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

GLOBAL MEDICAL REIT INC.

Notes to the Unaudited Consolidated Financial Statements

Note 1 – Organization

Background

Global Medical REIT Inc. (the “Company”) is a Maryland corporation engaged primarily in the acquisition of licensed, state-of-the-art, purpose-built healthcare facilities and the leasing of these facilities to leading clinical operators with dominant market share. The Company is externally managed and advised by Inter-American Management, LLC (the “Advisor”).

The Company holds its facilities and conducts its operations through a Delaware limited partnership subsidiary called Global Medical REIT L.P. (the “Operating Partnership”). The Company serves as the sole general partner of the Operating Partnership through a wholly-owned subsidiary of the Company called Global Medical REIT GP LLC (the “GP”), a Delaware limited liability company. As of September 30, 2016,March 31, 2017, the Company was the 98.0%97.7% limited partner of the Operating Partnership, with the remaining 2%2.3% owned by the holders of the Company’s long term incentive plan (“LTIP”) units. Refer to Note 7 – “2016 Equity Incentive Plan”“Stock-Based Compensation” for additional information regarding the LTIP units. The Company has contributed all of its healthcare facilities to the Operating Partnership in exchange for common units of limited partnership interest in the Operating Partnership. The Company intends to conduct all future acquisition activity and operations through the Operating Partnership. As of September 30, 2016, theThe Operating Partnership had the following subsidiaries, all of which are wholly-owned: GMR Watertown, LLC; GMR East Orange, LLC; GMR Reading, LLC; GMR Sandusky, LLC; GMR Melbourne, LLC; GMR Westland, LLC; GMR Plano, LLC; GMR Memphis Exeter, LLC; GMR Memphis, LLC; GMR Pittsburgh, LLC; GMR Asheville, LLC, and GMR Omaha, LLC.has separate wholly-owned Delaware limited liability company subsidiaries.

Completed Initial Public Offering Related Events

On June 13, 2016, in anticipation of the Company’s initial public offeringsubsidiaries that closed on July 1, 2016, the board of directors of the Company approved an amendment and restatement of the Company’s Amended and Restated Bylaws (as amended and restated, the “Bylaws”), effective on that date. The following is a summary of the amendments to the Bylaws. In addition to the amendments described below, the Bylaws include certain changes to clarify language and consistency with Maryland law and the listing requirements of the New York Stock Exchange and to make various technical revisions and non-substantive changes.

The Bylaws were amended to provideformed for the following matters, among others:

On June 28, 2016, the Company, the Advisor, and the Operating Partnership entered into an Underwriting Agreement with Wunderlich Securities, Inc., as representative of the several underwriters named therein, relating to the offer and sale of the Company’s common stock in its initial public offering.each healthcare facility acquisition. On July 1, 2016, the Company closed its initial public offering and issued 13,043,47915,000,000 shares of its common stock at a price of $10.00 per share resulting in gross proceeds of $130,434,790. After deducting amounts that the Company paid in costs that were directly attributable to the offering, underwriting discounts, advisory fees, and commissions, for a total of $11,272,068, the Company received net proceeds from the offering of $119,162,722. Additionally, on July 11, 2016 the underwriters exercised their over-allotment option in full, resulting in the issuance by the Company of an additional 1,956,521 shares of the Company’s common stock at a price of $10.00 per share for gross proceeds of $19,565,210. After deducting underwriting discounts, advisory fees, and commissions of $1,369,565, the Company received net proceeds from the over-allotment option shares of $18,195,645. Transaction costs incurred in connection with the offering were approximately $1,681,259. As disclosed in Note 2 – “Summary of Significant Accounting Policies,” these transaction costs were recorded as a deferred asset. On July 1, 2016, upon completion of the initial public offering, this deferred asset balance was netted against additional paid-in capital on the accompanying Consolidated Balance Sheet as of September 30, 2016. Total shares issued by the Company in the initial public offering, including over-allotment option shares, were 15,000,000 shares and the total net proceeds received were $137,358,367.

Use of Proceeds:

The Company designated the following uses for the net proceeds of the initial public offering:$138,969,275.

The Company invested the unexpended net proceeds of the offering in interest-bearing accounts, money market accounts, and interest-bearing securities in a manner that is consistent with its intention to qualify for taxation as a real estate investment trust (“REIT”).

In connection with the Company’s initial public offering, the Company’s common stock was listed on the New York Stock Exchange under the ticker symbol “GMRE.”

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements are unaudited and include the accounts of the Company and its subsidiaries.Company. The accompanying financial statements have been prepared in accordance with GAAP and the rules and regulations of the SEC.United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the accompanying financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2015.2016. In the opinion of management, all adjustments of a normal and recurring nature necessary for a fair presentation of the financial statements for the interim periods have been made.

Consolidation Policy

The accompanying consolidated financial statements include the accounts of the Company, including the Operating Partnership and its wholly-owned subsidiaries, and the interests in the Operating Partnership held by the LTIP unit holders, which the Operating Partnership has control over and therefore consolidates. These LTIP units represent “noncontrolling interests” and have no value as of September 30, 2016March 31, 2017 as they have not been converted into OP Unitsunits and therefore did not participate in the Company’s consolidated net loss. At the time when there is value associated with the noncontrolling interests, the Company will classify such interests as a component of consolidated equity, separate from the Company’s total stockholder’s equity on its Consolidated Balance Sheets. Additionally, net income or loss will be allocated to noncontrolling interests based on their respective ownership percentage of the Operating Partnership. All material intercompany balances and transactions between the Company and its subsidiaries have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ from those estimates.

Restricted Cash

The restricted cash balance of $805,776 as of September 30,March 31, 2017 and December 31, 2016 was $1,773,909 and $941,344, respectively, an increase of $832,565. The restricted cash balance as of March 31, 2017, consisted of $367,587$85,686 of cash required by a third party lender to be held by the Company as a reserve for debt service, $319,500$1,391,375 in a security depositdeposits received from the Plano facility tenanttenants at the inception of its lease,their leases, and $118,689$296,848 in funds held by the Company from certain of its tenants that the Company collected to pay specific tenant expenses, such as real estate taxes and in some cases insurance, on the tenant’s behalf. The restricted cash balance as of September 30, 2016 increased $358,149 from the balance as of December 31, 20152016 consisted of $447,627. The December 31, 2015 balance consisted solely$383,265 of fundscash required by a third party lender to be held by the Company as a reserve for debt service.service, $319,500 in a security deposit received from the Plano Facility tenant at the inception of its lease, and $238,579 in funds held by the Company from certain of its tenants that the Company collected to pay specific tenant expenses. The $832,565 increase during the three months ended March 31, 2017 resulted from an aggregate increase of $1,130,144 in tenant security deposits derived from acquisitions during the current quarter and funds held by the Company to pay specific tenant expenses, partially offset by a decrease of $297,579 in funds required to be held by the Company by a third party lender.

Tenant Receivables

The tenant receivablesreceivable balance of $177,369 as of September 30,March 31, 2017 and December 31, 2016 was $347,110 and $212,435, respectively, an increase of $134,675. The balance as of March 31, 2017 consisted of $17,965$133,959 in funds ownedowed from the Company’s tenants for rent that the Company has earned but not received, as well $159,404$29,834 in other tenant related receivables, and $183,317 in funds owed by certain of the Company’s tenants for amounts the Company collects to pay specific tenant expenses, such as real estate taxes and in some cases insurance, on the tenants’ behalf. The tenant receivables balance was zero as of December 31, 2015.2016 consisted of $28,599 in funds owed from the Company’s tenants for rent that the Company has earned but not received, $22,323 in other tenant related receivables, and $161,513 in funds owed by certain of the Company’s tenants for amounts the Company collects to pay specific tenant expenses, such as real estate taxes and in some cases insurance, on the tenants’ behalf.

Escrow Deposits

Escrow deposits include funds held in escrow to be used for the acquisition of properties in the future properties and for the payment of taxes, insurance, and other amounts as stipulated by the Company’s third party loan agreements.Cantor Loan, as hereinafter defined. The escrow balance as of September 30, 2016March 31, 2017 and December 31, 20152016 was $903,636$2,528,996 and $454,310,$1,212,177, respectively, an increase of $449,326.$1,316,819. This increase resulted from $1,308,324 of funds added to the escrow account to be used to acquire facilities in the future and from an increase of $8,495 in deposits that were required to be held in escrow in the amount of $843,636 related to the Cantor Loan, as hereinafter defined, partially offset by $394,310 in escrow funds that were expended to acquire facilities during the nine months ended September 30, 2016. Refer to Note 3 – “Property Portfolio” and Note 4 – “Notes Payable Related to Acquisitions,” respectively, for information regarding the facilities acquired and details regarding the Cantor Loan.

