American Healthcare REIT, Inc. (Form: 10-Q, Received: 08/15/2022 14:34:52)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022


☐			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: 000-55775

AMERICAN HEALTHCARE REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland						47-2887436
(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)

(949) 270-9200

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 12, 2022, there were 77,888,698 shares of Class T common stock and 186,275,536 shares of Class I common stock of American Healthcare REIT, Inc. outstanding.

Table of Contents

AMERICAN HEALTHCARE REIT, INC.

(A Maryland Corporation)

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of June 3 0 , 2022 and December 31, 2021			3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Si x Months Ended June 3 0 , 2022 and 2021			5
Condensed Consolidated Statements of Equity for the Three and S ix Months Ended June 3 0 , 2022 and 2021			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2022 and 2021			9
Notes to Condensed Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			43
Item 3. Quantitative and Qualitative Disclosures About Market Risk			60
Item 4. Controls and Procedures			62

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			63
Item 1A. Risk Factors			63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3. Defaults Upon Senior Securities			63
Item 4. Mine Safety Disclosures			64
Item 5. Other Information			64
Item 6. Exhibits			64
Signatures			65

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2022 and December 31, 2021

(Unaudited)


	June 30, 2022		December 31, 2021
ASSETS
Real estate investments, net	$	3,491,845,000	$	3,514,686,000
Debt security investment, net	81,167,000		79,315,000
Cash and cash equivalents	59,101,000		81,597,000
Restricted cash	45,075,000		43,889,000
Accounts and other receivables, net	136,843,000		122,778,000

Identified intangible assets, net	234,914,000		248,871,000
Goodwill	212,714,000		209,898,000

Operating lease right-of-use assets, net	114,489,000		158,157,000
Other assets, net	147,752,000		121,148,000
Total assets	$	4,523,900,000	$	4,580,339,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	1,134,059,000	$	1,095,594,000
Lines of credit and term loans, net(1)	1,266,691,000		1,226,634,000
Accounts payable and accrued liabilities(1)	174,179,000		187,254,000
Accounts payable due to affiliates(1)	—		866,000

Identified intangible liabilities, net	11,663,000		12,715,000
Financing obligations(1)	21,568,000		33,653,000
Operating lease liabilities(1)	104,193,000		145,485,000
Security deposits, prepaid rent and other liabilities(1)	46,450,000		48,567,000
Total liabilities	2,758,803,000		2,750,768,000

Commitments and contingencies (Note 12)

Redeemable noncontrolling interests (Note 13)	75,337,000		72,725,000

Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—		—
Class T common stock, $0.01 par value per share; 200,000,000 shares authorized; 77,864,724 and 77,176,406 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	770,000		763,000
Class I common stock, $0.01 par value per share; 800,000,000 shares authorized; 186,499,872 and 185,855,625 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	1,865,000		1,859,000
Additional paid-in capital	2,541,504,000		2,531,940,000
Accumulated deficit	(1,024,328,000)		(951,303,000)
Accumulated other comprehensive loss	(2,653,000)		(1,966,000)
Total stockholders’ equity	1,517,158,000		1,581,293,000
Noncontrolling interests (Note 14)	172,602,000		175,553,000
Total equity	1,689,760,000		1,756,846,000
Total liabilities, redeemable noncontrolling interests and equity	$	4,523,900,000	$	4,580,339,000

Table of Contents

AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)

As of June 30, 2022 and December 31, 2021

(Unaudited)

___________

(1)Such liabilities of American Healthcare REIT, Inc. represented liabilities of American Healthcare REIT Holdings, LP or its consolidated subsidiaries as of June 30, 2022 and December 31, 2021. American Healthcare REIT Holdings, LP is a variable interest entity, or VIE, and a consolidated subsidiary of American Healthcare REIT, Inc. The creditors of American Healthcare REIT Holdings, LP or its consolidated subsidiaries do not have recourse against American Healthcare REIT, Inc., except for the 2022 Credit Facility, as defined in Note 9, held by American Healthcare REIT Holdings, LP in the amount of $962,900,000 as of June 30, 2022 and the 2018 Credit Facility and 2019 Credit Facility, each as defined in Note 9, held by American Healthcare REIT Holdings, LP in the amount of $441,900,000 and $480,000,000, respectively, as of December 31, 2021, which were guaranteed by American Healthcare REIT, Inc.

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

Table of Contents

AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues and grant income:
Resident fees and services	$	326,225,000	$	276,352,000	$	645,199,000	$	529,378,000
Real estate revenue	51,105,000		30,642,000		103,048,000		60,665,000
Grant income	10,969,000		1,099,000		16,183,000		9,328,000
Total revenues and grant income	388,299,000		308,093,000		764,430,000		599,371,000
Expenses:
Property operating expenses	296,059,000		250,426,000		583,219,000		495,568,000
Rental expenses	14,663,000		8,119,000		29,950,000		16,174,000
General and administrative	10,928,000		7,343,000		22,047,000		14,600,000
Business acquisition expenses	1,757,000		2,750,000		1,930,000		3,998,000
Depreciation and amortization	39,971,000		26,357,000		82,282,000		52,080,000
Total expenses	363,378,000		294,995,000		719,428,000		582,420,000

Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and gain/loss on debt extinguishments)	(20,345,000)		(18,490,000)		(43,670,000)		(38,855,000)
Gain in fair value of derivative financial instruments	—		1,775,000		500,000		3,596,000
(Loss) gain on dispositions of real estate investments	(73,000)		(42,000)		683,000		(377,000)
Impairment of real estate investments	(17,340,000)		(3,335,000)		(17,340,000)		(3,335,000)
Income (loss) from unconsolidated entities	638,000		(901,000)		2,024,000		(2,672,000)
Foreign currency (loss) gain	(3,607,000)		238,000		(4,994,000)		653,000
Other income	469,000		191,000		1,729,000		463,000
Total net other expense	(40,258,000)		(20,564,000)		(61,068,000)		(40,527,000)
Loss before income taxes	(15,337,000)		(7,466,000)		(16,066,000)		(23,576,000)
Income tax expense	(205,000)		(495,000)		(373,000)		(658,000)
Net loss	(15,542,000)		(7,961,000)		(16,439,000)		(24,234,000)
Net (income) loss attributable to noncontrolling interests	(1,768,000)		283,000		(3,827,000)		4,709,000
Net loss attributable to controlling interest	$	(17,310,000)	$	(7,678,000)	$	(20,266,000)	$	(19,525,000)
Net loss per Class T and Class I common share attributable to controlling interest — basic and diluted	$	(0.07)	$	(0.04)	$	(0.08)	$	(0.11)
Weighted average number of Class T and Class I common shares outstanding — basic and diluted	263,017,692		179,628,847		262,768,637		179,628,315

Net loss	$	(15,542,000)	$	(7,961,000)	$	(16,439,000)	$	(24,234,000)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(493,000)		42,000		(687,000)		111,000
Total other comprehensive (loss) income	(493,000)		42,000		(687,000)		111,000
Comprehensive loss	(16,035,000)		(7,919,000)		(17,126,000)		(24,123,000)
Comprehensive (income) loss attributable to noncontrolling interests	(1,768,000)		283,000		(3,827,000)		4,709,000
Comprehensive loss attributable to controlling interest	$	(17,803,000)	$	(7,636,000)	$	(20,953,000)	$	(19,414,000)

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

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Three Months Ended June 30, 2022
	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 — March 31, 2022	263,809,729	$	2,629,000	$	2,536,811,000	$	(980,613,000)	$	(2,160,000)	$	1,556,667,000	$	174,154,000	$	1,730,821,000

Offering costs — common stock	—	—		1,000		—		—		1,000		—		1,000
Issuance of common stock under the DRIP	1,199,427	12,000		11,131,000		—		—		11,143,000		—		11,143,000
Issuance of nonvested restricted common stock	54,900	1,000		(1,000)		—		—		—		—		—
Amortization of nonvested restricted common stock and stock units	—	—		980,000		—		—		980,000		—		980,000


Stock based compensation	—	—		—		—		—		—		21,000		21,000
Repurchase of common stock	(699,460)	(7,000)		(6,442,000)		—		—		(6,449,000)		—		(6,449,000)

Distributions to noncontrolling interests	—	—		—		—		—		—		(3,537,000)		(3,537,000)

Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(21,000)		(21,000)
Adjustment to value of redeemable noncontrolling interests	—	—		(976,000)		—		—		(976,000)		(1,000)		(977,000)
Distributions declared ($0.10 per share)	—	—		—		(26,405,000)		—		(26,405,000)		—		(26,405,000)
Net (loss) income	—	—		—		(17,310,000)		—		(17,310,000)		1,986,000		(15,324,000)		(1)
Other comprehensive loss	—	—		—		—		(493,000)		(493,000)		—		(493,000)
BALANCE — June 30, 2022	264,364,596	$	2,635,000	$	2,541,504,000	$	(1,024,328,000)	$	(2,653,000)	$	1,517,158,000	$	172,602,000	$	1,689,760,000


	Three Months Ended June 30, 2021
	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 — March 31, 2021	179,658,367	$	1,798,000	$	1,730,237,000	$	(876,118,000)	$	(1,939,000)	$	853,978,000	$	164,095,000	$	1,018,073,000




Amortization of nonvested restricted common stock	—	—		26,000		—		—		26,000		—		26,000





Distributions to noncontrolling interests	—	—		—		—		—		—		(179,000)		(179,000)


Adjustment to value of redeemable noncontrolling interests	—	—		(261,000)		—		—		(261,000)		(112,000)		(373,000)
Distributions declared ($0.02 per share)	—	—		—		(3,187,000)		—		(3,187,000)		—		(3,187,000)
Net loss	—	—		—		(7,678,000)		—		(7,678,000)		(253,000)		(7,931,000)		(1)
Other comprehensive income	—	—		—		—		42,000		42,000		—		42,000
BALANCE — June 30, 2021	179,658,367	$	1,798,000	$	1,730,002,000	$	(886,983,000)	$	(1,897,000)	$	842,920,000	$	163,551,000	$	1,006,471,000

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Six Months Ended June 30, 2022
	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, 2021	263,032,031	$	2,622,000	$	2,531,940,000	$	(951,303,000)	$	(1,966,000)	$	1,581,293,000	$	175,553,000	$	1,756,846,000

Offering costs — common stock	—	—		(2,000)		—		—		(2,000)		—		(2,000)
Issuance of common stock under the DRIP	2,425,500	24,000		22,423,000		—		—		22,447,000		—		22,447,000
Issuance of nonvested restricted common stock	54,900	1,000		(1,000)		—		—		—		—		—
Amortization of nonvested restricted common stock and stock units	—	—		1,791,000		—		—		1,791,000		—		1,791,000


