UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
⌧☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~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
(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

(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. ⌧ 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). ⌧ 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	☒	Smaller reporting company	☒

Emerging growth company	☐

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

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

As of ~~August 6, 2021,~~May 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.	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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3534
Item 4.	Controls and Procedures	3635
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3635
Item 1A.	Risk Factors	3635
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3635
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		38

EX-31.1
EX-31.2
EX-32

~~Page~~ 2 ~~of 38~~

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
ASSETS
Cash and cash equivalents	$	21,026,000	$	14,658,000	$	13,705,000	$	10,488,000
Restricted cash		3,002,000		2,933,000		2,696,000		2,673,000
Real estate properties, net		44,166,000		44,921,000		177,519,000		179,102,000
Notes receivable		139,000		262,000
Intangible lease assets, net						14,442,000		14,687,000
Tenant and other receivables, net		3,351,000		4,677,000		3,752,000		3,386,000
Deferred leasing commissions, net		501,000		536,000		448,000		466,000
Other assets, net		880,000		1,203,000		534,000		422,000
Equity-method investments		7,821,000		11,375,000		8,304,000		7,902,000
Total assets	$	80,886,000	$	80,565,000	$	221,400,000	$	219,126,000

LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	$	2,566,000	$	2,530,000	$	5,189,000	$	2,551,000
Security deposits		588,000		664,000		4,651,000		4,651,000
Loans payable, net of debt issuance costs		44,790,000		45,274,000		180,322,000		180,370,000
Total liabilities		47,944,000		48,468,000		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 June 30, 2021 and December 31, 2020		0		0
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,027,978 shares issued and outstanding at June 30, 2021 and December 31, 2020		23,000		23,000
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		116,382,000		116,335,000		116,409,000		116,401,000
Accumulated deficit		(83,663,000)		(84,456,000)		(85,366,000)		(85,041,000)
Total stockholders’ equity		32,742,000		31,902,000		31,066,000		31,383,000
Noncontrolling interests		200,000		195,000		172,000		171,000
Total equity		32,942,000		32,097,000		31,238,000		31,554,000
Total liabilities and equity	$	80,886,000	$	80,565,000	$	221,400,000	$	219,126,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

~~Page~~ 3 ~~of 38~~

Table of Contents

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2021		2020		2021		2020		2022		2021
Revenues:
Total rental revenues	$	1,284,000	$	1,604,000	$	2,208,000	$	3,204,000	$	5,541,000	$	924,000
Acquisition and asset management fees		295,000		292,000		624,000		618,000
Resident fees and services										408,000		0
Asset management fees										165,000		329,000
Interest income from notes receivable		4,000		7,000		13,000		14,000		—		9,000
Total operating revenue		1,583,000		1,903,000		2,845,000		3,836,000		6,114,000		1,262,000

Expenses:
Property operating costs		210,000		213,000		430,000		470,000		773,000		220,000
Resident costs										375,000		0
General and administrative		862,000		848,000		2,493,000		1,787,000		1,048,000		1,631,000
Depreciation and amortization		393,000		418,000		792,000		835,000		1,837,000		399,000
Total operating expenses		1,465,000		1,479,000		3,715,000		3,092,000		4,033,000		2,250,000

Operating income (loss)		118,000		424,000		(870,000)		744,000		2,081,000		(988,000)

(Loss) income from equity-method investees		(550,000)		137,000		(785,000)		167,000
Gain on sale of equity-method investment		3,515,000		0		3,515,000		0
Income (loss) from equity-method investees										642,000		(235,000)
Other income		6,000		6,000		11,000		48,000		2,000		5,000
Interest expense		(516,000)		(630,000)		(1,038,000)		(1,223,000)		(3,031,000)		(522,000)
Net income (loss)		2,573,000		(63,000)		833,000		(264,000)
Net loss										(306,000)		(1,740,000)
Noncontrolling interests’ share in net (income) loss		(22,000)		(11,000)		(40,000)		(23,000)		(19,000)		(18,000)
Net income (loss) applicable to common stockholders	$	2,551,000	$	(74,000)	$	793,000	$	(287,000)
Net loss applicable to common stockholders									$	(325,000)	$	(1,758,000)

Earnings per common share:
Basic:
Income (loss)	$	0.11	$	0	$	0.03	$	(0.01)
Net income (loss) applicable to common stockholders	$	0.11	$	0	$	0.03	$	(0.01)
Basic and diluted loss per common share:
Net loss applicable to common stockholders									$	(0.01)	$	(0.08)

Diluted:
Income (loss)	$	0.11	$	0	$	0.03	$	(0.01)
Net income ( loss) applicable to common stockholders	$	0.11	$	0	$	0.03	$	(0.01)

Weighted average shares used to calculate earnings per common share
Basic		23,027,978		23,027,978		23,027,978		23,027,978
Diluted		23,553,606		23,027,978		23,553,606		23,027,978
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 38~~

Table of Contents

SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Common Stock													Common Stock
		Common													Common
	Number	Stock		Additional				Total						Number	Stock		Additional				Total
	of	Par		Paid-In		Accumulated		Stockholders’		Noncontrolling		Total		of	Par		Paid-In		Accumulated		Stockholders’		Noncontrolling		Total
	Shares	Value		Capital		Deficit		Equity		Interests		Equity		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
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		36,000		0		36,000		0		36,000	0		0		8,000		0		8,000		0		8,000
Distributions paid to noncontrolling interests	0		0		0		0		0		(16,000)		(16,000)	0		0		0		0		0		(18,000)		(18,000)
Net (loss) income	0		0		0		(1,758,000)		(1,758,000)		18,000		(1,740,000)	0		0		0		(325,000)		(325,000)		19,000		(306,000)
Balance — March 31, 2021	23,027,978	$	23,000	$	116,371,000	$	(86,214,000)	$	30,180,000	$	197,000	$	30,377,000
Stock-based compensation	0		0		11,000		0		11,000		0		11,000
Distributions paid to noncontrolling interests	0		0		0		0		0		(19,000)		(19,000)
Net income (loss)	0		0		0		2,551,000		2,551,000		22,000		2,573,000
Balance — June 30, 2021	23,027,978	$	23,000	$	116,382,000	$	(83,663,000)	$	32,742,000	$	200,000	$	32,942,000
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 Stock
		Common													Common
	Number	Stock		Additional				Total						Number	Stock		Additional				Total
	of	Par		Paid-In		Accumulated		Stockholders’		Noncontrolling		Total		of	Par		Paid-In		Accumulated		Stockholders’		Noncontrolling		Total
	Shares	Value		Capital		Deficit		Equity		Interests		Equity		Shares	Value		Capital		Deficit		Equity		Interests		Equity
Balance — January 1, 2020	23,027,978	$	23,000	$	116,184,000	$	(83,843,000)	$	32,364,000	$	200,000	$	32,564,000
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		42,000		0		42,000		0		42,000	0		0		36,000		0		36,000		0		36,000
Distributions paid to noncontrolling interests	0		0		0		0		0		(12,000)		(12,000)	0		0		0		0		0		(16,000)		(16,000)
Net (loss) income	0		0		0		(213,000)		(213,000)		12,000		(201,000)	0		0		0		(1,758,000)		(1,758,000)		18,000		(1,740,000)
Balance — March 31, 2020	23,027,978	$	23,000	$	116,226,000	$	(84,056,000)	$	32,193,000	$	200,000	$	32,393,000
Stock-based compensation	0		0		38,000		0		38,000		0		38,000
Distributions paid to noncontrolling interests	0		0		0		0		0		(15,000)		(15,000)
Net (loss) income	0		0		0		(74,000)		(74,000)		11,000		(63,000)
Balance — June 30, 2020	23,027,978	$	23,000	$	116,264,000	$	(84,130,000)	$	32,157,000	$	196,000	$	32,353,000
Balance — March 31, 2021														23,027,978	$	23,000	$	116,371,000	$	(86,214,000)	$	30,180,000	$	197,000	$	30,377,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