Deferred Assets

The deferred assets balance of $245,619 as of September 30,March 31, 2017 and December 31, 2016 representedwas $1,087,148 and $704,537, respectively, an increase of $382,611. These amounts represent the Company’s deferred rent receivable balance resulting from the straight lining of revenue recognized for applicable tenant leases. DuringThe increase results from the ninefacilities that were acquired during the three months ended September 30, 2016,March 31, 2017 that had leases that required the Company deferred and paid $1,610,908 in specific incremental costs directly attributablestraight lining of revenue.

Other Assets

Costs that are incurred prior to the offering of its equity securities bringing the total deferred incremental costs incurred balance to $1,681,259. Deferral of these incremental costs is in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 340, “Other Assets and Deferred Costs.” Also in accordance with the provisions of ASC Topic 340, upon the completion of the Company’s initial public offering on July 1, 2016, the $1,681,259 total deferred incremental cost balance was reclassified as a reductionan acquisition are capitalized if all of the Company’s additional paid-in capitalfollowing conditions are met: (a) the costs are directly identifiable with the specific property, (b) the costs would be capitalized if the property were already acquired, and (c) acquisition of the property is probable. These costs are included with the value of the acquired property upon completion of the acquisition. The costs will be charged to expense when it is probable that the acquisition will not be completed. The balance in the Company’s accompanying Consolidated Balance Sheets. The deferred asset balancethis account was $11,484 and $140,374 as of March 31, 2017 and December 31, 20152016, respectively, a decrease of $128,890. This decrease during the three months ended March 31, 2017 resulted from $254,249 of costs that were reclassified to the asset value of facilities when the respective acquisitions were completed and $3,150 of costs charged to expense when it was $93,646, consisting of a deferred rent receivable balance of $23,295 and $70,351 in deferredprobable that an acquisition would not be completed, partially offset by an increase resulting from additional capitalized costs incurred directly attributable to the Company’s offering of its equity securities.$128,509.

Security Deposits Liability

The security deposits liability balance of $597,593 as of September 30,March 31, 2017 and December 31, 2016 represented $319,500was $2,099,844 and $719,592, respectively, an increase of $1,380,252. This increase resulted primarily from an increase in funds deposited by the Plano facility tenantsecurity deposits of $1,300,179 that were required at the inception of itsthe lease and $278,093from several of the facilities that were acquired during the three months ended March 31, 2017 (Great Bend represented approximately $1,100,000 of the increase) as well as from an increase of $80,073 in tenant funds that the Company will use to pay for certain of its tenants’ expenses, such as real estate taxes and in some cases insurance, on the tenants’ behalf. See Note 3 – “Property Portfolio” for additional information regarding the Plano facility acquisition. The security liability balance was zero as of December 31, 2015.

Stock-Based Compensation

As disclosed in Note 7 – “2016 Equity Incentive Plan,” the Company grants LTIP unit awards to employees of its advisor and its affiliates, and to the Company’s independent directors. The Company expenses the fair value of unit awards in accordance with the fair value recognition requirements of ASC Topic 718, “Compensation-Stock Compensation” and ASC Topic 505, “Equity.” These ASC topics require companies to measure the cost of the recipient services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Under ASC Topic 718, the Company’s independent directors are deemed to be employees and therefore compensation expense for these units is recognized based on the price of $10.00 per unit, the closing share price for the Company’s common stock at the closing date of the initial public offering on July 1, 2016, ratably over the 12-month service period, using the straight line method. Under ASC Topic 505, the employees of the Advisor and its affiliates are deemed to be non-employees of the Company and therefore compensation expense for these units is recognized using the share price of the Company’s common stock at the end of the reporting period, ratably over the 42-month or 54-month service period, respectively, depending on the grant terms, using the straight line method. Total compensation expense of $830,827 related to all of the Company’s LTIP units was recorded for the three and nine months ended September 30, 2016 and was classified as “General and Administrative” expense in the Company’s accompanying Consolidated Statements of Operations.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding plus any potential dilutive shares for the period.  The effect of the conversion of vested LTIP units into OP Units and the conversion of OP Units into common stock is not reflected in the computation of basic and diluted earnings per share, as all units are exchangeable for common stock on a one-for-one basis and are anti-dilutive to the Company’s net loss for the three and nine months ended September 30, 2016. The Company considered the requirements of the two-class method when computing earnings per share. Earnings per share would not be affected by using the two-class method because the Company incurred a net loss for the three and nine months ended September 30, 2016.

Segment Reporting

In accordance with the provisions of ASC Topic 280, “Segment Reporting,” the Company has determined that it has one reportable segment consisting of its activities related to the acquisition of healthcare facilities and the leasing of these facilities to leading clinical operators.

Note 3 – Property Portfolio

Summary of Properties under Executed Asset Purchase Agreements as of September 30, 2016Acquired During the Three Months Ended March 31, 2017

SanduskyDuring the three months ended March 31, 2017, the Company completed eight acquisitions. A summary description of the acquisitions is as follows:

Oklahoma City Facilities

On September 13, 2016,March 31, 2017, the Company closed on an purchase contract (the “Purchase Agreement”) with CRUSE-TWO, L.L.C., an Oklahoma limited liability company (“Cruse-Two”), and CRUSE-SIX, L.L.C., an Oklahoma limited liability company (“Cruse-Six”) to acquire a surgical hospital (the “Hospital”), a physical therapy center (the “PT Center,” together with the Hospital, “OCOM South”), and an outpatient ambulatory surgery center (“OCOM North”) located in Oklahoma City, Oklahoma from Cruse-Two and Cruse-Six for an aggregate purchase price of $49.5 million. The purchase price consists of $44.4 million for OCOM South and $5.1 million for OCOM North.

Upon closing of the acquisition of OCOM South, the Company assumed the existing absolute triple-net lease agreement (the “OCOM South Lease”), pursuant to which OCOM South is leased from Cruse-Two to Oklahoma Center for Orthopedic & Multi-Specialty Surgery, LLC (“OCOM”) with a remaining initial lease term expiring August 31, 2034, subject to three consecutive five-year renewal options by the tenant. A portion of the rent is guaranteed by United Surgical Partners International, Inc. (“USPI”) and INTEGRIS Health, Inc. (“INTEGRIS”), respectively.

Upon closing of the acquisition of OCOM South, the Company, through a subsidiary of the Operating Partnership, entered into a new absolute triple-net lease agreement (the “Master Lease”), pursuant to which the subsidiary, as master landlord, leased OCOM South to Cruse-Two, as master tenant. The Master Lease has a five-year term. The OCOM South Lease became a sublease under the Master Lease upon commencement of the Master Lease. USPI and INTEGRIS continue to serve as guarantors of the OCOM South Lease in the percentages set forth above, while the Master Lease has no lease guarantees. Upon expiration of the Master Lease, the OCOM South Lease will become a direct lease with the Company.

Under the Master Lease, OCOM continues to be responsible for all lease payments due under the OCOM South Lease, which amounts will be paid directly to the Master Tenant, while Cruse-Two will be responsible for payment of the additional rent amounts payable under the Master Lease. GMR Oklahoma City, LLC (“GMR Oklahoma City”), Cruse-Two, and Raymond James & Associates, Inc. (the “Broker”) have entered into a Securities Account Control Agreement, dated March 31, 2017, pursuant to which Cruse-Two has granted GMR Oklahoma City a first priority secured interest in the securities account maintained by the Broker for Cruse-Two.

Upon closing of the acquisition of OCOM North, the Company assumed the existing absolute triple-net lease agreement (the “OCOM North Lease”) pursuant to which OCOM North is leased from Cruse-Six, as landlord, to OCOM, as tenant, with a remaining initial lease term expiring on July 31, 2022, subject to two consecutive five-year renewal options by the tenant. The annual rent under the OCOM North Lease for OCOM North is subject to annual increases equal to the consumer price index (“CPI”) (never to decrease and not to exceed 4.0% over the prior year’s rent and not to exceed an assignmentoverall increase of 2.5% per year, compounded annually). The Company funded the acquisition using funds from its revolving credit facility.