Stock based compensation	—	—		—		—		—		—		42,000		42,000
Repurchase of common stock	(1,147,835)	(12,000)		(10,571,000)		—		—		(10,583,000)		—		(10,583,000)

Distributions to noncontrolling interests	—	—		—		—		—		—		(7,052,000)		(7,052,000)

Adjustment to noncontrolling interest in connection with the Merger	—	—		(1,173,000)		—		—		(1,173,000)		1,173,000		—
Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(42,000)		(42,000)
Adjustment to value of redeemable noncontrolling interests	—	—		(2,903,000)		—		—		(2,903,000)		(930,000)		(3,833,000)
Distributions declared ($0.20 per share)	—	—		—		(52,759,000)		—		(52,759,000)		—		(52,759,000)
Net (loss) income	—	—		—		(20,266,000)		—		(20,266,000)		3,858,000		(16,408,000)		(1)
Other comprehensive loss	—	—		—		—		(687,000)		(687,000)		—		(687,000)
BALANCE — June 30, 2022	264,364,596	$	2,635,000	$	2,541,504,000	$	(1,024,328,000)	$	(2,653,000)	$	1,517,158,000	$	172,602,000	$	1,689,760,000


	Six Months Ended June 30, 2021
	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, 2020	179,658,367	$	1,798,000	$	1,730,589,000	$	(864,271,000)	$	(2,008,000)	$	866,108,000	$	168,375,000	$	1,034,483,000

Offering costs — common stock	—	—		(1,000)		—		—		(1,000)		—		(1,000)


Amortization of nonvested restricted common stock	—	—		53,000		—		—		53,000		—		53,000
Stock based compensation	—	—		—		—		—		—		(14,000)		(14,000)




Distributions to noncontrolling interests	—	—		—		—		—		—		(355,000)		(355,000)


Adjustment to value of redeemable noncontrolling interests	—	—		(639,000)		—		—		(639,000)		(260,000)		(899,000)
Distributions declared ($0.02 per share)	—	—		—		(3,187,000)		—		(3,187,000)		—		(3,187,000)
Net loss	—	—		—		(19,525,000)		—		(19,525,000)		(4,195,000)		(23,720,000)		(1)
Other comprehensive income	—	—		—		—		111,000		111,000		—		111,000
BALANCE — June 30, 2021	179,658,367	$	1,798,000	$	1,730,002,000	$	(886,983,000)	$	(1,897,000)	$	842,920,000	$	163,551,000	$	1,006,471,000

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

___________

(1)For the three months ended June 30, 2022 and 2021, amounts exclude $(218,000) and $(30,000), respectively, of net loss attributable to redeemable noncontrolling interests. For the six months ended June 30, 2022 and 2021, amounts exclude $(31,000) and $(514,000), respectively, of net loss attributable to redeemable noncontrolling interests. See Note 13, Redeemable Noncontrolling Interests, for a further discussion.

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

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(16,439,000)	$	(24,234,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	82,293,000		52,080,000
Other amortization	12,178,000		11,622,000
Deferred rent	(3,542,000)		(1,771,000)

Stock based compensation	1,779,000		39,000


(Income) loss from unconsolidated entities	(2,024,000)		2,672,000

Impairment of real estate investments	17,340,000		3,335,000
(Gain) loss on dispositions of real estate investments	(683,000)		377,000
Foreign currency loss (gain)	4,848,000		(622,000)


Loss on extinguishments of debt	4,410,000		2,293,000

Change in fair value of derivative financial instruments	(500,000)		(3,596,000)
Other adjustments	—		850,000

Changes in operating assets and liabilities:
Accounts and other receivables	(14,474,000)		(2,835,000)
Other assets	(5,277,000)		(1,869,000)
Accounts payable and accrued liabilities	(5,231,000)		(8,679,000)
Accounts payable due to affiliates	(184,000)		(5,158,000)
Operating lease liabilities	(8,617,000)		(8,326,000)
Security deposits, prepaid rent and other liabilities	(9,739,000)		(12,599,000)
Net cash provided by operating activities	56,138,000		3,579,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate investments	(75,125,000)		(78,546,000)
Developments and capital expenditures	(35,508,000)		(46,177,000)
Proceeds from dispositions of real estate investments	14,002,000		1,400,000



Investments in unconsolidated entities	(200,000)		(650,000)

Real estate and other deposits	(533,000)		(192,000)


Net cash used in investing activities	(97,364,000)		(124,165,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	89,712,000		111,442,000
Payments on mortgage loans payable	(40,662,000)		(7,215,000)

Borrowings under the lines of credit and term loan	1,009,900,000		16,600,000
Payments on the lines of credit and term loan	(968,900,000)		(23,000,000)
Deferred financing costs	(5,617,000)		(833,000)
Debt extinguishment costs	(2,790,000)		(125,000)



Payments on financing obligations	(12,141,000)		(9,609,000)


Distributions paid to common stockholders	(30,247,000)		—
Repurchase of common stock	(10,583,000)		—


Distributions to noncontrolling interests in total equity	(7,052,000)		(355,000)
Contribution from redeemable noncontrolling interest	173,000		—
Distributions to redeemable noncontrolling interests	(1,405,000)		(551,000)

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Three Months Ended June 30, 2022 and 2021

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Security deposits and other	$	(464,000)	$	117,000
Net cash provided by financing activities	19,924,000		86,471,000
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	(21,302,000)	$	(34,115,000)
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(8,000)		(27,000)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	125,486,000		152,190,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	104,176,000	$	118,048,000

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period:
Cash and cash equivalents	$	81,597,000	$	113,212,000
Restricted cash	43,889,000		38,978,000
Cash, cash equivalents and restricted cash	$	125,486,000	$	152,190,000

End of period:
Cash and cash equivalents	$	59,101,000	$	76,659,000
Restricted cash	45,075,000		41,389,000
Cash, cash equivalents and restricted cash	$	104,176,000	$	118,048,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	36,348,000	$	32,984,000
Income taxes	$	382,000	$	861,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued developments and capital expenditures	$	14,055,000	$	18,074,000


Tenant improvement overage	$	568,000	$	177,000









Issuance of common stock under the DRIP	$	22,447,000	$	—
Distributions declared but not paid — common stockholders	$	8,812,000	$	3,187,000
Distributions declared but not paid — limited partnership units	$	467,000	$	—
Distributions declared but not paid — restricted stock units	$	37,000	$	—


Capital expenditures from financing obligations	$	—	$	136,000

The following represents the net (decrease) increase in certain assets and liabilities in connection with our acquisitions and dispositions of investments:
Accounts and other receivables	$	(262,000)	$	4,000
Other assets, net	$	5,480,000	$	(748,000)
Mortgage loan payable, net	$	(12,059,000)	$	—

Accounts payable and accrued liabilities	$	1,672,000	$	(22,000)

Financing obligations	$	56,000	$	—
Security deposits	$	8,129,000	$	—

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

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AMERICAN HEALTHCARE REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc., or GAHR III, and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, for periods prior to the Merger, as defined below, and American Healthcare REIT, Inc. (formerly known as Griffin-American Healthcare REIT IV, Inc., or GAHR IV) and its subsidiaries, including American Healthcare REIT Holdings, LP (formerly known as Griffin-American Healthcare REIT III Holdings, LP), for periods following the Merger, except where otherwise noted. Certain historical information of GAHR IV is included for background purposes.

1. Organization and Description of Business

Overview and Background

American Healthcare REIT, Inc., a Maryland corporation, owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, skilled nursing facilities, senior housing, hospitals 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). Our healthcare facilities operated under a RIDEA structure include our senior housing operating properties, or SHOP (formerly known as senior housing — RIDEA), and our integrated senior health campuses. We have originated and acquired secured loans and may also originate and acquire other real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income; however, we have selectively developed, and may continue to selectively develop, healthcare real estate properties. We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes, and we intend to continue to qualify to be taxed as a REIT.

Merger of Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc.

On October 1, 2021, pursuant to an Agreement and Plan of Merger dated June 23, 2021, or the Merger Agreement, GAHR III merged with and into Continental Merger Sub, LLC, a Maryland limited liability company and newly formed wholly owned subsidiary of GAHR IV, or Merger Sub, with Merger Sub being the surviving company, or the REIT Merger. On October 1, 2021, also pursuant to the Merger Agreement, Griffin-American Healthcare REIT IV Holdings, LP, a Delaware limited partnership and subsidiary and operating partnership of GAHR IV, or GAHR IV Operating Partnership, merged with and into Griffin-American Healthcare REIT III Holdings, LP, a Delaware limited partnership, or our operating partnership, with our operating partnership being the surviving entity, or the Partnership Merger. We collectively refer to the REIT Merger and the Partnership Merger as the Merger. Following the Merger on October 1, 2021, our company, or the Combined Company, was renamed American Healthcare REIT, Inc. and our operating partnership, also referred to as the surviving partnership, was renamed American Healthcare REIT Holdings, LP. The REIT Merger qualified as a reorganization under, and within the meaning of, Section 368(a) of the Code. As a result of and at the effective time of the Merger, the separate corporate existence of GAHR III and GAHR IV Operating Partnership ceased.

At the effective time of the REIT Merger, 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, (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.

AHI Acquisition

Also on October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, or NewCo, which we refer to as the AHI Acquisition, pursuant to a contribution and exchange agreement dated June 23, 2021, or the Contribution Agreement, between GAHR III; our operating partnership; American Healthcare Investors, LLC, or AHI; Griffin Capital Company, LLC, or Griffin Capital; Platform Healthcare Investor T-II, LLC; Flaherty Trust; and Jeffrey T. Hanson, our former Chief Executive Officer and current Chairman of the Board of Directors, Danny Prosky, our former Chief Operating Officer and current Chief Executive Officer and President, and Mathieu B. Streiff, our former Executive Vice President, General Counsel and Chief Operating Officer and

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AMERICAN HEALTHCARE REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

current Executive Vice President, or collectively, the AHI Principals. NewCo owned substantially all of the business and operations of AHI, as well as all of the equity interests in (i) Griffin-American Healthcare REIT IV Advisor, LLC, or GAHR IV Advisor, a subsidiary of AHI that served as the external advisor of GAHR IV, and (ii) Griffin-American Healthcare REIT III Advisor, LLC, or GAHR III Advisor, also referred to as our former advisor, a subsidiary of AHI that served as the external advisor of GAHR III. See “Operating Partnership and Former Advisor” below for a further discussion.

