XML 29 R12.htm IDEA: XBRL DOCUMENT v3.24.1
Business Combinations
12 Months Ended
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combinations
4. Business Combinations
2023 and 2022 Business Combinations
On February 15, 2023, we, through a majority-owned subsidiary of Trilogy, acquired from an unaffiliated third party a 60.0% controlling interest in a privately held company, Memory Care Partners, LLC, or MCP, that operated integrated senior health campuses located in Kentucky. The contract purchase price for the acquisition of MCP was $900,000, which was acquired using cash on hand. Prior to such acquisition, we owned a 40.0% interest in MCP, which was accounted for as an equity method investment and was included in investments in unconsolidated entities within other assets, net in our accompanying condensed consolidated balance sheet as of December 31, 2022. In connection with the acquisition of the remaining interest in MCP, we now own a 100% controlling interest in MCP. As a result, we re-measured the fair value of our previously held equity interest in MCP and recognized a gain on re-measurement of $726,000 in our accompanying consolidated statements of operations and comprehensive loss.
For the year ended December 31, 2022, we accounted for four acquisitions as business combinations, as discussed below, the first three of which are included within our integrated senior health campuses segment. Based on quantitative and qualitative considerations, such four business combinations were not material to us individually or in the aggregate, and, therefore, pro forma financial information is not provided.
On January 3, 2022, we, through a majority-owned subsidiary of Trilogy, acquired an integrated senior health campus in Kentucky from an unaffiliated third party. The contract purchase price for such property acquisition was $27,790,000 plus immaterial transaction costs. We acquired such property using cash on hand and placed a mortgage loan payable of $20,800,000 on the property at the time of acquisition.
On April 1, 2022, we, through a majority-owned subsidiary of Trilogy, acquired a 50.0% interest in a pharmaceutical business in Florida from an unaffiliated third party and incurred transaction costs of $938,000. Prior to such pharmaceutical business acquisition, we, through a majority-owned subsidiary of Trilogy, owned the other 50.0% interest in such business, which was accounted for as an equity method investment. Therefore, through March 31, 2022, our 50.0% interest in the net earnings or losses of such unconsolidated entity was included in income or loss from unconsolidated entities in our accompanying consolidated statements of operations and comprehensive loss.
On August 1, 2022, we, through a majority-owned subsidiary of Trilogy, acquired a 50.0% controlling interest in a privately held company, RHS Partners, LLC, or RHS, that owns and/or operates 16 integrated senior health campuses located in Indiana, from an unaffiliated third party. The contract purchase price for the acquisition of RHS was $36,661,000 plus immaterial closing costs, which was primarily acquired using cash on hand. Prior to such acquisition, we owned a 50.0% interest in RHS, which was accounted for as an equity method investment and was included in investments in unconsolidated entities within other assets, net in our accompanying consolidated balance sheet as of December 31, 2021. Therefore, through July 31, 2022, our 50.0% equity interest in the net earnings or losses of RHS was included in income or loss from unconsolidated entities in our accompanying consolidated statements of operations and comprehensive loss. In connection with the acquisition of the remaining interest in RHS, we now own a 100% controlling interest in RHS. As a result, we re-measured the fair value of our previously held equity interest in RHS and recognized a gain on re-measurement of $19,567,000 in our accompanying consolidated statements of operations and comprehensive loss.
On December 5, 2022, we acquired a portfolio of seven senior housing facilities in Texas from an unaffiliated third party, which facilities are included in our SHOP segment. These facilities are part of the underlying collateral pool of real estate assets securing our debt security investment, as defined and described at Note 5, Debt Security Investment, Net. We acquired the seven facilities by assuming the outstanding principal balance of each related mortgage loan payable from one of the borrowers as such borrower was in default on the required debt payments. The aggregated principal balance of such assumed mortgage loans payable was $110,627,000 at the time of acquisition. No cash consideration was exchanged as part of the transactions; however, we incurred transaction costs of $1,895,000 related to the acquisition of such facilities. See Note 5, Debt Security Investment, Net, for a further discussion.