~~Page~~ 5 ~~of 38~~

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SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,				Three Months Ended March 31,
	2021		2020		2022		2021
Cash flows from operating activities:
Net income (loss)	$	833,000	$	(264,000)
Adjustments to reconcile net income (loss) to net cash provided by 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		34,000		55,000		227,000		18,000
Depreciation and amortization		792,000		835,000		1,831,000		399,000
Amortization of above-market lease intangible						16,000		0
Straight-line rents		494,000		(125,000)		(374,000)		406,000
Write-off of debt issuance costs		0		77,000
Stock-based compensation expense		47,000		80,000		8,000		36,000
Gain on sale of equity-method investment		(3,515,000)		0
Loss (income) from equity-method investees		785,000		(167,000)
(Income) loss from equity-method investees						(642,000)		235,000
Change in operating assets and liabilities:
Tenant and other receivables, net		501,000		411,000		184,000		294,000
Other assets		275,000		93,000
Other assets, net						(135,000)		473,000
Accounts payable and accrued liabilities		83,000		(85,000)		2,660,000		(30,000)
Net cash provided by operating activities		329,000		910,000		3,469,000		91,000

Cash flows from investing activities:
Investment in equity-method investees		(123,000)		0		(69,000)		(123,000)
Proceeds from sale of equity-method investment		5,411,000		0
Distributions received from equity-method investees		1,250,000		640,000		133,000		413,000
Payments from notes receivable		123,000		185,000		0		60,000
Net cash provided by investing activities		6,661,000		825,000		64,000		350,000

Cash flows from financing activities:
Proceeds from issuance of loans payable		0		11,863,000
Payments of loans payable		(518,000)		(11,155,000)		(275,000)		(265,000)
Distributions paid to noncontrolling interests		(35,000)		(27,000)		(18,000)		(16,000)
Deferred financing costs		0		(656,000)
Net cash (used in) provided by financing activities		(553,000)		25,000
Net cash used in financing activities						(293,000)		(281,000)

Net increase in cash, cash equivalents and restricted cash		6,437,000		1,760,000		3,240,000		160,000
Cash, cash equivalents and restricted cash – beginning of period		17,591,000		16,077,000		13,161,000		17,591,000
Cash, cash equivalents and restricted cash – end of period	$	24,028,000	$	17,837,000	$	16,401,000	$	17,751,000

Supplemental disclosure of cash flow information:
Cash paid for interest	$	816,000	$	960,000	$	2,000,000	$	431,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

~~Page~~ 6 ~~of 38~~

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SUMMIT HEALTHCARE REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE 30, 2021~~MARCH 31, 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 ~~2 properties,~~1 property, a 20% equity interest in an unconsolidated equity-method investment that holds 2 properties, a 10% equity interest in an unconsolidated equity-method investment that holds 9 properties, ~~and~~ a 10% equity interest in an unconsolidated equity-method investment that holds six properties. In June 2021, we sold our 15% equity interest in an unconsolidated equity-method investment that 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we own a 95.3%interest in the ~~four~~4 JV Properties, and CHREF owns a 4.7% interest.

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 ~~June 30, 2021~~March 31, 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we have a 35%interest in the Fantasia JV which owns 1 property at March 31, 2022 and owned 2 ~~properties.~~properties at December 31, 2021.

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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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we have a 20%interest in the Fantasia II JV which owns 2 properties.

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we have a 10%interest in the Fantasia III JV which owns 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we have a 10%interest in the FPH JV which owns 6 properties.

Indiana JV– Equity-Method Investment

In June 2021, we sold our 15% equity interest in the Indiana JVjoint venture (the “Indiana JV”) for approximately $5.4 million. See Note 5 for further information.

~~The Indiana JV was not consolidated in our condensed consolidated financial statements and was accounted for under the equity-method.~~ As of ~~June 30, 2021 and~~ December 31, ~~2020,~~2021, we have a 0% ~~and 15%~~ interest in the Indiana ~~JV, respectively, which owned 14 properties.~~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 former operating member of~~ the Indiana JV ~~through~~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.

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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”). 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 ~~and six~~ months ended ~~June 30, 2021~~March 31, 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.


	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Cash and cash equivalents	$	21,026,000	$	14,658,000	$	13,705,000	$	10,488,000
Restricted cash		3,002,000		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	$	24,028,000	$	17,591,000	$	16,401,000	$	13,161,000

~~Recently Adopted Accounting Pronouncements~~

In January 2020, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2020-01 to clarify the interaction among the accounting standards for equity securities, equity method investments 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 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~~The world was, ~~first reported in December 2019,~~and continues to be, impacted by the COVID-19 ~~has spread globally.~~pandemic. The ~~outbreak has led governments~~healthcare industry was among those most adversely affected by the COVID-19 pandemic. During 2021 and ~~other authorities around the world, including federal, state~~2020 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 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.

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●

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.

~~For the period ended June 30, 2021,~~continuing into 2022, two of our tenants experienced a material adverse effect on their operations related to COVID-19, ~~and that has~~which affected their ability to make their rent payments in 2021. For one of the tenants, in October 2020, under a court order, a receiver assumed the responsibilities of operating and managing the Pennington Gardens facility in Chandler, Arizona. We are currently working with this tenant2021 (see Note 3 for further information on ~~a revised rent schedule for 2021, and during the six month period ended June 30, 2021, recorded rent payments~~its impact on aus).

The extent to which COVID-19 could continue to impact our business, cash basis and wrote off the remaining straight-line rent receivable of $0.4 million. For the other tenant that is managing the Sundial Assisted Living facility and experiencing operational issues, as of June 2021, we recorded rent payments on a cash basis and wrote off the remaining straight-line rent receivable of $0.1 million.

Additionally, some of our Equity-Method Investment tenants have experienced decreased occupancy and increased operating costs related to COVID-19, however; there have been no rent concessions for such tenants during 2021.

~~It is impossible to predict the continuing effect and ultimate impact of the COVID-19 pandemic on our operations~~flow and results asof operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ~~situation is continuing~~rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to ~~evolve. Many~~contain the spread of ~~our consolidated~~COVID-19 and ~~Equity Method Investments facilities have administered the vaccine~~how quickly and to ~~residents~~what extent normal economic 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.

~~CARES Act~~Reclassification of Intangible Lease Assets

~~During 2020,~~The following table provides a reconciliation for the ~~Coronavirus Aid, Relief,~~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

The intangible lease assets related to our prior acquisitions in 2021 were reclassified from real estate properties, net and ~~Economic Security (CARES) Act was enacted~~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

We recognize resident fees and services revenue at the amount that we expect to ~~provide economic stimulus~~be entitled to in exchange for providing resident care and ~~assistance to business owners to help maintain on-going operations~~services. Resident fees are recognized and billed monthly based on the contracted rate in the ~~form~~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 ~~grants, forgivable loans~~the services provided by us. The majority of resident fees and ~~other relief. We did not obtain a paycheck protection program loan. We have evaluated~~services is attributable to the ~~CARES Act~~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 ~~there was~~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.). 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 result of investigations by governmental agencies, various healthcare organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to 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 ~~impact on the Company for the six-month period ended June 30, 2021 or the year ended December 31, 2020. We~~assurance that regulatory authorities will ~~continue to evaluate~~not challenge our compliance with these laws and ~~monitor the CARES Act,~~regulations, and ~~any new COVID-19-related legislation~~it is not possible 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.

3. Investments in Real Estate Properties

As of March 31, 2022 and December 31, 2021, our investments in real estate properties including those held by our consolidated subsidiaries (excluding the 35 properties owned by our unconsolidated Equity-Method Investments) are set forth below:


	March 31,		December 31,
	2022		2021
Land	$	15,565,000	$	15,565,000
Buildings and improvements		166,989,000		166,989,000
Less: accumulated depreciation		(12,546,000)		(11,395,000)
Buildings and improvements, net		154,443,000		155,594,000
Furniture and fixtures		12,137,000		12,137,000
Less: accumulated depreciation		(4,626,000)		(4,194,000)
Furniture and fixtures, net		7,511,000		7,943,000
Real estate properties, net	$	177,519,000	$	179,102,000

For the three months ended March 31, 2022 and 2021, depreciation and amortization expense (excluding lease intangibles amortization and leasing commission amortization) was approximately $1.6 million and $0.4 million, respectively.