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 then-current ownership interest in GAHR III Advisor and GAHR IV Advisor to the surviving partnership. In exchange for these contributions, the surviving partnership issued limited partnership units, or surviving partnership OP units. Subject to working capital and other customary adjustments, the total approximate value of these surviving partnership OP units at the time of consummation of the transactions contemplated by the Contribution Agreement was approximately $131,674,000, with a reference value for purposes thereof of $8.71 per unit, such that the surviving partnership issued 15,117,529 surviving partnership OP units as consideration, or the Closing Date Consideration. Following the consummation of the Merger and the AHI Acquisition, the Combined Company became self-managed. Such surviving partnership OP units are 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.

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 Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, Business Combinations, 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.

Operating Partnership and Former Advisor

We conduct substantially all of our operations through our operating partnership. Through September 30, 2021, we were externally advised by our former advisor pursuant to an advisory agreement, as amended, or the Advisory Agreement, between us and our former advisor. Our former advisor used its best efforts, subject to the oversight and review of our board of directors, or our board, to, among other things, provide asset management, property management, acquisition, disposition and other advisory services on our behalf consistent with our investment policies and objectives. Following the Merger and the AHI Acquisition, we became self-managed and are no longer externally advised. As a result, any fees that would have otherwise been payable to our former advisor are no longer being paid. Also, on October 1, 2021 and in connection with the AHI Acquisition, we redeemed all 22,222 shares of our common stock owned by our former advisor and the 20,833 shares of our Class T common stock owned by GAHR IV Advisor in GAHR IV.

Prior to the Merger and the AHI Acquisition, our former advisor was 75.0% owned and managed by wholly owned subsidiaries of AHI, and 25.0% owned by a wholly owned subsidiary of Griffin Capital, or collectively, our former co-sponsors. Prior to the AHI Acquisition, AHI was 47.1% owned by AHI Group Holdings, 45.1% indirectly owned by Digital Bridge Group, Inc. (NYSE: DBRG), or Digital Bridge, and 7.8% owned by James F. Flaherty III. We were not affiliated with Griffin Capital, Digital Bridge or Mr. Flaherty; however, we were affiliated with our former advisor, AHI and AHI Group Holdings. Please see the “Merger of Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc.” and “AHI Acquisition” sections above for a further discussion of our operations effective October 1, 2021. See Note 13, Redeemable Noncontrolling Interests, and Note 14, Equity — Noncontrolling Interests in Total Equity, for a further discussion of the ownership in our operating partnership.

Public Offering

Prior to the Merger, we raised $1,842,618,000 through a best efforts initial public offering that commenced on February 26, 2014, or the GAHR III initial offering, and issued 184,930,598 shares of our common stock. In addition, during the GAHR III initial offering, we issued 1,948,563 shares of our common stock pursuant to our initial distribution reinvestment plan, or the Initial DRIP, for a total of $18,511,000 in distributions reinvested. Following the deregistration of the GAHR III initial offering on April 22, 2015, we continued issuing shares of our common stock pursuant to subsequent distribution reinvestment plan offerings.

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AMERICAN HEALTHCARE REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

See Note 14, Equity — Common Stock, and Note 14, Equity — Distribution Reinvestment Plan, for a further discussion of our public offerings.

Our Real Estate Investments Portfolio

We currently operate through six reportable business segments: integrated senior health campuses, medical office buildings, skilled nursing facilities, SHOP, senior housing — leased and hospitals. As of June 30, 2022, we owned and/or operated 313 buildings and integrated senior health campuses, or approximately 19,461,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,370,459,000, including the fair value of the properties acquired in the Merger. In addition, as of June 30, 2022, we also owned a real estate-related debt investment purchased for $60,429,000.

COVID-19

Our residents, tenants, operating partners and managers, our industry and the U.S. economy continue to be adversely affected by the COVID-19 pandemic and related supply chain disruptions and labor shortages. The timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the emergence and severity of COVID-19 variants, the continued effectiveness and frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures. As the COVID-19 pandemic is still impacting the healthcare system to a certain extent, it continues to present challenges for us as an owner and operator of healthcare facilities, making it difficult to ascertain the long-term impact the COVID-19 pandemic will have on real estate markets in which we own and/or operate properties and our portfolio of investments.

We have evaluated the impacts of the COVID-19 pandemic on our business thus far and incorporated information concerning such impacts into our assessments of liquidity, impairment and collectability from tenants and residents as of June 30, 2022. We will continue to monitor such impacts and will adjust our estimates and assumptions based on the best available information.

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our accompanying condensed consolidated financial statements. Such condensed 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 condensed consolidated financial statements.

Basis of Presentation

Our accompanying condensed 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 VIEs, in which we are the primary beneficiary. The portion of equity in any subsidiary that is not wholly owned by us is presented in our accompanying condensed consolidated financial statements as a noncontrolling interest. We evaluate our ability to control an entity, and whether the entity is a VIE and 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.

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 June 30, 2022 and December 31, 2021, we owned an approximately 95.0% and 94.9% general partnership interest therein, respectively, and the remaining 5.0% and 5.1%, respectively, was owned by the NewCo Sellers. Prior to the Merger on October 1, 2021, we owned greater than a 99.99% general partnership interest in our operating partnership and our former advisor was a limited partner that owned less than a 0.01% noncontrolling limited partnership interest in our operating partnership. On October 1, 2021, in connection with the AHI Acquisition, our operating partnership redeemed our former advisor’s 222 limited partnership units in our operating partnership and the 208 limited partnership units owned by GAHR IV Advisor in GAHR IV Operating Partnership.

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The accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements 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). All intercompany accounts and transactions are eliminated in consolidation.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the United States Securities and Exchange Commission, or SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to the SEC’s rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2021 Annual Report on Form 10-K, as filed with the SEC on March 25, 2022.

Use of Estimates

The preparation of our accompanying condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the initial and recurring valuation of certain assets acquired and liabilities assumed through property acquisitions, including through business combinations, goodwill and its impairment, revenues and grant income, allowance for credit losses, impairment of long-lived and intangible assets and contingencies. 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 — Resident Fees and Services Revenue

Disaggregation of Resident Fees and Services Revenue

The following tables disaggregate our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time:


	Three Months Ended June 30,
	2022						2021
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Over time	$	232,839,000	$	37,891,000	$	270,730,000	$	204,729,000	$	20,039,000	$	224,768,000
Point in time	54,743,000		752,000		55,495,000		51,086,000		498,000		51,584,000
Total resident fees and services	$	287,582,000	$	38,643,000	$	326,225,000	$	255,815,000	$	20,537,000	$	276,352,000

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	Six Months Ended June 30,
	2022						2021
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Over time	$	463,373,000	$	75,107,000	$	538,480,000	$	392,987,000	$	39,498,000	$	432,485,000
Point in time	105,221,000		1,498,000		106,719,000		96,054,000		839,000		96,893,000
Total resident fees and services	$	568,594,000	$	76,605,000	$	645,199,000	$	489,041,000	$	40,337,000	$	529,378,000

The following tables disaggregate our resident fees and services revenue by payor class:


	Three Months Ended June 30,
	2022						2021
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Private and other payors	$	137,419,000	$	35,632,000	$	173,051,000	$	112,747,000	$	20,257,000	$	133,004,000
Medicare	93,680,000		—		93,680,000		87,885,000		—		87,885,000
Medicaid	56,483,000		3,011,000		59,494,000		55,183,000		280,000		55,463,000
Total resident fees and services	$	287,582,000	$	38,643,000	$	326,225,000	$	255,815,000	$	20,537,000	$	276,352,000


	Six Months Ended June 30,
	2022						2021
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Private and other payors	$	269,222,000	$	70,669,000	$	339,891,000	$	218,857,000	$	39,676,000	$	258,533,000
Medicare	188,197,000		—		188,197,000		172,168,000		—		172,168,000
Medicaid	111,175,000		5,936,000		117,111,000		98,016,000		661,000		98,677,000
Total resident fees and services	$	568,594,000	$	76,605,000	$	645,199,000	$	489,041,000	$	40,337,000	$	529,378,000

___________

(1)Includes fees for basic housing and assisted living care. We record revenue when services are rendered at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.

Accounts Receivable, Net — Resident Fees and Services Revenue

The beginning and ending balances of accounts receivable, net — resident fees and services are as follows:


	Private and Other Payors		Medicare		Medicaid		Total
Beginning balance — January 1, 2022	$	42,056,000	$	35,953,000	$	16,922,000	$	94,931,000
Ending balance — June 30, 2022	45,514,000		35,844,000		19,678,000		101,036,000
Increase/(decrease)	$	3,458,000	$	(109,000)	$	2,756,000	$	6,105,000

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Deferred Revenue — Resident Fees and Services Revenue

The beginning and ending balances of deferred revenue — resident fees and services, almost all of which relates to private and other payors, are as follows:


	Total
Beginning balance — January 1, 2022	$	14,673,000
Ending balance — June 30, 2022	16,405,000
Increase	$	1,732,000

In addition to the deferred revenue above, as of December 31, 2021, we had approximately $12,969,000 remaining in Medicare advance payments that were received during 2020 through an expanded program of the Centers for Medicare & Medicaid Services. Such amounts were included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheet as of December 31, 2021, and were fully applied to Medicare claims and recognized as resident fees and services revenue for the six months ended June 30, 2022.

Tenant and Resident Receivables and Allowances

Resident receivables, which are related to resident fees and services revenue, are carried net of an allowance for credit losses. An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying condensed 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 residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions, future expectations in estimating credit losses and other relevant factors. Tenant receivables, which are related to real estate revenue, and unbilled deferred rent receivables are reduced for uncollectible amounts, which are recognized as direct reductions of real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2022 and December 31, 2021, we had $14,798,000 and $12,378,000, respectively, in allowances, which were determined necessary to reduce receivables by our expected future credit losses. For the six months ended June 30, 2022 and 2021, we increased allowances by $9,581,000 and $5,121,000, respectively, and reduced allowances for collections or adjustments by $3,643,000 and $2,960,000, respectively. For the six months ended June 30, 2022 and 2021, $3,518,000 and $3,740,000, respectively, of our receivables were written off against the related allowances.