Accounting Treatment

The Company accounted for the acquisition of the OCOM North and assumption agreementOCOM South as a business combination in accordance with the provisions of ASC Topic 805. The following table presents the preliminary purchase price allocation for the assets acquired as part of the OCOM facilities acquisition:

The above allocation is preliminary and subject to assumerevision within the measurement period, not to exceed one year from a third partythe date of the acquisition.

Great Bend Facility

On March 31, 2017, the Company closed on a purchase contract with Great Bend Surgical Properties, LLC (“GB Seller”) to acquire, through a portfoliowholly owned subsidiary of seven propertiesthe Operating Partnership, the buildings and land known as the NOMS portfolioGreat Bend Regional Hospital (the “GB Property”) located in Northern Ohio,Great Bend, Kansas for a total purchase price of $10.0$24.5 million. As disclosed in Note 11 – “Subsequent Events,” on October 7, 2016,

The GB Property is operated by Great Bend Regional Hospital, LLC (“GB Tenant”), a physician owned group. Upon the closing of the acquisition of the GB Property, the Company leased the GB Property back to GB Tenant under a 15-year triple-net lease (the “GB Lease”), with two ten-year renewal options. The GB Lease will be guaranteed by the physician owners of the GB Tenant. Eventually the GB Lease will also be guaranteed by an employee stock ownership plan (“ESOP”). When the Company determines that the creditworthiness, operating history, and financial results of the ESOP are acceptable, the physicians will be released from the lease guarantee, and the ESOP will become the sole guarantor. The aggregate annual rent under the GB Lease will be $2,143,750, subject to annual rent escalations equal to the greater of 2% or CPI, with a maximum increase of 10%. The Company funded the acquisition using borrowings from its revolving credit facility.

Sandusky Facility (one property)

On March 10, 2017, the Company closed on the sale of five of the seven facilities representing approximately $4.6 million of the total $10 million purchase price. The acquisition of one, out of a total of seven Sandusky properties, in the remaining two buildings foramount of approximately $5.4 million is expected to close in December 2016. The total NOMS portfolio covers an aggregate of 50,931 square feet. The NOMS portfolio was owned by a multi-specialty physician group which has been in operation since 2000. The group includes over 120 physicians of which approximately half are primary care providers.$4.3 million. The Company is leasing this property to the five acquired properties to NOMS and will lease the remaining two properties to NOMSTenant using a triple-net lease structure with an initial termsterm of 11 years with four additional five-year renewal options. NOMS wasThe Company funded the tenantacquisition using borrowings from its revolving credit facility.

Clermont Facility

On March 1, 2017, the Company, as buyer, pursuant to a purchase agreement (the “Purchase Agreement”) with HVI, LLC (the “HVI Seller”), acquired HVI Seller’s interest, as ground lessee, in the five buildings priorground lease (the “Ground Lease”) that covers and affects certain real property located in Clermont, Florida (the “land”), along with HVI Seller’s right, title and interest arising under the Ground Lease in and to the Company’smedical building located upon the Land (the “Clermont Facility”), for a purchase price of $5.225 million. The Ground Lease commenced in 2012 and has an initial term of seventy-five years. Upon closing of this acquisition, the Company assumed the HVI Seller’s interest, as sublessor, in four subleases affecting the Clermont Facility (collectively, the “Subleases”) with South Lake Hospital, Inc. (which is the subtenant under two separate Subleases), Orlando Health, Inc., and is also currentlyVascular Specialists of Central Florida. The Company funded the tenant inacquisition using funds from its revolving credit facility.

Accounting Treatment

The Company accounted for the remaining two buildings. The acquisition of the fiveClermont Facility as a business combination in accordance with the provisions of ASC Topic 805. The following table presents the preliminary purchase price allocation for the assets acquired as part of the Clermont Facility acquisition:

The above allocation is preliminary and subject to revision within the measurement period, not to exceed one year from the date of the acquisition.

Prescott Facility

On February 9, 2017, the Company, as buyer, pursuant to a purchase and sale agreement (the “Purchase Agreement”) with Hosn Hojatollah Askari, as seller (“Hosn”), acquired a medical office building (the “Prescott Facility”) located in Prescott, Arizona, for a purchase price of $4.5 million. The acquisition included the Prescott Facility, together with the real property, the improvements, and all appurtenances thereto owned by Hosn. Upon the closing of this acquisition, the Company executed a new 10-year triple-net lease for the Prescott Facility with Thumb Butte Medical Center, PLLC with a personal guaranty by Hosn. The Company funded the acquisition using funds from its revolving credit facility.

Las Cruces Facility

On February 1, 2017, the Company, as buyer, pursuant to a purchase and sale agreement with Medical Realty Limited Liability Co., as seller (“Medical Realty”), acquired a medical office building (the “Las Cruces Facility”) located in Las Cruces, New Mexico for a purchase price of $4.88 million. The acquisition included the Las Cruces Facility, together with the real property, the improvements, and all appurtenances thereto owned by Medical Realty. Upon closing of this acquisition, the Company entered into a new 12-year, triple-net lease with four five-year extension options with Las Cruces Orthopedic Associates, as tenant. The Company funded the acquisition using borrowings from its revolving credit facility and available cash.

Cape Coral Facility

On January 10, 2017, pursuant to the terms of a purchase and sale agreement between the Company, as purchaser, and Del Prado North, LLP, as seller (“Del Prado”), the Company acquired a medical office building (the “Cape Coral Facility”) located in Cape Coral, Florida, for a purchase price of $7.25 million. The acquisition included the Cape Coral Facility, together with the real property, the improvements, and all appurtenances thereto owned by Del Prado. Upon the closing of the transaction, the Company entered into a new 10-year, triple-net lease with The Sypert Institute, P.A. (the “Sypert Tenant”), effective as of January 17, 2017, and expiring in 2027. The lease provides for three additional five-year renewal options. The Cape Coral Facility is operated by the Sypert Tenant. The acquisition was funded using proceeds from the Company’s revolving credit facility.

Lewisburg Facility

On January 12, 2017, pursuant to the terms of an asset purchase agreement between the Company, as purchaser, and W 148, LLC, as seller (“W 148”), the Company acquired a medical office building (the “Lewisburg Facility”), located in Lewisburg, Pennsylvania, for a purchase price of $7.3 million. The acquisition included the Lewisburg Facility, together with the real property, the improvements, and all appurtenances thereto owned by W 148. The Lewisburg Facility is operated by Geisinger Medical Center (“GMC”) and Geisinger System Services (“GSS”), the existing tenants of the Lewisburg Facility. Upon the closing of the transaction, the Company assumed the GMC lease and the GSS lease, which are both triple-net leases. The GMC lease, dated effective as of April 15, 2008, and expiring in 2023, has a fifteen-year initial term and two five-year optional extension terms. The GSS lease, dated effective as of August 1, 2011, and expiring in 2023, has an initial term of 11 years and 9 months and two five-year optional extension terms. The acquisition was funded using proceeds from the Company’s revolving credit facility.

Accounting Treatment

The Company accounted for the acquisition of the Lewisburg Facility as a business combination in accordance with the provisions of ASC Topic 805. The following table presents the preliminary purchase price allocation for the assets acquired as part of the Lewisburg Facility acquisition:

The above allocation is preliminary and subject to revision within the measurement period, not to exceed one year from the date of the acquisition.

Summary of Properties in the Company’s Existing Portfolio as of December 31, 2016

HealthSouth Facilities

HealthSouth East Valley Rehabilitation Hospital – Mesa, AZ

On December 20, 2016, the Company, through a wholly owned subsidiary of the Operating Partnership, acquired, pursuant to a purchase contract (the “Mesa PSA”) with HR ACQUISITION I CORPORATION (the “Mesa Seller”) the land and buildings known as the HealthSouth East Valley Rehabilitation Hospital (the “Mesa Property”) located in Mesa, AZ from the Mesa Seller for a purchase price of $22,350,000.

