UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2016

or

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

Commission File Number: 000-55434

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(Exact name of registrant as specified in its charter)

Maryland	46-1749436
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
18191 Von Karman Avenue, Suite 300, Irvine, California	92612
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 270-9200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

There is no established market for the registrant’s common stock. On October 5, 2016, the registrant’s board of directors established an estimated per share net asset value of the registrant’s common stock of $9.01 as of June 30, 2016. As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, there were approximately 193,126,263 shares of common stock held by non-affiliates, excluding shares owned by officers of American Healthcare Investors, LLC, the affiliated co-sponsor of the registrant’s offering of securities, for an aggregate market value of $1,740,068,000, assuming a market value as of that date of $9.01 per share.

As of March 10, 2017, there were 197,520,424 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.

______________________________________ 

DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference portions of the Griffin-American Healthcare REIT III, Inc. definitive proxy statement for the 2017 annual meeting of stockholders (into Items 10, 11, 12, 13 and 14 of Part III).

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(A Maryland Corporation)

TABLE OF CONTENTS

	Page
PART I
Item 1. Business	3
Item 1A. Risk Factors	18
Item 1B. Unresolved Staff Comments	55
Item 2. Properties	55
Item 3. Legal Proceedings	61
Item 4. Mine Safety Disclosures	61
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	62
Item 6. Selected Financial Data	65
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	86
Item 8. Financial Statements and Supplementary Data	88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	88
Item 9A. Controls and Procedures	88
Item 9B. Other Information	88
PART III
Item 10. Directors, Executive Officers and Corporate Governance	89
Item 11. Executive Compensation	89
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	89
Item 13. Certain Relationships and Related Transactions, and Director Independence	89
Item 14. Principal Accounting Fees and Services	89
PART IV
Item 15. Exhibits, Financial Statement Schedules	90
Item 16. Form 10-K Summary	164
SIGNATURES	165

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PART I

Item 1. Business.

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

Company

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

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we initially offered to the public up to $1,750,000,000 in shares of our common stock for $10.00 per share in our primary offering and up to $150,000,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $1,900,000,000. We reserved the right to reallocate the shares of common stock we offered in our initial offering between the primary offering and the DRIP. As such, during our initial offering, we reallocated an aggregate of $115,000,000 in shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in shares of our common stock in our primary offering and up to $35,000,000 in shares of our common stock pursuant to the DRIP.

On March 12, 2015, we terminated the primary portion of our initial offering. We continued to offer up to $35,000,000 in shares of our common stock through our initial offering pursuant to the DRIP until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015. As of April 22, 2015, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to the DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the United States Securities and Exchange Commission, or the SEC, upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion. As of December 31, 2016, a total of $108,163,000 in distributions were reinvested and 11,446,351 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

On October 5, 2016, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an estimated per share net asset value, or NAV, of our common stock of $9.01. We are providing this estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. The estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2016. This valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association, or the IPA, in April 2013, in addition to guidance from the SEC. Going forward, we intend to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 7, 2016, for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised byGriffin-American Healthcare REIT III Advisor, LLC, or Griffin-American

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Advisor, or our advisor,pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had aone-year term, subject to successiveone-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2017 and expires on February 26, 2018. Our advisor uses its best efforts, subject to the oversight, review and approval of our board to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital (formerly known as Griffin Capital Corporation), or collectively, our co-sponsors. Effective March 1, 2015, American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings (formerly known as American Healthcare Investors LLC), 45.1% indirectly owned by Colony NorthStar, Inc. (NYSE: CLNS), or Colony NorthStar (formerly known as NorthStar Asset Management Group Inc. prior to its merger with Colony Capital, Inc. and NorthStar Realty Finance Corp. on January 10, 2017), and 7.8% owned by James F. Flaherty III, one of Colony NorthStar’s partners. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, or Griffin Securities, or our dealer manager, Colony NorthStar or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

Key Developments during 2016 and 2017

• On February 3, 2016, we terminated the 2014 Corporate Line of Credit as defined in Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K and also entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, N.A., or Bank of America, KeyBank, National Association, or KeyBank, and other financial institutions, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000, or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000, or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Credit Facilities. See Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

• On March 21, 2016, we, through Trilogy Investors, LLC, or Trilogy, our majority-owned subsidiary, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. On April 1, 2016, we increased the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000. See Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

• On October 5, 2016, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an estimated per share NAV of our common stock of $9.01.

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

• During the fourth quarter 2016, we amended and restated our share repurchase plan, which took effect with respect to share repurchase requests submitted during the fourth quarter 2016. Specifically, we amended the price at which shares of our common stock are repurchased pursuant to our share repurchase plan by amending the definition of the term Repurchase Amount, as such term is used in our share repurchase plan, as amended, to reflect the lessor of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. See Note 13, Equity — Share Repurchase Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

• During 2016, we expanded our portfolio of integrated senior health campuses by $242,430,000 by leasing seven additional integrated senior health campuses, completing three development projects and acquiring the real estate underlying 17 previously leased integrated health campuses, a development parcel with improvements and land through a majority-owned subsidiary of Trilogy.

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• As of March 15, 2017, we had completed 48 real estate acquisitions whereby we owned and/or operated 94 properties, comprising 98 buildings, and 104 integrated senior health campuses including development projects, or approximately 12,294,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,855,081,000. In addition, we acquired real estate-related investments for an aggregate purchase price of $120,646,000.

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Our Structure

The following is a summary of our organizational structure as of March 15, 2017:

Our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, and our telephone number is (949) 270-9200. We maintain a web site at http://www.healthcarereit3.com, at which there is additional

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information about us and our affiliates. The contents of that site are not incorporated by reference in, or otherwise a part of, this filing. We make our periodic and current reports and all amendments to those reports available at http://www.healthcarereit3.com as soon as reasonably practicable after such materials are electronically filed with the SEC. They also are available for printing by any stockholder upon request. In addition, copies of our filings with the SEC may be obtained from the SEC’s website, http://www.sec.gov. Access to these filings is free of charge.

Investment Objectives

Our investment objectives are:

• to preserve, protect and return our stockholders’ capital contributions;

• to pay regular cash distributions; and

• to realize growth in the value of our investments upon our ultimate sale of such investments.

We may not attain these objectives. Our board may change our investment objectives if it determines it is advisable and in the best interest of our stockholders.

During the term of the Advisory Agreement, decisions relating to the purchase or sale of investments will be made by our advisor, subject to approval by our advisor’s investment committee and oversight and approval by our board.

Investment Strategy

We have and we may continue to invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, such as long-term acute care centers, surgery centers, memory care facilities, specialty medical and diagnostic service facilities, laboratories and research facilities, pharmaceutical and medical supply facilities and offices leased to tenants in healthcare-related industries. We generally seek investments that produce current income. We have acquired properties either alone or jointly with another party and may continue to acquire properties either alone or jointly with another party. We also have originated and acquired and may continue to originate or acquire, secured loans and other real estate-related investments on an infrequent and opportunistic basis. We also may originate or acquire real estate-related investments such as mortgage, mezzanine, bridge and other loans, common and preferred stock of, or other interests in, public or private unaffiliated real estate companies, commercial mortgage-backed securities and certain other securities, including collateralized debt obligations and foreign securities.

We seek to maximize long-term stockholder value by generating sustainable growth in cash flows and portfolio value. In order to achieve these objectives, we may invest using a number of investment structures, which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, we may be required to limit our investments in certain types of real estate-related investments.

In addition, when and as determined appropriate by our advisor, our portfolio may also include properties in various stages of development other than those producing current income. These stages would include, without limitation, unimproved land both with and without entitlements and permits, property to be redeveloped and repositioned, newly constructed properties and properties in lease-up or other stabilization, all of which will have limited or no relevant operating histories and no current income. Our advisor will make this determination based upon a variety of factors, including the available risk-adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio and our objectives of realizing both current income and capital appreciation upon the ultimate sale of properties.

For each of our investments, regardless of property type, we seek to invest in properties with the following attributes:

• Quality. We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.

• Location. We seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants. In addition to United States properties, we also seek to acquire international properties that meet our investment criteria.

• Market; Supply and Demand. We focus on local or regional markets that have potential for stable and growing property level cash flows over the long-term. These determinations are based in part on an evaluation of local and regional economic, demographic and regulatory factors affecting the property. For instance, we favor markets that indicate a growing population and employment base or markets that exhibit potential limitations

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on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we generally seek to limit our investments in areas that have limited potential for growth.

• Predictable Capital Needs. We seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would enable us to meet our objectives of growth in cash flows and preservation of capital and stability.

• Cash Flows. We seek to acquire properties where the current and projected cash flows, including the potential for appreciation in value, would enable us to meet our overall investment objectives. We evaluate cash flows as well as expected growth and the potential for appreciation.

We have not invested and will not invest more than 10.0% of the proceeds available for investment from our offering in unimproved or non-income producing properties or in other investments relating to unimproved or non-income producing property. A property is considered unimproved or currently non-income producing property for purposes of this limitation if it: (i) is not acquired for the purpose of currently producing rental or other operating income; or (ii) has no development or construction in process at the date of acquisition or planned in good faith to commence within one year of the date of acquisition.

We have not invested and will not invest more than 10.0% of the proceeds available for investment from our offering in commercial mortgage-backed securities. In addition, we have not invested and will not invest more than 10.0% of the proceeds available for investment from our offering in equity securities of public or private real estate companies.

We are not limited as to the geographic areas where we may acquire properties and may acquire properties domestically as well as internationally. We are not specifically limited in the number or size of properties we may acquire or on the percentage of our assets that we may invest in a single property or investment, and we have not invested and will not invest more than 25.0% of the proceeds available for investment from our offering in international properties. The number and mix of properties and real estate-related investments we will acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of debt financing available.

Real Estate Investments

We have invested, and will continue to invest, in a diversified portfolio of real estate investments, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We generally seek investments that produce current income. Our investments may include:

• medical office buildings;

• hospitals;

• skilled nursing facilities;

• senior housing facilities;

• long-term acute care facilities;

• surgery centers;

• memory care facilities;

• specialty medical and diagnostic service facilities;

• laboratories and research facilities;

• pharmaceutical and medical supply facilities; and

• offices leased to tenants in healthcare-related industries.

Our advisor generally seeks to acquire real estate on our behalf of the types described above that will best enable us to meet our investment objectives, taking into account the diversification of our portfolio at the time, relevant real estate and financial factors, the location, the income-producing capacity and the prospects for long-range appreciation of a particular property and other considerations. As a result, we may acquire properties other than the types described above. In addition, we may acquire properties that vary from the parameters described above for a particular property type.

The consideration for each real estate investment must be authorized by a majority of our independent directors or a duly authorized committee of our board and ordinarily is based on the fair market value of the investment. If the majority of our independent directors or a duly authorized committee of our board so determines, or if the investment is to be acquired from an

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affiliate, the fair market value determination must be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors.

Our real estate investments generally take the form of holding fee title or long-term leasehold interests. Our investments may be made either directly through our operating partnership or indirectly through investments in joint ventures, limited liability companies, general partnerships or other co-ownership arrangements with the developers of the properties, affiliates of our advisor or other persons.

In addition, we may participate in sale-leaseback transactions, in which we purchase real estate investments and lease them back to the sellers of such properties. Our advisor will use their best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes. However, we cannot assure our stockholders that the Internal Revenue Service, or the IRS, will not challenge such characterization. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such real estate investment would be disallowed or significantly reduced.

Our obligation to close a transaction involving the purchase of real estate is generally conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:

• plans and specifications;

• environmental reports (generally a minimum of a Phase I investigation);

• building condition reports;

• surveys;

• evidence of marketable title subject to such liens and encumbrances as are acceptable to our advisor;

• audited financial statements covering recent operations of real properties having operating histories unless such statements are not required to be filed with the SEC and delivered to stockholders;

• title insurance policies; and

• liability insurance policies.

In determining whether to purchase a particular real estate investment, we may, in circumstances in which our advisor deems it appropriate, obtain an option on such property, including land suitable for development. The amount paid for an option is normally surrendered if the real estate is not purchased and is normally credited against the purchase price if the real estate is purchased. We also may enter into arrangements with the seller or developer of a real estate investment whereby the seller or developer agrees that if, during a stated period, the real estate investment does not generate specified cash flows, the seller or developer will pay us cash in an amount necessary to reach the specified cash flows level, subject in some cases to negotiated dollar limitations.

We will not purchase or lease real estate in which one of our co-sponsors, our advisor, our directors or any of their affiliates have an interest without a determination by a majority of our disinterested directors and a majority of our disinterested independent directors that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the real estate investment to the affiliated seller or lessor, unless there is substantial justification for the excess amount and the excess amount is reasonable. In no event will we acquire any such real estate investment at an amount in excess of its current appraised value.

We intend to obtain adequate insurance coverage for all real estate investments in which we invest. However, there are types of losses, generally catastrophic in nature, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. See Item 1A. Risk Factors — Risks Related to Investments in Real Estate — Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce our stockholders’ returns.

We have acquired and we intend to continue to acquire leased properties with long-term leases and we generally do not intend to operate any healthcare-related facilities directly. As a REIT, we are prohibited from operating healthcare-related facilities directly; however, from time to time we have leased and may continue to lease a healthcare-related facility that we acquire to a wholly-owned taxable REIT subsidiary, or TRS. In such an event, our TRS will engage a third party in the business of operating healthcare-related facilities to manage the property utilizing a RIDEA structure.

Joint Ventures

We may enter into joint ventures, general partnerships and other arrangements with one or more institutions or individuals, including real estate developers, operators, owners, investors and others, some of whom may be affiliates of our

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advisor, for the purpose of acquiring real estate. Such joint ventures may be leveraged with debt financing or unleveraged. We may continue to enter into joint ventures to further diversify our investments or to access investments which meet our investment criteria that would otherwise be unavailable to us. In determining whether to invest in a particular joint venture, our advisor will evaluate the real estate that such joint venture owns or is being formed to own under the same criteria used in the selection of our other properties. However, we will not participate in tenant in common syndications or transactions.

Joint ventures with unaffiliated third parties may be structured such that the investment made by us and the co-venturer are on substantially different terms and conditions. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flows up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flows than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flows, including appreciation, of an investment than we would receive.

We may only enter into joint ventures with other Griffin Capital or American Healthcare Investors-sponsored programs, affiliates of our advisor or any of our directors for the acquisition of properties if:

• a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction, approves the transaction as being fair and reasonable to us; and

• the investment by us and such affiliates are on substantially the same terms and conditions.

We may invest in general partnerships or joint ventures with other Griffin Capital or American Healthcare Investors-sponsored programs or affiliates of our advisor to enable us to increase our equity participation in such ventures, so that ultimately we own a larger equity percentage of the property. Our entering into joint ventures with our advisor or any of its affiliates will result in certain conflicts of interest. See Item 1A. Risk Factors — Risks Related to Conflicts of Interest — If we enter into joint ventures with affiliates, we may face conflicts of interest or disagreements with our joint venture partners that may not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s-length with an independent joint venture partner.

Real Estate-Related Investments

In addition to our acquisition of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, on an infrequent and opportunistic basis, we have invested, and may continue to invest, in real estate-related investments, including loans (mortgage, mezzanine, bridge and other loans) and securities investments (common and preferred stock of or other interests in public or private unaffiliated real estate companies, commercial mortgage-backed securities and certain other securities, including collateralized debt obligations and foreign securities).

Investing In and Originating Loans

Our criteria for making or investing in loans will be substantially the same as those involved in our investment in properties. We do not intend to make loans to other persons, to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than those relating to real estate. We will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loan, would exceed an amount equal to 85.0% of the appraised value of the property, as determined by an independent third-party appraiser, unless we find substantial justification due to other underwriting criteria; however, our policy generally will be that the aggregate amount of all mortgage loans outstanding on the property, including our loan, would not exceed 75.0% of the appraised value of the property. We may find such justification in connection with the purchase of loans in cases in which we believe there is a high probability of our foreclosure upon the property in order to acquire the underlying assets and in which the cost of the loan investment does not exceed the fair market value of the underlying property. We will not invest in or make loans unless an appraisal has been obtained concerning the underlying property, except for those loans insured or guaranteed by a government or government agency. In cases in which a majority of our independent directors so determine and in the event the transaction is with our advisor, any of our directors or their respective affiliates, the appraisal will be obtained from a certified independent appraiser to support its determination of fair market value.

We have invested, and we may continue to invest, in first, second and third mortgage loans, mezzanine loans, bridge loans, wraparound mortgage loans, construction mortgage loans on real property and loans on leasehold interest mortgages. However, we will not make or invest in any loans that are subordinate to any mortgage or equity interest of our advisor, any of our directors, one of our co-sponsors, or any of our affiliates. We also may invest in participations in mortgage loans. A mezzanine loan is a loan made in respect of certain real property but is secured by a lien on the ownership interests of the entity that, directly or indirectly, owns the real property. A bridge loan is short term financing, for an individual or business, until permanent or the next stage of financing can be obtained. Second mortgage and wraparound loans are secured by second or wraparound deeds of trust on real property that is already subject to prior mortgage indebtedness. A wraparound loan is one or

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more junior mortgage loans having a principal amount equal to the outstanding balance under the existing mortgage loan, plus the amount actually to be advanced under the wraparound mortgage loan. Under a wraparound loan, we would generally make principal and interest payments on behalf of the borrower to the holders of the prior mortgage loans. Third mortgage loans are secured by third deeds of trust on real property that is already subject to prior first and second mortgage indebtedness. Construction loans are loans made for either original development or renovation of property. Construction loans in which we would generally consider an investment would be secured by first deeds of trust on real property for terms generally ranging from six months to two years. Loans on leasehold interests are secured by an assignment of the borrower’s leasehold interest in the particular real property. These loans are generally for terms of from six months to 15 years. The leasehold interest loans are either amortized over a period that is shorter than the lease term or have a maturity date prior to the date the lease terminates. These loans would generally permit us to cure any default under the lease. Mortgage participation investments are investments in partial interests of mortgages of the type described above that are made and administered by third-party mortgage lenders.

In evaluating prospective loan investments, our advisor will consider factors such as the following:

• the ratio of the investment amount to the underlying property’s value;

• the property’s potential for capital appreciation;

• expected levels of rental and occupancy rates;

• the condition and use of the property;

• current and projected cash flows of the property;

• potential for rent increases;

• the degree of liquidity of the investment;

• the property’s income-producing capacity;

• the quality, experience and creditworthiness of the borrower;

• general economic conditions in the area where the property is located;

• in the case of mezzanine loans, the ability to acquire the underlying real property; and

• other factors that our advisor believes are relevant.

In addition, we will seek to obtain a customary lender’s title insurance policy or commitment as to the priority of the mortgage or condition of the title. Because the factors considered, including the specific weight we place on each factor, will vary for each prospective loan investment, we do not and are not able to, assign a specific weight or level of importance to any particular factor.

We may originate loans from mortgage brokers or personal solicitations of suitable borrowers, or may purchase existing loans that were originated by other lenders. We may purchase existing loans from affiliates and we may make or invest in loans in which the borrower is an affiliate. Our advisor will evaluate all potential loan investments to determine if the security for the loan and the loan-to-value ratio meets our investment criteria and objectives. Most loans that we will consider for investment would provide for monthly payments of interest and some may also provide for principal amortization, although many loans of the nature that we will consider provide for payments of interest only and a payment of principal in full at the end of the loan term. We will not originate loans with negative amortization provisions.

We are not limited as to the amount of our assets that may be invested in construction loans, mezzanine loans, bridge loans, loans secured by leasehold interests and second, third and wraparound mortgage loans. However, we recognize that these types of loans are riskier than first deeds of trust or first priority mortgages on income-producing, fee-simple properties and we expect to minimize the amount of these types of loans in our portfolio, to the extent that we make or invest in loans at all. Our advisor will evaluate the fact that these types of loans are riskier in determining the rate of interest on the loans. We do not have any policy that limits the amount that we may invest in any single loan or the amount we may invest in loans to any one borrower. We have not established a portfolio turnover policy with respect to loans we invest in or originate.

Our loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, requiring disclosures to customers, governing secured transactions and setting collection, repossession and claims handling procedures and other trade practices. In addition, certain states have enacted legislation requiring the licensing of mortgage bankers or other lenders and these requirements may affect our ability to effectuate our proposed investments in loans. Commencement of operations in these or other jurisdictions may be dependent upon a finding of our financial responsibility, character and fitness. We may determine not

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to make loans in any jurisdiction in which the regulatory authority determines that we have not complied in all material respects with applicable requirements.

Investing in Securities

We have invested and may continue to invest in the following types of securities: (i) equity securities such as common stocks, preferred stocks and convertible preferred securities of public or private unaffiliated real estate companies (including other REITs, real estate operating companies and other real estate companies); (ii) debt securities such as commercial mortgage-backed securities and debt securities issued by other unaffiliated real estate companies; and (iii) certain other types of securities that may help us reach our diversification and other investment objectives. These other securities may include, but are not limited to, various types of collateralized debt obligations and certain non-United States dollar denominated securities.

Our advisor has substantial discretion with respect to the selection of specific securities investments. Our charter provides that we may not invest in equity securities unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, approve such investment as being fair, competitive and commercially reasonable. Consistent with such requirements, in determining the types of securities investments to make, our advisor will adhere to a board-approved asset allocation framework consisting primarily of components such as: (i) target mix of securities across a range of risk/reward characteristics; (ii) exposure limits to individual securities; and (iii) exposure limits to securities subclasses (such as common equities, debt securities and foreign securities). Within this framework, our advisor will evaluate specific criteria for each prospective securities investment including:

• positioning the overall portfolio to achieve an optimal mix of real estate and real estate-related investments;

• diversification benefits relative to the rest of the securities assets within our portfolio;

• fundamental securities analysis;

• quality and sustainability of underlying property cash flows;

• broad assessment of macroeconomic data and regional property level supply and demand dynamics;

• potential for delivering high current income and attractive risk-adjusted total returns; and

• additional factors considered important to meeting our investment objectives.

Commercial mortgage-backed securities are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Commercial mortgage-backed securities generally are pass-through certificates that represent beneficial ownership interests in common law trusts whose assets consist of defined portfolios of one or more commercial mortgage loans. They typically are issued in multiple tranches whereby the more senior classes are entitled to priority distributions from the trust’s income. Losses and other shortfalls from expected amounts to be received in the mortgage pool are borne by the most subordinate classes, which receive payments only after the more senior classes have received all principal and/or interest to which they are entitled. Commercial mortgage-backed securities are subject to all of the risks of the underlying mortgage loans. We may invest in investment grade and non-investment grade commercial mortgage-backed securities. However, we have not invested more than 10.0% of the offering proceeds available for investment in commercial mortgage-backed securities.

We have not invested and will not invest more than 10.0% of the proceeds available for investment from our offering in equity securities of public or private real estate companies. The specific number and mix of securities in which we invest will depend upon real estate market conditions, other circumstances existing at the time we are investing in our securities, the amount of any future indebtedness that we may incur and any possible future equity offerings. We will not invest in securities of other issuers for the purpose of exercising control and the first or second mortgages in which we intend to invest will likely not be insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs or otherwise guaranteed or insured. Real estate-related equity securities are generally unsecured and also may be subordinated to other obligations of the issuer. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer.

Our Strategies and Policies With Respect to Borrowing

We have used and intend to continue to use, secured and unsecured debt as a means of providing additional funds for the acquisition of properties and real estate-related investments. Our ability to enhance our investment returns and to increase our diversification by acquiring assets using additional funds provided through borrowing could be adversely impacted if banks and other lending institutions reduce the amount of funds available for the types of loans we seek. When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time. We have also used and may continue to use derivative financial instruments such as fixed interest rate swaps and caps to add stability to interest expense and to manage our exposure to interest rate movements.

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We generally anticipate that our overall leverage will not exceed 45.0% of the combined market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2016, our aggregate borrowings were 33.5% of the combined market value of all of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of March 15, 2017 and December 31, 2016, our leverage did not exceed 300% of our net assets.

By operating on a leveraged basis, we will have more funds available for our investments. This generally will enable us to make more investments than would otherwise be possible, potentially resulting in enhanced investment returns and a more diversified portfolio. However, our use of leverage will increase the risk of default on loan payments and the resulting foreclosure of a particular asset. In addition, lenders may have recourse to assets other than those specifically securing the repayment of the indebtedness.

Our advisor will use its best efforts to obtain financing on the most favorable terms available to us and will refinance assets during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing loan, when an existing loan matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include increased cash flows resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.

Our charter restricts us from borrowing money from one of our co-sponsors, our advisor, any of our directors or any of their respective affiliates unless such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as being fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties.

When incurring secured debt, we may incur recourse indebtedness, which means that the lenders’ rights upon our default generally will not be limited to foreclosure on the property that secured the obligation. If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year, although some mortgages are likely to provide for one large payment and we may incur floating or adjustable rate financing when our board determines it to be in our best interest.

Our board controls our strategies with respect to borrowing and may change such strategies at any time without stockholder approval, subject to the maximum borrowing limit of 300% of our net assets described above.

Sale or Disposition of Assets

We intend to hold each property or real estate-related investment we acquire for an extended period. However, circumstances might arise which could result in a shortened holding period for certain investments. In general, the holding period for real estate-related investments other than real property is expected to be shorter than the holding period for real property assets. A property or real estate-related investment may be sold before the end of the expected holding period if:

• diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio;

• an opportunity arises to pursue a more attractive investment;

• in the judgment of our advisor, the value of the investment might decline;

• with respect to properties, a major tenant involuntarily liquidates or is in default under its lease;

• the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria;

• an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; or

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• in the judgment of our advisor, the sale of the investment is in the best interest of our stockholders.

Our advisor and our board will determine whether a particular property or real estate-related investment should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives. We cannot assure our stockholders that this objective will be realized. The selling price of a property which is net leased will be determined in large part by the amount of rent payable under the lease(s) for such property. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. See Item 1A. Risk Factors — Federal Income Tax Risks. The terms of payment will be affected by custom in the area in which the investment being sold is located and the then-prevailing economic conditions.

Development Strategy

On an opportunistic basis, we have developed and may continue to selectively develop real estate assets when market conditions warrant. In doing so, we may be able to reduce overall purchase costs by developing property versus purchasing a finished property. Developing properties exposes us to risks such as cost overruns, carrying costs of projects under development, availability and costs of materials and labor, weather conditions and government regulation. See Item 1A. Risk Factors — Risks Related to Investments in Real Estate for additional discussion of these risks. We will retain independent contractors to perform the actual construction work on tenant improvements, such as installing heating, ventilation and air conditioning systems.

We have engaged and may continue to engage our advisor or its affiliates to provide development-related services for all or some of the properties that we acquire for development or refurbishment. In those cases, we will pay our advisor or its affiliates a development fee that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided if a majority of our independent directors determines that such development fees are fair and reasonable and on terms and conditions not less favorable than those available from unaffiliated third parties. However, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development. In the event that our advisor or its affiliates assist with planning and coordinating the construction of any tenant improvements or capital improvements, the respective party may be paid a construction management fee of up to 5.0% of the cost of such improvements.

Board Review of Our Investment Policies and Report of Independent Directors

Our board has established written policies on investments and borrowing. Our board is responsible for monitoring the administrative procedures, investment operations and performance of our company and our advisor to ensure such policies are carried out. Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. Each determination and the basis therefore is required to be set forth in the minutes of the applicable meetings of our directors. Implementation of our investment policies also may vary as new investment techniques are developed. Our investment policies may not be altered by our board without the approval of our stockholders.

As required by our charter, our independent directors have reviewed our policies outlined above and determined that they are in the best interests of our stockholders because: (i) they increase the likelihood that we will be able to acquire a diversified portfolio of income-producing properties, thereby reducing risk in our portfolio; (ii) there are sufficient property acquisition opportunities with the attributes that we seek; (iii) our executive officers, directors and affiliates of our advisor have expertise with the type of real estate investments we seek; and (iv) our borrowings will enable us to purchase assets and earn real estate revenue more quickly, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.

Tax Status

We qualified and elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2014. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders.

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Distribution Policy

In order to maintain our qualification as a REIT for federal income tax purposes, among other things, we are required to distribute 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. We cannot predict if we will generate sufficient cash flows to continue to pay cash distributions to our stockholders on an ongoing basis or at all. The amount of any cash distributions is determined by our board and depends on the amount of distributable funds, current and projected cash requirements, tax considerations, any limitations imposed by the terms of indebtedness we may incur and other factors. If our investments produce sufficient cash flows, we expect to continue to pay distributions to our stockholders on a monthly basis. Because our cash available for distribution in any year may be less than 90.0% of our annual taxable income, excluding net capital gains, for the year, we may be required to borrow money, use proceeds from the issuance of securities (in subsequent offerings, if any) or sell assets to pay out enough of our taxable income to satisfy the distribution requirement. These methods of obtaining funds could affect future distributions by increasing operating costs. We did not establish any limit on the amount of proceeds from our offering and we have not established any limit on the amount of proceeds from any future offerings, that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.

To the extent that distributions to our stockholders are paid out of our current or accumulated earnings and profits, such distributions are taxable as ordinary income. To the extent that our distributions exceed our current and accumulated earnings and profits, such amounts constitute a return of capital to our stockholders for federal income tax purposes, to the extent of their basis in their stock and thereafter will constitute capital gain. All or a portion of a distribution to stockholders may have been paid from net offering proceeds and thus, constitute a return of capital to our stockholders.

Monthly distributions are calculated with daily record dates so distribution benefits begin to accrue immediately upon becoming a stockholder. However, our board could, at any time, elect to pay distributions quarterly to reduce administrative costs. Subject to applicable REIT rules, we generally intend to reinvest proceeds from the sale, financing, refinancing or other disposition of our properties through the purchase of additional properties, although we cannot assure our stockholders that we will be able to do so.

The amount of distributions we pay to our stockholders is determined by our board and is dependent on a number of factors, including funds available for the payment of distributions, our financial condition, capital expenditure requirements, annual distribution requirements needed to maintain our status as a REIT under the Code and restrictions imposed by our organizational documents and Maryland Law.

See Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of distributions approved by our board.

Competition

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings, hospitals, skilled nursing facilities, senior housing and otherhealthcare-related facilities, including international, national, regional and local operators, acquirers and developers of healthcare and real estate properties. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities or other assets we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Further, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets, and therefore, increased prices paid for them. If there is an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices per property if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices per property for medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities, our business, financial condition, results of operations and our ability to pay distributions to our stockholders may be materially and adversely affected and our stockholders may experience a lower return on their investment.

In addition, income from our investments is dependent on the ability of our tenants and operators to compete with other healthcare operators. These operators compete on a local and regional basis for residents and patients and the operators’ ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a

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significant impact on the ability of our tenants and operators to compete successfully for residents and patients at the properties. For additional information on the risks associated with our business, please see Item 1A. Risk Factors.

Government Regulations

Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Costs of Compliance with the Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990, as amended, or the ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.

Costs of Government Environmental Regulation and Private Litigation. Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on a person who arranges for the disposal or treatment of hazardous or toxic substances and such person often must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.

Other Federal, State and Local Regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are and will be in substantial compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flows and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

Significant Tenants

As of December 31, 2016, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annualized base rent, which is based on contractual base rent from leases in effect inclusive of our senior housing — RIDEA facilities and integrated senior health campuses operations as of December 31, 2016.

Geographic Concentration

Based on leases in effect as of December 31, 2016, properties in one state in the United States accounted for 10.0% or more of the annualized base rent or annualized net operating income of our total property portfolio. Properties located in Indiana accounted for 35.0% of the annualized base rent or annualized net operating income of our total property portfolio. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy. For a further discussion, see Item 2. Properties — Geographic Diversification/Concentration Table.

Employees

We have no employees and our executive officers are all employees of affiliates of our advisor. Our day-to-day management is performed by our advisor and its affiliates. We cannot determine at this time if or when we might hire any employees, although we do not anticipate hiring any employees during the next twelve months. We do not directly compensate our executive officers for services rendered to us. However, our executive officers, consultants and the executive officers and key employees of our advisor are eligible for awards pursuant to the 2013 Incentive Plan, or our incentive plan. As of December 31, 2016, no awards had been granted to our executive officers, consultants or the executive officers or key employees of our advisor under this plan.

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Investment Company Act Considerations

We intend to conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act.

We intend to primarily engage in the business of investing in real estate assets; however, our portfolio does include, to a much lesser extent, other real estate-related investments. We have also acquired and may continue to acquire real estate assets through investments in joint venture entities, including joint venture entities in which we may not own a controlling interest. We anticipate that our assets generally will be held in wholly and majority-owned subsidiaries of the company, each formed to hold a particular asset. We intend to monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. Among other things, we will monitor the proportion of our portfolio that is placed in investments in securities.

Financial Information About Industry Segments

Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we added a new reportable business segment at such time. As of December 31, 2016, we operated through six reportable business segments — medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Medical Office Buildings. As of December 31, 2016, we owned 62 medical office buildings, or MOBs. These properties typically contain physicians’ offices and examination rooms and may also include pharmacies, hospital ancillary service space and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms. While these properties are similar to commercial office buildings, they require additional parking spaces as well as plumbing, electrical and mechanical systems to accommodate multiple exam rooms that may require sinks in every room and special equipment such as x-ray machines. In addition, MOBs are often built to accommodate higher structural loads for certain equipment and may contain “vaults” or other specialized construction. Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices). Based on square footage, approximately 29.2% of our MOBs are located on hospital campuses and 3.2% are affiliated with hospital systems. Our medical office buildings segment accounted for approximately 7.4%, 31.0% and 60.8% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

Hospitals. As of December 31, 2016, we owned two hospital buildings. Services provided by our operators and tenants in our hospitals are paid for by private sources, third-party payers (e.g., insurance and Health Maintenance Organizations, or HMOs), or through the Medicare and Medicaid programs. We expect that our hospital properties typically will include acute care, long-term acute care, specialty and rehabilitation hospitals and generally will be leased to single tenants or operators under triple-net lease structures. Our hospitals segment accounted for approximately 1.7%, 3.3% and 26.5% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

Skilled Nursing Facilities. As of December 31, 2016, we owned seven skilled nursing facilities, or SNFs. SNFs offer restorative, rehabilitative and custodial nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Ancillary revenues and revenues from sub-acute care services are derived from providing services to residents beyond room and board and include occupational, physical, speech, respiratory and intravenous therapy, wound care, oncology treatment, brain injury care and orthopedic therapy as well as sales of pharmaceutical products and other services. Certain SNFs provide some of the foregoing services on an out-patient basis. Skilled nursing services provided by our tenants in these SNFs are primarily paid for either by private sources or through the Medicare and Medicaid programs. Our SNFs are leased to a single tenant under a triple-net lease structure. Our skilled nursing facilities segment accounted for approximately 0.9% and 0.5% of total revenues for the year ended December 31, 2016 and 2015, respectively. We did not own any skilled nursing facilities for the year ended December 31, 2014.

Senior Housing. As of December 31, 2016, we owned 13 senior housing facilities. Senior housing facilities cater to different segments of the elderly population based upon their personal needs. Services provided by our tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. All of our senior housing facilities are leased to single tenants under triple-net lease structures. Our senior housing segment accounted for approximately 1.9%, 5.3% and 12.7% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

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Senior Housing — RIDEA. As of December 31, 2016, we owned and operated 13 senior housing facilities utilizing a RIDEA structure. Such facilities are of a similar property type as our senior housing segment discussed above, however we have entered into agreements with healthcare operators to manage the facilities on our behalf utilizing a RIDEA structure. Substantially all of our leases with residents in the senior housing facilities are for a term of one year or less. Our senior housing — RIDEA segment accounted for approximately 6.3% and 18.7% of total revenues for the years ended December 31, 2016 and 2015, respectively. We did not own and operate any senior housing facilities utilizing a RIDEA structure for the year ended December 31, 2014.

Integrated Senior Health Campuses. As of December 31, 2016, we owned and/or operated 104 integrated senior health campuses, a majority of which are operated utilizing a RIDEA structure. Integrated senior health campuses include a range of senior care, including assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses. Services provided by our tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Our integrated senior health campuses segment accounted for approximately 81.8% and 41.2% of total revenues for the years ended December 31, 2016 and 2015, respectively. We did not own and/or operate any integrated senior health campuses for the year ended December 31, 2014.

For a further discussion of our segment reporting for the years ended December 31, 2016, 2015 and 2014, including geographic information for our operations, see Note 19, Segment Reporting, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Item 1A. Risk Factors.

Investment Risks

There is no public market for the shares of our common stock. Therefore, it will be difficult for our stockholders to sell their shares of our common stock and, if our stockholders are able to sell their shares of our common stock, they will likely sell them at a substantial discount.

We commenced a best efforts initial public offering on February 26, 2014 and terminated the primary portion of our offering on March 12, 2015. However, there currently is no public market for the shares of our common stock. We do not expect a public market for our stock to develop prior to the listing of the shares of our common stock on a national securities exchange, which we do not expect to occur in the near future and which may not occur at all. Additionally, our charter contains restrictions on the ownership and transfer of shares of our stock and these restrictions may inhibit our stockholders’ ability to sell their shares of our common stock. Our charter provides that no person may own more than 9.9% in value of our issued and outstanding shares of capital stock or more than 9.9% in value or in number of shares, whichever is more restrictive, of the issued and outstanding shares of our common stock. Any purported transfer of the shares of our common stock that would result in a violation of either of these limits will result in such shares being transferred to a trust for the benefit of a charitable beneficiary or such transfer being declared null and void. We have adopted a share repurchase plan, but it is limited in terms of the amount of shares of our common stock which may be repurchased annually and is subject to our board discretion. Our board may also amend, suspend, or terminate our share repurchase plan at any time upon 30 days’ written notice. Therefore, it will be difficult for our stockholders to sell their shares of our common stock promptly or at all. If our stockholders are able to sell their shares of our common stock, our stockholders may only be able to sell them at a substantial discount from the price they paid. This may be the result, in part, of the fact that, at the time we make our investments, the amount of funds available for investment may be reduced by up to 12.0% of the gross offering proceeds, which amounts have been used to pay selling commissions, a dealer manager fee and other organizational and offering expenses. We also are required to use gross offering proceeds to pay acquisition fees, acquisition expenses and asset management fees. Unless our aggregate investments increase in value to compensate for these fees and expenses, which may not occur, it is unlikely that our stockholders will be able to sell their shares of our common stock, whether pursuant to our share repurchase plan or otherwise, without incurring a substantial loss. We cannot assure our stockholders that their shares of our common stock will ever appreciate in value to equal the price our stockholders paid for their shares of our common stock. Therefore, shares of our common stock should be considered illiquid and a long-term investment and our stockholders must be prepared to hold their shares of our common stock for an indefinite length of time.

The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment.

On October 5, 2016, our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an estimated per share NAV of our common stock of $9.01. We are providing this estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by FINRA with respect to customer account statements. The

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valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the IPA in April 2013, in addition to guidance from the SEC.

The estimated per share NAV was determined after consultation with our advisor and an independent third-party valuation firm, the engagement of which was approved by the audit committee of the board. FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, our independent valuation firm’s methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant.

The estimated per share NAV is not audited or reviewed by our independent registered public accounting firm and does not represent the fair value of our assets or liabilities according to GAAP. Accordingly, with respect to the estimated per share NAV, we can give no assurance that:

• a stockholder would be able to resell his or her shares at our estimated per share NAV;

• a stockholder would ultimately realize distributions per share equal to our estimated per share NAV upon liquidation of our assets and settlement of our liabilities or a sale of the company;

• our shares of common stock would trade at our estimated per share NAV on a national securities exchange;

• an independent third-party appraiser or other third-party valuation firm, other than the third-party valuation firm engaged by the board to assist in its determination of the estimated per share NAV, would agree with our estimated per share NAV; or

• the methodology used to estimate our per share NAV would be acceptable to FINRA or comply with the Employee Retirement Income Security Act of 1974, or ERISA, reporting requirements.

Further, the estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2016. The value of our shares may fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. Going forward, we intend to engage an independent valuation firm to assist us with publishing an updated estimated per share NAV on at least an annual basis.

For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of the estimated per share NAV, see our Current Report on Form 8-K filed with the SEC on October 7, 2016.

We have experienced losses in the past and we may experience additional losses in the future.

Historically, we have experienced net losses (calculated in accordance with accounting principles generally accepted in the United States of America, or GAAP) and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs, general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments. For a further discussion of our operational history and the factors affecting our losses, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and the notes thereto.

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

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

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expenditure requirements, tax considerations and annual distribution requirements needed to qualify as a REIT. As a result, our distribution rate and payment frequency may vary from time to time.

Our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing on May 14, 2014 and ending on March 31, 2017. The daily distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution rate of 6.0%, assuming a purchase price of $10.00 per share. These daily distributions were or will be aggregated and paid in cash or shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering monthly in arrears, only from legally available funds.

The distributions paid for the years ended December 31, 2016 and 2015, along with the amount of distributions reinvested pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering and the sources of our distributions as compared to cash flows from operations were as follows:

	Years Ended December 31,
	2016				2015
Distributions paid in cash	$	51,681,000			$	43,869,000
Distributions reinvested	64,604,000				59,335,000
	$	116,285,000			$	103,204,000
Sources of distributions:
Cash flows from operations	$	114,357,000	98.3	%	$	—	—	%
Proceeds from borrowings	1,928,000		1.7		—		—
Offering proceeds	—		—		103,204,000		100
	$	116,285,000	100	%	$	103,204,000	100	%

Under GAAP, acquisition related expenses related to property acquisitions accounted for as business combinations are expensed, and therefore subtracted from cash flows from operations. However, these expenses may be paid from offering proceeds or debt.

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

As of December 31, 2016, we had an amount payable of $2,148,000 to our advisor or its affiliates primarily for asset and property management fees and acquisition fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.

As of December 31, 2016, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, which was equal to the amount of distributions payable to our stockholders for the period from May 14, 2014, the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000 required pursuant to the initial offering, through June 5, 2014, the day prior to the date we acquired our first property. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees. Other than the waiver of such asset management fees by our advisor in order to provide us with additional funds to pay initial distributions to our stockholders through June 5, 2014, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

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The distributions paid for the years ended December 31, 2016 and 2015, along with the amount of distributions reinvested pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering and the sources of our distributions as compared to funds from operations attributable to controlling interest, or FFO, were as follows:

	Years Ended December 31,
	2016				2015
Distributions paid in cash	$	51,681,000			$	43,869,000
Distributions reinvested	64,604,000				59,335,000
	$	116,285,000			$	103,204,000
Sources of distributions:
FFO attributable to controlling interest	$	62,915,000	54.1	%	$	—	—	%
Proceeds from borrowings	53,370,000		45.9		—		—
Offering proceeds	—		—		103,204,000		100
	$	116,285,000	100	%	$	103,204,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net loss to FFO, see Part II, Item 6. Selected Financial Data.

We have a limited operating history. Therefore, our stockholders may not be able to adequately evaluate our ability to achieve our investment objectives, and the prior performance of other programs sponsored by American Healthcare Investors and Griffin Capital may not be an accurate predictor of our future results.

We were formed in January 2013, did not engage in any material business operations prior to the effective date of our offering and acquired our first property in June 2014. As a result, an investment in shares of our common stock may entail more risks than the shares of common stock of a REIT with a more substantial operating history. In addition, our stockholders should not rely on the past performance of other American Healthcare Investors or Griffin Capital-sponsored programs to predict our future results. Our stockholders should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies like ours that do not have a substantial operating history, many of which may be beyond our control. For example, due to the challenging economic conditions in recent years, distributions to stockholders of several private real estate programs sponsored by Griffin Capital were suspended. Therefore, to be successful in this market, we must, among other things:

• identify and acquire investments that further our investment strategy;

• rely on our dealer manager to maintain its network of licensed securities brokers and other agents;

• attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;

• respond to competition both for investment opportunities and potential investors’ investment in us; and

• build and expand our operational structure to support our business.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause our stockholders to lose all or a portion of their investment and adversely effect our results of operations.