Accounts Payable and Accrued Liabilities

As of June 30, 2022 and December 31, 2021, accounts payable and accrued liabilities primarily include insurance reserves of $35,606,000 and $36,440,000, respectively, reimbursement of payroll-related costs to the managers of our SHOP and integrated senior health campuses of $30,622,000 and $31,101,000, respectively, accrued property taxes of $21,979,000 and $22,102,000, respectively, accrued developments and capital expenditures to unaffiliated third parties of $14,055,000 and $22,852,000, respectively, and accrued distributions to common stockholders of $8,812,000 and $8,768,000, respectively.

Statement of Cash Flows

For the six months ended June 30, 2021, amounts totaling $101,734,000 have been removed from borrowings under mortgage loans payable and early payoff of mortgage loans payable to properly reflect only actual cash flows resulting from borrowings and payments of mortgage loans compared to amounts previously presented. There was no net change in previously disclosed net cash provided by financing activities.

Recently Issued Accounting Pronouncements

In July 2021, the FASB issued Accounting Standard Update, or ASU, 2021-05, Leases (Topic 842): Lessors — Certain Leases with Variable Lease Payments, or ASU 2021-05, which amends the lease classification requirements for lessors to align them with practice under the previous lease accounting standard, ASC Topic 840, Leases. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) the lease would have been classified as a sales-type lease or a direct financing lease; and (2) the lessor would have otherwise recognized a day-one loss. ASU 2021-05 was effective for fiscal years beginning after December 15, 2021. Early adoption was permitted. We adopted such accounting pronouncement on January 1, 2022, which did not have a

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material impact to our consolidated financial statements and disclosures as we have no material sales-type or direct financing leases.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Building, improvements and construction in process	$	3,536,965,000	$	3,505,786,000
Land and improvements	335,330,000		334,562,000
Furniture, fixtures and equipment	208,194,000		198,224,000
	4,080,489,000		4,038,572,000
Less: accumulated depreciation	(588,644,000)		(523,886,000)
	$	3,491,845,000	$	3,514,686,000

Depreciation expense for the three months ended June 30, 2022 and 2021 was $34,328,000 and $24,663,000, respectively, and for the six months ended June 30, 2022 and 2021 was $68,750,000 and $48,853,000, respectively. For the three months ended June 30, 2022, we incurred capital expenditures of $8,530,000 for our integrated senior health campuses, $4,144,000 for our medical office buildings and $1,597,000 for our SHOP. We did not incur any capital expenditures for our properties within our skilled nursing facilities, senior housing — leased or hospitals segments for the three months ended June 30, 2022. For the six months ended June 30, 2022, we incurred capital expenditures of $16,778,000 for our integrated senior health campuses, $6,578,000 for our medical office buildings and $3,051,000 for our SHOP. We did not incur any capital expenditures for our properties within our skilled nursing facilities, senior housing — leased or hospitals segments for the six months ended June 30, 2022.

During both the three and six months ended June 30, 2022, we determined that four of our SHOP were impaired and recognized an aggregate impairment charge of $17,340,000, which reduced the total carrying value of such assets to $19,325,000. The fair value of one SHOP was determined by the sales price from an executed purchase and sale agreement with a third-party buyer, which was considered a Level 2 measurement within the fair value hierarchy. The fair value of the remaining three SHOP were based on their projected sales prices, which were considered Level 2 measurements within the fair value hierarchy.

During both the three and six months ended June 30, 2021, we determined that one medical office building was impaired and recognized an impairment charge of $3,335,000, which reduced the carrying value of such asset to $2,880,000. The fair value of such property was determined by the sales price from an executed purchase and sale agreement with a third-party buyer, and adjusted for anticipated selling costs, which was considered a Level 2 measurement within the fair value hierarchy. We disposed of such impaired medical office building in July 2021 for a contract sales price of $3,000,000 and recognized a net gain on sale of $346,000.

Included in the capital expenditure amounts above are costs for the development and expansion of our integrated senior health campuses. For the six months ended June 30, 2022, we exercised our right to purchase a leased property that cost $15,462,000 to develop. During the six months ended June 30, 2022, we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, acquired a land parcel in Indiana for a contract purchase price of $320,000, plus closing costs.

In April and May 2022, we, through a majority-owned subsidiary of Trilogy, of which we owned 72.9% at the time of acquisition, exercised the purchase options to acquire four previously leased real estate investments located in Indiana and Kentucky for an aggregate contract purchase price of $54,805,000, which investments are included in our integrated senior health campuses segment. We financed such acquisitions with cash on hand and a mortgage loan payable with a principal balance of $52,725,000.

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We accounted for our acquisitions of land and previously leased real estate investments completed during the six months ended June 30, 2022 as asset acquisitions. We incurred and capitalized direct acquisition related expenses of $292,000. The following table summarizes the purchase price of such assets acquired, adjusted for $37,464,000 operating lease right-of-use assets and $36,326,000 operating lease liabilities, and based on their relative fair values:


	2022 Acquisitions
Building and improvements	$	49,645,000
Land and improvements	8,173,000




Total assets acquired	$	57,818,000

Sale of Controlling Interests in Real Estate Investments

On February 8, 2022, we sold approximately 77.0% ownership interests in several real estate assets for development within our integrated senior health campuses segment for an aggregate sales price of $19,622,000 and we recognized an aggregate gain on sale of $683,000 for the six months ended June 30, 2022. We retained approximately 23.0% ownership interests in such real estate development assets, which interests are accounted for as investments in unconsolidated entities within other assets, net in our accompanying condensed consolidated balance sheet as of June 30, 2022. From February 8, 2022 through June 30, 2022, approximately 23.0% interest in the net earnings or losses of such unconsolidated entities were included in income (loss) from unconsolidated entities in our accompanying condensed consolidated statements of operations and comprehensive loss.

4. Business Combinations

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 closing 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. Further, 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 investment was included in investments in unconsolidated entities within other assets, net in our accompanying condensed consolidated balance sheet as of December 31, 2021. Therefore, through March 31, 2022, our 50.0% interest in the net earnings or losses of such unconsolidated entity was included in income (loss) from unconsolidated entities in our accompanying condensed consolidated statements of operations and comprehensive loss.

We accounted for the two acquisitions for the six months ended June 30, 2022 above as business combinations, which are included within our integrated senior health campuses segment. Based on quantitative and qualitative considerations, such business combinations were not material to us individually or in the aggregate and, therefore, pro forma financial information is not provided. We did not complete any acquisitions accounted for as business combinations for the six months ended June 30, 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The table below summarizes the acquisition date fair values of the assets acquired and liabilities assumed of our 2022 property acquisitions accounted for as business combinations. The fair values of the assets acquired and liabilities assumed during 2022 were preliminary estimates. Any necessary adjustments will be finalized within one year from the date of acquisition.


	2022 Acquisitions
Building and improvements	$	17,273,000
Land	3,060,000
In-place leases	3,420,000
Goodwill	2,816,000
Furniture, fixtures and equipment	1,936,000
Cash	971,000
Certificates of need	690,000
Operating lease right-of-use assets	646,000
Other assets	457,000
Accounts receivable	427,000
Total assets acquired	31,696,000
Security deposits	(8,129,000)
Accounts payable and accrued liabilities	(1,802,000)
Operating lease liabilities	(646,000)
Financing obligations	(56,000)
Total liabilities assumed	(10,633,000)
Net assets acquired	$	21,063,000

5. Debt Security Investment, Net

On October 15, 2015, we acquired a commercial mortgage-backed debt security, or debt security, from an unaffiliated third party. 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 was issued by an unaffiliated mortgage trust and represents a 10.0% beneficial ownership interest in such mortgage trust. The debt security is subordinate to all other interests in the mortgage trust and is not guaranteed by a government-sponsored entity.

As of June 30, 2022 and December 31, 2021, the carrying amount of the debt security investment was $81,167,000 and $79,315,000, respectively, net of unamortized closing costs of $890,000 and $1,004,000, respectively. Accretion on the debt security for the three months ended June 30, 2022 and 2021 was $986,000 and $907,000, respectively, and for the six months ended June 30, 2022 and 2021 was $1,966,000 and $1,788,000, respectively, which is recorded as an increase to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss. Amortization expense of closing costs for the three months ended June 30, 2022 and 2021 was $58,000 and $49,000, respectively, and for the six months ended June 30, 2022 and 2021 was $114,000 and $96,000, respectively, which is recorded as a decrease to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss. We evaluated credit quality indicators such as the agency ratings and the underlying collateral of such investment in order to determine expected future credit loss. No credit loss was recorded for the three and six months ended June 30, 2022 and 2021.

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6. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Intangible assets subject to amortization:
In-place leases, net of accumulated amortization of $31,132,000 and $28,120,000 as of June 30, 2022 and December 31, 2021, respectively (with a weighted average remaining life of 8.1 years and 8.2 years as of June 30, 2022 and December 31, 2021, respectively)	$	72,431,000	$	81,538,000
Above-market leases, net of accumulated amortization of $4,306,000 and $2,082,000 as of June 30, 2022 and December 31, 2021, respectively (with a weighted average remaining life of 9.4 years and 9.7 years as of June 30, 2022 and December 31, 2021, respectively)	32,849,000		35,106,000
Customer relationships, net of accumulated amortization of $710,000 and $635,000 as of June 30, 2022 and December 31, 2021, respectively (with a weighted average remaining life of 14.2 years and 14.7 years as of June 30, 2022 and December 31, 2021, respectively)	2,130,000		2,205,000
Internally developed technology and software, net of accumulated amortization of $446,000 and $399,000 as of June 30, 2022 and December 31, 2021, respectively (with a weighted average remaining life of 0.2 years and 0.7 years as of June 30, 2022 and December 31, 2021, respectively)	24,000		70,000
Intangible assets not subject to amortization:
Certificates of need	96,693,000		99,165,000
Trade names	30,787,000		30,787,000
	$	234,914,000	$	248,871,000

Amortization expense on identified intangible assets for the three months ended June 30, 2022 and 2021 was $6,121,000 and $1,501,000, respectively, which included $1,113,000 and $257,000, respectively, of amortization recorded as a decrease to real estate revenue for above-market leases in our accompanying condensed consolidated statements of operations and comprehensive loss. Amortization expense on identified intangible assets for the six months ended June 30, 2022 and 2021 was $14,360,000 and $2,697,000, respectively, which included $2,227,000 and $340,000, respectively, of amortization recorded as a decrease to real estate revenue for above-market leases in our accompanying condensed consolidated statements of operations and comprehensive loss.

