	Amber Glen	38	66
3319 Ginger Creek Drive Springfield, Illinois 62711	Mill Creek	38	66
505 East Vernon Avenue Normal, Illinois 61761	Sugar Creek	38	66
3850 Coppercrest Drive Bryan, Texas 77802	Hudson Creek	38	66

- 1 -

EXHIBIT B

Description of Land

Amber Glen – Urbana, Illinois (the “Urbana Property”)

A tract of land being part of the South Half of the North Half of the Southeast Quarter of Section 21, Township 19 North, Range 9 East of the Third Principal Meridian, City of Urbana, Champaign County, the boundary of which is described as follows, with bearing on a local datum:

Beginning at a 1/2 inch hollow pipe monument at the Southeast corner of Lot 106 of Eastgate Subdivision No. 1, as recorded in Plat Book CC at Page 181 as Document No. 96R15730 at the Champaign County Recorder’s Office; thence North 89 degrees 47 minutes 09 seconds West, 352.99 feet along the North line of Amber Lane to a 1/2 inch iron rod monument set; thence North 00 degrees 20 minutes 10 seconds West, 655.76 feet to a 1/2 inch iron rod monument set on the North line of said Lot 106; thence South 89 degrees 47 minutes 49 seconds East, 352.99 feet along the North line of said Lot 106 to a 1/2 inch hollow pipe monument found at the Northeast corner of said Lot 106; thence South 00 degrees 20 minutes 07 seconds East, 655.83 feet along the East line of said Lot 106 to the point of beginning.

Also known as Lot 106B of Replat of Lot 106 of Eastgate Subdivision No. 1, as per plat recorded on October 13, 2004 as Document No. 2004R32583, situated In Champaign County, Illinois.

Mill Creek – Springfield, Illinois (the “Springfield Property”)

Lots 1, 2 and 3 of GINGER CREEK OFFICE PARK SUBDIVISION, according to the plat thereof recorded January 30, 2003 as document number 2003R05365 in the Office of the Sangamon County Recorder of Deeds, described more particularly as follows:

Beginning at an iron pipe marking the Northwest corner of the aforementioned Lot 1, thence South 89 degrees 28 minutes 49 seconds East along the North line of Lots 1, 2, and 3 a distance of 523.55 feet measured, (523.53 feet Plat) to an iron pipe marking the Northeast corner of Lot 3, thence South 00 degrees 07 minutes 33 seconds West along the East line of Lot 3 a distance of 190.18 feet measured, (190.19 feet Plat) to an iron pipe marking the Southeast corner of Lot 3, said pipe marks the beginning of a 503.12 foot radius non-tangent curve to the left, thence Southwesterly 186.72 feet along the Northerly line of Ginger Creek Drive with said curve having a long chord that bears South 79 degrees 51 minutes 40 seconds West for a distance of 185.65 feet measured, (185.63 feet Plat) to an iron pipe, thence continuing South 69 degrees 13 minutes 49 seconds West along the Northerly line of Ginger Creek Drive a distance of 300.39 feet measured (300.38 feet Plat) to an iron pipe marking the beginning of 470.00 foot radius, tangent curve to the right, thence Southwesterly 62.27 feet along the Northerly line of Ginger Creek Drive with said curve having a long chord that bears South 73 degrees 00 minutes 30 seconds West for a distance of 62.22 feet measured (62.21 feet Plat) to an iron pipe marking the Southwest corner of Lot 1, thence North 00 degrees 00 minutes 13 seconds East a distance of 352.32 feet measured, (352.29 feet Plat) to the point of beginning. Said Parcel contains 3.115 acres, more or less, all in the Northwest Quarter of Section 12, Township 15 North, Range 6 West of the Third Principal Meridian, in Sangamon County, Illinois. Basis of bearing is South 89 degrees 28 minutes 49 seconds East along the North line of Lots 1, 2 and 3.