Based on quantitative and qualitative considerations, such business combinations in 2022 and 2023 were not material to us individually or in the aggregate, and, therefore, pro forma financial information is not provided. The fair values of the assets acquired and liabilities assumed were preliminary estimates at acquisition. Any necessary adjustments are finalized within one year from the date of acquisition. The table below summarizes the acquisition date fair values of the assets acquired and liabilities assumed of our business combinations during the years ended December 31, 2023 and 2022 (in thousands):
2023
Acquisition
2022
Acquisitions
Operating lease right-of-use assets$— $153,777 
Building and improvements— 163,166 
Goodwill3,331 44,990 
Land— 20,514 
Accounts receivable, net— 19,472 
In-place leases— 18,834 
Cash and restricted cash565 12,331 
Certificates of need— 3,567 
Furniture, fixtures and equipment39 1,936 
Other assets66 1,798 
Total assets acquired4,001 440,385 
Operating lease liabilities— (161,121)
Mortgage loans payable (including debt discount of $6,066)
— (149,861)
Security deposits and other liabilities(812)(15,994)
Accounts payable and accrued liabilities(1,676)(16,012)
Financing obligations(12)(65)
Total liabilities assumed(2,500)(343,053)
Net assets acquired$1,501 $97,332 
2021 Business CombinationsMerger and the AHI Acquisition
As discussed in Note 1, Organization and Description of Business, on October 1, 2021, pursuant to an Agreement and Plan of Merger dated June 23, 2021, we completed the REIT Merger and Partnership Merger. At the effective time of the REIT Merger and prior to the reverse stock split, each issued and outstanding share of GAHR III’s common stock, $0.01 par value per share, converted into the right to receive 0.9266 shares of GAHR IV’s Class I common stock, $0.01 par value per share. At the effective time of the Partnership Merger and prior to the reverse stock split, (i) each unit of limited partnership interest in our operating partnership outstanding as of immediately prior to the effective time of the Partnership Merger was converted automatically into the right to receive 0.9266 of a Partnership Class I Unit, as defined in the agreement of limited partnership, as amended, of the Surviving Partnership and (ii) each unit of limited partnership interest in GAHR IV Operating Partnership outstanding as of immediately prior to the effective time of the Partnership Merger was converted automatically into the right to receive one unit of limited partnership interest of the Surviving Partnership of like class.
Additionally, on October 1, 2021, the AHI Acquisition closed immediately prior to the consummation of the Merger, and pursuant to the Contribution Agreement, AHI contributed substantially all of its business and operations to the Surviving Partnership, including its interest in GAHR III Advisor and GAHR IV Advisor, and Griffin Capital contributed its ownership interest in GAHR III Advisor and GAHR IV Advisor to the Surviving Partnership. In exchange for their contributions, the Surviving Partnership issued limited OP units. The total approximate value of these OP units at the time of consummation of the transactions contemplated by the Contribution Agreement, and prior to the reverse stock split, was approximately $131,674,000, with a reference value for purposes thereof of $8.71 per OP unit, such that the Surviving Partnership issued 15,117,529 OP units as consideration for the transaction. Such OP units were owned by AHI Group Holdings, LLC, or AHI Group Holdings, which is owned and controlled by the AHI Principals, Platform Healthcare Investor T-II, LLC, Flaherty Trust and a wholly-owned subsidiary of Griffin Capital, or collectively, the NewCo Sellers.
Further, upon consummation of the AHI Acquisition, we redeemed all 51 limited partnership units that our former advisor held in our operating partnership, as well as all 52 limited partnership units held by GAHR IV Advisor in GAHR IV Operating Partnership. Also, on October 1, 2021 and in connection with the AHI Acquisition, our operating partnership redeemed all 5,148 shares of our common stock owned by our former advisor and all 5,208 shares of our Class T common stock owned by GAHR IV Advisor in GAHR IV.
The AHI Acquisition was treated as a business combination for accounting purposes, with GAHR III as both the legal and accounting acquiror of NewCo. While GAHR IV was the legal acquiror of GAHR III in the REIT Merger, GAHR III was determined to be the accounting acquiror in the REIT Merger in accordance with FASB ASC Topic 805, Business Combinations, or ASC Topic 805, after considering the relative share ownership and the composition of the governing body of the Combined Company. Thus, the financial information set forth herein subsequent to the consummation of the Merger and the AHI Acquisition reflects results of the Combined Company, and the financial information set forth herein prior to the Merger and the AHI Acquisition reflects GAHR III’s results. For this reason, period-to-period comparisons may not be meaningful.
Purchase Consideration
REIT Merger
The fair value of the purchase consideration transferred was calculated as follows (in thousands):
Deemed equity consideration (1)$768,075
Consideration for acquisition of noncontrolling interest (2)(53,300)
Repurchase of GAHR IV Class T common stock192
Total purchase consideration$714,967
________________
(1)Represents the fair value of GAHR III common stock that is deemed to be issued for accounting purposes only. Taking into consideration the impact of the reverse stock split, the fair value of the purchase consideration is calculated based on 22,045,766 shares of common stock deemed to be issued by GAHR III at the fair value per share of $34.84.
(2)Represents the fair value of additional interest acquired in GAHR III’s subsidiary, Trilogy REIT Holdings, LLC, or Trilogy REIT Holdings. The acquisition of additional interest in Trilogy is accounted for separately from the REIT Merger in accordance with ASC Topic 810, Consolidation, or ASC Topic 810. See Note 13, Equity — Noncontrolling Interests in Total Equity, for a discussion of the Trilogy transaction.
AHI Acquisition
The fair value of the purchase consideration transferred was calculated as follows (in thousands):
Equity consideration (1)$131,674
Post-closing cash payment to NewCo Sellers related to net working capital adjustments73
Contingent consideration (2)
Total purchase consideration
$131,747
________________
(1)Taking into consideration the impact of the reverse stock split, the amount represents the estimated fair value of the 3,779,382 Surviving Partnership OP units issued as consideration, with a reference value for purposes thereof of $34.84 per unit. The issuance of Surviving Partnership OP units was accounted for separately from the AHI Acquisition.