The aggregate weighted average remaining life of the identified intangible assets was 8.6 years and 8.8 years as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, estimated amortization expense on the identified intangible assets for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter was as follows:


Year	Amount
2022	$	10,892,000
2023	17,148,000
2024	13,657,000
2025	11,018,000
2026	9,848,000
Thereafter	44,871,000
	$	107,434,000

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7. Other Assets, Net

Other assets, net consisted of the following as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Deferred rent receivables	$	44,290,000	$	41,061,000
Prepaid expenses, deposits, other assets and deferred tax assets, net	36,281,000		22,484,000
Investments in unconsolidated entities	23,326,000		15,615,000
Inventory	18,649,000		18,929,000
Lease commissions, net of accumulated amortization of $5,460,000 and $4,911,000 as of June 30, 2022 and December 31, 2021, respectively	16,758,000		16,120,000

Deferred financing costs, net of accumulated amortization of $4,340,000 and $8,469,000 as of June 30, 2022 and December 31, 2021, respectively	5,466,000		3,781,000
Lease inducement, net of accumulated amortization of $2,018,000 and $1,842,000 as of June 30, 2022 and December 31, 2021, respectively (with a weighted average remaining life of 8.4 years and 8.9 years as of June 30, 2022 and December 31, 2021, respectively)	2,982,000		3,158,000
	$	147,752,000	$	121,148,000

Deferred financing costs included in other assets were related to the 2018 Credit Facility, 2019 Credit Facility, 2019 Trilogy Credit Facility and the senior unsecured revolving credit facility portion of the 2022 Credit Facility. See Note 9, Lines of Credit and Term Loans, for a further discussion. Amortization expense on lease inducement for both the three and six months ended June 30, 2022 and 2021 was $88,000 and $176,000, respectively, and is recorded as a decrease to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

8. Mortgage Loans Payable, Net

As of June 30, 2022 and December 31, 2021, mortgage loans payable were $1,152,998,000 ($1,134,059,000, net of discount/premium and deferred financing costs) and $1,116,216,000 ($1,095,594,000, net of discount/premium and deferred financing costs), respectively. As of June 30, 2022, we had 66 fixed-rate mortgage loans payable and 12 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 5.25% per annum based on interest rates in effect as of June 30, 2022 and a weighted average effective interest rate of 3.35%. As of December 31, 2021, we had 66 fixed-rate mortgage loans payable and 12 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 5.25% per annum based on interest rates in effect as of December 31, 2021 and a weighted average effective interest rate of 3.21%. We are required by the terms of certain loan documents to meet certain reporting requirements and covenants, such as net worth ratios, fixed charge coverage ratios and leverage ratios.

Mortgage loans payable, net consisted of the following as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Total fixed-rate debt	$	826,465,000	$	845,504,000
Total variable-rate debt	326,533,000		270,712,000
Total fixed- and variable-rate debt	1,152,998,000		1,116,216,000
Less: deferred financing costs, net	(8,525,000)		(8,680,000)
Add: premium	314,000		397,000
Less: discount	(10,728,000)		(12,339,000)
Mortgage loans payable, net	$	1,134,059,000	$	1,095,594,000

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following table reflects the changes in the carrying amount of mortgage loans payable, net for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30,
	2022		2021
Beginning balance	$	1,095,594,000	$	810,478,000
Additions:
Borrowings under mortgage loans payable	155,882,000		213,176,000
Amortization of deferred financing costs	1,191,000		3,012,000
Amortization of discount/premium on mortgage loans payable, net	1,528,000		405,000
Deductions:
Scheduled principal payments on mortgage loans payable	(40,662,000)		(7,215,000)
Early payoff of mortgage loans payable	(78,437,000)		(101,734,000)
Deferred financing costs	(1,037,000)		(1,001,000)
Ending balance	$	1,134,059,000	$	917,121,000

For the three and six months ended June 30, 2022, we incurred an aggregate gain (loss) on the extinguishment of mortgage loans payable of $181,000 and $(1,249,000), respectively, which is recorded as a decrease (increase), respectively, to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss. Such aggregate net loss on debt extinguishment was primarily related to the write-off of unamortized loan discount related to eight mortgage loans payable that we refinanced on January 1, 2022 that were due to mature in 2044 through 2052.

For the three and six months ended June 30, 2021, we incurred an aggregate loss on the extinguishment of mortgage loans payable of $5,000 and $2,293,000, respectively, which is recorded as an increase to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss. Such loss was primarily related to the write-off of unamortized deferred financing costs of 10 mortgage loans payable that we refinanced on January 29, 2021 that were due to mature in 2053.

As of June 30, 2022, the principal payments due on our mortgage loans payable for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter were as follows:


Year	Amount
2022	$	25,728,000
2023	182,678,000
2024	229,721,000
2025	29,463,000
2026	155,297,000
Thereafter	530,111,000
	$	1,152,998,000

9. Lines of Credit and Term Loans

2018 Credit Facility

In order to accommodate the Merger, we amended GAHR IV and its operating partnership's credit agreement, as amended, or the 2018 Credit Agreement, with Bank of America, N.A., or Bank of America; KeyBank, National Association, or KeyBank; Citizens Bank, National Association, or Citizens Bank; Merrill Lynch, Pierce, Fenner & Smith Incorporated; KeyBanc Capital Markets, Inc., or KeyBanc Capital Markets; and the lenders named therein, for a credit facility with an aggregate maximum principal amount of $530,000,000, or the 2018 Credit Facility. The 2018 Credit Facility, which was further amended on October 1, 2021 to provide for updates regarding the Combined Company subsequent to the Merger, consisted of a senior unsecured revolving credit facility in the amount of $235,000,000 and senior unsecured term loan facilities in the aggregate amount of $295,000,000. At our option, the 2018 Credit Facility bore interest at per annum rates equal to (a)(i) the Eurodollar Rate, as defined in the 2018 Credit Agreement, plus (ii) a margin ranging from 1.70% to 2.20% based on our Consolidated Leverage Ratio, as defined in the 2018 Credit Agreement, or (b)(i) the greater of: (1) the prime rate publicly

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announced by Bank of America, (2) the Federal Funds Rate, as defined in the 2018 Credit Agreement, plus 0.50%, (3) the one-month Eurodollar Rate plus 1.00%, and (4) 0.00%, plus (ii) a margin ranging from 0.70% to 1.20% based on our Consolidated Leverage Ratio.

The 2018 Credit Facility was due to mature on November 19, 2021; however, pursuant to the terms of the 2018 Credit Agreement, at such time we extended the maturity date for an additional 12 months and paid an extension fee of $795,000. As of December 31, 2021, borrowings outstanding totaled $441,900,000 and the weighted average interest rate on such borrowings outstanding was 2.27% per annum. On January 19, 2022, we terminated the 2018 Credit Agreement and entered into the 2022 Credit Agreement, as defined and discussed below.

2019 Credit Facility

On October 1, 2021, upon consummation of the Merger, we, through the surviving partnership, were subject to GAHR III’s credit agreement, as amended, or the 2019 Corporate Credit Agreement, with Bank of America; KeyBank; Citizens Bank; and a syndicate of other banks, as lenders, for a credit facility with an aggregate maximum principal amount of $630,000,000, or the 2019 Credit Facility. The 2019 Credit Facility consisted of a senior unsecured revolving credit facility in an aggregate amount of $150,000,000 and a senior unsecured term loan facility in an aggregate amount of $480,000,000. On October 1, 2021, upon consummation of the Merger, the previously available $150,000,000 senior unsecured revolving credit facility was cancelled and a ratable amendment to certain financial covenants was made to account for the Combined Company.

At our option, the 2019 Credit Facility bore interest at per annum rates equal to (a) (i) the Eurodollar Rate, as defined in the 2019 Corporate Credit Agreement, plus (ii) a margin ranging from 1.85% to 2.80% based on our Consolidated Leverage Ratio, as defined in the 2019 Corporate Credit Agreement, or (b) (i) the greater of: (1) the prime rate publicly announced by Bank of America, (2) the Federal Funds Rate, as defined in the 2019 Corporate Credit Agreement, plus 0.50%, (3) the one-month Eurodollar Rate plus 1.00%, and (4) 0.00%, plus (ii) a margin ranging from 0.85% to 1.80% based on our Consolidated Leverage Ratio.

As of December 31, 2021, borrowings outstanding under the 2019 Credit Facility totaled $480,000,000 and the weighted average interest rate on such borrowings outstanding was 2.60% per annum. The 2019 Corporate Credit Agreement was due to mature on January 25, 2022. On January 19, 2022, we, through our operating partnership, entered into an agreement that amended and restated the 2019 Corporate Credit Agreement in its entirety, or the 2022 Credit Agreement. See below for a further discussion.

2022 Credit Facility

On January 19, 2022, we, through our operating partnership, as borrower, and certain of our subsidiaries, or the subsidiary guarantors, collectively as guarantors, entered into the 2022 Credit Agreement that amended, restated, superseded and replaced the 2019 Corporate Credit Agreement and the 2018 Credit Agreement for a credit facility with an aggregate maximum principal amount up to $1,050,000,000, or the 2022 Credit Facility. The 2022 Credit Facility consists of a senior unsecured revolving credit facility in the initial aggregate amount of $500,000,000 and a senior unsecured term loan facility in the initial aggregate amount of $550,000,000. The proceeds of loans made under the 2022 Credit Facility may be used for refinancing existing indebtedness and for general corporate purposes including for working capital, capital expenditures and other corporate purposes not inconsistent with obligations under the 2022 Credit Agreement. We may also obtain up to $25,000,000 in the form of standby letters of credit pursuant to the 2022 Credit Facility. Unless defined herein, all capitalized terms under this “2022 Credit Facility” subsection are defined in the 2022 Credit Agreement.

Under the terms of the 2022 Credit Agreement, the revolving loans mature on January 19, 2026, and may be extended for one 12-month period, subject to the satisfaction of certain conditions, including payment of an extension fee. The term loan matures on January 19, 2027, and may not be extended. The maximum principal amount of the 2022 Credit Facility may be increased by an aggregate incremental amount of $700,000,000, subject to: (i) the terms of the 2022 Credit Agreement; and (ii) at least five business days’ prior written notice to Bank of America.

The 2022 Credit Facility bears interest at varying rates based upon, at our option, (i) the Daily Simple Secured Overnight Financing Rate, or Daily SOFR, plus the Applicable Rate for Daily SOFR Rate Loans or (ii) the Term Secured Overnight Financing Rate, or the Term SOFR, plus the Applicable Rate for Term SOFR Rate Loans. If, under the terms of the 2022 Credit Agreement, there is an inability to determine the Daily SOFR or the Term SOFR then the 2022 Credit Facility will bear interest at a rate per annum equal to the Base Rate plus the Applicable Rate for Base Rate Loans. The loans may be repaid in whole or in part without prepayment premium or penalty, subject to certain conditions.

