UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

(Mark One)

☒
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the quarterly period ended March 31, 2021~~

For the quarterly period ended March 31, 2022

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

Commission File Number 000-52566
SUMMIT HEALTHCARE REIT, INC.
(Exact name of registrant as specified in its charter)

~~MARYLAND~~
~~73-1721791~~
MARYLAND
73-1721791
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
~~2 SOUTH POINTE~~

23382 MILL CREEK DRIVE, SUITE ~~100,~~125,
~~LAKE FOREST,~~ LAGUNA HILLS, CA
~~92630~~
92653
(Address of principal executive offices)
(Zip Code)

~~800-978-8136~~800-978-8136
(Registrant’s telephone number, including area code)
2 SOUTH POINTE DRIVE, SUITE 100, LAKE FOREST, CA 92630
(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
Ticker symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x⌧ Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x⌧ Yes ¨☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
☐
Accelerated filer
¨
☐
Non-accelerated filer
x
☒
Smaller reporting company
x
☒
Emerging growth company
¨
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨☐ Yes x⌧ No

As of May ~~6, 2021,~~9, 2022, we had 23,027,978 shares of common stock of Summit Healthcare REIT, Inc. outstanding.

Table of Contents
FORM 10-Q

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

~~PART I.~~
~~FINANCIAL INFORMATION~~
~~Item 1.~~PART I.
~~Financial Statements:~~FINANCIAL INFORMATION
3
Item 1.
Financial Statements:
3

Condensed Consolidated Balance Sheets (unaudited)
3

Condensed Consolidated Statements of Operations (unaudited)
4

Condensed Consolidated Statements of Equity (unaudited)
5

Condensed Consolidated Statements of Cash Flows (unaudited)
6

Notes to Condensed Consolidated Financial Statements (unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
32
34
Item 4.
Controls and Procedures
33
35
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
34
35
Item 1A.
Risk Factors
34
35
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
34
35
Item 3.
Defaults Upon Senior Securities
35
36
Item 4.
Mine Safety Disclosures
35
36
Item 5.
Other Information
35
36
Item 6.
Exhibits
36
37
SIGNATURES
37
38
EX-31.1
EX-31.2
EX-32

~~Page 2 of 37~~
2
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31,
2021 December 31,
2020
ASSETS
Cash and cash equivalents $ 14,752,000 $ 14,658,000
Restricted cash 2,999,000 2,933,000
Real estate properties, net 44,541,000 44,921,000
Notes receivable 203,000 262,000
Tenant and other receivables, net 3,929,000 4,677,000
Deferred leasing commissions, net 519,000 536,000
Other assets, net 705,000 1,203,000
Equity-method investments 10,897,000 11,375,000
Total assets $ 78,545,000 $ 80,565,000

LIABILITIES AND EQUITY
Accounts payable and accrued liabilities $ 2,477,000 $ 2,530,000
Security deposits 664,000 664,000
Loans payable, net of debt issuance costs 45,027,000 45,274,000
Total liabilities 48,168,000 48,468,000

Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares  issued or outstanding at March 31, 2021 and December 31, 2020 — —
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at March 31, 2021 and December 31, 2020 23,000 23,000
Additional paid-in capital 116,371,000 116,335,000
Accumulated deficit (86,214,000 ) (84,456,000 )
Total stockholders’ equity 30,180,000 31,902,000
Noncontrolling interests 197,000 195,000
Total equity 30,377,000 32,097,000
Total liabilities and equity $ 78,545,000 $ 80,565,000

March 31,

December 31,


2022

2021
ASSETS




Cash and cash equivalents

$
13,705,000

$
10,488,000
Restricted cash

2,696,000

2,673,000
Real estate properties, net

177,519,000

179,102,000
Intangible lease assets, net

14,442,000

14,687,000
Tenant and other receivables, net

3,752,000

3,386,000
Deferred leasing commissions, net

448,000

466,000
Other assets, net

534,000

422,000
Equity-method investments

8,304,000

7,902,000
Total assets

$
221,400,000

$
219,126,000

LIABILITIES AND EQUITY


Accounts payable and accrued liabilities

$
5,189,000

$
2,551,000
Security deposits

4,651,000

4,651,000
Loans payable, net of debt issuance costs

180,322,000

180,370,000
Total liabilities

190,162,000

187,572,000

Commitments and contingencies


Stockholders’ Equity


Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued or outstanding at March 31, 2022 and December 31, 2021

0

0
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at March 31, 2022 and December 31, 2021

23,000

23,000
Additional paid-in capital

116,409,000

116,401,000
Accumulated deficit

(85,366,000)

(85,041,000)
Total stockholders’ equity

31,066,000

31,383,000
Noncontrolling interests

172,000

171,000
Total equity

31,238,000

31,554,000
Total liabilities and equity

$
221,400,000

$
219,126,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
~~Page 3 of 37~~
3
Table of Contents
SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended
March 31,

2021 2020
Revenues:
Total rental revenues $ 924,000 $ 1,600,000
Acquisition and asset management fees 329,000 326,000
Interest income from notes receivable 9,000 7,000
Total operating revenue 1,262,000 1,933,000

Expenses:
Property operating costs 220,000 257,000
General and administrative 1,631,000 939,000
Depreciation and amortization 399,000 417,000
Total operating expenses 2,250,000 1,613,000

Operating (loss) income (988,000 ) 320,000

(Loss) income from equity-method investees (235,000 ) 30,000
Other income 5,000 42,000
Interest expense (522,000 ) (593,000 )
Net loss (1,740,000 ) (201,000 )
Noncontrolling interests’ share in net (income) loss (18,000 ) (12,000 )
Net loss applicable to common stockholders $ (1,758,000 ) $ (213,000 )

Basic and diluted loss per common share:
Net loss applicable to common stockholders $ (0.08 ) $ (0.01 )
Weighted average shares used to calculate basic and diluted earnings per common share 23,027,978 23,027,978

Three Months Ended

March 31,


2022

2021
Revenues:


Total rental revenues

$
5,541,000

$
924,000
Resident fees and services

408,000

0
Asset management fees

165,000

329,000
Interest income from notes receivable

—

9,000
Total operating revenue

6,114,000

1,262,000

Expenses:

Property operating costs

773,000

220,000
Resident costs

375,000

0
General and administrative

1,048,000

1,631,000
Depreciation and amortization

1,837,000

399,000
Total operating expenses

4,033,000

2,250,000

Operating income (loss)

2,081,000

(988,000)

Income (loss) from equity-method investees

642,000

(235,000)
Other income

2,000

5,000
Interest expense

(3,031,000)

(522,000)
Net loss

(306,000)

(1,740,000)
Noncontrolling interests’ share in net (income) loss

(19,000)

(18,000)
Net loss applicable to common stockholders

$
(325,000)

$
(1,758,000)

Basic and diluted loss per common share:




Net loss applicable to common stockholders

$
(0.01)

$
(0.08)

Weighted average shares used to calculate basic and diluted earnings per common share

23,027,978

23,027,978

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
~~Page 4 of 37~~
4
Table of Contents
SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)

Common Stock
Number
of
Shares Common
Stock
Par
Value Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Balance — January 1, 2021
23,027,978 $ 23,000 $ 116,335,000 $ (84,456,000 ) $ 31,902,000 $ 195,000 $ 32,097,000
Stock-based compensation — — 36,000 — 36,000 — 36,000
Distributions paid to noncontrolling interests — — — — — (16,000 ) (16,000 )
Net loss — — — (1,758,000 ) (1,758,000 ) 18,000 (1,740,000 )
Balance — March 31, 2021
23,027,978 $ 23,000 $ 116,371,000 $ (86,214,000 ) $ 30,180,000 $ 197,000 $ 30,377,000

Common Stock

Common

Number

Stock

Additional

Total

of

Par

Paid-In

Accumulated

Stockholders’

Noncontrolling

Total


Shares

Value

Capital

Deficit

Equity

Interests

Equity
Balance — January 1, 2022

23,027,978

$
23,000

$
116,401,000

$
(85,041,000)

$
31,383,000

$
171,000

$
31,554,000
Stock-based compensation

0

0

8,000

0

8,000

0

8,000
Distributions paid to noncontrolling interests

0

0

0

0

0

(18,000)

(18,000)
Net (loss) income

0

0

0

(325,000)

(325,000)

19,000

(306,000)
Balance — March 31, 2022

23,027,978

$
23,000

$
116,409,000

$
(85,366,000)

$
31,066,000

$
172,000

$
31,238,000

Common Stock

Common

Number

Stock

Additional

Total

of

Par

Paid-In

Accumulated

Stockholders’

Noncontrolling

Total


Shares

Value

Capital

Deficit

Equity

Interests

Equity
Balance — January 1, 2021

23,027,978

$
23,000

$
116,335,000

$
(84,456,000)

$
31,902,000

$
195,000

$
32,097,000
Stock-based compensation

0

0

36,000

0

36,000

0

36,000
Distributions paid to noncontrolling interests

0

0

0

0

0

(16,000)

(16,000)
Net (loss) income

0

0

0

(1,758,000)

(1,758,000)

18,000

(1,740,000)
Balance — March 31, 2021

23,027,978

$
23,000

$
116,371,000

$
(86,214,000)

$
30,180,000

$
197,000

$
30,377,000
Common Stock
Number
of
Shares Common
Stock
Par
Value Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Balance — January 1, 2020
23,027,978 $ 23,000 $ 116,184,000 $ (83,843,000 ) $ 32,364,000 $ 200,000 $ 32,564,000
Stock-based compensation — — 42,000 — 42,000 — 42,000
Distributions paid to noncontrolling interests — — — — — (12,000 ) (12,000 )
Net loss — — — (213,000 ) (213,000 ) 12,000 (201,000 )
Balance — March 31, 2020
23,027,978 $ 23,000 $ 116,226,000 $ (84,056,000 ) $ 32,193,000 $ 200,000 $ 32,393,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
~~Page 5 of 37~~
5
Table of Contents
SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net loss $ (1,740,000 ) $ (201,000 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt issuance costs 18,000 33,000
Depreciation and amortization 399,000 417,000
Straight-line rents 406,000 (62,000 )
Stock-based compensation expense 36,000 42,000
Loss (income) from equity-method investees 235,000 (30,000 )
Change in operating assets and liabilities:
Tenant and other receivables, net 294,000 300,000
Other assets 473,000 (110,000 )
Accounts payable and accrued liabilities (30,000 ) (198,000 )
Net cash provided by operating activities 91,000 191,000

Cash flows from investing activities:
Investment in equity-method investees (123,000 ) -
Distributions received from equity-method investees 413,000 381,000
Payments from notes receivable 60,000 91,000
Net cash provided by investing activities 350,000 472,000

Cash flows from financing activities:
Payments of loans payable (265,000 ) (206,000 )
Distributions paid to noncontrolling interests (16,000 ) (12,000 )
Net cash used in financing activities (281,000 ) (218,000 )
Net increase in cash, cash equivalents and restricted cash 160,000 445,000
Cash, cash equivalents and restricted cash – beginning of period 17,591,000 16,077,000
Cash, cash equivalents and restricted cash – end of period $ 17,751,000 $ 16,522,000

Supplemental disclosure of cash flow information:
Cash paid for interest $ 431,000 $ 503,000

Three Months Ended March 31,


2022

2021
Cash flows from operating activities:




Net loss

$
(306,000)

$
(1,740,000)
Adjustments to reconcile net loss to net cash provided by operating activities:

Amortization of debt issuance costs

227,000

18,000
Depreciation and amortization

1,831,000

399,000
Amortization of above-market lease intangible

16,000

0
Straight-line rents

(374,000)

406,000
Stock-based compensation expense

8,000

36,000
(Income) loss from equity-method investees

(642,000)

235,000
Change in operating assets and liabilities:

Tenant and other receivables, net

184,000

294,000
Other assets, net

(135,000)

473,000
Accounts payable and accrued liabilities

2,660,000

(30,000)
Net cash provided by operating activities

3,469,000

91,000

Cash flows from investing activities:

Investment in equity-method investees

(69,000)

(123,000)
Distributions received from equity-method investees

133,000

413,000
Payments from notes receivable

0

60,000
Net cash provided by investing activities

64,000

350,000

Cash flows from financing activities:

Payments of loans payable

(275,000)

(265,000)
Distributions paid to noncontrolling interests

(18,000)

(16,000)
Net cash used in financing activities

(293,000)

(281,000)

Net increase in cash, cash equivalents and restricted cash

3,240,000

160,000
Cash, cash equivalents and restricted cash – beginning of period

13,161,000

17,591,000
Cash, cash equivalents and restricted cash – end of period

$
16,401,000

$
17,751,000

Supplemental disclosure of cash flow information:

Cash paid for interest

$
2,000,000

$
431,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
~~Page 6 of 37~~
6
Table of Contents
SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, ~~2021~~2022
(Unaudited)
1. Organization
Summit Healthcare REIT, Inc. (“Summit”) is a real estate investment trust that owns 100% of ~~three~~14 properties, 95.3% of four properties, a 10% equity interest in an unconsolidated equity-method investment that holds 17 properties, a 35% equity interest in an unconsolidated equity-method investment that holds ~~two properties,~~1 property, a 20% equity interest in an unconsolidated equity-method investment that holds ~~two~~2 properties, a 10% equity interest in an unconsolidated equity-method investment that holds ~~nine~~9 properties, a 10% equity interest in an unconsolidated equity-method investment that holds six ~~properties and a~~properties. In June 2021, we sold our 15% equity interest in an unconsolidated equity-method investment that ~~holds~~held 14 properties. Summit is a Maryland corporation, formed in 2004 under the General Corporation Law of Maryland for the purpose of investing in and owning real estate. As used in these notes, the “Company”, “we”, “us” and “our” refer to Summit and its consolidated subsidiaries, including but not limited to Summit Healthcare Operating Partnership, L.P. (the “Operating Partnership”), except where the context otherwise requires.
We conduct substantially all of our operations through the Operating Partnership, which is a Delaware limited partnership. We own a 99.88% general partner interest in the Operating Partnership, and Cornerstone Realty Advisors, LLC (“CRA”), a former affiliate, owns a 0.12% limited partnership interest.
Summit and the Operating Partnership are managed and operated as one entity, and Summit has no significant assets other than its investment in the Operating Partnership. Summit, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership. Therefore, the assets and liabilities of Summit and the Operating Partnership are the same.
Cornerstone Healthcare Partners LLC – Consolidated Joint Venture
We own 95% of Cornerstone Healthcare Partners LLC (“CHP LLC”), which was formed in 2012, and the remaining 5% noncontrolling interest is owned by Cornerstone Healthcare Real Estate Fund, Inc. (“CHREF”), an affiliate of CRA. CHP LLC is consolidated within our condensed consolidated financial statements and owns ~~four~~4 properties (the “JV Properties”) with another partially owned subsidiary. As of March 31, 2022 and December 31, 2021, we own a 95.3% interest in the ~~four~~4 JV Properties, and CHREF owns a 4.7% interest. ~~See~~
Summit Union Life Holdings, LLC – Equity-Method Investment
In April 2015, through our Operating Partnership, we entered into a limited liability company agreement with Best Years, LLC (“Best Years”), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and formed Summit Union Life Holdings, LLC (the “SUL JV”). The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a 10%interest in the SUL JV which owns 17 properties.
Summit Fantasia Holdings, LLC – Equity-Method Investment
In September 2016, through our Operating Partnership, we entered into a limited liability company agreement with Fantasia Investment III LLC (“Fantasia”), an unrelated entity and a U.S.-based affiliate of Fantasia Holdings Group Co., Limited (a Chinese corporation listed on the Stock Exchange of Hong Kong (HKEX)), and formed Summit Fantasia Holdings, LLC (the “Fantasia JV”). The Fantasia JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a 35%interest in the Fantasia JV which owns ~~two properties.~~1 property at March 31, 2022 and owned 2 properties at December 31, 2021.
7
Table of Contents
Summit Fantasia Holdings II, LLC – Equity-Method Investment
In December 2016, through our Operating Partnership, we entered into a limited liability company agreement with Fantasia, and formed Summit Fantasia Holdings II, LLC (the “Fantasia II JV”). The Fantasia II JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a 20%interest in the Fantasia II JV which owns ~~two~~2 properties.
~~Page 7 of 37~~
Summit Fantasia Holdings III, LLC– Equity-Method Investment
In July 2017, through our Operating Partnership, we entered into a limited liability company agreement with Fantasia and formed Summit Fantasia Holdings III, LLC (the “Fantasia III JV”). The Fantasia III JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a 10%interest in the Fantasia III JV which owns ~~nine~~9 properties.
Summit Fantasy Pearl Holdings, LLC– Equity-Method Investment
In October 2017, through our Operating Partnership, we entered into a limited liability company agreement with Fantasia, Atlantis Senior Living 9, LLC, a Delaware limited liability company (“Atlantis”), and Fantasy Pearl LLC, a Delaware limited liability company (“Fantasy”), and formed Summit Fantasy Pearl Holdings, LLC (the “FPH JV”). The FPH JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a 10%interest in the FPH JV which owns ~~six~~6 properties.
Indiana JV– Equity-Method Investment
In ~~February 2019, through~~June 2021, we sold our wholly-owned subsidiary, Summit Indiana, LLC, we formed a new joint venture, a Delaware limited liability company (the “Indiana JV”). On March 13, 2019, we entered into a Limited Liability Company Agreement (“Indiana JV Agreement”) with two unrelated parties: a real estate holding company and a global institutional asset management firm, both Delaware limited liability companies. The Indiana JV is not consolidated in our condensed consolidated financial statements and is accounted for under the equity-method. As of March 31, 2021 and December 31, 2020, we have a 15% equity interest in the Indiana ~~JV which owns 14 properties.~~joint venture (the “Indiana JV”) for approximately $5.4 million. See Note 5 for further information.
As of December 31, 2021, we have a 0% interest in the Indiana JV.
Summit Healthcare Asset Management, LLC (TRS)
Summit Healthcare Asset Management, LLC (“SAM TRS”) is our wholly-owned taxable REIT subsidiary (“TRS”). We serve as the manager of the SUL JV, Fantasia JV, Fantasia II JV, Fantasia III JV, and FPH JV, and ~~as the operating member of~~ the Indiana JV prior to the sale of our equity interest on June 11, 2021 (collectively, our “Equity-Method Investments”), and provide management services in exchange for fees and reimbursements. All ~~acquisition fees and~~ asset management fees earned by us are paid to SAM TRS and expenses incurred by us, as the manager, are reimbursed from SAM TRS. See Notes 5 and 7 for further information.

2. Summary of Significant Accounting Policies
For more information regarding our significant accounting policies and estimates, please refer to “Summary of Significant Accounting Policies” contained in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the Securities and Exchange Commission (“SEC”) on March ~~29, 2021. There have been no material changes~~31, 2022. In addition, refer to our ~~policies since that filing except as noted under Recently Adopted Accounting Pronouncements.~~
revenue recognition note below related to our resident fees and services.
The accompanying condensed consolidated balance sheet at December 31, ~~2020~~2021 has been derived from the audited consolidated financial statements at that date. We assume that users of these condensed consolidated financial statements have read or have access to the audited December 31, ~~2020~~2021 consolidated financial statements and contained in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on March ~~29, 2021~~31, 2022 and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate those contained in our most recent Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 have been omitted in this report.
~~Page~~ 8
Table of 37Contents
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, the Operating Partnership and its consolidated companies and are prepared in accordance with U.S. generally accepted accounting principles ("(“U.S. ~~GAAP"~~GAAP”). All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying financial information reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. Operating results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

March 31,
2021 December 31,
2020

March 31,

December 31,


2022

2021
Cash and cash equivalents $ 14,752,000 $ 14,658,000

$
13,705,000

$
10,488,000
Restricted cash 2,999,000 2,933,000

2,696,000

2,673,000
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows $ 17,751,000 $ 17,591,000

$
16,401,000

$
13,161,000

~~Recently Adopted Accounting Pronouncements~~Coronavirus (COVID-19)
~~In January 2020,~~The world was, and continues to be, impacted by the ~~Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2020-01 to clarify~~COVID-19 pandemic. The healthcare industry was among those most adversely affected by the ~~interaction among the accounting standards for equity securities, equity method investments~~COVID-19 pandemic. During 2021 and certain derivatives. The new ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and ~~interim periods within those fiscal years. The adoption~~continuing into 2022, two of ~~the new standard on January 1, 2021 did not have a material effect on the Company’s financial position, results of operations, or cash flows.~~
~~Coronavirus (COVID-19)~~
Since it was first reported in December 2019, COVID-19 has spread globally, including to every state in the United States and more than 200 countries. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and measures to prevent its spread negatively impacted senior housing and skilled nursing facilities in a number of ways, including but not limited to:
~~Decreased occupancy and increased operating costs for the Company’s~~our tenants and borrowers, which may adversely impact their ability to make full and timely rental and debt payments to the Company. The Company may have to restructure tenants’ long-term rent obligations in the future and may not be able to do so on terms that are as favorable to the Company as those currently in place. Reduced or modified rental and debt amounts could result in the determination that the full amounts of the Company’s real estate properties and notes receivable are not recoverable, which could result in an impairment charge.
Decreased occupancy and increased operating costs for the Company’s Equity-Method Investments that own senior housing and skilled nursing facilities, which may negatively impact the operating results of these investments. The Equity-Method Investments may have to restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to the Equity-Method Investments as those currently in place. Prolonged deterioration in the operating results for these investments could result in the determination that the full amounts of the Company’s investments are not recoverable, which could result in an impairment charge.
In October 2020, under a court order, a receiver assumed the responsibilities of operating and managing the Pennington Gardens facility in Chandler, Arizona. For the period ended March 31, 2021, this tenant experienced a material adverse effect on ~~its~~their operations related to COVID-19, ~~and that has~~which affected ~~its~~their ability to make ~~its~~their rent payments in ~~2021. We are currently working with this tenant~~2021 (see Note 3 for further information on a revised rent schedule for 2021, and during the three month period ended March 31, 2021 recorded rent payments on a cash basis and wrote off the remaining straight-line rent receivable. We have not seen anyits impact on ~~debt payments from borrowers or notes receivable.~~us).
~~Additionally, some~~The extent to which COVID-19 could continue to impact our business, cash flow and results of ~~our Equity-Method Investment tenants have experienced decreased occupancy~~operations will depend on future developments, which are highly uncertain and ~~increased operating costs related to~~cannot be predicted with confidence, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and ~~for~~its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the ~~Indiana JV, this has had a material adverse effect on their ability~~spread of COVID-19 and how quickly and to ~~meet their financial~~what extent normal economic and ~~other contractual obligations to the Indiana JV, including the payment of rent, which resulted in a temporary rent reduction.~~
It is impossible to predict the continuing effect and ultimate impact of the COVID-19 pandemic on our operations and results as the situation is continuing to evolve. Healthcare personnel and residents of long-term care facilities, including SNF, AL, and MC facilities, have been included among those offered the first supply of the COVID-19 vaccines. Many of our consolidated and Equity Method Investments facilities have administered the vaccine to residents and employees. It is too early to assess the total effect of the vaccinations on the industry, but it is believed they will help save the lives of those who are most at risk, as well as lessen the operational and financial burden on our facilities and their employees.operating conditions can resume. The ~~rapid development and~~ fluidity of this situation precludes any prediction as to the ultimate material adverse impact on the demand for senior housing and skilled nursing and presents material uncertainty and risk with respect to our business, operations, financial condition and liquidity, including recording impairments, lease modifications and credit losses ~~associated with notes receivable~~ in future periods.
Reclassification of Intangible Lease Assets
The following table provides a reconciliation for the reclassification of our intangible lease assets as of December 31, 2021 in our consolidatedbalance sheets to conform to the presentation as of March 31, 2022:


As previously reported

Increase (decrease)

As reclassified
Real estate assets, net

$
192,862,000

$
(13,760,000)

$
179,102,000
Intangible lease assets, net

$
—

$
14,687,000

$
14,687,000
Other assets, net

$
1,349,000

$
(927,000)

$
422,000
Total assets

$
219,126,000

$
—

$
219,126,000

~~CARES Act~~The intangible lease assets related to our prior acquisitions in 2021 were reclassified from real estate properties, net and other assets, net into a separate line item as of March 31, 2022. The result of this reclassification did not have any effect on our total assets, liabilities, accumulated deficit, net loss or statements of cash flows.
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Revenue Recognition - Resident Fees and Services
~~In March 2020,~~We recognize resident fees and services revenue at the ~~Coronavirus Aid, Relief,~~amount that we expect to be entitled to in exchange for providing resident care and ~~Economic Security Act was enacted~~services. Resident fees are recognized and ~~amended~~billed monthly based on the contracted rate in ~~December 2020 (the “CARES Act”~~the resident lease agreements and the reimbursements from Medicaid are based on contracted reimbursement rates. These amounts are paid directly from the residents and/or third-party payors (currently only Medicaid). Revenue is recognized as performance obligations are satisfied. Performance obligations are determined based on the nature of the services provided by us. The majority of resident fees and services is attributable to the portion of the base monthly lease fee in the resident lease agreement. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes the resident fee revenue based upon the predominant component, either the lease or non-lease component, of the contracts. The Company has determined that the lease component is the predominant component and the services included under the resident agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. Resident services consist of care level services and certain other ancillary services (i.e., housekeeping, laundry, etc.). ~~The CARES Act is~~These services are provided and paid for in addition to the standard fees included in each resident lease (i.e., room and board, standard meals, etc.).
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a ~~stimulus package that provides~~result of investigations by governmental agencies, various ~~forms of relief through, among other things, grants, loans~~healthcare organizations have received requests for information and ~~tax incentives to certain businesses~~notices regarding alleged noncompliance with those laws and ~~individuals. In particular, the CARES Act created an emergency lending facility known as the Paycheck Protection Program (PPP),~~regulations, which, ~~is administered by the Small Business Administration (SBA) and provides federally insured and,~~ in some ~~cases, forgivable loans~~instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to ~~certain eligible businesses so~~future government review and interpretation as well as significant regulatory action, including fines, penalties and potential exclusion from the related programs. There can be no assurance that ~~those businesses can continue to cover certain of their near-term operating expenses~~regulatory authorities will not challenge our compliance with these laws and ~~retain employees. We did~~regulations, and it is not obtain a PPP loan. We have evaluated the CARES Act and determined that there was no impact on the Company for the three month period ended March 31, 2021 or the year ended December 31, 2020. We will continue to evaluate and monitor the CARES Act, and any new COVID-19-related legislationpossible to determine the ~~ultimate~~ impact (if any) such claims or penalties would have upon us.
Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and ~~benefits, if any,~~are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the ~~Company.~~amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigation.

~~Page 9 of 37~~
3. Investments in Real Estate Properties
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, our investments in real estate properties including those held by our consolidated subsidiaries (excluding the 5035 properties owned by our unconsolidated Equity-Method Investments) are set forth below:

March 31,
2021

December 31,
2020

March 31,

December 31,


2022

2021
Land $ 6,237,000 $ 6,237,000

$
15,565,000

$
15,565,000
Buildings and improvements 48,295,000 48,295,000

166,989,000

166,989,000
Less: accumulated depreciation (10,188,000 ) (9,853,000 )

(12,546,000)

(11,395,000)
Buildings and improvements, net 38,107,000 38,442,000

154,443,000

155,594,000
Furniture and fixtures 4,230,000 4,230,000

12,137,000

12,137,000
Less: accumulated depreciation (4,033,000 ) (3,988,000 )

(4,626,000)

(4,194,000)
Furniture and fixtures, net 197,000 242,000

7,511,000

7,943,000
Real estate properties, net $ 44,541,000 $ 44,921,000

$
177,519,000

$
179,102,000

For the three months ended March 31, 2022 and 2021, depreciation and ~~2020, depreciation~~amortization expense (excluding lease intangibles amortization and leasing commission amortization) was approximately ~~$0.4~~$1.6 million and $0.4 million, respectively.
As of March 31, ~~2021,~~2022, our portfolio consisted of ~~seven~~18 real estate properties, 17 of which were 100% leased to the tenants of the related facilities. The remaining property is leased to an affiliated subsidiary (see below under Pennington Gardens Operations LLC).
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During 2021, our tenants for the Pennington Gardens and Sundial Assisted Living facilities experienced a material adverse effect on their operations related to COVID-19 and other operator issues that affected their ability to make their rent payments in 2022 and 2021. As a result, we experienced the following impacts:
Pennington Gardens Operations LLC
In March 2021, under a receivership, we began recording rent payments on a cash basis for our Pennington Gardens facility and wrote off the remaining straight-line rent receivable of $0.4 million. In October 2021, we reached an agreement with the tenant to terminate the lease. We notified the lender and the U.S. Department of Housing and Urban Development (“HUD”) and requested emergency approval to change the operator and terminate the lease.
On February 3, 2022, the current receiver, who was acting as the operator, received the license to be the licensed operator. As such, on February 10, 2022, the tenant’s lease was terminated, and we received $0.2 million from the tenant as part of the settlement agreement which was recorded in total rental revenues in the condensed consolidated statements of operations for the three months ended March 31, 2022. Concurrently, we entered into a new lease agreement with Pennington Gardens Operations LLC, the newly formed operating company for Pennington Gardens, which is a wholly owned subsidiary of SHOP TRS LLC, a recently formed wholly-owned taxable REIT subsidiary of Summit. As such, the operations of Pennington Gardens are consolidated in our financial statements beginning February 11, 2022, and all intercompany transactions have been eliminated. For the three months ended March 31, 2022, revenues from Pennington Gardens Operations are recorded under resident fees and services and costs are recorded under resident costs in the condensed consolidated statements of operations.
Sundial Operations LLC
For our Sundial Assisted Living facility in Redding, California, in October 2021, we reached an agreement with the tenant to terminate the lease, and we are currently requesting approval from HUD to terminate the lease and install a new licensed operator/manager. Once approved by HUD, the lease will be terminated and the operations of Sundial Assisted Living will be consolidated in our financial statements. Beginning in June 2021, we recorded rent payments on a cash basis and in May 2021, wrote off the remaining straight-line rent receivable of $0.1 million.
The following table provides summary information regarding our portfolio (excluding the 5035 properties owned by our unconsolidated Equity-Method ~~Investments)~~Investments and the $12.75 million loan from Oxford Finance, LLC (“Oxford”) (see Note 4) with Summit Georgia Holdings LLC, our wholly-owned subsidiary) as of March 31, ~~2021:~~2022:

Property Location Date Purchased Type⁽¹⁾ Purchase
Price
Loans
Payable,
Excluding
Debt
Issuance
Costs