Upon the closing of the acquisition of the Mesa Property, the Company assumed from the Mesa Seller the existing triple-net lease agreement (the “Mesa Lease”) pursuant to which the Mesa Property is leased to HealthSouth Mesa Rehabilitation Hospital, LLC with a remaining initial lease term of approximately eight years, subject to four consecutive five-year renewal options by the tenant, which lease is guaranteed by HealthSouth Corporation (“HealthSouth”). The aggregate annual rent for the Mesa Property is currently $1,710,617, subject to 3% annual rent escalations. HealthSouth Mesa Rehabilitation Hospital, LLC has the option under the Mesa Lease to purchase the Mesa Property at the end of the initial lease term and at the end of each renewal term thereof, if any, upon the terms and conditions set forth in the Mesa Lease.

HealthSouth Rehabilitation Hospital of Altoona – Altoona, PA

On December 20, 2016, the Company, through a wholly owned subsidiary of the Operating Partnership, acquired, pursuant to a purchase contract (the “Altoona PSA”) with HR ACQUISITION OF PENNSYLVANIA, INC. (the “Altoona Seller”) the land and building comprising the HealthSouth Rehabilitation Hospital of Altoona (the “Altoona Property”) located in Altoona, PA from the Altoona Seller for a purchase price of $21,545,000.

Upon the closing of the acquisition of the Altoona Property, the Company assumed from the Altoona Seller the existing triple-net lease agreement (the “Altoona Lease”) pursuant to which the Altoona Property is leased to HealthSouth with a remaining initial lease term of approximately 4.5 years, subject to two consecutive five-year renewal options by the tenant. The annual rent for the Altoona Property is currently $1,635,773, subject to annual rent escalations based on increases in the consumer price index, or CPI, but not greater than 4% nor less than 2%.

HealthSouth Rehabilitation Hospital of Mechanicsburg – Mechanicsburg, PA

On December 20, 2016, the Company, through a wholly owned subsidiary of the Operating Partnership, pursuant to a purchase contract (the “Mechanicsburg PSA” and together with the Mesa PSA and the Altoona PSA, and the transactions contemplated thereby, the “Transactions”) with HR ACQUISITION OF PENNSYLVANIA, INC. (the “Lease Assignor” and PENNSYLVANIA HRT, INC. (“HRT”), Lease Assignor and HRT collectively referred to as “Mechanicsburg Seller”) (i) acquired the land and building comprising the HealthSouth Rehabilitation Hospital of Mechanicsburg (the “Mechanicsburg Property”) located in Mechanicsburg, PA from the Mechanicsburg Seller for a purchase price of $24,198,000; and (ii) accepted an assignment of the ground lessee’s interest (the “Assignment”) in the Ground Lease dated May 1, 1996 from the Lease Assignor, whereby HRT ground leased the Mechanicsburg Property to the Lease Assignor.

Upon the closing of the acquisition of the Mechanicsburg Property and acceptance of the Assignment, the Company assumed from the Lease Assignor the existing triple-net lease agreement (the “Mechanicsburg Lease”) pursuant to which the Mechanicsburg Property is leased to HealthSouth with a remaining initial lease term of approximately 4.5 years, subject to two consecutive five-year renewal options by the tenant. The annual rent for the Mechanicsburg Property is currently $1,836,886, subject to annual rent escalations based on increases in the CPI, but not greater than 4% nor less than 2%. HealthSouth has the option under the Mechanicsburg Lease to purchase the Mechanicsburg Property at the end of the initial lease term and at the end of each renewal term thereof, if any, upon the terms and conditions set forth in the Mechanicsburg Lease.

The obligations under the Mesa Lease are guaranteed by HealthSouth (NYSE: HLS). Additionally, HealthSouth is the tenant of the leases for both the Altoona Property and the Mechanicsburg Property. Information about HealthSouth, including its audited historical financial statements, can be obtained from its Annual Report on Form 10-K and other reports and filings available on its website at http://www.healthsouth.com/ or on the SEC website atwww.sec.gov. The HealthSouth acquisitions were funded using the Company’s revolving credit facility and available cash.

Accounting Treatment

The Company accounted for the acquisitions of the three HealthSouth facilities as business combinations in accordance with the provisions of ASC Topic 805. The following table presents the preliminary purchase price allocation for the assets acquired as part of the HealthSouth facilities acquisitions:

The above allocation is preliminary and subject to revision within the measurement period, not to exceed one year from the date of the acquisition.

Ellijay Facilities

On December 16, 2016, pursuant to the terms of an asset purchase agreement between the Company, as Purchaser, and SunLink Healthcare Professional Property, LLC, a Georgia limited liability company, as seller (“SunLink”), the Company acquired three buildings, consisting of one medical office building and two ancillary healthcare related buildings (the “Ellijay Facilities”), located in Ellijay, Georgia, for a purchase price of $4.9 million. The acquisitions included the Ellijay Facilities, together with the real property, the improvements, and all appurtenances thereto owned by SunLink. The Ellijay Facilities are operated by Piedmont Mountainside Hospital, Inc., (“Piedmont”) the existing tenant of the Ellijay Facilities.

Upon the closing of the transaction, the Company assumed the previous landlord’s interest in the existing 10-year triple-net lease with Piedmont, effective as of July 1, 2016 and expiring in 2026. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Accounting Treatment

The Company accounted for the acquisition of the remainingEllijay Facilities as a business combination in accordance with the provisions of ASC Topic 805. The following table presents the preliminary purchase price allocation for the assets acquired as part of the Ellijay Facilities acquisition:

The above allocation is preliminary and subject to revision within the measurement period, not to exceed one year from the date of the acquisition.

Carson City Facilities

On September 27, 2016, the Company assumed the original buyer’s interest in an asset purchase agreement between the original buyer and Carson Medical Complex, a Nevada general partnership, as seller (“Carson”). On October 31, 2016, the Company, pursuant to the asset purchase agreement, acquired two medical office buildings will also be(the “Carson Facilities”), located in Carson City, Nevada for a purchase price of $3.8 million. The acquisitions included the Carson Facilities, together with the real property, the improvements, and all appurtenances thereto owned by Carson. The Carson Facilities are operated by Carson Medical Group, a Nevada professional corporation, the existing tenant of the Carson Facilities (the “Carson Tenant”).

Upon the closing of the transaction, the Company assumed the previous landlord’s interest in the existing 7-year triple-net lease with Carson Tenant, effective as of October 31, 2016 and expiring in 2023. The lease provides for one five-year extension at the option of the Carson Tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Summary of Properties Acquired During the Nine Months EndedSandusky Facilities (five properties)

On September 30, 2016

During the three months ended September 30,29, 2016, the Company completed three acquisitions. Including these three acquisitionsassumed the original buyer’s interest in an asset purchase agreement between the original buyer and NOMS Property, LLC and Northern Ohio Medical Specialists, LLC, both Ohio limited liability companies, as sellers (“NOMS,” and together with NOMS Property, LLC, the “NOMS Sellers”), to acquire a portfolio of seven medical properties (the “NOMS Facilities”) known as the NOMS portfolio located in Sandusky, Ohio, for a total purchase price of $10.0 million. The acquisition included the NOMS Facilities, together with the real property, the improvements, and all appurtenances thereto. The NOMS Facilities are operated by NOMS, the existing tenant of the NOMS Facilities (the “NOMS Tenant”).

On October 7, 2016, pursuant to the terms of the above-referenced asset purchase agreement, the Company completedacquired five of the seven properties comprising the NOMS Facilities (the “Five Properties”). The Company purchased the Five Properties for an allocated purchase price of $4.6 million of the total $10 million purchase price. Upon its acquisition of the Five Properties, the Company entered into a totalnew 11-year triple-net lease with NOMS Tenant, effective as of six acquisitions duringOctober 7, 2016, and expiring in 2027. The lease provides for four additional five-year renewal options. The acquisition of the nine months ended September 30, 2016. A descriptionFive Properties was funded using a portion of each facility acquired during that period is as follows.the proceeds from the Company’s initial public offering.

Watertown Facilities

On September 30, 2016, the Company closed on an asset purchase agreement with Brown Investment Group, LLC, a South Dakota limited liability company, to acquire a 30,062 square foot clinic, and a 3,136 square foot administration building located at 506 1^st Avenue SE, Watertown, South Dakota and a 13,686 square foot facility, both located at 511 14^th Avenue NE,in Watertown South Dakota (collectively, the “Facilities”“Watertown Facilities”), for a purchase price of approximately $9.0 million (approximately $9.1 million including legal and related fees).million. The acquisitions included the Watertown Facilities, together with the real property, the improvements, and all appurtenances thereto. The Watertown Facilities are operated by the Brown Clinic, P.L.L.P. (“Brown Clinic”), a South Dakota professional limited liability partnership.