Our co-sponsors and certain of their key personnel will face competing demands relating to their time, and this may cause our operating results to suffer.

American Healthcare Investors and its key personnel serve as key personnel and co-sponsor of Griffin-American Healthcare REIT IV, Inc., may sponsor or co-sponsor additional real estate programs in the future, and provide certain asset management and property management services to certain of Colony NorthStar’s managed companies. In addition, Griffin Capital and certain of its key personnel and its respective affiliates serve as key personnel, advisors, managers and sponsors or co-sponsors of 15 other Griffin Capital-sponsored programs, including Griffin Capital Essential Asset REIT, Inc., Griffin Capital Essential Asset REIT II, Inc., Griffin-American Healthcare REIT IV, Inc., Griffin-Benefit Street Partners BDC Corp., Griffin Institutional Access Real Estate Fund and Griffin Institutional Access Credit Fund, and may have other business interests as well. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our stockholders’ investment may suffer.

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In addition, executive officers of Griffin Capital also are officers of Griffin Securities and other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to allocation of management time and services between us and the other entities. Accordingly, competing demands of Griffin Capital personnel may cause us to be unable to successfully implement our investment objectives or generate cash needed to make distributions to our stockholders, and to maintain or increase the value of our assets.

If we are unable to find suitable investments, we may not have sufficient cash flows available for distributions to our stockholders.

Our ability to achieve our investment objectives and to pay distributions to our stockholders is dependent upon the performance of our advisor in selecting investments for us to acquire, selecting tenants for our properties and securing financing arrangements. Except for investments identified in our public filings, our stockholders generally will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. Our stockholders must rely entirely on the management ability of our advisor and the oversight of our board. Our advisor may not be successful in identifying suitable investments on financially attractive terms or that, if they identify suitable investments, our investment objectives will be achieved. If we, through our advisor, are unable to find additional suitable investments, we will hold the net proceeds of our offering in an interest-bearing account or invest the net proceeds in short-term, investment-grade investments. In such an event, our ability to pay distributions to our stockholders would be adversely affected.

We face competition for the acquisition of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, which may impede our ability to make acquisitions or may increase the cost of these acquisitions and may reduce our profitability and could cause our stockholders to experience a lower return on our stockholders’ investment.

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, including international, national, regional and local operators, acquirers and developers of healthcare and real estate properties, as well as Griffin-American Healthcare REIT IV, Inc. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings,hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities or other assets we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets, and therefore, increased prices paid for them. If there is an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices per property if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices per property for medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities, our business, financial condition, results of operations and our ability to pay distributions to our stockholders may be materially and adversely affected and our stockholders may experience a lower return on their investment.

Our stockholders may be unable to sell their shares of our common stock because their ability to have their shares of our common stock repurchased pursuant to our share repurchase plan is subject to significant restrictions and limitations.

Our share repurchase plan includes significant restrictions and limitations. Except in the cases of death or qualifying disability, our stockholders must hold their shares of our common stock for at least one year. Requesting stockholders must present at least 25.0% of their shares of our common stock for repurchase and until they have held their shares of our common stock for at least four years, repurchases will be made for less than our stockholders paid for their shares of our common stock. Shares of our common stock may be repurchased quarterly, at our discretion, on a pro rata basis, and are limited during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, that shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering. In addition, our board may reject share repurchase requests in its sole discretion and reserves the right to amend, suspend or terminate our share repurchase plan at any time upon 30 days’ written notice. Therefore, in making a decision to purchase shares of our common stock, our stockholders should not assume that they will be able to sell any of their shares of our common stock back to us pursuant to our share repurchase plan and our stockholders also should understand that

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the repurchase price will not necessarily correlate to the value of our real estate holdings or other assets. If our board terminates our share repurchase plan, our stockholders may not be able to sell their shares of our common stock even if our stockholders deem it necessary or desirable to do so.

Our stockholders are limited in their ability to sell their shares pursuant to our share repurchase plan and may have to hold their shares for an indefinite period of time.

Our board may reject any request for repurchase of shares, suspend (in whole or in part) the share repurchase plan at any time and from time to time upon notice to our stockholders and amend, suspend, reduce, terminate or otherwise change our share repurchase plan at any time upon 30 days’ notice to our stockholders for any reason it deems appropriate. Because we only repurchase shares on a quarterly basis, depending upon when during the quarter our board makes this determination, it is possible that our stockholders would not have any additional opportunities to have their shares repurchased under the prior terms of the program, or at all, upon receipt of the notice. In addition, the share repurchase plan includes numerous restrictions that would limit stockholders’ ability to sell their shares. Generally, stockholders must have held their shares for at least one year in order to participate in our share repurchase program, subject to the right of our board to waive such holding requirement in the event of the death or qualifying disability of a stockholder. Unless the shares of our common stock are being repurchased in connection with a stockholder’s death or qualifying disability, the purchase price for shares repurchased under our share repurchase program will be as set forth below. We do not currently anticipate obtaining appraisals for our investments (other than investments in transactions with affiliates), and, accordingly, the estimated value of our investments should not be viewed as an accurate reflection of the fair market value of our investments nor will they represent the amount of net proceeds that would result from an immediate sale of our assets. Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount, as such term is defined in our share repurchase plan, as amended, shall be equal to the lesser of (i) the amount per share that a stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, we will repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or qualifying disability, the price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).These limits might prevent us from accommodating all repurchase requests made in any year. These restrictions severely limit our stockholders’ ability to sell their shares should they require liquidity, and limit their ability to recover the value such stockholders invested or the fair market value of their shares. As a result, stockholders should not rely on our share repurchase plan to provide them with liquidity. On October 5, 2016, our board approved and established an estimated per share NAV of our common stock of $9.01.

Our advisor may be entitled to receive significant compensation in the event of our liquidation or in connection with a termination of the Advisory Agreement, even if such termination is the result of poor performance by our advisor.

We are externally advised by our advisor pursuant to the Advisory Agreement between us and our advisor, which has a one-yearterm that expires on February 26, 2018 and is subject to successive one-year renewals upon the mutual consent of us and our advisor. In the event of a partial or full liquidation of our assets, our advisor will be entitled to receive an incentive distribution equal to 15.0% of the remaining net proceeds of the liquidation, after distributions to our stockholders, in the aggregate, of a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the shares of our common stock, as adjusted for distribution of net sale proceeds. In the event of a termination of the Advisory Agreement in connection with the listing of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (i) the market value of our outstanding common stock at listing plus distributions paid by us prior to the listing of the shares of our common stock on a national securities exchange, exceeds (ii) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus the amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination or non-renewal of the Advisory Agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock) and the total amount

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of cash equal to an annual 7.0% cumulative, non-compounded return to our stockholders on the gross proceeds from the sale of shares of our common stock through the termination date. Such distribution upon termination of the Advisory Agreement is payable to our advisor even upon termination or non-renewal of the Advisory Agreement as a result of poor performance by our advisor. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor in connection with the termination of the Advisory Agreement cannot be determined at the present time, but such amounts, if paid, will reduce the cash available for distribution to our stockholders.

We may not effect a liquidity event within our targeted time frame of five years after the completion of our offering stage, or at all. If we do not effect a liquidity event, our stockholders may have to hold their investment in shares of our common stock for an indefinite period of time.

On a limited basis, our stockholders may be able to sell shares of our common stock to us through our share repurchase plan. However, in the future we may also consider various forms of liquidity events, including but not limited to: (i) the listing of the shares of our common stock on a national securities exchange; (ii) our sale or merger in a transaction that provides our stockholders with a combination of cash and/or securities of a publicly traded company; and (iii) the sale of all or substantially all of our real estate and real estate-related investments for cash or other consideration. We presently intend to effect a liquidity event within five years after the completion of our offering stage, which we deem to be the completion of our offering and any subsequent public offerings, excluding any offerings pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering, or that are limited to any benefit plans. However, we are not obligated, through our charter or otherwise, to effectuate a liquidity event and may not effect a liquidity event within such time or at all. If we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in the shares of our common stock other than limited liquidity through our share repurchase plan.

Because a portion of our offering price from the sale of shares of our common stock is used to pay expenses and fees, the full offering price paid by our stockholders is not invested in real estate investments. As a result, our stockholders will only receive a full return of their invested capital if we either (i) sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets, or (ii) list the shares of our common stock on a national securities exchange and the market value of our company after we list is substantially in excess of the original purchase price of our assets.

Our board may change our investment objectives without seeking our stockholders’ approval.

Our board may change our investment objectives without seeking our stockholders’ approval if our directors, in accordance with their fiduciary duties to our stockholders, determine that a change is in our stockholders’ best interest. A change in our investment objectives could reduce our payment of cash distributions to our stockholders or cause a decline in the value of our investments.

Risks Related to Our Business

The availability and timing of cash distributions to our stockholders is uncertain. If we fail to pay distributions, our stockholders’ investment in shares of our common stock could suffer.

We expect to continue to pay distributions to our stockholders monthly. However, we bear all expenses incurred in our operations, which are deducted from cash flows generated by operations prior to computing the amount of cash distributions to our stockholders. In addition, our board, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be available to pay distributions to them monthly, or at all. Should we fail for any reason to distribute at least 90.0% of our annual taxable income, excluding net capital gains, we would not qualify for the favorable tax treatment accorded to REITs.

We are uncertain of all of our sources of debt or equity for funding our capital needs. If we cannot obtain funding on acceptable terms, our ability to acquire, and make necessary capital improvements to, properties may be impaired or delayed.

To maintain our qualification as a REIT, we generally must distribute to our stockholders at least 90.0% of our annual taxable income, excluding net capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our capital needs from retained earnings. We have not identified all of our sources of debt or equity for funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to acquire, and make necessary capital improvements to, properties, pay other expenses or expand our business.

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We use mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to pay distributions and could decrease the value of our stockholders’ investment.

We have financed, and will continue to finance, a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that our overall leverage will not exceed 45.0% of the combined market value of our real estate and real estate-related investments, as determined at the end of each calendar year. Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we qualify and maintain our qualification as a REIT for federal income tax purposes.

High debt levels may cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flows from a property and the cash flows needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Higher mortgage rates may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash available for distribution to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

The market environment may adversely affect our operating results, financial condition and ability to pay distributions to our stockholders.

Any deterioration of financial conditions could have the potential to materially adversely affect the value of our properties and other investments, the availability or the terms of financing that we may anticipate utilizing, our ability to make principal and interest payments on, or refinance, certain property acquisitions or refinance any debt at maturity, and/or, for our leased properties, the ability of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. The market environment also could affect our operating results and financial condition as follows:

• Debt Markets — The debt market remains sensitive to the macro environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries. Should overall borrowing costs increase, due to either increases in index rates or increases in lender spreads, our operations may generate lower returns.

• Real Estate Markets — Although construction activity has increased, it remains near historic lows; as a result, incremental demand growth has helped to reduce vacancy rates and support modest rental growth. Improving fundamentals have resulted in gains in property values, although in many markets property values, occupancy and rental rates continue to be below those previously experienced before the economic downturn. If recent improvements in the economy reverse course, the properties we acquire could substantially decrease in value

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after we purchase them. Consequently, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge or record a loss on sale in earnings.

Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to national and local economic factors we cannot control or predict.

Our results of operations are subject to the risks of a national economic slowdown or downturn and other changes in national and local economic conditions. The following factors may affect income from our properties, our ability to acquire and dispose of properties, and yields from our properties:

• poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity, or operational failures. We may also be required to provide rent concessions or reduced rental rates to maintain or increase occupancy levels;

• reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;

• the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment or other factors;

• our lenders under a line of credit could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of such lender on favorable terms, or at all;

• one or more counterparties to our interest rate swaps could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of these instruments;

• increases in supply of competing properties or decreases in demand for our properties may impact our ability to maintain or increase occupancy levels and rents;

• constricted access to credit may result in tenant defaults or non-renewals under leases;

• job transfers and layoffs may cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels; and

• increased insurance premiums, real estate taxes or utilities or other expenses may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may make it difficult to increase rents to tenants on turnover, which may limit our ability to increase our returns.

The length and severity of any economic slowdown or downturn cannot be predicted. Our results of operations, our ability to continue to pay distributions to our stockholders and our ability to dispose of our investments may be negatively impacted to the extent an economic slowdown or downturn is prolonged or becomes more severe.

Increasing vacancy rates for commercial real estate may result from any increased disruptions in the financial markets and deterioration in economic conditions, which could reduce revenue and the resale value of our properties.

We depend upon tenants for a majority of our revenue from real property investments. Future disruptions in the financial markets and deterioration in economic conditions may result in increased vacancy rates for commercial real estate, including medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, due to generally lower demand for rentable space, as well as potential oversupply of rentable space. Increased unemployment rates may lead to reduced demand for medical services, causing physician groups and hospitals to delay expansion plans, leaving a growing number of vacancies in new buildings. Reduced demand for medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities could require us to increase concessions, tenant improvement expenditures or reduce rental rates to maintain occupancies beyond those anticipated at the time we acquire the property. In addition, the market value of a particular property could be diminished by prolonged vacancies. Future disruptions in the financial markets and deterioration in economic conditions could impact certain properties we acquire and such properties could experience higher levels of vacancy than anticipated at the time we acquire them. The value of our real estate investments could decrease below the amounts we paid for the investments. Revenues from properties could decrease due to lower occupancy rates, reduced rental rates and potential increases in uncollectible rent. We will incur expenses, such as for maintenance costs, insurance costs and property taxes, even though a property is vacant. The longer the period of significant vacancies for a property, the greater the potential negative impact on our revenues and results of operations.

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We are dependent on tenants for our revenue, and lease terminations could reduce our distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could cause us to reduce the amount of distributions to our stockholders. If a property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.

The integrated senior health campuses managed by TMS account for a significant portion of our revenues and/or operating income. Adverse developments in TMS’s business or financial condition could have a material adverse effect on us.

As of December 31, 2016, Trilogy Management Services, LLC, or TMS, managed all of the day-to-day operations for our integrated senior health campuses pursuant to long-term management agreements. These integrated senior health campuses represent a substantial portion of our portfolio, based on their gross book value, and account for a significant portion of our revenues and/or net operating income. Although we have various rights as the owner of these integrated senior health campuses under our management agreements, we rely on TMS’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our integrated senior health campuses operations efficiently and effectively, and to identify and manage development opportunities for new integrated senior health campuses. We also rely on TMS to provide accurate campus-level financial results for our integrated senior health campuses in a timely manner and to otherwise operate our integrated senior health campuses in compliance with the terms of our management agreements and all applicable laws and regulations. We depend on TMS’s ability to attract and retain skilled personnel to provide these services. A shortage of nurses or other trained personnel or general inflationary pressures may force TMS to enhance its pay and benefits package to compete effectively for such personnel, but it may not be able to offset these added costs by increasing the rates charged to residents. As such, any adverse developments in TMS’s business or financial condition, including its ability to retain key personnel, could impair its ability to manage our integrated senior health campuses efficiently and effectively and could have a material adverse effect on us. In addition, if TMS experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings by or against it under the United States Bankruptcy Code. Any one or a combination of these risks could have a material adverse effect on us.

We have rights to terminate our management agreements with TMS for our integrated senior health campuses under any circumstances; however, we may be unable to replace TMS in the event that our management agreements are terminated or not renewed.

We continually monitor and assess our contractual rights and remedies under our management agreements with TMS. When determining whether to pursue any existing or future rights or remedies under those agreements, including termination rights, we consider numerous factors, including legal, contractual, regulatory, business and other relevant considerations. In the event that we exercise our rights to terminate management agreements with TMS for any reason or such agreements are not renewed upon expiration of their terms, we would attempt to reposition the affected integrated senior health campuses with another manager. Although we believe that many qualified national and regional operators would be interested in managing our integrated senior health campuses, we cannot provide any assurance that we would be able to locate another suitable manager or, if we were successful in locating such a manager, that it would manage the integrated senior health campuses effectively or that any such transition would be completed timely. Any such transition would likely result in disruption of the operation of such facilities, including matters relating to staffing and reporting. Moreover, the transition to a replacement manager may require approval by the applicable regulatory authorities and, in most cases, one or more of our lenders including the mortgage lenders for the integrated senior health campuses, and we cannot provide any assurance that such approvals would be granted on a timely basis, if at all. Any inability to replace, or delay in replacing TMS as the manager of integrated senior health campuses could have a material adverse effect on us.

If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.

Any of our current or future tenants, or any guarantor of one of our current or future tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar us from attempting to collect pre-bankruptcy debts from the bankrupt tenant or its properties unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If we assume a lease, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant

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because our claim would be capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15.0% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.

The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past due balances under the relevant lease, and could ultimately preclude full collection of these sums. Such an event also could cause a decrease or cessation of current rental payments, reducing our cash flows and the amounts available for distributions to our stockholders. In the event a tenant or lease guarantor declares bankruptcy, the tenant or its trustee may not assume our lease or its guaranty. If a given lease or guaranty is not assumed, our cash flows and the amounts available for distributions to our stockholders may be adversely affected.

We face potential adverse consequences of bankruptcy or insolvency by our operators, borrowers, managers and other obligors.

We are exposed to the risk that our operators, borrowers, managers or other obligors may become bankrupt or insolvent. Although our loan, management and other agreements give us the right to exercise certain remedies in the event of default on the obligations owing to us or upon the occurrence of certain insolvency events, federal laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, if a debtor-manager seeks bankruptcy protection, the automatic stay provisions of the United States Bankruptcy Code would preclude us from enforcing our remedies against the manager unless relief is first obtained from the court having jurisdiction over the bankruptcy case. In any of these events, we also may be required to fund certain expenses and obligations, e.g., real estate taxes, debt costs and maintenance expenses, to preserve the value of our properties, avoid the imposition of liens on our properties or transition our properties to a new operator or manager. Furthermore, many of our facilities are leased to healthcare providers who provide long-term custodial care to the elderly. Evicting such operators for failure to pay rent while the facility is occupied may involve specific procedural requirements and may not be successful. Additionally, the financial weakness or other inability of our operators, borrowers or managers to make payments or comply with certain other lease obligations may affect our compliance with certain covenants contained in our debt securities, credit facilities and the mortgages on the properties leased or managed by such operators or managers or otherwise adversely affect our results of operations. Under certain conditions, defaults under the underlying mortgages may result in cross default under our other indebtedness. Although we may be able to secure amendments under the applicable agreements in those circumstances, the bankruptcy of an applicable operator, borrower or manager may potentially result in less favorable borrowing terms than currently available, delays in the availability of funding or other materially adverse consequences.

Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions could be lower than if we did not enter into long-term leases.

We may enter into long-term leases with tenants of certain of our properties. Our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.

We may incur additional costs in acquiring or re-leasing properties, which could adversely affect the cash available for distribution to our stockholders.

We may invest in properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If the tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant without making substantial capital improvements or incurring other significant re-leasing costs. We also may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant. These consequences could adversely affect our revenues and reduce the cash available for distribution to our stockholders.

We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract, replace or retain tenants and decrease our stockholders’ return on investment.

When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements may require us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant improvements or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are

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acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flows as a result of fewer potential tenants being attracted to the property or our existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or pay distributions to our stockholders.

Our success is dependent on the performance of our advisor and certain key personnel.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor in identifying and acquiring investments, the determination of any financing arrangements, the asset management of our investments and the management of our day-to-day activities. Ouradvisor has broad discretion over the use of proceeds from our offering and our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our offering or other periodic filings with the SEC. We rely on the management ability of our advisor, subject to the oversight and approval of our board. If our advisor suffers or is distracted by adverse financial or operational problems in connection with their own operations or the operations of American Healthcare Investors or Griffin Capital unrelated to us, our advisor may be unable to allocate time and/or resources to our operations. If our advisor is unable to allocate sufficient resources to oversee and perform our operations for any reason, we may be unable to achieve our investment objectives or to pay distributions to our stockholders. In addition, our success depends to a significant degree upon the continued contributions of our advisor’s officers and certain of the managing directors, officers and employees of American Healthcare Investors, in particular Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff, each of whom would be difficult to replace. Messrs. Hanson, Prosky and Streiff currently serve as our executive officers and/or directors and Mr. Hanson also serves as Chairman of our Board of Directors. We currently do not have an employment agreement with any of Messrs. Hanson, Prosky or Streiff. In the event that Messrs. Hanson, Prosky or Streiff are no longer affiliated with American Healthcare Investors, for any reason, it could have a material adverse effect on our success and American Healthcare Investors may not be able to attract and hire as capable individuals to replace Messrs. Hanson, Prosky and/or Streiff. We do not have key man life insurance on any of our co-sponsors’ key personnel. If our advisor or American Healthcare Investors were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.

Our advisor may terminate the Advisory Agreement, which could require us to pay substantial fees and may require us to find a new advisor.

Either we or our advisor are able to terminate the Advisory Agreement subject to a 60-day transition period with respect to certain provisions of the Advisory Agreement. However, if the Advisory Agreement is terminated in connection with the listing of shares of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (i) the market value of the outstanding shares of our common stock at listing plus distributions paid by us prior to listing, exceeds (ii) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination of the Advisory Agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units equal to the amount that would be payable to our advisor pursuant to the incentive distribution upon sales if we liquidated all of our assets for their fair market value. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor upon termination of the Advisory Agreement cannot be determined at the present time.

If our advisor were to terminate the Advisory Agreement, we would need to find another advisor to provide us with day-to-day management services or have employees to provide these services directly to us. There can be no assurances that we would be able to find new advisors or employees or enter into agreements for such services on acceptable terms.

If we internalize our management functions, we could incur significant costs associated with being self-managed.

Our strategy may involve internalizing our management functions. If we internalize our management functions, we would no longer bear the costs of the various fees and expenses we expect to pay to our advisor under the Advisory Agreement; however, our direct expenses would include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, SEC reporting and compliance. We would also incur the compensation and benefits costs of our officers and other employees and consultants that are now paid by our advisor or its affiliates. In addition, we may issue equity awards to officers, employees and consultants, which awards would decrease net income and FFO, and may further dilute our stockholders’ investment. We cannot reasonably estimate the amount of fees to our advisor we would save and the

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costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we no longer pay to our advisor, our net income per share and FFO per share may be lower as a result of the internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders.

As currently organized, we do not directly have any employees. If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as worker’s disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. Upon any internalization of our advisor, certain key personnel of our advisor or American Healthcare Investors may not be employed by us, but instead may remain employees of our co-sponsors or their affiliates.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. They have a great deal of know-how and can experience economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could, therefore, result in our incurring additional costs and/or experiencing deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our properties.

Our success is dependent on the performance of our co-sponsors.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor. Our advisor is a joint venture between our two co-sponsors, in which American Healthcare Investors owns a 75% interest and Griffin Capital indirectly owns a 25.0% interest. Our advisor’s and co-sponsors’ ability to manage our operations successfully will be impacted by trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment may negatively impact the value of commercial real estate assets and contribute to a general slow-down in our industry, which could put downward pressure on our co-sponsors’ revenues and operating results. Additionally, American Healthcare Investors is 47.1% owned by AHI Group Holdings, 45.1% indirectly owned by Colony NorthStar and 7.8% owned by Mr. Flaherty. American Healthcare Investors and its sponsored programs, including our company, may not realize the anticipated benefits of the relationship with Colony NorthStar and Mr. Flaherty due to, among other things, the economic and overall conditions of the healthcare real estate industry or American Healthcare Investors, Colony NorthStar and Mr. Flaherty having overlapping interests that could exacerbate potential conflicts or disputes. To the extent that any decline in our co-sponsors’ revenues and operating results impacts the performance of our advisor, our results of operations and financial condition could also suffer.

Our advisor and its affiliates have no obligation to defer or forgive fees or loans or advance any funds to us, which could reduce our ability to acquire investments or pay distributions.

Other than the waiver of asset management fees by our advisor in 2014 to provide us with additional funds to pay initial distributions to our stockholders through June 5, 2014, as discussed above, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. As a result, we may have less cash available to acquire investments or pay distributions.

We may structure acquisitions of property in exchange for limited partnership units in our operating partnership on terms that could limit our liquidity or our flexibility.

We may acquire properties by issuing limited partnership units in our operating partnership in exchange for a property owner contributing property to the partnership. If we enter into such transactions, in order to induce the contributors of such properties to accept units in our operating partnership, rather than cash, in exchange for their properties, it may be necessary for us to provide them additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for shares of our common stock, or, at our option, cash equal to the value of an equivalent number of shares of our common stock. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to redeem a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to redeem units for cash pursuant to such a provision, it would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or pay distributions to our stockholders. Moreover, if we were required to redeem units for cash at a time when we did not have sufficient cash to fund the redemption, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with a defined return, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively

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impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares of our common stock. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and acquire investments.

We have cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels. If any banking institution in which we have deposited funds ultimately fails, we may lose the amount of our deposits over any federally-insured amount. The loss of our deposits could reduce the amount of cash we have available to distribute or invest and could result in a decline in the value of our stockholders’ investment.

Because not all REITs calculate MFFO the same way, our use of MFFO may not provide meaningful comparisons with other REITs.

We use modified funds from operations attributable to controlling interest, or MFFO, and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs, which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. However, not all REITs calculate MFFO the same way. If REITs use different methods of calculating MFFO, it may not be possible for investors to meaningfully compare the performance of certain REITs.

Our use of derivative financial instruments to hedge against foreign currency exchange rate fluctuations could expose us to risks that may adversely affect our results of operations, financial condition and ability to pay distributions to our stockholders.

We may use derivative financial instruments to hedge against foreign currency exchange rate fluctuations, in which case we would be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and investor relationships. As our reliance on technology increases, so will the risks posed to our information systems, both internal and those we outsource. There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions, which could have a negative impact on our financial results, operations, business relationships or confidential information.

Risks Related to Conflicts of Interest

The conflicts of interest faced by our officers may cause us not to be managed solely in our stockholders’ best interest, which may adversely affect our results of operations and the value of their investment.

All of our officers also are managing directors, officers or employees of American Healthcare Investors or other affiliated entities that will receive fees in connection with our offering and our operations. These persons are not precluded from working with, being employed by, or investing in, any program American Healthcare Investors sponsors or may sponsor in the future. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment strategy and our investment opportunities. Furthermore, they may have conflicts of interest in allocating their time and resources between our business and these other activities. During times of intense activity in other programs, such persons may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. Poor or inadequate management of our business would adversely affect our results of operations and the ownership value of shares of our common stock.

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Our co-sponsors and their affiliates also sponsor and/or advise other real estate programs that use investment strategies that are similar to ours; therefore, our executive officers and the officers and key personnel of our co-sponsors and their affiliates may face conflicts of interest relating to the purchase and leasing of properties, and such conflicts may not be resolved in our favor.

We rely on our advisor as a source for all or a portion of our investment opportunities. Our advisor is jointly owned by our co-sponsors, American Healthcare Investors and Griffin Capital. Griffin Capital, through its wholly-owned subsidiary Griffin Capital Asset Management Company, LLC, indirectly owns 25.0% of our advisor. American Healthcare Investors is the managing member and owns 75.0% of our advisor, and Colony NorthStar is the indirect owner of approximately 45.1% of American Healthcare Investors. American Healthcare Investors and Griffin Capital co-sponsor Griffin-American Healthcare REIT IV, Inc. that also invests in healthcare and healthcare-related properties. Griffin Capital currently sponsors other real estate programs, and Colony NorthStar and its affiliates serve as the advisor and/or sponsor to other programs, including NorthStar Healthcare Income, Inc., or NHI, that invest in healthcare real estate and healthcare real estate-related assets. As a result, we may be seeking to acquire properties at the same time as one or more other real estate programs sponsored by one of our co-sponsors or advised or sponsored by Colony NorthStar or its affiliates, including NHI, and these other programs may use investment strategies and have investment objectives that are similar to ours. Officers and key personnel of our co-sponsors and Colony NorthStar and its affiliates may face conflicts of interest relating to the allocation of properties that may be acquired. American Healthcare Investors and Colony NorthStar have established general allocation policies to allocate healthcare real estate investment opportunities among such real estate programs, however such general allocation principles may be amended at any time and have not been adopted by our board. Nevertheless, there is a risk that the allocation of investment opportunities may result in our acquiring a property that provides lower returns to us than a property purchased by another real estate program sponsored by one or both of our co-sponsors or advised or sponsored by Colony NorthStar or its affiliates. In addition, we may acquire properties in geographic areas where a real estate program sponsored by one or both of our co-sponsors or advised or sponsored by Colony NorthStar or its affiliates own properties. If one of these other real estate programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant.

Our advisor faces conflicts of interest relating to its compensation structure, including the payment of acquisition fees and asset management fees, which could result in actions that are not necessarily in our stockholders’ long-term best interest.

Under the Advisory Agreement and pursuant to the subordinated participation interest our advisor holds in our operating partnership, our advisor will be entitled to fees and distributions that are structured in a manner intended to provide incentives to our advisor to perform in both our and our stockholders’ long-term best interests. The fees to which our advisor or its affiliates will be entitled include acquisition fees, asset management fees, property management fees, disposition fees and other fees as provided for under the Advisory Agreement and agreement of limited partnership of our operating partnership. The distributions our advisor may become entitled to receive would be payable upon distribution of net sales proceeds to our stockholders, the listing of the shares of our common stock on a national securities exchange, certain merger transactions or the termination of the Advisory Agreement. However, because our advisor will be entitled to receive substantial minimum compensation regardless of our performance, our advisor’s interests may not be wholly aligned with our stockholders’ interests. In that regard, our advisor or its affiliates will receive an asset management fee with respect to the ongoing operation and management of properties based on the amount of our initial investment and capital expenditures and not the performance of those investments, which could result in our advisor not having adequate incentive to manage ourportfolio to provide profitable operations during the period we hold our investments. On the other hand, our advisor could be motivated to recommend riskier or more speculative investments in order to increase the fees payable to our advisor or for us to generate the specified levels of performance or net sales proceeds that would entitle our advisor to fees or distributions. Furthermore, our advisor or its affiliates will receive an acquisition fee that is based on the contract purchase price of each property acquired or the origination or acquisition price of any real estate-related investment, rather than the performance of those investments. Therefore, our advisor or its affiliates may have an incentive to recommend investments more quickly or with a higher purchase price or investments that may not produce the maximum risk adjusted returns in order to receive such acquisition fees.

Our advisor may receive economic benefits from its status as a limited partner without bearing any of the investment risk.

Our advisor is a limited partner in our operating partnership. Our advisor is entitled to receive an incentive distribution equal to 15.0% of net sales proceeds of properties after we have received and paid to our stockholders a return of their invested capital and an annual 7.0% cumulative, non-compounded return on the gross proceeds of the sale of shares of our common stock. We will bear all of the risk associated with the properties but, as a result of the incentive distributions to our advisor, we are not entitled to all of our operating partnership’s proceeds from property dispositions.

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The distribution payable to our advisor may influence our decisions about listing the shares of our common stock on a national securities exchange, merging our company with another company and acquisition or disposition of our investments.

Our advisor’s entitlement to fees upon the sale of our assets and to participate in net sales proceeds could result in our advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return which would entitle our advisor to compensation relating to such sales, even if continued ownership of those investments might be in our stockholders’ long-term best interest. The subordinated participation interest may require our operating partnership to make a distribution to our advisor in redemption of its limited partnership units upon the listing of the shares of our common stock on a national securities exchange or the merger of our company with another company in which our stockholders receive shares that are traded on a national securities exchange if our advisor meets the performance thresholds included in our operating partnership’s limited partnership agreement, even if our advisor is no longer serving as our advisor. To avoid making this distribution, our independent directors may decide against listing the shares of our common stock or merging with another company even if, but for the requirement to make this distribution, such listing or merger would be in our stockholders’ best interest. In addition, the requirement to pay these fees could cause our independent directors to make different investment or disposition decisions than they would otherwise make, in order to satisfy our obligation to our advisor.

We may acquire assets from, or dispose of assets to, affiliates of our advisor, which could result in us entering into transactions on less favorable terms than we would receive from a third party or that negatively affect the public’s perception of us.

We may acquire assets from affiliates of our advisor. Further, we may also dispose of assets to affiliates of our advisor. Affiliates of our advisor may make substantial profits in connection with such transactions and may owe fiduciary and/or other duties to the selling or purchasing entity in these transactions, and conflicts of interest between us and the selling or purchasing entities could exist in such transactions. Because our independent directors would rely on our advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party. Also, the existence of conflicts, regardless of how they are resolved, might negatively affect the public’s perception of us.

If we enter into joint ventures with affiliates, we may face conflicts of interest or disagreements with our joint venture partners that may not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s-length with an independent joint venture partner.

In the event that we enter into a joint venture with any other program sponsored or advised by one of our co-sponsors or one of their affiliates, we may face certain additional risks and potential conflicts of interest. For example, securities issued by other current or future Griffin Capital or American Healthcare Investors-sponsored programs may never have an active trading market. Therefore, if we were to become listed on a national securities exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. Joint ventures between us and other current or future Griffin Capital or American Healthcare Investors-sponsored programs will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could occur regarding matters pertaining to the joint venture, including determining when and whether to buy or sell a particular property and the timing of a liquidation, which might have a negative impact on the joint venture and decrease returns to our stockholders.

Risks Related to Our Organizational Structure

Several potential events could cause our stockholders’ investment in us to be diluted, which may reduce the overall value of our stockholders’ investment.

Our stockholders’ investment in us could be diluted by a number of factors, including:

• future offerings of our securities, including issuances pursuant to the Secondary DRIP Offering and up to 200,000,000 shares of any class or series of preferred stock that our board may authorize;

• private issuances of our securities to other investors, including institutional investors;

• issuances of our securities pursuant to our incentive plan; or

• redemptions of units of limited partnership interest in our operating partnership in exchange for shares of our common stock.

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To the extent we issue additional equity interests, current stockholders’ percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate and real estate-related investments, our stockholders may also experience dilution in the book value and fair market value of their shares of our common stock.

Our ability to issue preferred stock may include a preference in distributions superior to our common stock and also may deter or prevent a sale of shares of our common stock in which our stockholders could profit.

Our charter authorizes our board to issue up to 200,000,000 shares of preferred stock. Our board has the discretion to establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock. If we authorize and issue preferred stock with a distribution preference over our common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount our common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:

• a merger, tender offer or proxy contest;

• assumption of control by a holder of a large block of our securities; or

• removal of incumbent management.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.9% of the value of shares of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.9% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our stock on terms that might be financially attractive to our stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.

Our stockholders’ ability to control our operations is severely limited.

Our board determines our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board may amend or revise these and other strategies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association, or NASAA REIT Guidelines. Under our charter and Maryland law, our stockholders have a right to vote only on the following matters:

• the election or removal of directors;

• the amendment of our charter, except that our board may amend our charter without stockholder approval to change our name or the name of other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have the authority to issue, or effect certain reverse stock splits;

• our dissolution; and

• certain mergers, consolidations, conversions, statutory share exchanges and sales or other dispositions of all or substantially all of our assets.

All other matters are subject to the discretion of our board.

Limitations on share ownership and transfer may deter a sale of our common stock in which our stockholders could profit.

The limits on ownership and transfer of our equity securities in our charter may have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our stockholders’ common stock. The ownership limits and restrictions on transferability will continue to apply until our board determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance is no longer required for REIT qualification.

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Maryland takeover statutes may deter others from seeking to acquire us and prevent our stockholders from making a profit in such transaction.

The Maryland General Corporation Law, or the MGCL, contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of us. Our bylaws exempt us from the control share acquisition statute (which eliminates voting rights for certain levels of shares that could exercise control over us) and our board has adopted a resolution opting out of the business combination statute (which, among other things, prohibits a merger or consolidation with a 10.0% stockholder for a period of time) with respect to any person, provided that any business combination with such person is first approved by our board. However, if the bylaw provisions exempting us from the control share acquisition statute or our board resolutionopting out of the business combination statute were repealed, these provisions of Maryland law could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in our stockholders’ best interest.

The MGCL and our organizational documents limit our stockholders’ right to bring claims against our officers and directors.

The MGCL provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under the MGCL, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities unless: (i) their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (ii) they actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers and intend to enter into indemnification agreements with each of our future directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter also provides that we may not indemnify our directors, our advisor and its affiliates for any loss or liability suffered by them or hold them harmless for any loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interest, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from our stockholders.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholders’ ability to dispose of their shares of our common stock.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

• any person who beneficially owns, directly or indirectly, 10.0% or more of the voting power of the corporation’s outstanding voting stock; or

• an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10.0% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.

After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

• 80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

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• two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares of stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares of our common stock in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares of our common stock. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Our board has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our board. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed or our board fails to first approve the business combination, the business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Our charter includes a provision that may discourage a stockholder from launching a tender offer for shares of our common stock.

Our charter requires that any tender offer made by a person, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D of the Securities Exchange Act of 1934, as amended. The offeror must provide us notice of the tender offer at least 10 business days before initiating the tender offer. If the offeror does not comply with these requirements, we will have the first right to purchase the shares of our stock at the tender offer price offered in such non-compliant tender offer. In addition, the non-complying offeror shall be responsible for all of our expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a person from initiating a tender offer for shares of our common stock and prevent our stockholders from receiving a premium price for their shares of our common stock in such a transaction.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act. To avoid registration as an investment company, we may not be able to operate our business successfully. If we become subject to registration under the Investment Company Act, we may not be able to continue our business.

We conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:

• pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or

• pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of United States government securities and cash items) on an unconsolidated basis, or the 40% test. “Investment securities” excludes United States government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

• limitations on capital structure;

• restrictions on specified investments;

• prohibitions on transactions with affiliates;

• compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations; and

• potentially, compliance with daily valuation requirements.

In order for us to not meet the definition of an “investment company” and avoid regulation under the Investment Company Act, we must engage primarily in the business of buying real estate, and these investments must be made within one year after our offering period ends. If we are unable to invest a significant portion of the proceeds of our offering in properties

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within one year after our offering period, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in certificates of deposit or other cash items with low returns. This would reduce the cash available for distribution to investors and possibly lower our stockholders’ returns.

To avoid meeting the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Similarly, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Accordingly, our board may not be able to change our investment policies as our board may deem appropriate if such change would cause us to meet the definition of an “investment company.” In addition, a change in the value of any of our assets could negatively affect our ability to avoid being required to register as an investment company. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

As part of our advisor’s obligations under the Advisory Agreement, our advisor agrees to refrain from taking any action which, in its sole judgment made in good faith, would subject us to regulation under the Investment Company Act. Failure to maintain an exclusion from registration under the Investment Company Act would require us to significantly restructure our business plan. For example, because affiliate transactions generally are prohibited under the Investment Company Act, we would not be able to enter into transactions with any of our affiliates if we are required to register as an investment company, and we may be required to terminate the Advisory Agreement and any other agreements with affiliates, which could have a material adverse effect on our ability to operate our business and pay distributions.

Risks Related to Investments in Real Estate

Changes in national, international, regional or local economic, demographic or real estate market conditions, including a rise in interest rates, may adversely affect our results of operations and our ability to pay distributions to our stockholders or reduce the value of our stockholders’ investment.

We are subject to risks generally incidental to the ownership of real estate, including changes in national, international, regional or local economic, demographic or real estate market conditions. We are unable to predict future changes in national, international, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease real properties or dispose of them. In addition, rising interest rates could also make alternative interest-bearing and other investments more attractive, and therefore, potentially lower the relative value of our existing real estate investments. These conditions, or others we cannot predict, may adversely affect our results of operations, our ability to pay distributions to our stockholders or reduce the value of our stockholders’ investment.

If we acquire real estate at a time when the real estate market is experiencing substantial influxes of capital investment and competition for income-producing properties, such real estate investments may not appreciate or may decrease in value.

Although the real estate market has been experiencing severe dislocations, in the future the market may experience a substantial influx of capital from investors. Any substantial flow of capital, combined with significant competition for income producing real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment in the future, we will be subject to the risk that the value of such investments may not appreciate or may decrease significantly below the amount we paid for such investment.

A significant portion of our annual base rent may be concentrated in a small number of tenants. Therefore, non-renewals,terminations or lease defaults by any of these significant tenants could reduce our net income and have a negative effect on our ability to pay distributions to our stockholders.

The success of our investments materially depends upon the financial stability of the tenants leasing the properties we own. Therefore, a non-renewal after the expiration of a lease term, termination, default or other failure to meet rental obligations by a significant tenant would significantly lower our net income. Any of these events could have a negative effect on our results of operations, our ability to pay distributions to our stockholders or on our ability to cover distributions with cash flows from operations. As of March 15, 2017 and December 31, 2016, no single tenant accounted for more than 10.0% of our annualized base rent inclusive of our senior housing — RIDEA and integrated senior health campuses operations.

We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.

The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements

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may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we may attempt to acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multi-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on real property; therefore, accumulating such cash could reduce our funds available for distributions to our stockholders. Any of the foregoing events may have an adverse effect on our operations.

Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce our stockholders’ returns.

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses,we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have a material adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.

Terrorist attacks and other acts of violence or war may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

Terrorist attacks may negatively affect our operations and our stockholders’ investments. We may acquire real estate assets located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices, which could have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

Dramatic increases in insurance rates could adversely affect our cash flows and our ability to pay distributions to our stockholders.

We may not be able to obtain insurance coverage at reasonable rates due to high premium and/or deductible amounts. As a result, our cash flows could be adversely impacted due to these higher costs, which would adversely affect our ability to pay distributions to our stockholders.

Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and our ability to pay distributions to our stockholders.

Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders’ returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of

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governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks if we make periodic progress payments or other advances to builders prior to completion of construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.

We are permitted to invest in a limited amount of unimproved real property. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental concerns of governmental entities and/or community groups. If we invest in unimproved real property that we intend to develop, our stockholders’ investment would be subject to the risks associated with investments in unimproved real property.

If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.

We may acquire one or more properties under development. We anticipate that if we do acquire properties that are under development, we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties, and that we will be required to close the purchase of the property upon completion of the development of the property. We may enter into such a contract with the development company even if at the time we enter into the contract, we have not yet secured sufficient financing to enable us to close the purchase of such property. However, we may not be required to close a purchase from the development company, and may be entitled to a refund of our earnest money, in the following circumstances:

• the development company fails to develop the property;

• all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; or

• we are unable to secure sufficient financing to pay the purchase price at closing.

The obligation of the development company to refund our earnest money deposit will be unsecured, and we may not be able to obtain a refund of such earnest money deposit from it under these circumstances since the development company may be an entity without substantial assets or operations.

Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.

Our advisor, subject to the oversight and approval of our board, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure our stockholders that we will be able to sell our properties at a profit in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions.

Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders.

The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand, and other factors that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have adequate funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our stockholders.

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If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows from operations.

If we decide to sell any of our properties, in some instances we may provide financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations. Even in the absence of a purchaser default, the distribution of sale proceeds, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.

Our stockholders may not receive any profits resulting from the sale of one of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.

If we sell one of our properties during liquidation, our stockholders may experience a delay before receiving their share of the proceeds of such liquidation. In a forced or voluntary liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We may take a purchase money obligation secured by a mortgage as partial payment. We do not have any limitations or restrictions on our taking such purchase money obligations. To the extent we receive promissory notes or other property instead of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be included in net sale proceeds until and to the extent the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In many cases, we will receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. Therefore, our stockholders may experience a delay in the distribution to them of the proceeds of a sale until such time.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to our stockholders.

Because we own and operate real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.