As of March 31, 2022, our portfolio consisted of 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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~~3. Investments~~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 ~~Real Estate Properties~~

2022 and 2021. As ~~of June 30, 2021 and December 31, 2020, our investments in real estate properties including those held by our consolidated subsidiaries (excluding~~a result, we experienced the ~~36 and 50 properties owned by our unconsolidated Equity-Method Investments, respectively) are set forth below:~~following impacts:

June 30,

December 31,

2021

2020
Land

$
6,237,000

$
6,237,000
Buildings and improvements

48,295,000

48,295,000
Less: accumulated depreciation

(10,523,000)

(9,853,000)
Buildings and improvements, net

37,772,000

38,442,000
Furniture and fixtures

4,230,000

4,230,000
Less: accumulated depreciation

(4,073,000)

(3,988,000)
Furniture and fixtures, net

157,000

242,000
Real estate properties, net

$
44,166,000

$
44,921,000

Pennington Gardens Operations LLC

~~For each~~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 ~~June 30, 2021~~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 ~~2020, depreciation expense (excluding leasing commission amortization) was approximately $0.4 million.~~all intercompany transactions have been eliminated. For ~~each of~~ the ~~six~~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 ~~30,~~ 2021, we recorded rent payments on a cash basis and ~~2020, depreciation expense (excluding leasing commission amortization) was approximately $0.8~~in May 2021, wrote off the remaining straight-line rent receivable of $0.1 million.

~~As of June 30, 2021, our portfolio consisted of seven real estate properties which were 100% leased to the tenants of the related facilities.~~

The following table provides summary information regarding our portfolio (excluding the 3635 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 ~~June 30, 2021:~~March 31, 2022:

Loans

Payable,

Excluding

Debt

Purchase

Issuance

Purchase

Issuance

Property

Location

Date Purchased

Type⁽¹⁾

Price

Costs

Location

Date Purchased

Type⁽¹⁾

Price

Costs

Sheridan Care Center

Sheridan, OR

August 3, 2012

SNF

4,100,000

4,250,000

Sheridan, OR

August 3, 2012

SNF

4,100,000

4,127,000

Fernhill Care Center

Portland, OR

August 3, 2012

SNF

4,500,000

3,729,000

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

11,643,000

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

6,216,000

Tigard, OR

December 24, 2012

SNF

8,140,000

6,037,000

Brookstone of Aledo

Aledo, IL

July 2, 2013

8,625,000

6,796,000

Aledo, IL

July 2, 2013

8,625,000

6,699,000

Sundial Assisted Living

Redding, CA

December 18, 2013

3,500,000

3,766,000

Redding, CA

December 18, 2013

3,500,000

3,726,000

Pennington Gardens(2)

Chandler, AZ

July 17, 2017

AL/MC

13,400,000

10,269,000

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:

57,265,000

46,669,000

207,320,000

171,853,000

(1)	SNF is an abbreviation for skilled nursing facility.

~~AL is an abbreviation for assisted living facility.~~

~~MC is an abbreviation for memory care 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.

Future Minimum Lease Payments

The future minimum lease payments to be received under our existing tenant operating leases (excluding the 3635 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 ~~June 30, 2021,~~March 31, 2022, for the period from ~~July~~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
July 1, 2021 to December 31, 2021	$	2,057,000
2022		4,181,000
April 1, 2022 to December 31, 2022			$	13,281,000
2023		4,264,000		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
	$	34,730,000	$	252,429,000

2022 Acquisitions

None.

2021 Acquisitions

CA3 Properties

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 ~~properties in California for approximately $20 million. See Note 13 for further information.~~separate 15-year triple net leases, each of which has two five-year renewal options.

GA8 Properties

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.

Leasing Commissions

As a self-managed REIT, we ~~no longer pay~~have not paid leasing ~~commissions.~~commissions since 2013. Leasing commissions ~~which were~~are capitalized ~~prior to April 2014~~ at cost and ~~are~~ amortized on a straight-line basis over the related lease term. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, total costs incurred were $1.1 million, and the unamortized balance of capitalized leasing commissions was approximately $0.4 million and $0.5 ~~million.~~million, respectively. Amortization expense for each of the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was approximately ~~$18,000. Amortization expense for each of the six months ended June 30, 2021 and 2020 was approximately $35,000.~~$17,000.

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4. Loans Payable

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our loans payable consisted of the following:


					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
	June 30, 2021		December 31, 2020
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.	$	10,269,000	$	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 June 30, 2021 and December 31, 2020, collateralized by Sheridan, Fernhill, Pacific Health, Friendship Haven, Aledo and Sundial Assisted Living.	$	36,400,000	$	36,857,000
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
		46,669,000		47,187,000		184,603,000		184,878,000
Less debt issuance costs		(1,879,000)		(1,913,000)		(4,281,000)		(4,508,000)
Total loans payable	$	44,790,000	$	45,274,000	$	180,322,000	$	180,370,000

As of ~~June 30, 2021,~~March 31, 2022, we have total debt obligations of approximately ~~$46.7~~$184.6 million that will mature between ~~2039~~2024 and 2055. ~~All of our properties are financed with U.S. Department of Housing and Urban Development (“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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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 June 30, 2021, we were in compliance with all of our debt covenants.

In connection with our loans payable, we incurred debt issuance costs. As of June 30, 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 June 30, 2021 and 2020, $16,000 and $98,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations. For the six months ended June 30, 2021 and 2020, $34,000 and $132,000, respectively, of debt issuance costs were amortized and included in interest expense in our condensed consolidated statements of operations. Included in the amortization of debt issuance costs for the three and six months ended June 30, 2020 is $77,000 related to the write off of debt issuance costs for CHP Friendswood SNF, LLC’s prior loan.

During the three months ended June 30, 2021 and 2020, we incurred approximately $0.5 million and $0.5 million of interest expense (excluding debt issuance costs amortization), respectively, related to our loans payable. During the six months ended June 30, 2021 and 2020, we incurred approximately $1.0 million and $1.1 million, respectively, of interest expense (excluding debt issuance costs amortization) related to our loans payable.

The principal payments due on the loans payable (excluding debt issuance costs) for the period from July 1, 2021 to December 31, 2021 and for each of the four following years and thereafter ending December 31 are as follows:

Principal
Years Ending

Amount
July 1, 2021 to December 31, 2021

$
543,000
2022

1,116,000
2023

1,158,000
2024

1,201,000
2025

1,246,000
Thereafter

41,405,000

$
46,669,000

5. Equity-Method Investments

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the ~~aggregate~~ balances of our Equity-Method Investments were approximately ~~$7.8~~$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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the SUL JV was approximately ~~$2.5~~$2.8 million and ~~$2.7~~$2.9 million, respectively.

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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”).

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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 ~~June 30, 2021~~March 31, 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.

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 ~~June 30, 2021~~March 31, 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the balance of our equity-method investment related to the Fantasia III JV was approximately $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”).

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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 ~~June 30, 2021~~March 31, 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.

~~Indiana JV~~

In June 2021, we sold our 15% interest in the Indiana JV for approximately $5.4 million in cash. For the three and six months ended June 30, 2021, we recorded approximately $3.5 million in gain on the sale from this equity-method investment which is included in our condensed consolidated statements of operations under Gain from sale of equity-method investment.

~~As of June 30, 2021 and December 31, 2020, the balance of our equity-method investment related to the Indiana JV was approximately $0 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 information for the Indiana JV is through the date of the sale of our interest, June 11, 2021.~~

~~The results of operations of our Equity-Method Investments for the three months ended June 30, 2021 are summarized below:~~

Fantasia

Fantasia

Fantasia

FPH

Indiana

Combined


SUL JV

JV

II JV

III JV

JV

JV

Total
Revenue

$
5,091,000

$
951,000

$
921,000

$
2,057,000

$
893,000

$
(1,945,000)

$
7,968,000
Income from operations

$
1,810,000

$
72,000

$
479,000

$
1,020,000

$
412,000

$
(3,447,000)

$
346,000
Net income (loss)

$
609,000

$
82,000

$
243,000

$
492,000

$
81,000

$
(4,969,000)

$
(3,462,000)
Summit interest in Equity-Method Investments net income (loss)

$
61,000

$
29,000

$
49,000

$
49,000

$
8,000

$
(746,000)

$
(550,000)

~~The results of operations of our Equity-Method Investments for the three months ended June 30, 2020 are summarized below:~~

Fantasia

Fantasia

Fantasia

FPH

Indiana

Combined


SUL JV

JV

II JV

III JV

JV

JV

Total
Revenue

$
4,600,000

$
1,022,000

$
890,000

$
2,000,000

$
886,000

$
2,946,000

$
12,344,000
Income from operations

$
1,978,000

$
116,000

$
484,000

$
1,104,000

$
418,000

$
1,854,000

$
5,954,000
Net income (loss)

$
741,000

$
(57,000)

$
242,000

$
566,000

$
(51,000)

$
(117,000)

$
1,324,000
Summit interest in Equity-Method Investments net income (loss)

$
74,000

$
(20,000)

$
48,000

$
57,000

$
(5,000)

$
(17,000)

$
137,000

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Indiana JV

In June 2021, we sold our 15% interest in the Indiana JV for approximately $5.4 million in cash.