Sheridan Care Center Sheridan, OR August 3, 2012 SNF $ 4,100,000 $ 4,290,000
Fernhill Care Center Portland, OR August 3, 2012 SNF 4,500,000 3,764,000
Friendship Haven Healthcare
and Rehabilitation Center Galveston County,
TX September 14, 2012 SNF 15,000,000 11,695,000
Pacific Health and
Rehabilitation Center Tigard, OR December 24, 2012 SNF 8,140,000 6,274,000
Brookstone of Aledo Aledo, IL July 2, 2013 AL 8,625,000 6,828,000
Sundial Assisted Living Redding, CA December 18, 2013 AL 3,500,000 3,779,000
Pennington Gardens Chandler, AZ July 17, 2017 AL/MC 13,400,000 10,292,000
Total: $ 57,265,000 $ 46,922,000

Loans

Payable,

Excluding

Debt

Purchase

Issuance
Property

Location

Date Purchased

Type⁽¹⁾

Price

Costs
Sheridan Care Center

Sheridan, OR

August 3, 2012

SNF

$
4,100,000

$
4,127,000
Fernhill Care Center

Portland, OR

August 3, 2012

SNF

4,500,000

3,621,000
Friendship Haven Healthcare and Rehabilitation Center

Galveston County, TX

September 14, 2012

SNF

15,000,000

11,487,000
Pacific Health and Rehabilitation Center

Tigard, OR

December 24, 2012

SNF

8,140,000

6,037,000
Brookstone of Aledo

Aledo, IL

July 2, 2013

AL

8,625,000

6,699,000
Sundial Assisted Living

Redding, CA

December 18, 2013

AL

3,500,000

3,726,000
Pennington Gardens ⁽²⁾

Chandler, AZ

July 17, 2017

AL/MC

13,400,000

10,156,000
Yucaipa Hill Post Acute

Yucaipa, CA

July 2, 2021

SNF

10,715,000

8,014,000
Creekside Post Acute

Yucaipa, CA

July 2, 2021

SNF

4,780,000

3,575,000
University Post Acute

Mentone, CA

July 2, 2021

SNF

4,560,000

3,411,000
Calhoun Health Center

Calhoun, GA

December 30, 2021

SNF

7,670,000

6,549,000
Maple Ridge Health Care Center

Cartersville, GA

December 30, 2021

SNF

13,548,000

11,568,000
Chatsworth Health Care Center

Chatsworth, GA

December 30, 2021

SNF

29,785,000

25,432,000
East Lake Arbor

Decatur, GA

December 30, 2021

SNF

15,640,000

13,354,000
Fairburn Health Care Center

Fairburn, GA

December 30, 2021

SNF

14,644,000

12,503,000
Grandview Health Care Center

Jasper, GA

December 30, 2021

SNF

10,061,000

8,591,000
Rosemont at Stone Mountain

Stone Mountain, GA

December 30, 2021

SNF

23,908,000

20,414,000
Willowwood Nursing Center & Rehab

Flowery Branch, GA

December 30, 2021

SNF

14,744,000

12,589,000
Total:

$
207,320,000

$
171,853,000
(1)
SNF is an abbreviation for skilled nursing facility.
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AL is an abbreviation for assisted living facility.
MC is an abbreviation for memory care facility.
(2) See above under Pennington Gardens Operations LLC.
~~Page 10 of 37~~
Future Minimum Lease Payments
The future minimum lease payments to be received under our existing tenant operating leases (excluding the 5035 properties owned by our unconsolidated Equity-Method ~~Investments)~~Investments and the intercompany lease between our wholly-owned subsidiaries, Summit Chandler LLC and Pennington Gardens Operations LLC) as of March 31, ~~2021,~~2022, for the period from April 1, ~~2021~~2022 to December 31, ~~2021~~2022 and for each of the four following years and thereafter ending December 31 are as follows:

Years ending


April 1, 2021 to December 31, 2021 $ 3,394,000
2022 4,613,000
April 1, 2022 to December 31, 2022

$
13,281,000
2023 4,708,000

17,983,000
2024 4,350,000

18,272,000
2025 4,437,000

18,566,000
2026

18,865,000
Thereafter 15,441,000

165,462,000
$ 36,943,000

$
252,429,000

2022 Acquisitions
None.
2021 Acquisitions
CA3 Properties
~~None.~~On July 2, 2021, through our wholly-owned subsidiary, we acquired 3 skilled nursing facilities, 2 located in Yucaipa, California and 1 located in Mentone, California (collectively, the “CA3 Properties”), for the purchase price of $20,055,000, which was funded through cash on hand plus the proceeds from the loan described in Note 4. We incurred approximately $80,000 in acquisition costs in connection with these acquisitions. The CA3 Properties are leased to 3 tenants under three separate 15-year triple net leases, each of which has two five-year renewal options.
GA8 Properties
~~2020 Acquisitions~~On December 30, 2021, through Summit Georgia Holdings LLC, our wholly-owned subsidiary, we acquired 8 skilled nursing facilities located in Georgia (collectively, the “GA8 Properties”), for the total purchase price of $130,000,000, which was funded through cash on hand plus the proceeds from the loans described in Note 4. The GA8 Properties are leased to eight tenants under eight separate 15-year triple net leases, each of which has two five-year renewal options.
~~None.~~
Leasing Commissions
As a self-managed REIT, we ~~no longer pay~~have not paid leasing ~~commissions.~~commissions since 2013. Leasing commissions are capitalized at cost and amortized on a straight-line basis over the related lease term. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, total costs incurred were $1.1 million, and the unamortized balance of capitalized leasing commissions was approximately ~~$0.5~~$0.4 million and ~~$0.6~~$0.5 million, respectively. Amortization expense for each of the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 was approximately $17,000.

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4. Loans Payable
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, our loans payable consisted of the following:

March 31,
2021

December 31,
2020


March 31, 2022

December 31, 2021
Loans payable to Lument (formerly ORIX Real Estate Capital, LLC) (insured by HUD) in monthly installments of approximately $183,000, including interest, ranging from a fixed rate of 2.79% to 4.2%, due in September 2039 through April 2055, and as of March 31, 2022 and December 31, 2021, collateralized by Sheridan, Fernhill, Pacific Health, Aledo, Sundial and Friendship Haven.

$
35,697,000

$
35,934,000

Loan payable to Capital One Multifamily Finance, LLC (insured by HUD) in monthly installments of approximately $49,000, including interest at a fixed rate of 4.23%, due in September 2053, and collateralized by Pennington Gardens. $ 10,292,000 $ 10,330,000

10,156,000

10,194,000

Loans payable to Lument Capital (formerly ORIX Real Estate Capital, LLC) (insured by HUD) in monthly installments of approximately $183,000, including interest, ranging from a fixed rate of 2.79% to 4.2%, due in September 2039 through April 2055, and as of March 31, 2021 and December 31, 2020, collateralized by Sheridan, Fernhill, Pacific Health, Friendship Haven, Aledo and Sundial Assisted Living. $ 36,630,000 $ 36,857,000
46,922,000 47,187,000

Loan payable to CIBC Bank, USA in monthly installments of approximately of $65,000 interest only through July 2022 at LIBOR (with a floor of 1%) plus 4% (5% at March 31, 2022 and December 31, 2021), due in July 2024, and as of December 31, 2021, collateralized by Yucaipa Hill Post Acute, Creekside Post Acute and University Post Acute.

15,000,000

15,000,000

Loan payable to CIBC Bank, USA in monthly installments of approximately $314,000 (interest only through December 2023) at SOFR plus 3.50% with a SOFR floor of 0.5%, (4% at March 31, 2022 and December 31, 2021), due in December 2024, and as of March 31, 2022 and December 31, 2021, collateralized by Calhoun Health Center, Maple Ridge Health Care Center, Chatsworth Health Care Center, East Lake Arbor, Fairburn Health Care Center, Grandview Health Care Center, Rosemont at Stone Mountain, and Willowwood Nursing Center & Rehab.

91,000,000

91,000,000

Loan payable to Oxford Finance, LLC in monthly installments of approximately $207,000 (interest only through maturity), at LIBOR (with a floor of 1%) plus 11% (12% at March 31, 2022 and December 31, 2021) due in March 2025, collateralized in second position by Calhoun Health Center, Maple Ridge Health Care Center, Chatsworth Health Care Center, East Lake Arbor, Fairburn Health Care Center, Grandview Health Care Center, Rosemont at Stone Mountain, and Willowwood Nursing Center & Rehab.

20,000,000

20,000,000

Mezzanine Loan payable to Oxford Finance, LLC in monthly installments of approximately $132,000 (interest only through maturity), at LIBOR (with a floor of 1%) plus 11% (12% at March 31, 2022 and December 31, 2021) due in December 2026, secured by the equity interests of our wholly-owned subsidiary, Summit Georgia Holdings LLC, the parent holding company for the GA8 Properties.

12,750,000

12,750,000

184,603,000

184,878,000
Less debt issuance costs (1,895,000 ) (1,913,000 )

(4,281,000)

(4,508,000)
Total loans payable $ 45,027,000 $ 45,274,000

$
180,322,000

$
180,370,000
~~Page 11 of 37~~

As of March 31, ~~2021,~~2022, we have total debt obligations of approximately ~~$46.9~~$184.6 million that will mature between ~~2039~~2024 and 2055. ~~All of our properties are financed with HUD-insured loans by various lenders. See table above listing loans payable for further information.~~ See Note 3 for loans payable balance for each property. All of the loans payable have certain financial and non-financial covenants, including ratios and financial statement considerations. As of March 31, 2022, we were in compliance with all of our debt covenants.
During the three months ended March 31, 2022 and 2021, we incurred approximately $2.6 million and $0.5 million of interest expense, respectively (excluding debt issuance costs amortization and interest expense related to the Oxford mezzanine loan as noted below (“Oxford Monthly Fee”), related to our loans payable.
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Table of Contents
In connection with our loans payable, we incurred debt issuance costs. As of March 31, 2022 and December 31, 2021, the unamortized balance of the debt issuance costs was approximately $4.3 million and $4.5 million, respectively. These debt issuance costs are being amortized over the life of their respective financing agreements using the straight-line basis which approximates the effective interest rate method. For the three months ended March 31, 2022 and 2021, $0.2 million and $18,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations.During the three months ended March 31, 2022, we incurred approximately $0.2 million of interest expense related to the Oxford Monthly Fee and is included in interest expense in our condensed consolidated statements of operations.
The principal payments due on the loans payable (excluding debt issuance costs) for the period from April 1, 2022 to December 31, 2022 and for each of the four following years and thereafter ending December 31 are as follows:

Principal
Years Ending

Amount
April 1, 2022 to December 31, 2022

$
994,000
2023

1,475,000
2024

106,731,000
2025

21,246,000
2026

14,042,000
Thereafter

40,115,000

$
184,603,000

The following information notes our recent loan activity:
CA3 Properties
On July 2, 2021, in conjunction with the acquisition of the CA3 Properties (see Note 3), we entered into a first priority $15.0 million mortgage loan collateralized by the CA3 Properties with CIBC Bank, USA (“CIBC”). The loan bears interest at the One Month London Interbank Offer Rate (“LIBOR”) (with a floor of 1%) plus 4.00%, or the Secured Overnight Financing Rate (“SOFR”) when LIBOR is discontinued, and matures on July 2, 2024. The loan is interest only for the first year and thereafter requires additional monthly installments of principal that are held by the lender in a cash loan guarantee fund until maturity. The loan may be prepaid at any time with no penalty if the CA3 Properties are refinanced through HUD, otherwise we would be required to pay a prepayment premium equal to three percent (3%), two percent (2%) and one percent (1%) of the amount of the outstanding principal balance of the Loan prepaid if such prepayment occurs on or prior to the first (1st), second (2nd) and third (3rd) year anniversary of the closing date, respectively. In the event the Company sells or transfers one or more properties, we would be required to pay an exit fee equal to (i) one-half of one percent (0.5%) of the amount of the outstanding principal balance of the Loan if such sale or transfer occurs on or prior to the second (2nd) year anniversary of the Closing Date; and (ii) zero percent (0%) if such sale or transfer occurs after the second (2nd) year anniversary of the Closing Date.
GA8 Properties
We acquired our interest in the GA8 Properties subject to a $91 million first priority mortgage loan collateralized by those properties, a $20 million subordinated term loan collateralized by those properties and a $12.75 million mezzanine loan secured by the equity interests of the wholly-owned subsidiary, Summit Georgia Holdings LLC, the parent holding company for the GA8 Properties.
On December 30, 2021, we entered into a loan agreement with CIBC for $91.0 million in principal amount. The loan bears interest at the SOFR plus 3.50% with a SOFR floor of 50 basis points, or the bank’s base rate plus 0.75% (with a minimum of 4.0%), and matures on December 30, 2024. The loan is interest-only for two years and then requires additional monthly installments of principal that are held by the lender in a cash loan guarantee fund until maturity. The loan may be prepaid at any time with no penalty if the GA8 Properties are refinanced through HUD, otherwise we would be required to pay an a prepayment premium equal to three percent (3%), two percent (2%) and one percent (1%) of the amount of the outstanding principal balance of the Loan prepaid if such prepayment occurs on or prior to the first (1st), second (2nd) and third (3rd) year anniversary of the closing date, respectively. In the event the Company sells or transfers one or more of the GA8 Properties, we would be required to pay an exit fee equal to (i) one-half of one percent (0.5%) of the amount of the outstanding principal balance of the Loan if such sale or transfer occurs on or prior to the second (2nd) year anniversary of the Closing Date; and (ii) zero percent (0%) if such sale or transfer occurs after the second (2nd) year anniversary of the Closing Date.
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On December 30, 2021, we entered into a subordinated term loan agreement with Oxford for $20.0 million in principal amount. The loan bears interest at LIBOR plus 11.0% with a LIBOR floor of 100 basis points (or with a LIBOR replacement rate), and matures on March 31, 2025. The loan is interest only. The entire loan may be prepaid at any time and would be subject at that time to a prepayment premium fee equal to five percent (5%), two percent (2%) and one percent (1%) of the amount repaid if the repayment is made or the loan is accelerated prior to first (1st), second (2nd) and third (3rd) year anniversary of the closing date, respectively, or no prepayment fee if the GA8 Properties are refinanced through HUD. Additionally, we are required to pay an exit fee of $100,000 if the loan is paid off by December 31, 2024, or $140,000 if the loan is paid off after that date.
On December 30, 2021, we entered into a mezzanine loan agreement with Oxford for $12.75 million in principal amount. The loan bears interest at LIBOR plus 11.0% with a LIBOR floor of 100 basis points (or with a LIBOR replacement rate), and matures on December 30, 2026. The loan is interest-only and requires a monthly fee in the amount of (i) twenty-two percent (22%) of net cash flow attributable to each month or portion thereof during the loan term, and (ii) five percent (5%) of net cash flow attributable to each month or portion thereof during the post-repayment period which is the earlier of (i) the second anniversary of the loan repayment date and (ii) the date upon which Summit no longer owns any direct or indirect interest in any of the properties and all accrued monthly fees, all excess cash fees and all other liabilities then due agent or lenders are indefeasibly paid in full. The entire Oxford mezzanine loan may be prepaid at any time prior to the three-year anniversary and would be subject at that time to a yield maintenance premium fee equal to the interest that would have been paid for the full three years, which will be due and payable upon the earliest of the maturity or acceleration of the loan, or payment of the loan in full.
HUD-insured loans
We have six properties with HUD-insured loans from Lument Capital (formerly ORIX Real Estate Capital, LLC) and one property with a HUD-insured loan from Capital One Multifamily Finance, LLC. See table above listing loans payable for further information.
All of ~~our~~the HUD-insured loans are subject to customary representations, warranties and ongoing covenants and agreements with respect to the operation of the facilities, including the provision for certain maintenance and other reserve accounts for property tax, insurance, and capital expenditures, with respect to the facilities all as described in the HUD agreements. These reserves are included in restricted cash in our ~~condensed~~ consolidated balance sheets. Additionally, all of our HUD-insured loans have certain financial and non-financial covenants, including ratios and financial statement considerations. As of March 31, 2021, we were in compliance with all of our debt covenants.