- 1 -

Sugar Creek – Normal, Illinois (the “Normal Property”)

Lot 1 in Custer Brothers Subdivision, to the Town of Normal, Illinois, according to the plat thereof recorded March 15, 2006 as Document Number 2006-00006263, in McLean County, Illinois

Commonly Known as 505 E. Vernon Avenue, Normal, IL

Hudson Creek – Bryan, Texas (the “Bryan Property”)

Being all that certain lot, tract or parcel of land lying and being situated in Brazos County, Texas and being Lot Two B-R (2B-R), Block One (1), PARK HUDSON, PHASE FIVE, and addition to the City of Bryan, Texas, according to the Replat recorded in Volume 6777, page 255 of the Official Public Records of Brazos County, Texas (O.P.R.B.C.) and being more particularly described by metes and bounds as follows:

BEGINNING at a found 3/4 inch iron pipe marking the intersection of the southwest right of way line of Copperfield Drive and the northwest right of way line of of Coppercrest Drive (widths vary at this location) as described on the Park Hudson Right of Way Dedication Plat recorded in Volume 3593, page 89 (O.P.R.B.C.);

THENCE along the said northwest line of Coppercrest Drive for the following five (5) calls:

1.38.75 feet in a clockwise direction along the arc of a curve having a central angle of 88° 49’ 06”, a radius of 25.00 feet, a tangent of 24.49 feet and a long chord bearing S 40’ 23’ 47” E at a distance of 34.99 feet to a found chiseled “X” mark in a concrete sidewalk for the Point of Tangency,

2. S 04° 00’ 46” W for a distance of 26.46 feet to a found chiseled “V” mark in a concrete sidewalk for the point of curvature of a curve to the right,

3.272.07 feet along the arc of said curve having a central angle of 27° 20’ 53”, a radius of 570.00 feet, a tangent of 138.68 feet and a long chord bearing S 17° 41’ 13” W at a distance of 269.49 feet to a found 3/4 inch iron pipe for the Point of Tangency,

4. S 31° 21’ 40” W for a distance of 100.00 feet to a found 3/4 inch iron pipe for the Point of Curvature of a curve to the left and

5. 55.30 feet along the arc of said curve having a central angle of 05° 01’ 47”, a radius of 630.00 feet, a tangent of 27.67 feet and a long chord bearing S 28° 50’ 46” W at a distance of 55.29 feel to a set 1/2 inch iron rod for corner and marking the southeast corner of this tract:

THENCE N 73° 36’ 31” W through said Lot 2-R, Block 1 for a distance of 206.60 feet to a set 1/2 inch iron rod for corner, said iron rod also being in the east line of the 17.412 acre Board of Directors of Bryan Reinvestment Zone No. 8 Tract One described in Volume 3847, page 162 (O.P.R.B.C);

THENCE along the common line of said Lot 2-R and the 17.412 acre tract for the following two (2) calls:

1. N 02° 42’ 04” E for a distance of 205.95 feet to a found 1/2 inch iron rod for corner and

2. N 11° 28’48” E for a distance of 209.83 feet to a found 1/2 inch iron rod for corner, said iron rod also being in the beforementioned southwest right of way line of Copperfield Drive;

THENCE S 84 48’ 20” E along said line of Copperfield Drive for a distance of 287.69 feet to the POINT OF BEGINNING and containing 2.919 acres (127,149.0 sq.ft.) of land.

- 2 -

Exhibit C

Due Diligence Materials

- 1 -

Exhibit D

Rent Roll

(See attached pages)

- 1 -

Exhibit E

Form of Management Agreement

- 1 -

Exhibit F

Form of Guaranty

- 1 -

Exhibit G

Form of Audit Letter

- 1 -

Schedule 2.1(b)

Excluded Personal Property

Manager’s Corporate Manuals

- 1 -

Schedule 2.1(h)

Excluded Intellectual Property

- 1 -

Schedule 2.2(a)

Existing Mortgages

Amber Glen – Urbana, Illinois

Loan made by Red Capital Mortgage, Inc., an Ohio corporation in the amount of $8,976,000.00 on May 15, 2009. All documents dated May 15, 2009.