Our real estate investments may be concentrated in medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses or other healthcare-related facilities, making us more vulnerable economically than if our investments were diversified.

As a REIT, we invest primarily in real estate. Within the real estate industry, we acquire or intend to selectively develop and own medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities. We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in healthcare-related facilities.

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A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to pay distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities.

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

To the extent that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately effects that geographic area would have a magnified adverse effect on our portfolio. As of March 15, 2017, properties located in Indiana accounted for approximately 34.9% of the annualized base rent or annualized net operating income of our total property portfolio. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

The United Kingdom’s impending departure from the European Union could adversely affect us.

The United Kingdom, or U.K., held a referendum on June 23, 2016 in which a majority of voters voted to exit the European Union, sometimes referred to as “Brexit.” The announcement of Brexit has resulted in significant volatility in global stock markets and currency exchange fluctuations. Presently, the value of the Great Britain pound against the U.S. dollar is significantly lower than prior to the announcement of Brexit. As described elsewhere in this report, we translaterevenue and expenses denominated in the Great Britain pound into U.S. dollars for our financial statements. During periods of a strengthening dollar, our reported operating results in the U.K.are reduced because the Great Britain pound translates into fewer U.S. dollars. In addition, assets denominated in the Great Britain pound may decline. The long-term effects of Brexit will depend on the agreements the U.K. makes to retain access to the European Union markets and negotiations of such agreements have not yet commenced. Accordingly, Brexit could contribute to more prolonged instability in global financial and foreign exchange markets, and could adversely affect European and worldwide economic and market conditions. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, financial condition and results of operations.

Certain of our properties may not have efficient alternative uses, so the loss of a tenant may cause us not to be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.

Some of the properties we have acquired and will seek to acquire are healthcare properties that may only be suitable for similar healthcare-related tenants. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Our medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities and tenants may be unable to compete successfully.

Our medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities often will face competition from nearby medical office buildings, hospitals, skilled nursing facilities, senior housing, integrated senior health campuses and other healthcare-related facilities that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.

Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.

Any reduction in rental revenues resulting from the inability of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

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

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

In order to address concerns raised by the SEC regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the FASB issued Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02, on February 25, 2016, which substantially changes the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation will be recorded on the tenant’s balance sheet for all lease arrangements. In addition, ASU 2016-02 will impact the method in which contractual lease payments will be recorded. In order to mitigate the effect of the proposed lease accounting, tenants may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms or fewer extension options, which would generally have less impact on tenant balance sheets. Also, tenants may reassess their lease-versus-buy strategies. This could result in a greater renewal risk, a delay in investing proceeds from our offering, or shorter lease terms, all of which may negatively impact our operations and ability to pay distributions. ASU 2016-02 will be effective January 1, 2019.

Our costs associated with complying with the ADA may reduce our cash available for distributions.

The properties we will acquire may be subject to the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may reduce cash available for distributions and the amount of distributions to our stockholders.

Increased operating expenses could reduce cash flows from operations and funds available to acquire investments or pay distributions.

Any property that we have acquired or may acquire will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, insurance costs, repairs and maintenance costs, administrative costs and other operating expenses. Some of our property leases or future leases may not require the tenants to pay all or a portion of these expenses, in which event we may have to pay these costs. If we are unable to lease properties on terms that require the tenants to pay all or some of the properties’ operating expenses, if our tenants fail to pay these expenses as required or if expenses we are required to pay exceed our expectations, we could have less funds available for future acquisitions or cash available for distributions to our stockholders.

Our operating properties are subject to real and personal property taxes that may increase in the future, which could adversely affect our cash flows.

Our operating properties are subject to real and personal property taxes that may increase as tax rates change and as the operating properties are assessed or reassessed by taxing authorities. As the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the operating property and the operating property may be subject to a tax sale. In addition, we are generally responsible for real property taxes related to any vacant space.

Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and

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regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate those substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our real properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations.

We have operations in the Isle of Man and the U.K. International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75.0% gross income test or the 95.0% gross income test that we must satisfy annually in order to maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally; challenges in managing international operations; challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and legal proceedings; foreign ownership restrictions with respect to operations in countries; diminished ability to legally enforce our contractual rights in foreign countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the United States that affect foreign operations. In addition, we have limited investing experience in international markets. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.

Investments in properties or other real estate-related investments outside the United States would subject us to foreign currency risks, which may adversely affect distributions and our REIT status.

We generate a portion of our revenue in foreign currencies such as the U.K. Pound Sterling. Revenues generated from any properties or other real estate-related investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore, any investments we make outside the United States may subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the United States Dollar. As a result, changes in exchange rates of any such foreign currency to United States Dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity.

Changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our status as a REIT. Further, bank accounts in a foreign currency which are not considered cash or cash equivalents may adversely affect our status as a REIT.

Risks Related to the Healthcare Industry

The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. The tenants in our healthcare properties generally will be subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and

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regulations or our tenants’ failure to comply with these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to pay distributions to our stockholders.

Many of our healthcare properties and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON, would prevent a facility from operating in the manner intended by the tenant. These events could materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws and other similar laws are not uniform throughout the United States and are subject to change; therefore, this may adversely impact our tenants’ ability to provide services in different states. We cannot predict the impact of state CON laws or similar laws on our development of facilities or the operations of our tenants.

In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make rent payments to us.

In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility or provide services at the facility and require new CON authorization licensure and/or authorization or potential authorization from the Centers for Medicare and Medicaid Services to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

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

Sources of revenue for our tenants include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payers to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal governmental healthcare programs are subject to reductions by state and federal legislative actions. The American Taxpayer Relief Act of 2012 prevented the reduction in physician reimbursement of Medicare from being implemented in 2013. The Protecting Access to Medicare Act of 2014 prevented the reduction of 24.4% in the physician fee schedule by replacing the scheduled reduction with a 0.5% increase to the physician fee schedule through December 31, 2014, and no increase for January 1, 2015 through March 31, 2015. The potential 21.0% cut in reimbursement that was to be effective April 1, 2015 was removed by the Medicare Access & CHIP Reauthorization Act of 2015, or MACRA, and replaced with two new methodologies that will focus upon payment based upon quality outcomes. The first model is the Merit-Based Incentive Payment System, or MIPS, which will combine the Physician Quality Reporting System, or PQRS, and Meaningful Use program with the Value Based Modifier program to provide for one payment model based upon (i) quality, (ii) resource use, (iii) clinical practice improvement and (iv) advancing care information through the use of certified Electronic Health Record, or EHR, technology. The second model is the Advanced Alternative Payment Models, or APM, which require the physician to participate in a risk share arrangement for reimbursement related to his or her patients while utilizing a certified health record and reporting on specific quality metrics. There are a number of physicians that will not qualify for the APM payment method. Therefore, this change in reimbursement models may impact our tenants’ payments and create uncertainty in the tenants’ financial condition.

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

In 2014, state insurance exchanges were implemented which provide a new mechanism for individuals to obtain insurance. At this time, the number of payers that are participating in the state insurance exchanges varies, and in some regions there are very limited insurance plans available for individuals to choose from when purchasing insurance. In addition, not all healthcare providers will maintain participation agreements with the payers that are participating in the state health insurance exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payers and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payers to healthcare

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providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payer, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to pay rent.

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act. Together, the two acts serve as the primary vehicle for comprehensive healthcare reform in the U.S., or collectively, the Healthcare Reform Act. The insurance plans that participated on the health insurance exchanges created by the Healthcare Reform Act were expecting to receive risk corridor payments to address the high risk claims that it paid through the exchange product. However, the federal government currently owes the insurance companies approximately $8.3 billion under the risk corridor payment program that is currently disputed by the federal government. The federal government is currently defending several lawsuits from the insurance plans that participate on the health insurance exchange. If the insurance companies do not receive the payments, the insurance companies may cease to participate on the insurance exchange which limits insurance options for patients. If patients do not have access to insurance coverage, it may adversely impact the tenants’ revenues and the tenants’ ability to pay rent.

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

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

Moreover, President Trump signed an Executive Order on January 20, 2017 to “ease the burden of Obamacare.” At this time, the implications of this Executive Order are unknown, but it is possible that it may adversely impact the insurance exchanges or remove the requirement for all individuals to obtain insurance. If individuals are not required to have insurance or if the insurance exchange products are not available to the general public, it is possible that our tenants will not have as many patients that have insurance coverage which will adversely impact the tenants’ revenues and ability to pay rent. At this time, the implications of the Executive Order are unknown.

On March 6, 2017, members of the House of Representatives presented legislation to repeal portions of the Healthcare Reform Act. It is anticipated that the proposed legislation will be debated at length and that the final bill will likely have modifications from the proposed version. At this time, the proposal focuses upon, among other items, repealing the individual responsibility to purchase insurance, modifying employer obligations to purchase insurance and modifying the funding for Medicaid programs. All of the proposals may impact the number of individuals that have insurance to pay for healthcare services, which may impact our tenants’ collections. If our tenants’ patients do not have insurance, it may adversely impact the tenants’ ability to pay rent and operate a practice.

Some tenants of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities will be subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. In order to support compliance with the fraud and abuse laws, our lease agreements may be required to satisfy individual state law requirements that vary from state to state, the Stark Law exception and the Anti-Kickback Statute safe harbor for lease arrangements, which impacts the terms and conditions that may be negotiated in the lease arrangements.

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These federal laws include:

• the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by state or federal healthcare programs;

• the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under federal healthcare programs to an entity with which the physician, or an immediate family member, has a financial relationship;

• the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;

• the Civil Monetary Penalties Law, which authorizes the United States Department of Health & Human Services to impose monetary penalties or exclusion from participating in state or federal healthcare programs for certain fraudulent acts;

• the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, Fraud Statute, which makes it a federal crime to defraud any health benefit plan, including private payers; and

• the Exclusions Law, which authorizes the United States Department of Health & Human Services to exclude someone from participating in state or federal healthcare programs for certain fraudulent acts.

Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to pay distributions to our stockholders.

The healthcare industry is currently experiencing:

• changes in the demand for and methods of delivering healthcare services;

• changes in third-party reimbursement policies;

• significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;

• increased expense for uninsured patients;

• increased competition among healthcare providers;

• increased liability insurance expense;

• continued pressure by private and governmental payers to reduce payments to providers of services;

• increased scrutiny of billing, referral and other practices by federal and state authorities;

• changes in federal and state healthcare program payment models;

• increased emphasis on compliance with privacy and security requirements related to personal health information; and

• increased instability in the Health Insurance Exchange market and lack of access to insurance plans participating in the exchange.

Moreover, the fines and penalties of HIPAA privacy and security rules increased in 2013. If a tenant breaches a patient’s protected health information and is fined by the federal government, the tenant’s ability to operate and pay rent may be adversely impacted.

These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues and our ability to pay distributions to our stockholders.

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Our healthcare-related tenants may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, our healthcare-related tenants may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance may not always be available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Comprehensive healthcare reform legislation, the effects of which are not yet known, could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

The Healthcare Reform Act is intended to reduce the number of individuals in the United States without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments. The legislation will become effective through a phased approach, having begun in 2010 and concluding in 2018. On June 28, 2012, the United States Supreme Court upheld the individual mandate under the Healthcare Reform Act, although substantially limiting its expansion of Medicaid. At this time, the effects of healthcare reform and its impact on our properties are not yet known but could materially adversely affect our business, financial condition, results of operations and ability to pay distributions to our stockholders.

On March 6, 2017, members of the House of Representatives presented legislation to repeal portions of the Healthcare Reform Act. It is anticipated that the proposed legislation will be debated at length and that the final bill will likely have modifications from the proposed version. At this time, the proposal focuses upon, among other items, repealing the individual responsibility to purchase insurance, modifying employer obligations to purchase insurance and modifying the funding for Medicaid programs. All of the proposals may impact the number of individuals that have insurance to pay for healthcare services, which may impact our tenants’ collections. If our tenants’ patients do not have insurance, it may adversely impact the tenants’ ability to pay rent and operate a practice.

Risks Related to Debt Financing

Increases in interest rates could increase the amount of our debt payments, and therefore, negatively impact our operating results.

Interest we will pay on our debt obligations will reduce cash available for distributions. Whenever we incur variable-rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

To the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

We are exposed to the effects of interest rate changes primarily as a result of borrowings we will use to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. To limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk, we may borrow at fixed rates or variable rates depending upon prevailing market conditions.

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We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. Therefore, to the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

Hedging activity may expose us to risks.

We may use derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates on our loans. If we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. These derivative instruments are speculative in nature and there is no guarantee that they will be effective. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating strategies. We may enter into loan documents that contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We may finance or refinance our properties using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to refinance or sell properties on favorable terms, and to pay distributions to our stockholders.

Some of our future financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the particular property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In an environment of increasing mortgage rates, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt if mortgage rates are higher at a time a balloon payment is due. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to qualify as a REIT. Any of these results would have a significant, negative impact on our stockholders’ investment.

Risks Related to Real Estate-Related Investments

The mortgage loans in which we have invested in and may invest in and the mortgage loans underlying the mortgage-backed securities in which we may invest may be impacted by unfavorable real estate market conditions, which could decrease their value.

The investment in mortgage loans or mortgage-backed securities we have invested in and may continue to invest in involve special risks relating to the particular borrower or issuer of the mortgage-backed securities and we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate. If we acquire property by foreclosure

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following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know whether the values of the property securing any of our real estate-related investments will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Delays in liquidating defaulted mortgage loan investments could reduce our investment returns.

If there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The commercial mortgage-backed securities in which we have invested and may continue to invest are subject to several types of risks.

Commercial mortgage-backed securities are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the mortgage-backed securities in which we have invested and may continue to invest are subject to all the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of commercial mortgage-backed securities may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, commercial mortgage-backed securities are subject to the credit risk associated with the performance of the underlying mortgage properties.

Commercial mortgage-backed securities are also subject to several risks created through the securitization process. Subordinate commercial mortgage-backed securities are paid interest-only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payments on subordinate commercial mortgage-backed securities will not be fully paid. Subordinate securities of commercial mortgage-backed securities are also subject to greater credit risk than those commercial mortgage-backed securities that are more highly rated.

The mezzanine loans in which we have and may continue to invest involve greater risks of loss than senior loans secured by income-producing real estate.

We have and may continue to invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real estate or loans secured by a pledge of the ownership interests of either the entity owning the real estate or the entity that owns the interest in the entity owning the real estate. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real estate because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real estate and increasing the risk of loss of principal.

Real estate-related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in real estate or real estate-related assets.

We may invest in the common and preferred stock of both publicly traded and private unaffiliated real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including the fact that such investments are subordinate to creditors and are not secured by the issuer’s property. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with acquiring real estate-related investments discussed elsewhere in this report, including risks relating to rising interest rates.

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We expect a portion of our real estate-related investments to be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

We may acquire real estate-related investments in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

Interest rate and related risks may cause the value of our real estate-related investments to be reduced.

Interest rate risk is the risk that fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stocks, will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market value of such securities will decline, and vice versa. Our investment in such securities means that the net asset value and market price of the common stock may tend to decline if market interest rates rise.

During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as call or prepayment risk. If this occurs, we may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our real estate-related investments.

If we liquidate prior to the maturity of our real estate-related investments, we may be forced to sell those investments on unfavorable terms or at a loss.

Our board may choose to effect a liquidity event in which we liquidate our assets, including our real estate-related investments. If we liquidate those investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

Risks Related to Joint Ventures

The terms of joint venture agreements or other joint ownership arrangements into which we have entered and may continue to enter could impair our operating flexibility or result in litigation or liability, which could materially adversely affect our results of operations.

In connection with the purchase of real estate, we have and may continue to enter into joint ventures with third parties, including affiliates of our advisor. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint venture partners may have rights to take some actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:

• a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;

• a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;

• actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and

• a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT.

Under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could occur, which might adversely affect the joint venture or result in litigation or liability and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy out a venture partner, we may be unable to

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finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal of our venture partner.

We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flows or appreciation of an investment.

We have and may continue to enter into joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flows up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flows than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flows, including appreciation, of an investment than we would receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to pay cash distributions to our stockholders.

Federal Income Tax Risks

Failure to maintain our qualification as a REIT for federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to pay distributions to our stockholders.

We qualified and elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2014. To continue to maintain our qualification as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to maintain our qualification as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board to determine that it is not in our best interest to maintain our qualification as a REIT, and to revoke our REIT election, which it may do without stockholder approval.

If we fail to maintain our qualification as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability. In addition, distributions would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to pay distributions to our stockholders.

To maintain our qualification as a REIT and to avoid the payment of federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities (including our offering), or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90.0% of our annual taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4.0% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (i) 85.0% of our ordinary income, (ii) 95.0% of our capital gain net income and (iii) 100% of our undistributed income from prior years.

These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities (including our offering) or sell assets in order to distribute enough of our taxable income to maintain our qualification as a REIT and to avoid the payment of federal income and excise taxes.

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Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through TRSs, each of which would diminish the return to our stockholders.

In light of our investment strategy, it is possible that one or more sales of our properties may be “prohibited transactions” under provisions of the Code. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), all income that we derive from such sale would be subject to a 100% tax. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale. Given our investment strategy, it is entirely possible, if not likely, that the sale of one or more of our properties will not fall within the prohibited transaction safe harbor.

If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to avoid the 100% penalty tax if we acquired the property through a taxable REIT subsidiary, or TRS, or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forego the use of a TRS in a transaction that does not meet the safe harbor based on our own internal analysis, the opinion of counsel or the opinion of other tax advisors that the disposition will not be subject to the 100% penalty tax. In cases where a property disposition is not effected through a TRS, the IRS could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net income from the sale of such property will be payable as a tax and none of the proceeds from such sale will be distributable by us to our stockholders or available for investment by us.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, then we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS if there is another, non-tax-related business purpose for the contribution of such property to the TRS. Following the transfer of the property to a TRS, the TRS will operate the property and may sell such property and distribute the net proceeds from such sale to us, and we may distribute the net proceeds distributed to us by the TRS to our stockholders. Though a sale of the property by a TRS likely would eliminate the danger of the application of the 100% penalty tax, the TRS itself would be subject to a tax at the federal level, and potentially at the state and local levels, on the gain realized by it from the sale of the property as well as on the income earned while the property is operated by the TRS. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the amount available for distribution to our stockholders would be substantially less than if the REIT had operated and sold such property directly and such transaction was not characterized as a prohibited transaction. The maximum federal corporate income tax rate is currently 35.0%. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property through a TRS after the effective date of any increase in such tax rates.

If we own too many properties through one or more of our TRSs, then we may lose our status as a REIT. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. As a REIT, the value of the securities we hold in all of our TRSs may not exceed 25.0% (20.0% for taxable years beginning after December 31, 2017) of the value of all of our assets at the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded 25.0% (20.0% for taxable years beginning after December 31, 2017) of the value of total assets at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude that the value of our interests in our TRSs exceeds 25.0% (20.0% for taxable years beginning after December 31, 2017) of the value of our total assets at the end of any calendar quarter, and therefore, cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25.0% of our gross income with respect to any year may be from sources other than real estate. Distributions paid to us from a TRS are considered to be non-real estate income. Therefore, we may fail to maintain our qualification as a REIT if distributions from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25.0% of our gross income with respect to such year. We will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our qualification as a REIT. Our failure to maintain our qualification as a REIT would adversely affect our stockholders’ return on their investment.

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Our stockholders may have a current tax liability on distributions they elect to reinvest in shares of our common stock.

If our stockholders participate in the DRIP portion of our initial offering or the Secondary DRIP Offering, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, our stockholders may be treated, for tax purposes, as having received an additional distribution to the extent the shares are purchased at a discount from fair market value. As a result, unless our stockholders are a tax-exempt entity, our stockholders may have to use funds from other sources to pay their tax liability on the value of the shares of common stock received.

Legislative or regulatory action with respect to taxes could adversely affect the returns to our investors.

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

In certain circumstances, we may be subject to federal and state income taxes even if we maintain our qualification as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we maintain our qualification as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders.

Dividends payable by REITs generally do not qualify for reduced tax rates under current law.

The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates generally is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced rates and therefore may be subject to a 39.6% maximum U.S. federal income tax rate on ordinary income when paid to such stockholders. The more favorable rates applicable to regular corporate dividends under current law could cause investors who are individuals, trusts and estates or are otherwise sensitive to these lower rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

Distributions to tax-exempt stockholders may be classified as UBTI.

Neither ordinary nor capital gain distributions with respect to the shares of our common stock nor gain from the sale of the shares of our common stock should generally constitute unrelated business taxable income, or UBTI, to a tax-exempt stockholder. However, there are certain exceptions to this rule. In particular:

• part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if the shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI;

• part of the income and gain recognized by a tax exempt stockholder with respect to the shares of our common stock would constitute UBTI if the stockholder incurs debt in order to acquire the shares of our common stock; and

• part or all of the income or gain recognized with respect to the shares of our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as UBTI.

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Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.

To maintain our qualification as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to pay distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

If our operating partnership fails to maintain its status as a disregarded entity or as a partnership, its income may be subject to taxation, which would reduce the cash available for distribution to stockholders and likely result in a loss of our REIT status.

We intend to maintain the status of the operating partnership as a disregarded entity or as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the operating partnership as a disregarded entity or as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This would also likely result in our losing REIT status, and, if so, becoming subject to a corporate level tax on our own income. This would substantially reduce any cash available to pay distributions. In addition, if any of the partnerships or limited liability companies through which the operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our status as a REIT.

Foreign purchasers of shares of our common stock may be subject to FIRPTA tax upon the sale of their shares of our common stock.

A foreign person disposing of a United States real property interest, including shares of stock of a United States corporation whose assets consist principally of United States real property interests, is generally subject to the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA, on the amount received from the disposition. However, foreign pension plans and certain foreign publicly traded entities are exempt from FIRPTA withholding. Further, such FIRPTA tax does not apply to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50.0% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying United States persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, amounts received by foreign investors on a sale of shares of our common stock would be subject to FIRPTA tax, unless the shares of our common stock were traded on an established securities market and the foreign investor did not at any time during a specified period directly or indirectly own more than 10.0% of the value of our outstanding common stock. However, these rules do not apply to foreign pension plans and certain publicly traded entities.

Foreign stockholders may be subject to FIRPTA tax upon the payment of a capital gains dividend.

A foreign stockholder will likely be subject to FIRPTA upon the payment of any capital gain dividends by us if such gain is attributable to gain from sales or exchanges of United States real property interests. However, these rules do not apply to foreign pension plans and certain publicly traded entities.

Employee Benefit Plan, IRA, and Other Tax-Exempt Investor Risks

We, and our stockholders that are employee benefit plans, Individual Retirement Accounts, or IRAs, annuities described in Sections 403(a) or (b) of the Code, Archer Medical Savings Accounts, health savings accounts, or Coverdell education savings accounts (referred to generally as Benefit Plans and IRAs) will be subject to risks relating specifically to our having such Benefit Plan and IRA stockholders, which risks are discussed below. However, these rules do not apply to foreign pension plans and certain publicly traded entities.

If our stockholders fail to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in shares of our common stock, our stockholders could be subject to criminal and civil penalties.

There are special considerations that apply to Benefit Plans or IRAs investing in shares of our common stock. If our stockholders are investing the assets of a Benefit Plan or IRA in us, our stockholders should consider:

• whether their investment is consistent with the applicable provisions of ERISA and the Code, or any other applicable governing authority in the case of a government plan;

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• whether their investment is made in accordance with the documents and instruments governing their Benefit Plan or IRA, including any investment policy;

• whether their investment satisfies the prudence, diversification and other requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;

• whether their investment will impair the liquidity needs and distribution requirements of the Benefit Plan or IRA;

• whether their investment will constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code;

• whether their investment will produce or result in UBTI, as defined in Sections 511 through 514 of the Code, to the Benefit Plan or IRA; and

• their need to value the assets of the Benefit Plan or IRA annually in accordance with ERISA and the Code.

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Code, a Benefit Plan or IRA purchasing shares of our common stock should consider the effect of the plan asset regulations of the United States Department of Labor. To avoid our assets from being considered plan assets under those regulations, our charter prohibits “benefit plan investors” from owning 25.0% or more of the shares of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the meaning of the ERISA plan asset regulations. However, we cannot assure our stockholders that those provisions in our charter will be effective in limiting benefit plan investor ownership to less than the 25.0% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to a Benefit Plan or IRA purchasing shares of our common stock, and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of our stockholders’ Benefit Plan or IRA, our stockholders should not purchase shares of our common stock unless an administrative or statutory exemption applies to their purchase.

If our stockholders invest in our shares through an IRA or other retirement plan, they may be limited in their ability to withdraw required minimum dividends.

If our stockholders establish a plan or account through which they invest in our common stock, federal law may require them to withdraw required minimum dividends from such plan in the future. Our stock will be highly illiquid, and our share repurchase plan only offers limited liquidity. If our stockholders require liquidity, they may generally sell their shares, but such sale may be at a price less than the price at which they initially purchased their shares of our common stock. If our stockholders fail to withdraw required minimum distributions from their plan or account, they may be subject to certain taxes and tax penalties.

Specific rules apply to foreign, governmental and church plans.

As a general rule, certain employee benefit plans, including foreign pension plans, governmental plans established or maintained in the United States (as defined in Section 3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA's requirements and are not “benefit plan investors” within the meaning of the Plan Assets Regulation. Any such plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code and, under certain circumstances in the case of church plans, Section 4975 of the Code. Also, some foreign plans and governmental plans may be subject to foreign, state, or local laws which are, to a material extent, similar to the provisions of ERISA or Section 4975 of the Code. Each fiduciary of a plan subject to any such similar law should make its own determination as to the need for and the availability of any exemption relief.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of December 31, 2016, our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612. We do not have an address separate from our advisor or our co-sponsors. Since we pay our advisor fees for their services, we do not pay rent for the use of their space.

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Real Estate Investments

As of December 31, 2016, we had completed 48 acquisitions: 33 acquisitions of medical office buildings, five acquisitions of senior housing — RIDEA facilities, three acquisitions of senior housing facilities, one acquisition of a hospital, one acquisition of a mixed-use medical office building and hospital, two acquisitions of skilled nursing facilities, as well as expanded our integrated senior health campuses by leasing seven additional integrated senior health campuses, completing three development projects and acquiring the real estate underlying 17 previously leased integrated senior health campuses, a development parcel with improvements and land. These acquisitions consisted of 97 buildings and 104 integrated senior health campuses including development projects, or approximately 12,251,000 square feet of GLA, for an aggregate contract purchase price of $2,767,881,000.

The following table presents certain additional information about our properties as of December 31, 2016:

Acquisition(1)	Location	Reportable Segment	GLA (Sq Ft)	% of GLA		Contract Purchase Price		Annualized Base Rent(2)		% of Annualized Base Rent		Leased Percentage(3)		Average Annual Rent Per Leased Sq Ft(4)
DeKalb Professional Center	Lithonia, GA	Medical Office	19,000	0.2	%	$	2,830,000	$	214,000	0.1	%	81.2	%	$	14.03
Country Club MOB	Stockbridge, GA	Medical Office	17,000	0.1		2,775,000		92,000		—		33.7	%	$	16.30
Acworth Medical Complex	Acworth, GA	Medical Office	39,000	0.3		6,525,000		576,000		0.3		82.7	%	$	17.79
Wichita KS MOB	Wichita, KS	Medical Office	39,000	0.3		8,800,000		687,000		0.4		92.0	%	$	18.86
Delta Valley ALF Portfolio	Springdale, AR; and Batesville and Cleveland, MS	Senior Housing	127,000	1.0		21,450,000		1,632,000		0.8		100	%	$	12.81
Lee’s Summit MO MOB	Lee’s Summit, MO	Medical Office	39,000	0.3		6,750,000		923,000		0.5		88.8	%	$	26.47
Carolina Commons MOB	Indian Land, SC	Medical Office	58,000	0.5		12,000,000		1,528,000		0.8		86.6	%	$	30.30
Mount Olympia MOB Portfolio	Mount Dora, FL; Olympia Fields, IL; and Columbus, OH	Medical Office	53,000	0.4		16,150,000		1,230,000		0.6		96.7	%	$	24.18
Southlake TX Hospital	Southlake, TX	Hospital	142,000	1.2		128,000,000		6,900,000		3.5		100	%	$	48.46
East Texas MOB Portfolio	Longview and Marshall, TX	Medical Office	393,000	3.2		68,500,000		6,440,000		3.3		92.7	%	$	17.67
Premier MOB	Novi, MI	Medical Office	45,000	0.4		12,025,000		911,000		0.5		79.1	%	$	25.67
Independence MOB Portfolio	Southgate, KY; Somerville, MA; Morristown and Verona, NJ; and Bronx, NY	Medical Office	461,000	3.8		135,000,000		11,885,000		6.1		96.4	%	$	26.70
King of Prussia PA MOB	King of Prussia, PA	Medical Office	73,000	0.6		18,500,000		1,780,000		0.9		85.6	%	$	28.34
North Carolina ALF Portfolio	Clemmons, Mooresville, Raleigh and Wake Forest, NC	Senior Housing	158,000	1.3		68,856,000		5,720,000		2.9		100	%	$	36.34
Orange Star Medical Portfolio	Durango, CO; and Friendswood, Keller and Wharton, TX	Medical Office and Hospital	183,000	1.5		57,650,000		4,121,000		2.1		97.3	%	$	23.21
Kingwood MOB Portfolio	Kingwood, TX	Medical Office	43,000	0.4		14,949,000		1,120,000		0.6		100	%	$	26.32
Mt. Juliet TN MOB	Mount Juliet, TN	Medical Office	46,000	0.4		13,000,000		1,021,000		0.5		100	%	$	22.34
Homewood AL MOB	Homewood, AL	Medical Office	28,000	0.2		7,444,000		572,000		0.3		100	%	$	20.50
Paoli PA Medical Plaza	Paoli, PA	Medical Office	99,000	0.8		24,820,000		2,190,000		1.1		89.6	%	$	24.64
Glen Burnie MD MOB	Glen Burnie, MD	Medical Office	77,000	0.6		18,650,000		1,582,000		0.8		91.9	%	$	22.49
Marietta GA MOB	Marietta, GA	Medical Office	41,000	0.3		13,050,000		931,000		0.5		100	%	$	22.80
Mountain Crest Senior Housing Portfolio	Elkhart, Hobart, LaPorte and Mishawaka, IN; and Niles, MI	Senior Housing — RIDEA	585,000	4.8		75,035,000		3,839,000		2.0		80.0	%	$	7,312.65

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Acquisition(1)	Location	Reportable Segment	GLA (Sq Ft)	% of GLA		Contract Purchase Price		Annualized Base Rent(2)		% of Annualized Base Rent		Leased Percentage(3)		Average Annual Rent Per Leased Sq Ft(4)
Mount Dora Medical Center	Mount Dora, FL	Medical Office	51,000	0.4	%	$	16,300,000	$	1,327,000	0.7	%	96.9	%	$	26.67
Nebraska Senior Housing Portfolio	Bennington and Omaha, NE	Senior Housing — RIDEA	282,000	2.3		66,000,000		3,441,000		1.8		88.0	%	$	17,520.14
Pennsylvania Senior Housing Portfolio	Bethlehem, Boyertown and York, PA	Senior Housing — RIDEA	260,000	2.1		87,500,000		6,807,000		3.5		95.2	%	$	20,593.07
Southern Illinois MOB Portfolio	Waterloo, IL	Medical Office	41,000	0.3		12,272,000		894,000		0.5		99.6	%	$	21.62
Napa Medical Center	Napa, CA	Medical Office	65,000	0.5		15,700,000		1,973,000		1.0		91.2	%	$	33.23
Chesterfield Corporate Plaza	Chesterfield, MO	Medical Office	226,000	1.8		36,000,000		4,672,000		2.4		96.6	%	$	21.41
Richmond VA ALF	North Chesterfield, VA	Senior Housing — RIDEA	210,000	1.7		64,000,000		4,407,000		2.3		82.2	%	$	20,927.70
Crown Senior Care Portfolio(5)	Peel, Isle of Man; and Aberdeen, Felixstowe, Salisbury and St. Albans, UK	Senior Housing	155,000	1.3		68,085,000		3,808,000		1.9		100	%	$	24.58
Washington DC SNF	Washington, D.C.	Skilled Nursing	134,000	1.1		40,000,000		3,708,000		1.9		100	%	$	27.73
Trilogy(6)	IN, KY, MI and OH	Integrated Senior Health Campuses	6,773,000	55.3		1,367,430,000		85,597,000		43.7		87.3	%	$	9,980.55
Stockbridge GA MOB II	Stockbridge, GA	Medical Office	46,000	0.4		8,000,000		650,000		0.3		75.8	%	$	18.71
Marietta GA MOB	Marietta, GA	Medical Office	22,000	0.2		5,800,000		427,000		0.2		97.1	%	$	20.37
Naperville MOB	Naperville, IL	Medical Office	69,000	0.6		17,385,000		1,279,000		0.7		90.6	%	$	20.47
Lakeview IN Medical Plaza(7)	Indianapolis, IN	Medical Office	162,000	1.3		20,000,000		2,787,000		1.4		85.0	%	$	20.24
Pennsylvania Senior Housing Portfolio II	Palmyra, PA	Senior Housing — RIDEA	125,000	1.0		27,500,000		2,084,000		1.1		98.6	%	$	17,610.94
Snellville GA MOB	Snellville, GA	Medical Office	42,000	0.3		8,300,000		691,000		0.4		90.8	%	$	18.23
Lakebrook Medical Center	Westbrook, CT	Medical Office	25,000	0.2		6,150,000		482,000		0.2		85.4	%	$	22.92
Stockbridge GA MOB III	Stockbridge, GA	Medical Office	43,000	0.4		10,300,000		784,000		0.4		96.4	%	$	18.77
Joplin MO MOB	Joplin, MO	Medical Office	85,000	0.7		11,600,000		1,289,000		0.7		99.2	%	$	15.34
Austell GA MOB	Austell, GA	Medical Office	39,000	0.3		12,600,000		880,000		0.5		100	%	$	22.43
Middletown OH MOB	Middletown, OH	Medical Office	103,000	0.8		19,300,000		1,638,000		0.8		80.3	%	$	19.76
Fox Grape SNF Portfolio	Braintree, Brighton, Duxbury, Hingham, Quincy and Weymouth, MA	Skilled Nursing	424,000	3.5		88,000,000		7,612,000		3.9		100	%	$	17.95
Voorhees NJ MOB	Voorhees, NJ	Medical Office	48,000	0.4		11,300,000		1,006,000		0.5		78.8	%	$	26.57
Norwich CT MOB Portfolio	Norwich, CT	Medical Office	56,000	0.5		15,600,000		1,233,000		0.6		96.5	%	$	22.72
Total/weighted average(8)			12,251,000	100	%	$	2,767,881,000	$	195,370,000	100	%	94.4	%	$	23.53

_______

(1) We own 100% of our properties acquired as of December 31, 2016 with the exception of Trilogy and Lakeview IN Medical Plaza.

(2) With the exception of our senior housing — RIDEA facilities and our integrated senior health campuses, annualized base rent is based on contractual base rent from leases in effect as of December 31, 2016. Annualized base rent for our senior housing — RIDEA facilities and our integrated senior health campuses is based on annualized net operating income, or NOI, a non-GAAP financial measure. See Part II, Item 6. Selected Financial Data, for a further discussion.

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(3) Leased percentage includes all leased space of the respective acquisition including master leases, except for our senior housing — RIDEA facilities and our integrated senior health campuses where leased percentage represents resident occupancy on the total units of the RIDEA facilities or integrated senior health campuses.

(4) Average annual rent per leased square foot is based on leases in effect as of December 31, 2016, except for our senior housing — RIDEA facilities and our integrated senior health campuses where average annual rent per unit was based on NOI divided by the average occupied units of the senior housing — RIDEA facilities or integrated senior health campuses.

(5) On September 15, 2015, we purchased our first senior housing facility of Crown Senior Care Portfolio for a net contract purchase price of £6,850,000, or approximately $10,571,000, based on the currency exchange rate on the acquisition date. On October 8, 2015 and December 8, 2015, we added two additional senior housing facilities to our existing Crown Senior Care Portfolio, for a net contract purchase price of £11,300,000 and £11,100,000, respectively, or approximately $17,309,000 and $16,674,000, respectively, based on the currency exchange rate on the applicable acquisition date. On November 15, 2016, we added the final three senior housing facilities comprising Crown Senior Care Portfolio for a net contract price of £15,276,000.

(6) On December 1, 2015, we completed the acquisition of Trilogy, the parent company of Trilogy Health Services, LLC, or Trilogy Health Services, through our majority-owned subsidiary, Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings. NHI owns a minority interest in Trilogy REIT Holdings. Trilogy REIT Holdings acquired Trilogy for a purchase price based on a total company valuation of approximately $1,125,000,000. Our effective ownership of Trilogy was approximately 67.6% at the time of acquisition. Our portion of the purchase price for Trilogy was approximately $760,356,000.

(7) On January 21, 2016, we completed the acquisition of Lakeview IN Medical Plaza, pursuant to a joint venture with an affiliate of Cornerstone Companies, Inc., an unaffiliated third party. Our effective ownership of the joint venture is 86.0%.

(8) Weighted average annual rent per leased square foot excludes our senior housing — RIDEA facilities and our integrated senior health campuses.

We own fee simple interests in all of our buildings except for 10 buildings for which we own fee simple interests in the building and improvements of such properties subject to the respective ground leases.

The following information generally applies to our properties:

• we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;

• we have no plans for any material renovations, improvements or development with respect to any of our properties, except in accordance with planned budgets;

• our properties are located in markets where we are subject to competition for attracting new tenants and retaining current tenants; and

• depreciation is provided on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 39 years, and over the shorter of the lease term or useful lives of the tenant improvements, up to 20 years.

For additional information regarding our real estate investments, see Schedule III — Real Estate and Accumulated Depreciation to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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Lease Expirations

The following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years and thereafter at our properties other than our senior housing — RIDEA facilities and our integrated senior health campuses, by number, total square feet, percentage of leased area, annual base rent and percentage of total annual base rent of expiring leases as of December 31, 2016:

Year	Number of Expiring Leases	Total Square Feet of Expiring Leases	% of Leased Area Represented by Expiring Leases		Annual Base Rent  of Expiring Leases		% of Total Annual Base Rent Represented by Expiring Leases(1)
2017	85	277,000	7.3	%	$	6,442,000	6.0	%
2018	54	241,000	6.4		6,458,000		6.0
2019	57	328,000	8.6		8,034,000		7.5
2020	54	214,000	5.6		5,009,000		4.7
2021	42	265,000	7.0		5,928,000		5.6
2022	39	303,000	8.0		7,167,000		6.7
2023	21	161,000	4.2		4,153,000		3.9
2024	16	177,000	4.7		3,569,000		3.4
2025	45	340,000	9.0		9,353,000		8.8
2026	6	44,000	1.2		930,000		0.9
Thereafter	25	1,442,000	38.0		49,639,000		46.5
Total	444	3,792,000	100	%	$	106,682,000	100	%

 _______

(1) The annual rent percentage is based on the total annual contractual base rent expiring in the applicable year, based on leases in effect as of December 31, 2016.

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Geographic Diversification/Concentration Table

The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2016:

State	Number of Buildings/Campuses	GLA (Sq Ft)	% of GLA		Annualized Base Rent/NOI(1)		% of Annualized Base Rent/NOI
Alabama	1	28,000	0.2	%	$	572,000	0.3	%
Arkansas	1	51,000	0.4		605,000		0.3
California	2	65,000	0.5		1,973,000		1.0
Colorado	2	69,000	0.6		2,036,000		1.0
Connecticut	3	81,000	0.7		1,715,000		0.9
District of Columbia	1	134,000	1.1		3,708,000		1.9
Florida	2	62,000	0.5		1,841,000		0.9
Georgia	11	307,000	2.5		5,245,000		2.7
Illinois	6	122,000	1.0		2,413,000		1.2
Indiana	72	4,822,000	39.4		68,361,000		35.0
Kansas	1	40,000	0.3		687,000		0.4
Kentucky	10	691,000	5.6		5,442,000		2.8
Massachusetts	7	525,000	4.3		10,419,000		5.3
Maryland	1	77,000	0.6		1,582,000		0.8
Michigan	13	809,000	6.6		9,718,000		5.0
Mississippi	2	76,000	0.6		1,027,000		0.5
Missouri	3	350,000	2.9		6,884,000		3.5
North Carolina	4	157,000	1.3		5,720,000		2.9
Nebraska	2	282,000	2.3		3,441,000		1.8
New Jersey	3	270,000	2.2		6,855,000		3.5
New York	1	83,000	0.7		2,554,000		1.3
Ohio	21	1,432,000	11.7		12,403,000		6.4
Pennsylvania	8	557,000	4.5		12,860,000		6.6
South Carolina	1	58,000	0.5		1,528,000		0.8
Tennessee	1	46,000	0.4		1,021,000		0.5
Texas	15	692,000	5.6		16,545,000		8.5
Virginia	1	210,000	1.7		4,407,000		2.3
Total Domestic	195	12,096,000	98.7		191,562,000		98.1
Isle of Man and U.K.	6	155,000	1.3		3,808,000		1.9
Total	201	12,251,000	100	%	$	195,370,000	100	%

 _______

(1) Annualized base rent is based on contractual base rent from leases in effect as of December 31, 2016, with the exception of our senior housing — RIDEA facilities and our integrated senior health campuses, which are based on annualized NOI.

Indebtedness

For a discussion of our indebtedness, see Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

61

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established public trading market for shares of our common stock.

To assist the members of FINRA and their associated persons, pursuant to FINRA Conduct Rule 5110, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, we will prepare annual statements of the estimated share value to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in shares of our common stock. For these purposes, our estimated per share NAV is $9.01 as of December 31, 2016, which estimated per share NAV was determined by our board on October 5, 2016 based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2016. However, there is no established public trading market for the shares of our common stock at this time, and there can be no assurance that stockholders could receive $9.01 per share if such a market did exist and they sold their shares of our common stock or that they will be able to receive such amount for their shares of our common stock in the future.

Pursuant to FINRA rules, we disclose an estimated per share NAV of our shares based on a valuation performed at least annually, and we disclose the resulting estimated per share NAV in our Annual Reports on Form 10-K distributed to stockholders. When determining the estimated value per share NAV, there are currently no SEC, federal and state rules that establish requirements specifying the methodology to employ in determining an estimated per share NAV; provided, however, that the determination of the estimated per share NAV must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert or service and must be derived from a methodology that conforms to standard industry practice. In determining the most recent estimated per share NAV of our shares, our board considered information and analysis, including valuation materials that were provided by an independent third-party valuation firm, information provided by Griffin-American Healthcare REIT III Advisor, LLC, and the estimated per share NAV recommendation made by the audit committee of the board of directors, which committee is comprised entirely of independent directors. See our Current Report on Form 8-K, filed with the SEC on October 7, 2016, for additional information regarding our independent third-party valuation firm, its valuation materials and the methodology used to determine the most recent estimated per share NAV.

Although FINRA rules require subsequent valuations to be performed at least annually, our board may decide to perform them on a quarterly basis. The valuations are estimates and consequently should not be viewed as an accurate reflection of the fair value of our investments nor do they represent theamount of net proceeds that would result from an immediate sale of our assets.

Stockholders

As of March 10, 2017, we had approximately 37,966 stockholders of record.

Distributions

On April 10, 2014, our board authorized a daily distribution to be paid to our stockholders of record as of the close of business on each day of the period from the date we received and accepted subscriptions aggregating at least the minimum offering of $2,000,000, or the Commencement Date, through June 30, 2014. This was the result of our advisor advising us that it intended to waive asset management fees that may otherwise be due to our advisor pursuant to the Advisory Agreement, in order to provide us with additional funds to pay distributions to our stockholders. Our advisor agreed to waive asset management fees only until such time as the amount of such waived asset management fees was equal to the amount of distributions payable to our stockholders for the period commencing on the Commencement Date and ending on the date we acquired our first property or real estate-related investment.