In connection with our loans payable, we incurred debt issuance costs. As of March 31, 2021 and December 31, 2020, the unamortized balance of the debt issuance costs was approximately $1.9 million. These debt issuance costs are being amortized over the life of their respective financing agreements using the straight-line basis which approximates the effective interest rate method. For the three months ended March 31, 2021 and 2020, $18,000 and $33,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations.
During the three months ended March 31, 2021 and 2020, we incurred approximately $0.5 million and $0.6 million of interest expense (excluding debt issuance costs amortization), respectively, related to our loans payable.
The principal payments due on the loans payable (excluding debt issuance costs) for the period from April 1, 2021 to December 31, 2021 and for each of the four following years and thereafter ending December 31 are as follows:
Years Ending Principal
Amount
April 1, 2021 to December 31, 2021 $ 811,000
2022 1,116,000
2023 1,158,000
2024 1,201,000
2025 1,246,000
Thereafter 41,390,000
$ 46,922,000
~~Page 12 of 37~~

5. Equity-Method Investments
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balances of our Equity-Method Investments were approximately ~~$10.9~~$8.3 million and ~~$11.4~~$7.9 million, respectively, and are as follows:
Summit Union Life Holdings, LLC
The SUL JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the SUL JV (the “SUL LLC Agreement”).
Under the SUL LLC Agreement, net operating cash flow of the SUL JV is distributed monthly, first to the Operating Partnership and Best Years pari passu up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing or another capital event will be paid first to the Operating Partnership and Best Years pari passu until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the SUL JV was approximately ~~$2.6~~$2.8 million and ~~$2.7~~$2.9 million, respectively.
Summit Fantasia Holdings, LLC
The Fantasia JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia JV (the “Fantasia LLC Agreement”).
15
Table of Contents
Under the Fantasia LLC Agreement, net operating cash flow of the Fantasia JV is distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 50% to Fantasia and 50% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 50% to Fantasia and 50% to the Operating Partnership.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the Fantasia JV was approximately ~~$2.1~~$2.4 million and $2.0 million, respectively.
~~Page 13 of 37~~
Summit Fantasia Holdings II, LLC
The Fantasia II JV will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia II JV (the “Fantasia II LLC Agreement”).
Under the Fantasia II LLC Agreement, net operating cash flow of the Fantasia JV is distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 8% return, and thereafter 70% to Fantasia and 30% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia II JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 8% return plus its total capital contribution, and thereafter 70% to Fantasia and 30% to the Operating Partnership.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the Fantasia II JV was approximately ~~$1.4~~$1.3 million and ~~$1.4~~$1.3 million, respectively.
Summit Fantasia Holdings III, LLC
The Fantasia III JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the Fantasia III JV (the “Fantasia III LLC Agreement”).
Under the Fantasia III LLC Agreement, net operating cash flow of the Fantasia III JV is distributed quarterly, first to the Operating Partnership and Fantasia pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 75% to Fantasia and 25% to the Operating Partnership. All capital proceeds from the sale of the properties held by the Fantasia III JV, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 75% to Fantasia and 25% to the Operating Partnership.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the Fantasia III JV was approximately ~~$1.6~~$1.5 million and ~~$1.6~~$1.5 million, respectively.
Summit Fantasy Pearl Holdings, LLC
The FPH JV will continue until an event of dissolution occurs, as defined in the limited liability company agreement of the FPH JV (the “FPH LLC Agreement”).
Under the FPH LLC Agreement, net operating cash flow of the FPH JV is distributed quarterly, first to the members pari passu until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members pari passu until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the FPH JV was approximately $0.3 million and $0.2 million, respectively.
16
Table of Contents
Indiana JV
~~The Indiana JV will continue until an event of dissolution occurs, as defined~~In June 2021, we sold our 15% interest in the Indiana JV ~~Agreement.~~for approximately $5.4 million in cash.
~~Page 14~~As of 37
~~Under the Indiana JV Agreement, net operating cash flow of the Indiana JV is distributed monthly to the members~~ ~~pari passu~~ ~~in accordance with their respective capital percentages, and thereafter as defined~~December 31, 2021, we have a 0% interest in the Indiana ~~JV Agreement.~~JV.
~~As of March 31, 2021 and December 31, 2020, the balance of our equity-method investment related to the Indiana JV was approximately $2.9 million and $3.5 million, respectively.~~
Summarized Financial Data for Equity-Method Investments
Our Equity-Method Investments are significant equity-method investments in the aggregate.

The results of operations of our Equity-Method Investments for the three months ended March 31, 2022 are summarized below:

Fantasia

Fantasia

Fantasia

FPH

Combined


SUL JV

JV

II JV

III JV

JV

Total
Revenue

$
5,195,000

$
729,000

$
716,000

$
2,062,000

$
898,000

$
9,600,000
Income from operations

$
1,598,000

$
1,172,000

$
490,000

$
971,000

$
420,000

$
4,651,000
Net income

$
447,000

$
1,076,000

$
260,000

$
477,000

$
1,211,000

$
3,471,000
Summit interest in Equity-Method Investments net income

$
45,000

$
376,000

$
52,000

$
48,000

$
121,000

$
642,000

The results of operations of our Equity-Method Investments for the three months ended March 31, 2021 are summarized below:

SUL JV Fantasia
JV Fantasia
II JV Fantasia
III JV FPH
JV Indiana JV Combined
Total




Fantasia

Fantasia

Fantasia

FPH



Combined

SUL JV

JV

II JV

III JV

JV

Indiana JV

Total
Revenue $ 5,176,000 $ 929,000 $ 921,000 $ 2,056,000 $ 890,000 $ 250,000 $ 10,222,000

$
5,176,000

$
929,000

$
921,000

$
2,056,000

$
890,000

$
(572,000) ⁽¹⁾

$
9,400,000
Income (Loss) from Operations $ 1,547,000 $ 71,000 $ 485,000 $ 1,037,000 $ 421,000 $ (1,646,000 ) $ 1,915,000
Net Income (Loss) $ 178,000 $ 288,000 $ 249,000 $ 514,000 $ 847,000 $ (3,598,000 ) $ (1,522,000 )
Income (loss) from operations

$
1,547,000

$
71,000

$
485,000

$
1,037,000

$
421,000

$
(1,646,000)

$
1,915,000
Net income (loss)

$
178,000

$
288,000

$
249,000

$
514,000

$
847,000

$
(3,598,000)

$
(1,522,000)
Summit interest in Equity-Method Investments net income (loss) $ 18,000 $ 100,000 $ 50,000 $ 52,000 $ 85,000 $ (540,000 ) $ (235,000 )

$
18,000

$
100,000

$
50,000

$
52,000

$
85,000

$
(540,000)

$
(235,000)
(1) This amount has been revised to reflect the revenues of the Indiana JV prior to the sale of our 15% interest, which includes $0.8 million in above-market lease amortization and $0.2 million in interest income. There was no impact on the loss allocated to the Company as a result of this revision.

~~The results of operations of our Equity-Method Investments for the three months ended March 31, 2020 are summarized below:~~
SUL JV Fantasia
JV Fantasia
II JV Fantasia
III JV FPH
JV Indiana JV Combined
Total
Revenue $ 4,550,000 $ 1,053,000 $ 891,000 $ 2,000,000 $ 885,000 $ 2,947,000 $ 12,326,000
Income from Operations $ 1,878,000 $ 189,000 $ 506,000 $ 1,037,000 $ 421,000 $ 1,868,000 $ 5,899,000
Net Income (Loss) $ 955,000 $ (20,000 ) $ 265,000 $ 400,000 $ (1,354,000 ) $ (104,000 ) $ 142,000
Summit interest in Equity-Method Investments net income (loss) $ 96,000 $ (7,000 ) $ 53,000 $ 39,000 $ (135,000 ) $ (16,000 ) $ 30,000
Distributions from Equity-Method Investments
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we have distributions receivable, which are included in tenant and other receivables in our condensed consolidated balance sheets, as follows:

March 31,
2021

December 31,
2020

March 31,

December 31,


2022

2021
SUL JV $ 271,000 $ 466,000

$
259,000

$
273,000
Fantasia JV 79,000 36,000

235,000

205,000
Fantasia II JV 52,000 51,000

55,000

54,000
Fantasia III JV 202,000 257,000

—

22,000
FPH JV 26,000 26,000

28,000

28,000
Indiana JV 498,000 498,000
Total $ 1,128,000 $ 1,334,000

$
577,000

$
582,000

17
Table of Contents
For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we have received cash distributions, which are included in our cash flows from operating activities in tenant and other receivables, and cash flows from investing activities, as follows:

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Total Cash
Distributions Received Cash Flow from Operating Activities Cash Flow from Investing Activities Total Cash Distributions Received Cash Flow from Operating Activities Cash Flow from Investing Activities

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Cash Flow

Cash Flow

Cash Flow

Cash Flow

Total Cash

from

from

Total Cash

from

from

Distributions

Operating

Investing

Distributions

Operating

Investing


Received

Activities

Activities

Received

Activities

Activities
SUL JV $ 336,000 $ 18,000 $ 318,000 $ 119,000 $ 95,000 $ 24,000

$
152,000

$
44,000

$
108,000

$
336,000

$
18,000

$
318,000
Fantasia JV - - - 144,000 - 144,000

0

0

0

0

0

0
Fantasia II JV 73,000 50,000 23,000 46,000 46,000 -

77,000

52,000

25,000

73,000

50,000

23,000
Fantasia III JV 123,000 51,000 72,000 57,000 40,000 17,000

44,000

44,000

—

123,000

51,000

72,000
FPH JV 38,000 38,000 - 49,000 - 49,000

41,000

41,000

0

38,000

38,000

0
Indiana JV - - - 147,000 - 147,000
Total $ 570,000 $ 157,000 $ 413,000 $ 562,000 $ 181,000 $ 381,000

$
314,000

$
181,000

$
133,000

$
570,000

$
157,000

$
413,000

~~Acquisition and~~ Asset Management Fees
We serve as the manager of our Equity-Method Investments and provide management services in exchange for fees and reimbursements. As the manager, ~~we are paid an acquisition fee, as defined in the applicable joint venture agreements. Additionally,~~ we are paid an annual asset management fee for managing the properties held by our Equity-Method Investments, as defined in those agreements. For each of the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we recorded approximately $0.2 million and $0.3 million,respectively, in ~~acquisition and~~ asset management fees from our Equity-Method Investments (see Note 7).

~~Page 15 of 37~~
6. Receivables
Tenant and Other Receivables, Net
Tenant and other receivables, net consists of:

March 31,
2021

December 31,
2020

March 31,

December 31,


2022

2021
Straight-line rent receivables $ 2,366,000 $ 2,772,000

$
2,769,000

$
2,395,000
Distribution receivables from Equity-Method Investments 1,128,000 1,334,000

577,000

582,000
Asset management fees 384,000 432,000

213,000

323,000
Other receivables 51,000 139,000

193,000

86,000
Total $ 3,929,000 $ 4,677,000

$
3,752,000

$
3,386,000

7. Related Party Transactions
~~CRA~~
Prior to the termination of our advisory agreement on April 1, 2014 with CRA (our former advisor, a related party), we incurred costs related to fees paid and costs reimbursed for services rendered to us by CRA through September 30, 2014. Some of the fees we had paid to CRA were considered to be in excess of allowed amounts and, therefore, CRA was required to reimburse us for the amount of the excess costs we paid to them. As of March 31, 2021 and December 31, 2020, the receivables from CRA are fully reserved due to the uncertainty of collectability and are included in tenant and other receivables in our condensed consolidated balance sheets (see Note 10).
~~As of March 31, 2021 and December 31, 2020, we had the following receivables and reserves related to CRA:~~
Receivables Reserves Balance
Organizational and offering costs $ 738,000 $ (738,000 ) $ -
Asset management fees and expenses 32,000 (32,000 ) -
Operating expenses (direct and indirect) 189,000 (189,000 ) -
Operating expenses (2%/25% Test) 1,717,000 (1,717,000 ) -
Total $ 2,676,000 $ (2,676,000 ) $ -
Equity-Method Investments
See Notes 5 and 6 for further discussion of distributions and ~~acquisition and~~ asset management fees related to our Equity-Method Investments.

8. Intangible Lease Assets
~~Page 16~~Intangible lease assets as of 37March 31, 2022 and December 31, 2021 are as follows:


March 31,

December 31,

2022

2021
In-place leases

$
13,778,000

$
13,778,000
Less: accumulated amortization

(247,000)

(18,000)
In-place leases, net

13,531,000

13,760,000
Above-market leases

959,000

959,000
Less: accumulated amortization

(48,000)

(32,000)
Above-market leases, net

911,000

927,000
Total intangible lease assets, net

$
14,442,000

$
14,687,000

18
Table of Contents
For the three months ended March 31, 2022, amortization expense for intangible lease assets was approximately $0.2 million, of which approximately $16,000 relates to the amortization of above market leases which is included within rental revenues in the accompanying condensed consolidated statements of operations.
Expected future amortization of the intangible lease assets as of March 31, 2022, for the period from April 1, 2022 to December 31, 2022 and for each of the four following years and thereafter ending December 31 are as follows:
8.

Years ending December 31,



April 1, 2022 to December 31, 2022

$
735,000
2023

980,000
2024

980,000
2025

980,000
2026

980,000
Thereafter

9,787,000

$
14,442,000

9. Concentration of Risk
Our cash is generally invested in short-term money market instruments. As of March 31, ~~2021,~~2022, we had cash and cash equivalent accounts in excess of FDIC-insured limits. However, we do not believe the risk associated with this excess is significant.
As of March 31, ~~2021,~~2022, we owned ~~one property~~8 properties in Georgia, 4 properties in California, ~~three~~3 properties in Oregon, ~~one~~1 property in Texas, ~~one~~1 property in Illinois, and ~~one~~1 property in Arizona (excluding the 5035 properties held by our Equity-Method Investments). Accordingly, there is a geographic concentration of risk subject to economic conditions in certain states.
Additionally, for the three months ended March 31, ~~2021,~~2022, we leased our ~~seven~~18 real estate properties to ~~five~~16 different tenants under long-term triple net leases, and ~~four~~3 of the ~~five~~16 tenants each represented more than 10% of our rental revenue. For the three months ended March 31, ~~2020,~~2021, we leased our ~~seven~~7 real estate properties to ~~five~~5 different tenants under long-term triple net leases, and ~~four~~4 of the five tenants each represented ~~rental revenue greater~~more than 10% ~~(35%, 24%, 20% and 15%).~~
of our rental revenue.
As of March 31, ~~2021, we had one tenant that constituted~~2022, our GA8 Properties are considered to be a significant asset concentration as the aggregate net assets of the ~~tenants was~~GA8 Properties were greater than 20% of our total ~~assets.~~assets due to cross-default provisions in the leases.