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The 2022 Credit Agreement requires us to add additional subsidiaries as guarantors in the event the value of the assets owned by the subsidiary guarantors falls below a certain threshold as set forth in the 2022 Credit Agreement. In the event of default, Bank of America has the right to terminate the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions under the 2022 Credit Agreement, and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon.

As of June 30, 2022, our aggregate borrowing capacity under the 2022 Credit Facility was $1,050,000,000, excluding the $25,000,000 in standby letters of credit described above. As of June 30, 2022, borrowings outstanding under the 2022 Credit Facility totaled $962,900,000 ($961,957,000, net of deferred financing costs related to the senior unsecured term loan facility portion of the 2022 Credit Facility) and the weighted average interest rate on such borrowings outstanding was 3.22% per annum.

In January 2022, in connection with the 2022 Credit Agreement, we incurred an aggregate $3,161,000 loss on the extinguishment of a portion of senior unsecured term loans which formed part of the 2018 Credit Facility and the 2019 Credit Facility. Such loss on extinguishment of debt is recorded as an increase to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss, and primarily consisted of lender fees we paid to obtain the 2022 Credit Facility.

2019 Trilogy Credit Facility

On October 1, 2021, upon consummation of the Merger, through Trilogy RER, LLC, we became subject to an amended and restated loan agreement, or the 2019 Trilogy Credit Agreement, among certain subsidiaries of Trilogy OpCo, LLC, Trilogy RER, LLC, and Trilogy Pro Services, LLC; KeyBank; CIT Bank, N.A.; Regions Bank; KeyBanc Capital Markets, Inc.; Regions Capital Markets; Bank of America; The Huntington National Bank; and a syndicate of other banks, as lenders named therein, with respect to a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, consisting of: (i) a $325,000,000 secured revolver supported by real estate assets and ancillary business cash flow and (ii) a $35,000,000 accounts receivable revolving credit facility supported by eligible accounts receivable, or the 2019 Trilogy Credit Facility. The proceeds of the 2019 Trilogy Credit Facility may be used for acquisitions, debt repayment and general corporate purposes. The maximum principal amount of the 2019 Trilogy Credit Facility may be increased by up to $140,000,000, for a total principal amount of $500,000,000, subject to certain conditions. The 2019 Trilogy Credit Facility matures on September 5, 2023 and may be extended for one 12-month period during the term of the 2019 Trilogy Credit Agreement, subject to the satisfaction of certain conditions, including payment of an extension fee.

At our option, the 2019 Trilogy Credit Facility bears interest at per annum rates equal to (a) the London Inter-bank Offered Rate, or LIBOR, plus 2.75% for LIBOR Rate Loans, as defined in the 2019 Trilogy Credit Agreement, and (b) for Base Rate Loans, as defined in the 2019 Trilogy Credit Agreement, 1.75% plus the greater of: (i) the fluctuating annual rate of interest announced from time to time by KeyBank as its prime rate, (ii) 0.50% above the Federal Funds Effective Rate, as defined in the 2019 Trilogy Credit Agreement, and (iii) 1.00% above the one-month LIBOR.

As of both June 30, 2022 and December 31, 2021, our aggregate borrowing capacity under the 2019 Trilogy Credit Facility was $360,000,000. As of both June 30, 2022 and December 31, 2021, borrowings outstanding under the 2019 Trilogy Credit Facility totaled $304,734,000, and the weighted average interest rate on such borrowings outstanding was 4.39% and 2.85% per annum, respectively.

10. Derivative Financial Instruments

We have used derivative financial instruments to manage interest rate risk associated with variable-rate debt. We recorded such derivative financial instruments in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. We did not have any derivative financial instruments as of June 30, 2022. The following table lists the derivative financial instruments held by us as of December 31, 2021, which were included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets:


Instrument	Notional Amount		Index	Interest Rate	Maturity Date	Fair Value December 31, 2021
Swap	$	250,000,000	one month LIBOR	2.10%	01/25/22	$	332,000
Swap	$	130,000,000	one month LIBOR	1.98%	01/25/22	162,000
Swap	$	100,000,000	one month LIBOR	0.20%	01/25/22	6,000
						$	500,000

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As of December 31, 2021, none of our derivative financial instruments were designated as hedges. Derivative financial instruments 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. On January 25, 2022, our interest rate swap contracts matured. For the three months ended June 30, 2022 and 2021, we recorded $0 and $1,775,000, respectively, and for the six months ended June 30, 2022 and 2021, we recorded $500,000 and $3,596,000, respectively, as a decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss related to the change in the fair value of our derivative financial instruments.

See Note 16, Fair Value Measurements, for a further discussion of the fair value of our derivative financial instruments.

11. Identified Intangible Liabilities, Net

As of June 30, 2022 and December 31, 2021, identified intangible liabilities, net consisted of below-market leases of $11,663,000 and $12,715,000, respectively, net of accumulated amortization of $1,699,000 and $1,047,000, respectively. Amortization expense on below-market leases for the three months ended June 30, 2022 and 2021 was $414,000 and $45,000, respectively, and for the six months ended June 30, 2022 and 2021 was $1,023,000 and $92,000, respectively, which is recorded as an increase to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

The weighted average remaining life of below-market leases was 8.8 years and 9.1 years as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, estimated amortization expense on below-market leases for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter was as follows:


Year	Amount
2022	$	825,000
2023	1,596,000
2024	1,475,000
2025	1,347,000
2026	1,198,000
Thereafter	5,222,000
	$	11,663,000

12. 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.

13. Redeemable Noncontrolling Interests

As a result of the Merger and the AHI Acquisition, as of June 30, 2022 and December 31, 2021, we, through our direct and indirect subsidiaries, own an approximately 95.0% and 94.9% general partnership interest, respectively, in our operating

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partnership and the remaining approximate 5.0% and 5.1% limited partnership interest, respectively, in our operating partnership is owned by the NewCo Sellers. Some of the limited partnership units outstanding, which account for approximately 1.0% of our total operating partnership units outstanding, have redemption features outside of our control and are accounted for as redeemable noncontrolling interests presented outside of permanent equity in our accompanying condensed consolidated balance sheets.

As of both June 30, 2022 and December 31, 2021, we, through Trilogy REIT Holdings LLC, or Trilogy REIT Holdings, in which we indirectly hold a 76.0% ownership interest, owned 95.9% of the outstanding equity interests of Trilogy. As of both June 30, 2022 and December 31, 2021, certain members of Trilogy’s management and certain members of an advisory committee to Trilogy’s board of directors owned approximately 4.1% of the outstanding equity interests of Trilogy. The noncontrolling interests held by such members have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets.

As a result of the Merger and through our operating partnership, as of June 30, 2022 and December 31, 2021, we own approximately 98.0% of the joint ventures with an affiliate of Meridian Senior Living, LLC, or Meridian, that own Central Florida Senior Housing Portfolio, Pinnacle Beaumont ALF and Pinnacle Warrenton ALF. Also as a result of the Merger, as of June 30, 2022 and December 31, 2021, we also own approximately 90.0% of the joint venture with Avalon Health Care, Inc., or Avalon, that owns Catalina West Haven ALF and Catalina Madera ALF. The noncontrolling interests held by Meridian and Avalon have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets. Both of our joint ventures with an affiliate of Meridian and with Avalon described above were acquired on October 1, 2021, upon consummation of the Merger.

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 six months ended June 30, 2022 and 2021:


	Six Months Ended June 30,
	2022		2021
Beginning balance	$	72,725,000	$	40,340,000
Additional redeemable noncontrolling interest	173,000		—
Reclassification from equity	42,000		—
Distributions	(1,405,000)		(551,000)

Adjustment to redemption value	3,833,000		899,000
Net loss attributable to redeemable noncontrolling interests	(31,000)		(514,000)
Ending balance	$	75,337,000	$	40,174,000

14. Equity

Preferred Stock

Pursuant to our charter, we are authorized to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of both June 30, 2022 and December 31, 2021, no shares of preferred stock were issued and outstanding.

Common Stock

On March 12, 2015, we terminated the primary portion of our initial public offering. We continued to offer shares of our common stock in the GAHR III initial offering pursuant to the Initial DRIP, until the termination of the distribution reinvestment plan portion of the GAHR III initial offering and deregistration of the GAHR III initial offering on April 22, 2015. 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 the Initial DRIP through a subsequent offering, or the 2015 GAHR III DRIP Offering, and we commenced offering shares following the deregistration of the GAHR III initial offering until the termination and deregistration of the 2015 GAHR III DRIP Offering on March 29, 2019. Effective October 5, 2016, we amended and restated the Initial DRIP, or the GAHR III Amended and Restated DRIP, to amend the price at which shares of our common stock were issued pursuant to the 2015 GAHR III DRIP Offering.

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On January 30, 2019, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $200,000,000 of additional shares of our common stock to be issued pursuant to the GAHR III Amended and Restated DRIP, or the 2019 GAHR III DRIP Offering, which we commenced offering on April 1, 2019, following the deregistration of the 2015 GAHR III DRIP Offering. On May 29, 2020, our board authorized the suspension of the 2019 GAHR III DRIP Offering, and consequently, ceased issuing shares pursuant to such offering following the distributions paid in June 2020 to stockholders of record on or prior to the close of business on May 31, 2020. As a result of the Merger, we deregistered the 2019 GAHR III DRIP Offering on October 4, 2021. Further, on October 4, 2021, our board authorized the reinstatement of our distribution reinvestment plan, as amended, or the AHR DRIP. We continue to offer up to $100,000,000 of shares of our common stock to be issued pursuant to the AHR DRIP under an existing Registration Statement on Form S-3 under the Securities Act filed by GAHR IV, or the AHR DRIP Offering. We collectively refer to the Initial DRIP portion of the GAHR III initial offering, the 2015 GAHR III DRIP Offering, the 2019 GAHR III DRIP Offering and the AHR DRIP Offering as our DRIP Offerings. See Note 1, Organization and Description of Business — Public Offering and the “Distribution Reinvestment Plan” section below for a further discussion.