1. Multifamily Note

2. Borrowers Statement

3. Exceptions to Non-Recourse Guaranty

4. Multifamily Mortgage, Assignment of Rents and Security Agreement

5. Assignment of Mortgage

6. Assignment of Collateral Agreements

7. Replacement Reserve and Security Agreement

8. Certificate of Borrower

9. Mortgage Loan Certificate

10. Subordination, Assignment and Security Agreement

11. Agreement to Amend or Comply

Mill Creek – Springfield, Illinois

Loan made by Red Capital Mortgage, Inc., an Ohio corporation in the amount of $8,664,000.00 on May 15, 2009. All documents dated May 15, 2009.

1. Multifamily Note

2. Borrowers Statement

3. Exceptions to Non-Recourse Guaranty

4. Multifamily Mortgage, Assignment of Rents and Security Agreement

5. Assignment of Mortgage

6. Assignment of Collateral Agreements

7. Replacement Reserve and Security Agreement

8. Certificate of Borrower

9. Mortgage Loan Certificate

10. Subordination, Assignment and Security Agreement

11. Agreement to Amend or Comply

- 1 -

Sugar Creek – Normal, Illinois

Loan made by Red Capital Mortgage, Inc., an Ohio corporation in the amount of $8,092,000.00 on November 24, 2009. All documents dated November 24, 2009.

1. Multifamily Note

2. Borrowers Statement

3. Exceptions to Non-Recourse Guaranty

4. Multifamily Mortgage, Assignment of Rents and Security Agreement

5. Assignment of Mortgage

6. Assignment of Collateral Agreements

7. Replacement Reserve and Security Agreement

8. Certificate of Borrower

9. Mortgage Loan Certificate

10. Subordination, Assignment and Security Agreement

11. Agreement to Amend or Comply

Hudson Creek – Bryan, Texas

Loan made by Red Capital Mortgage, Inc., an Ohio corporation in the amount of $8,200,000.00 on June 23, 2010. All documents dated June 23, 2010.

1. Multifamily Note

2. Borrowers Statement

3. Exceptions to Non-Recourse Guaranty

4. Multifamily Deed of Trust, Assignment of Rents and Security Agreement

5. Assignment of Deed of Trust

6. Assignment of Collateral Agreements

7. Replacement Reserve and Security Agreement

8. Certificate of Borrower

9. Mortgage Loan Certificate

10. Subordination, Assignment and Security Agreement

11. Agreement to Amend or Comply

- 2 -

Schedule 2.3

Allocation of Purchase Price

Urbana Property:

Real Property
Land	$
Land Improvements	$
Building	$
Personal Property
Furniture, Fixtures and Equipment	$
Vehicle(s)	$
Other Assets	$
Total	$

Springfield Property:

Real Property
Land	$
Land Improvements	$
Building	$
Personal Property
Furniture, Fixtures and Equipment	$
Vehicle(s)	$
Other Assets	$
Total	$

Normal Property:

Real Property
Land	$
Land Improvements	$
Building	$
Personal Property
Furniture, Fixtures and Equipment	$
Vehicle(s)	$
Other Assets	$
Total	$

- 1 -

Bryan Property:

Real Property
Land	$
Land Improvements	$
Building	$
Personal Property
Furniture, Fixtures and Equipment	$
Vehicle(s)	$
Other Assets	$
Total	$