(2)Represents the estimated fair value of contingent consideration based on the performance of a possible private investment fund under consideration by AHI. We have no definitive plans to establish the investment fund, and, therefore, the fair value of contingent consideration was estimated to be $0.
Purchase Price Allocation
REIT Merger
The following table sets forth the allocation of the purchase consideration to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed recognized at the acquisition date of GAHR IV, as well as the fair value at the acquisition date of the noncontrolling interests in GAHR IV (in thousands):
Real estate investments$1,126,641
Cash and cash equivalents16,163
Accounts and other receivables, net2,086
Restricted cash986
Identified intangible assets115,824
Operating lease right-of-use assets11,939
Other assets3,938
Total assets1,277,577
Mortgage loans payable (including debt premium of $311)
(18,602)
Lines of credit and term loans(488,900)
Accounts payable and accrued liabilities(21,882)
Accounts payable due to affiliates(324)
Identified intangible liabilities(12,927)
Operating lease liabilities(7,568)
Security deposits, prepaid rent and other liabilities(8,354)
Total liabilities(558,557)
Net identifiable assets acquired719,020
Redeemable noncontrolling interests(2,525)
Noncontrolling interest in total equity(1,528)
Total purchase consideration$714,967
AHI Acquisition
The following table sets forth the allocation of the purchase consideration to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed recognized at the acquisition date (in thousands):
Cash and cash equivalents$706
Operating lease right-of-use assets3,526
Other assets362
Total assets4,594
Accounts payable and accrued liabilities(3,910)
Operating lease liabilities(3,526)
Total liabilities(7,436)
Net identifiable liabilities assumed(2,842)
Goodwill134,589
Total purchase consideration$131,747
Acquisition-related Costs
The Merger and the AHI Acquisition were accounted for as business combinations, and as a result, acquisition-related costs incurred in connection with these transactions of $14,060,000 were expensed and included in business acquisition expenses in our accompanying consolidated statement of operations and comprehensive loss. Acquisition-related costs of $6,753,000 were incurred by GAHR IV in the period before the consummation of the Merger and are therefore not reflected in our accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 as GAHR III was the accounting acquiror in the Merger under ASC Topic 805, as further explained above.
Fair Value of Noncontrolling Interests
The fair value of the redeemable and nonredeemable noncontrolling interest in GAHR IV was estimated by applying the income approach based on a discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market. The key assumptions applied in the income approach include the estimates of stabilized occupancy, market rents, capitalization rates and discount rates.
AHI Acquisition — Goodwill
In connection with the AHI Acquisition, we recorded goodwill of $134,589,000 as a result of the consideration exceeding the fair value of the net assets acquired and liabilities assumed. Goodwill represents the estimated future benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recognized in this transaction is not deductible for tax purposes. See Note 18, Segment Reporting, for a further discussion.
The table below represents the allocation of goodwill on the acquisition date in connection with the AHI Acquisition to our reporting segments (in thousands):
OM$47,812
Integrated senior health campuses44,547
SHOP23,277
Triple-net leased properties:
Senior housing8,640
Hospitals5,924
SNFs4,389
Total$134,589 
REIT Merger — Real Estate Investments, Intangible Assets and Intangible Liabilities
Real estate investments consist of land, building improvements, site improvements, unamortized tenant improvement allowances and unamortized capital improvements. Intangibles assets consist of in-place leases, above-market leases and certificates of need. We amortize purchased real estate investments and intangible assets on a straight-line basis over their respective useful lives. The following tables present the approximate fair value and the weighted-average depreciation and amortization periods of each major type of asset and liability (dollars in thousands):
Real Estate InvestmentsApproximate
Fair Value
Estimated
Useful Lives
(in years)
Land$114,525N/A
Building improvements930,70039
Site improvements33,6447
Unamortized tenant improvement allowances42,4076
Unamortized capital improvements5,36511
Total real estate investments$1,126,641
Intangible AssetsApproximate
Fair Value
Estimated
Useful Lives
(in years)
In-place leases$79,8876
Above-market leases35,60610
Certificates of need331N/A
Total identified intangible assets$115,824
Intangible LiabilitiesApproximate
Fair Value
Estimated
Useful Life
(in years)
Below-market leases$12,92710
The fair values of the assets acquired and liabilities assumed, as well as the fair value of the noncontrolling interests, on October 1, 2021 were estimates determined using the cost approach and direct capitalization method under the income approach and in limited circumstances, the market approach. Any necessary adjustments were finalized within one year from the date of acquisition.
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma operating information is presented as if the Merger and the AHI Acquisition occurred on January 1, 2020. Such unaudited pro forma information includes a nonrecurring adjustment to present acquisition-related expenses incurred in the year ended December 31, 2021 in the 2020 pro forma results. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the Merger and the AHI Acquisition occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results. Unaudited pro forma revenue, net loss and net loss attributable to controlling interest would have been as follows (in thousands):
Years Ended December 31,
20212020
Revenue$1,392,884$1,397,261
Net loss$(45,253)$(17,116)
Net loss attributable to controlling interest$(35,140)$(20,642)