Having raised the minimum offering on May 12, 2014, the offering proceeds were released by the escrow agent to us on May 14, 2014 and the distributions declared for each record date for the May 14, 2014 through June 30, 2014 period were paid in June 2014 and July 2014, from legally available funds. We acquired our first property on June 6, 2014, and as such, our advisor waived asset management fees equal to the amount of distributions payable from May 14, 2014 through June 5, 2014. See Note 14, Related Party Transactions — Operational Stage — Asset Management Fee, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for further details of the waiver. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees.

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In addition, our board has authorized, on a quarterly basis, a daily distribution to our stockholders of record as of the close of business on each day of the quarterly periods commencing onJuly 1, 2014 and ending on March 31, 2017. The distributions were or will be calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution rate of 6.0% assuming a purchase price of $10.00 per share. The daily distributions were or will be aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering, only from legally available funds.

The amount of the distributions paid to our stockholders is determined quarterly by our board and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code. We have not established any limit on the amount of offering proceeds that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.

The distributions paid for the years ended December 31, 2016 and 2015, along with the amount of distributions reinvested pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering, and the sources of our distributions as compared to cash flows from operations were as follows:

	Years Ended December 31,
	2016				2015
Distributions paid in cash	$	51,681,000			$	43,869,000
Distributions reinvested	64,604,000				59,335,000
	$	116,285,000			$	103,204,000
Sources of distributions:
Cash flows from operations	$	114,357,000	98.3	%	$	—	—	%
Proceeds from borrowings	1,928,000		1.7		—		—
Offering proceeds	—		—		103,204,000		100
	$	116,285,000	100	%	$	103,204,000	100	%

Under GAAP, acquisition related expenses related to property acquisitions accounted for as business combinations are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from offering proceeds or debt.

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

As of December 31, 2016, we had an amount payable of $2,148,000 to our advisor or its affiliates primarily for asset and property management fees and acquisition fees, which will be paid from cash flows from operations in the future as they become due and payable by us in the ordinary course of business consistent with our past practice.

As of December 31, 2016, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than $37,000 in asset management fees waived by our advisor in 2014, discussed above. Other than the waiver of such asset management fees by our advisor in order to provide us with additional funds to pay initial distributions to our stockholders through June 5, 2014, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

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The distributions paid for the years ended December 31, 2016 and 2015, along with the amount of distributions reinvested pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering, and the sources of our distributions as compared to FFO were as follows:

	Years Ended December 31,
	2016				2015
Distributions paid in cash	$	51,681,000			$	43,869,000
Distributions reinvested	64,604,000				59,335,000
	$	116,285,000			$	103,204,000
Sources of distributions:
FFO attributable to controlling interest	$	62,915,000	54.1	%	$	—	—	%
Proceeds from borrowings	53,370,000		45.9		—		—
Offering proceeds	—		—		103,204,000		100
	$	116,285,000	100	%	$	103,204,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net loss to FFO, see Item 6. Selected Financial Data.

Securities Authorized for Issuance under Equity Compensation Plans

We adopted our incentive plan, pursuant to which our board or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares. For a further discussion of our incentive plan, see Note 13, Equity — 2013 Incentive Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. The following table provides information regarding our incentive plan as of December 31, 2016:

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders(1)	—	—	1,940,000
Equity compensation plans not approved by security holders	—	—	—
Total	—		1,940,000

________ 

(1) On each of May 14, 2014, December 10, 2014, June 17, 2015 and June 13, 2016, we granted 10,000, 5,000, 7,500 and 7,500 shares, respectively, of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election or re-election to our board, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant. In addition, on July 1, 2015 and July 1, 2016, we granted 7,500 and 22,500 shares, respectively, of our restricted common stock, as defined in our incentive plan, to our independent directors in consideration for their past services rendered. These shares of restricted common stock vest under the same period described above. The fair value of each share at the date of grant was estimated at $10.00 based on the then most recent price paid to acquire a share of our common stock in our offering; and with respect to the initial 20.0% of shares of our restricted common stock that vested on the date of grant, expensed as compensation immediately, and with respect to the remaining shares of our restricted common stock, amortized over the period from the service inception date to the vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions. Such shares are not shown in the chart above as they are deemed outstanding shares of our common stock; however, such grants reduce the number of securities remaining available for future issuance.

Recent Sales of Unregistered Securities

None.

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Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. All share repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan and will be repurchased at a price between 92.5% and 100% of each stockholder's "Repurchase Amount," as defined in our share repurchase plan, depending on the period of time their shares have been held. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering. Until October 4, 2016, the Repurchase Amount for shares repurchased under our share repurchase plan was equal to the lesser of the amount a stockholder paid for their shares of our common stock or the most recent per share offering price. However, if shares of our common stock were to be repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price was no less than 100% of the price paid to acquire the shares of our common stock from us.

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

During the three months ended December 31, 2016, we repurchased shares of our common stock as follows:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plan or Program	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2016 to October 31, 2016	—	$	—	—	(1	)
November 1, 2016 to November 30, 2016	—	$	—	—	(1	)
December 1, 2016 to December 31, 2016	681,952	$	8.96	681,952	(1	)
Total	681,952	$	8.96	681,952

___________

(1) Subject to funds being available, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap.

Item 6. Selected Financial Data.

The following should be read with Part I, Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our accompanying Consolidated Financial Statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of results for any future period. We had no results of operations for the period from January 11, 2013 (Date of Inception) through December 31, 2013, and therefore, our results of operations for the years ended December 31, 2016, 2015 and 2014 are not comparable.

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The following selected financial data is derived from our consolidated financial statements in Part IV, Item 15. Exhibits, Financial Statement Schedules that is a part of this Annual Report on Form 10-K.

	December 31,
Selected Financial Data	2016			2015			2014			2013
BALANCE SHEET DATA:
Total assets	$	2,794,518,000		$	2,525,019,000		$	831,684,000		$	202,000
Mortgage loans payable, net	$	495,717,000		$	295,270,000		$	16,959,000		$	—
Lines of credit and term loan	$	649,317,000		$	350,000,000		$	—		$	—
Stockholders’ equity	$	1,262,790,000		$	1,492,113,000		$	805,534,000		$	200,000
	Years Ended December 31,									Period from January 11, 2013 (Date of Inception) through December 31,
	2016			2015			2014			2013
STATEMENT OF OPERATIONS DATA:
Total revenues	$	989,571,000		$	160,476,000		$	3,481,000		$	—
Net loss	$	(203,896,000	)	$	(115,041,000	)	$	(8,598,000	)	$	—
Net loss attributable to controlling interest	$	(146,034,000	)	$	(101,333,000	)	$	(8,598,000	)	$	—
Net loss per common share attributable to controlling interest — basic and diluted(1)	$	(0.75	)	$	(0.55	)	$	(0.66	)	$	—
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating activities	$	114,357,000		$	(22,987,000	)	$	(6,329,000	)	$	—
Net cash used in investing activities	$	(360,703,000	)	$	(1,609,349,000	)	$	(265,715,000	)	$	—
Net cash provided by financing activities	$	226,656,000		$	1,176,599,000		$	776,736,000		$	202,000
OTHER DATA:
Distributions declared	$	116,549,000		$	109,957,000		$	7,827,000		$	—
Distributions declared per share	$	0.60		$	0.60		$	0.38		$	—
FFO attributable to controlling interest(2)	$	62,915,000		$	(30,815,000	)	$	(7,088,000	)	$	—
MFFO attributable to controlling interest(2)	$	96,528,000		$	37,241,000		$	985,000		$	—
Net operating income(3)	$	195,038,000		$	60,146,000		$	2,582,000		$	—

_________

(1) Net loss per common share is based upon the weighted average number of shares of our common stock outstanding. Distributions by us of our current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholders’ basis in the shares of our common stock to the extent thereof (a return of capital for tax purposes) and, thereafter, as taxable gain. These distributions in excess of earnings and profits will have the effect of deferring taxation of the distributions until the sale of the stockholders’ common stock.

(2) Funds from Operations and Modified Funds from Operations:

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

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on funds from operations approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for

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unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above.

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

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

However, FFO and MFFO as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

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

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indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering stage has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired, as it excludes acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.

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

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses (which include gains and losses on contingent consideration), amortization of above- and below-market leases, amortization of loan and closing costs, change in deferred rent receivables, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions, fair value adjustment to investments in unconsolidated entities and the adjustments of such items related to unconsolidated properties and noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the years ended December 31, 2016, 2015, 2014 and for the period from January 11, 2013 (Date of Inception) through December 31, 2013. Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent redeployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses will not be reimbursed by our advisor or its affiliates and third parties, and therefore if there are no further proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties, or from ancillary cash flows. Certain acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, we may pay acquisition fees or reimburse acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds from borrowings available for investment and operations would be reduced, or we may incur

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additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from cash on hand.

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

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

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

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

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The following is a reconciliation of net loss, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the years ended December 31, 2016, 2015, 2014 and for the period from January 11, 2013 (Date of Inception) through December 31, 2013:

	Years Ended December 31,									Period from January 11, 2013 (Date of Inception) through December 31,
	2016			2015			2014			2013
Net loss	$	(203,896,000	)	$	(115,041,000	)	$	(8,598,000	)	$	—
Add:
Depreciation and amortization — consolidated properties	271,307,000			75,714,000			1,510,000			—
Depreciation and amortization — unconsolidated properties	1,061,000			75,000			—			—
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests	57,862,000			13,708,000			—			—
Less:
Depreciation and amortization related to redeemable noncontrolling interests and noncontrolling interests	(63,419,000		)	(5,271,000		)	—			—
FFO attributable to controlling interest	$	62,915,000		$	(30,815,000	)	$	(7,088,000	)	$	—
Acquisition related expenses(1)	$	28,589,000		$	74,170,000		$	8,199,000		$	—
Amortization of above- and below-market leases(2)	929,000			882,000			114,000			—
Amortization of loan and closing costs(3)	754,000			669,000			—			—
Change in deferred rent receivables(4)	(10,733,000		)	(2,816,000		)	(240,000		)	—
Gain in fair value of derivative financial instruments(5)	(1,968,000		)	—			—			—
Foreign currency loss(6)	8,755,000			3,199,000			—			—
Fair value adjustment to investments in unconsolidated entities(7)	9,101,000			—			—			—
Adjustments for unconsolidated properties(8)	2,140,000			—			—			—
Adjustments for redeemable noncontrolling interests and noncontrolling interests(8)	(3,954,000		)	(8,048,000		)	—			—
MFFO attributable to controlling interest	$	96,528,000		$	37,241,000		$	985,000		$	—
Weighted average common shares outstanding — basic and diluted	194,199,931			183,234,601			13,052,785			22,222
Net loss per common share — basic and diluted	$	(1.05	)	$	(0.63	)	$	(0.66	)	$	—
FFO attributable to controlling interest per common share — basic and diluted	$	0.32		$	(0.17	)	$	(0.54	)	$	—
MFFO attributable to controlling interest per common share — basic and diluted	$	0.50		$	0.20		$	0.08		$	—

_________

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

(2) Under GAAP, above- and below-market leases are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO.

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However, because real estate values and market lease rates historically rise or fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, we believe that by excluding charges relating to the amortization of above- and below-market leases, MFFO may provide useful supplemental information on the performance of the real estate.

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

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

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

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

(7) Includes impairment of one of our investments in unconsolidated entities, which resulted from a measurable decrease in the fair value of the real estate operations of such entity.

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

(3) Net Operating Income

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

NOI is not equivalent to our net income (loss) or income (loss) from continuing operations as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, NOI is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from

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operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. Investors are also cautioned that NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.

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

The following is a reconciliation of net loss, which is the most directly comparable GAAP financial measure, to net operating income for the years ended December 31, 2016, 2015, 2014 and for the period from January 11, 2013 (Date of Inception) through December 31, 2013:

	Years Ended December 31,									Period from January 11, 2013 (Date of Inception) through December 31,
	2016			2015			2014			2013
Net loss	$	(203,896,000	)	$	(115,041,000	)	$	(8,598,000	)	$	—
General and administrative	28,951,000			16,544,000			1,238,000			—
Acquisition related expenses	28,589,000			74,170,000			8,199,000			—
Depreciation and amortization	271,307,000			75,714,000			1,510,000			—
Interest expense	43,697,000			5,619,000			258,000			—
Foreign currency loss	8,755,000			3,199,000			—			—
Interest and other income	(1,085,000		)	(839,000		)	(25,000		)	—
Loss from unconsolidated entities	18,377,000			590,000			—			—
Income tax expense	343,000			190,000			—			—
Net operating income	$	195,038,000		$	60,146,000		$	2,582,000		$	—

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

The following discussion should be read in conjunction with our accompanying consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 2016 and 2015, together with our results of operations and cash flows for the years ended December 31, 2016, 2015 and 2014.

Forward-Looking Statements

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

Overview and Background

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

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we initially offered to the public up to $1,750,000,000 in shares of our common stock for $10.00 per share in our primary offering and up to $150,000,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $1,900,000,000. We reserved the right to reallocate the shares of common stock we offered in our initial offering between the primary offering and the DRIP. As such, during our initial offering, we reallocated an aggregate of $115,000,000 in shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in shares of our common stock in our primary offering and up to $35,000,000 in shares of our common stock pursuant to the DRIP.

On March 12, 2015, we terminated the primary portion of our initial offering. We continued to offer up to $35,000,000 in shares of our common stock through our initial offering pursuant to the DRIP until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015. As of April 22, 2015, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to the DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution

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reinvestment plan, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion. As of December 31, 2016, a total of $108,163,000 in distributions were reinvested and 11,446,351 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

On October 5, 2016, our board of directors, or our board, at the recommendation of the audit committee of our board, comprised solely of independent directors, unanimously approved and established an estimated per share net asset value, or NAV, of our common stock of $9.01. We are providing this estimated per share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. The estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of June 30, 2016. This valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association, or the IPA, in April 2013, in addition to guidance from the SEC. Going forward, we intend to publish an updated estimated per share NAV on at least an annual basis. See our Current Report on Form 8-K filed with the SEC on October 7, 2016, for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our estimated per share NAV.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised byGriffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor,pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had aone-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2017 and expires on February 26, 2018. Our advisor uses its best efforts, subject to the oversight, review and approval of our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors and 25.0% owned by a wholly owned subsidiary of Griffin Capital. Effective March 1, 2015, American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings (formerly known as American Healthcare Investors LLC), 45.1% indirectly owned by Colony NorthStar, Inc. (NYSE: CLNS), or Colony NorthStar (formerly known as NorthStar Asset Management Group Inc. prior to its merger with Colony Capital, Inc. and NorthStar Realty Finance Corp. on January 10, 2017), and 7.8% owned by James F. Flaherty III, one of Colony NorthStar’s partners. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, or Griffin Securities, or our dealer manager, Colony NorthStar or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of December 31, 2016, we had completed 48 real estate acquisitions whereby we owned and/or operated 93 properties, comprising 97 buildings, and 104 integrated senior health campuses including completed development projects, or approximately 12,251,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,767,881,000. In addition, as of December 31, 2016, we had acquired real estate-related investments for an aggregate purchase price of $120,646,000. As of December 31, 2016, our portfolio capitalization rate was approximately 7.4%, which estimate was based upon total property portfolio net operating income from each property’s forward looking pro forma projections for the expected year one property performance, including any contractual rent increases contained in such leases for year one, divided by the purchase price of the total property portfolio, exclusive of any acquisition fees and expenses paid.

Critical Accounting Policies

We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to revenue recognition, tenant receivables and allowance for uncollectible accounts, accounting for property acquisitions, capitalization of expenditures and depreciation of assets, impairment of real estate, properties held for sale and qualification as a REIT. These estimates are made and evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We believe that the critical accounting policies described below, among others, affect our more significant estimates and judgments used in the preparation of our financial statements.

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Use of Estimates

The preparation of our accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

Revenue Recognition, Tenant and Resident Receivables and Allowance for Uncollectible Accounts

We recognize revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. Tenant receivables are placed on nonaccrual status when management determines that collectability is not reasonably assured, and thus such revenue is recognized using the cash basis method. Resident fees and services revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Resident fees and services revenue is generally paid by the individual, Medicare or Medicaid programs and other third-party payers. Amounts paid under the Medicare and Medicaid programs are generally established prospectively and are subject to review by the third-party payers.

In accordance with ASC Topic 840, Leases, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements are recorded to deferred rent receivable or deferred rent liability, as applicable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with ASC Subtopic 605-45, Revenue Recognition — Principal Agent Consideration, or ASC Subtopic 605-45. ASC Subtopic 605-45 requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees at such time when there is a signed termination letter agreement, all of the conditions of such agreement have been met and the tenant is no longer occupying the property.

Tenant and resident receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants or residents to meet the contractual obligations under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight-line recognition of rents. Such allowances are charged to bad debt expense, which is included in general and administrative in our accompanying consolidated statements of operations and comprehensive loss. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s or resident’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors.

Property Acquisitions

In accordance with ASC Topic 805, Business Combinations, we, with assistance from independent valuation specialists, measure the fair value of tangible and identified intangible assets and liabilities, as applicable, based on their respective fair values for acquired properties. Our method for allocating the purchase price to acquired investments in real estate requires us to make subjective assessments for determining fair value of the assets acquired and liabilities assumed. This includes determining the value of the buildings, land, leasehold interests, furniture, fixtures and equipment, above- or below-market rent, in-place leases, master leases, above- or below-market debt assumed and derivative financial instruments assumed. These estimates require significant judgment and in some cases involve complex calculations. These allocation assessments directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation or amortization lives. In addition, we amortize the value assigned to above- or below- market rent as a component of revenue, unlike in-place leases and other intangibles, which we include in depreciation and amortization in our accompanying consolidated statements of operations and comprehensive loss.

The determination of the fair value of land is based upon comparable sales data. In cases where a leasehold interest in the land is acquired, the value of the leasehold interest is determined by discounting the difference between the contract ground lease payments and a market ground lease payment back to a present value as of the acquisition date. The market ground lease payment is estimated as a percentage of the land value. The fair value of buildings is based upon our determination of the value

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as if it were to be replaced and vacant using cost data and discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. We also recognize the fair value of furniture, fixtures and equipment on the premises, if any, as well as the above- or below-market rent, in-place leases, master leases, above- or below-market debt assumed and derivative financial instruments assumed.

The value of the above- or below-market component of the acquired in-place leases is determined based upon the present value (using a discount rate that reflects the risks associated with the acquired leases) of the difference between (i) the level payment equivalent of the contract rent paid pursuant to the lease and (ii) our estimate of market rent payments taking into account rent steps throughout the lease. In the case of leases with options, a case-by-case analysis is performed based on all

facts and circumstances of the specific lease to determine whether the option will be assumed to be exercised. The amounts

related to above-market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to real estate revenue over the remaining non-cancelable lease term of the acquired leases with each property. The amounts related to below-market leases are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and are amortized to real estate revenue over the remaining non-cancelable lease term plus any below-market renewal options of the acquired leases with each property.

The value of in-place lease costs is based on management’s evaluation of the specific characteristics of the tenant’s lease and our overall relationship with the tenants. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The in-place lease intangible represents the value related to the economic benefit for acquiring a property with in place leases as opposed to a vacant property, which is evaluated based on a review of comparable leases for similar property, terms and conditions for marketing and executing new leases, and implied in the difference between the value of the whole property “as is” and “as vacant.” The net amounts related to in-place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to depreciation and amortization expense over the average downtime of the acquired leases with each property. The net amounts related to the value of tenant relationships, if any, would be included in identified intangible assets, net in our accompanying consolidated balance sheets and would be amortized to depreciation and amortization expense over the average remaining non-cancelable lease term of the acquired leases plus the market renewal lease term. The value of a master lease, in which a previous owner or a tenant is relieved of specific rental obligations as additional space is leased, is determined by discounting the expected real estate revenue associated with the master lease space over the assumed lease-up period.

The value of above- or below-market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage at the time of assumption. The net value of above- or below-market debt is included in mortgage loans payable, net in our accompanying consolidated balance sheets and is amortized to interest expense over the remaining term of the assumed mortgage.

The value of derivative financial instruments, if any, would be determined in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and would be included in derivative financial instruments in our accompanying consolidated balance sheets.

The values of contingent consideration assets and liabilities are analyzed at the time of acquisition. For contingent purchase options, the fair market value of the acquired asset is compared to the specified option price at the exercise date. If the option price is below market, it is assumed to be exercised and the difference between the fair market value and the option price is discounted to the present value at the time of acquisition.

These values are preliminary estimates in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition.

Capitalization of Expenditures and Depreciation of Assets

The cost of operating properties includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives. The cost of improvements is depreciated on a straight-line basis over the shorter of the lease term or useful life. Furniture, fixtures and equipment is depreciated over the estimated useful lives. When depreciable property is retired or disposed of, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is reflected in operations.

As part of the leasing process, we may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements, the allowance is considered to be a lease inducement and is included in other assets, net in our accompanying consolidated balance sheets and is

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recognized over the lease term as a reduction of rental revenue on a straight-line basis. Factors considered during this evaluation include, among other things, who holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs (e.g. unilateral control of the tenant space during the build-out process). Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. Recognition of rental revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements when we are the owner of the leasehold improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date (and the date on which recognition of lease revenue commences) is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill

Our long-lived assets primarily consist of investments in real estate, which we carry at our historical cost less accumulated depreciation. We periodically evaluate the impairment of a real estate investment when events or changes in circumstances indicate that its carrying value may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include, among others, the following:

• significant negative industry or economic trends;

• a significant underperformance relative to historical or projected future operating results; and

• a significant change in the extent or manner in which the asset is used or significant physical change in the asset.

We test goodwill for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors, such as current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit’s carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.

If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If the estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. For all of our reporting units we recognize any shortfall from carrying value as an impairment loss in the current period.

We test other indefinite-lived intangible assets for impairment at least annually, and more frequently if indicators arise. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

Properties Held for Sale

We will account for our properties held for sale in accordance with ASC Topic 360, Property, Plant, and Equipment, or ASC Topic 360, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC Topic 360 requires that a property or a group of properties is required to be reported in discontinued operations in the statements of operations and comprehensive loss for current and prior periods, if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when either (i) the component has been disposed of or (ii) is classified as held for sale.

In accordance with ASC Topic 360, at such time as a property is held for sale, such property is carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We will classify operating properties as property held for sale in the period in which all of the following criteria are met:

• management, having the authority to approve the action, commits to a plan to sell the asset;

• the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

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• an active program to locate a buyer or buyers and other actions required to complete the plan to sell the asset has been initiated;

• the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

• the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

• given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.

Qualification as a REIT

We qualified and elected to be taxed as a REIT under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders.

Recently Issued or Adopted Accounting Pronouncements

For a discussion of recently issued accounting or adopted pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Issued or Adopted Accounting Pronouncements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Acquisitions in 2017, 2016, 2015 and 2014

For a discussion of property acquisitions in 2017, 2016, 2015 and 2014, see Note 3, Real Estate Investments, Net and Note 23, Subsequent Events — Property Acquisitions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Factors Which May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part I, Item 1A. Risk Factors, of this Annual Report on Form 10-K.

Revenues

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

Scheduled Lease Expirations

Excluding our senior housing — RIDEA facilities and our integrated senior health campuses, as of December 31, 2016, our properties were 94.4% leased and during 2017, 7.3% of the leased GLA is scheduled to expire. Our senior housing— RIDEA facilities and integrated senior health campuses were 86.1% and 87.3%, respectively, leased for the 12 months ended December 31, 2016 and substantially all of our leases with residents at such properties are for a term of one year or less. Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.

As of December 31, 2016, our remaining weighted average lease term was 8.9 years, excluding our senior housing — RIDEA facilities and our integrated senior health campuses.

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Results of Operations

Comparison of the Years Ended December 31, 2016, 2015 and 2014

Our operating results for the years ended December 31, 2016, 2015 and 2014 are primarily comprised of income derived from our portfolio of properties and acquisition related expenses in connection with the acquisitions of such properties.

In general, we expect amounts related to our portfolio of operating properties to increase in the future based on a full year of operations as well as any additional real estate and real estate-related investments we may acquire. Our results of operations are not indicative of those expected in future periods.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we added a new reportable business segment at such time. See Part I, Item 1. Business — Financial Information About Industry Segments, for a further discussion regarding our business segments. As of December 31, 2016, we operated through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

Except where otherwise noted, the changes in our results of operations are primarily due to owning 97 buildings and 104 integrated senior health campuses as of December 31, 2016, as compared to 74 buildings and 97 integrated senior health campuses as of December 31, 2015 and as compared to 24 buildings and no integrated senior health campuses as of December 31, 2014. As of December 31, 2016, 2015 and 2014, we owned the following types of properties:

	December 31,
	2016					2015					2014
	Number of Buildings/Campuses	Aggregate Contract Purchase Price		Leased %		Number of Buildings/Campuses	Aggregate Contract Purchase Price		Leased %		Number of Buildings	Aggregate Contract Purchase Price		Leased %
Integrated senior health campuses	104	$	1,367,430,000	(1	)	97	$	1,125,000,000	(1)		—	$	—	—	%
Medical office buildings	62	654,245,000		92.1	%	49	521,709,000		93.5	%	21	136,355,000		100	%
Senior housing — RIDEA	13	320,035,000		(2	)	12	292,535,000		(2)		—	—		—	%
Senior housing	13	158,391,000		100	%	10	134,861,000		100	%	2	13,345,000		100	%
Hospitals	2	139,780,000		100	%	2	139,780,000		100	%	1	128,000,000		94.6	%
Skilled nursing facilities	7	128,000,000		100	%	1	40,000,000		100	%	—	—		—	%
Total/weighted average(3)	201	$	2,767,881,000	94.4	%	171	$	2,253,885,000	95.1	%	24	$	277,700,000	95.9	%

___________

(1) The leased percentage for the resident units of our integrated senior health campuses was 87.3% and 86.9% for the 12 months ended December 31, 2016 and 2015, respectively.

(2) The leased percentage for the resident units of our senior housing — RIDEA facilities was 86.1% and 88.0% for the 12 months ended December 31, 2016 and 2015, respectively.

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

Revenues

For the years ended December 31, 2016, 2015 and 2014, resident fees and services consisted of rental fees related to resident leases, extended health care fees and other ancillary services. We did not own or operate any senior housing — RIDEA facilities prior to May 2015 and we did not own or operate any integrated senior health campuses prior to December 2015. For the years ended December 31, 2016, 2015 and 2014, real estate revenue primarily consisted of base rent, expense recoveries and interest income from our notes receivable and debt security investment.

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

	Years Ended December 31,
	2016		2015		2014
Resident Fees and Services
Integrated senior health campuses	$	810,034,000	$	66,115,000	$	—
Senior housing — RIDEA	62,371,000		29,964,000		—
Total resident fees and services	872,405,000		96,079,000		—
Real Estate Revenue
Medical office buildings	73,252,000		49,804,000		2,117,000
Senior housing	18,517,000		8,488,000		443,000
Hospitals	16,711,000		5,297,000		921,000
Skilled nursing facilities	8,686,000		808,000		—
Total real estate revenue	117,166,000		64,397,000		3,481,000
Total revenues	$	989,571,000	$	160,476,000	$	3,481,000

Property Operating Expenses and Rental Expenses

For the years ended December 31, 2016, 2015 and 2014, property operating expenses primarily consisted of administration and benefits expense of $661,736,000, $16,068,000 and $0, respectively.

Property operating expenses and property operating expenses as a percentage of resident fees and services, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:

	Years Ended December 31,
	2016				2015				2014
Property Operating Expenses
Integrated senior health campuses	$	722,793,000	89.2	%	$	60,635,000	91.7	%	$	—	—	%
Senior housing — RIDEA	42,346,000		67.9	%	20,820,000		69.5	%	—		—	%
Total property operating expenses	$	765,139,000	87.7	%	$	81,455,000	84.8	%	$	—	—	%
Rental Expenses
Medical office buildings	$	26,863,000	36.7	%	$	16,806,000	33.7	%	$	700,000	33.1	%
Hospitals	1,235,000		7.4	%	1,625,000		30.7	%	120,000		13.0	%
Senior housing	538,000		2.9	%	391,000		4.6	%	79,000		17.8	%
Skilled nursing facilities	758,000		8.7	%	53,000		6.6	%	—		—	%
Total rental expenses	$	29,394,000	25.1	%	$	18,875,000	29.3	%	$	899,000	25.8	%

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

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General and Administrative

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

	Years Ended December 31,
	2016		2015		2014
Asset management fees — affiliates	$	16,949,000	$	6,831,000	$	160,000
Bad debt expense	4,105,000		1,233,000		—
Professional and legal fees	3,019,000		1,339,000		282,000
Stock compensation expense	1,620,000		3,165,000		—
Transfer agent services	1,579,000		1,758,000		167,000
Bank charges	352,000		148,000		19,000
Directors’ and officers’ liability insurance	311,000		333,000		142,000
Franchise taxes	270,000		528,000		103,000
Board of directors fees	234,000		283,000		115,000
Restricted stock compensation	196,000		109,000		62,000
Share discounts expense	—		580,000		177,000
Other	316,000		237,000		11,000
Total	$	28,951,000	$	16,544,000	$	1,238,000

The increase in general and administrative in 2016 as compared to 2015 was primarily due to the increase in asset management fees. For the years ended December 31, 2016, 2015 and 2014, we incurred $16,949,000, $6,831,000 and $160,000, respectively, in asset management fees to our advisor or its affiliates, excluding $37,000 in asset management fees waived by our advisor that would have been incurred during the year ended December 31, 2014. See Note 14, Related Party Transactions — Operational Stage — Asset Management Fee, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K for a further discussion of the waiver. The increase in asset management fees in 2016 as compared to 2015 and 2014 was primarily the result of purchasing additional properties in 2016 and 2015, thus incurring higher asset management fees to our advisor in 2016 and 2015 as compared to the prior year.

Acquisition Related Expenses

For the year ended December 31, 2016, acquisition related expenses were $28,589,000, which were related primarily to expenses associated with our 2016 property acquisitions, including acquisition fees of $9,591,000 incurred to our advisor.

For the year ended December 31, 2015, acquisition related expenses were $74,170,000, which were related primarily to expenses associated with our 23 property acquisitions, including acquisition fees of $36,259,000 incurred to our advisor and its affiliates.

For the year ended December 31, 2014, acquisition related expenses were $8,199,000, which were related primarily to expenses associated with our 11 property acquisitions, including acquisition fees of $6,279,000 incurred to our advisor and its affiliates.

Depreciation and Amortization

For the years ended December 31, 2016, 2015 and 2014, depreciation and amortization was $271,307,000, $75,714,000 and $1,510,000, respectively, which primarily consisted of depreciation on our operating properties of $68,708,000, $25,650,000 and $1,124,000, respectively, and amortization on our identified intangible assets of $201,427,000, $50,047,000 and $386,000, respectively.

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Interest Expense

For the years ended December 31, 2016, 2015 and 2014, interest expense, including gain in fair value of derivative financial instruments, was $43,697,000, $5,619,000 and $258,000, respectively. Interest expense consisted of the following for the periods then ended:

	Years Ended December 31,
	2016			2015			2014
Interest expense — lines of credit and term loan and derivative financial instruments	$	21,578,000		$	1,424,000		$	71,000
Interest expense — mortgage loans payable	19,638,000			3,842,000			107,000
Amortization of deferred financing costs — mortgage loans payable	1,065,000			160,000			4,000
Amortization of deferred financing costs — lines of credit and term loan	3,456,000			467,000			83,000
Gain in fair value of derivative financial instruments	(1,968,000		)	—			—
Amortization of debt discount/premium, net	(72,000		)	(274,000		)	(7,000		)
Total	$	43,697,000		$	5,619,000		$	258,000

Interest and Other Income

For the years ended December 31, 2016, 2015 and 2014, we had interest and other income of $1,085,000, $839,000 and $25,000, respectively, primarily related to interest earned on funds held in cash accounts. We had higher cash balances in 2016 as compared to 2015 and 2014.

Liquidity and Capital Resources

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

Our total capacity to pay operating expenses, interest and distributions and purchase real estate and real estate-related investments is a function of our current cash position, our borrowing capacity on our lines of credit, as well as any future indebtedness that we may incur. As of December 31, 2016, our cash on hand was $29,123,000 and we had $210,683,000 available on our lines of credit and term loan. We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months.

We estimate that we will require approximately $43,896,000 to pay interest on our outstanding indebtedness in 2017, based on interest rates in effect as of December 31, 2016. In addition, we estimate that we will require $15,829,000 to pay principal on our outstanding indebtedness in 2017. We also require resources to make certain payments to our advisor and its affiliates. See Note 14, Related Party Transactions, to our accompanying consolidated financial statements that are part of this Annual Report on Form 10-K, for a further discussion of our payments to our advisor and its affiliates. Generally, cash needs for such items will be met from operations and borrowings.

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

Other Liquidity Needs

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

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Based on the properties we owned as of December 31, 2016, we estimate that our expenditures for capital improvements and tenant improvements will require up to $38,725,000 within the next 12 months. As of December 31, 2016, we had $9,324,000 of restricted cash in loan impounds and reserve accounts for capital expenditures, some of which may be used to fund our estimated expenditures for capital improvements and tenant improvements. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.

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

Cash Flows

The following table sets forth changes in cash flows:

	Years Ended December 31,
	2016			2015			2014
Cash and cash equivalents — beginning of period	$	48,953,000		$	504,894,000		$	202,000
Net cash provided by (used in) operating activities	114,357,000			(22,987,000		)	(6,329,000		)
Net cash used in investing activities	(360,703,000		)	(1,609,349,000		)	(265,715,000		)
Net cash provided by financing activities	226,656,000			1,176,599,000			776,736,000
Effect of foreign currency translation on cash and cash equivalents	(140,000		)	(204,000		)	—
Cash and cash equivalents — end of period	$	29,123,000		$	48,953,000		$	504,894,000

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

Operating Activities

For the years ended December 31, 2016, 2015 and 2014, cash flows provided by (used in) operating activities related to the cash flows provided by our property operations, offset by the payment of acquisition related expenses and general and administrative expenses. See — Results of Operations above for a further discussion. We anticipate cash flows from operating activities increasing as we purchase additional properties.

Investing Activities

For the year ended December 31, 2016, cash flows used in investing activities primarily related to our 2016 property acquisitions in the amount of $299,448,000 and capital expenditures of $45,985,000. For the year ended December 31, 2015, cash flows used in investing activities primarily related to our 23 property acquisitions in the amount of $1,445,888,000, our acquisition of real estate notes receivable of $142,234,000 and an increase in restricted cash in the amount of $18,293,000. For the year ended December 31, 2014, cash flows used in investing activities primarily related to our 11 property acquisitions in the amount of $259,196,000, the payment of $6,250,000 in real estate deposits and an increase in restricted cash in the amount of $245,000. We may continue to acquire additional real estate and real estate-related investments, but generally anticipate that cash flows used in investing activities will continue to decrease due to fewer anticipated acquisitions as a result of the termination of the primary portion of our initial offering in March 2015.

Financing Activities

For the year ended December 31, 2016, cash flows provided by financing activities primarily related to net borrowings under our revolving lines of credit and revolving term loan in the amount of $299,317,000, partially offset by distributions to our common stockholders of $51,681,000 and share repurchases of $20,941,000. For the year ended December 31, 2015, cash flows provided by financing activities related to funds raised from investors in our offering in the amount of $975,121,000, net borrowings under our revolving line of credit and revolving notes in the amount of $350,000,000 and borrowings under our mortgage loans payable of $2,792,000, partially offset by the payment of offering costs of $95,420,000 in connection with our offering, distributions to our common stockholders of $43,869,000, the payment of deferred financing costs of $7,237,000 and

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principal payments on our mortgage loans payable in the amount of $1,469,000. For the year ended December 31, 2014, cash flows provided by financing activities related to funds raised from investors in our offering in the amount of $866,302,000, partially offset by the payment of offering costs of $86,432,000 in connection with our offering, distributions to our common stockholders of $2,101,000, the payment of deferred financing costs of $973,000 and principal payments on our mortgage loans payable in the amount of $60,000. Overall, we anticipate cash flows from financing activities to decrease in the future since we terminated the primary portion of our offering on March 12, 2015. However, we anticipate borrowings under our lines of credit and term loan and other indebtedness to increase as we may acquire additional real estate and real estate-related investments.

Distributions

The income tax treatment for distributions reportable for the years ended December 31, 2016, 2015 and 2014 was as follows:

	Years Ended December 31,
	2016				2015				2014
Ordinary income	$	28,135,000	24.2	%	$	17,271,000	16.7	%	$	649,000	13.4	%
Capital gain	—		—		—		—		—		—
Return of capital	88,140,000		75.8		85,923,000		83.3		4,183,000		86.6
	$	116,275,000	100	%	$	103,194,000	100	%	$	4,832,000	100	%

Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.

See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of our distributions.

Financing

We intend to continue to finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that our overall leverage will not exceed 45.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2016, our aggregate borrowings were 33.5% of the combined market value of all of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of March 15, 2017 and December 31, 2016, our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Lines of Credit and Term Loan

For a discussion of our lines of credit and term loan, see Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

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REIT Requirements

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

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 11, Commitments and Contingencies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Debt Service Requirements

Our principal liquidity need is the payment of principal and interest on our outstanding indebtedness. As of December 31, 2016, we had $517,057,000 ($495,717,000, including discount/premium and deferred financing costs, net) of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of December 31, 2016, we had $649,317,000 outstanding and $210,683,000 remained available under our lines of credit and term loan. See Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.

We are required by the terms of certain loan documents to meet certain covenants, such as leverage ratios, net worth ratios, debt service coverage ratios, fixed charge coverage ratios and reporting requirements. As of December 31, 2016, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loan. As of December 31, 2016, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps and interest rate cap, was 3.90% per annum.

Contractual Obligations

The following table provides information with respect to (i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our lines of credit and term loan, (ii) interest payments on our mortgage loans payable, lines of credit and term loan and fixed interest rate swaps and interest rate cap; and (iii) ground and other lease obligations and capital leases as of December 31, 2016:

	Payments Due by Period
	2017		2018-2019		2020-2021		Thereafter		Total
Principal payments — fixed-rate debt	$	13,733,000	$	13,049,000	$	24,585,000	$	261,898,000	$	313,265,000
Interest payments — fixed-rate debt	11,154,000		21,794,000		19,519,000		98,589,000		151,056,000
Principal payments — variable-rate debt	2,096,000		815,944,000		35,069,000		—		853,109,000
Interest payments — variable-rate debt (based on rates in effect as of December 31, 2016)	32,742,000		43,762,000		2,274,000		—		78,778,000
Ground and other lease obligations	17,946,000		45,231,000		47,927,000		225,725,000		336,829,000
Capital leases	9,796,000		10,821,000		2,663,000		—		23,280,000
Total	$	87,467,000	$	950,601,000	$	132,037,000	$	586,212,000	$	1,756,317,000

The table above does not reflect any payments expected under our contingent consideration obligations in the estimated amount of $8,992,000, the majority of which we expect to pay in 2018. For a further discussion of our contingent consideration obligations, see Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of December 31, 2016, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

85

Inflation

During the years ended December 31, 2016, 2015, and 2014, inflation has not significantly affected our operations because of the moderate inflation rate; however, we expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions will include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Related Party Transactions

For a discussion of related party transactions, see Note 14, Related Party Transactions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Subsequent Events

For a discussion of subsequent events, see Note 23, Subsequent Events, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. There were no material changes in our market risk exposures between the years ended December 31, 2016 and 2015, except that we are now exposed to interest rate risk on our derivative financial instruments as noted below. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

Interest Rate Risk

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

We have entered into, and in the future may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain in fair value of derivative financial instruments in our accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2016, our interest rate cap and interest rate swaps are recorded in other assets, net on our accompanying consolidated balance sheets at their fair values of $0 and $1,982,000, respectively. We do not enter into derivative transactions for speculative purposes.

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The table below presents, as of December 31, 2016, the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.

	Expected Maturity Date
	2017			2018			2019			2020			2021			Thereafter			Total			Fair Value
Assets
Fixed-rate notes receivable — principal payments	$	—		$	—		$	28,650,000		$	—		$	—		$	—		$	28,650,000		$	30,047,000
Weighted average interest rate on maturing fixed-rate notes receivable	—		%	—		%	6.75		%	—		%	—		%	—		%	6.75		%	—
Variable-rate notes receivable — principal payments	$	7,167,000		$	—		$	—		$	—		$	—		$	—		$	7,167,000		$	7,184,000
Weighted average interest rate on maturing variable-rate notes receivable (based on rates in effect as of December 31, 2016)	6.70		%	—		%	—		%	—		%	—		%	—		%	6.70		%	—
Debt security held-to-maturity	$	—		$	—		$	—		$	—		$	—		$	93,433,000		$	93,433,000		$	94,320,000
Weighted average interest rate on maturing fixed-rate debt security	—		%	—		%	—		%	—		%	—		%	4.24		%	4.24		%	—
Liabilities
Fixed-rate debt — principal payments	$	13,733,000		$	6,403,000		$	6,646,000		$	17,711,000		$	6,874,000		$	261,898,000		$	313,265,000		$	287,243,000
Weighted average interest rate on maturing fixed-rate debt	5.13		%	3.70		%	3.71		%	5.16		%	3.63		%	3.60		%	3.76		%	—
Variable-rate debt — principal payments	$	2,096,000		$	171,421,000		$	644,523,000		$	12,974,000		$	22,095,000		$	—		$	853,109,000		$	855,625,000
Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of December 31, 2016)	3.79		%	2.95		%	3.95		%	6.02		%	4.75		%	—		%	3.92		%	—

Real Estate Notes Receivable and Debt Security Investment, Net

As of December 31, 2016, the carrying value of our real estate notes receivable and debt security investment, net was $101,117,000. As we expect to hold our fixed-rate notes receivable and debt security investment to maturity and the amounts due under such notes receivable and debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate notes receivable and debt security investment, would have a significant impact on our operations. Conversely, movements in interest rates on our variable-rate notes receivable may change our future earnings and cash flows, but not significantly affect the fair value of those instruments. See Note 15, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a discussion of the fair value of our real estate notes receivable and our investment in a held-to-maturity debt security.

The weighted average effective interest rate on our outstanding real estate notes receivable and debt security investment, net was 4.93% per annum based on rates in effect as of December 31, 2016. A decrease in the variable interest rate on our real estate notes receivable constitutes a market risk. As of December 31, 2016, a 0.50% decrease in the market rates of interest would have no impact on our future earnings and cash flows due to interest rate floors on our variable-rate real estate notes receivable.

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

Mortgage loans payable were $517,057,000 ($495,717,000, including discount/premium and deferred financing costs, net) as of December 31, 2016. As of December 31, 2016, we had 31 fixed-rate and six variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 6.72% per annum and a weighted average effective interest rate of 4.41%. In addition, as of December 31, 2016, we had $649,317,000 outstanding under our lines of credit and term loan, at a weighted-average interest rate of 3.45% per annum.