- 2 -

Schedule 4.5

Judgments

- 1 -

Schedule 4.7

Seller’s Insurance

- 1 -

Schedule 4.8

Litigation, Proceedings and Investigations

- 1 -

Schedule 4.9

Compliance with Laws

- 1 -

Schedule 4.10

Environmental Matters

- 1 -

Schedule 4.12

Property Agreements

- 1 -

Schedule 4.13

Licenses; Citations

- 1 -

Schedule 4.16

Third Party Payor Programs

- 1 -

Schedule 4.17

Condition of the Property

- 1 -

Schedule 4.22

Exceptions to Seller Ownership

- 1 -

Schedule 4.23

Title Encumbrances

- 1 -

EX-10.3

FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT

This First Amendment to Purchase and Sale Agreement (this “Amendment”) is entered into as of June 21, 2012 by and among: SENTIO LEAH BAY LLC, a Delaware limited liability company, or its successors or assigns (“Buyer”); URBANA CARE GROUP LLC, an Illinois limited liability company, SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company, NORMAL CARE GROUP LLC, an Illinois limited liability company and BRYAN CARE GROUP, LP, a Texas limited partnership (each a “Current Owner” and collectively “Current Owners”), ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company (“EFP” and together with each Current Owner, a “Seller” and collectively with all Current Owners, “Sellers”), and FIDELITY NATIONAL TITLE AGENCY, INC., a Texas corporation (“Escrow Agent”).

RECITALS

A. Buyer, Sellers and Escrow Agent entered into that certain Purchase and Sale Agreement dated May 7, 2012 (the “Agreement”) with respect to the purchase and sale of certain real property described in the Agreement.

B. Buyer, Sellers and Escrow Agent desire to amend the Agreement as set forth in this Amendment.

AGREEMENT

For valuable consideration, the receipt and sufficiency of which are acknowledged, Buyer, Sellers and Escrow Agent agree as follows:

1. Definitions. Except as expressly set forth in this Amendment, all terms defined in the Agreement will have the same meaning in this Amendment.

2. Sellers’ Structure. Recitals B and C of the Agreement are deleted in their entirety. Instead of the structure set forth in those Recitals, each Current Owner will retain a 100% interest in its property and, at Closing, each Current Owner will convey to Buyer or its designee(s) such Current Owner’s interest in its Property by a warranty deed and bill of sale in accordance with the terms of the Agreement. The Purchase Price for the Property will be paid in accordance with paragraph 4 of this Amendment. Immediately upon Closing, each of Urbana Care Group LLC, Springfield Care Group LLC and Normal Care Group LLC will distribute the Equity Interest (as defined in paragraph 4 of this Amendment) granted to it at Closing to Leah Bay Investments LLC, a Washington limited liability company (“LBI”), the sole owner of the each of those Current Owners. Immediately following that distribution, LBI will distribute the Equity Interests received by those three Current Owners to EFP so that EFP will own an Equity Interest of 21.5963% in the applicable purchasing entities of the Urbana Property, the Springfield Property and the Normal Property. The parties hereto acknowledge and agree that it is Sellers’ objective for the transfer of the Urbana Property, the Springfield Property and the Normal Property to constitute, in part, a tax deferred contribution of property to a partnership in exchange for an interest in the partnership (i.e., the Equity Interest) pursuant to the requirements of Section 721 of the Internal Revenue Code of 1986, as amended. The Buyer agrees to cooperate with the Sellers, at no additional cost or expense to Buyer, in structuring the transaction to achieve this objective.

- 1 -

3. Defined Terms. In the first paragraph of Section 1.1, the sentence beginning with “By way of example…” is deleted.

4. Due Diligence Period; Earnest Money Deposit. The Due Diligence Period is extended and will end at 6:00 p.m. Eastern Time on June 28, 2012. Buyer will, however, deposit the additional $245,000 of the Earnest Money Deposit with Escrow Agent no later than 6:00 p.m. Eastern Time on June 21, 2012 rather than upon expiration of the Due Diligence Period. All other terms and conditions applicable to the Earnest Money Deposit will remain as set forth in the Agreement.