Upon the closing of the transaction, the Company leased the portfolio properties to Brown Clinic via a 15-year triple-net lease that expires in 2031. The lease provides for two additional five-year extensions at the option of the tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

East Orange Facility

On September 29, 2016, the Company closed on an asset purchase agreement with Prospect EOGH, Inc. (“Prospect”), a New Jersey corporation, and wholly-owned subsidiary of Prospect Medical Holdings, Inc. (“PMH”), a Delaware corporation, to acquire a 60,442 square foot medical office building (“MOB”) located at 310 Central Avenue, East Orange, New Jersey on the campus of the East Orange General Hospital, for a purchase price of approximately $11.86 million (approximately $12.3 million including legal and related fees). The building currently houses physician offices, a 29-bed dialysis center, a wound center, a diagnostic lab, a hyperbaric chamber and a pharmacy.million. The acquisitions included the MOB, together with the real property, the improvements, and all appurtenances thereto.

Upon the closing of the transaction, the Company leased the MOB to PMH via a 10-year triple-net lease that expires in 2026. The lease provides for four additional five-year extensions at the option of the tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Reading Facilities

On July 20, 2016, the Company closed on an asset purchase agreement to acquire a 17,000 square foot eye center located at 1802 Papermill Road, Wyomissing, PA 19610 (the “Eye Center”) owned and operated by Paper Mill Partners, L.P., a Pennsylvania limited partnership, and a 6,500 square foot eye surgery center located at 2220 Ridgewood Road, Wyomissing, PA 19610 (the “Surgery Center”) owned and operated by Ridgewood Surgery Center, L.P., a Pennsylvania limited partnership, for a purchase price of approximately $9.20 million (approximately $9.38 million including legal and related fees).million. The acquisition included both facilities, together with the real property, the improvements, and all appurtenances thereto.

Upon the closing of the transaction, the Eye Center was leased back to Berks Eye Physicians & Surgeons, Ltd., a Pennsylvania professional corporation (the “Eye Center Tenant”) and the Surgery Center was leased back to Ridgewood Surgery Associates, LLC, a Pennsylvania limited liability company (the “Surgery Center Tenant”). Both leases are 10-year absolute triple-net lease agreements that expire in 2026 and are cross defaulted. Both leases also provide for two consecutive five-year extensions at the option of the tenants. The Eye Center lease is guaranteed by the Surgery Center Tenant and the Surgery Center lease is guaranteed by the Eye Center Tenant, each pursuant to a written guaranty. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Melbourne Facility

On March 31, 2016, the Company closed on a purchase agreement to acquire a 78,000 square-foot medical office building located on the Melbourne Bayfront for a purchase price of $15.45 million (approximately $15.5 million including legal and related fees) from Marina Towers, LLC, a Florida limited liability company. The facility is located at 709 S. Harbor City Blvd., Melbourne, FL on 1.9 acres of land. The acquisition included the site and building, an easement on the adjacent property to the north for surface parking, all tenant leases, and above and below ground parking garages. The entire facility has been leased back to Marina Towers, LLC via a 10-year absolute triple-net master lease agreement that expires in 2026. The tenant has two successive options to renew the lease for five-year periods on the same terms and conditions as the primary non-revocable lease term with the exception of rent, which will be adjusted to the prevailing fair market rent at renewal and will escalate in successive years during the extended lease period at two percent annually.

The Melbourne facility acquisition was financed in full using proceeds from the third party Cantor Loan, which is disclosed in Note 4 – “Notes Payable Related to Acquisitions.”

The Melbourne facility’s obligations under the lease with Marina Towers, LLC are fully guaranteed by its parent company, First Choice Healthcare Solutions, Inc. (OTCMKTS: FCHS). Information about First Choice Healthcare Solutions, Inc., including its audited historical financial statements, can be obtained from its Annual Report on Form 10-KAcquisitions and other reports and filings available on its website at http://www.myfchs.com/ or on the SEC website at www.sec.gov.Revolving Credit Facility.”

Westland Facility

On March 31, 2016, the Company closed on a purchase agreement to acquire a two-story medical office building and ambulatory surgery center located in Westland, Michigan for an aggregate purchase price of $4.75 million (approximately $4.8 million including legal and related fees) from Cherry Hill Real Estate, LLC (“Cherry Hill”). The property contains 15,018 leasable square feet and is located on a 1.3-acre site. Under the purchase agreement, the Company acquired the site and building, including parking. Also on March 31, 2016, the Company executed a lease agreement for the entire facility with The Surgical Institute of Michigan, LLC under a triple-net master lease agreement that expires in 2026, subject to two successive ten-year renewal options for the tenant on the same terms as the initial lease, except that the rental rate will be subject to adjustment upon each renewal based on then-prevailing market rental rates. The purchase agreement contains customary covenants, representations and warranties. Commensurate with the execution of its lease with the Company, The Surgical Institute of Michigan, LLC terminated its lease agreement with Cherry Hill that was in place at the time of the sale of the facility to the Company. The Company has accounted for this acquisition as a business combination in accordance with the provisions of ASC Topic 805, “Business Combinations,” and accordingly the transaction has been recorded at fair value with all values allocated to land and building based upon their fair values at the date of acquisition. No intangible assets were identified in connection with this acquisition.acquisition and accordingly the purchase price of $4.75 million was allocated approximately $4.52 million to building and approximately $0.23 million to land.

The Westland facility acquisition was financed in full using proceeds from the third party Cantor Loan, which is disclosed in Note 4 – “Notes Payable Related to Acquisitions.Acquisitions and Revolving Credit Facility.”

Plano Facility

On January 28, 2016, the Company closed on an asset purchase agreement with an unrelated party Star Medreal, LLC, a Texas limited liability company, to acquire an approximately 24,000 square foot, eight bed acutea hospital facility located in Plano, Texas, along with all real property and improvements thereto for approximately $17.5 million (approximately $17.7 million including legal and related fees)(the “Plano Facility”). Under the terms of the agreement, the Company was obligated to pay a development fee of $500,000 to Lumin, LLC at closing. The property has been leased back via an absolute triple-net lease agreement that expires in 2036. The tenant will be Star Medical Center, LLC and Lumin Health, LLC will serve as guarantor. Lumin Health, LLC is an affiliate and management company for Star Medical Center, LLC. The tenant has two successive options to renew the lease for ten-year periods on the same terms and conditions as the primary non-revocable lease term with the exception of rent, which will be computed at then prevailing fair market value as determined by an appraisal process defined in the lease. The terms of the lease also provide for a tenant allowance up to $2.75 million for a 6,400 square foot expansion to be paid by the Company.

Also on January 28, 2016, the Company entered into a Promissory Note and Deed of Trust with East West Bank to borrow a total of $9,223,500. Deferred financing costs of $53,280 were incurred and capitalized by the Company in securing this loan. The loan was scheduled to mature on January 28, 2021, five years from the closing date. At closing the Company paid the lender a non-refundable deposit of $50,000 and a non-refundable commitment fee of $46,118. The loan bears interest at a rate per annum equal to the Wall Street Journal Prime Rate (as quoted in the "Money Rates" column of The Wall Street Journal (Western Edition), rounded to two decimal places, as it may change from time to time, plus 0.50%, but not less than 4.0%. Interest expense of $64,551 was incurred on this note for the nine months ended September 30, 2016, prior to its repayment. As discussed in Note 4 – “Notes Payable Related to Acquisitions and Revolving Credit Facility,” the Company used a portion of the proceeds from another third party loan to repay the $9,223,500 principal balance of the note with East West Bank in full as of September 30, 2016. The Company also wrote off the deferred financing costs of $53,280 as of September 30, 2016 related to this note.

 Additional funding for this transaction was received from ZH USA, LLC during the year ended December 31, 2015 in the amount of $9,369,310 (consisting of $9,025,000 funded directly for this transaction and $344,310 that was held in escrow from previous funding from ZH USA, LLC). The $9,369,310 was recorded by the Company as unsecured Convertible Debentures due to related party on demand, bearing interest at eight percent per annum. ZH USA, LLC may elect to convert all or a portion of the outstanding principal amount of the Convertible Debenture into shares of the Company’s common stock in an amount equal to the principal amount of the Convertible Debenture, together with accrued but unpaid interest, divided by $12.748. See Note 6 – “Related Party Transactions” for details regarding the conversion to common stock or pay-off of the Convertible Debenture balance as of September 30, 2016.