As of December 31, 2016, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps and interest rate cap, was 3.90% per annum. An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loan constitutes a market risk. As of December 31, 2016, we have a fixed-rate interest rate cap on one of our variable-rate mortgage loans payable and two fixed-rate interest rate swaps on one of our lines of credit and term loan and an increase in the variable interest rate thereon would have no effect on our overall annual

87

interest expense. As of December 31, 2016, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loan payable and lines of credit and term loan by $3,311,000, or 8.51% of total annualized interest expense on our mortgage loans payable and lines of credit and term loan. See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on our results for the year ended December 31, 2016, if foreign currency exchange rates were to increase or decrease by 1.00%, our net income from these investments would decrease or increase, as applicable, by approximately $26,000 for the same period.

Other Market Risk

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

Item 8. Financial Statements and Supplementary Data.

See Part IV, Item 15. Exhibits, Financial Statement Schedules.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

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

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2016 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2016, were effective at the reasonable assurance level.

(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision, and with the participation, of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the Internal Control-Integrated Framework issued in 2013, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.

(c) Changes in internal control over financial reporting. During the quarter ended December 31, 2016, our management made changes to Trilogy’s information technology controls to improve segregation of duties by enhancing system access controls and to formalize certain system change review and approval controls. There were no other changes in internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

88

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2017 annual meeting of stockholders.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2017 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2017 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2017 annual meeting of stockholders.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2017 annual meeting of stockholders.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	91
Consolidated Balance Sheets as of December 31, 2016 and 2015	92
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016, 2015 and 2014	94
Consolidated Statements of Equity for the Years Ended December 31, 2016, 2015 and 2014	95
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014	97
Notes to Consolidated Financial Statements	99

(a)(2) Financial Statement Schedule:

The following financial statement schedule for the year ended December 31, 2016 is submitted herewith:

	Page
Real Estate and Accumulated Depreciation (Schedule III)	154

All schedules other than the one listed above have been omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes.

(a)(3) Exhibits:

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.

(b) Exhibits:

See Item 15(a)(3) above.

(c) Financial Statement Schedule:

See Item 15(a)(2) above.

90

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Griffin-American Healthcare REIT III, Inc.

Irvine, California

We have audited the accompanying consolidated balance sheets of Griffin-American Healthcare REIT III, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss, equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Griffin-American Healthcare REIT III, Inc. as of December 31, 2016 and 2015, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Costa Mesa, California

March 15, 2017

91

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2016 and 2015

	December 31,
	2016			2015
ASSETS
Real estate investments, net	$	2,138,981,000		$	1,678,398,000
Real estate notes receivable and debt security investment, net	101,117,000			144,477,000
Cash and cash equivalents	29,123,000			48,953,000
Accounts and other receivables, net	127,684,000			120,970,000
Restricted cash	26,554,000			18,538,000
Real estate deposits	3,173,000			3,333,000
Identified intangible assets, net	200,827,000			387,137,000
Goodwill	75,265,000			62,911,000
Other assets, net	91,794,000			60,302,000
Total assets	$	2,794,518,000		$	2,525,019,000
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	495,717,000		$	295,270,000
Lines of credit and term loan(1)	649,317,000			350,000,000
Accounts payable and accrued liabilities(1)	105,145,000			101,917,000
Accounts payable due to affiliates(1)	2,186,000			1,257,000
Identified intangible liabilities, net	2,216,000			1,026,000
Capital lease obligations(1)	45,295,000			47,158,000
Security deposits, prepaid rent and other liabilities(1)	44,582,000			22,146,000
Total liabilities	1,344,458,000			818,774,000
Commitments and contingencies (Note 11)
Redeemable noncontrolling interests (Note 12)	31,507,000			22,987,000
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 195,780,039 and 191,135,158 shares issued and outstanding as of December 31, 2016 and 2015, respectively	1,957,000			1,911,000
Additional paid-in capital	1,754,160,000			1,718,423,000
Accumulated deficit	(490,298,000		)	(227,715,000		)
Accumulated other comprehensive loss	(3,029,000		)	(506,000		)
Total stockholders’ equity	1,262,790,000			1,492,113,000
Noncontrolling interests (Note 13)	155,763,000			191,145,000
Total equity	1,418,553,000			1,683,258,000
Total liabilities, redeemable noncontrolling interests and equity	$	2,794,518,000		$	2,525,019,000

___________

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED BALANCE SHEETS — (Continued)

As of December 31, 2016 and 2015

(1) Such liabilities of Griffin-American Healthcare REIT III, Inc. as of December 31, 2016 and 2015 represented liabilities of Griffin-American Healthcare REIT III Holdings, LP, a variable interest entity and consolidated subsidiary of Griffin-American Healthcare REIT III, Inc. The creditors of Griffin-American Healthcare REIT III Holdings, LP do not have recourse against Griffin-American Healthcare REIT III, Inc., except for the 2016 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $391,000,000 as of December 31, 2016 and the 2014 Corporate Line of Credit, as defined in Note 8, held by Griffin-American Healthcare REIT III Holdings, LP in the amount of $77,000,000 as of December 31, 2015, which are both guaranteed by Griffin-American Healthcare REIT III, Inc.

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

93

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Years Ended December 31, 2016, 2015 and 2014

	Years Ended December 31,
	2016			2015			2014
Revenues:
Resident fees and services	$	872,405,000		$	96,079,000		$	—
Real estate revenue	117,166,000			64,397,000			3,481,000
Total revenues	989,571,000			160,476,000			3,481,000
Expenses:
Property operating expenses	765,139,000			81,455,000			—
Rental expenses	29,394,000			18,875,000			899,000
General and administrative	28,951,000			16,544,000			1,238,000
Acquisition related expenses	28,589,000			74,170,000			8,199,000
Depreciation and amortization	271,307,000			75,714,000			1,510,000
Total expenses	1,123,380,000			266,758,000			11,846,000
Loss from operations	(133,809,000		)	(106,282,000		)	(8,365,000		)
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)	(45,665,000		)	(5,619,000		)	(258,000		)
Gain in fair value of derivative financial instruments	1,968,000			—			—
Foreign currency loss	(8,755,000		)	(3,199,000		)	—
Interest and other income	1,085,000			839,000			25,000
Loss from unconsolidated entities	(18,377,000		)	(590,000		)	—
Loss before income taxes	(203,553,000		)	(114,851,000		)	(8,598,000		)
Income tax expense	(343,000		)	(190,000		)	—
Net loss	(203,896,000		)	(115,041,000		)	(8,598,000		)
Less: net loss attributable to noncontrolling interests	57,862,000			13,708,000			—
Net loss attributable to controlling interest	$	(146,034,000	)	$	(101,333,000	)	$	(8,598,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(0.75	)	$	(0.55	)	$	(0.66	)
Weighted average number of common shares outstanding — basic and diluted	194,199,931			183,234,601			13,052,785
Net loss	$	(203,896,000	)	$	(115,041,000	)	$	(8,598,000	)
Other comprehensive loss:
Foreign currency translation adjustments	(2,523,000		)	(506,000		)	—
Total other comprehensive loss	(2,523,000		)	(506,000		)	—
Comprehensive loss	(206,419,000		)	(115,547,000		)	(8,598,000		)
Less: comprehensive loss attributable to noncontrolling interests	57,862,000			13,708,000			—
Comprehensive loss attributable to controlling interest	$	(148,557,000	)	$	(101,839,000	)	$	(8,598,000	)

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended December 31, 2016, 2015 and 2014

	Stockholders’ Equity
	Common Stock
	Number of Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests				Total Equity
BALANCE — December 31, 2013	22,222		$	—		$	200,000		$	—		$	—		$	200,000		$	2,000			$	202,000
Issuance of common stock	91,298,227		913,000			909,134,000			—			—			910,047,000			—				910,047,000
Offering costs — common stock	—		—			(91,084,000		)	—			—			(91,084,000		)	—				(91,084,000		)
Issuance of vested and nonvested restricted common stock	15,000		—			30,000			—			—			30,000			—				30,000
Issuance of common stock under the DRIP	287,792		3,000			2,731,000			—			—			2,734,000			—				2,734,000
Amortization of nonvested common stock compensation	—		—			32,000			—			—			32,000			—				32,000
Reclassification of noncontrolling interest to mezzanine equity	—		—			—			—			—			—			(2,000		)		(2,000		)
Distributions declared ($0.38 per share)	—		—			—			(7,827,000		)	—			(7,827,000		)	—				(7,827,000		)
Net loss	—		—			—			(8,598,000		)	—			(8,598,000		)	—				(8,598,000		)
BALANCE — December 31, 2014	91,623,241		$	916,000		$	821,043,000		$	(16,425,000	)	$	—		$	805,534,000		$	—			$	805,534,000
Issuance of common stock	93,632,371		936,000			932,904,000			—			—			933,840,000			—				933,840,000
Offering costs — common stock	—		—			(91,148,000		)	—			—			(91,148,000		)	—				(91,148,000		)
Stock based compensation	—		—			—			—			—			—			3,165,000				3,165,000
Issuance of vested and nonvested restricted common stock	15,000		—			30,000			—			—			30,000			—				30,000
Issuance of common stock under the DRIP	6,245,475		63,000			59,272,000			—			—			59,335,000			—				59,335,000
Amortization of nonvested common stock compensation	—		—			79,000			—			—			79,000			—				79,000
Repurchase of common stock	(380,929	)	(4,000		)	(3,757,000		)	—			—			(3,761,000		)	—				(3,761,000		)
Contribution from noncontrolling interest	—		—			—			—			—			—			201,688,000				201,688,000
Distributions declared ($0.60 per share)	—		—			—			(109,957,000		)	—			(109,957,000		)	—				(109,957,000		)
Net loss	—		—			—			(101,333,000		)	—			(101,333,000		)	(13,708,000		)		(115,041,000		)
Other comprehensive loss	—		—			—			—			(506,000		)	(506,000		)	—				(506,000		)
BALANCE — December 31, 2015	191,135,158		$	1,911,000		$	1,718,423,000		$	(227,715,000	)	$	(506,000	)	$	1,492,113,000		$	191,145,000			$	1,683,258,000
Offering costs — common stock	—		—			(11,000		)	—			—			(11,000		)	—				(11,000		)
Stock based compensation	—		—			—			—			—			—			1,329,000				1,329,000
Issuance of vested and nonvested restricted common stock	30,000		—			60,000			—			—			60,000			—				60,000
Issuance of common stock under the DRIP	6,861,647		69,000			64,535,000			—			—			64,604,000			—				64,604,000
Amortization of nonvested common stock compensation	—		—			136,000			—			—			136,000			—				136,000
Repurchase of common stock	(2,246,766	)	(23,000		)	(20,918,000		)	—			—			(20,941,000		)	—				(20,941,000		)
Contributions from noncontrolling interests	—		—			—			—			—			—			19,753,000				19,753,000
Distributions to noncontrolling interests	—		—			—			—			—			—			(244,000		)		(244,000		)
Reclassification of noncontrolling interests to mezzanine equity	—		—			—			—			—			—			(845,000		)		(845,000		)
Fair value adjustment to redeemable noncontrolling interests	—		—			(8,065,000		)	—			—			(8,065,000		)	(3,456,000		)		(11,521,000		)
Distributions declared ($0.60 per share)	—		—			—			(116,549,000		)	—			(116,549,000		)	—				(116,549,000		)
Net loss	—		—			—			(146,034,000		)	—			(146,034,000		)	(51,919,000		)	(1)	(197,953,000		)
Other comprehensive loss	—		—			—			—			(2,523,000		)	(2,523,000		)	—				(2,523,000		)
BALANCE — December 31, 2016	195,780,039		$	1,957,000		$	1,754,160,000		$	(490,298,000	)	$	(3,029,000	)	$	1,262,790,000		$	155,763,000			$	1,418,553,000

___________

95

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Years Ended December 31, 2016, 2015 and 2014

(1) Amount excludes $(5,943,000) of net loss attributable to redeemable noncontrolling interests. See Note 12, Redeemable Noncontrolling Interests.

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

96

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2016, 2015 and 2014

	Years Ended December 31,
	2016			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(203,896,000	)	$	(115,041,000	)	$	(8,598,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	271,307,000			75,714,000			1,510,000
Other amortization (including deferred financing costs, above/below-market leases, leasehold interests, debt discount/premium, real estate notes receivable loan costs and debt security investment accretion and closing costs)	4,598,000			1,512,000			195,000
Deferred rent	(10,733,000		)	(2,816,000		)	(240,000		)
Stock based compensation	1,620,000			3,165,000			—
Stock based compensation — nonvested restricted common stock	196,000			109,000			62,000
Acquisition fees paid in stock	—			501,000			694,000
Share discounts	—			636,000			253,000
Loss from unconsolidated entities	18,377,000			590,000			—
Bad debt expense, net	4,105,000			761,000			—
Foreign currency loss	8,452,000			1,789,000			—
Contingent consideration related to acquisition of real estate	(9,405,000		)	—			—
Change in fair value of contingent consideration	13,430,000			(1,329,000		)	—
Change in fair value of derivative financial instruments	(1,968,000		)	—			—
Changes in operating assets and liabilities:
Accounts and other receivables	(2,244,000		)	(11,174,000		)	(1,753,000		)
Other assets	(22,918,000		)	(3,510,000		)	(40,000		)
Accounts payable and accrued liabilities	34,551,000			22,027,000			2,589,000
Accounts payable due to affiliates	813,000			1,085,000			162,000
Security deposits, prepaid rent and other liabilities	8,072,000			2,994,000			(1,163,000		)
Net cash provided by (used in) operating activities	114,357,000			(22,987,000		)	(6,329,000		)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate investments	(299,448,000		)	(1,445,888,000		)	(259,196,000		)
Advances on real estate notes receivable	(1,942,000		)	(142,234,000		)	—
Principal repayments on real estate notes receivable	—			289,000			—
Loan costs on real estate notes receivable	(39,000		)	(3,539,000		)	—
Lease inducement	(5,000,000		)	—			—
Investments in unconsolidated entities	(3,304,000		)	—			—
Capital expenditures	(45,985,000		)	(2,984,000		)	(24,000		)
Restricted cash	(8,016,000		)	(18,293,000		)	(245,000		)
Real estate deposits	2,968,000			3,300,000			(6,250,000		)
Proceeds from insurance settlements	63,000			—			—
Net cash used in investing activities	(360,703,000		)	(1,609,349,000		)	(265,715,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	3,563,000			2,792,000			—
Payments on mortgage loans payable	(5,769,000		)	(1,469,000		)	(60,000		)
Borrowings under the lines of credit and term loan	558,769,000			438,105,000			—
Payments on the lines of credit and term loan	(259,452,000		)	(88,105,000		)	—
Payment of derivative financial instrument	(15,000		)	—			—
Proceeds from issuance of common stock	—			975,121,000			866,302,000
Deferred financing costs	(10,979,000		)	(7,237,000		)	(973,000		)
Contingent consideration related to acquisition of real estate	(945,000		)	—			—

97

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Years Ended December 31, 2016, 2015 and 2014

	Years Ended December 31,
	2016			2015			2014
Repurchase of common stock	$	(20,941,000	)	$	(3,761,000	)	$	—
Payments under capital leases	(7,600,000		)	(501,000		)	—
Contributions from noncontrolling interests	19,753,000			—			—
Distributions to noncontrolling interests	(244,000		)	—			—
Contribution from redeemable noncontrolling interests	2,295,000			—			—
Distributions to redeemable noncontrolling interests	(198,000		)	—			—
Security deposits	111,000			943,000			—
Payment of offering costs	(11,000		)	(95,420,000		)	(86,432,000		)
Distributions paid	(51,681,000		)	(43,869,000		)	(2,101,000		)
Net cash provided by financing activities	226,656,000			1,176,599,000			776,736,000
NET CHANGE IN CASH AND CASH EQUIVALENTS	(19,690,000		)	(455,737,000		)	504,692,000
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS	(140,000		)	(204,000		)	—
CASH AND CASH EQUIVALENTS — Beginning of period	48,953,000			504,894,000			202,000
CASH AND CASH EQUIVALENTS — End of period	$	29,123,000		$	48,953,000		$	504,894,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest (including interest on capital leases)	$	46,839,000		$	8,300,000		$	116,000
Income taxes	$	409,000		$	9,000		$	—
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Investing Activities:
Accrued capital expenditures	$	5,104,000		$	3,940,000		$	—
Real estate deposit	$	2,809,000		$	—		$	—
Settlement of receivable for investment in unconsolidated entity	$	12,573,000		$	—		$	—
Tenant improvement overage	$	1,260,000		$	—		$	—
Principal repayments of real estate notes receivable	$	24,110,000		$	—		$	—
Properties received in settlement of real estate notes receivable	$	23,531,000		$	—		$	—
Exercise purchase options — attributable to intangible asset	$	56,792,000		$	—		$	—
The following represents the increase in certain assets and liabilities in connection with our acquisitions of real estate investments:
Other receivables	$	—		$	108,852,000		$	—
Other assets	$	345,000		$	91,588,000		$	137,000
Mortgage loans payable, net	$	205,386,000		$	278,461,000		$	17,026,000
Accounts payable and accrued liabilities	$	309,000		$	79,715,000		$	521,000
Security deposits, prepaid rent and other liabilities	$	9,774,000		$	42,209,000		$	3,010,000
Financing Activities:
Noncontrolling interest	$	—		$	201,688,000		$	—
Issuance of common stock under the DRIP	$	64,604,000		$	59,335,000		$	2,734,000
Equipment acquired through capital lease obligations	$	5,598,000		$	—		$	—
Redeemable noncontrolling interest	$	—		$	22,985,000		$	—
Distributions declared but not paid	$	10,009,000		$	9,745,000		$	2,992,000
Accrued offering costs due to affiliates	$	—		$	—		$	415,000
Reclassification of noncontrolling interest to mezzanine equity	$	845,000		$	—		$	2,000
Receivable from transfer agent	$	—		$	—		$	38,561,000
Accrued deferred financing costs	$	—		$	48,000		$	13,000

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

98

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2016, 2015 and 2014

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

1. Organization and Description of Business

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

On February 26, 2014, we commenced a best efforts initial public offering, or our initial offering, in which we initially offered to the public up to $1,750,000,000 in shares of our common stock for $10.00 per share in our primary offering and up to $150,000,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $1,900,000,000. We reserved the right to reallocate the shares of common stock we offered in our initial offering between the primary offering and the DRIP. As such, during our initial offering, we reallocated an aggregate of $115,000,000 in shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in shares of our common stock in our primary offering and up to $35,000,000 in shares of our common stock pursuant to the DRIP.

On March 12, 2015, we terminated the primary portion of our initial offering. We continued to offer up to $35,000,000 in shares of our common stock through our initial offering pursuant to the DRIP until the termination of the DRIP portion of our initial offering and deregistration of our initial offering on April 22, 2015. As of April 22, 2015, we had received and accepted subscriptions in our initial offering for 184,930,598 shares of our common stock, or $1,842,618,000, excluding shares of our common stock issued pursuant to the DRIP. As of April 22, 2015, a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP portion of our initial offering.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the United States Securities and Exchange Commission, or the SEC, upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, we amended and restated the DRIP, or the Amended and Restated DRIP, to amend the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. See Note 13, Equity — Distribution Reinvestment Plan, for a further discussion. As of December 31, 2016, a total of $108,163,000 in distributions were reinvested and 11,446,351 shares of our common stock were issued pursuant to the Secondary DRIP Offering.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement was effective as of February 26, 2014 and had a one-year term, subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was last renewed pursuant to the mutual consent of the parties on February 14, 2017 and expires on February 26, 2018. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, or our board, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Company, LLC, or Griffin Capital (formerly known as Griffin Capital Corporation), or collectively, our co-sponsors. Effective March 1, 2015, American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC, or AHI Group Holdings (formerly known as American Healthcare Investors LLC), 45.1% indirectly owned by Colony NorthStar, Inc. (NYSE: CLNS), or Colony NorthStar (formerly known as NorthStar Asset Management Group Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

prior to its merger with Colony Capital, Inc. and NorthStar Realty Finance Corp. on January 10, 2017), and 7.8% owned by James F. Flaherty III, one of Colony NorthStar’s partners. We are not affiliated with Griffin Capital, Griffin Capital Securities, LLC, or Griffin Securities, or our dealer manager, Colony NorthStar or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor, American Healthcare Investors and AHI Group Holdings.

We currently operate through six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses. As of December 31, 2016, we had completed 48 real estate acquisitions whereby we owned and/or operated 93 properties, comprising 97 buildings, and 104 integrated senior health campuses including completed development projects, or approximately 12,251,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,767,881,000. In addition, as of December 31, 2016, we had acquired real estate-related investments for an aggregate purchase price of $120,646,000.

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying consolidated financial statements.

Basis of Presentation

Our accompanying consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries in which we have control, as well as any variable interest entities, or VIEs, in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and of which we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810.

We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We are the sole general partner of our operating partnership, and as of December 31, 2016 and 2015, we owned greater than a 99.99% general partnership interest therein. As of December 31, 2016 and 2015, our advisor owned less than a 0.01% limited partnership interest in our operating partnership.

Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of our accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Cash

Restricted cash primarily comprises lender required accounts for property taxes, tenant improvements, capital improvements and insurance, which are restricted as to use or withdrawal.

Revenue Recognition, Tenant and Resident Receivables and Allowance for Uncollectible Accounts

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

Revenue derived from providing long-term healthcare services to residents, including resident room and care charges, community fees and other resident charges, is recognized on the date services are provided at amounts billable to individual residents. For residents under reimbursement arrangements with third-party payers, including Medicaid, Medicare and private insurers, revenue is recognized based on a contractually agreed-upon amount or rate on a per patient, daily basis or as services are performed. In accordance with ASC Topic 840, Leases, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements are recorded to deferred rent receivable or deferred rent liability, as applicable. Tenant reimbursement revenue, which comprises additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with ASC Subtopic 605-45, Revenue Recognition — Principal Agent Consideration, or ASC Subtopic 605-45. ASC Subtopic 605-45 requires that these reimbursements be recorded on a gross basis as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees at such time when there is a signed termination letter agreement, all of the conditions of such agreement have been met and the tenant is no longer occupying the property.

Tenant and resident receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants or residents to meet the contractual obligations under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight-line recognition of rents. Such allowances are charged to bad debt expense, which is included in general and administrative in our accompanying consolidated statements of operations and comprehensive loss. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s or resident’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors.

As of December 31, 2016 and 2015, we had $9,597,000 and $8,021,000, respectively, in allowance for uncollectible accounts, which was determined necessary to reduce receivables to our estimate of the amount recoverable. For the years ended December 31, 2016, 2015 and 2014, we did not write off any receivables to bad debt expense. For the years ended December 31, 2016, 2015 and 2014, $5,609,000, $1,097,000 and $0, respectively, of our receivables were written off against the allowance for uncollectible accounts.

As of December 31, 2016 and 2015, we did not have any allowance for uncollectible accounts for deferred rent receivables. For the year ended December 31, 2016, $81,000 of our deferred rent receivables were directly written off to bad debt expense. For the years ended December 31, 2015 and 2014, we did not write off any of our deferred rent receivables directly to bad debt expense.

Real Estate Investments, Net

We carry our operating properties at our historical cost less accumulated depreciation. The cost of operating properties includes the cost of land and completed buildings and related improvements, including those related to capital leases. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of buildings and capital improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 39 years, and the cost for tenant improvements is depreciated over the shorter of the lease term or useful life, up to 20 years. The cost of furniture, fixtures and equipment, is depreciated over the estimated useful life, up to 15 years. When depreciable property is retired, replaced or disposed of, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is reflected in earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As part of the leasing process, we may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements, the allowance is considered to be a lease inducement and is included in other assets, net in our accompanying consolidated balance sheets and is recognized over the lease term as a reduction of rental revenue on a straight-line basis. Factors considered during this evaluation include, among other things, who holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs, e.g., unilateral control of the tenant space during the build-out process. Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. Recognition of lease revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements when we are the owner of the leasehold improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date (and the date on which recognition of lease revenue commences) is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill

We periodically evaluate our long-lived assets, primarily consisting of investments in real estate that we carry at our historical cost less accumulated depreciation, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to holding or disposing of the asset. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. We recognize an impairment loss at the time we make any such determination.

We test goodwill for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors, such as current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit’s carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.

If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If the estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. For all of our reporting units we recognize any shortfall from carrying value as an impairment loss in the current period.

We test other indefinite-lived intangible assets for impairment at least annually, and more frequently if indicators arise. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

For the years endedDecember 31, 2016, 2015 and 2014, there were no impairment losses recorded.

Property Acquisitions

In accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, we, with assistance from independent valuation specialists, measure the fair value of tangible and identified intangible assets and liabilities, as applicable, based on their respective fair values for acquired properties. Our method for allocating the purchase price to acquired investments in real estate requires us to make subjective assessments for determining fair value of the assets acquired and liabilities assumed. This includes determining the value of the buildings, land, leasehold interests, furniture, fixtures and equipment, above- or below-market rent, in-place leases, master leases, above- or below-market debt assumed and derivative financial instruments assumed. These estimates require significant judgment and in some cases involve complex calculations. These allocation assessments directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation or

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amortization lives. In addition, we amortize the value assigned to above- or below-market rent as a component of revenue, unlike in-place leases and other intangibles, which we include in depreciation and amortization in our accompanying consolidated statements of operations and comprehensive loss.

The determination of the fair value of land is based upon comparable sales data. In cases where a leasehold interest in the land is acquired, the value of the leasehold interest is determined by discounting the difference between the contract ground lease payments and a market ground lease payment back to a present value as of the acquisition date. The market ground lease payment is estimated as a percentage of the land value. The fair value of buildings is based upon our determination of the value as if it were to be replaced and vacant using cost data and discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. We also recognize the fair value of furniture, fixtures and equipment on the premises, if any, as well as the above- or below-market rent, in-place leases, master leases, above- or below-market debt assumed and derivative financial instruments assumed.

The value of the above- or below-market component of the acquired in-place leases is determined based upon the present value (using a discount rate that reflects the risks associated with the acquired leases) of the difference between (i) the level payment equivalent of the contract rent paid pursuant to the lease and (ii) our estimate of market rent payments taking into account rent steps throughout the lease. In the case of leases with options, a case-by-case analysis is performed based on all facts and circumstances of the specific lease to determine whether the option will be assumed to be exercised. The amounts related to above-market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to real estate revenue over the remaining non-cancelable lease term of the acquired leases with each property. The amounts related to below-market leases are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and are amortized to real estate revenue over the remaining non-cancelable lease term plus any below-market renewal options of the acquired leases with each property.

The value of in-place lease costs are based on management’s evaluation of the specific characteristics of the tenant’s lease and our overall relationship with the tenants. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The in-place lease intangible represents the value related to the economic benefit for acquiring a property with in place leases as opposed to a vacant property, which is evaluated based on a review of comparable leases for similar property, terms and conditions for marketing and executing new leases, and implied in the difference between the value of the whole property “as is” and “as vacant.” The net amounts related to in-place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized to depreciation and amortization expense over the average downtime of the acquired leases with each property. The net amounts related to the value of tenant relationships, if any, would be included in identified intangible assets, net in our accompanying consolidated balance sheets and would be amortized to depreciation and amortization expense over the average remaining non-cancelable lease term of the acquired leases plus the market renewal lease term. The value of a master lease, in which a previous owner or a tenant is relieved of specific rental obligations as additional space is leased, is determined by discounting the expected real estate revenue associated with the master lease space over the assumed lease-up period.

The value of above- or below-market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage at the time of assumption. The net value of above- or below-market debt is included in mortgage loans payable, net in our accompanying consolidated balance sheets and is amortized to interest expense over the remaining term of the assumed mortgage.

The value of derivative financial instruments, if any, would be determined in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820, and would be included in derivative financial instruments in our accompanying consolidated balance sheets.

The values of contingent consideration assets and liabilities are analyzed at the time of acquisition. For contingent purchase options, the fair market value of the acquired asset is compared to the specified option price at the exercise date. If the option price is below market, it is assumed to be exercised and the difference between the fair market value and the option price is discounted to the present value at the time of acquisition.

These values are preliminary estimates in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition.

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Real Estate Notes Receivable and Debt Security Investment, Net

Real estate notes receivable and debt security investment, net consists of mortgage loans collateralized by interests in real property and a held-to-maturity investment. We record loans at cost. Interest income on our real estate notes receivable is recognized on an accrual basis over the life of the investment using the effective interest method and is included in real estate revenue in our accompanying consolidated statements of operations and comprehensive loss. Direct loan costs are amortized over the term of the loan as an adjustment to the yield on the loan. We evaluate the collectability of both interest and principal for each of our loans to determine whether they are impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the allowance is calculated by comparing the recorded investment to either the value determined by discounting the expected future cash flows using the loan’s effective interest rate or to the fair value of the collateral if the loan is collateral dependent. For the years ended December 31, 2016, 2015 and 2014, there were no impairment losses recorded.

We classify our marketable debt security as held-to-maturity because we have the positive intent and ability to hold the security to maturity. Our held-to-maturity security is recorded at amortized cost and adjusted for the amortization of premiums or discounts through maturity. When we determine declines in fair value of marketable securities are other-than-temporary, a loss is recognized in earnings. For the years ended December 31, 2016, 2015 and 2014, we did not incur any losses for a decline in fair value of marketable securities that are other-than-temporary.

See Note 4, Real Estate Notes Receivable and Debt Security Investment, Net, for a further discussion.

Derivative Financial Instruments

We are exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures, which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts, such as fixed interest rate swaps and interest rate caps, is to add stability to interest expense and to manage our exposure to interest rate movements by effectively converting a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes.

Derivatives are recognized as either other assets or other liabilities in our accompanying consolidated balance sheets and are measured at fair value in accordance with ASC Topic 815, Derivatives and Hedging, or ASC Topic 815. ASC Topic 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Since our derivative instruments are not designated as hedge instruments, they do not qualify for hedge accounting under ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in gain in fair value of derivative financial instruments in our accompanying consolidated statements of operations and comprehensive loss.

See Note 9, Derivative Financial Instruments, and Note 15, Fair Value Measurements, for a further discussion of our derivative financial instruments.

Fair Value Measurements

We follow ASC Topic 820 to account for the fair value of certain assets and liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted

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prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

See Note 15, Fair Value Measurements, for a further discussion.

Real Estate Deposits

Real estate deposits include funds held by escrow agents and others to be applied towards the purchase of real estate.

Other Assets, Net

Other assets, net consist of investments in unconsolidated entities, inventory, prepaid expenses and deposits, deferred financing costs related to our lines of credit and term loan, deferred rent receivables, deferred tax asset, interest rate swap assets, lease inducement and lease commissions.

We report investments in unconsolidated entities using the equity method of accounting when we have the ability to exercise significant influence over the operating and financial policies. Under the equity method, our share of the investee’s earnings or losses is included in our accompanying consolidated statements of operations and comprehensive loss. Losses from our investment in unconsolidated entities for the years ended December 31, 2016, 2015 and 2014 were $18,377,000, $590,000 and $0, respectively. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded. For the year ended December 31, 2016, we recorded $9,101,000 of impairment losses, which are included in loss from unconsolidated entities in our accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2015 and 2014, no impairment losses were recorded.

Inventory consists primarily of pharmaceutical and medical supplies and is stated at the lower of cost (first-in, first-out) or market. Deferred financing costs related to our lines of credit and term loan include amounts paid to lenders and others to obtain such financing. Such costs are amortized using the straight-line method over the term of the related loan, which approximates the effective interest rate method. Amortization of deferred financing costs related to our lines of credit and term loan is included in interest expense in our accompanying consolidated statements of operations and comprehensive loss. Lease commissions are amortized using the straight-line method over the term of the related lease. Amortization of lease commissions is included in depreciation and amortization in our accompanying consolidated statements of operations and comprehensive loss.

See Note 6, Other Assets, Net, for a further discussion.

Accounts Payable and Accrued Liabilities

As of December 31, 2016 and 2015, accounts payable and accrued liabilities primarily consisted of reimbursement of payroll related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $20,992,000 and $19,391,000, respectively, insurance payable of $19,136,000 and $21,689,000, respectively, accrued property taxes of $12,766,000 and $11,447,000, respectively, and accrued distributions of $10,009,000 and $9,745,000, respectively.

Security Deposits, Prepaid Rent and Other Liabilities

As of December 31, 2016 and 2015, security deposits, prepaid rent and other liabilities of $44,582,000 and $22,146,000, respectively, primarily consisted of deferred revenue, deferred tax liabilities and contingent consideration obligations in connection with our property acquisitions.

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The contingent consideration obligations are due upon certain criteria being met within specified time frames. For the years ended December 31, 2016, 2015 and 2014, we recorded a net (loss) gain on the change in fair value of contingent consideration obligations of ($13,430,000), $1,329,000 and $0, respectively, which is included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss. See Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, for a further discussion.

Stock Compensation

We account for stock compensation issued to non-employees in accordance with the provisions of ASC 505-50, Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date. See Note 13, Equity — Noncontrolling Interests, for a further discussion of grants to non-employees.

We follow ASC Topic 718, Compensation — Stock Compensation, or ASC Topic 718, to account for our stock compensation pursuant to the 2013 Incentive Plan, or our incentive plan. See Note 13, Equity — 2013 Incentive Plan, for a further discussion of grants under our incentive plan.

Foreign Currency

We have real estate and real estate-related investments in the United Kingdom, or UK, and Isle of Man for which the functional currency is the UK Pound Sterling, or GBP. We translate the results of operations of our foreign real estate and real estate-related investments into United States Dollars, or USD, using the average currency rates of exchange in effect during the period, and we translate assets and liabilities using the currency exchange rate in effect at the end of the period. The resulting foreign currency translation adjustments are included in accumulated other comprehensive loss, a component of stockholders’ equity in our accompanying consolidated balance sheets. Certain balance sheet items, primarily equity and capital-related accounts, are reflected at the historical currency exchange rates. We also have intercompany notes and payables denominated in GBP with our UK subsidiaries. Gains or losses resulting from remeasuring such intercompany notes and payables into USD at the end of each reporting period are reflected in our accompanying consolidated statements of operations and comprehensive loss. When such intercompany notes and payables are deemed to be of a long-term investment nature, they will be reflected in accumulated other comprehensive loss in our accompanying consolidated balance sheets.

Gains or losses resulting from foreign currency transactions are remeasured into USD at the rates of exchange prevailing on the date of the transactions. The effects of transaction gains or losses are generally included in our accompanying consolidated statements of operations and comprehensive loss.

Income Taxes

We qualified, and elected to be taxed, as aREITunder the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014.To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least90.0%of our annual taxable income, excluding net capital gains, to our stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Such an event could have a material adverse affect on our net income and net cash available for distribution to our stockholders.

We may be subject to certain state and local income taxes on our income, property or net worth in some jurisdictions, and in certain circumstances we may also be subject to federal excise taxes on undistributed income. In addition, certain activities that we undertake are conducted by subsidiaries, which we elected to be treated as taxable REIT subsidiaries, or TRSs, to allow us to provide services that would otherwise be considered impermissible for REITs. Also, we have real estate and real estate-related investments in the UK and Isle of Man, which do not accord REIT status to United States REITs under their tax laws. Accordingly, we recognize income tax benefit (expense) for the federal, state and local income taxes incurred by our TRSs and foreign income taxes on our real estate and real estate-related investments in the UK and Isle of Man.

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We follow ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our accompanying consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of December 31, 2016 and 2015, we did not have any tax benefits and liabilities for uncertain tax positions that we believe should be recognized in our accompanying consolidated financial statements.

We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets reflect the impact of the future deductibility of operating loss carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in income tax expense in our accompanying consolidated statements of operations and comprehensive loss when such changes occur. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is recorded in income tax expense in our accompanying consolidated statements of operations and comprehensive loss.

Deferred tax assets are included in other assets, net, and deferred tax liabilities are included in security deposits, prepaid rent and other liabilities, in our accompanying consolidated balance sheets.

See Note 16, Income Taxes and Distributions, for a further discussion.

Segment Disclosure

ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we added a new reportable business segment at such time. As of December 31, 2016, we operated through six reportable business segments — medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing — RIDEA and integrated senior health campuses.

See Note 19, Segment Reporting, for a further discussion.

GLA and Other Measures

GLA and other measures used to describe real estate investments included in our accompanying consolidated financial statements are presented on an unaudited basis.

Reclassifications

As of December 31, 2015 and 2014, $1,200,000 and $217,000, respectively, of deferred financing costs, net, related to our mortgage loans payable have been reclassified from other assets, net to mortgage loans payable, net in our accompanying consolidated balance sheets to conform to the current period presentation in accordance with Accounting Standards Update, or ASU, 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. Such reclassification did not have a material impact on our consolidated financial statements.

Recently Issued or Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which replaces the existing accounting standards for revenue recognition. ASU 2014-09 provides a five-step framework to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Since its issuance, the FASB has amended several aspects of ASU 2014-09, including provisions that address principal-versus-agent implementation guidance and identifying performance obligations. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017. It may be adopted either by restating all years presented in the financial statements or by recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption. Our primary source of revenue is generated through leasing arrangements, which are excluded from ASU 2014-09 and its amendments; however, we expect that the adoption of ASU 2014-09 and its amendments

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on January 1, 2018 will impact our recognition of non-leaserevenue, such as certain resident fees in our RIDEA structures (a portion of which are not generated through leasing arrangements).

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, or ASU 2015-02, which amends the consolidation analysis required under ASC Topic 810. Specifically, ASU 2015-02 (i) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs; (ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) amends the effect of fee arrangements in the primary beneficiary determination. Further, the application of ASU 2015-02 permits the use of either the full retrospective or modified retrospective adoption approach. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We adopted ASU 2015-02 on January 1, 2016, which did not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, which amends the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Amortization of such costs is required to be reported as interest expense. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, or ASU 2015-15, which clarified that debt issuance costs associated with line of credit arrangements may continue to be presented as an asset, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The application of ASU 2015-03 requires retrospective adjustment of all prior periods presented. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We adopted ASU 2015-03 on January 1, 2016, which did not have a material impact on our consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, or ASU 2015-16, which eliminates the requirement to restate prior period financial statements for measurement period adjustments in a business combination. The cumulative effect of a measurement period adjustment as a result of a change in the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, is required to be recorded in the reporting period in which the adjustment amount is determined, rather than retrospectively. Further, ASU 2015-16 requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015 and should be applied prospectively to adjustments to provisional amounts that occur after the effective date. Early adoption is permitted for financial statements that have not yet been made available for issuance. We adopted ASU 2015-16 on January 1, 2016, which did not have a material impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01, which amends the classification and measurement of financial instruments. ASU 2016-01 revises the accounting related to: (i) the classification and measurement of investments in equity securities; and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, with respect to only certain of the amendments in ASU 2016-01, for financial statements that have not yet been made available for issuance. ASU 2016-01 requires the application of the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with certain exceptions. We have not yet determined the impact the adoption of ASU 2016-01 on January 1, 2018 will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02, which amends the guidance on accounting for leases, including extensive amendments to the disclosure requirements. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Upon the adoption of ASU 2016-02 on January 1, 2019, we will

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recognize all of our operating leases for which we are the lessee, including facilities leases and ground leases, on our consolidated balance sheets and will capitalize fewer legal costs related to the drafting and execution of our lease agreements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 requires disclosures about a change in accounting principle under ASC 250, Accounting Changesand Error Corrections, in the period of adoption. ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted for financial statements that have not yet been made available for issuance. We adopted ASU 2016-09 on January 1, 2017, which did not have a material impact on our consolidated financial statements.

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

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15, which intends to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We have not yet determined the impact the adoption of ASU 2016-15 on January 1, 2018 will have on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, or ASU 2016-16, which removes the prohibition in ASC 740, Income Taxes, against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We have not yet determined the impact the adoption of ASU 2016-16 on January 1, 2018 will have on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, Interests Held through Related Parties That Are under Common Control, or ASU 2016-17, which amends the consolidation requirements that apply to a single decision maker’s evaluation of interests held through related parties that are under common control when it is determining whether it is the primary beneficiary of a VIE. ASU 2016-17 is effective for annual periods beginning on or after December 15, 2016. Early adoption is permitted, including adoption in an interim period. We adopted ASU 2016-17 on January 1, 2017, which did not have an impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, or ASU 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning on or after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2016-18 on January 1, 2018 to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, or ASU 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 states that if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction should be accounted for as an asset acquisition. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for annual periods beginning on or after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period. Upon the adoption of ASU 2017-01, we expect to recognize a majority of our real estate acquisitions and dispositions as asset transactions rather than business combinations, which will result in the capitalization of related transaction costs.

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In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04, which eliminates Step 2 from the goodwill impairment test and allows an entity to perform its goodwill impairment test by comparing the fair value of a reporting segment with its carrying amount. ASU 2017-04 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2017-04 on January 1, 2020 to have a material impact on our consolidated financial statements.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of December 31, 2016 and 2015:

	December 31,
	2016			2015
Building, improvements and construction in process	$	1,981,610,000		$	1,518,611,000
Land	167,329,000			123,906,000
Furniture, fixtures and equipment	84,817,000			62,481,000
	2,233,756,000			1,704,998,000
Less: accumulated depreciation	(94,775,000		)	(26,600,000		)
	$	2,138,981,000		$	1,678,398,000

Depreciation expense for the years endedDecember 31, 2016, 2015 and 2014 was $68,708,000, $25,650,000 and $1,124,000, respectively. In addition to the property acquisitions and completed developments discussed below, for the years endedDecember 31, 2016, 2015 and 2014, we incurred capital expenditures of $44,907,000, $3,846,000 and $0 on our integrated senior health campuses, $8,236,000, $2,706,000 and $24,000 on our medical office buildings, $904,000, $374,000 and $0 on our senior housing — RIDEA facilities and $21,000, $25,000 and $0 on our hospitals, respectively. We did not have any capital expenditures on our senior housing facilities nor our skilled nursing facilities for the years ended December 31, 2016, 2015 and 2014.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the years endedDecember 31, 2016, 2015 and 2014, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our property acquisitions, except with respect to our acquisition of Crown Senior Care Portfolio. Pursuant to our charter, prior to the acquisition of Crown Senior Care Portfolio, our directors, including a majority of our independent directors, not otherwise interested in the transaction, approved the reimbursement of fees and expenses to our advisor or its affiliates with the acquisition of Crown Senior Care Portfolio in excess of the 6.0% limit and determined that such fees and expenses were commercially fair and reasonable to us.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisitions in 2016

For the year ended December 31, 2016, we completed 12 property acquisitions comprising 23 buildings from unaffiliated parties. The aggregate contract purchase price of these properties was $271,566,000 and we incurred $5,564,000 in acquisition fees to our advisor in connection with these property acquisitions. The following is a summary of these property acquisitions for the year ended December 31, 2016:

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		2016 Corporate Line of Credit(3)		Acquisition Fee(4)
Naperville MOB	Naperville, IL	Medical Office	01/12/16	$	17,385,000	$	—	$	18,000,000	$	391,000
Lakeview IN Medical Plaza(5)	Indianapolis, IN	Medical Office	01/21/16	20,000,000		15,000,000		3,500,000		387,000
Pennsylvania Senior Housing Portfolio II	Palmyra, PA	Senior Housing — RIDEA	02/01/16	27,500,000		—		27,200,000		619,000
Snellville GA MOB	Snellville, GA	Medical Office	02/05/16	8,300,000		—		8,300,000		187,000
Lakebrook Medical Center	Westbrook, CT	Medical Office	02/19/16	6,150,000		—		—		138,000
Stockbridge GA MOB III	Stockbridge, GA	Medical Office	03/29/16	10,300,000		—		9,750,000		232,000
Joplin MO MOB	Joplin, MO	Medical Office	05/10/16	11,600,000		—		12,000,000		261,000
Austell GA MOB	Austell, GA	Medical Office	05/25/16	12,600,000		—		12,000,000		284,000
Middletown OH MOB	Middletown, OH	Medical Office	06/16/16	19,300,000		—		17,000,000		434,000
Fox Grape SNF Portfolio	Braintree, Brighton, Duxbury, Hingham, Quincy and Weymouth, MA	Skilled Nursing	07/01/16 and 11/01/16	88,000,000		16,133,000		71,000,000		1,980,000
Voorhees NJ MOB	Voorhees, NJ	Medical Office	07/08/16	11,300,000		—		11,000,000		254,000
Crown Senior Care Portfolio(6)	Aberdeen and Felixstowe, UK	Senior Housing	11/15/16	23,531,000		—		—		46,000
Norwich CT MOB Portfolio	Norwich, CT	Medical Office	12/16/16	15,600,000		—		14,000,000		351,000
Total				$	271,566,000	$	31,133,000	$	203,750,000	$	5,564,000

___________

(1) We own 100% of our properties acquired in 2016, with the exception of Lakeview IN Medical Plaza.