5. Purchase Price. The purchase price for the Property shall be an amount equal to FORTY-NINE MILLION AND NO/100 U.S. DOLLARS ($49,000,000.00), (the “Purchase Price”), plus or minus (whichever is applicable) the Adjustment Amount which shall be paid to Seller for the Property, all of which shall be paid at the Closing by Buyer in accordance with Section 9.3(a) as follows:

(a) with respect to the Bryan Property (i) by the assumption by Buyer of the Existing Mortgage on the Bryan Property, and (ii) in cash by wire transfer of immediately available funds an amount equal to the Purchase Price less the outstanding principal balance of the Existing Mortgage on the Closing Date plus or minus the Preliminary Adjustment Amount, and

(b) with respect to each of the Urbana Property, the Springfield Property and the Normal Property, (i) by the assumption by Buyer of the Existing Mortgages on the Urbana Property, the Springfield Property and the Normal Property, and (ii) by the grant to the applicable Current Owner of an equity interest of 21.5963% in the applicable purchasing entity (each, an “Equity Interest”), and (iii) in cash by check of wire transfer of immediately available funds in an amount equal to the remaining 78.4037% of the Purchase Price applicable to such Property less the outstanding principal balance of the Existing Mortgage on the Closing Date plus or minus the Preliminary Adjustment Amount in the manner set forth in Section 9.3(a).

Prior to the expiration of the Due Diligence Period, Buyer and Seller shall agree upon an allocation of the Purchase Price for local, state and federal tax purposes which allocation will specify the Purchase Price for each Property by Real Property, Personal Property and Other Assets. The agreed allocation will be attached to this Agreement in the form shown in Schedule 2.3.

6. Deliveries of Buyer. Section 9.3(a) is deleted and replaced with the following: “The Purchase Price, by wire transfer, in accordance with Section 2.3, subject to the adjustments under Section 2.5, less an amount equal to the additional net proceeds Sellers would be entitled to receive under this Agreement for the sale of the Urbana Property, the Springfield Property and the Normal Property if Sellers were not receiving an Equity Interest in the purchasing entities.”

7. No Other Changes. Except as expressly set forth in this Amendment, the Agreement will remain unmodified and will otherwise continue in full force and effect as written. In the event of any conflict between the terms of this Amendment and the terms of the Agreement, the terms of this Amendment will control.

- 2 -

8. Counterparts. This Amendment may be executed in counterparts, all of which taken together will constitute one and the same instrument, and any party executing this amendment may do so by signing any such counterpart.

SELLERS
URBANA CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
NORMAL CARE GROUP LLC, an Illinois limited liability company
By
	Craig Spaulding, its manager
BRYAN CARE GROUP, LP, a Texas limited partnership
By	BCG Texas Group, LLC, a Texas limited liability Company, its general partner
	By
		Craig Spaulding, Manager
ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company
By
	Gerald L. Erwin, Manager

- 3 -

BUYER

SENTIO LEAH BAY, LLC, a Delaware

limited liability company

By

Name

Title

ESCROW AGENT:

The undersigned Escrow Agent hereby accepts the foregoing Amendment.

FIDELITY NATIONAL TITLE AGENCY, INC.

By:

Name:

Title:

- 4 -

EX-10.4

ASSIGNMENT AND ASSUMPTION

OF

PURCHASE AND SALE AGREEMENT

This Assignment and Assumption of Purchase and Sale Agreement (“Assignment and Assumption”) is made this              day of June, 2012, by and between SENTIO LEAH BAY LLC, a Delaware limited liability company (“Assignor”) and SENTIO LEAH BAY PORTFOLIO LLC, a Delaware limited liability company ( “Assignee”).