A rollforward of the gross investment in land, building and improvements as of September 30, 2016, resulting from the six acquisitions completed during the nine-month period, is as follows:

Depreciation expense was $585,449 and $1,528,281 for the three and nine months ended September 30, 2016, respectively. Depreciation expense was $153,148 and $446,491 for the three and nine months ended September 30, 2015, respectively.

As of December 31, 2015, the Company had acquired the following facilities:

Tennessee Facilities

On December 31, 2015, the Company acquired a six building, 52,266 square foot medical clinic portfolio for a purchase price of $20.0 million (approximately $20.2 million including legal and related fees).million. Five of the facilities are located in Tennessee and one facility is located in Mississippi. The portfolio will be leased back through the Gastroenterology Center of the Midsouth, P.C. via an absolute triple-net lease agreement that expires in 2027. The tenant has two successive options to renew the lease for five-yearfive year periods on the same terms and conditions as the primary non-revocable lease term with the exception of rent, which will be computed at the same rate of escalation used during the fixed lease term. Base rent increases by 1.75% each lease year commencing on January 1, 2018. The property is owned in fee simple. Funding for the transaction and all related costs was received in the form of a convertible debenture (“Convertible Debenture”) the Company issued to ZH USA, LLCits majority stockholder in the total amount of $20,900,000. Refer to Note 6 – “Related Party Transactions” for additional details regarding the funding of this transaction.

West Mifflin Facility

On September 25, 2015, the Company acquired a combined approximately 27,193 square foot surgery center and medical office building located in West Mifflin, Pennsylvania and the adjacent parking lot for approximately $11.35 million (approximately $11.6 million including legal and related fees).million. The facilities are operated by Associates in Ophthalmology, LTD and Associates Surgery Centers, LLC, respectively, and leased back to those entities by the Company via two separate lease agreements that expire in 2030. Each lease has two successive options by the tenants to renew for five-yearfive year periods. Base rent increases by 2% each lease year commencing on October 1, 2018. The property is owned in fee simple. In connection with the acquisition of the facilities, the Company borrowed $7,377,500 from Capital One, National Association (“Capital One”) and funded the remainder of the purchase price with the proceeds from a Convertible Debenture it issued to ZH USA, LLCits majority stockholder in the total amount of $4,545,838. Refer to Note 4 – “Notes Payable Related to Acquisitions” and Note 6 – “Related Party Transactions” for additional details regarding the funding of this transaction.

Asheville Facility

On September 19, 2014, the Company acquired an approximately 8,840 square foot medical office building known as the Orthopedic Surgery Center, located in Asheville, North Carolina for approximately $2.5 million. The Asheville facility is subject to an operating lease which expires in 2017, with lease options to renew up to five years. The property is owned in fee simple. In connection with the acquisition of the Asheville facility, the Company borrowed $1.7 million from the Bank of North Carolina and funded the remainder of the purchase price with the proceeds from a Convertible Debenture it issued to ZH USA, LLCits majority stockholder and with the Company’s existing cash. Refer to Note 4 – “Notes Payable Related to Acquisitions” for additional details regarding the funding of this transaction.

Omaha Facility

On June 5, 2014, the Company completed the acquisition of a 56-bed long term acute care hospital located at 1870 S.S 75^th Street, Omaha, Nebraska for approximately $21.7 million (approximately $21.9 million including legal and related fees).million. The Omaha facility is operated by Select Specialty Hospital – Omaha, Inc. pursuant to a sublease which expires in 2023, with sub lessee options to renew up to 60 years. The real property where the Omaha facility and other improvements are located isare subject to a land lease with Catholic Health Initiatives, a Colorado nonprofit corporation (the “land lease”). The land lease initially was to expire in 2023 with sub lessee options to renew up to 60 years. However, as of September 30, 2016,December 31, 2015, the Company exercised two five-year lease renewal options and therefore the land lease currently expires in 2033, subject to future renewal options by the Company. In connection with the acquisition of the Omaha facility in June 2014, the Company borrowed $15.06 million from Capital One and funded the remainder of the purchase price with funds from ZH USA, LLC. Refer to Note 4 – “Notes Payable Related to Acquisitions” for details regarding the payment in fullits majority stockholder.

A rollforward of the outstanding borrowings from Capital One using the proceeds receivedgross investment in land, building and improvements as of March 31, 2017, resulting from the initial public offering.eight acquisitions completed during the three months ended March 31, 2017, is as follows:

Depreciation expense was $1,346,053 and $398,830 for the three months ended March 31, 2017 and March 31, 2016, respectively.

Unaudited Pro Forma Financial Information for Business Combination Transactions During the Three Months Ended March 31, 2017

The Omaha facility’s obligations underfollowing table illustrates the sublease with Select Specialty Hospital – Omaha, Inc.unaudited pro forma consolidated revenue, net loss, and loss per share as if the entities that the Company acquired during the three months ended March 31, 2017 that were accounted for as business combinations (the OCOM North, OCOM South, Clermont and Lewisburg facilities) had occurred as of January 1, 2016:

Intangible Assets and Liabilities

The following is a summary of the carrying amount of intangible assets and liabilities as of March 31, 2017:

The following is a summary of the carrying amount of intangible assets and liabilities as of December 31, 2016:

The following is a summary of the acquired lease intangible amortization for the three months ended March 31, 2017. The Company had no intangible assets or liabilities as of March 31, 2016 and therefore no amortization was incurred during the three months ended March 31, 2016.

As of March 31, 2017, scheduled future aggregate net amortization of acquired lease intangible assets and liabilities for each fiscal year ended December 31 are fully guaranteed by its parent company, Select Medical Corporation (NYSE: SEM). Information about Select Medical Corporation, including its audited historical financial statements, can be obtained from its Annual Report on Form 10-Klisted below:

As of March 31, 2017, the weighted average amortization period for asset lease intangibles and other reportsliability lease intangibles are 8.3 years and filings available on its website at http://www.selectmedical.com/ or on the SEC website at www.sec.gov.6.7 years, respectively.

Note 4 – Notes Payable Related to Acquisitions and Revolving Credit Facility

Summary of Notes Payable Related to Acquisitions, Net of Debt Discount

Effective forCosts incurred related to securing the fiscal year ended December 31, 2015,Company’s fixed rate debt instruments have been capitalized as a debt discount, net of accumulated amortization, and are netted against the Company early adoptedCompany’s Notes Payable balance in the provisions of Accounting Standards Update 2015-03 entitled “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which requires retrospective application. The adoption of ASU 2015-03 represents a change in accounting principle. accompanying Consolidated Balance Sheet.

A detail of the impact of adopting ASU 2015-03 on the Company’s Notes Payable Relatednote payable related to Acquisitions,acquisitions, net of unamortizeddebt discount balances, as of September 30, 2016if March 31, 2017 and December 31, 2015,2016 is as follows:

The Company incurred financing costs related to the procurement of the Cantor, Plano, West Mifflin, Asheville, and Omaha loans that are treated as debt discounts.

A rollforward of the unamortized debt discount balance as of September 30, 2016March 31, 2017, that was incurred on the Company’s fixed rate debt, is as follows:

Amortization expense of $62,604incurred related to the debt discount was $32,805 and $215,449$90,241 for the three and nine months ended September 30,March 31, 2017 and March 31, 2016, respectively, and $30,257is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

Summary of Deferred Financing Costs, Net

Costs incurred related to securing the Company’s revolving credit facility have been capitalized as a deferred financing asset, net of accumulated amortization in the accompanying Consolidated Balance Sheet.