9.10. Fair Value Measurements of Financial Instruments
Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, ~~notes receivable,~~ tenant and other receivables, certain other assets, accounts payable and accrued liabilities, security deposits and loans payable. With the exception of the loans payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value of loans payable was ~~$52.3~~$177.1 million and ~~$52.6~~$177.3 million, compared to the principal balance (excluding debt discount) of ~~$46.9~~$184.6 million and ~~$47.2~~$184.9 million, respectively. The fair value of loans payable was estimated using lending rates available to us for financial instruments with similar terms and maturities. To estimate fair value as of March 31, ~~2021,~~2022, we utilized discount rates ranging from ~~2.8%~~4.0% to ~~4.2%~~12.0% and a weighted average discount rate of ~~2.8%~~6.0%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our loans payable are classified as Level 3 liability within the fair value hierarchy.
As a result of our ongoing analysis for potential impairment of our investments in real estate, we may be required to adjust the carrying value of certain assets to their estimated fair values, or estimated fair value less selling costs, under certain circumstances. NoNaN impairments were recorded during the three months ended March 31, ~~2021~~2022 and ~~2020.~~
2021.
At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

~~10.~~19
Table of Contents
11. Commitments and Contingencies
We inspect our properties under a Phase I assessment for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our consolidated financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
Our commitments and contingencies include the usual obligations of real estate owners and licensed operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial condition, results of operations and cash flows. We are also subject to contingent losses resulting from litigation against the Company.
~~Page 17 of 37~~
Legal Proceedings
On April 1, 2014, CRA and Cornerstone Ventures, Inc. filed a complaint in the Superior Court of California for the County of Orange-Central Justice Center, Case No. 30-2014-00714004-CU-BT-CJC, naming the Company, its former directors, one of its officers and one of its former officers as defendants, seeking declaratory and injunctive relief and compensatory and punitive damages. On September 17, 2014, we filed a First Amended Cross-Complaint seeking compensatory damages and an accounting pursuant to Sections 10(c)(i) and 17(c)(ii) of the Advisory Agreement and including any monies Plaintiffs and Terry Roussel directly or indirectly received from or paid to the Company. On February 22, 2018, the action was assigned to a different trial judge. On May 29, 2018, the Company filed a motion for terminating and monetary sanctions against CRA, Cornerstone Ventures, Inc. and their counsel, Winget Spadafora & Schwartzberg. On November 30, 2018, the new trial judge vacated the trial date, pending resolution of the Company’s motion for terminating and monetary sanctions against CRA and Cornerstone Ventures, Inc. and denied the Company’s motion for sanctions against Winget Spadafora & Schwartzberg. On February 13, 2019, the trial judge held another hearing on the Company’s motion for terminating and monetary sanctions and indicated that it intended to grant the Company’s motion for terminating sanctions and award the Company monetary sanctions. On March 14, 2019, the Court entered an Order and Judgment granting the Company’s motion for terminating sanctions, awarding the Company monetary sanctions in the amount of $588,672, and dismissing CRA and Cornerstone Ventures Inc.’s Complaint with prejudice. On May 21, 2019, CRA and Cornerstone Ventures, Inc. filed a notice of appeal from the Judgment and, on June 3, 2019, the Company filed a notice of cross-appeal from the Judgment. On July 9, 2019, the California Court of Appeal, Fourth District dismissed CRA and Cornerstone Ventures, Inc.’s appeal with prejudice. The briefing to the Court of Appeal, Fourth District on the Company’s appeals against CRA, Cornerstone Ventures, Inc and Winget Spadafora & Schwartzberg was completed on April 27, 2020. On October 28, 2020, the Court of Appeal issued an opinion affirming in part, and reversing, in part, the trial court’s opinion and remanded the action back to the trial court. On February 11, 2021, the trial court issued an order awarding an additional $189,645 in monetary sanctions for the period prior to July 12, 2016 in favor of the Company and against CRA and CVI.
In September 2015, a bankruptcy petition was filed against Healthcare Real Estate Partners, LLC (“HCRE”) by the investors in Healthcare Real Estate Fund, LLC and Healthcare Real Estate Qualified Purchasers Fund, LLC (collectively, the “Funds”). HCRE did not timely respond to the involuntary petition and the Bankruptcy Court entered an Order of Relief making HCRE a debtor in bankruptcy. As a result, HCRE was removed as manager under the Funds’ operating agreement. Thereafter the Company became the manager of the Funds and purchased the investors’ interests in the Funds for approximately $0.9 million. Following the subsequent dismissal of the involuntary bankruptcy petition filed against it, HCRE filed a motion for attorneys’ fees and damages and a separate complaint for violation of the automatic stay against the petitioning creditors and the Company in the United States Bankruptcy Court of the District of Delaware. The Bankruptcy Court granted a motion to dismiss the complaint for violation of the automatic stay filed jointly by the petitioning creditors and us, and dismissed the complaint with prejudice. HCRE appealed the Bankruptcy Court’s decision to the United States District Court for the District of Delaware which affirmed the Bankruptcy Court’s dismissal of the complaint in a decision dated September 9, 2018. On October 11, 2018, HCRE appealed the District Court’s decision affirming the Bankruptcy Court’s dismissal of the complaint to the United States Court of Appeals for the Third Circuit. On October 22, 2019, the Third Circuit granted HCRE’s appeal, reversing the District Court and holding that HCRE could assert the adversary complaint seeking damages for violation of the automatic stay. The Company filed a Petition for Rehearing on November 5, 2019 asserting that HCRE is not entitled to assert a claim for damages for violation of the automatic stay. This Petition was denied and the mandate was issued sending the matter back to the Bankruptcy Court. The Bankruptcy Court held a status conference on February 4, 2021, and subsequently entered a scheduling ~~order~~orders to govern discovery and pretrial ~~matters.~~matters, and discovery is ongoing. The parties have filed dispositive motions, including a motion filed by the Company and the petitioning creditors for judgment on the pleadings. On February 4, 2022, the Bankruptcy Court entered an order denying the motion for judgment on the pleadings on the basis that the Bankruptcy Court would consider the points raised therein after trial. The Bankruptcy Court also entered an order denying HCRE’s motion to dismiss certain counterclaims and severing certain other counterclaims asserted by the petitioning creditors and the Company against HCRE on jurisdictional grounds, with the effect that such counterclaims may be pursued in the United States District Court. The Bankruptcy Court subsequently entered a further amended scheduling order, directing that remaining discovery be completed by May 15, 2022 and scheduling a final pretrial conference for August 17, 2022. Based on the assessment by management of the numerous legal arguments that can be raised on this claim, the Company believes that a loss is currently not probable or estimable under ASC 450, “Contingencies”, and as of ~~March~~December 31, 2021 no accrual has been made with regard to the claim. We ~~believe that~~will continue to vigorously defend ourselves against all of HCRE’s remaining alleged ~~claims are without merit and will vigorously defend ourselves.~~claims.
Indemnification and Employment Agreements
We have entered into indemnification agreements with certain of our executive officers and directors which indemnify them against all judgments, penalties, fines and amounts paid in settlement and all expenses actually and reasonably incurred by him or her in connection with any proceeding. Additionally, effective October ~~1, 2018,~~19, 2021, we ~~amended our~~entered into new employment agreements with our executive officers ~~to extend the~~for a term of ~~each agreement for an additional~~ three years. These employment agreements include customary terms relating to salary, bonus, position, duties and benefits (including eligibility for equity compensation), as well as a cash payment following a change in control of the Company, as defined in such agreements.
~~Page 18 of 37~~
Management of our Equity-Method Investments
As the manager of our Equity-Method Investments, we are responsible for the day-to-day management. Additionally, we could be subject to a capital call from our Equity-Method Investments.

~~11.~~20
Table of Contents
12. Equity
Share-Based Compensation Plans
Upon the grant of stock options, we determine the exercise price by using our estimated per-share value, which is calculated by aggregating the estimated fair value of our investments in real estate and the estimated fair value of our other assets, subtracting the book value of our liabilities, utilizing a discount for the fact that the shares are not currently traded on a national securities exchange and a lack of a control premium, and divided by the total by the number of our common shares outstanding at the time the options were granted.
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions required by the model include the risk-free interest rate, the expected life of the options, the expected stock price volatility over the expected life of the options, and the expected distribution yield. Compensation expense for employee stock options is recognized ratably over the vesting term. The expected life of the options was based on the simplified method as we do not have sufficient historical exercise data. The risk-free interest rate was based on the U.S. Treasury yield curve at the date of grant with maturity dates approximating the expected term of the options at the date of grant. Volatility was based on historical volatility of the stock prices for a sample of publicly traded companies with risk profiles similar to ours. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time, including the expected stock price volatility and the expected life of an option.
~~Page 19 of 37~~
The following table summarizes our stock options as of March 31, ~~2021:~~2022:

Options Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

Options outstanding at January 1, 2021 1,871,908 $ 2.09

Weighted

Weighted

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic


Options

Price

Term

Value
Options outstanding at January 1, 2022

1,867,908

$
2.09

Granted —

0

Exercised —

0

Cancelled/forfeited —

—

Options outstanding at March 31, 2021 1,871,908 $ 2.09 6.57 $ 1,524,000

Options exercisable at March 31, 2021 1,793,296 $ 2.08 6.49 $ 1,474,000
Options outstanding at March 31, 2022

1,867,908

$
2.09

5.56

$
1,597,000

Options exercisable at March 31, 2022

1,855,963

$
2.08

5.55

$
1,588,000

For our outstanding non-vested options as of March 31, ~~2021,~~2022, the weighted average grant date fair value per share was ~~$0.58.~~$0.57. As of March 31, ~~2021,~~2022, we have unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized as follows:

Years Ending December 31,


April 1, 2021 to December 31, 2021 $ 30,000
2022 15,000
April 1, 2022 to December 31, 2022

$
6,000
2023 1,000

1,000
$ 46,000

$
7,000

The stock-based compensation expense reported for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 was approximately ~~$36,000~~$8,000 and ~~$42,000,~~$36,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.
~~Page 20 of 37~~
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Table of Contents

13. Subsequent Events
Office lease
On April 1, 2022, we entered into a temporary space license agreement (“Temporary License”) and a standard office lease (“New Lease”) with Lakehills CM-CG LLC.

The Temporary License, for space located in Laguna Hills, California, begins on April 22, 2022 and expires on the date we move out of such temporary office space or five (5) days after the substantial completion of certain tenant improvements in the office space subject to the New Lease, but in no event later than March 31, 2023. We are entitled to use such office space at no cost during the term of the Temporary License.

Concurrent with the execution of the Temporary License, we entered into the New Lease which begins on or about November 1, 2022 for a period of sixty-six (66) months, with a five-year renewal option. The office space subject to the New Lease is also located in Laguna Hills, California. The New Lease provides for the abatement of the base rent for the second full calendar month through the seventh full calendar month of the lease term. The initial annual base rent is $204,399 and increases three percent (3%) each year on the anniversary date of the commencement of the New Lease.
Stock Options
On April 1, 2022, we granted 81,000 stock options to our non-executive employees under our Summit Healthcare REIT, Inc. 2015 Omnibus Incentive Plan (“Incentive Plan”). The stock options vest monthly beginning on May 1, 2022 and continuing over a three-year period through April 1, 2025. The options expire 10 years from the grant date.

22
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to numerous risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~29, 2021.~~31, 2022.
Overview
As of March 31, ~~2021,~~2022, our ownership interests in our ~~seven~~18 real estate properties of senior housing facilities was as follows: 100% ownership of ~~three~~14 properties and a 95.3% interest in four properties in a consolidated joint venture, Cornerstone Healthcare Partners LLC. Additionally, we have a 10% interest in an unconsolidated equity-method investment that owns 17 properties, a 35% equity interest in an unconsolidated equity-method investment that holds ~~two properties,~~one property, a 20% equity interest in an unconsolidated equity-method investment that holds two properties, and a 10% equity interest in an unconsolidated equity-method investment that holds nine ~~properties, a 10% equity interest in an unconsolidated equity-method investment that holds six properties and a 15% equity interest in an unconsolidated equity-method investment that holds 14~~ properties, (collectively, our “Equity-Method Investments”). As used in this report, the “Company,” “we,” “us” and “our” refer to Summit Healthcare REIT, Inc. and its consolidated subsidiaries, except where the context otherwise requires.
Our revenues are comprised largely of tenant rental income from our ~~seven~~18 real estate properties, including rents reported on a straight-line basis over the initial term of each tenant lease, ~~and acquisition~~ and asset management fees resulting from our Equity-Method Investments. We also receive cash distributions from our Equity-Method Investments, which are included in net cash provided by operating activities and net cash provided by investing activities in our condensed consolidated statements of cash flows. Our growth depends, in part, on our ability to continue to raise joint venture equity or other equity, acquire new healthcare properties at attractive prices, negotiate long-term tenant leases with sustainable rental rate escalation terms and control our expenses. Our operations are impacted by property-specific, market-specific, general economic, regulatory and other conditions.
We believe that continued investing in senior housing facilities is accretive to earnings and stockholder value. Senior housing facilities include independent living facilities (“IL”), skilled nursing facilities (“SNF”), assisted living facilities (“AL”), memory care facilities (“MC”) and continuing care retirement communities (“CCRC”). Each of these types of facilities focuses on different segments of the senior population.
Coronavirus (COVID-19)
~~Since it~~The world was, ~~first reported in December 2019,~~and continues to be, impacted by the COVID-19 ~~has spread globally, including to every state in~~pandemic. The healthcare industry was among those most adversely affected by the ~~United States~~COVID-19 pandemic. During 2021 and ~~more than 200 countries. The COVID-19 pandemic~~2020 and measures to prevent its spread negatively impacted senior housing and skilled nursing facilities in a number of ways, including decreased occupancy and increased operating costs, which could have a material adverse effect on the abilitycontinuing into 2022, two of our tenants to meet their financial and other contractual obligations to us, including the payment of rent. Furthermore, infections at our facilities could lead to material increases in litigation costs for which our tenants, or possibly we, may be liable.
~~For the period ended March 31, 2021, one of our tenants has~~ experienced a material adverse effect on ~~its~~their operations related to COVID-19, and that ~~has~~ affected ~~its~~their ability to make ~~its rent payments. We are currently working with this tenant on a revised rent schedule for 2021, and during the three month period ended March 31, 2021 recorded~~their rent payments on a cash basis and wrote off the remaining straight-line rent receivable. We have not seen any impact on debt payments from borrowers on notes receivable. Additionally, some of our Equity-Method Investment tenants have experienced decreased occupancy and increased operating costs related to COVID-19, and for the Indiana JV, this has had a material adverse effect on their ability to meet their financial and other contractual obligationsin 2021 (see Note 3 to the ~~Indiana JV, including the payment of rent, which resulted in a temporary rent reduction.~~
~~If these types of developments continue or increase in severity, or arise with more frequency, they are likely~~accompanying Notes to ~~have a material adverse effect~~Condensed Consolidated Financial Statements for further information on ~~our business and results of operations.~~its impact to us). The extent to which COVID-19 could continue to impact our business, cash flow and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ~~duration~~rate of public acceptance and usage of vaccines and the ~~outbreak, new information that may emerge concerning~~effectiveness of vaccines in limiting the ~~severity~~spread of COVID-19 and ~~the~~its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 ~~or treat its impact, among others.~~and how quickly and to what extent normal economic and operating conditions can resume.
~~Page 21 of 37~~
The healthcare industry was among those most adversely affected by the COVID-19 pandemic. During 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was created to provide approximately $2.1 trillion in direct economic stimulus assistance to business owners to help maintain on-going operations. Federally funded grants and forgivable loan programs under the CARES Act have become available to those operators and businesses that qualify. These programs include the Paycheck Protection Program (PPP), a SBA-backed loan program that helps businesses keep their workforce employed during the COVID-19 crisis with a forgivable loan feature if certain qualifications are met. The Department of Health and Human Service’s Provider Relief Fund (HHS) is a fund distributing $150 billion to hospitals and healthcare providers on the front line of the COVID-19 outbreak. Also, the Treasury’s Coronavirus Relief Fund (CRF) provides $150 billion federal funded grants to individual states and local agencies to disburse to its providers that meet relevant COVID-related criteria. The skilled nursing and assisted living operators in the Company’s portfolio have been able to benefit from these federal and state government assistance programs.
Healthcare personnel and residents of long-term care facilities, including SNF, AL, and MC facilities, have been included among those offered the first supply of the COVID-19 vaccines. Many of our consolidated and Equity Method Investments facilities have administered the vaccine to residents and employees. It is too early to assess the total effect of the vaccinations on the industry, but it is believed they will help save the lives of those who are most at risk, as well as lessen the operational and financial burden on our facilities and their employees.
Summit Portfolio Properties
On July 2, 2021, we acquired three properties in California (the “CA3 Properties”) for approximately $20.1 million. See Notes 3 and 4 to the accompanying Notes to Condensed Consolidated Financial Statements for further information regarding the purchase price and associated financing arrangements.
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Table of Contents
On December 30, 2021, we acquired eight properties in Georgia (the “GA8 Properties”) for approximately $130.0 million. See Notes 3 and 4 to the accompanying Notes to Condensed Consolidated Financial Statements for further information regarding the purchase price and associated financing arrangements.
~~At March 31, 2021, our portfolio consisted of seven real estate properties as noted above. All of the properties are 100% leased on a triple net basis.~~ The following table provides summary information (excluding the 5035 properties held by our unconsolidated Equity-Method Investments) regarding these properties as of March 31, ~~2021:~~2022:






Square

Purchase

Properties

Beds

Footage

Price
SNF

15

1,354

406,135

$
181,795,000
AL or AL/MC

3

221

136,765

25,525,000
Total Real Estate Properties

18

1,575

542,900

$
207,320,000

Properties Beds Square
Footage Purchase
Price
SNF 4 337 109,306 $ 31,740,000
AL or AL/MC 3 221 136,765 25,525,000
Total Real Estate Properties 7 558 246,071 $ 57,265,000








2022

Lease
Property

Location

Date Purchased

Type

Beds

Revenue ⁽¹⁾
Sheridan Care Center

Sheridan, OR

August 3, 2012

SNF

51

$
123,000
Fernhill Care Center

Portland, OR

August 3, 2012

SNF

63

131,000
Friendship Haven Healthcare and Rehabilitation Center

Galveston County TX

September 14, 2012

SNF

150

353,000
Pacific Health and Rehabilitation Center

Tigard, OR

December 24, 2012

SNF

73

242,000
Brookstone of Aledo

Aledo, IL

July 2, 2013

AL

66

191,000
Sundial Assisted Living ⁽²⁾

Redding, CA

December 18, 2013

AL

65

—
Pennington Gardens ⁽²⁾

Chandler, AZ

July 17, 2017

AL/MC

90

—
Yucaipa Hill Post Acute

Yucaipa, CA

July 2, 2021

SNF

82

266,000
Creekside Post Acute

Yucaipa, CA

July 2, 2021

SNF

59

119,000
University Post Acute

Mentone, CA

July 2, 2021

SNF

50

113,000
Calhoun Health Center

Calhoun, GA

December 30, 2021

SNF

100

120,000
Maple Ridge Health Care Center

Cartersville, GA

December 30, 2021

SNF

74

474,000
Chatsworth Health Care Center

Chatsworth, GA

December 30, 2021

SNF

120

865,000
East Lake Arbor

Decatur, GA

December 30, 2021

SNF

103

226,000
Fairburn Health Care Center

Fairburn, GA

December 30, 2021

SNF

120

362,000
Grandview Health Care Center

Jasper, GA

December 30, 2021

SNF

60

266,000
Rosemont at Stone Mountain

Stone Mountain, GA

December 30, 2021

SNF

149

684,000
Willowwood Nursing Center & Rehab

Flowery Branch, GA

December 30, 2021

SNF

100

258,000
Total





1,575


(1) Represents year-to-date rental revenue based on in-place leases, including straight-line rent, through March 31, 2022 and excluding $0.6 million in tenant reimbursement revenue, $0.02 million in above-market lease amortization and $0.2 million in revenue related to the settlement for the termination of the Pennington Gardens lease.

Property Location Date Purchased Type Beds
2021
Rental
Revenue¹

Sheridan Care Center Sheridan, OR August 3, 2012 SNF 51 $ 123,000
Fernhill Care Center Portland, OR August 3, 2012 SNF 63 131,000
Friendship Haven Healthcare and
Rehabilitation Center Galveston
County TX September 14, 2012 SNF 150 353,000
Pacific Health and Rehabilitation Center Tigard, OR December 24, 2012 SNF 73 242,000
Brookstone of Aledo Aledo, IL July 2, 2013 AL 66 191,000
Sundial Assisted Living Redding, CA December 18, 2013 AL 65 99,000
Pennington Gardens Chandler, AZ July 17, 2017 AL/MC 90 30,000
Total 558
(2) See Note 3 to the accompanying Notes to Condensed Consolidated Financial Statements for further information on these two properties. Rents due under the Pennington Gardens Operations lease is eliminated in consolidation.
¹ ~~Represents year-to-date rental revenue based on in-place leases, including straight-line rent, through March 31, 2021 and excluding $174,000 in tenant reimbursement revenue.~~
~~Page 22 of 37~~
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Table of Contents
Summit Equity-Method Investment Portfolio Properties
We continue to believe that raising institutional joint venture equity to make acquisitions will be accretive to shareholder value. Our ~~sole~~primary source of equity since 2015 has been institutional funds raised through a joint venture structure and accounted for as equity-method investments. We ~~continue to~~still believe this is a prudent strategy for ~~growth.~~
growth; however, in the future, we may raise additional equity capital through alternative methods if warranted by market conditions.
A summary of the condensed combined financial data for the balance sheets and statements of income for all unconsolidated Equity-Method Investments are as ~~follows:~~follows (see below under Indiana JV for information regarding the sale of our equity interest in the Indiana JV on June 11, 2021 and see Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements; accordingly, the financial information for the Indiana JV is not included in the March 31, 2022 or December 31, 2021 condensed combined balance sheet and for the three months ended March 31, 2021 condensed combined statement of income below):


March 31,

December 31,
Condensed Combined Balance Sheets: March 31,
2021
December 31,
2020

2022

2021
Total Assets $ 408,890,000 $ 415,591,000

$
270,873,000

$
286,572,000
Total Liabilities $ 320,580,000 $ 324,414,000

$
196,692,000

$
213,812,000
Members Equity:

Summit $ 11,010,000 $ 11,489,000

$
8,419,000

$
8,017,000
JV Partners $ 77,300,000 $ 79,688,000

$
65,762,000

$
64,743,000
Total Members Equity $ 88,310,000 $ 91,177,000

$
74,181,000

$
72,760,000

Condensed Combined Statements of Income:
Three Months
Ended
March 31, 2021

Three Months
Ended
March 31, 2020

Total Revenue: $ 10,222,000 $ 12,326,000
Net Operating Income $ 6,362,000 $ 9,577,000
Income from Operations $ 1,915,000 $ 5,899,000
Net (Loss) Income $ (1,522,000 ) $ 142,000

Summit equity interest in Equity-Method Investments net (loss) income $ (235,000 ) $ 30,000
JV Partners interest in Equity-Method Investments net (loss) income $ (1,287,000 ) $ 112,000


Three Months Ended

Three Months Ended

March 31,

March 31,
Condensed Combined Statements of Income:

2022

2021
Total revenue:

$
9,600,000

$
9,972,000
Income from operations

$
4,651,000

$
3,561,000
Net income

$
3,471,000

$
2,076,000

Summit equity interest in Equity-Method Investments net income

$
642,000

$
305,000
JV Partners interest in Equity-Method Investments net income

$
2,829,000

$
1,771,000

Summit Union Life Holdings, LLC
In April 2015, through our operating partnership (“Operating Partnership”), we formed Summit Union Life Holdings, LLC (“SUL JV”) with Best Years, LLC (“Best Years”), an unrelated entity and a U.S.-based affiliate of Union Life Insurance Co, Ltd. (a Chinese corporation), and entered into a limited liability company with Best Years with respect to the SUL JV (the “SUL LLC Agreement”). The SUL JV is not consolidated in our condensed consolidated financial statements and is accounted for under the ~~equity-method.~~
~~Under the SUL LLC Agreement, as amended, net operating cash flow of the SUL JV is distributed monthly, first to the Operating Partnership and Best Years~~ ~~pari passu~~ up to a 9% to 10% annual return, as defined, and thereafter to Best Years 75% and the Operating Partnership 25%. All capital proceeds from the sale of the properties held by the SUL JV, a refinancing, or another capital event will be paid first to the Operating Partnership and Best Years ~~pari passu~~ ~~until each has received an amount equal to its accrued but unpaid 9% to 10% return plus its total contribution, and thereafter to Best Years 75% and the Operating Partnership 25%.~~
equity-method in our condensed consolidated financial statements.
The following reconciles our 10% equity investment in the SUL JV from inception through March 31, ~~2021:~~2022:

JV 2 Properties (Colorado, Oregon and Virginia) – April 2015 $ 1,059,000

$
1,076,000
Creative Properties (Texas) – October 2015 837,000

837,000
Cottage Properties (Wisconsin) – December 2015 736,000

1,186,000
Riverglen (New Hampshire) – April 2016 424,000

424,000
Delaware Properties – September 2016 1,846,000

1,846,000
Total investments

5,369,000
Income from equity-method investee

1,616,000
Distributions

(4,224,000)
Total investment at March 31, 2022

$
2,761,000
Total investments 4,902,000
Income from equity-method investee 1,330,000
Distributions (3,583,000 )
Total investment at March 31, 2021 $ 2,649,000
~~Page 23 of 37~~
25
Table of Contents
A summary of the condensed consolidated financial data for the balance sheets and statements of income for the unconsolidated SUL JV, of which we own a 10% equity interest, is as follows:


March 31,

December 31,
Condensed Consolidated Balance Sheets of SUL JV:
March 31,
2021

December 31,
2020

2022

2021
Real estate properties and intangibles, net $ 128,577,000 $ 129,793,000

$
124,187,000

$
125,183,000
Cash and cash equivalents 5,612,000 6,548,000

4,714,000

4,929,000
Other assets 12,778,000 11,932,000

13,697,000

14,322,000
Total Assets: $ 146,967,000 $ 148,273,000

$
142,598,000

$
144,434,000

Loans payable, net $ 104,166,000 $ 104,552,000

$
97,909,000

$
98,432,000
Other liabilities 8,085,000 9,115,000

8,051,000

8,463,000
Members’ equity:

Best Years 31,952,000 31,841,000

33,761,000

34,568,000
Summit 2,764,000 2,765,000

2,877,000

2,971,000
Total Liabilities and Members’ Equity $ 146,967,000 $ 148,273,000

$
142,598,000

$
144,434,000


Three Months Ended

Three Months Ended

March 31,

March 31,
Condensed Consolidated Statements of Income of SUL JV:
Three Months
Ended
March 31, 2021

Three Months
Ended
March 31, 2020

2022

2021
Total revenue $ 5,176,000 $ 4,550,000

$
5,195,000

$
5,176,000
Property operating expenses (2,255,000 ) (1,229,000 )

(2,476,000)

(2,255,000)
Net operating income 2,921,000 3,321,000

2,719,000

2,921,000
General and administrative expense (100,000 ) (94,000 )

(101,000)

(100,000)
Depreciation and amortization expense (1,274,000 ) (1,349,000 )

(1,020,000)

(1,274,000)
Income from operations 1,547,000 1,878,000

1,598,000

1,547,000
Interest expense (1,159,000 ) (1,225,000 )

(1,104,000)

(1,159,000)
Amortization of deferred financing costs (53,000 ) (53,000 )

(49,000)

(53,000)
Interest income 1,000 3,000

1,000

1,000
Other income and expense (158,000 ) 352,000

1,000

(158,000)
Net income $ 178,000 $ 955,000

$
447,000

$
178,000

Summit equity interest in SUL JV net income $ 18,000 $ 96,000

$
45,000

$
18,000

26
Table of Contents
As of March 31, ~~2021,~~2022, the 17 properties held by SUL JV, our unconsolidated 10% equity-method investment, 11 of which 11 are 100% leased on a triple net basis and six are operated directly, are as follows:

~~Property~~

~~Location~~

~~Type~~

Number of
~~Beds~~
~~Lamar Estates~~
Property

~~Lamar, CO~~
Location

~~SNF~~
Type

60
Beds
Lamar Estates
Lamar, CO
SNF
60
Monte Vista Estates
Monte Vista, CO
SNF
60
Myrtle Point Care Center
Myrtle Point, OR
SNF
55
Gateway Care and Retirement Center
Portland, OR
SNF/IL
91
Applewood Retirement Community
Salem, OR
IL
69
Shenandoah Senior Living
Front Royal, VA
AL
78
Pine Tree Lodge Nursing Center
Longview, TX
SNF
92
Granbury Care Center
Granbury, TX
SNF
181
Twin Oaks Nursing Center
Jacksonville, TX
SNF
116
Dogwood Trails Manor
Woodville, TX
SNF
90
Carolina Manor
Appleton, WI
AL
45
Carrington Manor
Green Bay, WI
AL
20
Marla Vista Manor
Green Bay, WI
AL
40
Marla Vista Gardens
Green Bay, WI
AL
20
Riverglen House of Littleton
Littleton, NH
AL
59
Atlantic Shore Rehabilitation and Health Center
Millsboro, DE
SNF
181
Pinnacle Rehabilitation and Health Center
Smyrna, DE
SNF
151
Total:

1,408

~~Page 24 of 37~~
Equity-Method Partner -– Fantasia Investment III LLC
In 2016 and 2017, through our Operating Partnership, we entered into three separate limited liability company agreements (collectively, the “Fantasia Agreements”) with Fantasia Investment III LLC (“Fantasia”), an unrelated entity and a U.S.-based affiliate of Fantasia Holdings Group Co., Limited (a Chinese corporation listed on the Stock Exchange of Hong Kong (HKEX)), and formed three separate companies, Summit Fantasia Holdings, LLC (“Fantasia I”), Summit Fantasia Holdings II, LLC (“Fantasia II”) and Summit Fantasia Holdings III, LLC (“Fantasia III”) (collectively, the “Fantasia JVs”). The Fantasia JVs are not consolidated in our condensed consolidated financial statements and are accounted for under the ~~equity-method.~~equity-method in our condensed consolidated financial statements. Through the Fantasia JVs: we own a 35% interest in ~~two~~one senior housing ~~facilities, one~~facility located in California ~~and~~(in March 2022, we sold one facility located ~~Oregon;~~in Oregon); a 20% interest in two skilled nursing facilities located in Rhode Island; and a 10% interest in nine skilled nursing facilities located in Connecticut.
~~Under the Fantasia Agreements, net operating cash flow of the Fantasia JVs is distributed monthly, first to the Operating Partnership and Fantasia~~ ~~pari passu~~ (8% for Fantasia I and II and 9% for Fantasia III) until each member has received an amount equal to its accrued, but unpaid return, and thereafter 50% to Fantasia and 50% to the Operating Partnership for Fantasia I, 70% to Fantasia and 30% to the Operating Partnership for Fantasia II, and 75% to Fantasia and 25% to the Operating Partnership for Fantasia III. All capital proceeds from the sale of the properties held by the Fantasia JVs, a refinancing or another capital event, will be paid first to the Operating Partnership and Fantasia ~~pari passu~~ as noted above until each has received an amount equal to its accrued but unpaid return plus its total capital contribution, and thereafter to Fantasia and to the Operating Partnership, as noted above.
The following reconciles our equity investments in the Fantasia JVs from inception through March 31, ~~2021:~~2022:

Summit Fantasia Holdings, LLC – October 2016 $ 2,524,000

$
2,593,000
Summit Fantasia Holdings II, LLC – February 2017 1,923,000

1,923,000
Summit Fantasia Holdings III, LLC – August 2017 1,954,000

1,954,000
Total investment 6,401,000

6,470,000
Income from Fantasia JVs 1,236,000

2,014,000
Distributions (2,596,000 )

(3,281,000)
Total Fantasia investments at March 31, 2021 $ 5,041,000
Total Fantasia investments at March 31, 2022

$
5,203,000

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Table of Contents
A summary of the condensed combined financial data for the balance sheets and statements of income for the unconsolidated Fantasia JVs, of which we own a 10% to 35% equity interest, is as follows:


March 31,

December 31,
Condensed Combined Balance Sheets of Fantasia JVs:
March 31,
2021

December 31,
2020

2022

2021
Real estate properties, net $ 100,624,000 $ 101,351,000

$
88,290,000

$
88,908,000
Cash and cash equivalents 5,869,000 7,497,000

5,037,000

8,135,000
Assets held for sale ⁽¹⁾

—

10,454,000
Other assets 7,038,000 6,526,000

7,171,000

6,834,000
Total Assets: $ 113,531,000 $ 115,374,000

$
100,498,000

$
114,331,000

Loans payable, net $ 75,567,000 $ 75,661,000

$
62,199,000

$
67,154,000
Liabilities held for sale ⁽¹⁾

—

7,537,000
Other liabilities 6,535,000 8,359,000

6,125,000

8,885,000
Members’ equity:

Fantasia JVs 26,388,000 26,330,000

26,971,000

25,967,000
Summit 5,041,000 5,024,000

5,203,000

4,788,000
Total Liabilities and Members’ Equity $ 113,531,000 $ 115,374,000

$
100,498,000

$
114,331,000
(1) In May 2021, the Fantasia I JV entered into an agreement to sell one of the properties in the Summit Fantasia Holdings, LLC equity-method investment; therefore, such property was accounted for as Held for Sale as of December 31, 2021. In March 2022, the property was sold for $11.0 million.


Three Months Ended

Three Months Ended

March 31,

March 31,
Condensed Combined Statements of Income of Fantasia JVs:

2022

2021
Total revenue

$
3,507,000

$
3,906,000
Property operating expenses

(1,366,000)

(1,476,000)
Net operating income

2,141,000

2,430,000
General and administrative expense

(129,000)

(110,000)
Depreciation and amortization expense

(626,000)

(727,000)
Gain on sale of real estate

1,247,000

—
Income from operations

2,633,000

1,593,000
Interest expense

(800,000)

(893,000)
Amortization of debt issuance costs

(23,000)

(16,000)
Other income

3,000

367,000
Net income

$
1,813,000

$
1,051,000

Summit equity interest in Fantasia JVs net income

$
476,000

$
202,000
~~Page 25 of 37~~
28
Table of Contents
Condensed Combined Statements of Income of Fantasia  JVs:
Three Months
Ended
March 31, 2021

Three Months
Ended
March 31, 2020

Total revenue $ 3,906,000 $ 3,944,000
Property operating expenses (1,476,000 ) (1,395,000 )
Net operating income 2,430,000 2,549,000
General and administrative expense (110,000 ) (90,000 )
Depreciation and amortization expense (727,000 ) (727,000 )
Income from operations 1,593,000 1,732,000
Interest expense (893,000 ) (1,029,000 )
Amortization of debt issuance costs (16,000 ) (73,000 )
Other income 367,000 15,000
Net income $ 1,051,000 $ 645,000

Summit equity interest in Fantasia JVs net income $ 202,000 $ 85,000
As of March 31, ~~2021,~~2022, the 1312 properties in Fantasia JVs, our unconsolidated equity-method investments, are all 100% leased on a triple net basis, and are as follows:

~~Property~~

~~Location~~

~~Type~~

Number of
~~Beds~~
Property

Location

Type

Beds
Sun Oak Assisted Living

Citrus Heights, CA

AL/MC

78
~~Regent Court Senior Living~~ ~~Corvallis, OR~~ MC 48
Trinity Health and Rehabilitation Center
Woonsocket, Rhode Island
SNF
185
Hebert Nursing Home
Smithfield, Rhode Island
SNF
133
Chelsea Place Care Center
Hartford, CT
SNF
234
Touchpoints at Manchester
Manchester, CT
SNF
131
Touchpoints at Farmington
Farmington, CT
SNF
105
Fresh River Healthcare
East Windsor, CT
SNF
140
Trinity Hill Care Center
Trinity Hill, CT
SNF
144
Touchpoints at Bloomfield
Bloomfield, CT
SNF
150
Westside Care Center
Westside, CT
SNF
162
Silver Springs Care Center
Meriden, CT
SNF
159
Touchpoints of Chestnut
Chestnut, CT
SNF
60
Total:

~~1,729~~
1,681

Summit Fantasy Pearl Holdings, LLC
In October 2017, through our Operating Partnership, we entered into a limited liability company agreement (the “FPH LLC Agreement”) with Fantasia, Atlantis Senior Living 9, LLC, a Delaware limited liability company (“Atlantis”), and Fantasy Pearl LLC, a Delaware limited liability company (“Fantasy”), and formed Summit Fantasy Pearl Holdings, LLC (the “FPH JV”). The FPH JV is not consolidated in our condensed consolidated financial statements and ~~will be~~is accounted for under the ~~equity-method.~~
~~Under the FPH LLC Agreement, net operating cash flow of the FPH JV is distributed monthly, first to the members~~ ~~pari passu~~ until each member has received an amount equal to its accrued, but unpaid 9% return, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia and 20% to the Operating Partnership. All capital proceeds from the sale of the properties held by the FPH JV, a refinancing or another capital event, will be paid to the members ~~pari passu~~ until each has received an amount equal to its accrued but unpaid 9% return plus its total capital contribution, and thereafter 65.25% to Fantasy, 7.5% to Atlantis, 7.25% to Fantasia, and 20% to the Operating Partnership.
~~Page 26 of 37~~
equity-method in our condensed consolidated financial statements.
The following reconciles our equity investment in the FPH JV from inception through March 31, ~~2021:~~2022:

Iowa properties – November 2017 $ 929,000

$
929,000
Total investment 929,000

929,000
Loss from equity-method investee (30,000 )

175,000
Distributions (609,000 )

(765,000)
Total FPH investment at March 31, 2021 $ 290,000
Total FPH investment at March 31, 2022

$
339,000

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Table of Contents
A summary of the condensed consolidated financial data for the balance sheets and statements of operations for the unconsolidated FPH JV is as follows:

Condensed Consolidated Balance Sheets of FPH JV: March 31, 2021 December 31, 2020

March 31, 2022

December 31, 2021
Real estate properties, net $ 25,761,000 $ 26,068,000

$
24,533,000

$
24,840,000
Cash and cash equivalents 1,443,000 1,430,000

1,623,000

1,650,000
Other assets 1,141,000 1,079,000

1,621,000

1,317,000
Total Assets: $ 28,345,000 $ 28,577,000

$
27,777,000

$
27,807,000

Loans payable, net $ 21,087,000 $ 21,195,000

$
20,650,000

$
20,764,000
Other liabilities 2,736,000 3,407,000

1,758,000

2,577,000
Members’ equity:

Fantasia JVs 4,232,000 3,730,000

5,030,000

4,207,000
Summit 290,000 245,000

339,000

259,000
Total Liabilities and Members’ Equity $ 28,345,000 $ 28,577,000

$
27,777,000

$
27,807,000

Three Months
Ended
March 31, Three Months
Ended
March 31,


Three Months Ended

Three Months Ended

March 31,

March 31,
Condensed Consolidated Statements of Operations of FPH JV: 2021 2020

2022

2021
Total revenue $ 890,000 �� $ 885,000

$
898,000

$
890,000
Property operating expenses (125,000 ) (122,000 )

(134,000)

(125,000)
Net operating income 765,000 763,000

764,000

765,000
General and administrative expense (37,000 ) (35,000 )

(37,000)

(37,000)
Depreciation and amortization expense (307,000 ) (307,000 )

(307,000)

(307,000)
Income from operations 421,000 421,000

420,000

421,000
Interest expense (251,000 ) (259,000 )

(243,000)

(251,000)
Amortization of debt issuance costs (15,000 ) (15,000 )

(15,000)

(15,000)
Other income and expense 692,000 (1,501,000 )

1,049,000

692,000
Net income (loss) $ 847,000 $ (1,354,000 )

Summit equity interest in FPH JV net income (loss) $ 85,000 $ (135,000 )
Net income

$
1,211,000

$
847,000

Summit equity interest in FPH JV net income

$
121,000

$
85,000
~~Page 27 of 37~~

As of March 31, ~~2021,~~2022, the six properties of our unconsolidated equity-method investments in FPH JV, all of which are 100% leased on a triple net basis, are as follows:

~~Property~~

~~Location~~

~~Type~~

Number of
~~Beds~~
Property

Location

Type

Beds
Accura Healthcare of Bancroft
Bancroft, Iowa
SNF/AL
50
46
Accura Healthcare of Milford
Milford, Iowa
SNF/AL
94
Accura Healthcare of Carroll
Carroll, Iowa
SNF/IL
~~124~~
98
Accura Healthcare of Cresco
Cresco, Iowa
SNF
59
46
Accura Healthcare of Marshalltown
Marshalltown, Iowa
SNF
86
84
Accura Healthcare of Spirit Lake
Spirit Lake, Iowa
SNF
98
85
Total:

~~511~~
453

Indiana JV
In ~~February 2019,~~June 2021, we ~~formed a new joint venture, a Delaware limited liability company (the “Indiana JV”), and on March 13, 2019, we entered into a Limited Liability Company Agreement (“~~sold our 15% interest in the Indiana JV Agreement”) through our wholly-owned subsidiary, Summit Indiana, LLC, with two unrelated parties: a real estate holding company and a global institutional asset management firm, both Delaware limited liability companies.for approximately $5.4 million. The Indiana JV iswas not consolidated in our ~~condensed~~ consolidated financial statements and iswas accounted for under the equity-method.
30
~~Under the Indiana JV Agreement, net operating cash flow~~Table of ~~the Indiana JV is distributed monthly to the members~~ ~~pari passu~~ ~~in accordance with their respective capital percentages, and thereafter as defined in the Indiana JV Agreement.~~Contents
The following reconciles our equity investment in the Indiana JV from inception through ~~March 31,~~June 11, 2021:

Indiana properties – March 2019 $ 4,906,000

$
4,906,000
Total investment 4,906,000

4,906,000
Loss from equity-method investee (689,000 )

(1,433,000)
Distributions (1,302,000 )

(1,577,000)
Total Indiana JV investment at March 31, 2021 $ 2,915,000
Total Indiana JV investment at June 11, 2021

1,896,000
Funds received from sale of interest in equity-method investment

5,411,000
Total gain on sale of Indiana JV equity-method investment at June 11, 2021

$
3,515,000

~~A summary of the condensed consolidated financial data for the balance sheets and statements of operations for the unconsolidated Indiana JV is as follows:~~
Condensed Consolidated Balance Sheets of Indiana JV: March 31, 2021 December 31, 2020
Real estate properties, net $ 113,712,000 $ 115,438,000
Cash and cash equivalents 2,620,000 3,528,000
Other assets 3,715,000 4,401,000
Total Assets: $ 120,047,000 $ 123,367,000

Loans payable, net $ 95,709,000 $ 95,633,000
Other liabilities 6,695,000 6,492,000
Members’ equity:
Indiana JV 14,728,000 17,787,000
Summit 2,915,000 3,455,000
Total Liabilities and Members’ Equity $ 120,047,000 $ 123,367,000
Three Months
Ended
March 31, Three Months
Ended
March 31,
Condensed Consolidated Statements of Operations of Indiana JV: 2021 2020
Total revenue $ 250,000 $ 2,947,000
Property operating expenses (4,000 ) (3,000 )
Net operating income 246,000 2,944,000
General and administrative expense (166,000 ) (172,000 )
Depreciation and amortization expense (1,726,000 ) (904,000 )
(Loss) income from operations (1,646,000 ) 1,868,000
Interest expense (1,876,000 ) (1,896,000 )
Amortization of debt issuance costs (76,000 ) (76,000 )
Net loss $ (3,598,000 ) $ (104,000 )

Summit equity interest in Indiana JV net loss $ (540,000 ) $ (16,000 )
~~Page 28 of 37~~
~~As of March 31, 2021, the 14 properties of our unconsolidated equity-method investments in Indiana JV, all of which are 100% leased on a triple net basis, are as follows:~~
~~Property~~ ~~Location~~ ~~Type~~ ~~Number of~~
~~Beds~~
~~Bloomington Nursing and Rehab~~ ~~Bloomington, IN~~ ~~SNF~~ 38
~~Summerfield Health Care Center~~ ~~Cloverdale, IN~~ ~~SNF~~ 43
~~University Nursing and Rehab~~ ~~Evansville, IN~~ ~~SNF/AL~~ ~~47/22~~
~~Sugar Creek Nursing and Rehab~~ ~~Greenfield, IN~~ ~~SNF~~ 60
~~Hanover Nursing Center~~ ~~Hanover, IN~~ ~~SNF/AL~~ ~~125/12~~
~~New Albany Nursing and Rehabilitation~~ ~~New Albany, IN~~ ~~SNF/AL~~ ~~122/21~~
~~Willow Manor Nursing and Rehab~~ ~~Vincennes, IN~~ ~~SNF~~ ~~170~~
~~North Ridge Village and Rehab Center~~ ~~Albion, IN~~ ~~SNF/AL~~ ~~77/12~~
~~Greenhill Manor~~ ~~Fowler, IN~~ ~~SNF~~ 64
~~Meridian Nursing and Rehab~~ ~~Indianapolis, IN~~ ~~SNF~~ 44
~~Wintersong Village~~ ~~Knox, IN~~ ~~SNF~~ 48
~~Essex Nursing and Rehab~~ ~~Lebanon, IN~~ ~~SNF~~ 38
~~Washington Nursing Center~~ ~~Washington, IN~~ ~~SNF~~ ~~140~~
~~Rural Health Care~~ ~~Indianapolis, IN~~ ~~SNF~~ 50
~~Total:~~ ~~1,133~~
Distributions from Equity-Method Investments
For the three months ended March 31, ~~2021~~2022 and ~~2019,~~2021, we recorded distributions and cash received for distributions from our Equity-Method Investments as follows:

Three Months Ended March 31,

2021 2020


Three Months Ended March 31,

2022

2021
Distributions $ 366,000 $ 493,000

$
310,000

$
366,000

Cash received for distributions $ 570,000 $ 562,000

$
314,000

$
570,000

~~Acquisition and~~ Asset Management Fees

We serve as the manager or operating member (collectively, the manager) of our Equity-Method Investments and provide management services in exchange for fees and reimbursements. As the manager, we are paid an ~~acquisition fee, as defined in those agreements. Additionally, we are paid an~~ annual asset management fee for managing the properties owned by our Equity-Method Investments, as defined in the agreements. For each of the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we recorded approximately $0.2 million and $0.3 million, respectively, in ~~acquisition and~~ asset management fees from our Equity-Method Investments.
~~Page 29 of 37~~
Critical Accounting Policies
There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC on March ~~29, 2021.~~31, 2022 except for the additional revenue recognition – resident fees and services policy included in Note 2 to the accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
Results of Operations
Our results of operations are described below:
Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

Three Months Ended
March 31,
2021 2020 $ Change
Total rental revenues $ 924,000 $ 1,600,000 $ (676,000 )
Property operating costs (220,000 ) (257,000 ) 37,000
Net operating income ⁽¹⁾ 704,000 1,343,000 (639,000 )
Acquisition & asset management fees 329,000 326,000 3,000
Interest income from notes receivable 9,000 7,000 2,000
General and administrative (1,631,000 ) (939,000 ) (692,000 )
Depreciation and amortization (399,000 ) (417,000 ) 18,000
(Loss) income from equity-method investees (235,000 ) 30,000 (265,000 )
Other income 5,000 42,000 (37,000 )
Interest expense (522,000 ) (593,000 ) 71,000
Net (loss) (1,740,000 ) (201,000 ) (1,539,000 )
Noncontrolling interests’ share in (income) (18,000 ) (12,000 ) (6,000 )
Net (loss) applicable to common stockholders $ (1,758,000 ) $ (213,000 ) $ (1,545,000 )


Three Months Ended



March 31,

2022

2021

$ Change
Total rental revenues

$
5,541,000

$
924,000

$
4,617,000
Resident fees and services income

408,000

—

408,000
Property operating and resident costs

(1,148,000)

(220,000)

(928,000)
Net operating income ⁽¹⁾

4,801,000

704,000

4,097,000
Asset management fees

165,000

329,000

(164,000)
Interest income from notes receivable

—

9,000

(9,000)
General and administrative

(1,048,000)

(1,631,000)

583,000
Depreciation and amortization

(1,837,000)

(399,000)

(1,438,000)
Income (loss) from equity-method investees

642,000

(235,000)

877,000
Other income

2,000

5,000

(3,000)
Interest expense

(3,031,000)

(522,000)

(2,509,000)
Net loss

(306,000)

(1,740,000)

1,434,000
Noncontrolling interests’ share in (income)

(19,000)

(18,000)

(1,000)
Net loss applicable to common stockholders

$
(325,000)

$
(1,758,000)

$
1,433,000
(1) Net operating income (“NOI”) is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, resident fees and service income less property operating and resident costs. NOI excludes ~~acquisition and~~ asset management fees, interest income from notes receivable, general and administrative expense, depreciation and amortization, income from equity-method investees, other income, and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI.
Total rental revenues for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Resident fees and services income are generated from Pennington Gardens Operations. Property operating and resident costs include insurance, property taxes, resident costs related to Pennington Gardens Operations of $0.4 million and other operating expenses. Net operating income increased approximately $4.1 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to CA3 and GA8 acquisitions in July and December 2021, respectively.
Asset management fees decreased approximately $0.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to the sale of the Indiana JV in June 2021 (see Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements).
The net decrease in general and administrative expenses of $0.6 million for the three months ended March 31, ~~2021~~2022 compared to the three months ended March 31, 2020 primarily due to the reduction in rental revenue and write off of straight-line rent from Pennington Gardens (see Note 2 to the accompanying Notes to Condensed Consolidated Financial Statements under ~~Coronavirus (COVID-19~~).
~~The net increase in general and administrative expenses of $0.7 million for the three months ended March 31,~~ 2021 ~~compared to the three months ended March 31, 2020~~ is primarily due to the write off of expenses associated with a terminated transaction of approximately $0.6 million ~~and an increase~~ in ~~payroll related expenses and other professional expenses of approximately $0.1 million.~~
March 2021.
The net ~~decrease~~increase in depreciation and amortization of $1.4 million and interest expense of $2.5 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is primarily due to CA3 and GA8 acquisitions in July and December 2021.
32
Table of Contents
The net change of approximately ~~$0.3~~$0.9 million ~~in (loss)~~from loss to income from our equity-method investments for the three months ended March 31, ~~2021 compared~~2022 is primarily due to the sale of the property in the Fantasia I JV (resulting in income from the Fantasia I JV of approximately $0.4 million for the three months ended March 31, ~~2020 is primarily~~2022 versus income for the three months ended March 31, 2021 of $0.1 million) plus additional income from our other Equity-Method Investments of approximately $0.1 million, offset by the net loss for three months ended March 31, 2021 related to the Indiana JV of $0.5 million versus no loss for the three months ended March 31, 2022 due to the ~~an increase~~sale of our interest in the loss related to a reduction in rental revenue recorded for the Indiana JV, our Equity-Method Investment, due to COVID-19 related issues (see Note 2 to the accompanying Notes to Condensed Consolidated Financial Statements under ~~Coronavirus (COVID-19~~).June 2021.
~~Page 30 of 37~~
Liquidity and Capital Resources
As of March 31, ~~2021,~~2022, we had approximately ~~$14.7~~$13.7 million in cash and cash equivalents on hand. Based on current conditions, we believe that we have sufficient capital resources to sustain operations.
Going forward, we expect our primary sources of cash to be rental revenues, joint venture distributions, ~~and acquisition~~ and asset management fees. In addition, we may increase cash through the sale of additional properties, which may result in the deconsolidation of properties we already own, or borrowing against currently-owned properties. For the foreseeable future, we expect our primary uses of cash to be for funding future acquisitions, investments in joint ventures, operating expenses, interest expense on outstanding indebtedness and the repayment of principal on loans payable. We may also incur expenditures for renovations of our existing properties, making our facilities more appealing in their market.
~~All~~Seven of our debt obligations are long-term, fixed rate U.S. Department of Housing and Urban Development (“HUD”)-insured loans that mature between 2039 and 2055.
The other debt obligations are short-term loans that mature in July 2024 through December 2026 with variable interest rates starting at 4% through 12% and based on the Secured Overnight Financing Rate (“SOFR”) or the bank’s base rate as documented in all of our loan agreements.
Our liquidity will increase if cash from operations exceeds expenses, we receive net proceeds from the sale of whole or partial interest in a property or properties, or refinancing results in excess loan proceeds. Our liquidity will decrease as proceeds are expended in connection with our acquisitions and operation of properties.
~~CARES Act~~
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted and was amended in December 2020 (the “CARES Act”). The CARES Act is a stimulus package that provides various forms of relief through, among other things, grants, loans and tax incentives to certain businesses and individuals. In particular, the CARES Act created an emergency lending facility known as the Paycheck Protection Program (PPP), which is administered by the Small Business Administration (SBA) and provides federally insured and, in some cases, forgivable loans to certain eligible businesses so that those businesses can continue to cover certain of their near-term operating expenses and retain employees. We did not obtain a PPP loan. We have evaluated the CARES Act and determined that there was no impact to the Company for the three month period ended March 31, 2021 and for the year ended December 31, 2020. We will continue to evaluate and monitor the CARES Act, and any new COVID-19-related legislation to determine the ultimate impact and benefits, if any, to the Company.
Credit Facilities and Loan Agreements
As of March 31, ~~2021,~~2022, we had debt obligations of approximately ~~$46.9~~$184.6 million. The outstanding balance by ~~loan agreement~~lender is as follows (see Note 4 to the accompanying Notes to Condensed Consolidated Financial Statements for further information regarding our refinancing arrangements):
~~Capital One Multifamily Finance, LLC (HUD-insured) – approximately $10.3~~
● Capital One Multifamily Finance, LLC (HUD-insured) – approximately $10.1 million maturing September 2053
● Lument Capital (formerly ORIX Real Estate Capital, LLC) (HUD-insured) – approximately $35.7 million maturing from September 2039 through April 2055
● CIBC Bank, USA - approximately $106.0 million maturing from July 2024 to December 2024
● Oxford Finance LLC – approximately $32.8 million maturing from March 2025 to December 2026
~~Lument Capital (formerly ORIX Real Estate Capital, LLC) (HUD-insured) – approximately $36.6 million maturing from September 2039 through April 2055~~
Distributions
We made no stockholder distributions during the three months ended March 31, ~~2021.~~2022.
~~Page 31 of 37~~
Funds from Operations (“FFO”)
FFO is a non-GAAP supplemental financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
33
Table of Contents
Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments and extraordinary items, and as a result, when compared period to period, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
The following is the reconciliation from net income (loss) applicable to common stockholders, the most direct comparable financial measure calculated and presented with GAAP, to FFO for the three months ended March 31, ~~2021~~2022 and ~~2020:~~ 2021:

Three Months Ended
March 31,
2021 March 31,
2020

Three Months Ended

March 31,

March 31,


2022

2021
Net loss applicable to common stockholders (GAAP) $ (1,758,000 ) $ (213,000 )

$
(325,000)

$
(1,758,000)
Adjustments:

Depreciation and amortization 399,000 417,000

1,831,000

399,000
Depreciation and amortization related to non-controlling interests (10,000 ) (10,000 )

(11,000)

(10,000)
Depreciation related to Equity-Method Investments 550,000 558,000

230,000

427,000 ⁽¹⁾
Funds (used in) provided by operations (FFO) applicable to common stockholders $ (819,000 ) $ 752,000

Weighted-average number of common shares outstanding – basic and diluted 23,027,978 23,027,978
FFO per weighted average common shares – basic and diluted $ (0.04 ) $ 0.03
Gain on sale of property in Fantasia I (included in income from Equity-Method Investments)

(437,000)

—
Funds provided by (used in) operations (FFO) applicable to common stockholders

$
1,288,000

$
(942,000) ⁽¹⁾
Weighted-average number of common shares outstanding - basic and diluted

23,027,978

23,027,978
FFO per weighted average common shares - basic and diluted

$
0.06

$
(0.04)
(1) Revised to exclude $0.1 million above-market lease amortization.

Subsequent ~~Event~~Events

~~None.~~See Note 13 to the accompanying Notes to Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
~~Page 32 of 37~~
34
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Item 4. Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial Officer), to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) evaluated the effectiveness of our disclosure controls and procedures and concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
~~Item 1.~~ ~~Legal Proceedings.~~
Item 1.Legal Proceedings.
See Note 1011 to the accompanying Notes to Condensed Consolidated Financial Statements for a summary of our material legal proceedings.

~~Item 1A.~~ ~~Risk Factors.~~
Item 1A.Risk Factors.
There have been no material changes to the Risk Factors described in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021, except for the revision of the following Risk Factor:

Our properties expose us to various operational risks, liabilities and claims that could adversely affect our ability to generate revenues or increase our costs and could have a material adverse effect on us.

From time to time, circumstances may require one or more of our subsidiaries to hire a third-party manager to operate, like we did at Pennington Gardens, and/or become the licensed operator of a senior housing facility, rather than entering into a triple net lease with an independent tenant, although that is not our objective. Hiring a third-party manager to operate or becoming the licensed operator of a facility exposes us to additional operational risks, liabilities and claims that could increase our costs or adversely affect our ability to generate revenues, thereby reducing our profitability. These operational risks include fluctuations in occupancy levels, the inability to achieve economic resident fees (including anticipated increases in those fees), increased cost of compliance, increases in the cost of food, materials, energy, labor (as a result of unionization or otherwise) or other services, national and regional economic conditions, the imposition of new or increased taxes, capital expenditure requirements, professional and general liability claims, and the availability and cost of professional and general liability insurance. Any one or a combination of these factors could result in operating deficiencies in our operations and decreases in cash flow, which could have a material adverse effect on us. See Note 3 to the accompanying Notes to Consolidated Financial Statements for further information regarding financial issues for two of our tenants of our owned properties and the impact on us.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
~~Item 2.~~(a) ~~Unregistered Sales~~We did not sell any equity securities that were not registered under the Securities Act of ~~Equity Securities and Use of Proceeds.~~1933, as amended, during the periods covered by this Form 10-Q.
(b) Not applicable.
(c) During the three months ended March 31, 2022, we redeemed no shares pursuant to our stock repurchase program.
~~(a) We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the periods covered by this Form 10-Q.~~
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~~(b) Not applicable.~~
~~(c) During the three months ended March 31, 2021, we redeemed no shares pursuant to our stock repurchase program.~~
~~Item 3.~~ ~~Defaults Upon Senior Securities.~~
Item 3.Defaults Upon Senior Securities.
None.

~~Item 4.~~ ~~Mine Safety Disclosures.~~
Item 4.Mine Safety Disclosures.
None.

~~Item 5.~~ ~~Other Information.~~
Item 5.Other Information.
None.
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~~Item 6.~~ ~~Exhibits.~~
Item 6.Exhibits.
~~Ex.~~
~~Description~~
Ex.
Description
3.1
Amendment and Restatement of Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed on March 24, 2006).
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 23, 2005).
3.3
Articles of Amendment of the Company dated October 16, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 22, 2013).
3.4
Second Articles of Amendment and Restatement of Articles of Incorporation of the Company dated June 30, 2010 (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed on March 20, 2015).
4.1
Subscription Agreement (incorporated by reference to Appendix A to the prospectus included on Post-Effective Amendment No. 2 to the Registration Statement on Form S-11 (No. 333-155640) filed on April 16, 2010 (“Post-Effective Amendment No. 2”)).
4.2
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 14, 2004).
4.3
Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix B to the prospectus dated April 16, 2010 included on Post-Effective Amendment No. 2).
4.4
2015 Omnibus Incentive Plan dated October 28, 2015 (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on September 28, 2015).
~~31.1~~
10.1

Temporary Space License Agreement between Lakehills CM-CG LLC, a Delaware limited liability company, as licensor, and Summit Healthcare REIT, Inc., as licensee, dated April 1, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2022).

10.2

Standard Office lease between Lakehills CM-CG LLC, a Delaware limited liability company, as landlord, and Summit Healthcare REIT, Inc., as tenant, dated April 1, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2022).

31.1
Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
101.1
The following information from the Company’s quarterly report on Form 10-Q for the quarter ended March 31, ~~2021,~~2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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

SUMMIT HEALTHCARE REIT, INC.

/s/ Kent Eikanas
Date: May ~~17, 2021~~12, 2022
Kent Eikanas
Chief Executive Officer

(Principal Executive Officer)
/s/ Elizabeth A. Pagliarini
Date: May ~~17, 2021~~12, 2022
Elizabeth A. Pagliarini
Chief Financial Officer

(Principal Financial Officer)

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