WHEREAS, Assignor is the current purchaser under that certain Purchase and Sale Agreement dated May 7, 2012, as amended by that certain First Amendment to Purchase and Sale Agreement dated June             , 2012, copies of which are attached to Schedule A hereto and made a part hereof (collectively, the “PSA”); and

WHEREAS, pursuant to the PSA, sellers, URBANA CARE GROUP LLC, an Illinois limited liability company, SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company, NORMAL CARE GROUP LLC, an Illinois limited liability company, BRYAN CARE GROUP, LP, a Texas limited partnership, and ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company (each a “Seller” and collectively “Sellers”) must consent to this Assignment and Assumption.

NOW, THEREFORE, pursuant to the terms and conditions of the PSA and in consideration of the mutual covenants and agreements contained therein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed that:

1. Assignor hereby sells, assigns, transfers, conveys and delivers to Assignee all of such Assignor’s right, title and interest in and to the PSA (the “Assignment”).

2. Assignee hereby accepts the Assignment and agrees to assume, effective as of the date of this Assignment and Assumption, and to thereafter perform and discharge, the responsibilities and obligations of Buyer (as defined in the PSA) under the PSA.

3. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto, their respective successors in interest, and their respective permitted assigns.

4. Sellers are executing this Assignment and Assumption solely to evidence Sellers’ consent to the Assignment.

5. The construction and performance of this Assignment and Assumption shall be governed by the laws of the State of Illinois without regard to its principles of conflict of law.

6. Delivery of executed counterpart signature pages to this Assignment and Assumption by facsimile or other electronic transmission shall be effective as delivery of original counterpart signature pages to this Assignment and Assumption. This Assignment and Assumption may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

1

IN WITNESS WHEREOF, the parties have duly executed this Assignment and Assumption as of the day and year first above written.

ASSIGNOR:
SENTIO LEAH BAY LLC, a Delaware limited liability company
By:
	Name:
	Title:
ASSIGNEE:
SENTIO LEAH BAY PORTFOLIO LLC, a Delaware limited liability company
	SENTIO LEAH BAY LLC, a Delaware limited liability company, its managing member
	By:
		Name:
		Title:
	ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company, its non-managing member
	By
		Gerald L. Erwin, its manager

2

The undersigned Sellers execute this acknowledgement solely to evidence Sellers’ consent to this Assignment and Assumption:

URBANA CARE GROUP LLC, an Illinois limited liability company			SPRINGFIELD CARE GROUP LLC, an Illinois limited liability company
	By			By
		Craig Spaulding, its manager			Craig Spaulding, its manager
NORMAL CARE GROUP LLC, an Illinois limited liability company			BRYAN CARE GROUP, LP, a Texas limited partnership
	By			By BCG Texas Group, LLC, a Texas limited liability
		Craig Spaulding, its manager			Company, its general partner
					By
						Craig Spaulding, Manager
ERWIN FAMILY PROPERTIES I, L.L.C., a Washington limited liability company
	By
		Gerald L. Erwin, its manager

3

SCHEDULE A

EX-31.1

Exhibit 31.1

CERTIFICATION

I, John Mark Ramsey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sentio Healthcare Properties, 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;

(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/ JOHN MARK RAMSEY
Date: August 20, 2012	John Mark Ramsey
	President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Sharon C. Kaiser, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sentio Healthcare Properties, 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;

(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/ SHARON C. KAISER
Date: August 20, 2012	Sharon C. Kaiser
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. Sec.1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

John Mark Ramsey does 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 his knowledge, the Quarterly Report of Sentio Healthcare Properties, Inc. on Form 10-Q for the three-month period ended June 30, 2012 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 Sentio Healthcare Properties, Inc.

	/s/ JOHN MARK RAMSEY
Date: August 20, 2012	John Mark Ramsey
	President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. Sec.1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Sharon C. Kaiser does 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 her knowledge, the Quarterly Report of Sentio Healthcare Properties, Inc. on Form 10-Q for the three-month period ended June 30, 2012 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 Sentio Healthcare Properties, Inc.

	/s/ SHARON C. KAISER
Date: August 20, 2012	Sharon C. Kaiser
	Chief Financial Officer (Principal Financial Officer)