As of December 31, 2021, we have a 0% interest in the Indiana JV.

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:


			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	$	(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)
Summit interest in Equity-Method Investments net income (loss)	$	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.

Distributions from Equity-Method Investments

As of March 31, 2022 and December 31, 2021, we have distributions receivable, which are included in tenant and other receivables in our condensed consolidated balance sheets, as follows:


	March 31,		December 31,
	2022		2021
SUL JV	$	259,000	$	273,000
Fantasia JV		235,000		205,000
Fantasia II JV		55,000		54,000
Fantasia III JV		—		22,000
FPH JV		28,000		28,000
Total	$	577,000	$	582,000

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~~The results of operations of our Equity-Method Investments for~~For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~are summarized below:~~

Fantasia

Fantasia

Fantasia

FPH



Combined

SUL JV

JV

II JV

III JV

JV

Indiana JV

Total
Revenue

$
10,267,000

$
1,881,000

$
1,841,000

$
4,113,000

$
1,783,000

$
(1,695,000)

$
18,190,000
Income (loss) from operations

$
3,357,000

$
143,000

$
964,000

$
2,057,000

$
833,000

$
(5,093,000)

$
2,261,000
Net income (loss)

$
787,000

$
369,000

$
492,000

$
1,007,000

$
928,000

$
(8,567,000)

$
(4,984,000)
Summit interest in Equity-Method Investments net income (loss)

$
79,000

$
129,000

$
98,000

$
102,000

$
93,000

$
(1,286,000)

$
(785,000)

~~The results of operations of our Equity-Method Investments for the six months ended June 30, 2020 are summarized below:~~

Fantasia

Fantasia

Fantasia

FPH



Combined

SUL JV

JV

II JV

III JV

JV

Indiana JV

Total
Revenue

$
9,150,000

$
2,074,000

$
1,782,000

$
4,000,000

$
1,771,000

$
5,893,000

$
24,670,000
Income from operations

$
3,856,000

$
304,000

$
991,000

$
2,141,000

$
839,000

$
3,722,000

$
11,853,000
Net income (loss)

$
1,696,000

$
(78,000)

$
508,000

$
966,000

$
(1,405,000)

$
(221,000)

$
1,466,000
Summit interest in Equity-Method Investments net income (loss)

$
169,000

$
(28,000)

$
102,000

$
97,000

$
(140,000)

$
(33,000)

$
167,000

~~Distributions from Equity-Method Investments~~

~~As of June 30, 2021 and December 31, 2020, we have distributions receivable, which are included in tenant and other receivables in our condensed consolidated balance sheets, as follows:~~

June 30,

December 31,

2021

2020
SUL JV

$
268,000

$
466,000
Fantasia JV

115,000

36,000
Fantasia II JV

53,000

51,000
Fantasia III JV

264,000

257,000
FPH JV

25,000

26,000
Indiana JV

—

498,000
Total

$
725,000

$
1,334,000

~~For the six months ended June 30, 2021 and 2020,~~ 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:


	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020						Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
			Cash Flow		Cash Flow				Cash Flow		Cash Flow				Cash Flow		Cash Flow				Cash Flow		Cash Flow
	Total Cash		from		from		Total Cash		from		from		Total Cash		from		from		Total Cash		from		from
	Distributions		Operating		Investing		Distributions		Operating		Investing		Distributions		Operating		Investing		Distributions		Operating		Investing
	Received		Activities		Activities		Received		Activities		Activities		Received		Activities		Activities		Received		Activities		Activities
SUL JV	$	484,000	$	79,000	$	405,000	$	235,000	$	169,000	$	66,000	$	152,000	$	44,000	$	108,000	$	336,000	$	18,000	$	318,000
Fantasia JV		0		0		0		144,000		0		144,000		0		0		0		0		0		0
Fantasia II JV		148,000		98,000		50,000		147,000		101,000		46,000		77,000		52,000		25,000		73,000		50,000		23,000
Fantasia III JV		123,000		101,000		22,000		69,000		69,000		0		44,000		44,000		—		123,000		51,000		72,000
FPH JV		77,000		77,000		0		84,000		0		84,000		41,000		41,000		0		38,000		38,000		0
Indiana JV		773,000		0		773,000		300,000		0		300,000
Total	$	1,605,000	$	355,000	$	1,250,000	$	979,000	$	339,000	$	640,000	$	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.~~

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~~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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we recorded approximately $0.2 million and $0.3 million,respectively, in ~~acquisition and asset management fees from our Equity-Method Investments. For each of the six months ended June 30, 2021 and 2020, we recorded $0.6 million in acquisition and~~ asset management fees from our Equity-Method Investments (see Note 7).

6. Receivables

Tenant and Other Receivables, Net

Tenant and other receivables, net consists of:


	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Straight-line rent receivables	$	2,278,000	$	2,772,000	$	2,769,000	$	2,395,000
Distribution receivables from Equity-Method Investments		725,000		1,334,000		577,000		582,000
Asset management fees		311,000		432,000		213,000		323,000
Other receivables		37,000		139,000		193,000		86,000
Total	$	3,351,000	$	4,677,000	$	3,752,000	$	3,386,000

7. Related Party Transactions

Equity-Method Investments

See Notes 5 and 6 for further discussion of distributions and asset management fees related to our Equity-Method Investments.

~~7. Related Party Transactions~~8. Intangible Lease Assets

~~CRA~~

~~Prior to the termination~~Intangible lease assets as 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 June 30, 2021March 31, 2022 and December 31, ~~2020, the receivables from CRA~~2021 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 June 30, 2021 and December 31, 2020, we had the following receivables and reserves related to CRA:~~as follows:

Receivables

Reserves

Balance
Organizational and offering costs

$
738,000

$
(738,000)

$
0
Asset management fees and expenses

32,000

(32,000)

0
Operating expenses (direct and indirect)

189,000

(189,000)

0
Operating expenses (2%/25% Test)

1,717,000

(1,717,000)

0
Total

$
2,676,000

$
(2,676,000)

$
0


	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

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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.

~~See Notes 5~~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 6 for ~~further discussion~~each of ~~distributions~~the four following years and ~~acquisition and asset management fees related to our Equity-Method Investments.~~thereafter ending December 31 are as follows:


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

8.9. Concentration of Risk

Our cash is generally invested in short-term money market instruments. As of ~~June 30, 2021,~~March 31, 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 ~~June 30, 2021,~~March 31, 2022, we owned ~~1 property~~8 properties in Georgia, 4 properties in California, 3 properties in Oregon, 1 property in Texas, 1 property in Illinois, and 1 property in Arizona (excluding the 3635 properties held by our Equity-Method Investments). Accordingly, there is a geographic concentration of risk subject to economic conditions in certain states.

~~Page 17 of 38~~

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Additionally, for the three months ended ~~June 30, 2021,~~March 31, 2022, we leased our 718 real estate properties to 516 different tenants under long-term triple net leases, and 3 of the ~~five~~16 tenants each represented more than 10% of our rental revenue. For the three months ended ~~June 30, 2020,~~March 31, 2021, we leased our 7 real estate properties to 5 different tenants under long-term triple net leases, and 4 of the five tenants each represented ~~rental revenue greater than 10% (35%, 24%, 19% and 15%).~~

~~For the six months ended June 30, 2021, we leased our 7 real estate properties to 5 different tenants under long-term triple net leases, and 3 of the five tenants each represented~~ more than 10% of our rental revenue. For the six months ended June 30, 2020, we leased our 7 healthcare properties to 5 different tenants under long-term triple net leases, and 4 of the five tenants each represented rental revenue greater than 10% (35%, 24%, 20% and 15%).