A rollforward of the deferred financing cost balance as of March 31, 2017, that was incurred on the Company’s revolving credit facility, is as follows:

Amortization expense incurred related to the revolving credit facility was $125,867 and $89,850zero for the three and nine months ended September 30, 2015,March 31, 2017 and March 31, 2016, respectively, and is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

Cantor Loan

On March 31, 2016, through certain of the Company’s subsidiaries, the Company entered into a $32,097,400 portfolio commercial mortgage-backed securities loan (the “Cantor Loan”) with Cantor Commercial Real Estate Lending, LP (“CCRE”). The subsidiaries are GMR Melbourne, LLC, GMR Westland, LLC, GMR Memphis, LLC, and GMR Plano, LLC (“GMR Loan Subsidiaries”). The Cantor Loan has cross-default and cross-collateral terms. The Company used the proceeds of the Cantor Loan to acquire the Marina Towers (Melbourne, FL) and the Surgical Institute of Michigan (Westland, MI) properties and to refinance the Star Medical (Plano, TX) assets by paying off the existing principal amount of the loan with East West bank in the amount of $9,223,500, and the Company granted a security interest in the Gastro One (Memphis, TN) assets.

The Cantor Loan has a maturity date of April 6, 2026 and accrues annual interest at 5.22%. The first five years of the term require interest only payments and after that payments will include interest and principal, amortized over a 30-year30 year schedule. Prepayment can only occur within four months prior to the maturity date, except that after the earlier of (a) 2 years after the loan is placed in a securitized mortgage pool, or (ii) May 6, 2020, the Cantor Loan can be fully and partially defeased upon payment of amounts due under the Cantor Loan and payment of a defeasance amount that is sufficient to purchase U.S. government securities equal to the scheduled payments of principal, interest, fees, and any other amounts due related to a full or partial defeasance under the Cantor Loan.

The Company is securing the payment of the Cantor Loan with the assets, including property, facilities, and rents, held by the GMR Loan Subsidiaries and has agreed to guarantee certain customary recourse obligations, including findings of fraud, gross negligence, or breach of environmental covenants by the GMR Loan Subsidiaries. The GMR Loan Subsidiaries will be required to maintain a monthly debt service coverage ratio of 1.35:1.00 for all of the collateral properties in the aggregate.

No principal payments were made for the ninethree months ended September 30, 2016.March 31, 2017. The note balance as of September 30,March 31, 2017 and December 31, 2016 was $32,097,400. Interest expense incurred on this note was $428,179 and $851,704$418,873 for the three and nine months ended September 30, 2016.March 31, 2017. No interest expense was incurred on this note for the three and nine months ended September 30, 2015.March 31, 2016.

As of September 30, 2016,March 31, 2017, scheduled principal payments due for each fiscal year ended December 31 are listed below as follows:

West Mifflin Note Payable

In order to finance a portion of the purchase price for the West Mifflin facility, on September 25, 2015 the Company (through its wholly owned subsidiary GMR Pittsburgh LLC, as borrower) entered into a Term Loan and Security Agreement with Capital One to borrow $7,377,500. The note bears interest at 3.72% per annum and all unpaid interest and principal is due on September 25, 2020. Interest is paid in arrears and interest payments begin on November 1, 2015, and on the first day of each calendar month thereafter. Principal payments begin on November 1, 2018 and on the first day of each calendar month thereafter based on an amortization schedule with the principal balance due on the maturity date. The note may not be prepaid in whole or in part prior to September 25, 2017. Thereafter, the Company, at its option, may prepay the note at any time, in whole (but not in part) on at least thirty calendar days but not more than sixty calendar days advance written notice. The note has an early termination fee of two percent if prepaid prior to September 25, 2018. The note requires a quarterly fixed charge coverage ratio of at least 1:1, a quarterly minimum debt yield of 0.09:1.00, and annualized Operator EBITDAR measured on a quarterly basis of not less than $6,000,000. The Operator is Associates in Ophthalmology, Ltd. and Associates Surgery Centers, LLC. No principal payments were made for the ninethree months ended September 30, 2016 and the twelve months ended DecemberMarch 31, 2015.2017. The note balance as of September 30, 2016March 31, 2017 and December 31, 20152016 was $7,377,500. Interest expense incurred on this note was $70,136$68,610 and $209,645$69,373 for the three and nine months ended September 30,March 31, 2017 and March 31, 2016, respectively. No interest expense was incurred on this note for the three and nine months ended September 30, 2015.

As of September 30, 2016,March 31, 2017, scheduled principal payments due for each fiscal year ended December 31 are listed below as follows:

Asheville Note PayableAmended Revolving Credit Facility

In order to finance a portionOn December 2, 2016, the Company, the Operating Partnership, as borrower, and certain subsidiaries (GMR Asheville LLC, GMR Watertown LLC, GMR Sandusky LLC, GMR East Orange LLC, GMR Omaha LLC, and GMR Reading LLC) (such subsidiaries, the “Subsidiary Guarantors”) of the purchase price of the Asheville facility, on September 15, 2014 the CompanyOperating Partnership entered into a Promissory Notesenior revolving credit facility (the “Credit Facility”) with BMO Harris Bank N.A., as Administrative Agent, which initially provided up to $75 million in revolving credit commitments for the Operating Partnership. The initial Credit Facility included an accordion feature that provided the Operating Partnership with additional capacity, subject to the satisfaction of customary terms and conditions of up to $125 million, for a total initial facility size of up to $200 million. On March 3, 2017, the Company, the Operating Partnership, as borrower, and the Subsidiary Guarantors of the Operating Partnership entered into an amendment to the Credit Facility with BMO Harris Bank N.A., as Administrative Agent, which increased the commitment amount to $200 million plus an accordion feature that allows for up to an additional $50 million of North Carolinaprincipal amount subject to certain conditions, for a total facility size of $250 million. The Subsidiary Guarantors and the Company are guarantors of the obligations under the amended Credit Facility. The amount available to borrow $1,700,000.from time to time under the amended Credit Facility is limited according to a quarterly borrowing base valuation of certain properties owned by the Subsidiary Guarantors. The note bearsinitial termination date of the Credit Facility is December 2, 2019 which could be extended for one year in the case that no event of default occurs.

Amounts outstanding under the Credit Facility bear annual interest at a floating rate that is based, at the Operating Partnership’s option, on (i) adjusted LIBOR plus 2.00% to 3.00% or (ii) a base rate plus 1.00% to 2.00%, in each case, depending upon the Company’s consolidated leverage ratio. In addition, the Operating Partnership is obligated to pay a quarterly fee equal to a rate per annum equal to (x) 0.20% if the average daily unused commitments are less than 50% of the commitments then in effect and (y) 0.30% if the average daily unused commitments are greater than or equal to 50% of the commitments then in effect and determined based on the outstanding principal balance at the simple, fixed interest rateaverage daily unused commitments during such previous quarter.

The Operating Partnership is subject to ongoing compliance with a number of 4.75% per annumcustomary affirmative and all unpaid principal and interest is due on February 15, 2017. Commencing on October 15, 2014, the Company made on the 15^th of each calendar month until andnegative covenants, including March 15, 2015, monthly payments consisting of interest only. Thereafter, commencing on April 15, 2015, the outstanding principal and accrued interest is payable in monthly amortizing payments on the 15^th day of each calendar month, until and including January 15, 2017. This note may be prepaid in part or in full at any time and no prepayment penalty will be assessedlimitations with respect to any amounts prepaid.liens, indebtedness, distributions, mergers, consolidations, investments, restricted payments and asset sales. The Company made principal payments inOperating Partnership must also maintain (i) a maximum consolidated leverage ratio, commencing with the amountfiscal quarter ending December 31, 2016 and as of $39,204the end of each fiscal quarter thereafter, of less than (y) 0.65:1.00 for each fiscal quarter ending prior to October 1, 2019 and $37,899 for(z) thereafter, 0.60:1.00, (ii) a minimum fixed charge coverage ratio of 1.50:1.00, (iii) a minimum net worth of $119,781,219 plus 75% of all net proceeds raised through subsequent equity offerings and (iv) a ratio of total secured recourse debt to total asset value of not greater than 0.10:1.00.

During the ninethree months ended September 30, 2016March 31, 2017, the Company borrowed $101.2 million against the Credit Facility and the twelve months ended Decembermade no repayments. As of March 31, 2015, respectively. The note balance as of September 30, 20162017 and December 31, 20152016, the outstanding the Credit Facility balance was $1,622,897$128.9 million and $1,662,101,$27.7 million respectively. InterestFor the three months ended March 31, 2017, interest incurred on the Credit Facility was $453,925. No interest expense on this note was $19,799 and $59,667incurred for the three and nine months ended September 30, 2016, respectively, and $20,433 and $61,101 for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2016, scheduled principal payments due for each fiscal year ended DecemberMarch 31, are listed below as follows:2016.