(2) Represents the principal balance of the mortgage loans payable assumed by us or newly placed on the property at the time of acquisition.

(3) Represents borrowings under the 2016 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loan, at the time of acquisition.

(4) Unless otherwise noted, our advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price of the property.

(5) On January 21, 2016, we completed the acquisition of Lakeview IN Medical Plaza, pursuant to a joint venture with an affiliate of Cornerstone Companies, Inc., an unaffiliated third party. Our effective ownership of the joint venture is 86.0%. We paid our advisor in cash an acquisition fee of 2.25% of the portion of the contract purchase price attributed to our ownership interest of approximately 86.0% in the entity that acquired the property.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(6) On November 15, 2016, we added three additional senior housing facilities to our existing Crown Senior Care Portfolio for a net contract price of £15,276,000. The other three senior housing facilities were purchased during 2015. With respect to the three additional senior housing facilities acquired in November 2016, we paid an acquisition fee in cash equal to 2.25% of the contract purchase price of the facilities less £306,000, or approximately $471,000, which was previously paid as an acquisition fee for Crown Senior Care Facility. See Note 4, Real Estate Notes Receivable and Debt Security Investment, Net, for a further discussion. The total acquisition fee paid for both Crown Senior Care Facility and the purchase of the three additional senior housing facilities added to Crown Senior Care Portfolio in November 2016 was 2.25% of the contract purchase price of the three additional senior housing facilities added in November 2016.

In addition to the property acquisitions in 2016 discussed above, subsequent to the initial purchase of Trilogy Investors, LLC, or Trilogy, our majority-owned subsidiary, in December 2015, we acquired a development parcel with improvements on July 15, 2016 in Harrodsburg, Kentucky, and on September 14, 2016, we acquired land in Muncie, Indiana for a contract purchase price of $2,400,000 and $265,000, respectively, plus closing costs and acquisition fees, which are included in our integrated senior health campuses segment. The acquisition of the development parcel with improvements in Kentucky was financed with a mortgage loan payable, which had a principal balance of $2,040,000 at the time of acquisition.

2016 Acquisitions of Previously Leased Real Estate Investments

For the year ended December 31, 2016, we, through a majority-owned subsidiary of Trilogy, of which we own 67.7%, acquired the real estate underlying 17 previously leased integrated senior health campuses located in Indiana, Kentucky, Michigan and Ohio. The aggregate contract purchase price of these properties was $227,090,000 and we incurred $3,459,000 in acquisition fees to our advisor in connection with these property acquisitions. The following is a summary of these property acquisitions for the year ended December 31, 2016:

Location	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(1)		2016 Corporate Line of Credit(2)		Acquisition Fee(3)
Jasper, IN	06/24/16	$	5,089,000	$	—	$	—	$	78,000
Anderson, Evansville, Jasper, Kokomo, New Albany and Tell City, IN; and Cynthiana, KY	06/30/16	130,000,000		93,150,000		30,310,000		1,980,000
Greensburg, IN; Lexington, KY; East Lansing, Howell, Okemos and Shelby Township, MI; and Greenville and Zanesville, OH	08/16/16	87,927,000		77,900,000		11,863,000		1,339,000
Monticello, IN	09/23/16	4,074,000		2,800,000		—		62,000
		$	227,090,000	$	173,850,000	$	42,173,000	$	3,459,000

___________

(1) Represents the principal balance of the mortgage loans payable placed on the properties at the time of acquisition.

(2) Represents borrowings under the 2016 Corporate Line of Credit, as defined in Note 8, Lines of Credit and Term Loan, at the time of acquisition.

(3) Our advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the portion of the contract purchase price of the property attributed to our ownership interest of approximately 67.7% in the subsidiary of Trilogy that acquired the property.

Acquisitions in 2015

For the year ended December 31, 2015, we completed 23 property acquisitions comprising 50 buildings and 97 integrated senior health campuses from unaffiliated parties. The aggregate contract purchase price of these properties was $1,976,185,000 and we incurred $36,259,000 to our advisor and its affiliates in acquisition fees in connection with these property acquisitions. The following is a summary of our property acquisitions for the year ended December 31, 2015:

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Lines of Credit(3)		Acquisition  Fee
Delta Valley ALF Portfolio(4)	Springdale, AR	Senior Housing	01/08/15	$	8,105,000	$	—	$	—	$	182,000	(5)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Lines of Credit(3)		Acquisition  Fee
Independence MOB Portfolio	Southgate, KY; Somerville, MA; Morristown and Verona, NJ; and Bronx, NY	Medical Office	01/13/15 and 01/26/15	$	135,000,000	$	—	$	—	$	3,038,000	(5)
King of Prussia PA MOB	King of Prussia, PA	Medical Office	01/21/15	18,500,000		9,946,000		—		416,000		(5)
North Carolina ALF Portfolio	Clemmons, Mooresville, Raleigh and Wake Forest, NC	Senior Housing	01/28/15 and 06/29/15	68,856,000		—		—		1,549,000		(6)
Orange Star Medical Portfolio	Durango, CO; and Friendswood,Keller, and Wharton, TX	Medical Office and Hospital	02/26/15	57,650,000		—		—		1,297,000		(7)
Kingwood MOB Portfolio	Kingwood, TX	Medical Office	03/11/15	14,949,000		—		—		336,000		(7)
Mt. Juliet TN MOB	Mount Juliet, TN	Medical Office	03/17/15	13,000,000		—		—		293,000		(7)
Homewood AL MOB	Homewood, AL	Medical Office	03/27/15	7,444,000		—		—		167,000		(7)
Paoli PA Medical Plaza	Paoli, PA	Medical Office	04/10/15	24,820,000		14,004,000		—		558,000		(7)
Glen Burnie MD MOB	Glen Burnie, MD	Medical Office	05/06/15	18,650,000		—		—		420,000		(7)
Marietta GA MOB	Marietta, GA	Medical Office	05/07/15	13,050,000		—		—		294,000		(7)
Mountain Crest Senior Housing Portfolio (8)	Elkhart, Hobart, LaPorte and Mishawaka, IN; and Niles, MI	Senior Housing — RIDEA	05/14/15, 06/11/15, 07/14/15 and 11/20/15	75,035,000		10,318,000		—		1,688,000		(7)
Mount Dora Medical Center	Mount Dora, FL	Medical Office	05/15/15	16,300,000		—		—		367,000		(7)
Nebraska Senior Housing Portfolio	Bennington and Omaha, NE	Senior Housing — RIDEA	05/29/15	66,000,000		—		—		1,485,000		(7)
Pennsylvania Senior Housing Portfolio	Bethlehem, Boyertown and York, PA	Senior Housing — RIDEA	06/30/15	87,500,000		12,098,000		—		1,969,000		(7)
Southern Illinois MOB Portfolio	Waterloo, IL	Medical Office	07/01/15	12,272,000		—		—		276,000		(7)
Napa Medical Center	Napa, CA	Medical Office	07/02/15	15,700,000		—		—		353,000		(7)
Chesterfield Corporate Plaza	Chesterfield, MO	Medical Office	08/14/15	36,000,000		—		—		810,000		(7)
Richmond VA ALF	North Chesterfield, VA	Senior Housing — RIDEA	09/11/15	64,000,000		37,643,000		—		1,440,000		(7)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Lines of Credit(3)		Acquisition  Fee
Crown Senior Care Portfolio(9)	Peel, Isle of Man; and St. Albans and Salisbury, UK	Senior Housing	09/15/15, 10/08/15 and 12/08/15	$	44,554,000	$	—	$	—	$	1,002,000	(7)
Washington DC SNF	Washington, DC	Skilled Nursing	10/29/15	40,000,000		—		—		900,000		(7)
Trilogy(10)	IN, KY, MI and OH	Integrated Senior Health Campuses	12/01/15	1,125,000,000		210,497,000		360,000,000		17,108,000		(7)
Stockbridge GA MOB II	Stockbridge, GA	Medical Office	12/03/15	8,000,000		—		—		180,000		(7)
Marietta GA MOB II	Marietta, GA	Medical Office	12/09/15	5,800,000		—		—		131,000		(7)
Total				$	1,976,185,000	$	294,506,000	$	360,000,000	$	36,259,000

___________

(1) We own 100% of our properties acquired in 2015, with the exception of Trilogy.

(2) Represents the principal balance of the mortgage loans payable assumed by us at the time of acquisition.

(3) Represents borrowings at the time of acquisition under the 2014 Corporate Line of Credit and the Trilogy PropCo Line of Credit, both as defined and further discussed in Note 8, Lines of Credit and Term Loan.

(4) On January 8, 2015, we added one additional building to our existing Delta Valley ALF Portfolio. The other two buildings were purchased in September 2014.

(5) Our advisor and its affiliates were paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price, which was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at $9.00 per share, the established offering price as of the date of closing, net of selling commissions and dealer manager fees.

(6) With respect to the acquisition of the first two buildings in North Carolina ALF Portfolio in January 2015, our advisor and its affiliates were paid an acquisition fee of 2.25% of the contract purchase price, which was paid as follows: (i) in cash equal to 2.00% of the contract purchase price; and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at $9.00 per share, the established offering price as of the date of closing, net of selling commissions and dealer manager fees. With respect to the additional two buildings added to our existing North Carolina ALF Portfolio in June 2015, our advisor was paid in cash an acquisition fee of 2.25% of the contract purchase price.

(7) Our advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price, except for Trilogy, which we paid our advisor an acquisition fee based on the portion of the contract purchase price attributed to our ownership interest at the time of acquisition.

(8) On November 20, 2015, we purchased vacant land as part of Mountain Crest Senior Housing Portfolio for a total price of $35,000.

(9) On September 15, 2015, we purchased our first senior housing facility of Crown Senior Care Portfolio for a net contract purchase price of £6,850,000, or approximately $10,571,000, based on the currency exchange rate on the acquisition date. On October 8, 2015 and December 8, 2015 we added additional senior housing facilities to our existing Crown Senior Care Portfolio, for a net contract price of £11,300,000 and £11,100,000, respectively, or approximately $17,309,000 and $16,674,000, respectively, based on the currency exchange rate on the applicable acquisition date.

(10) On December 1, 2015, we completed the acquisition of Trilogy, the parent company of Trilogy Health Services, LLC, or Trilogy Health Services, through our majority-owned subsidiary, Trilogy REIT Holdings, LLC, or Trilogy REIT

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Holdings. NorthStar Healthcare Income, Inc, or NHI, owns a minority interest in Trilogy REIT Holdings. Trilogy REIT Holdings acquired Trilogy for a purchase price based on a total company valuation of approximately $1,125,000,000. Our effective ownership of Trilogy was approximately 67.6% at the time of acquisition. Our portion of the purchase price for Trilogy was approximately $760,356,000.The acquisition of Trilogy was financed in part by using a combination of debt financing, including: (i) approximately $270,000,000 in borrowings under the Trilogy PropCo Line of Credit; (ii) the assumption of 23 U.S. Department of Housing and Urban Development, or HUD, loans with a principal amount totaling approximately $204,000,000 as of December 1, 2015; (iii) $90,000,000 in borrowings under the 2014 Corporate Line of Credit; and (iv) the assumption of approximately $26,000,000 in other existing indebtedness of Trilogy. The remaining cash balance was financed using: (i) an equity contribution by us of approximately $381,000,000 from cash on hand from the net proceeds of our initial public offering and (ii) an equity contribution by NHI of approximately $202,000,000. See Note 18, Business Combinations, for a further discussion.

Acquisitions in 2014

For the year ended December 31, 2014, we completed 11 property acquisitions comprising 24 buildings from unaffiliated parties. The aggregate contract purchase price of these properties was $277,700,000 and we incurred $6,248,000 to our advisor and its affiliates in acquisition fees in connection with these property acquisitions. The following is a summary of our property acquisitions for the year ended December 31, 2014:

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Acquisition Fee(3)
DeKalb Professional Center	Lithonia, GA	Medical Office	06/06/14	$	2,830,000	$	—	$	64,000
Country Club MOB	Stockbridge, GA	Medical Office	06/26/14	2,775,000		—		62,000
Acworth Medical Complex	Acworth, GA	Medical Office	07/02/14	6,525,000		—		147,000
Wichita KS MOB	Wichita, KS	Medical Office	09/04/14	8,800,000		—		198,000
Delta Valley ALF Portfolio	Batesville and Cleveland, MS	Senior Housing	09/11/14	13,345,000		—		300,000
Lee’s Summit MO MOB	Lee’s Summit, MO	Medical Office	09/18/14	6,750,000		—		152,000
Carolina Commons MOB	Indian Land, SC	Medical Office	10/15/14	12,000,000		8,474,000		270,000
Mount Olympia MOB Portfolio	Mount Dora, FL; Olympia Fields, IL; and Columbus, OH	Medical Office	12/04/14	16,150,000		—		363,000
Southlake TX Hospital	Southlake, TX	Hospital	12/04/14	128,000,000		—		2,880,000
East Texas MOB Portfolio	Longview and Marshall, TX	Medical Office	12/12/14	68,500,000		—		1,541,000
Premier MOB	Novi, MI	Medical Office	12/19/14	12,025,000		7,950,000		271,000
Total				$	277,700,000	$	16,424,000	$	6,248,000

___________

(1) We own 100% of our properties acquired in 2014.

(2) Represents the principal balance of the mortgage loans payable assumed by us at the time of acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(3) Our advisor and its affiliates were paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price, which was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at $9.00 per share, the established offering price as of the date of closing, net of selling commissions and dealer manager fees.

Completed Development in 2016

For the year ended December 31, 2016, we completed the development of three integrated senior health campuses, representing $25,381,000, which is included in real estate investments, net, in our accompanying consolidated balance sheets. For the years ended December 31, 2015 and 2014, we did not complete any developments.

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

As of December 31, 2016 and 2015, we had $101,117,000 and $144,477,000 of notes receivable and debt security investment, net, respectively. The following is a summary of our notes receivable and debt security investment, including unamortized loan and closing costs, net as of December 31, 2016 and 2015:

						December 31,
	Origination Date	Maturity Date	Contractual Interest Rate(1)	Maximum Advances Available		2016		2015		Acquisition Fee(2)
Mezzanine Floating Rate Notes(3)(5)
United States	02/04/15	12/09/17	6.70%	$	31,567,000	$	7,167,000	$	31,277,000	$	631,000
Mezzanine Fixed Rate Notes(3)(5)
United States	02/04/15	12/09/19	6.75%	$	28,650,000	28,650,000		28,650,000		573,000
Crown Senior Care Facility(4)(5)
United Kingdom	09/16/15	11/15/16	N/A	N/A		—		20,746,000		471,000
Debt security investment(6)	10/15/15	08/25/25	4.24%	N/A		63,176,000		60,945,000		1,209,000
						98,993,000		141,618,000		$	2,884,000
Unamortized loan and closing costs, net						2,124,000		2,859,000
						$	101,117,000	$	144,477,000

___________

(1) Represents the per annum interest rate in effect as of December 31, 2016.

(2) Our advisor was paid in cash, as compensation for services in connection with real estate-related investments, an acquisition fee of 2.00% of the total amount advanced or invested through December 31, 2016.

(3) On February 4, 2015, we acquired eight promissory notes at par in the aggregate outstanding principal amount of $60,217,000, or the Mezzanine Notes, comprising four fixed-rate notes in the aggregate outstanding principal amount of $28,650,000, or the Mezzanine Fixed Rate Notes, and four floating rate notes in the aggregate outstanding principal amount of $31,567,000, or the Mezzanine Floating Rate Notes. The Mezzanine Notes evidence interests in a portion of a mezzanine loan that consisted in total of 40 promissory notes in the aggregate outstanding principal amount of $389,852,000. The mezzanine loan is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such owners are themselves owned indirectly by a non-wholly owned subsidiary of NorthStar Realty Finance Corp. The maturity date of the Mezzanine Floating Rate Notes may be extended by three successive one-year extension periods at the borrower’s option, subject to satisfaction of certain conditions. In October 2016, the borrower exercised its right to extend the original December 9, 2016 maturity date of the Mezzanine Floating Rate Notes for one year to December 2017.

(4) We entered into a facility agreement with the CHG Borrower, an unaffiliated third party, on September 16, 2015. The facility agreement, as amended, was collateralized by three senior housing facilities in the UK and the income from the CHG Borrower’s operations.On November 15, 2016, we purchased the facilities securing Crown Senior Care Facility and the note receivable was settled in full. See Note 3, Real Estate Investments, Net — Acquisitions in 2016, for a further discussion.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(5) Balance represents the original principal balance, increased by any subsequent advances and decreased by any subsequent principal paydowns, and only requires monthly interest payments. The Mezzanine Floating Rate Notes, Mezzanine Fixed Rate Notes and Crown Senior Care Facility are subject to certain prepayment restrictions if repaid before the respective maturity dates.

(6) On October 15, 2015, we acquired a commercial mortgage-backed debt security, or the debt security, for a purchase price of $60,429,000, from an unaffiliated third party. The debt security was issued by FREMF 2015-KS03 Mortgage Trust, or the Mortgage Trust, and represents a 10.0% beneficial ownership interest in the Mortgage Trust. The Mortgage Trust owns a pool of 59 mortgage loans that are secured by 59 domestic senior housing facilities. The debt security bears an interest rate on the stated principal amount thereof equal to 4.24% per annum, the terms of which security provide for monthly interest-only payments. The debt security matures on August 25, 2025 at a stated amount of $93,433,000, resulting in an anticipated yield-to-maturity of 10.0% per annum. The debt security is subordinate to all other interests in the Mortgage Trust and is not guaranteed by a government-sponsored entity. As of December 31, 2016 and 2015, the net carrying amount with accretion is $64,912,000 and $62,761,000, respectively. We classify our debt security investment as held-to-maturity and we have not recorded any unrealized holding gains or losses on such investment.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the years ended December 31, 2016, 2015 and 2014, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our real estate-related investments.

The following shows the change in the carrying amount of real estate notes receivable and debt security investment, net for the years ended December 31, 2016 and 2015:

	Amount
Real estate notes receivable and debt security investment, net — December 31, 2014	$	—
Additions:
Acquisition of real estate notes receivable	81,805,000
Investment in debt security	60,429,000
Accretion on debt security investment	516,000
Loan and closing costs	3,539,000
Deductions:
Principal repayments on real estate notes receivable	(289,000		)
Foreign currency translation adjustments	(860,000		)
Amortization of loan and closing costs	(663,000		)
Real estate notes receivable and debt security investment, net — December 31, 2015	$	144,477,000
Additions:
Advances on real estate notes receivable	$	1,942,000
Accretion on debt security investment	2,231,000
Loan costs	39,000
Deductions:
Principal repayments on real estate notes receivable	(24,110,000		)
Settlement of real estate notes receivable for properties	(23,531,000		)
Foreign currency translation adjustments	823,000
Amortization of loan and closing costs	(754,000		)
Real estate notes receivable and debt security investment, net — December 31, 2016	$	101,117,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2016, 2015 and 2014, we did not record any impairment losses on our real estate notes receivable or debt security investment. Amortization expense on loan and closing costs for the years ended December 31, 2016 and 2015, was recorded against real estate revenue in our accompanying consolidated statements of operations and comprehensive loss. We did not incur any amortization expense for the year ended December 31, 2014.

5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of December 31, 2016 and 2015:

	December 31,
	2016		2015
Amortized intangible assets:
In-place leases, net of accumulated amortization of $23,997,000 and $35,531,000 as of December 31, 2016 and 2015, respectively (with a weighted average remaining life of 8.6 years and 2.5 years as of December 31, 2016 and 2015, respectively)	$	68,376,000	$	221,846,000
Leasehold interests, net of accumulated amortization of $266,000 and $126,000 as of December 31, 2016 and 2015, respectively (with a weighted average remaining life of 55.6 years and 56.6 years as of December 31, 2016 and 2015, respectively)	7,628,000		7,768,000
Above-market leases, net of accumulated amortization of $2,622,000 and $1,360,000 as of December 31, 2016 and 2015, respectively (with a weighted average remaining life of 5.2 years and 5.0 years as of December 31, 2016 and 2015, respectively)	4,206,000		4,401,000
Unamortized intangible assets:
Certificates of need	76,142,000		51,855,000
Trade names	30,267,000		30,267,000
Purchase option assets(1)	14,208,000		71,000,000
	$	200,827,000	$	387,137,000

___________

(1) Under certain leases within our leased facilities, in which we are the lessee, we have the right to acquire the properties at varying dates in the future and at our option. We estimate the fair value of these purchase option assets by discounting the difference between the applicable property’s acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible asset over the term of the lease, but rather adjust the recognized value of the asset upon purchase. In 2016, we exercised the right to acquire several leased facilities and the value of the purchased option assets utilized was $56,792,000. See Note 3, Real Estate Investments, Net— Acquisitions in 2016 — 2016 Acquisitions of Previously Leased Real Estate Investments.

Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $203,147,000, $51,413,000 and $536,000, respectively, which included $1,580,000, $1,242,000 and $149,000, respectively, of amortization recorded against real estate revenue for above-market leases and $140,000, $125,000 and $1,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying consolidated statements of operations and comprehensive loss.

The aggregate weighted average remaining life of the amortized identified intangible assets was 12.9 and 4.3 years as of December 31, 2016 and 2015, respectively. As of December 31, 2016, estimated amortization expense on the identified intangible assets for each of the next five years ending December 31 and thereafter was as follows:

Year	Amount
2017	$	23,908,000
2018	7,985,000
2019	6,792,000
2020	5,535,000
2021	4,940,000
Thereafter	31,050,000
	$	80,210,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Other Assets, Net

Other assets, net consisted of the following as of December 31, 2016 and 2015:

	December 31,
	2016		2015
Investments in unconsolidated entities	$	20,057,000	$	27,210,000
Inventory	17,266,000		16,313,000
Prepaid expenses, deposits and other assets	16,002,000		7,098,000
Deferred financing costs, net of accumulated amortization of $3,519,000 and $550,000 as of December 31, 2016 and 2015, respectively(1)	9,624,000		6,344,000
Deferred rent receivables	11,804,000		3,028,000
Deferred tax asset, net(2)	8,295,000		—
Lease inducement, net of accumulated amortization of $88,000 as of December 31, 2016 (with a weighted average remaining life of 14.0 years as of December 31, 2016)	4,912,000		—
Lease commissions, net of accumulated amortization of $175,000 and $17,000 as of December 31, 2016 and 2015, respectively	3,834,000		309,000
	$	91,794,000	$	60,302,000

___________

(1) In accordance with ASU 2015-03 and ASU 2015-15, deferred financing costs, net only include costs related to our lines of credit and term loan.

(2) See Note 16, Income Taxes and Distributions, for a further discussion.

Amortization expense on lease commissions for the years ended December 31, 2016, 2015 and 2014 was $162,000, $17,000 and $0, respectively. Amortization expense on deferred financing costs of our lines of credit and term loan for the years ended December 31, 2016, 2015 and 2014 was $3,456,000, $467,000 and $83,000, respectively. Amortization expense on deferred financing costs of our lines of credit and term loan is recorded to interest expense in our accompanying consolidated statements of operations and comprehensive loss. Amortization expense on lease inducement for the year ended December 31, 2016 was $88,000, which was recorded against real estate revenue in our accompanying consolidated statement of operations and comprehensive loss. We did not incur any amortization expense on lease inducement for the years ended December 31, 2015 and 2014.

7. Mortgage Loans Payable, Net

As of December 31, 2016 and 2015, mortgage loans payable were $517,057,000 ($495,717,000, including discount/premium and deferred financing costs, net) and $312,240,000 ($295,270,000, including discount/premium and deferred financing costs, net), respectively. As of December 31, 2016, we had 31 fixed-rate and six variable-rate mortgage loans payable with effective interest rates ranging from 2.45% to 6.72% per annum based on interest rates in effect as of December 31, 2016 and a weighted average effective interest rate of 4.41%. As of December 31, 2015, we had 30 fixed-rate mortgage loans and one variable-rate mortgage loan payable with effective interest rates ranging from 2.45% to 6.43% per annum based on interest rates in effect as of December 31, 2015 and a weighted average effective interest rate of 3.98%. We are required by the terms of certain loan documents to meet certain covenants, such as net worth ratios, fixed charge coverage ratio, leverage ratio and reporting requirements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mortgage loans payable, net consisted of the following as of December 31, 2016 and 2015:

	December 31,
	2016			2015
Total fixed-rate debt	$	313,265,000		$	302,892,000
Total variable-rate debt	203,792,000			9,348,000
Total fixed and variable-rate debt	517,057,000			312,240,000
Less: deferred financing costs, net(1)	(3,861,000		)	(1,200,000		)
Add: premium	1,678,000			1,916,000
Less: discount	(19,157,000		)	(17,686,000		)
Mortgage loans payable, net	$	495,717,000		$	295,270,000

___________

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

The following shows the changes in the carrying amount of mortgage loans payable, net for the years ended December 31, 2016 and 2015:

	Amount
Mortgage loans payable, net — December 31, 2014	$	16,742,000
Additions:
Borrowings on mortgage loans payable, net	2,792,000
Assumption of mortgage loans payable, net	278,461,000
Amortization of deferred financing costs	160,000
Deductions:
Scheduled principal payments on mortgage loans payable	(1,469,000		)
Amortization of discount/premium on mortgage loans payable	(273,000		)
Deferred financing costs	(1,143,000		)
Mortgage loans payable, net — December 31, 2015	$	295,270,000
Additions:
Borrowings on mortgage loans payable, net	$	194,883,000
Assumption of mortgage loans payable, net	14,066,000
Amortization of deferred financing costs	1,065,000
Deductions:
Scheduled principal payments on mortgage loans payable	(5,769,000		)
Amortization of discount/premium on mortgage loans payable	(72,000		)
Deferred financing costs	(3,726,000		)
Mortgage loans payable, net — December 31, 2016	$	495,717,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2016, the principal payments due on our mortgage loans payable for each of the next five years ending December 31 and thereafter were as follows:

Year	Amount
2017	$	15,829,000
2018	177,824,000
2019	21,393,000
2020	30,685,000
2021	9,428,000
Thereafter	261,898,000
	$	517,057,000

8. Lines of Credit and Term Loan

2014 Corporate Line of Credit

On August 18, 2014, we, through our operating partnership and certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the 2014 Credit Agreement, with Bank of America, N.A., or Bank of America, as lender, administrative agent, swing line lender and issuer of letters of credit; KeyBank, National Association, or KeyBank, as lender and syndication agent; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $60,000,000, or the 2014 Corporate Line of Credit.

On August 18, 2014, we also entered into separate revolving notes, or the 2014 Corporate Revolving Notes, with each of Bank of America and KeyBank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the 2014 Corporate Credit Agreement.

On November 30, 2015, we entered into a Commitment Increase Amendment Agreement with Bank of America, as administrative agent, swingline lender and issuer of letters of credit; Bank of America, and KeyBank, as lenders, and the subsidiary guarantors named therein, to increase the aggregate maximum principal amount of the 2014 Corporate Line of Credit to $200,000,000, subject to certain maximum borrowing conditions.

Our aggregate borrowing capacity under the 2014 Corporate Line of Credit was $200,000,000 as of December 31, 2015. As of December 31, 2015, borrowings outstanding under the 2014 Corporate Line of Credit totaled $77,000,000 and $123,000,000 remained available. The weighted average interest rate on borrowings outstanding as of December 31, 2015 was 2.25% per annum.

On February 3, 2016, we, through our operating partnership, terminated the 2014 Corporate Credit Agreement, as amended, and the 2014 Corporate Revolving Notes with each of Bank of America and KeyBank and entered into the 2016 Corporate Line of Credit as described below. We currently do not have any obligations under the 2014 Corporate Credit Agreement or the 2014 Corporate Revolving Notes.

2016 Corporate Line of Credit

On February 3, 2016, we, through the subsidiary guarantors, entered into a credit agreement, or the 2016 Corporate Credit Agreement, with Bank of America, as administrative agent, a swing line lender and a letter of credit issuer; KeyBank, as syndication agent, a swing line lender and a letter of credit issuer; and a syndicate of other banks, as lenders, to obtain a revolving line of credit with an aggregate maximum principal amount of $300,000,000, or the 2016 Corporate Revolving Credit Facility, and a term loan credit facility in the amount of $200,000,000, or the 2016 Corporate Term Loan Facility, and together with the 2016 Corporate Revolving Credit Facility, the 2016 Corporate Line of Credit. Pursuant to the terms of the 2016 Corporate Credit Agreement, we may borrow up to $25,000,000 in the form of standby letters of credit and up to $25,000,000 in the form of swing line loans. The 2016 Corporate Line of Credit matures on February 3, 2019, and may be extended for one12-month period during the term of the 2016 Corporate Credit Agreement, subject to satisfaction of certain conditions, including payment of an extension fee.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The maximum principal amount of the 2016 Corporate Line of Credit may be increased by up to $500,000,000, for a total principal amount of $1,000,000,000, subject to: (i) the terms of the 2016 Corporate Credit Agreement; and (ii) such additional financing being offered and provided by existing lenders or new lenders under the 2016 Corporate Credit Agreement.

On February 3, 2016, we also entered into separate revolving notes, or the 2016 Corporate Revolving Notes, and separate term notes, or the Term Notes, with each of Bank of America, KeyBank and a syndicate of other banks.

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

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

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

The 2016 Corporate Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness.

As of December 31, 2016, our aggregate borrowing capacity under the 2016 Corporate Line of Credit was $500,000,000. As of December 31, 2016, borrowings outstanding under the 2016 Corporate Line of Credit totaled $391,000,000, and $109,000,000 remained available. As of December 31, 2016, the weighted average interest rate on borrowings outstanding was 2.53% per annum.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Trilogy PropCo Line of Credit

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

On December 1, 2015, we also entered into separate revolving notes with each of KeyBank and Regions Bank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Trilogy Propco Credit Agreement. The proceeds of the loans made under the Trilogy Propco Line of Credit may be used for working capital, capital expenditures, acquisition of properties and fee interests in leasehold properties and general corporate purposes. The Trilogy PropCo Line of Credit has a four-year term, maturing on December 1, 2019, unless extended for a one year period subject to satisfaction of certain conditions, including payment of an extension fee or otherwise terminated in accordance with the terms thereunder. Availability of the total commitment under the Trilogy PropCo Line of Credit is subject to a borrowing base based on, among other things, the appraised value of certain real estate and villa units constructed on such real estate. On December 1, 2015, the Trilogy PropCo Borrowers borrowed $270,000,000 under the Trilogy PropCo Line of Credit, the proceeds of which were used to refinance certain indebtedness of certain Trilogy Co-Borrowers.

Provided that no default or event of default has occurred and subject to certain terms and conditions set forth in the Trilogy PropCo Credit Agreement, the Trilogy PropCo Borrowers shall have the option, at any time and from time to time, before the maturity date, to request an increase of the total maximum principal amount by $100,000,000 to $400,000,000.

At the Trilogy PropCo Borrowers’ option, the Trilogy PropCo Line of Credit bears interest at a floating rate based on an adjusted London Interbank Offered Rate, or LIBOR, rate plus an applicable margin of 4.25% or an alternate base rate plus an applicable margin of 3.25%. In addition to paying interest on the outstanding principal under the Trilogy PropCo Line of Credit, the Trilogy PropCo Borrowers are required to pay an unused fee to the lenders in respect of the unutilized commitments at a rate equal to an initial rate of 0.25% per annum, subject to adjustment depending on usage. Outstanding amounts under the Trilogy PropCo Line of Credit may be prepaid, in whole or in part, at any time, without penalty or premium, subject to customary breakage costs.

The Trilogy PropCo Credit Agreement contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including incurrence of debt and limitations on secured recourse indebtedness.

Our aggregate borrowing capacity under the Trilogy PropCo Line of Credit was $300,000,000 as of December 31, 2016 and 2015. As of December 31, 2016 and 2015, borrowings outstanding under the Trilogy PropCo Line of Credit totaled $238,776,000 and $273,000,000, respectively, and $61,224,000 and $27,000,000, respectively, remained available. The weighted average interest rate on borrowings outstanding as of December 31, 2016 and 2015 was 4.87% and 4.50%, respectively, per annum.

Trilogy OpCo Line of Credit

On March 21, 2016, we, through Trilogy Healthcare Holdings, Inc., a Delaware corporation and a direct subsidiary of Trilogy, and certain of its subsidiaries, or the Trilogy OpCo Borrowers, entered into a credit agreement, or the Trilogy OpCo Credit Agreement, with Wells Fargo Bank, National Association, as administrative agent and lender; and a syndicate of other banks, as lenders, to obtain a $42,000,000 secured revolving credit facility, or the Trilogy OpCo Line of Credit. The Trilogy OpCo Line of Credit is secured primarily by residents’ receivables of the Trilogy OpCo Borrowers. The terms of the Trilogy OpCo Line of Credit Agreement provided for a one-time increase during the term of the agreement by up to $18,000,000, for a maximum amount of $60,000,000, subject to certain conditions. On April 1, 2016, we increased the aggregate maximum principal amount of the Trilogy OpCo Line of Credit to $60,000,000.

The Trilogy OpCo Line of Credit has a five-year term, maturing on March 21, 2021, unless otherwise terminated in accordance with the terms thereunder. The Trilogy OpCo Line of Credit bears interest at a floating rate based on, at the Trilogy OpCo Borrowers’ option, an adjusted LIBOR rate plus an applicable margin of 3.00% or an alternate base rate plus an applicable margin of 2.00%. Accrued interest under the Trilogy Opco Line of Credit is payable monthly.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

Our aggregate borrowing capacity under the Trilogy OpCo Line of Credit was $60,000,000 as of December 31, 2016, subject to certain terms and conditions. As of December 31, 2016, borrowings outstanding under the Trilogy OpCo Line of Credit totaled $19,541,000, and $40,459,000 remained available. The weighted average interest rate on borrowings outstanding as of December 31, 2016 was 4.53% per annum.

9. Derivative Financial Instruments

Consistent with ASC Topic 815, we record derivative financial instruments in our accompanying consolidated balance sheets as either an asset or a liability measured at fair value. ASC Topic 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item or items or to be deferred in other comprehensive income (loss).

We did not have any derivative financial instruments as of December 31, 2015. The following table lists the derivative financial instruments held by us as of December 31, 2016:

Notional Amount		Index	Interest Rate		Fair Value		Instrument	Maturity Date
$	17,075,000	one month LIBOR	2.25	%	$	—	Cap	02/01/18
140,000,000		one month LIBOR	0.82	%	1,355,000		Swap	02/03/19
60,000,000		one month LIBOR	0.78	%	627,000		Swap	02/03/19
$	217,075,000				$	1,982,000

As of December 31, 2016, none of our derivatives were designated as hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of derivative financial instruments are recorded as a component of interest expense in gain in fair value of derivative financial instruments in our accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2015 and 2014, we did not have any derivative financial instruments. For the year ended December 31, 2016, we recorded a decrease of $1,968,000 to interest expense in our accompanying consolidated statements of operations and comprehensive loss related to the change in the fair value of our derivative financial instruments.

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

10. Identified Intangible Liabilities, Net

As of December 31, 2016 and 2015, identified intangible liabilities consisted of below-market leases of $2,216,000 and $1,026,000, respectively, net of accumulated amortization of $946,000 and $350,000, respectively. Amortization expense on below-market leases for the years endedDecember 31, 2016, 2015 and 2014 was $651,000, $356,000 and $35,000, respectively. Amortization expense on below-market leases is recorded to real estate revenue in our accompanying consolidated statements of operations and comprehensive loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average remaining life of below-market leases was 5.1 years and 5.4 years as of December 31, 2016 and 2015, respectively. As of December 31, 2016, estimated amortization expense on below-market leases for each of the next five years ending December 31 and thereafter was as follows:

Year	Amount
2017	$	652,000
2018	477,000
2019	392,000
2020	263,000
2021	147,000
Thereafter	285,000
	$	2,216,000

11. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental Matters

We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

12. Redeemable Noncontrolling Interests

As of December 31, 2016 and 2015, we owned greater than a 99.99% general partnership interest in our operating partnership and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as redeemable noncontrolling interest and is presented outside of permanent equity in our accompanying consolidated balance sheets. See Note 13, Equity — Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion. In addition, see Note 14, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 14, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.

On December 1, 2015, we, through Trilogy REIT Holdings, in which we indirectly hold a 70.0% ownership interest, pursuant to an equity purchase agreement with Trilogy and other seller party thereto, completed the acquisition of approximately 96.7% of the outstanding equity interests of Trilogy. Pursuant to the equity purchase agreement, at the closing of the acquisition, certain members of Trilogy’s pre-closing management retained a portion of the outstanding equity interests of Trilogy held by such members of Trilogy’s pre-closing management, representing in the aggregate approximately 3.3% of the outstanding equity interests of Trilogy. The noncontrolling interests held by Trilogy’s pre-closing management have redemption features outside of our control and are accounted for as redeemable noncontrolling interest in our accompanying consolidated balance sheets. As of December 31, 2016, Trilogy REIT Holdings and certain members of Trilogy’s pre-closing management owned approximately 96.7% and 3.3% of Trilogy, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We record the carrying amount of redeemable noncontrolling interests at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interests consisted of the following for the years endedDecember 31, 2016 and 2015:

	December 31,
	2016			2015
Beginning balance	$	22,987,000		$	2,000
Addition	2,295,000			—
Reclassification from equity	845,000			—
Acquisition of Trilogy	—			22,985,000
Distributions	(198,000		)	—
Fair value adjustment to redemption value	11,521,000			—
Net loss attributable to redeemable noncontrolling interests	(5,943,000		)	—
Ending balance	$	31,507,000		$	22,987,000

13. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of December 31, 2016 and 2015, no shares of preferred stock were issued and outstanding.

Common Stock

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

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP Offering. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP Offering until April 22, 2015, following the deregistration of our initial offering. Effective October 5, 2016, the Amended and Restated DRIP amended the price at which shares of our common stock will be issued pursuant to the Secondary DRIP Offering. See Distribution Reinvestment Plan section below for a further discussion.

Through December 31, 2016, we had issued 184,930,598 shares of our common stock in connection with the primary portion of our initial offering and 13,394,914 shares of our common stock pursuant to the DRIP and the Secondary DRIP Offering. We also repurchased 2,627,695 shares of our common stock under our share repurchase plan through December 31, 2016. Through December 31, 2016, we granted an aggregate of 60,000 shares of our restricted common stock to our independent directors. As of December 31, 2016 and 2015, we had 195,780,039 and 191,135,158 shares of our common stock issued and outstanding, respectively.

Selling Commissions

Through the termination of the primary portion of our initial offering on March 12, 2015, we paid our dealer manager selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager was permitted to re-allow all or a portion of these fees to participating broker-dealers. For the years ended December 31, 2015 and 2014, we incurred $62,362,000 and $60,784,000, respectively, in selling commissions to our dealer manager. Such commissions were charged to stockholders’ equity as such amounts were paid to our dealer manager from the gross proceeds of our initial offering.

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Dealer Manager Fee

Through the termination of the primary portion of our initial offering on March 12, 2015, we paid our dealer manager a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the years ended December 31, 2015 and 2014, we incurred $27,789,000 and $27,308,000, respectively, in dealer manager fees to our dealer manager. Such fees were charged to stockholders’ equity as such amounts were paid to our dealer manager from the gross proceeds of our initial offering.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of noncontrolling interests, by component consisted of the following for the years ended December 31, 2016 and 2015:

	December 31,
	2016			2015
Beginning balance — foreign currency translation adjustments	$	(506,000	)	$	—
Net change in current period	(2,523,000		)	(506,000		)
Ending balance — foreign currency translation adjustments	$	(3,029,000	)	$	(506,000	)

Noncontrolling Interest of Limited Partner in Operating Partnership

On January 15, 2013, our advisor made an initial capital contribution of$2,000to our operating partnership in exchange for222limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. Therefore, as of February 26, 2014, such limited partnership units no longer meet the criteria for classification within the equity section of our accompanying consolidated balance sheets and as such were reclassified to the mezzanine section of our accompanying consolidated balance sheets. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.

Noncontrolling Interests

On December 1, 2015, we, through Trilogy REIT Holdings, completed the acquisition of approximately 96.7% of the outstanding equity interests of Trilogy. As of December 31, 2016, Trilogy REIT Holdings owned approximately 96.7% of Trilogy. We are the indirect owner of a 70.0% interest in Trilogy REIT Holdings and serve as the sole manager of Trilogy REIT Holdings. NHI, through certain of its subsidiaries, owns a 30.0% ownership interest in Trilogy REIT Holdings. As of December 31, 2016 and 2015, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with the acquisition and operation of Trilogy, profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and an independent director of Trilogy, both are unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests consist of time-based or performance-based commitments. The time-based Profit Interests were measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five-year period. We amortize the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying consolidated statements of operations and comprehensive loss. The performance-based Profit Interests are subject to a performance commitment and vest upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their grant date fair value and immediately expensed. The performance-based Profit Interests will be subject to fair value measurements until vesting occurs with changes to fair value recorded to general and administrative in our accompanying consolidated statements of operations and comprehensive loss. For the year ended December 31, 2016, we recognized stock compensation expense related to the Profit Interests of $1,329,000.

There were no canceled, expired or exercised Profit Interests during the year ended December 31, 2016. The nonvested awards are presented as noncontrolling interests and will be re-classified to redeemable noncontrolling interests upon vesting as they have redemption features outside of our control similar to the common stock units held by Trilogy’s pre-closing management once vested. See Note 12, Redeemable Noncontrolling Interests, for a further discussion.

On January 6, 2016, one of our consolidated subsidiaries issued non-voting preferred shares of beneficial interests to qualified investors for total proceeds of $125,000. These preferred shares of beneficial interests are entitled to receive cumulative preferential cash dividends at the rate of 12.5% per annum. In accordance with ASC Topic 810, we classify the

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value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying consolidated balance sheets and the dividends of the preferred shares of beneficial interests as net loss attributable to noncontrolling interests in our accompanying consolidated statements of operations and comprehensive loss.

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

Distribution Reinvestment Plan

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

Effective October 5, 2016, the Amended and Restated DRIP amended the price at which shares of our common stock are issued pursuant to the Secondary DRIP Offering. Pursuant to the Amended and Restated DRIP, shares are issued at a price equal to the most recently estimated value of one share of our common stock, asapproved and established by our board. The Amended and Restated DRIP became effective with the distribution payment to stockholders paid in the month of November 2016, which distributions were reinvested at $9.01 per share, the estimated per share net asset value, or NAV, unanimously approved and established by our board on October 5, 2016. Formerly, shares were issued pursuant to the Secondary DRIP Offering at 95.0% of the estimated value of one share of our common stock, as estimated by our board. In all other material respects, the terms of the Secondary DRIP Offering remain unchanged by the Amended and Restated DRIP.