As of ~~June 30, 2021, no tenants constituted~~March 31, 2022, our GA8 Properties are considered to be a significant asset concentration as the aggregate net assets of the ~~tenants~~GA8 Properties were ~~not~~ 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair value of loans payable was ~~$52.0~~$177.1 million and ~~$52.6~~$177.3 million, compared to the principal balance (excluding debt discount) of ~~$46.7~~$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 ~~June 30, 2021,~~March 31, 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. NaN impairments were recorded during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

At ~~June 30, 2021~~March 31, 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

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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 18 of 38~~

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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 scheduling orders to govern discovery and pretrial 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 ~~June 30,~~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.

~~Page 19 of 38~~

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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.

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.

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~~11.~~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.

The following table summarizes our stock options as of ~~June 30, 2021:~~March 31, 2022:


				Weighted						Weighted
		Weighted		Average				Weighted		Average
		Average		Remaining	Aggregate			Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic			Exercise		Contractual	Intrinsic
	Options	Price		Term	Value		Options	Price		Term	Value
Options outstanding at January 1, 2021	1,871,908	$	2.09
Options outstanding at January 1, 2022							1,867,908	$	2.09
Granted	—						0
Exercised	0						0
Cancelled/forfeited	—						—
Options outstanding at June 30, 2021	1,871,908	$	2.09	6.32	$	1,524,000
Options outstanding at March 31, 2022							1,867,908	$	2.09	5.56	$	1,597,000

Options exercisable at June 30, 2021	1,812,491	$	2.08	6.26	$	1,486,000
Options exercisable at March 31, 2022							1,855,963	$	2.08	5.55	$	1,588,000

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For our outstanding non-vested options as of ~~June 30, 2021,~~March 31, 2022, the weighted average grant date fair value per share was ~~$0.59.~~$0.57. As of ~~June 30, 2021,~~March 31, 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,
July 1, 2021 to December 31, 2021	$	19,000
2022		15,000
April 1, 2022 to December 31, 2022			$	6,000
2023		1,000		1,000
	$	35,000	$	7,000

The stock-based compensation expense reported for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was approximately ~~$11,000~~$8,000 and $38,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations. The stock-based compensation expense reported for the six months ended June 30, 2021 and 2020 was approximately $47,000 and $80,000,$36,000, respectively, and is included in general and administrative expense in the condensed consolidated statements of operations.

~~12. Earnings Per Share~~

The following table presents the calculation of basic and diluted earnings per share (“EPS”) for the Company’s common stock for the three and six months ended June 30, 2021 and 2020, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS:

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Numerator:

Income (loss)

$
2,573,000

$
(63,000)

$
833,000

$
(264,000)
(Income) loss attributable to noncontrolling interest

(22,000)

(11,000)

(40,000)

(23,000)
Net income (loss) applicable to common stockholders

$
2,551,000

$
(74,000)

$
793,000

$
(287,000)

Denominator:








Basic:








Denominator for basic EPS - weighted average shares

23,027,978

23,027,978

23,027,978

23,027,978
Effect of dilutive shares:








Stock options

525,628

—

525,628

—

Denominator for diluted EPS – adjusted weighted average shares

23,553,606

23,027,978

23,553,606

23,027,978

Basic EPS

$
0.11

$
—

$
0.03

$
(0.01)
Diluted EPS

$
0.11

$
—

$
0.03

$
(0.01)

~~Page~~ 21 ~~of 38~~

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13. Subsequent Events

Office lease

On ~~July 2, 2021, through our wholly-owned subsidiary, we acquired 3 skilled nursing facilities, 2 located in Yucaipa, California and~~April 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 below. The CA3 Properties are leased to 3 unrelated parties under three separate ~~15-year~~ ~~triple net leases, each of which has~~ ~~two~~ ~~five-year renewal options.~~

~~We acquired our interest in the CA3 Properties subject to a first priority mortgage loan collateralized by the properties. On July 2, 2021,~~2022, we entered into a ~~loan~~temporary space license agreement (“Temporary License”) and a standard office lease (“New Lease”) with ~~CIBC Bank, USA~~Lakehills CM-CG LLC.

The Temporary License, for ~~$15.0 million~~space located in ~~principal amount.~~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 ~~loan bears interest at~~office space subject to the ~~One Month London Interbank Offer Rate (LIBOR) plus 4.00%, and matures on July 2, 2024.~~New Lease is also located in Laguna Hills, California. The ~~loan is interest only~~New Lease provides for the ~~first year and thereafter requires additional monthly installments~~abatement 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~~base rent for the ~~CA3 Properties are refinanced~~second full calendar month through the ~~Department~~seventh full calendar month of ~~Housing~~the lease term. The initial annual base rent is $204,399 and ~~Urban Development or if not,~~increases three percent (3%) each year on the anniversary date of the commencement of the New Lease.

Stock Options

On April 1, 2022, we ~~would be required~~granted 81,000 stock options to ~~pay an exit fee, as defined in~~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 ~~loan agreement.~~

grant date.

~~Page~~ 22 ~~of 38~~

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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 ~~June 30, 2021,~~March 31, 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, ~~and a 10% equity interest in an unconsolidated equity-method investment that holds six properties~~ (collectively, our “Equity-Method Investments”). ~~In June 2021, we sold our 15% equity interest in an unconsolidated equity-method investment that held 14 properties.~~ 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 ~~where applicable,~~ 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.~~pandemic. The healthcare industry was among those most adversely affected by the COVID-19 ~~pandemic~~pandemic. During 2021 and ~~measures to prevent its spread negatively impacted senior housing~~2020 and ~~skilled nursing facilities in a number~~continuing into 2022, two of ~~ways, including decreased occupancy and increased operating costs, which could have~~our tenants experienced a material adverse effect on ~~the~~their operations related to COVID-19, and that affected their ability ~~of our tenants~~ to ~~meet~~make their ~~financial and other contractual obligations to us, including the payment of~~ rent payments in 2021 (see Note 23 to the accompanying Notes to Condensed Consolidated Financial Statements for further ~~information). Furthermore, infections at our facilities could lead~~information on its impact to ~~material increases in litigation costs for which our tenants, or possibly we, may be liable.~~

~~Page 23 of 38~~

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If these types of developments continue or increase in severity, or arise with more frequency, including but not limited to developments in connection with emerging variants of COVID-19, they are likely to have a material adverse effect on our business and results of operations.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.~~

~~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 enacted~~how quickly and to ~~provide~~what extent normal economic ~~stimulus~~ and assistance to business owners to help maintain on-going operations in the form of grants, forgivable loans and other relief. 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, were 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.

Summit Portfolio Properties

~~At June~~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.

Table of Contents

On December 30, 2021, ~~our portfolio consisted of seven real estate~~we acquired eight properties ~~as noted above. All of~~in Georgia (the “GA8 Properties”) for approximately $130.0 million. See Notes 3 and 4 to the ~~properties are 100% leased on a triple net basis.~~ accompanying Notes to Condensed Consolidated Financial Statements for further information regarding the purchase price and associated financing arrangements.

The following table provides summary information (excluding the 3635 properties held by our unconsolidated Equity-Method Investments) regarding these properties as of ~~June 30, 2021:~~March 31, 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

Square

Purchase

2022

Properties

Beds

Footage

Price

Lease

SNF

337

109,306

31,740,000

AL or AL/MC

221

136,765

25,525,000

Total Real Estate Properties

558

246,071

57,265,000

Property

Location

Date Purchased

Type

Beds

Revenue ⁽¹⁾

Sheridan Care Center

Sheridan, OR

August 3, 2012

SNF

123,000

Fernhill Care Center

Portland, OR

August 3, 2012

SNF

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

242,000

Brookstone of Aledo

Aledo, IL

July 2, 2013

191,000

Sundial Assisted Living ⁽²⁾

Redding, CA

December 18, 2013

—

Pennington Gardens ⁽²⁾

Chandler, AZ

July 17, 2017

AL/MC

—

Yucaipa Hill Post Acute

Yucaipa, CA

July 2, 2021

SNF

266,000

Creekside Post Acute

Yucaipa, CA

July 2, 2021

SNF

119,000

University Post Acute

Mentone, CA

July 2, 2021

SNF

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

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

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.