At the effective time of the REIT Merger, on October 1, 2021, each issued and outstanding share of GAHR III’s common stock, $0.01 par value per share, was converted into the right to receive 0.9266 shares of GAHR IV’s Class I common stock, $0.01 par value per share, resulting in the issuance of 179,637,776 shares of Class I common stock to GAHR III’s stockholders. Also, on October 1, 2021, we filed the Fourth Articles of Amendment and Restatement to our charter, or the Charter Amendment, which among other things, amended the common stock we are authorized to issue. The Charter Amendment authorized us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share, whereby 200,000,000 shares are classified as Class T common stock and 800,000,000 shares are classified as Class I common stock.

Distribution Reinvestment Plan

Following the deregistration of the Initial DRIP on April 22, 2015, we continued to offer shares of our common stock pursuant to the 2015 GAHR III DRIP Offering and 2019 GAHR III DRIP Offering which resulted in a total of $308,501,000 in distributions being reinvested that resulted in 33,110,893 shares of common stock being issued.

As a result of the Merger, we deregistered the 2019 GAHR III DRIP Offering on October 4, 2021. Further, on October 4, 2021, our board reinstated distributions and authorized the reinstatement of the AHR DRIP Offering. We continue to offer up to $100,000,000 of shares of our common stock to be issued pursuant to the AHR DRIP under the AHR DRIP Offering. As a result, beginning with the October 2021 distribution, which was paid in November 2021, stockholders who previously enrolled as participants in the AHR DRIP received or will receive distributions in shares of our common stock pursuant to the terms of the AHR DRIP, instead of cash distributions. As of June 30, 2022, a total of $77,083,000 in distributions were reinvested that resulted in 8,180,513 shares of common stock being issued pursuant to the AHR DRIP Offering.

Since October 5, 2016, our board had approved and established an estimated per share net asset value, or NAV, annually. Commencing with the distribution payment to stockholders paid in the month following such board approval, shares of our common stock issued pursuant to our distribution reinvestment plan are issued at the current estimated per share NAV until such time as our board determined an updated estimated per share NAV.

The following is a summary of the historical estimated per share NAV for GAHR III and the Combined Company, as applicable:


Approval Date by our Board	Estimated Per Share NAV (Unaudited)



10/03/19	$	9.40
03/18/21	$	8.55
03/24/22	$	9.29

For the three and six months ended June 30, 2022, $11,143,000 and $22,447,000, respectively, in distributions were reinvested and 1,199,427 and 2,425,500 shares of our common stock, respectively, were issued pursuant to our DRIP Offerings. For both the three and six months ended June 30, 2021, there were no distributions reinvested pursuant to our DRIP Offerings.

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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 are made at the sole discretion of our board. Subject to the availability of the funds for share repurchases and other certain conditions, we generally 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 or “qualifying disability,” as defined in our share repurchase plan, of a stockholder are not subject to this cap. Funds for the repurchase of shares of our common stock come from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to our DRIP Offerings.

Pursuant to our share repurchase plan, the repurchase price is 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, except that the repurchase price with respect to repurchases resulting from the death or qualifying disability of stockholders is equal to the most recently published estimated per share NAV. On October 4, 2021, as a result of the Merger, our board authorized the partial reinstatement of our share repurchase plan with respect to requests to repurchase shares resulting from the death or qualifying disability of stockholders, effective with respect to qualifying repurchases for the fiscal quarter ending December 31, 2021. All share repurchase requests other than those requests resulting from the death or qualifying disability of stockholders were and shall be rejected.

During the three and six months ended June 30, 2022, we repurchased 699,460 and 1,147,835 shares of our common stock, respectively, for an aggregate of $6,449,000 and $10,583,000, respectively, at a repurchase price of $9.22 per share. During the three and six months ended June 30, 2021, we did not repurchase any shares of common stock. In July 2022, we repurchased 608,138 shares of our common stock, for an aggregate of $5,650,000, at a repurchase price of $9.29 per share. All shares were repurchased using the cumulative proceeds we received from the sale of shares of our common stock pursuant to our DRIP Offerings.

Noncontrolling Interests in Total Equity

As of both June 30, 2022 and December 31, 2021, Trilogy REIT Holdings owned approximately 95.9% of Trilogy. Prior to October 1, 2021, we were the indirect owner of a 70.0% interest in Trilogy REIT Holdings pursuant to an amended joint venture agreement with an indirect, wholly owned subsidiary of NorthStar Healthcare Income, Inc., or NHI, and a wholly owned subsidiary of GAHR IV Operating Partnership. We serve as the managing member of Trilogy REIT Holdings. As part of the Merger on October 1, 2021, the wholly owned subsidiary of GAHR IV Operating Partnership sold its 6.0% interest in Trilogy REIT Holdings to GAHR III, thereby increasing our indirect ownership in Trilogy REIT Holdings to 76.0%. Through September 30, 2021, 30.0% of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests, and since October 1, 2021, 24.0% of the net earnings of Trilogy REIT Holdings were allocated to a noncontrolling interest.

In connection with our 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 unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests consisted 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 amortized the time-based Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative in our accompanying condensed consolidated statements of operations and comprehensive loss. The performance-based Profit Interests were subject to a performance commitment and would have vested upon liquidity events as defined in the Profit Interests agreements. The performance-based Profit Interests were measured at their fair value on the adoption date of ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, using a modified retrospective approach. The nonvested awards were presented as noncontrolling interests in total equity in our accompanying condensed consolidated balance sheets, and were re-classified to redeemable noncontrolling interests upon vesting as they had redemption features outside of our control similar to the common stock units held by Trilogy’s management. See Note 13, Redeemable Noncontrolling Interests, for a further discussion.

In December 2021, we redeemed a part of the time-based Profit Interests, and all of the performance-based Profit Interests that were included in noncontrolling interests in total equity. We redeemed such Profit Interests in cash and through the issuance of additional equity interests in Trilogy that are classified as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets. There were no canceled, expired or exercised Profit Interests during the three and six months ended June 30, 2022 and 2021. For the three months ended June 30, 2022 and 2021, we recognized stock compensation expense related to the Profit Interests of $21,000 and $0, respectively, and for the six months ended June 30, 2022 and 2021, we recognized stock compensation expense related to the Profit Interests of $42,000 and $(14,000), respectively.

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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. We classify the value of the subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying condensed consolidated balance sheets and the dividends of the preferred shares of beneficial interests in net income or loss attributable to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss.

As of both June 30, 2022 and December 31, 2021, we owned an 86.0% interest in a consolidated limited liability company that owns Lakeview IN Medical Plaza. As such, 14.0% of the net earnings of Lakeview IN Medical Plaza were allocated to noncontrolling interests for the three and six months ended June 30, 2022 and 2021.

As of both June 30, 2022 and December 31, 2021, we owned a 90.6% membership interest in a consolidated limited liability company that owns Southlake TX Hospital. As such, 9.4% of the net earnings of Southlake TX Hospital were allocated to noncontrolling interests for the three and six months ended June 30, 2022 and 2021.

On October 1, 2021, upon consummation of the Merger, through our operating partnership, we acquired an approximate 90.0% interest in a joint venture that owns the Louisiana Senior Housing Portfolio. As such, 10.0% of the net earnings of the joint venture were allocated to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2022.

As discussed in Note 1, Organization and Description of Business, as a result of the Merger and the AHI Acquisition, as of June 30, 2022 and December 31, 2021, we, through our direct and indirect subsidiaries, own an approximately 95.0% and 94.9% general partnership interest, respectively, in our operating partnership and the remaining approximately 5.0% and 5.1% limited partnership interest, respectively, in our operating partnership is owned by the NewCo Sellers. As of June 30, 2022 and December 31, 2021, approximately 4.0% and 4.1% of our total operating partnership units outstanding, respectively, is presented in total equity in our accompanying condensed consolidated balance sheets. See Note 13, Redeemable Noncontrolling Interests, for a further discussion.

2015 Incentive Plan

Upon consummation of the Merger, we adopted the 2015 Incentive Plan, as amended and restated, or our incentive plan, pursuant to which our board (with respect to options and restricted shares of common stock granted to independent directors), or our compensation committee (with respect to any other award), may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, officers, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 4,000,000 shares.

Through June 30, 2022, we granted an aggregate of 1,137,355 shares of our restricted common stock under our incentive plan. Such amount includes: (i) 215,214 shares of our restricted Class T common stock, at a weighted average grant date fair value of $9.53 per share, to our independent directors; (ii) 477,901 time-based shares of our restricted Class T common stock, at a grant date fair value of $9.22 per share, to certain executive officers and key employees; (iii) 319,149 shares of our restricted Class T common stock, at a grant date fair value of $9.22 per share, to certain of our key employees; and (iv) 125,091 shares of our restricted Class I common stock issued upon the conversion of restricted common stock that GAHR III granted prior to the Merger. Also, through June 30, 2022, we granted 113,205 performance-based restricted stock units pursuant to our incentive plan to certain executive officers representing the right to receive shares of our Class T common stock upon vesting, at a grant date fair value of $9.29 per unit, net of 46,096 performance-based restricted stock units that were forfeited during the six months ended June 30, 2022. Further, for the six months ended June 30, 2022, we granted 76,800 time-based restricted stock units under our incentive plan, at a grant date fair value of $9.29 per share, to certain employees representing the right to receive shares of our Class T common stock upon vesting.

For the three months ended June 30, 2022 and 2021, we recognized stock based compensation expense related to awards granted pursuant to our incentive plan of $980,000 and $26,000, respectively. For the six months ended June 30, 2022 and 2021, we recognized stock based compensation expense related to awards granted pursuant to our incentive plan of $1,791,000 and $53,000, respectively. Such stock based compensation expense was included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive loss.

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15. Related Party Transactions

Fees and Expenses Paid to Affiliates

Prior to the closing of the AHI Acquisition on October 1, 2021, our former advisor used its best efforts, subject to the oversight and review of our board, to, among other things, provide asset management, property management, acquisition, disposition and other advisory services on our behalf consistent with our investment policies and objectives. Our former advisor performed its duties and responsibilities under the Advisory Agreement as our fiduciary. Until September 30, 2021, all of our executive officers were officers of our former advisor and officers, limited partners and/or members of one of our former co-sponsors and other affiliates of our former advisor.

On December 20, 2021, the Advisory Agreement was assigned to NewCo and as a result, any fees that would have otherwise been payable to our former advisor are now eliminated in consolidation. Following the consummation of the Merger, we became self-managed and as a result, we no longer incur to our former advisor and its affiliates any fees or expense reimbursements arising from the Advisory Agreement.