For the years ended December 31, 2016, 2015 and 2014, $64,604,000, $59,335,000 and $2,734,000 in distributions were reinvested and 6,861,647, 6,245,475 and 287,792 shares of our common stock, respectively, were issued pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering. As of December 31, 2016 and 2015, a total of $126,673,000 and $62,069,000, respectively, in distributions were reinvested that resulted in 13,394,914 and 6,533,267 shares of our common stock, respectively, being issued pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

Share Repurchase Plan

Our board has approved a share repurchase plan. Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board. Subject to the availability of the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period as follows: first, pro rata as to repurchases sought upon a stockholder’s death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

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

Effective with respect to share repurchase requests submitted during the fourth quarter 2016, the Repurchase Amount, as such term is defined in our share repurchase plan, as amended, shall be equal to the lesser of (i) the amount per share that a

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stockholder paid for their shares of our common stock, or (ii) the most recent estimated value of one share of our common stock, as determined by our board. Accordingly, with respect to share repurchase requests submitted during or after the fourth quarter 2016, we repurchase shares as follows: (a) for stockholders who have continuously held their shares of our common stock for at least one year, the price will be 92.5% of the Repurchase Amount; (b) for stockholders who have continuously held their shares of our common stock for at least two years, the price will be 95.0% of the Repurchase Amount; (c) for stockholders who have continuously held their shares of our common stock for at least three years, the price will be 97.5% of the Repurchase Amount; (d) for stockholders who have held their shares of our common stock for at least four years, the price will be 100% of the Repurchase Amount; and (e) for requests submitted pursuant to a death or a qualifying disability, the price will be 100% of the amount per share the stockholder paid for their shares of common stock (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). On October 5, 2016, our board approved and established an estimated per share NAV of our common stock of $9.01.

For the years ended December 31, 2016, 2015 and 2014, we received share repurchase requests and repurchased 2,246,766, 380,929 and 0 shares of our common stock, respectively, for an aggregate of $20,941,000, $3,761,000 and $0, respectively, at an average repurchase price of $9.32, $9.87 and $0 per share, respectively.

As of December 31, 2016 and 2015, we received share repurchase requests and repurchased 2,627,695 and 380,929 shares of our common stock, respectively, for an aggregate of $24,702,000 and $3,761,000, respectively, at an average repurchase price of $9.40 and $9.87 per share, respectively. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP portion of our initial offering and the Secondary DRIP Offering.

2013 Incentive Plan

We adopted our incentive plan pursuant to which our board or a committee of our independent directors may make grants of options, shares of restricted common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares.

Through December 31, 2016, we granted an aggregate of 30,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election or re-election to our board, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the grant date. In addition, through December 31, 2016, we granted an aggregate of 30,000 shares of restricted common stock, as defined in our incentive plan, to our independent directors in consideration for their past services rendered. These shares of restricted common stock vest under the same period described above. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions.

From the applicable dates that the required service periods began, or the service inception dates, to the applicable grant dates, we recognized compensation expense related to the shares of our restricted common stock based on the reporting date fair value, which was estimated at $10.00 per share, the then most recent price paid to acquire a share of common stock in our initial offering. Beginning on the applicable grant dates, compensation cost related to the shares of our restricted common stock is measured based on the applicable grant date fair value, which we estimated at $10.00 per share, the then most recent price paid to acquire a share of common stock in our initial offering. Stock compensation expense is recognized from the applicable service inception dates to the vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method.

ASC Topic 718, Compensation — Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the years ended December 31, 2016, 2015 and 2014, we did not assume any forfeitures. For the years endedDecember 31, 2016, 2015 and 2014, we recognized stock compensation expense related to the director grants of $196,000, $109,000 and $62,000, respectively, which is included in general and administrative in our accompanying consolidated statements of operations and comprehensive loss.

As of December 31, 2016 and 2015, there was $233,000 and $129,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. As of December 31, 2016, this expense is expected to be recognized over a remaining weighted average period of 1.73 years.

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As of December 31, 2016 and 2015, the weighted average grant date fair value of the nonvested shares of our restricted common stock was $390,000 and $210,000, respectively. A summary of the status of the nonvested shares of our restricted common stock as of December 31, 2016, 2015 and 2014 and the changes for the years endedDecember 31, 2016 and 2015 is presented below:

	Number of Nonvested Shares of our Restricted Common Stock		Weighted Average Grant Date Fair Value
Balance — December 31, 2014	12,000		$	10.00
Granted	15,000		$	10.00
Vested	(6,000	)	$	10.00
Forfeited	—		$	—
Balance — December 31, 2015	21,000		$	10.00
Granted	30,000		$	10.00
Vested	(12,000	)	$	10.00
Forfeited	—		$	—
Balance — December 31, 2016	39,000		$	10.00
Expected to vest — December 31, 2016	39,000		$	10.00

14. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor, American Healthcare Investors and AHI Group Holdings; however, we are not affiliated with Griffin Capital, Griffin Securities, Colony NorthStar or Mr. Flaherty. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. In the aggregate, for the years endedDecember 31, 2016, 2015 and 2014, we incurred $29,494,000 and $47,376,000 and $9,641,000, respectively, in fees and expenses to our affiliates as detailed below.

Offering Stage

Other Organizational and Offering Expenses

Through the termination of the primary portion of our initial offering on March 12, 2015, our other organizational and offering expenses were incurred by our advisor or its affiliates on our behalf. We reimbursed our advisor or its affiliates for actual expenses incurred up to 2.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the years endedDecember 31, 2015 and 2014, we incurred $533,000 and $2,974,000, respectively, in offering expenses to our advisor. Other organizational expenses were expensed as incurred and offering expenses were charged to stockholders’ equity as such amounts were reimbursed to our advisor from the gross proceeds of our initial offering.

Acquisition and Development Stage

Acquisition Fee

We pay our advisor or its affiliates an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.00% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Until January 30, 2015, the acquisition fee for property acquisitions was paid as follows: (i) in cash equal to 2.00% of the contract purchase price; and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at the established offering price as of the date of closing, net of selling commissions and dealer manager fees, which was $9.00 per share. Since January 31, 2015, the acquisition fee for property acquisitions is paid in cash equal to 2.25% of the contract purchase price. Our advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our initial offering including acquisitions completed after the termination of the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.

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Acquisition fees in connection with the acquisition of properties are expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss. Acquisition fees in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying consolidated balance sheets.

For the years endedDecember 31, 2016, 2015 and 2014, we incurred $9,591,000, $39,204,000 and $6,279,000, respectively, in acquisition fees to our advisor or its affiliates, which included no shares of common stock for the year ended December 31, 2016, and 55,684, and 77,139 shares of our common stock issued for the years endedDecember 31, 2015 and 2014, respectively.

Development Fee

In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.

For the year ended December 31, 2016, we incurred $182,000 in development fees to our advisor or its affiliates. For the years endedDecember 31, 2015 and 2014, we did not incur any development fees to our advisor or its affiliates. Development fees are included in acquisition related expenses in our accompanying consolidated statement of operations and comprehensive loss.

Reimbursement of Acquisition Expenses

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets, which are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees and real estate commissions paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the years endedDecember 31, 2016, 2015 and 2014, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions, except with respect to our acquisition of Crown Senior Care Portfolio. For a further discussion, please see Note 3, Real Estate Investments, Net.

Reimbursements of acquisition expenses are expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss. Reimbursements of acquisition expenses in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying consolidated balance sheets.

For the years endedDecember 31, 2016, 2015 and 2014, we incurred $1,000, $3,000 and $4,000, respectively, in acquisition expenses to our advisor or its affiliates.

Operational Stage

Asset Management Fee

We pay our advisor or its affiliates a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan.

For the years ended December 31, 2016, 2015 and 2014, we incurred $16,949,000, $6,831,000 and $160,000, respectively, in asset management fees to our advisor or its affiliates. Our advisor agreed to waive a combination of certain acquisition fees and/or asset management fees that may otherwise have been due to our advisor pursuant to our Advisory Agreement, in order to provide us with additional funds to pay distributions to our stockholders prior to our first property acquisition. As such, the asset management fees of $37,000 that would have been incurred through December 31, 2014 were

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waived by our advisor. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such asset management fees.

Asset management fees are included in general and administrative in our accompanying consolidated statements of operations and comprehensive loss.

Property Management Fee

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

For the years endedDecember 31, 2016, 2015 and 2014, we incurred $2,313,000, $738,000 and $44,000, respectively, in property management fees to our advisor or its affiliates. Property management fees are included in property operating expenses and rental expenses in our accompanying consolidated statements of operations and comprehensive loss.

Lease Fees

We pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm’s-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of the gross revenues generated during the initial term of the lease.

For the years ended December 31, 2016, 2015 and 2014, we incurred $213,000, $23,000 and $0, respectively, in lease fees to our advisor or its affiliates. Lease fees are capitalized as lease commissions and included in other assets, net in our accompanying consolidated balance sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the years ended December 31, 2016, 2015 and 2014, we incurred $80,000, $11,000 and $0, respectively, in construction management fees to our advisor or its affiliates.

Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying consolidated balance sheets or will be expensed and included in our accompanying consolidated statements of operations and comprehensive loss, as applicable.

Operating Expenses

We reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement; or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determined that such excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient.

Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.0% and 14.5%, respectively, for the 12 months ended December 31, 2016; however, our operating expenses did not exceed the aforementioned limitation. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.1% and (48.2)%, respectively, for the 12 months ended December 31, 2015; however, our operating expenses did not exceed the aforementioned limitation.

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From the commencement of our offering through December 31, 2014, our operating expenses exceeded the aforementioned limitation by $199,000. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 2.5% and (13.9)%, respectively, from the commencement of our offering through December 31, 2014. We satisfied the conditions of the minimum offering and had funds held in escrow released to us to commence real estate operations in May 2014. We purchased our first property in June 2014. At this early stage of our operations, our general and administrative expenses were relatively high compared with our net income and our average invested assets. Our board of directors determined that the relationship of our general and administrative expenses to our net income and our average invested assets was justified from the commencement of our offering through December 31, 2014 given the unusual costs of operating a public company in the early stage of operations.

For the years ended December 31, 2016, 2015 and 2014, our advisor or its affiliates incurred operating expenses on our behalf of $165,000, $33,000 and $180,000, respectively. Operating expenses are generally included in general and administrative in our accompanying consolidated statements of operations and comprehensive loss.

Compensation for Additional Services

We pay our advisor and its affiliates for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated parties for similar services. For the years endedDecember 31, 2016, 2015 and 2014, our advisor and its affiliates were not compensated for any additional services.

Liquidity Stage

Disposition Fees

For services relating to the sale of one or more properties, we pay our advisor or its affiliates a disposition fee up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. For the years endedDecember 31, 2016, 2015 and 2014, we did not incur any disposition fees to our advisor or its affiliates.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

In the event of liquidation, we will pay our advisor a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the remaining net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of: (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan); plus (ii) an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the years endedDecember 31, 2016, 2015 and 2014, we did not incur any such distributions to our advisor.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor’s limited partnership units, we will pay our advisor a distribution equal to 15.0% of the amount by which (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be paid depend upon the market value of our outstanding stock at the time of listing, among other factors. For the years endedDecember 31, 2016, 2015 and 2014, we did not incur any such distributions to our advisor.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Subordinated Distribution Upon Termination

Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to15.0%of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.

As of December 31, 2016 and 2015, we had not recorded any charges to earnings related to the subordinated distribution upon termination.

Stock Purchase Plans

On March 5, 2014, our Chief Executive Officer and Chairman of the Board of Directors, Jeffrey T. Hanson, our President, Chief Operating Officer, and Director, Danny Prosky, and our Executive Vice President, General Counsel, Mathieu B. Streiff, each executed stock purchase plans, or the 2014 Stock Purchase Plans, whereby they each irrevocably agreed to invest 100% of their net after-tax base salary and cash bonus compensation earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. In addition, our former Chief Financial Officer, Shannon K S Johnson, our Executive Vice President — Acquisitions, Stefan K.L. Oh, our Assistant General Counsel and Secretary, Cora Lo, and our Former Vice President — Asset Management, Chris Rooney, each executed similar 2014 Stock Purchase Plans whereby each irrevocably agreed to invest 15.0%, 15.0%, 10.0% and 15.0%, respectively, of their net after-tax base salaries that were earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. Such arrangements terminated on December 31, 2014. Effective January 1, 2015, Messrs. Hanson, Prosky, Streiff, Oh and Rooney, and Mses. Johnson and Lo, each adopted a stock purchase plan, or the 2015 Stock Purchase Plans, on terms similar to each of the 2014 Stock Purchase Plans described above. The 2015 Stock Purchase Plans each terminated in connection with the termination of the primary portion of our initial offering.

Purchases of shares of our common stock pursuant to the 2014 Stock Purchase Plans commenced after the initial release from the escrow of the minimum offering amount, beginning with the officers’ regularly scheduled payroll payment on May 20, 2014. Purchases of shares of our common stock pursuant to the 2015 Stock Purchase Plans commenced with the officers’ regularly scheduled payroll payment paid on or after January 1, 2015. The shares of common stock were purchased at a price of $9.00 per share, reflecting the purchase price of the shares in our initial offering, exclusive of selling commissions and the dealer manager fee.

For the years endedDecember 31, 2015 and 2014, our officers invested the following amounts and we issued the following shares of our common stock pursuant to the applicable stock purchase plan:

		Years Ended December 31,
		2015			2014
Officer’s Name	Title	Amount		Shares	Amount		Shares
Jeffrey T. Hanson	Chief Executive Officer and Chairman of the Board of Directors	$	17,000	1,902	$	59,000	6,574
Danny Prosky	President, Chief Operating Officer and Director	20,000		2,246	81,000		9,053
Mathieu B. Streiff	Executive Vice President, General Counsel	19,000		2,062	74,000		8,188
Stefan K.L. Oh	Executive Vice President — Acquisitions	2,000		168	14,000		1,556
Cora Lo	Assistant General Counsel and Secretary	1,000		106	8,000		900
Shannon K S Johnson	Former Chief Financial Officer	1,000		165	13,000		1,475
Chris Rooney	Former Vice President — Asset Management	1,000		135	12,000		1,366
		$	61,000	6,784	$	261,000	29,112

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Accounts Payable Due to Affiliates

The following amounts were outstanding to our affiliates as of December 31, 2016 and 2015:

	December 31,
Fee	2016		2015
Asset and property management fees	$	1,736,000	$	1,111,000
Acquisition fees	202,000		133,000
Development fees	105,000		—
Lease commissions	89,000		1,000
Construction management fees	38,000		9,000
Operating expenses	16,000		3,000
	$	2,186,000	$	1,257,000

15. Fair Value Measurements

Assets and Liabilities Reported at Fair Value

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Derivative financial instrument	$	—	$	1,982,000	$	—	$	1,982,000
Contingent consideration receivables	—		—		—		—
Total assets at fair value	$	—	$	1,982,000	$	—	$	1,982,000
Liabilities:
Derivative financial instrument	$	—	$	—	$	—	$	—
Contingent consideration obligations	—		—		8,992,000		8,992,000
Warrants	—		—		1,250,000		1,250,000
Total liabilities at fair value	$	—	$	—	$	10,242,000	$	10,242,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Contingent consideration receivables	$	—	$	—	$	—	$	—
Total assets at fair value	$	—	$	—	$	—	$	—
Liabilities:
Contingent consideration obligations	$	—	$	—	$	5,912,000	$	5,912,000
Warrants	—		—		1,014,000		1,014,000
Total liabilities at fair value	$	—	$	—	$	6,926,000	$	6,926,000

There were no transfers into and out of fair value measurement levels during the years ended December 31, 2016 and 2015.

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Derivative Financial Instruments

We use interest rate swaps and interest rate caps to manage interest rate risk associated with floating-rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, as well as option volatility. The fair values of interest rate swaps are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

To comply with the provisions of ASC Topic 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of December 31, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Contingent Consideration

Assets

As of December 31, 2016, we have not recorded any contingent consideration receivables. In connection with our purchase of King of Prussia PA MOB in January 2015, there was a contingent consideration receivable in the amount of either $0 or $1,100,000. We would have received $1,100,000 in the event that within one year of the acquisition date certain criteria were not met, including the seller leasing 4,536 square feet of GLA meeting certain lease terms, occupancy by the tenant, delivery of a signed estoppel by the tenant and our receipt of the first month’s rent under the lease. Such contingency expired in January 2016. In addition, in connection with our acquisition of Mt. Juliet TN MOB in March 2015, there is a contingent consideration receivable in the range of $0 up to a maximum of $308,000. We would receive payment of contingent consideration in the event that a tenant occupying 6,611 square feet of GLA terminates their lease, prior to March 31, 2018, and to the extent there is a shortfall in rent from any replacement tenant. As of December 31, 2016, we do not believe that we will receive such amounts, and therefore, we have not recorded any contingent consideration receivables. When recorded by us, contingent consideration receivables will be included in other assets, net in our accompanying consolidated balance sheets.

Liabilities

As of December 31, 2016 and 2015, we have accrued $8,992,000 and $5,912,000, respectively, as contingent consideration obligations in connection with our property acquisitions, which is included in security deposits, prepaid rent and other liabilities in our accompanying consolidated balance sheets. Such consideration will be paid upon various conditions being met, including our tenants achieving certain operating performance metrics and sellers’ leasing unoccupied space, as discussed below.

Of the amount accrued as of December 31, 2016, $8,942,000 relates to our acquisition of North Carolina ALF Portfolio in January and June 2015 and $50,000 relates to our acquisition of King of Prussia PA MOB. Of the amount accrued as of December 31, 2015, $4,131,000 relates to our acquisition of North Carolina ALF Portfolio in January and June 2015, $1,381,000 relates to our acquisition of Stockbridge GA MOB II and $400,000 relates to our acquisition of King of Prussia PA MOB.

The estimated total amount of $8,942,000 related to North Carolina ALF Portfolio will be paid based upon the computation in the lease agreement and receipt of notification within three years after the applicable acquisition date that the tenant has increased its earnings before interest, taxes, depreciation, and rent cost, or EBITDAR, as defined in the lease agreement, for the preceding three months. There is no minimum required payment but the total maximum is capped at $35,144,000 and is also limited by the tenant’s ability to increase its EBITDAR. Any payment made will result in an increase in the monthly rent charged to the tenant and additional rental revenue to us. Upon the tenant meeting certain conditions under the

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lease agreement and providing us notice in October 2016, we paid $10,000,000 towards this obligation related to the Wake Forest Facility in November 2016. We have assumed that the tenant will meet the remaining conditions under the lease agreement and that we will pay the remaining contingent consideration for the three other facilities three years from the date of the applicable acquisition.

Warrants

As of December 31, 2016 and 2015, we have recorded $1,250,000 and $1,014,000, respectively, related to warrants in Trilogy common units held by certain members of Trilogy’s pre-closing management, which is included in security deposits, prepaid rent and other liabilities in our accompanying consolidated balance sheets. Once exercised, these warrants have redemption features similar to the common units held by members of Trilogy’s pre-closing management. See Note 12, Redeemable Noncontrolling Interests, for a further discussion. As of December 31, 2016 and 2015, the carrying value is a reasonable estimate of fair value.

Investments in Unconsolidated Entities

The fair value of one of our investments in unconsolidated entities was based on an income approach utilizing a discounted cash flows valuation model, and inputs were considered to be Level 3 measurements within the fair value hierarchy. Inputs to this valuation model included earnings multiples, discount rate, growth rates of revenue, operating expenses and cost of capital, some of which influence our expectation of future cash flows from our equity investments in the unconsolidated entities and, accordingly, the fair value of our investments.

The following is a summary of the quantitative information related to this non-recurring fair value measurement for the impairment of our investments in unconsolidated entities using a discounted cash flows valuation model:

Unobservable Inputs	Ranges
Terminal EBITDA(1) multiple	8.0X-9.0X
Weighted average cost of capital	7.75%-9.75%
Operating expenses as a percent of revenue	74%-84%
Annual revenue growth	2.75%-3.65%

___________

(1) Earnings before interest, tax, depreciation and amortization.

Unobservable Inputs and Reconciliation for Contingent Consideration Liabilities

The fair value of the contingent consideration is determined based on the facts and circumstances existing at each reporting date and the likelihood of the counterparty achieving the necessary conditions based on a probability weighted discounted cash flow analysis based, in part, on significant inputs which are not observable in the market. As a result, we have determined that our contingent consideration valuations are classified in Level 3 of the fair value hierarchy. Any changes in the fair value of our contingent consideration assets and obligations subsequent to their acquisition date valuations are charged to earnings. Gains and losses recognized on contingent consideration assets and obligations are included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss.

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The following table shows quantitative information about unobservable inputs related to Level 3 fair value measurements used as of December 31, 2016 and 2015 for the contingent consideration obligations:

		Range of Inputs or Inputs
		December 31,
Acquisition	Unobservable Inputs(1)	2016		2015
North Carolina ALF Portfolio — North Raleigh and Mooresville(2)	Tenant’s Annualized EBITDAR, as defined, for the Three Months Prior to Payment	$	3,459,000	$	3,516,000
	Timing of Payment	January 27, 2018		January 27, 2018
	Applicable Rate, as defined in the lease agreement	7.2%		7.2%
	Discount Rate per Annum	1.20%		1.06%
	Percentage of Eligible Payment Requested	100%		100%
North Carolina ALF Portfolio — Clemmons(2)	Tenant’s Annualized EBITDAR, as defined, for the Three Months Prior to Payment	$	1,753,000	$	197,000
	Timing of Payment	June 28, 2018		June 28, 2018
	Applicable Rate, as defined in the lease agreement	7.2%		7.2%
	Discount Rate per Annum	1.20%		1.06%
	Percentage of Eligible Payment Requested	100%		100%
King of Prussia PA MOB(3)	Percentage of Allowance for Leasing Commissions to be Paid	100%		100%

___________

(1) Significant increases or decreases in any of the unobservable inputs in isolation or in the aggregate would result in a significantly higher or lower fair value measurement to the contingent consideration obligation as of December 31, 2016 and 2015.

(2) The most significant input to the valuation is the tenant’s annualized EBITDAR, as defined in the lease agreement. An increase (decrease) in the tenant’s annualized EBITDAR would increase (decrease) the fair value.

(3) An increase (decrease) in the leasing commissions to be paid would increase (decrease) the fair value.

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The following is a reconciliation of the beginning and ending balances of our contingent consideration assets and obligations for the years endedDecember 31, 2016, 2015 and 2014:

	Years Ended December 31,
	2016			2015			2014
Contingent Consideration Receivables:
Beginning balance	$	—		$	—		$	—
Additions to contingent consideration receivables	—			—			—
Realized/unrealized (gains) losses recognized in earnings	—			—			—
Ending balance	$	—		$	—		$	—
Amount of total (gains) losses included in earnings attributable to the change in unrealized (gains) losses related to assets still held	$	—		$	—		$	—
Contingent Consideration Obligations:
Beginning balance	$	5,912,000		$	1,393,000		$	—
Additions to contingent consideration obligations	—			5,848,000			1,393,000
Realized/unrealized losses (gains) recognized in earnings	13,430,000			(1,329,000		)	—
Settlements of obligations	(10,350,000		)	—			—
Ending balance	$	8,992,000		$	5,912,000		$	1,393,000
Amount of total (gains) losses included in earnings attributable to the change in unrealized (gains) losses related to obligations still held	$	13,430,000		$	(1,329,000	)	$	—

Financial Instruments Disclosed at Fair Value

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

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

We consider the carrying values of cash and cash equivalents, accounts and other receivables, restricted cash, real estate deposits and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. The fair value of accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable. The fair value of the other financial instruments is classified in Level 2 of the fair value hierarchy.

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The fair value of our real estate notes receivable and debt security investment are estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair value of the mortgage loans payable and our lines of credit and term loan are estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our real estate notes receivable, debt security investment, mortgage loans payable and lines of credit and term loan are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of December 31, 2016 and 2015 were as follows:

	December 31,
	2016				2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Real estate notes receivable	$	36,205,000	$	37,231,000	$	81,716,000	$	80,845,000
Debt security investment	$	64,912,000	$	94,320,000	$	62,761,000	$	94,393,000
Financial Liabilities:
Mortgage loans payable	$	495,717,000	$	495,532,000	$	295,270,000	$	294,701,000
Lines of credit and term loan	$	639,693,000	$	647,336,000	$	343,656,000	$	350,000,000

16. Income Taxes and Distributions

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

We did not incur income taxes for the year ended December 31, 2014. The components of loss before taxes for the years ended December 31, 2016 and 2015, were as follows:

	December 31,
	2016			2015
Domestic	$	(202,886,000	)	$	(109,748,000	)
Foreign	(667,000		)	(5,103,000		)
Loss before income taxes	$	(203,553,000	)	$	(114,851,000	)

The components of income tax expense for the years ended December 31, 2016 and 2015, were as follows:

	December 31,
	2016			2015
Federal deferred	$	(6,656,000	)	$	(6,156,000	)
State deferred	(1,502,000		)	(1,291,000		)
Foreign deferred	—			—
Federal current	(3,000		)	147,000
Foreign current	160,000			43,000
Valuation allowances	8,344,000			7,447,000
Total income tax expense	$	343,000		$	190,000

Current Income Tax

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

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Deferred Taxes

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

We apply the rules under ASC 740-10, Accounting for Uncertainty in Income Taxes, for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of December 31, 2016 and 2015, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying consolidated financial statements.

We used estimated fair value for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed for the Trilogy acquisition in December 2015. During 2016, we obtained additional information that required revisions to the preliminary purchase price allocation. Specifically, the basis differences between tax and book were updated, and as a result, a deferred tax liability was recorded. The primary driver of this difference was the use of bonus depreciation for tax purposes. See Note 18, Business Combinations, for a further discussion.

The additional Trilogy information obtained also impacted our allocation of deferred tax assets. An election was filed to step up the tax basis of certain assets pursuant to section 743 of the Code, and additional book/tax basis differences were finalized related to the contribution of certain assets by Trilogy to its TRS subsidiary prior to our acquisition of Trilogy. The contribution was structured as a tax free contribution, pursuant to section 351 of the Code. Straight line rent basis differences and net operating losses contributed to the growth in the deferred tax asset account in 2016.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of December 31, 2016 and 2015, our valuation allowance substantially reserves the net deferred tax asset due to inherent uncertainty of future income. We will continue to monitor industry and economic conditions, and our ability to generate taxable income based on our business plan and available tax planning strategies, which would allow us to utilize the tax benefits of the net deferred tax assets and thereby allow us to reverse all, or a portion of, our valuation allowance in the future.

Any increases or decreases to the deferred income tax assets or liabilities are reflected in income tax expense (benefit) in our accompanying consolidated statements of operations and comprehensive loss. The components of deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:

	December 31,
	2016			2015
Deferred income tax assets:
Fixed assets & intangibles	$	13,015,000		$	5,840,000
Expense accruals & other	6,586,000			1,050,000
Net operating loss	6,947,000			557,000
Allowances for accounts receivable	2,891,000			—
Reserves and accruals	2,361,000			—
Investment in joint ventures	1,189,000			—
Valuation allowances	(24,695,000		)	(7,447,000		)
Total deferred income tax assets	$	8,294,000		$	—
Deferred income tax liabilities:
Fixed assets and intangibles	$	(13,181,000	)	$	—
Other — temporary differences	(3,104,000		)	—
Total deferred income tax liabilities	$	(16,285,000	)	$	—

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Tax Treatment of Distributions

For federal income tax purposes, distributions to stockholders are characterized as ordinary income, capital gain distributions or nontaxable distributions. Nontaxable distributions will reduce U.S. stockholders’ basis (but not below zero) in their shares. The income tax treatment for distributions reportable for the years ended December 31, 2016, 2015 and 2014 was as follows:

	Years Ended December 31,
	2016				2015				2014
Ordinary income	$	28,135,000	24.2	%	$	17,271,000	16.7	%	$	649,000	13.4	%
Capital gain	—		—		—		—		—		—
Return of capital	88,140,000		75.8		85,923,000		83.3		4,183,000		86.6
	$	116,275,000	100	%	$	103,194,000	100	%	$	4,832,000	100	%

Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.

17. Future Minimum Rent

Rental Income

We have operating leases with tenants that expire at various dates through 2050 and in some cases are subject to scheduled fixed increases or adjustments based on a consumer price index. Generally, our leases grant tenants renewal options. Our leases also generally provide for additional rents based on certain operating expenses. Future minimum base rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2016 for each of the next five years ending December 31 and thereafter was as follows:

Year	Amount
2017	$	88,511,000
2018	83,934,000
2019	79,579,000
2020	72,738,000
2021	69,909,000
Thereafter	580,014,000
	$	974,685,000

Rental Expense

We have ground and other lease obligations that generally require fixed annual rental payments and may also include escalation clauses and renewal options. These leases expire at various dates through 2112, excluding extension options. Future minimum lease obligations under non-cancelable ground and other lease obligations as of December 31, 2016 for each of the next five years ending December 31 and thereafter was as follows:

Year	Amount
2017	$	17,946,000
2018	22,288,000
2019	22,943,000
2020	23,617,000
2021	24,310,000
Thereafter	225,725,000
	$	336,829,000

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We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840, Leases. A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75.0% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90.0% of the fair value of the leased asset. Future minimum lease payments under capital leases as of December 31, 2016 for each of the next five years ending December 31 was as follows:

Year	Amount(1)
2017	$	9,796,000
2018	6,834,000
2019	3,987,000
2020	2,002,000
2021	661,000
	$	23,280,000

___________

(1) Amounts above represent principal of $20,796,000 and interest obligations of $2,484,000 under capital lease arrangements. As of December 31, 2016 and 2015, we have recorded $24,500,000 of purchase option liabilities, which are included in capital lease obligations in our accompanying consolidated balance sheets and which are excluded from amounts above. Purchase option liabilities are recorded at their estimated fair value by discounting the difference between the applicable property’s acquisition date fair value and an estimate of its future option price.

18. Business Combinations

Trilogy Purchase Price Allocation

We utilized estimated fair values for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed for the acquisition of Trilogy in December 2015. As we continued to integrate Trilogy during 2016, we obtained additional information on the acquired assets and assumed liabilities which, if significant, required revisions to the preliminary purchase price allocation for Trilogy. Amounts for certain income tax accounts were also subject to change pending the filing of Trilogy’s pre-acquisition tax returns and the receipt of information from taxing authorities, which, if significant, required revisions to preliminary assumptions and estimates. If we determined that any measurement period adjustments were significant, we recognized those adjustments, including any related impacts to deferred tax positions, goodwill or net income, in the reporting period in which the adjustments are determined.

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The final purchase price allocation to assets acquired and liabilities assumed for the acquisition of Trilogy in December 2015 was:

	Trilogy(1)
Building and improvements	$	504,554,000
Land	38,956,000
Furniture, fixtures and equipment	59,192,000
Construction in progress	17,132,000
In-place leases	183,704,000
Capital lease assets	43,601,000
Certificates of need	51,295,000
Trade names	30,267,000
Purchase option assets	71,000,000
Goodwill	75,264,000
Other assets	37,639,000
Total assets acquired	1,112,604,000
Mortgage loans payable, net	(193,220,000		)
Lines of credit	(270,000,000		)
Capital lease obligations	(47,660,000		)
Deferred income tax liabilities	(7,699,000		)
Other liabilities	(7,634,000		)
Total liabilities assumed	(526,213,000		)
Net assets acquired	$	586,391,000

___________

(1) Trilogy’s assets acquired and liabilities assumed are consolidated and reported at 100%. At the time of acquisition, we owned approximately 67.6% of the net assets acquired.

During 2016, we updated the purchase price allocation of Trilogy to adjust deferred income tax liabilities as of the Trilogy acquisition date for pre-merger Trilogy’s federal income tax returns and revised estimates. This measurement period adjustment was reflected in the table above as an increase to goodwill of $7,699,000, with corresponding adjustments to deferred income tax liabilities, which is included in security deposits, prepaid rent and other liabilities, in our accompanying consolidated balance sheets. We also adjusted the initial valuation of our unconsolidated entities that we own investment interests in through Trilogy. This adjustment was also reflected in the table above as an increase to goodwill of $4,654,000, with corresponding adjustments to investments in unconsolidated entities, which is included in other assets, net, in our accompanying consolidated balance sheets. There was no impact to our consolidated statement of operations and comprehensive loss for the fiscal year ended December 31, 2015.In addition, we adjusted the initial purchase price allocation during 2016 relating to three properties subject to capital leases to decrease the allocation to land by $3,201,000 and increase the allocation to building and improvements by the same amount. The impact to our consolidated statement of operations and comprehensive loss as a result of this reallocation is immaterial for the fiscal year ended December 31, 2015. For the period from the acquisition date through December 31, 2015, we recognized $66,115,000 of revenue and $18,588,000 of net loss for Trilogy.

2016 Business Combinations

For the year ended December 31, 2016, using cash on hand and debt financing, we completed 12 property acquisitions comprising 23 buildings and acquired the real estate underlying 17 previously leased integrated senior health campuses, which have been accounted for as business combinations. The aggregate contract purchase price for these property acquisitions was $498,656,000, plus closing costs and acquisition fees of $14,111,000, which are included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss. See Note 3, Real Estate Investments, Net, for a listing of the properties acquired, acquisition dates and the amount of financing initially incurred in connection with such acquisitions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Results of operations for the property acquisitions for the year ended December 31, 2016 are reflected in our accompanying consolidated statements of operations and comprehensive loss for the period from the date of acquisition of each property through December 31, 2016. For the period from the acquisition date through December 31, 2016, we recognized the following amounts of revenue and net income for the 2016 property acquisitions:

Acquisition	Revenue		Net Income
2016 Acquisitions	$	20,228,000	$	1,021,000

The fair values of the assets acquired and liabilities assumed since January 1, 2016 are preliminary estimates determined using the income, cost and market approaches. Any necessary adjustments will be finalized within one year from the date of acquisition. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed of our 2016 property acquisitions:

	2016 Acquisitions
Building and improvements	$	439,067,000
Land	44,738,000
Furniture, fixtures and equipment	644,000
In-place leases	48,827,000
Above-market leases	1,385,000
Certificates of need	18,410,000
Purchase option assets	(56,792,000		)
Total assets acquired	496,279,000
Mortgage loans payable, net	(14,066,000		)
Below-market leases	(1,842,000		)
Total liabilities assumed	(15,908,000		)
Net assets acquired	$	480,371,000

Assuming the property acquisitions in 2016 discussed above had occurred on January 1, 2015, for the years ended December 31, 2016 and 2015, unaudited pro forma revenue, net loss, net loss attributable to controlling interest and net loss per common share attributable to controlling interest — basic and diluted would have been as follows:

	Years Ended December 31,
	2016			2015
Revenue	$	1,001,599,000		$	193,796,000
Net loss	$	(170,845,000	)	$	(154,270,000	)
Net loss attributable to controlling interest	$	(113,592,000	)	$	(133,299,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(0.58	)	$	(0.73	)

The unaudited pro forma adjustments assume that the offering proceeds, at a price of $10.00 per share, net of offering costs, were raised as of January 1, 2015. In addition, acquisition related expenses associated with the acquisitions have been excluded from the pro forma results in 2016 and included in the 2015 pro forma results. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2015Business Combinations

For the year ended December 31, 2015, using net proceeds from our offering and the assumption of mortgage loans payable and borrowing against lines of credit, we completed 23 property acquisitions comprising 50 buildings and 97 integrated senior health campuses, which have been accounted for as business combinations. The aggregate contract purchase price for these property acquisitions was $1,976,185,000, plus closing costs and acquisition fees of $66,047,000, which are included in acquisition related expenses in our accompanying consolidated statements of operations and comprehensive loss. See Note 3, Real Estate Investments, Net for a listing of the properties acquired, acquisition dates and the amount of financing initially incurred or assumed in connection with such acquisitions.

Results of operations for the property acquisitions during the year ended December 31, 2015 are reflected in our accompanying consolidated statements of operations and comprehensive loss for the period from the date of acquisition of each property through December 31, 2015. We present separately Trilogy at — Trilogy Purchase Price Allocation above and Independence MOB Portfolio and Pennsylvania Senior Housing Portfolio below, which are individually significant property acquisitions during the year ended December 31, 2015. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 under the Fair Value Measurement and Disclosure framework.

For the period from the acquisition date through December 31, 2015, we recognized the following amounts of revenue and net income (loss) for the 2015 property acquisitions, excluding Trilogy that is presented at — Trilogy Purchase Price Allocation above:

Acquisition	Revenue		Net Income (Loss)
Independence MOB Portfolio	$	14,021,000	$	2,171,000
Pennsylvania Senior Housing Portfolio	$	8,500,000	$	(2,743,000	)
Other 2015 Acquisitions	$	46,235,000	$	(1,344,000	)

The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed for our 2015 property acquisitions, excluding Trilogy that is presented at — Trilogy Purchase Price Allocation above, and which we determined using Level 2 and Level 3 inputs:

	Independence MOB Portfolio			Pennsylvania Senior Housing Portfolio			Other 2015 Acquisitions
Building and improvements	$	113,727,000		$	76,970,000		$	530,242,000
Land	7,367,000			2,994,000			50,776,000
Furniture, fixtures and equipment	—			635,000			1,966,000
In-place leases	7,182,000			8,057,000			48,041,000
Leasehold interest	5,715,000			—			687,000
Above-market leases	1,321,000			—			1,163,000
Total assets acquired	135,312,000			88,656,000			632,875,000
Mortgage loans payable, net	—			(13,271,000		)	(71,969,000		)
Below-market leases	(350,000		)	—			(193,000		)
Other liabilities	—			—			(5,848,000		)	(1)
Total liabilities assumed	(350,000		)	(13,271,000		)	(78,010,000		)
Net assets acquired	$	134,962,000		$	75,385,000		$	554,865,000

___________

(1) Included in other liabilities is $4,067,000, $1,381,000 and $400,000 accrued for as contingent consideration obligations in connection with the purchase of North Carolina ALF Portfolio, Stockbridge GA MOB II and King of Prussia PA MOB, respectively. For a further discussion, see Note 15, Fair Value Measurements — Assets and Liabilities Reported at Fair Value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assuming all the property acquisitions in 2015 discussed above had occurred on January 1, 2014, for the years ended December 31, 2015 and 2014, unaudited pro forma revenue, net loss, net loss attributable to controlling interest and net loss per common share attributable to controlling interest — basic and diluted would have been as follows:

	Years Ended December 31,
	2015			2014
Revenue	$	918,450,000		$	888,332,000
Net loss	$	(41,824,000	)	$	(227,678,000	)
Net loss attributable to controlling interest	$	(46,311,000	)	$	(225,835,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(0.15	)	$	(1.73	)

The unaudited pro forma adjustments assume that the offering proceeds, at a price of $10.00 per share, net of offering costs were raised as of January 1, 2014. In addition, acquisition related expenses associated with the acquisitions have been excluded from the pro forma results in 2015 and included in the 2014 pro forma results. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

19. Segment Reporting

ASC Topic 280 establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Accordingly, when we acquired our first medical office building in June 2014; senior housing facility in September 2014; hospital in December 2014; senior housing — RIDEA portfolio in May 2015; skilled nursing facilities in October 2015; and integrated senior health campuses in December 2015, we added a new reportable business segment at such time. As of December 31, 2016, we evaluated our business and made resource allocations based on six reportable business segments: medical office buildings, hospitals, skilled nursing facilities, senior housing, senior housing —RIDEA and integrated senior health campuses.

Our medical office buildings are typically leased to multiple tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). In addition, our medical office buildings segment includes the Mezzanine Notes. Our hospital investments are primarily single-tenant properties that lease the facilities to unaffiliated tenants under triple-net and generally master leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. Our skilled nursing facilities and senior housing facilities are similarly structured as our hospital investments. In addition, our senior housing segment includes Crown Senior Care Facility and our debt security investment. Our senior housing —RIDEA properties include senior housing facilities that are owned and operated utilizing a RIDEA structure. Our integrated senior health campuses include a range of assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary information for the reportable segments during the years endedDecember 31, 2016, 2015 and 2014 was as follows:

	Medical Office Buildings		Skilled Nursing Facilities		Hospitals		Senior Housing		Senior Housing —RIDEA		Integrated Senior Health Campuses		Year Ended December 31, 2016
Revenues:
Resident fees and services	$	—	$	—	$	—	$	—	$	62,371,000	$	810,034,000	$	872,405,000
Real estate revenue	73,252,000		8,686,000		16,711,000		18,517,000		—		—		117,166,000
Total revenues	73,252,000		8,686,000		16,711,000		18,517,000		62,371,000		810,034,000		989,571,000
Expenses:
Property operating expenses	—		—		—		—		42,346,000		722,793,000		765,139,000
Rental expenses	26,863,000		758,000		1,235,000		538,000		—		—		29,394,000
Segment net operating income	$	46,389,000	$	7,928,000	$	15,476,000	$	17,979,000	$	20,025,000	$	87,241,000	$	195,038,000
Expenses:
General and administrative													$	28,951,000
Acquisition related expenses													28,589,000
Depreciation and amortization													271,307,000
Loss from operations													(133,809,000		)
Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(45,665,000		)
Gain in fair value of derivative financial instruments													1,968,000
Foreign currency loss													(8,755,000		)
Interest and other income													1,085,000
Loss from unconsolidated entities													(18,377,000		)
Loss before income taxes													(203,553,000		)
Income tax expense													(343,000		)
Net loss													$	(203,896,000	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Medical Office Buildings		Skilled Nursing Facilities		Hospitals		Senior Housing		Senior Housing — RIDEA		Integrated Senior Health Campuses		Year Ended December 31, 2015
Revenues:
Resident fees and services	$	—	$	—	$	—	$	—	$	29,964,000	$	66,115,000	$	96,079,000
Real estate revenue	49,804,000		808,000		5,297,000		8,488,000		—		—		64,397,000
Total revenues	49,804,000		808,000		5,297,000		8,488,000		29,964,000		66,115,000		160,476,000
Expenses:
Property operating expenses	—		—		—		—		20,820,000		60,635,000		81,455,000
Rental expenses	16,806,000		53,000		1,625,000		391,000		—		—		18,875,000
Segment net operating income	$	32,998,000	$	755,000	$	3,672,000	$	8,097,000	$	9,144,000	$	5,480,000	$	60,146,000
Expenses:
General and administrative													$	16,544,000
Acquisition related expenses													74,170,000
Depreciation and amortization													75,714,000
Loss from operations													(106,282,000		)
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(5,619,000		)
Foreign currency loss													(3,199,000		)
Interest and other income													839,000
Loss from unconsolidated entities													(590,000		)
Loss before income taxes													(114,851,000		)
Income tax expense													(190,000		)
Net loss													$	(115,041,000	)

	Medical Office Buildings		Skilled Nursing Facilities		Hospitals		Senior Housing		Senior Housing— RIDEA		Integrated Senior Health Campuses		Year Ended December 31, 2014
Revenues:
Real estate revenue	$	2,117,000	$	—	$	921,000	$	443,000	$	—	$	—	$	3,481,000
Expenses:
Rental expenses	700,000		—		120,000		79,000		—		—		899,000
Segment net operating income	$	1,417,000	$	—	$	801,000	$	364,000	$	—	$	—	$	2,582,000
Expenses:
General and administrative													$	1,238,000
Acquisition related expenses													8,199,000
Depreciation and amortization													1,510,000
Loss from operations													(8,365,000		)
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount/premium)													(258,000		)
Interest and other income													25,000
Net loss													$	(8,598,000	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets by reportable segment as of December 31, 2016 and 2015 were as follows:

	December 31,
	2016		2015
Integrated senior health campuses	$	1,330,597,000	$	1,258,308,000
Medical office buildings	699,381,000		577,399,000
Senior housing — RIDEA	286,058,000		290,184,000
Senior housing	212,314,000		225,574,000
Skilled nursing facilities	129,984,000		39,945,000
Hospitals	127,258,000		127,372,000
Other	8,926,000		6,237,000
Total assets	$	2,794,518,000	$	2,525,019,000

As of December 31, 2016 and 2015, goodwill of $75,265,000 and $62,911,000, respectively, was allocated to integrated senior health campuses, and no other segments had goodwill.