2021

Rental
Property

Location

Date Purchased

Type

Beds

Revenue¹
Sheridan Care Center

Sheridan, OR

August 3, 2012

SNF

51

$
246,000
Fernhill Care Center

Portland, OR

August 3, 2012

SNF

63

262,000
Friendship Haven Healthcare and Rehabilitation Center

Galveston County TX

September 14, 2012

SNF

150

706,000
Pacific Health and Rehabilitation Center

Tigard, OR

December 24, 2012

SNF

73

484,000
Brookstone of Aledo

Aledo, IL

July 2, 2013

AL

66

382,000
Sundial Assisted Living

Redding, CA

December 18, 2013

AL

65

167,000
Pennington Gardens

Chandler, AZ

July 17, 2017

AL/MC

90

148,000
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 and excluding straight-line rent write offs~~Table of ~~$0.5 million, through June 30, 2021 and excluding $0.3 million in tenant reimbursements.~~Contents

~~On July 2, 2021, we acquired three properties in California for approximately $20 million. See Note 13 to the accompanying Notes to Condensed Consolidated Financial for further information.~~

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.

~~Page 24 of 38~~

~~Table of Contents~~

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 (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 ~~June 30,~~March 31, 2022 or December 31, 2021 condensed combined balance sheet and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 condensed combined ~~statements~~statement of income below):


	June 30,		December 31,		March 31,		December 31,
Condensed Combined Balance Sheets:	2021		2020		2022		2021
Total Assets	$	287,988,000	$	415,591,000	$	270,873,000	$	286,572,000
Total Liabilities	$	218,357,000	$	324,414,000	$	196,692,000	$	213,812,000
Members Equity:
Summit	$	7,935,000	$	11,489,000	$	8,419,000	$	8,017,000
JV Partners	$	61,696,000	$	79,688,000	$	65,762,000	$	64,743,000
Total Members Equity	$	69,631,000	$	91,177,000	$	74,181,000	$	72,760,000


	Three Months Ended					Six Months Ended			Three Months Ended		Three Months Ended
	June 30,					June 30,			March 31,		March 31,
Condensed Combined Statements of Income:	2021		2020			2021		2020	2022		2021
Total Revenue	$	9,913,000	$	12,344,000	$	19,885,000	$	24,670,000
Income from Operations	$	3,793,000	$	5,954,000	$	7,354,000	$	11,853,000
Net Income	$	1,507,000	$	1,324,000	$	3,583,000	$	1,466,000
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	$	196,000	$	137,000	$	501,000	$	167,000	$	642,000	$	305,000
JV Partners interest in Equity-Method Investments net income	$	1,311,000	$	1,187,000	$	3,083,000	$	1,299,000	$	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.~~equity-method in our condensed consolidated financial statements.

The following reconciles our 10% equity investment in the SUL JV from inception through ~~June 30, 2021:~~March 31, 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		4,902,000		5,369,000
Income from equity-method investee		1,391,000		1,616,000
Distributions		(3,727,000)		(4,224,000)
Total investment at June 30, 2021	$	2,566,000
Total investment at March 31, 2022			$	2,761,000

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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:


	June 30,		December 31,		March 31,		December 31,
Condensed Consolidated Balance Sheets of SUL JV:	2021		2020		2022		2021
Real estate properties and intangibles, net	$	127,334,000	$	129,793,000	$	124,187,000	$	125,183,000
Cash and cash equivalents		5,433,000		6,548,000		4,714,000		4,929,000
Other assets		13,180,000		11,932,000		13,697,000		14,322,000
Total Assets	$	145,947,000	$	148,273,000
Total Assets:					$	142,598,000	$	144,434,000

Loans payable, net	$	103,773,000	$	104,552,000	$	97,909,000	$	98,432,000
Other liabilities		8,162,000		9,115,000		8,051,000		8,463,000
Members’ equity:
Best Years		31,331,000		31,841,000		33,761,000		34,568,000
Summit		2,681,000		2,765,000		2,877,000		2,971,000
Total Liabilities and Members’ Equity	$	145,947,000	$	148,273,000	$	142,598,000	$	144,434,000


	Three Months Ended					Six Months Ended			Three Months Ended		Three Months Ended
	June 30,				June 30,				March 31,		March 31,
Condensed Consolidated Statements of Income of SUL JV:	2021		2020		2021		2020		2022		2021
Total revenue	$	5,091,000	$	4,600,000	$	10,267,000	$	9,150,000	$	5,195,000	$	5,176,000
Property operating expenses		(1,902,000)		(1,180,000)		(4,157,000)		(2,409,000)		(2,476,000)		(2,255,000)
Net operating income		3,189,000		3,420,000		6,110,000		6,741,000		2,719,000		2,921,000
General and administrative expense		(108,000)		(104,000)		(208,000		(198,000)		(101,000)		(100,000)
Depreciation and amortization expense		(1,271,000)		(1,338,000)		(2,545,000)		(2,687,000)		(1,020,000)		(1,274,000)
Income from operations		1,810,000		1,978,000		3,357,000		3,856,000		1,598,000		1,547,000
Interest expense		(1,155,000)		(1,185,000)		(2,314,000)		(2,410,000)		(1,104,000)		(1,159,000)
Amortization of debt issuance costs		(51,000)		(53,000)		(104,000)		(106,000)
Other income (expense)		5,000		1,000		(152,000)		356,000
Amortization of deferred financing costs										(49,000)		(53,000)
Interest income										1,000		1,000
Other income and expense										1,000		(158,000)
Net income	$	609,000	$	741,000	$	787,000	$	1,696,000	$	447,000	$	178,000

Summit equity interest in SUL JV net income	$	61,000	$	74,000	$	79,000	$	169,000	$	45,000	$	18,000

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As of ~~June 30, 2021,~~March 31, 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:


			Number of
Property	Location	Type	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

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.

The following reconciles our equity investments in the Fantasia JVs from inception through ~~June 30, 2021:~~March 31, 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		1,363,000		2,014,000
Distributions		(2,772,000)		(3,281,000)
Total Fantasia investments at June 30, 2021	$	4,992,000
Total Fantasia investments at March 31, 2022			$	5,203,000

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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:


	June 30,		December 31,		March 31,		December 31,
Condensed Combined Balance Sheets of Fantasia JVs:	2021		2020		2022		2021
Real estate properties, net	$	90,183,000	$	101,351,000	$	88,290,000	$	88,908,000
Cash and cash equivalents		7,120,000		7,497,000		5,037,000		8,135,000
Assets held for sale ⁽¹⁾		10,903,000		—		—		10,454,000
Other assets		5,485,000		6,526,000		7,171,000		6,834,000
Total Assets	$	113,691,000	$	115,374,000
Total Assets:					$	100,498,000	$	114,331,000

Loans payable, net	$	66,853,000	$	75,661,000	$	62,199,000	$	67,154,000
Liabilities held for sale ⁽¹⁾		7,951,000		—		—		7,537,000
Other liabilities		7,583,000		8,359,000		6,125,000		8,885,000
Members’ equity:
Fantasia JVs		26,312,000		26,330,000		26,971,000		25,967,000
Summit		4,992,000		5,024,000		5,203,000		4,788,000
Total Liabilities and Members’ Equity	$	113,691,000	$	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 has been accounted for as Held for Sale.

(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				Six Months Ended				Three Months Ended		Three Months Ended
	June 30,				June 30,				March 31,		March 31,
Condensed Combined Statements of Income of Fantasia JVs:	2021		2020		2021		2020		2022		2021
Total revenue	$	3,929,000	$	3,912,000	$	7,835,000	$	7,856,000	$	3,507,000	$	3,906,000
Property operating expenses		(1,518,000)		(1,440,000)		(2,994,000)		(2,835,000)		(1,366,000)		(1,476,000)
Net operating income		2,411,000		2,472,000		4,841,000		5,021,000		2,141,000		2,430,000
General and administrative expense		(138,000)		(42,000)		(248,000)		(132,000)		(129,000)		(110,000)
Depreciation and amortization expense		(702,000)		(726,000)		(1,429,000)		(1,453,000)		(626,000)		(727,000)
Gain on sale of real estate										1,247,000		—
Income from operations		1,571,000		1,704,000		3,164,000		3,436,000		2,633,000		1,593,000
Interest expense		(893,000)		(881,000)		(1,786,000)		(1,910,000)		(800,000)		(893,000)
Amortization of debt issuance costs		(16,000)		(74,000)		(32,000)		(147,000)		(23,000)		(16,000)
Other income		155,000		2,000		522,000		17,000		3,000		367,000
Net income	$	817,000	$	751,000	$	1,868,000	$	1,396,000	$	1,813,000	$	1,051,000

Summit equity interest in Fantasia JVs net income	$	127,000	$	85,000	$	329,000	$	171,000	$	476,000	$	202,000

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As of ~~June 30, 2021,~~March 31, 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:


			Number of
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.~~equity-method in our condensed consolidated financial statements.