Fees and expenses incurred to our former advisor or its affiliates for the three and six months ended June 30, 2021 were as follows:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Asset management fees(1)	$	5,401,000	$	10,763,000
Property management fees(2)	681,000		1,335,000
Development fees(3)	357,000		640,000
Lease fees(4)	120,000		385,000
Construction management fees(5)	68,000		80,000
Operating expenses(6)	53,000		116,000
Acquisition fees(7)	10,000		1,344,000
	$	6,690,000	$	14,663,000

___________

(1)Asset management fees were included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive loss.

(2)Property management fees were included in rental expenses or general and administrative expenses in our accompanying condensed consolidated statements of operations and comprehensive loss, depending on the property type from which the fee was incurred.

(3)Development fees were capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

(4)Lease fees were capitalized as costs of entering into new leases and included in other assets, net in our accompanying condensed consolidated balance sheets.

(5)Construction management fees were capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets.

(6)We reimbursed our former advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. For the 12 months ended June 30, 2021, our operating expenses did not exceed such limitations. Operating expenses were generally included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive loss.

(7)Acquisition fees in connection with the acquisition of properties accounted for as asset acquisitions or the acquisition of real estate-related investments were capitalized as part of the associated investments in our accompanying condensed consolidated balance sheets.

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Accounts Payable Due to Affiliates

We did not have any amounts outstanding to our affiliates as of June 30, 2022. The following amounts were outstanding to our affiliates as of December 31, 2021:


Fee	December 31, 2021
Lease commissions	$	245,000
Development fees	229,000
Construction management fees	152,000
Operating expenses	100,000
Asset and property management fees	83,000
Acquisition fees	57,000



	$	866,000

16. 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 June 30, 2022, 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



Liabilities:
Warrants	$	—	$	—	$	733,000	$	733,000
Total liabilities at fair value	$	—	$	—	$	733,000	$	733,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2021, 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




Liabilities:
Derivative financial instruments	$	—	$	500,000	$	—	$	500,000

Warrants	—		—		786,000		786,000
Total liabilities at fair value	$	—	$	500,000	$	786,000	$	1,286,000

There were no transfers into and out of fair value measurement levels during the six months ended June 30, 2022 and 2021.

Warrants

As of June 30, 2022 and December 31, 2021, we have recorded $733,000 and $786,000, respectively, related to warrants in Trilogy common units held by certain members of Trilogy’s management, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Once exercised, these warrants have redemption features similar to the common units held by members of Trilogy’s management. See Note 13, Redeemable Noncontrolling Interests, for a further discussion. As of June 30, 2022 and December 31, 2021, the carrying value is a reasonable estimate of fair value.

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Derivative Financial Instruments

We used interest rate swaps and interest rate caps to manage interest rate risk associated with variable-rate debt. The valuation of these instruments was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves, as well as option volatility. The fair values of interest rate swaps were determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts were based on an expectation of future interest rates derived from observable market interest rate curves.

We incorporated 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 considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we determined that the majority of the inputs used to value our derivative financial instruments fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilized 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, 2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. As of June 30, 2022, we did not have any derivative financial instruments.

Financial Instruments Disclosed at Fair Value

Our accompanying condensed consolidated balance sheets include the following financial instruments: debt security investment, cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities, accounts payable due to affiliates, mortgage loans payable and borrowings under our lines of credit and term loans.

We consider the carrying values of cash and cash equivalents, restricted cash, accounts and other receivables 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 accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable. The fair values of the other financial instruments are classified in Level 2 of the fair value hierarchy.

The fair value of our debt security investment is estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair values of our mortgage loans payable and our lines of credit and term loans are estimated using discounted cash flow analyses using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our debt security investment, mortgage loans payable and lines of credit and term loans are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022				December 31, 2021
	Carrying Amount(1)		Fair Value		Carrying Amount(1)		Fair Value
Financial Assets:

Debt security investment	$	81,167,000	$	93,470,000	$	79,315,000	$	93,920,000
Financial Liabilities:
Mortgage loans payable	$	1,134,059,000	$	1,020,652,000	$	1,095,594,000	$	1,075,729,000
Lines of credit and term loans	$	1,261,225,000	$	1,270,330,000	$	1,222,853,000	$	1,226,636,000

___________

(1)Carrying amount is net of any discount/premium and unamortized deferred financing costs.

17. Income Taxes

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 taxable REIT subsidiaries, or TRS, pursuant to

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the Code. TRS 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.

Current Income Tax

Federal and state income taxes are generally a function of the level of income recognized by our TRS. Foreign income taxes are generally a function of our income on our real estate located in the United Kingdom, or UK, and Isle of Man.

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 loss that may be realized in future periods depending on sufficient taxable income.

We recognize the financial statement effects of an uncertain 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 both June 30, 2022 and December 31, 2021, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.

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 June 30, 2022 and December 31, 2021, our valuation allowance fully reserves the net deferred tax assets due to historical losses and 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.

18. Leases

Lessor

We have operating leases with tenants that expire at various dates through 2050. For the three months ended June 30, 2022 and 2021, we recognized $50,060,000 and $29,271,000, respectively, of revenues related to operating lease payments, of which $9,663,000 and $5,304,000, respectively, was for variable lease payments. For the six months ended June 30, 2022 and 2021, we recognized $100,790,000 and $57,938,000, respectively, of revenues related to operating lease payments, of which $20,076,000 and $9,654,000, respectively, was for variable lease payments. As of June 30, 2022, the following table sets forth the undiscounted cash flows for future minimum base rents due under operating leases for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter for properties that we wholly own:


Year	Amount
2022	$	77,361,000
2023	150,031,000
2024	139,441,000
2025	125,062,000
2026	114,401,000
Thereafter	624,329,000
Total	$	1,230,625,000

Lessee

We lease certain land, buildings, furniture, fixtures, campus equipment, office equipment and automobiles. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Most leases include one or more options to renew, with renewal terms that generally can extend at various dates through 2107, excluding extension options. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. As of June 30, 2022, we had future lease payments of $27,229,000 for an operating lease that had not yet commenced. Such operating lease will commence in fiscal year 2022 with a lease term of 15 years.

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The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments that are adjusted periodically based on the United States Bureau of Labor Statistics’ Consumer Price Index, and may also include other variable lease costs (i.e., common area maintenance, property taxes and insurance). Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease costs were as follows:


		Three Months Ended June 30,
Lease Cost	Classification	2022		2021
Operating lease cost(1)	Property operating expenses, rental expenses or general and administrative expenses	$	5,408,000	$	5,498,000
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	316,000		381,000
Interest on lease liabilities	Interest expense	66,000		74,000
Sublease income	Resident fees and services revenue or other income	(234,000)		(6,000)
Total lease cost		$	5,556,000	$	5,947,000


		Six Months Ended June 30,
Lease Cost	Classification	2022		2021
Operating lease cost(1)	Property operating expenses, rental expenses or general and administrative expenses	$	11,764,000	$	11,835,000
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	629,000		793,000
Interest on lease liabilities	Interest expense	140,000		192,000
Sublease income	Resident fees and services revenue or other income	(382,000)		(6,000)
Total lease cost		$	12,151,000	$	12,814,000

___________

(1)Includes short-term leases and variable lease costs, which are immaterial.

Additional information related to our leases for the periods presented below was as follows:


Lease Term and Discount Rate	June 30, 2022		December 31, 2021
Weighted average remaining lease term (in years):
Operating leases	19.9		16.9
Finance leases	2.9		3.6
Weighted average discount rate:
Operating leases	5.53	%	5.52	%
Finance leases	7.59	%	7.68	%


	Six Months Ended June 30,
Supplemental Disclosure of Cash Flows Information	2022		2021

Operating cash outflows related to finance leases	$	140,000	$	192,000
Financing cash outflows related to finance leases	$	26,000	$	117,000
Leased assets obtained in exchange for finance lease liabilities	$	56,000	$	136,000
Right-of-use assets obtained in exchange for operating lease liabilities	$	—	$	105,000

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Operating Leases

As of June 30, 2022, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter, as well as the reconciliation of those cash flows to operating lease liabilities on our accompanying condensed consolidated balance sheet:


Year	Amount
2022	$	7,116,000
2023	14,022,000
2024	12,836,000
2025	11,627,000
2026	11,045,000
Thereafter	144,289,000
Total undiscounted operating lease payments	200,935,000
Less: interest	96,742,000
Present value of operating lease liabilities	$	104,193,000

Finance Leases

As of June 30, 2022, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the six months ending December 31, 2022 and for each of the next four years ending December 31 and thereafter, as well as a reconciliation of those cash flows to finance lease liabilities:


Year	Amount
2022	$	34,000
2023	61,000
2024	75,000
2025	31,000
2026	—
Thereafter	—
Total undiscounted finance lease payments	201,000
Less: interest	23,000
Present value of finance lease liabilities	$	178,000

19. Segment Reporting

As of June 30, 2022, we evaluated our business and made resource allocations based on six reportable business segments: integrated senior health campuses, medical office buildings, skilled nursing facilities, SHOP, senior housing — leased and hospitals. Our medical office buildings are typically leased to multiple tenants under separate leases, thus requiring active management and responsibility for many of the associated operating expenses (much of which are, or can effectively be, passed through to the tenants). Our integrated senior health campuses include a range of assisted living, memory care, independent living, skilled nursing services and certain ancillary businesses that are owned and operated utilizing a RIDEA structure. Our skilled nursing and senior housing facilities are single-tenant properties for which we 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. In addition, our senior housing —leased segment includes our debt security investment. Our hospital investments are similarly structured to our leased skilled nursing and senior housing facilities. Our SHOP segment includes senior housing facilities that are owned and operated utilizing a RIDEA structure.

While we believe that net income (loss), as defined by GAAP, is the most appropriate earnings measurement, we evaluate our segments’ performance based upon segment net operating income, or NOI. We define segment NOI as total revenues and grant income, less property operating expenses and rental expenses, which excludes depreciation and amortization, general and administrative expenses, business acquisition expenses, interest expense, gain or loss on dispositions

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of real estate investments, impairment of real estate investments, income or loss from unconsolidated entities, foreign currency gain or loss, other income and income tax benefit or expense for each segment. We believe that segment NOI 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, deferred financing costs and other assets not attributable to individual properties.

On October 1, 2021, as part of the Merger, we acquired 92 buildings, or approximately 4,799,000 square feet of GLA, which expanded our portfolio of real estate properties and SHOP within the segments as outlined above.

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Summary information for the reportable segments during the three and six months ended June 30, 2022 and 2021 was as follows:

Integrated
Senior Health
Campuses

SHOP

Medical
Office
Buildings

Senior
Housing — Leased

Skilled
Nursing
Facilities

Hospitals