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

	Years Ended December 31,
	2016		2015		2014
Revenues:
United States	$	985,069,000	$	159,673,000	$	3,481,000
International	4,502,000		803,000		—
Total revenues	$	989,571,000	$	160,476,000	$	3,481,000

The following is a summary of real estate investments, net by geographic regions as of December 31, 2016 and 2015:

	December 31,
	2016		2015
Real estate investments, net:
United States	$	2,089,247,000	$	1,638,074,000
International	49,734,000		40,324,000
Total real estate investments, net	$	2,138,981,000	$	1,678,398,000

20. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily real estate notes receivable and debt security investment, cash and cash equivalents, accounts and other receivables, restricted cash and real estate deposits. We are exposed to credit risk with respect to the real estate notes receivable and debt security investment, but we believe collection of the outstanding amount is probable. We believe that the risk is further mitigated as the real estate notes receivable are secured by property and there is a guarantee of completion agreement executed between the parent company of the borrowers and us. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC. As of December 31, 2016 and 2015, we had cash and cash equivalents in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants and security deposits are obtained at the time of property acquisition and upon lease execution.

Based on leases in effect as of December 31, 2016, properties in one state in the United States accounted for 10.0% or more of the annualized base rent or annualized net operating income of our total property portfolio. Properties located in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Indiana accounted for 35.0% of the annualized base rent or annualized net operating income of our total property portfolio. Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Based on leases in effect as of December 31, 2016, our six reportable business segments, integrated senior health campuses, medical office buildings, senior housing —RIDEA, hospitals, senior housing and skilled nursing facilities, accounted for 43.8%, 30.0%, 10.5%, 4.1%, 5.8% and 5.8%, respectively, of our annualized base rent or annualized net operating income. As of December 31, 2016, none of our tenants at our properties accounted for 10.0% or more of our aggregate annualized base rent or annualized net operating income, which is based on contractual base rent from leases in effect inclusive of our senior housing — RIDEA facilities and integrated senior health campuses operations as of December 31, 2016.

21. Per Share Data

We report earnings (loss) per share pursuant to ASC Topic 260, Earnings per Share. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) applicable to common stock is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $18,000, $10,000 and $2,000, respectively, for the years endedDecember 31, 2016, 2015 and 2014. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock.

As of December 31, 2016 and 2015, there were 39,000 and 21,000 nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of December 31, 2016 and 2015, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

22. Selected Quarterly Financial Data (Unaudited)

Set forth below is the unaudited selected quarterly financial data. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the unaudited selected quarterly financial data when read in conjunction with our consolidated financial statements.

	Quarters Ended
	December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Revenues	$	250,815,000		$	248,930,000		$	241,321,000		$	248,505,000
Expenses	(274,913,000		)	(289,445,000		)	(278,088,000		)	(280,934,000		)
Loss from operations	(24,098,000		)	(40,515,000		)	(36,767,000		)	(32,429,000		)
Other expense	(24,291,000		)	(15,853,000		)	(16,026,000		)	(13,574,000		)
Income tax (expense) benefit	(170,000		)	2,000			884,000			(1,059,000		)
Net loss	(48,559,000		)	(56,366,000		)	(51,909,000		)	(47,062,000		)
Less: net loss attributable to noncontrolling interests	18,617,000			13,921,000			12,529,000			12,795,000
Net loss attributable to controlling interest	$	(29,942,000	)	$	(42,445,000	)	$	(39,380,000	)	$	(34,267,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(0.15	)	$	(0.22	)	$	(0.20	)	$	(0.18	)
Weighted average number of common shares outstanding — basic and diluted	195,806,001			195,027,512			193,698,615			192,240,851

	Quarters Ended
	December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015
Revenues	$	100,549,000		$	29,280,000		$	17,884,000		$	12,763,000
Expenses	(171,346,000		)	(44,458,000		)	(30,466,000		)	(20,488,000		)
Loss from operations	(70,797,000		)	(15,178,000		)	(12,582,000		)	(7,725,000		)
Other expense	(5,502,000		)	(2,433,000		)	(261,000		)	(373,000		)
Income tax benefit (expense)	140,000			(330,000		)	—			—
Net loss	(76,159,000		)	(17,941,000		)	(12,843,000		)	(8,098,000		)
Less: net loss attributable to noncontrolling interests	11,204,000			2,504,000			—			—
Net loss attributable to controlling interest	$	(64,955,000	)	$	(15,437,000	)	$	(12,843,000	)	$	(8,098,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(0.35	)	$	(0.08	)	$	(0.07	)	$	(0.05	)
Weighted average number of common shares outstanding — basic and diluted	190,629,929			189,099,028			187,460,097			165,407,740

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

23. Subsequent Events

Property Acquisitions

Subsequent to December 31, 2016, we completed the acquisition of one building from unaffiliated parties. The aggregate contract purchase price of this property was $15,000,000 and we paid $338,000 in acquisition fees to our advisor in connection with this acquisition. We have not yet measured the fair value of the tangible and identified intangible assets and liabilities of this acquisition. The following is a summary of our property acquisition subsequent to December 31, 2016:

Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		2016 Corporate Line of Credit(2)		Acquisition Fee (3)
North Carolina ALF Portfolio(4)	Huntersville, NC	Senior Housing	01/18/17	$	15,000,000	$	14,000,000	$	338,000

______________

(1) We own 100% of our property acquired subsequent to December 31, 2016.

(2) Represents borrowings under the 2016 Corporate Line of Credit at the time of acquisition.

(3) Our advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price of the property.

(4) On January 18, 2017, we added an additional building to our existing North Carolina ALF Portfolio. The other four buildings were acquired in January 2015 and June 2015.

Acquisitions of Previously Leased Real Estate Investments

On February 1, 2017, we, through a majority-owned subsidiary of Trilogy, of which we owned 67.7% at time of acquisition, acquired the real estate underlying six previously leased integrated senior health campuses located in Indiana, Kentucky and Ohio. The aggregate contract purchase price of these properties was $72,200,000 and we incurred $1,099,000 in acquisition fees to our advisor in connection with this acquisition. The following is a summary of our acquisition:

Location	Date Acquired	Contract Purchase Price		Lines of Credit and Term Loan(1)		Acquisition Fee(2)
Boonville, Columbus and Hanover, IN; Lexington, KY; and Maumee and Willard, OH	02/01/17	$	72,200,000	$	61,700,000	$	1,099,000

___________

(1) Represents borrowings under our lines of credit and term loan at the time of acquisition.

(2) Our advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the portion of the contract purchase price of the properties attributed to our ownership interest of approximately 67.7% in the subsidiary of Trilogy that acquired the properties.

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SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION

December 31, 2016

				Initial Cost to Company							Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)			Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
DeKalb Professional Center (Medical Office)	Lithonia, GA	$	—	$	479,000	$	2,871,000	$	—		$	479,000	$	2,871,000	$	3,350,000	$	(348,000	)	2008	06/06/14
Country Club MOB (Medical Office)	Stockbridge, GA	—		240,000		2,306,000		1,000			240,000		2,307,000		2,547,000		(230,000		)	2002	06/26/14
Acworth Medical Complex (Medical Office)	Acworth, GA	—		216,000		3,135,000		7,000			216,000		3,142,000		3,358,000		(268,000		)	1976/2009	07/02/14
	Acworth, GA	—		250,000		2,214,000		6,000			250,000		2,220,000		2,470,000		(218,000		)	1976/2009	07/02/14
	Acworth, GA	—		104,000		774,000		3,000			104,000		777,000		881,000		(79,000		)	1976/2009	07/02/14
Wichita KS MOB (Medical Office)	Wichita, KS	—		943,000		6,288,000		116,000			943,000		6,404,000		7,347,000		(598,000		)	1980/1996	09/04/14
Delta Valley ALF Portfolio (Senior Housing)	Batesville, MS	—		331,000		5,103,000		(1,000		)	331,000		5,102,000		5,433,000		(404,000		)	1999/2005	09/11/14
	Cleveland, MS	—		348,000		6,369,000		—			348,000		6,369,000		6,717,000		(551,000		)	2004	09/11/14
	Springdale, AR	—		891,000		6,538,000		—			891,000		6,538,000		7,429,000		(530,000		)	1998/2005	01/08/15
Lee’s Summit MO MOB (Medical Office)	Lee’s Summit, MO	—		1,045,000		5,068,000		75,000			1,045,000		5,143,000		6,188,000		(691,000		)	2006	09/18/14
Carolina Commons MOB (Medical Office)	Indian Land, SC	7,822,000		1,028,000		9,430,000		(32,000		)	1,028,000		9,398,000		10,426,000		(916,000		)	2009	10/15/14
Mount Olympia MOB Portfolio (Medical Office)	Olympia Fields, IL	—		298,000		2,726,000		—			298,000		2,726,000		3,024,000		(203,000		)	2005	12/04/14
	Columbus, OH	—		225,000		5,649,000		41,000			225,000		5,690,000		5,915,000		(408,000		)	2005	12/04/14
	Mount Dora, FL	—		393,000		5,633,000		—			393,000		5,633,000		6,026,000		(362,000		)	2009	12/04/14
Southlake TX Hospital (Hospital)	Southlake, TX	—		5,089,000		108,517,000		—			5,089,000		108,517,000		113,606,000		(6,057,000		)	2013	12/04/14
East Texas MOB Portfolio (Medical Office)	Longview, TX	—		—		19,942,000		—			—		19,942,000		19,942,000		(1,378,000		)	2008	12/12/14
	Longview, TX	—		228,000		965,000		—			228,000		965,000		1,193,000		(120,000		)	1979/1997	12/12/14
	Longview, TX	—		759,000		1,696,000		—			759,000		1,696,000		2,455,000		(208,000		)	1998	12/12/14
	Longview, TX	—		—		8,027,000		—			—		8,027,000		8,027,000		(571,000		)	2004	12/12/14
	Marshall, TX	—		368,000		1,711,000		—			368,000		1,711,000		2,079,000		(243,000		)	1970	12/12/14
	Longview, TX	—		—		696,000		29,000			—		725,000		725,000		(82,000		)	1956	12/12/14

154

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
	Longview, TX	$	—	$	—	$	27,601,000	$	385,000	$	—	$	27,986,000	$	27,986,000	$	(2,148,000	)	1985/1993/ 2004	12/12/14
Premier MOB (Medical Office)	Novi, MI	7,625,000		644,000		10,420,000		240,000		644,000		10,660,000		11,304,000		(689,000		)	2006	12/19/14
Independence MOB Portfolio (Medical Office)	Southgate, KY	—		411,000		11,005,000		103,000		411,000		11,108,000		11,519,000		(711,000		)	1988	01/13/15
	Somerville, MA	—		1,509,000		46,775,000		117,000		1,509,000		46,892,000		48,401,000		(2,573,000		)	1990	01/13/15
	Morristown, NJ	—		3,763,000		26,957,000		1,000,000		3,763,000		27,957,000		31,720,000		(2,173,000		)	1980	01/13/15
	Verona, NJ	—		1,683,000		9,405,000		116,000		1,683,000		9,521,000		11,204,000		(702,000		)	1970	01/13/15
	Bronx, NY	—		—		19,593,000		79,000		—		19,672,000		19,672,000		(1,229,000		)	1987/1988	01/26/15
King of Prussia PA MOB (Medical Office)	King of Prussia, PA	9,617,000		3,427,000		13,849,000		1,496,000		3,427,000		15,345,000		18,772,000		(1,117,000		)	1946/2000	01/21/15
North Carolina ALF Portfolio (Senior Housing)	Clemmons, NC	—		596,000		13,237,000		—		596,000		13,237,000		13,833,000		(649,000		)	2014	06/29/15
	Mooresville, NC	—		835,000		15,894,000		—		835,000		15,894,000		16,729,000		(936,000		)	2012	01/28/15
	Raleigh, NC	—		1,069,000		21,235,000		—		1,069,000		21,235,000		22,304,000		(1,170,000		)	2013	01/28/15
	Wake Forest, NC	—		772,000		13,596,000		—		772,000		13,596,000		14,368,000		(634,000		)	2014	06/29/15
Orange Star Medical Portfolio (Medical Office and Hospital)	Keller, TX	—		1,604,000		7,912,000		6,000		1,604,000		7,918,000		9,522,000		(497,000		)	2011	02/26/15
	Wharton, TX	—		259,000		10,590,000		—		259,000		10,590,000		10,849,000		(609,000		)	1987	02/26/15
	Friendswood, TX	—		500,000		7,664,000		16,000		500,000		7,680,000		8,180,000		(452,000		)	2008	02/26/15
	Durango, CO	—		623,000		14,166,000		50,000		623,000		14,216,000		14,839,000		(742,000		)	2004	02/26/15
	Durango, CO	—		788,000		10,467,000		125,000		788,000		10,592,000		11,380,000		(631,000		)	2004	02/26/15
Kingwood MOB Portfolio (Medical Office)	Kingwood, TX	—		820,000		8,589,000		37,000		820,000		8,626,000		9,446,000		(520,000		)	2005	03/11/15
	Kingwood, TX	—		781,000		3,943,000		—		781,000		3,943,000		4,724,000		(254,000		)	2008	03/11/15
Mt Juliet TN MOB (Medical Office)	Mount Juliet, TN	—		1,188,000		10,720,000		—		1,188,000		10,720,000		11,908,000		(644,000		)	2012	03/17/15
Homewood AL MOB (Medical Office)	Homewood, AL	—		405,000		6,590,000		—		405,000		6,590,000		6,995,000		(429,000		)	2010	03/27/15

155

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company							Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)			Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
Paoli PA Medical Plaza (Medical Office)	Paoli, PA	$	13,575,000	$	2,313,000	$	12,447,000	$	1,136,000		$	2,313,000	$	13,583,000	$	15,896,000	$	(799,000	)	1951	04/10/15
	Paoli, PA	—		1,668,000		7,357,000		209,000			1,668,000		7,566,000		9,234,000		(496,000		)	1975	04/10/15
Glen Burnie MD MOB (Medical Office)	Glen Burnie, MD	—		2,692,000		14,095,000		1,226,000			2,692,000		15,321,000		18,013,000		(867,000		)	1981	05/06/15
Marietta GA MOB (Medical Office)	Marietta, GA	—		1,347,000		10,947,000		21,000			1,347,000		10,968,000		12,315,000		(568,000		)	2002	05/07/15
Mountain Crest Senior Housing Portfolio (Senior Housing — RIDEA)	Elkhart, IN	—		793,000		6,009,000		42,000			793,000		6,051,000		6,844,000		(434,000		)	1997	05/14/15
	Elkhart, IN	—		782,000		6,760,000		74,000			782,000		6,834,000		7,616,000		(548,000		)	2000	05/14/15
	Hobart, IN	—		604,000		11,529,000		(295,000		)	604,000		11,234,000		11,838,000		(608,000		)	2008	05/14/15
	LaPorte, IN	—		392,000		14,894,000		(25,000		)	392,000		14,869,000		15,261,000		(817,000		)	2008	05/14/15
	Mishawaka, IN	10,033,000		3,670,000		14,416,000		114,000			3,670,000		14,530,000		18,200,000		(754,000		)	1978	07/14/15
	Niles, MI	—		404,000		5,050,000		72,000			404,000		5,122,000		5,526,000		(441,000		)	2000	06/11/15 and 11/20/15
Mount Dora Medical Center (Medical Office)	Mount Dora, FL	—		736,000		14,616,000		(74,000		)	736,000		14,542,000		15,278,000		(876,000		)	2008	05/15/15
Nebraska Senior Housing Portfolio (Senior Housing — RIDEA)	Bennington, NE	—		981,000		20,427,000		59,000			981,000		20,486,000		21,467,000		(1,033,000		)	2009	05/29/15
	Omaha, NE	—		1,274,000		38,619,000		62,000			1,274,000		38,681,000		39,955,000		(1,764,000		)	2000	05/29/15
Pennsylvania Senior Housing Portfolio (Senior Housing — RIDEA)	Bethlehem, PA	11,790,000		1,542,000		22,249,000		104,000			1,542,000		22,353,000		23,895,000		(1,154,000		)	2005	06/30/15
	Boyertown, PA	—		480,000		25,544,000		(71,000		)	480,000		25,473,000		25,953,000		(1,097,000		)	2000	06/30/15
	York, PA	—		972,000		29,860,000		(110,000		)	972,000		29,750,000		30,722,000		(1,283,000		)	1986	06/30/15
Southern Illinois MOB Portfolio (Medical Office)	Waterloo, IL	—		94,000		1,977,000		—			94,000		1,977,000		2,071,000		(105,000		)	2015	07/01/15
	Waterloo, IL	—		266,000		6,332,000		(34,000		)	266,000		6,298,000		6,564,000		(366,000		)	1995	07/01/15

156

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company							Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)			Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
	Waterloo, IL	$	—	$	200,000	$	2,648,000	$	—		$	200,000	$	2,648,000	$	2,848,000	$	(148,000	)	2011	07/01/15
Napa Medical Center (Medical Office)	Napa, CA	—		1,176,000		13,328,000		263,000			1,176,000		13,591,000		14,767,000		(876,000		)	1980	07/02/15
Chesterfield Corporate Plaza (Medical Office)	Chesterfield, MO	—		8,030,000		24,533,000		1,634,000			8,030,000		26,167,000		34,197,000		(1,391,000		)	1989	08/14/15
Richmond VA ALF(Senior Housing — RIDEA)	North Chesterfield, VA	36,720,000		2,146,000		56,671,000		(129,000		)	2,146,000		56,542,000		58,688,000		(2,008,000		)	2009	09/11/15
Crown Senior Care Portfolio (Senior Housing)	Peel, Isle of Man	—		1,128,000		6,736,000		—			1,128,000		6,736,000		7,864,000		(269,000		)	2015	09/15/15
	St. Albans, UK	—		1,138,000		11,962,000		—			1,138,000		11,962,000		13,100,000		(431,000		)	2015	10/08/15
	Salisbury, UK	—		1,209,000		11,615,000		—			1,209,000		11,615,000		12,824,000		(382,000		)	2015	12/08/15
	Aberdeen, UK	—		1,962,000		5,850,000		—			1,962,000		5,850,000		7,812,000		(28,000		)	1986	11/15/16
	Felixstowe, UK	—		682,000		5,620,000		1,000			682,000		5,621,000		6,303,000		(25,000		)	2010/2011	11/15/16
	Felixstowe, UK	—		515,000		2,463,000		—			515,000		2,463,000		2,978,000		(12,000		)	2010/2011	11/15/16
Washington DC SNF (Skilled Nursing)	Washington, DC	—		1,194,000		34,200,000		—			1,194,000		34,200,000		35,394,000		(1,529,000		)	1983	10/29/15
Stockbridge GA MOB II (Medical Office)	Stockbridge, GA	—		499,000		8,353,000		43,000			499,000		8,396,000		8,895,000		(357,000		)	2006	12/03/15
Marietta GA MOB II (Medical Office)	Marietta, GA	—		661,000		4,783,000		111,000			661,000		4,894,000		5,555,000		(180,000		)	2007	12/09/15
Naperville MOB (Medical Office)	Naperville, IL	—		392,000		3,765,000		7,000			392,000		3,772,000		4,164,000		(204,000		)	1999	01/12/16
	Naperville, IL	—		548,000		11,815,000		(3,000		)	548,000		11,812,000		12,360,000		(431,000		)	1989	01/12/16
Lakeview IN Medical Plaza (Medical Office)	Indianapolis, IN	15,000,000		2,375,000		15,911,000		1,748,000			2,375,000		17,659,000		20,034,000		(771,000		)	1987	01/21/16
Pennsylvania Senior Housing Portfolio II (Senior Housing — RIDEA)	Palmyra, PA	—		835,000		24,424,000		—			835,000		24,424,000		25,259,000		(1,003,000		)	2007	02/01/16
Snellville GA MOB (Medical Office)	Snellville, GA	—		332,000		7,781,000		6,000			332,000		7,787,000		8,119,000		(271,000		)	2005	02/05/16
Lakebrook Medical Center (Medical Office)	Westbrook, CT	—		653,000		4,855,000		52,000			653,000		4,907,000		5,560,000		(165,000		)	2007	02/19/16

157

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
Stockbridge GA MOB III (Medical Office)	Stockbridge, GA	$	—	$	606,000	$	7,924,000	$	8,000	$	606,000	$	7,932,000	$	8,538,000	$	(233,000	)	2007	03/29/16
Joplin MO MOB (Medical Office)	Joplin, MO	—		1,245,000		9,860,000		11,000		1,245,000		9,871,000		11,116,000		(371,000		)	2000	05/10/16
Austell GA MOB (Medical Office)	Austell, GA	—		663,000		10,547,000		5,000		663,000		10,552,000		11,215,000		(210,000		)	2008	05/25/16
Middletown OH MOB (Medical Office)	Middletown, OH	—		—		17,389,000		—		—		17,389,000		17,389,000		(279,000		)	2007	06/16/16
Fox Grape SNF Portfolio (Skilled Nursing)	Braintree, MA	—		1,875,000		10,847,000		—		1,845,000		10,877,000		12,722,000		(155,000		)	2015	07/01/16
	Brighton, MA	—		758,000		2,661,000		—		779,000		2,640,000		3,419,000		(42,000		)	1982	07/01/16
	Duxbury, MA	—		2,823,000		11,244,000		—		2,922,000		11,145,000		14,067,000		(174,000		)	1983	07/01/16
	Hingham, MA	—		2,150,000		17,390,000		—		2,316,000		17,224,000		19,540,000		(245,000		)	1990	07/01/16
	Weymouth, MA	—		1,818,000		5,286,000		—		1,857,000		5,247,000		7,104,000		(84,000		)	1963	07/01/16
	Quincy, MA	16,045,000		3,537,000		13,697,000		—		3,537,000		13,697,000		17,234,000		(65,000		)	1995	11/01/16
Voorhees NJ MOB (Medical Office)	Voorhees, NJ	—		1,727,000		8,451,000		17,000		1,727,000		8,468,000		10,195,000		(168,000		)	2008	07/08/16
Norwich CT MOB Portfolio (Medical Office)	Norwich, CT	—		403,000		1,601,000		—		403,000		1,601,000		2,004,000		—			2014	12/16/16
	Norwich, CT	—		804,000		12,094,000		3,000		804,000		12,097,000		12,901,000		—			1999	12/16/16
Owen Valley Health Campus	Spencer, IN	9,591,000		307,000		9,111,000		195,000		307,000		9,306,000		9,613,000		(261,000		)	1999	12/01/15
Homewood Health Campus	Lebanon, IN	9,622,000		973,000		9,702,000		265,000		980,000		9,960,000		10,940,000		(274,000		)	2000	12/01/15
Ashford Place Health Campus	Shelbyville, IN	6,784,000		664,000		12,662,000		25,000		664,000		12,687,000		13,351,000		(358,000		)	2004	12/01/15
Mill Pond Health Campus	Greencastle, IN	8,027,000		1,576,000		8,124,000		1,000		1,576,000		8,125,000		9,701,000		(232,000		)	2005	12/01/15
St. Andrews Health Campus	Batesville, IN	5,064,000		552,000		8,213,000		4,000		552,000		8,217,000		8,769,000		(234,000		)	2005	12/01/15
Hampton Oaks Health Campus	Scottsburg, IN	7,130,000		720,000		8,145,000		159,000		777,000		8,247,000		9,024,000		(240,000		)	2006	12/01/15
Forest Park Health Campus	Richmond, IN	7,786,000		535,000		9,399,000		259,000		535,000		9,658,000		10,193,000		(277,000		)	2007	12/01/15

158

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
The Maples at Waterford Crossing	Goshen, IN	$	6,372,000	$	344,000	$	8,027,000	$	5,000	$	347,000	$	8,029,000	$	8,376,000	$	(230,000	)	2006	12/01/15
Morrison Woods Health Campus	Muncie, IN	6,697,000		1,526,000		10,144,000		4,000		1,526,000		10,148,000		11,674,000		(300,000		)	2008	12/01/15 and 09/14/16
Woodbridge Health Campus	Logansport, IN	9,117,000		228,000		11,812,000		11,000		228,000		11,823,000		12,051,000		(343,000		)	2003	12/01/15
Bridgepointe Health Campus	Vincennes, IN	7,798,000		572,000		7,469,000		22,000		572,000		7,491,000		8,063,000		(214,000		)	2002	12/01/15
Greenleaf Living Center	Elkhart, IN	12,457,000		492,000		12,157,000		113,000		492,000		12,270,000		12,762,000		(349,000		)	2000	12/01/15
Scenic Hills Care Center	Ferdinand, IN	8,119,000		212,000		5,702,000		4,000		212,000		5,706,000		5,918,000		(170,000		)	1985	12/01/15
Forest Glen Health Campus	Springfield, OH	11,291,000		846,000		12,754,000		144,000		860,000		12,884,000		13,744,000		(375,000		)	2007	12/01/15
The Meadows of Kalida Health Campus	Kalida, OH	8,624,000		298,000		7,628,000		22,000		298,000		7,650,000		7,948,000		(214,000		)	2007	12/01/15
The Heritage	Findlay, OH	14,558,000		1,312,000		13,475,000		57,000		1,312,000		13,532,000		14,844,000		(391,000		)	1975	12/01/15
Genoa Retirement Village	Genoa, OH	9,054,000		881,000		8,113,000		46,000		881,000		8,159,000		9,040,000		(236,000		)	1985	12/01/15
The Residence of Waterford Crossing	Goshen, IN	9,341,000		344,000		4,381,000		757,000		349,000		5,133,000		5,482,000		(153,000		)	2004	12/01/15
St. Elizabeth Healthcare	Delphi, IN	5,721,000		522,000		5,463,000		173,000		554,000		5,604,000		6,158,000		(172,000		)	1986	12/01/15
Cumberland Pointe	West Lafayette, IN	10,679,000		1,645,000		13,696,000		31,000		1,645,000		13,727,000		15,372,000		(413,000		)	1980	12/01/15
Franciscan Healthcare Center	Louisville, KY	11,976,000		808,000		8,439,000		273,000		808,000		8,712,000		9,520,000		(260,000		)	1975	12/01/15
Blair Ridge Health Campus	Peru, IN	8,413,000		734,000		11,648,000		36,000		734,000		11,684,000		12,418,000		(376,000		)	2001	12/01/15
Glen Oaks Health Campus	New Castle, IN	5,815,000		384,000		8,189,000		15,000		384,000		8,204,000		8,588,000		(223,000		)	2011	12/01/15
Covered Bridge Health Campus	Seymour, IN	(c)		386,000		9,699,000		57,000		386,000		9,756,000		10,142,000		(281,000		)	2002	12/01/15
Stonebridge Health Campus	Bedford, IN	(c)		1,087,000		7,965,000		25,000		1,087,000		7,990,000		9,077,000		(234,000		)	2004	12/01/15
RiverOaks Health Campus	Princeton, IN	(c)		440,000		8,953,000		59,000		440,000		9,012,000		9,452,000		(256,000		)	2004	12/01/15

159

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

			Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances	Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
Spring Mill Health Campus	Merrillville, IN	(c)	$	174,000	$	10,780,000	$	88,000	$	174,000	$	10,868,000	$	11,042,000	$	(315,000	)	1998	12/01/15
Park Terrace Health Campus	Louisville, KY	(c)	2,177,000		7,626,000		345,000		2,177,000		7,971,000		10,148,000		(233,000		)	1977	12/01/15
Cobblestone Crossing	Terre Haute, IN	(c)	1,462,000		13,860,000		5,306,000		1,462,000		19,166,000		20,628,000		(435,000		)	2008	12/01/15
Creasy Springs Health Campus	Lafayette, IN	(c)	2,111,000		14,337,000		5,372,000		2,111,000		19,709,000		21,820,000		(472,000		)	2010	12/01/15
Avalon Springs Health Campus	Valparaiso, IN	(c)	1,542,000		14,107,000		51,000		1,542,000		14,158,000		15,700,000		(404,000		)	2012	12/01/15
Prairie Lakes Health Campus	Noblesville, IN	(c)	2,204,000		13,227,000		110,000		2,204,000		13,337,000		15,541,000		(383,000		)	2010	12/01/15
RidgeWood Health Campus	Lawrenceburg, IN	(c)	1,240,000		16,118,000		7,000		1,240,000		16,125,000		17,365,000		(455,000		)	2009	12/01/15
Westport Place Health Campus	Louisville, KY	(c)	1,245,000		9,946,000		—		1,245,000		9,946,000		11,191,000		(277,000		)	2011	12/01/15
Lakeland Rehab & Health Center	Milford, IN	(c)	306,000		2,727,000		16,000		306,000		2,743,000		3,049,000		(81,000		)	1973	12/01/15
Amber Manor Care Center	Petersburg, IN	(c)	446,000		6,063,000		127,000		456,000		6,180,000		6,636,000		(183,000		)	1990	12/01/15
The Meadows of Leipsic Health Campus	Leipsic, OH	(c)	1,242,000		6,988,000		224,000		1,242,000		7,212,000		8,454,000		(211,000		)	1986	12/01/15
Springview Manor	Lima, OH	(c)	260,000		3,968,000		18,000		260,000		3,986,000		4,246,000		(117,000		)	1978	12/01/15
Willows at Bellevue	Bellevue, OH	(c)	587,000		15,575,000		13,000		587,000		15,588,000		16,175,000		(436,000		)	2008	12/01/15
Briar Hill Health Campus	North Baltimore, OH	(c)	673,000		2,688,000		21,000		673,000		2,709,000		3,382,000		(81,000		)	1977	12/01/15
Cypress Pointe Health Campus	Englewood, OH	(c)	921,000		10,291,000		120,000		921,000		10,411,000		11,332,000		(290,000		)	2010	12/01/15
The Oaks at NorthPointe Woods	Battle Creek, MI	(c)	567,000		12,716,000		3,000		567,000		12,719,000		13,286,000		(360,000		)	2008	12/01/15
RidgeCrest Health Campus	Jackson, MI	(c)	642,000		6,194,000		38,000		656,000		6,218,000		6,874,000		(174,000		)	2010	12/01/15
Westlake Health Campus	Commerce, MI	(c)	815,000		13,502,000		1,194,000		815,000		14,696,000		15,511,000		(384,000		)	2011	12/01/15
Springhurst Health Campus	Greenfield, IN	(c)	931,000		10,614,000		613,000		1,043,000		11,115,000		12,158,000		(329,000		)	2007	12/01/15
Glen Ridge Health Campus	Louisville, KY	(c)	1,208,000		9,771,000		65,000		1,257,000		9,787,000		11,044,000		(265,000		)	2006	12/01/15

160

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
St. Mary Healthcare	Lafayette, IN	(c)		$	348,000	$	2,710,000	$	2,000	$	348,000	$	2,712,000	$	3,060,000	$	(81,000	)	1969	12/01/15
The Oaks at Woodfield	Grand Blanc, MI	(c)		897,000		12,270,000		9,000		897,000		12,279,000		13,176,000		(354,000		)	2012	12/01/15
Stonegate Health Campus	Lapeer, MI	(c)		538,000		13,159,000		37,000		567,000		13,167,000		13,734,000		(382,000		)	2012	12/01/15
Glen Oaks Senior Living at Forest Ridge	New Castle, IN	(c)		204,000		5,470,000		19,000		204,000		5,489,000		5,693,000		(159,000		)	2005	12/01/15
Highland Oaks Health Center	McConnelsville, OH	$	—	880,000		1,803,000		7,000		880,000		1,810,000		2,690,000		(57,000		)	1978	12/01/15
Valley View Healthcare Center	Fremont, OH	—		190,000		4,326,000		177,000		190,000		4,503,000		4,693,000		(128,000		)	1974	12/01/15
Richland Manor	Bluffton, OH	—		224,000		2,200,000		9,000		224,000		2,209,000		2,433,000		(66,000		)	1940	12/01/15
Silver Oaks Health Campus(d)	Columbus, IN	—		4,607,000		19,717,000		423,000		2,905,000		21,842,000		24,747,000		(659,000		)	2001	12/01/15
Woodmont Health Campus(d)	Boonville, IN	—		1,565,000		8,979,000		70,000		799,000		9,815,000		10,614,000		(289,000		)	2000	12/01/15
Thornton Terrace Health Campus(d)	Hanover, IN	—		1,496,000		8,542,000		52,000		764,000		9,326,000		10,090,000		(271,000		)	2003	12/01/15
River Terrace Health Campus	Madison, IN	12,912,000		107,000		13,378,000		1,842,000		107,000		15,220,000		15,327,000		(306,000		)	2016	03/28/16
St. Charles Health Campus	Jasper, IN	11,544,000		467,000		14,532,000		554,000		467,000		15,086,000		15,553,000		(247,000		)	2000	06/24/16 and 06/30/16
Bethany Pointe Health Campus	Anderson, IN	18,392,000		2,337,000		26,524,000		479,000		2,338,000		27,002,000		29,340,000		(417,000		)	1999	06/30/16
River Pointe Health Campus	Evansville, IN	12,206,000		1,118,000		14,736,000		784,000		1,118,000		15,520,000		16,638,000		(276,000		)	1999	06/30/16
Waterford Place Health Campus	Kokomo, IN	16,681,000		1,219,000		18,557,000		685,000		1,249,000		19,212,000		20,461,000		(314,000		)	2000	06/30/16
Autumn Woods Health Campus	New Albany, IN	12,356,000		1,016,000		13,414,000		951,000		1,016,000		14,365,000		15,381,000		(283,000		)	2000	06/30/16
Oakwood Health Campus	Tell City, IN	12,898,000		783,000		11,880,000		777,000		783,000		12,657,000		13,440,000		(235,000		)	2000	06/30/16
Cedar Ridge Health Campus	Cynthiana, KY	9,072,000		102,000		8,435,000		550,000		102,000		8,985,000		9,087,000		(167,000		)	2005	06/30/16
The Willows at Harrodsburg	Harrodsburg, KY	2,040,000		2,400,000		—		232,000		2,400,000		232,000		2,632,000		(1,000		)	1991	07/15/16
Aspen Place Health Campus	Greensburg, IN	4,940,000		980,000		10,970,000		630,000		1,001,000		11,579,000		12,580,000		(138,000		)	2012	08/16/16

161

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

				Initial Cost to Company						Gross Amount of Which Carried at Close of Period(g)
Description(a)		Encumbrances		Land		Buildings and Improvements		Cost  Capitalized Subsequent to Acquisition(b)		Land		Buildings and Improvements		Total(f)		Accumulated Depreciation (h)(i)			Date of Construction	Date  Acquired
The Willows at Citation	Lexington, KY	$	6,139,000	$	826,000	$	10,017,000	$	577,000	$	844,000	$	10,576,000	$	11,420,000	$	(123,000	)	2014	08/16/16
The Willows at East Lansing	East Lansing, MI	12,795,000		1,449,000		15,161,000		1,190,000		1,493,000		16,307,000		17,800,000		(218,000		)	2014	08/16/16
The Willows at Howell	Howell, MI	8,450,000		1,051,000		12,099,000		767,000		1,079,000		12,838,000		13,917,000		(174,000		)	2015	08/16/16
The Willows at Okemos	Okemos, MI	10,979,000		1,171,000		12,326,000		745,000		1,196,000		13,046,000		14,242,000		(201,000		)	2014	08/16/16
Shelby Crossing Health Campus	Shelby Township, MI	13,514,000		2,533,000		18,440,000		1,887,000		2,588,000		20,272,000		22,860,000		(312,000		)	2013	08/16/16
Village Green Healthcare Center	Greenville, OH	6,227,000		355,000		9,696,000		352,000		363,000		10,040,000		10,403,000		(107,000		)	2014	08/16/16
The Oaks at Northpointe	Zanesville, OH	5,322,000		624,000		11,665,000		927,000		638,000		12,578,000		13,216,000		(169,000		)	2013	08/16/16
The Oaks at Berthesda	Zanesville, OH	9,535,000		714,000		10,791,000		604,000		729,000		11,380,000		12,109,000		(136,000		)	2013	08/16/16
White Oak Health Campus	Monticello, IN	2,792,000		—		3,176,000		780,000		—		3,956,000		3,956,000		(57,000		)	2010	09/23/16
		$	517,057,000	$	169,348,000	$	1,922,439,000	$	42,913,000	$	167,034,000	$	1,967,666,000	$	2,134,700,000	$	(79,769,000	)
Leased properties(e)		$	—	$	—	$	71,089,000	$	27,967,000	$	295,000	$	98,761,000	$	99,056,000	$	(15,006,000	)
		$	517,057,000	$	169,348,000	$	1,993,528,000	$	70,880,000	$	167,329,000	$	2,066,427,000	$	2,233,756,000	$	(94,775,000	)

 ________________

(a) We own 100% of our properties as of December 31, 2016, with the exception of Trilogy and Lakeview IN Medical Plaza.

(b) The cost capitalized subsequent to acquisition is shown net of dispositions.

(c) As of December 31, 2016, the Trilogy PropCo Line of Credit is secured by the above 27 properties. As of December 31, 2016, the outstanding balance was $238,776,000.

(d) Represents real property assets associated with capital leases.

(e) Represents furniture, fixtures, equipment and improvements associated with properties under operating leases.

162

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

SCHEDULE III — REAL ESTATE AND

ACCUMULATED DEPRECIATION — (Continued)

December 31, 2016

(f) The changes in total real estate for the years ended December 31, 2016, 2015 and 2014 are as follows:

	Amount
Balance — December 31, 2013	$	—
Acquisitions	250,129,000
Additions	24,000
Dispositions	—
Balance — December 31, 2014	$	250,153,000
Acquisitions	$	1,449,241,000
Additions	6,951,000
Dispositions	(168,000		)
Foreign currency translation adjustment	(1,179,000		)
Balance — December 31, 2015	$	1,704,998,000
Acquisitions	$	487,114,000
Additions	54,069,000
Dispositions	(1,420,000		)
Foreign currency translation adjustment	(11,005,000		)
Balance — December 31, 2016	$	2,233,756,000

(g) As of December 31, 2016, for federal income tax purposes, the aggregate cost of our properties was $2,130,647,000.

(h) The changes in accumulated depreciation for the years ended December 31, 2016, 2015 and 2014 are as follows:

	Amount
Balance — December 31, 2013	$	—
Additions	1,124,000
Dispositions	—
Balance — December 31, 2014	$	1,124,000
Additions	$	25,650,000
Dispositions	(167,000		)
Foreign currency translation adjustment	(7,000		)
Balance — December 31, 2015	$	26,600,000
Additions	$	68,708,000
Dispositions	(628,000		)
Foreign currency translation adjustment	95,000
Balance — December 31, 2016	$	94,775,000

(i) The cost of buildings and capital improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 39 years, and the cost of tenant improvements is depreciated over the shorter of the lease term or useful life, up to 20 years. The cost of furniture, fixtures and equipment is depreciated over the estimated useful life, up to 15 years.

163

Item 16. Form 10-K Summary.

None.

164

SIGNATURES

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

	Griffin-American Healthcare REIT III, Inc. (Registrant)
By	/s/ JEFFREY T. HANSON	Chief Executive Officer and Chairman of the Board of Directors
	Jeffrey T. Hanson
Date: March 15, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By	/s/ JEFFREY T. HANSON	Chief Executive Officer and Chairman of the Board of Directors
	Jeffrey T. Hanson	(Principal Executive Officer)
Date: March 15, 2017
By	/s/ BRIAN S. PEAY	Chief Financial Officer
	Brian S. Peay	(Principal Financial Officer and Principal Accounting Officer)
Date: March 15, 2017
By	/s/ DANNY PROSKY	President, Chief Operating Officer and Director
	Danny Prosky
Date: March 15, 2017
By	/s/ HAROLD H. GREENE	Director
	Harold H. Greene
Date: March 15, 2017
By	/s/ GERALD W. ROBINSON	Director
	Gerald W. Robinson
Date: March 15, 2017
By	/s/ J. GRAYSON SANDERS	Director
	J. Grayson Sanders
Date: March 15, 2017

165

EXHIBIT INDEX

Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the period ended December 31, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).

3.1	Articles of Amendment and Restatement of Griffin-American Healthcare REIT III, Inc. dated January 15, 2014 (included as Exhibit 3.1 to Pre-Effective Amendment No. 5 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 16, 2014 and incorporated herein by reference)
3.2	Bylaws of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 3.2 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)
4.1	Amended and Restated Distribution Reinvestment Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-55434) filed October 7, 2016 and incorporated herein by reference)
10.1	Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.1 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)
10.2	Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.5 to Pre-effective Amendment No. 1 to our Registration Statement on Form S-11 (File No. 333-186073) filed April 10, 2013 and incorporated herein by reference)
10.3	Second Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.6 to Pre-effective Amendment No. 2 to our Registration Statement on Form S-11 (File No. 333-186073) filed June 6, 2013 and incorporated herein by reference)
10.4	Third Amendment to Agreement of Limited Partnership of Griffin-American Healthcare REIT III Holdings, LP (included as Exhibit 10.7 to Pre-effective Amendment No. 4 to our Registration Statement on Form S-11 (File No. 333-186073) filed November 8, 2013 and incorporated herein by reference)
10.5	Advisory Agreement by and among Griffin-American Healthcare REIT III, Inc., Griffin-American Healthcare REIT III Holdings, LP and Griffin-American Healthcare REIT III Advisor, LLC dated February 26, 2014 (included as Exhibit 10.2 to our Quarterly Report on Form 10-Q (File No. 333-186073) filed May 7, 2014 and incorporated herein by reference)
10.6	Form of Indemnification Agreement between Griffin-American Healthcare REIT III, Inc. and Indemnitee made effective as of January 17, 2013 (included as Exhibit 10.3 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)
10.7	Griffin-American Healthcare REIT III, Inc. 2013 Incentive Plan (including the 2013 Independent Directors Compensation Plan) (included as Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No. 333-186073) filed May 7, 2014 and incorporated herein by reference)
10.8	Credit Agreement dated February 3, 2016, among Griffin-American Healthcare REIT III Holdings, LP, Griffin-American Healthcare REIT III, Inc., and Certain Subsidiaries as Guarantors, the Lenders Party thereto, Bank of America, N.A., KeyBank, National Association, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citizens Bank, National Association and KeyBanc Capital Markets (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.9	Revolving Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Bank of America, N.A. (included as Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.10	Term Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Bank of America, N.A. (included as Exhibit 10.3 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.11	Revolving Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of KeyBank, National Association (included as Exhibit 10.4 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.12	Term Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of KeyBank, National Association (included as Exhibit 10.5 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.13	Revolving Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Citizens Bank, National Association (included as Exhibit 10.6 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)

166

10.14	Term Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Citizens Bank, National Association (included as Exhibit 10.7 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.15	Revolving Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Fifth Third Bank, an Ohio Banking Corporation (included as Exhibit 10.8 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.16	Term Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of Fifth Third Bank, an Ohio Banking Corporation (included as Exhibit 10.9 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.17	Revolving Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of The Huntington National Bank (included as Exhibit 10.10 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.18	Term Note dated February 3, 2016, by Griffin-American Healthcare REIT III Holdings, LP in favor of The Huntington National Bank (included as Exhibit 10.11 to our Current Report on Form 8-K (File No. 000-55434) filed February 9, 2016 and incorporated herein by reference)
10.19	Second Amended and Restated Share Repurchase Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55434) filed December 19, 2016 and incorporated herein by reference)
21.1*	Subsidiaries of Griffin-American Healthcare REIT III, Inc.
23.1*	Consent of Deloitte & Touche LLP
31.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

_________

*

Filed herewith.

**

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

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