The following reconciles our equity investment in the FPH JV from inception through ~~June 30, 2021:~~March 31, 2022:


Iowa properties – November 2017	$	929,000	$	929,000
Total investment		929,000		929,000
Loss from equity-method investee		(22,000)		175,000
Distributions		(645,000)		(765,000)
Total FPH investment at June 30, 2021	$	262,000
Total FPH investment at March 31, 2022			$	339,000

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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:	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Real estate properties, net	$	25,454,000	$	26,068,000	$	24,533,000	$	24,840,000
Cash and cash equivalents		1,692,000		1,430,000		1,623,000		1,650,000
Other assets		1,204,000		1,079,000		1,621,000		1,317,000
Total Assets	$	28,350,000	$	28,577,000
Total Assets:					$	27,777,000	$	27,807,000

Loans payable, net	$	20,980,000	$	21,195,000	$	20,650,000	$	20,764,000
Other liabilities		3,055,000		3,407,000		1,758,000		2,577,000
Members’ equity:
Fantasia JVs		4,053,000		3,730,000		5,030,000		4,207,000
Summit		262,000		245,000		339,000		259,000
Total Liabilities and Members’ Equity	$	28,350,000	$	28,577,000	$	27,777,000	$	27,807,000


	Three Months Ended				Six Months Ended				Three Months Ended		Three Months Ended
	June 30,				June 30,				March 31,		March 31,
Condensed Consolidated Statements of Operations of FPH JV:	2021		2020		2021		2020		2022		2021
Total revenue	$	893,000	$	886,000	$	1,783,000	$	1,771,000	$	898,000	$	890,000
Property operating expenses		(138,000)		(125,000)		(263,000)		(247,000)		(134,000)		(125,000)
Net operating income		755,000		761,000		1,520,000		1,524,000		764,000		765,000
General and administrative expense		(36,000)		(36,000)		(73,000)		(71,000)		(37,000)		(37,000)
Depreciation and amortization expense		(307,000)		(307,000)		(614,000)		(614,000)		(307,000)		(307,000)
Income from operations		412,000		418,000		833,000		839,000		420,000		421,000
Interest expense		(252,000)		(258,000)		(503,000)		(517,000)		(243,000)		(251,000)
Amortization of debt issuance costs		(16,000)		(15,000)		(31,000)		(30,000)		(15,000)		(15,000)
Other income (expense)		(63,000)		(196,000)		629,000		(1,697,000)
Net income (loss)	$	81,000	$	(51,000)	$	928,000	$	(1,405,000)
Other income and expense										1,049,000		692,000
Net income									$	1,211,000	$	847,000

Summit equity interest in FPH JV net income (loss)	$	8,000	$	(5,000)	$	93,000	$	(140,000)
Summit equity interest in FPH JV net income									$	121,000	$	85,000

As of ~~June 30, 2021,~~March 31, 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:


			Number of
Property	Location	Type	Beds
Accura Healthcare of Bancroft	Bancroft, Iowa	SNF/AL	5046
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	5946
Accura Healthcare of Marshalltown	Marshalltown, Iowa	SNF	8684
Accura Healthcare of Spirit Lake	Spirit Lake, Iowa	SNF	9885
Total:			~~511~~453

Indiana JV

In June 2021, we sold our 15% interest in the Indiana JV for approximately $5.4 million. The Indiana JV was not consolidated in our ~~condensed~~ consolidated financial statements and was accounted for under the equity-method.

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The following reconciles our equity investment in the Indiana JV from inception through June 11, 2021:


Indiana properties – March 2019	$	4,906,000
Total investment		4,906,000
Loss from equity-method investee		(1,433,000)
Distributions		(1,577,000)
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

Distributions from Equity-Method Investments

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we recorded distributions and cash received for distributions from our Equity-Method Investments as follows:


	Six Months Ended June 30,				Three Months Ended March 31,
	2021		2020		2022		2021
Distributions	$	997,000	$	968,000	$	310,000	$	366,000

Cash received for distributions	$	1,605,000	$	979,000	$	314,000	$	570,000

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 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, 2022 and 2021, we recorded approximately $0.2 million and $0.3 million, respectively, in asset management fees from our Equity-Method Investments.

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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Results of Operations

Our results of operations are described below:

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021


	Three Months Ended						Three Months Ended
	June 30,						March 31,
	2021		2020		$ Change		2022		2021		$ Change
Total rental revenues	$	1,284,000	$	1,604,000	$	(320,000)	$	5,541,000	$	924,000	$	4,617,000
Property operating costs		(210,000)		(213,000)		3,000
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⁾		1,074,000		1,391,000		(317,000)		4,801,000		704,000		4,097,000
Acquisition & asset management fees		295,000		292,000		3,000
Asset management fees								165,000		329,000		(164,000)
Interest income from notes receivable		4,000		7,000		(3,000)		—		9,000		(9,000)
General and administrative		(862,000)		(848,000)		(14,000)		(1,048,000)		(1,631,000)		583,000
Depreciation and amortization		(393,000)		(418,000)		25,000		(1,837,000)		(399,000)		(1,438,000)
(Loss) income from equity-method investees		(550,000)		137,000		(687,000)
Gain on sale of equity-method investment		3,515,000		—		3,515,000
Income (loss) from equity-method investees								642,000		(235,000)		877,000
Other income		6,000		6,000		—		2,000		5,000		(3,000)
Interest expense		(516,000)		(630,000)		114,000		(3,031,000)		(522,000)		(2,509,000)
Net income (loss)		2,573,000		(63,000)		2,636,000
Noncontrolling interests’ share in (income) loss		(22,000)		(11,000)		(11,000)
Net income (loss) applicable to common stockholders	$	2,551,000	$	(74,000)	$	2,625,000
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, ~~gain on sale of equity-method investment,~~ 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 ~~decreased~~increased approximately ~~$0.3~~$4.1 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the three months ended ~~June 30, 2020~~March 31, 2021 primarily due to ~~the reduction~~CA3 and GA8 acquisitions in ~~rental revenue from Pennington Gardens~~July and Sundial Assisted Living (approximately $132,000) and write off of straight-line rent (approximately $105,000) from Sundial Assisted Living (see Note 2 to the accompanying Notes to Condensed Consolidated Financial Statements under Coronavirus (COVID-19).December 2021, respectively.

~~The net decrease of~~Asset management fees decreased approximately ~~$0.7~~$0.2 million ~~from income to loss from equity-method investments~~ for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the three months ended ~~June 30, 2020 is primarily~~March 31, 2021 due to the ~~an increase in the loss related to a reduction in rental revenue recorded for~~sale of the Indiana JV ~~our Equity-Method Investment~~in June 2021 (see Note 5 to the accompanying Notes to Condensed Consolidated Financial ~~Statements for further information related to the sale of our interest in the Indiana JV in June 2021)~~Statements).

The net ~~increase~~decrease in ~~gain on sale~~general and administrative expenses of ~~equity-method investment of approximately $3.5~~$0.6 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the three months ended June 30, 2020 is due to the sale of our equity interest in the Indiana JV (see Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements for further information related to the sale of our interest in the Indiana JV in June 2021).

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~~The net decrease in interest expense of $0.1 million for the three months ended June 30,~~March 31, 2021 compared to the three months ended June 30, 2020 is primarily due to a decrease in the interest rate for a U.S. Department of Housing and Urban Development (“HUD”) refinancing for one of our properties in April 2020.

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Six Months Ended June 30,



2021

2020

$ Change
Total rental revenues

$
2,208,000

$
3,204,000

$
(996,000)
Property operating costs

(430,000)

(470,000)

40,000
Net operating income ⁽¹⁾

1,778,000

2,734,000

(956,000)
Acquisition & asset management fees

624,000

618,000

6,000
Interest income from notes receivable

13,000

14,000

(1,000)
General and administrative

(2,493,000)

(1,787,000)

(706,000)
Depreciation and amortization

(792,000)

(835,000)

43,000
(Loss) income from equity-method investees

(785,000)

167,000

(952,000)
Gain on sale of equity-method investment

3,515,000

—

3,515,000
Other income

11,000

48,000

(37,000)
Interest expense

(1,038,000)

(1,223,000)

185,000
Net income (loss)

833,000

(264,000)

1,097,000
Noncontrolling interests’ share in (income) loss

(40,000)

(23,000)

(17,000)
Net income (loss) applicable to common stockholders

$
793,000

$
(287,000)

$
(1,080,000)

Total rental revenues for our properties includes rental revenues and tenant reimbursements for property taxes and insurance. Property operating costs include insurance, property taxes and other operating expenses. Net operating income decreased approximately $1.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the reduction in rental revenue ($0.4 million) and write off of straight-line rent ($0.5 million) from Pennington Gardens and Sundial Assisted Living (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 six months ended June 30, 2021 compared to the six months ended June 30, 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.~~

The net decrease of approximately $1.0 million from income to loss from equity-method investments for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 is primarily due to the increase in the loss related to a reduction in rental revenue recorded for the Indiana JV, our Equity-Method Investment (see Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements for further information related to the sale of our interest in the Indiana JV in June 2021).March 2021.

The net increase in ~~gain on sale~~depreciation and amortization of ~~equity-method investment~~$1.4 million and interest expense of ~~approximately $3.5~~$2.5 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to the ~~six~~three months ended June 30, 2020 is due to the sale of our equity interest in the Indiana JV (see Note 5 to the accompanying Notes to Condensed Consolidated Financial Statements for further information related to the sale of our interest in the Indiana JV in June 2021).

~~The net decrease in interest expense of $0.2 million for the six months ended June 30,~~March 31, 2021 ~~compared to the six months ended June 30, 2020~~ is primarily due to ~~a decrease~~CA3 and GA8 acquisitions in ~~the interest rate for a HUD refinancing for one of our properties in April 2020.~~July and December 2021.

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The net change of approximately $0.9 million from loss to income from our equity-method investments for the three months ended March 31, 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, 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 sale of our interest in June 2021.

Liquidity and Capital Resources

As of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$21.0~~$13.7 million in cash and cash equivalents on hand. In July 2021, we acquired three skilled nursing facilities for approximately $20.0 million which was financed with a $15.0 million first priority mortgage loan collateralized by the properties and approximately $5 million in cash 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 ~~HUD-insured~~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~~

During 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to provide economic stimulus and assistance to business owners to help maintain on-going operations in the form of grants, forgivable loans and other relief. We did not obtain a paycheck protection program loan. We have evaluated the CARES Act and determined that there was no impact to the Company for the three and six-month period ended June 30, 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 ~~June 30, 2021,~~March 31, 2022, we had debt obligations of approximately ~~$46.7~~$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~~$10.1 million maturing September 2053

●

Lument Capital (formerly ORIX Real Estate Capital, LLC) (HUD-insured) – approximately ~~$36.4~~$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

Distributions

We made no stockholder distributions during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

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.

~~Page 34 of 38~~33

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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 ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,		March 31,
	2021		2020		2021		2020		2022		2021
Net income (loss) applicable to common stockholders (GAAP)	$	2,551,000	$	(74,000)	$	793,000	$	(287,000)
Net loss applicable to common stockholders (GAAP)									$	(325,000)	$	(1,758,000)
Adjustments:
Depreciation and amortization		393,000		418,000		792,000		835,000		1,831,000		399,000
Depreciation and amortization related to non-controlling interests		(9,000)		(10,000)		(19,000)		(20,000)		(11,000)		(10,000)
Depreciation related to Equity-Method Investments		485,000		557,000		1,035,000		1,115,000		230,000		427,000 ⁽¹⁾
Gain on sale of equity-method investment		(3,515,000)		—		(3,515,000)		—
Funds provided by operations (FFO) applicable to common stockholders	$	(95,000)	$	891,000	$	(914,000)	$	1,643,000
Weighted-average number of common shares outstanding - basic		23,027,978		23,027,978		23,027,978		23,027,978
FFO per weighted average common shares - basic	$	(0.00)	$	0.04	$	(0.04)	$	0.07
Weighted-average number of common shares outstanding - diluted		23,553,606		23,027,978		23,553,606		23,027,978
FFO per weighted average common shares - diluted	$	(0.00)	$	0.04	$	(0.04)	$	0.07
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

See Note 13 to the accompanying Notes to Condensed Consolidated Financial ~~Statements for further information.~~Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

~~Page 35 of 38~~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.

PART II — OTHER INFORMATION

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.

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.

(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.

(b)	Not applicable.

(c)	During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we redeemed no shares pursuant to our stock repurchase program.

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Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

None.

Item 5.Other Information.

None.

~~Page~~ 36 ~~of 38~~

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Item 6.Exhibits.


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).

10.1		~~Term Loan and Security~~Temporary Space License Agreement between ~~Summit Creekside~~Lakehills CM-CG LLC, a Delaware limited liability company, ~~(“Creekside”), Summit Yucaipa LLC, a Delaware limited liability company (“Yucaipa”),~~as licensor, and Summit ~~Mentone LLC~~ Healthcare REIT, Inc., as ~~borrowers and CIBC Bank USA~~licensee, dated ~~July 2, 2021~~April 1, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on ~~July 9, 2021)~~April 7, 2022).

10.2		~~Purchase~~Standard Office lease between Lakehills CM-CG LLC, a Delaware limited liability company, as landlord, and ~~Sale Agreement between~~ Summit Healthcare REIT, Inc. ~~and Madison Creek Partners, LLC~~, as tenant, dated ~~as of February 8, 2021~~April 1, 2022 (incorporated by reference to Exhibit ~~10.2~~10.1 to the Company’s Current Report on Form 8-K filed on ~~July 9, 2021)~~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 ~~June 30, 2021,~~March 31, 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~~inline XBRL and contained in Exhibit 101)

~~Page~~ 37 ~~of 38~~

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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: ~~August~~May 12, ~~2021~~2022	Kent Eikanas
	Chief Executive Officer
	(Principal Executive Officer)

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

~~Page 38 of~~ 38


	Receivables		Reserves		Balance
Organizational and offering costs	$	738,000	$	(738,000)	$	0
Asset management fees and expenses		32,000		(32,000)		0
Operating expenses (direct and indirect)		189,000		(189,000)		0
Operating expenses (2%/25% Test)		1,717,000		(1,717,000)		0
Total	$	2,676,000	$	(2,676,000)	$	0


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Income (loss)	$	2,573,000	$	(63,000)	$	833,000	$	(264,000)
(Income) loss attributable to noncontrolling interest		(22,000)		(11,000)		(40,000)		(23,000)
Net income (loss) applicable to common stockholders	$	2,551,000	$	(74,000)	$	793,000	$	(287,000)

Denominator:
Basic:
Denominator for basic EPS - weighted average shares		23,027,978		23,027,978		23,027,978		23,027,978
Effect of dilutive shares:
Stock options		525,628		—		525,628		—

Denominator for diluted EPS – adjusted weighted average shares		23,553,606		23,027,978		23,553,606		23,027,978

Basic EPS	$	0.11	$	—	$	0.03	$	(0.01)
Diluted EPS	$	0.11	$	—	$	0.03	$	(0.01)


					2021
					Rental
Property	Location	Date Purchased	Type	Beds	Revenue¹
Sheridan Care Center	Sheridan, OR	August 3, 2012	SNF	51	$	246,000
Fernhill Care Center	Portland, OR	August 3, 2012	SNF	63		262,000
Friendship Haven Healthcare and Rehabilitation Center	Galveston County TX	September 14, 2012	SNF	150		706,000
Pacific Health and Rehabilitation Center	Tigard, OR	December 24, 2012	SNF	73		484,000
Brookstone of Aledo	Aledo, IL	July 2, 2013	AL	66		382,000
Sundial Assisted Living	Redding, CA	December 18, 2013	AL	65		167,000
Pennington Gardens	Chandler, AZ	July 17, 2017	AL/MC	90		148,000
Total				558