Omaha Note Payable

In order to finance a portion of the purchase price for the Omaha facility, on June 5, 2014 the Company entered into a Term Loan and Security Agreement with Capital One, National Association to borrow $15,060,000. The loan bears interest at 4.91% per annum and all unpaid interest and principal was due on June 5, 2017 (the “Maturity Date”). Interest was paid in arrears and payments began on August 1, 2014, and were due on the first day of each calendar month thereafter. Principal payments began on January 1, 2015 and were due on the first day of each calendar month thereafter based on an amortization schedule with the principal balance due on the Maturity Date. This note was paid in full on July 11, 2016 using the proceeds from the initial public offering. In accordance with the terms of the note the prepayment resulted in the Company being required to pay an early termination fee in the amount of $301,200 because the note was paid in full prior to its Maturity Date. This fee was also paid on July 11, 2016 and is recorded as “Interest Expense” in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2016. The Company made principal payments in the amount of $14,748,464 and $311,536 for the nine months ended September 30, 2016 and the twelve months ended December 31, 2015, respectively. The note balance as of September 30, 2016 and December 31, 2015 was zero and $14,748,464, respectively. Interest expense on this note was $121,247 and $487,714 for the three and nine months ended September 30, 2016, respectively, (excluding the $301,200 early termination fee disclosed above), and $186,702 and $495,275 for the three and nine months ended September 30, 2015, respectively.

Note 5 – Stockholders’ Equity

Preferred Stock

The Company’s charter authorizes the issuance of 10,000,000 shares of preferred stock, par value $0.001 per share. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, no shares of preferred stock were issued and outstanding.

Common Stock

The Company has 500,000,000 of authorized shares of common stock, $0.001 par value. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, there were 17,605,675 and 250,000 outstanding shares of common stock.

On January 10, 2017 the Company paid the fourth quarter 2016 dividend that was announced on December 14, 2016 in the amount of $3,604,437.

On March 20, 2017, the Company announced the declaration of a cash dividend of $0.20 per share of common stock respectively.to stockholders of record as of March 27, 2017 and to the holders of the LTIP units that were granted on July 1, 2016 and December 21, 2016. This dividend, in the amount of $3,603,485 is to be paid on or about April 10, 2017, and was accrued as of March 31, 2017. Pursuant to a previously declared dividend approved by the board of directors of the Company (“Board”) and in compliance with applicable provisions of the Maryland General Corporation Law, the Company paid a monthly dividend of $0.0852 per share during the three months ended March 31, 2016 for a total of $164,152.

Additionally, in accordance with the terms of the Company’s 2017 Annual Equity Bonus and Long-Term Equity Award Plan as disclosed in Note 7 – “Stock-Based Compensation,” as of March 31, 2017 the Company accrued a dividend of $0.20 per LTIP unit on the 241,662 aggregate annual and long-term LTIP targeted grants that are subject to retroactive receipt of dividends on the amount of LTIPs ultimately earned. The amount of the accrual was $48,332.

On March 2, 2016, ZH USA, LLC converted $15,000,000 of principal under the Convertible Debenture into 1,176,656 shares of the Company’s thenunregistered common stock. The shares of unregistered common stock based on a conversion rate of $12.748 per share.

On July 1, 2016, the Company closed its initial public offering and issued 13,043,479 shares of its common stock at a price of $10.00 per share resulting in gross proceeds of $130,434,790. After deducting amounts that the Company paid in costs that were directly attributableissuable to the offering, underwriting discounts, advisory fees, and commissions, for a total of $11,272,068, the Company received net proceeds from the offering of $119,162,722. Additionally, on July 11, 2016 the underwriters exercised their over-allotment option in full, resulting in the issuance by the Company of an additional 1,956,521 shares of the Company’s common stock at a price of $10.00 per share for gross proceeds of $19,565,210. After deducting underwriting discounts, advisory fees, and commissions of $1,369,565, the Company received net proceeds from the over-allotment option shares of $18,195,645. Transaction costs incurred in connection with the offering were approximately $1,681,259. Total shares issued by the Company in the initial public offering, including over-allotment option shares, were 15,000,000 and the total net proceeds received were $137,358,367.

On July 1, 2016, ZH USA, LLC converted $15,030,134 of the principal under the Convertible Debenture into 1,179,019 shares of the Company’s registered common stock based on a conversion rate of $12.748 per share.

In order to help the Company qualify as a REIT, among other purposes, the Company’s charter,are subject to certain exceptions, restricts the number of shares of the Company’s common stock that a person may beneficially or constructively own. The Company’s charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of the Company’s capital stock. On June 27, 2016, the Company’s board of directors approved a waiver of the 9.8% ownership limit in our charter allowing ZH USA, LLC to own up to 16.9% of the Company’s outstanding shares of common stock.

Pursuant to a previously declared dividend approved by the Board of Directors of the Company and in compliance with applicable provisions of the Maryland General Corporation Law, the Company has paid a monthly dividend of $0.0852 per share each month during the four-month period from January 2016 through April 2016. During the nine months ended September 30, 2016 the Company paid total dividends to holders of its common stockcustomary anti-dilution rights in the amountevent of $285,703. On September 14, 2016, the Company announced the declaration of a cash dividend of $0.20 per share of common stock to stockholders of record as of September 27, 2016splits, stock dividends and to the holders of the LTIP units that were granted on July 1, 2016. This dividend, in the amount of $3,592,786, was accrued as of September 30, 2016 and paid on October 11, 2016. During the nine months ended September 30, 2015, the Company paid total dividends to holders of its common stock in the amount of $170,400. Additionally, a dividend was declared on September 17, 2015 and paid in October 2015. The amount of that dividend was $21,300.similar corporate events.

Note 6 – Related Party Transactions

Management Agreement

Initial Management Agreement

On November 10, 2014, the Company entered into a management agreement, with an effective date of April 1, 2014, with Inter-American Management LLC (the “Advisor”), a Delaware limited liability company and an affiliate of the Company. ZH International Holdings Limited (formerly known as Heng Fai Enterprises, Ltd.), a Hong Kong limited company that is engaged in real estate development, investments, management and sales, hospitality management and investments and REIT management, is the 85% owner of the Advisor. ZH International Holdings Limited owns ZH USA, LLC, a related party and the Company’s former (pre initial public offering) majority stockholder. Under the terms of this initial management agreement, the Advisor is responsible for designing and implementing the Company’s business strategy and administering its business activities and day-to-day operations. For performing these services, the Company was obligated under the initial management agreement to pay the Advisor a base management fee equal to the greater of (a) 2.0% per annum of the Company’s net asset value (the value of the Company’s assets less the value of the Company’s liabilities), or (b) $30,000 per calendar month. Additionally, in accordance with the terms of the initial management agreement, during the nine monthsquarter ended September 30,March 31, 2016, the Company expensed $754,000 in acquisition fees that waswere paid to the Advisor for the acquisitions of the Plano, Melbourne and Westland Facilities, respectively. For the three and nine months ended September 30, 2015, the Company incurred $227,000 of acquisition expenses related to the West Mifflin facility it acquiredthat were completed during the three months ended September 30, 2015.quarter.

Amended Management Agreement

Upon completion of the Company’s initial public offering on July 1, 2016, the Company and the Advisor entered into an amended and restated management agreement. TermsCertain material terms of the amended and restated management agreement are as follows:summarized below:

Term and Termination

The initial term of the amended and restated management agreement will expire on the third anniversary of the closing date of the initial public offering and will automatically renew for an unlimited number of successive one-year periods thereafter, unless the agreement is not renewed or is terminated in accordance with its terms. If the Company’s board of directorsBoard decides to terminate or not renew the amended and restated management agreement, the Company will generally be required to pay the Advisor a termination fee equal to three times the sum of the average annual base management fee and the average annual incentive compensation with respect to the previous eight fiscal quarters ending on the last day of the fiscal quarter prior to termination. Subsequent to the initial term, the Company may terminate the management agreement only under certain circumstances.

Base Management Fee

The Company will paypays its advisorAdvisor a base management fee in an amount equal to: 1.5% of its stockholders’ equity per annum, calculated quarterly for the most recently completed fiscal quarter and payable in quarterly installments in arrears.

For purposes of calculating the base management fee, the Company’s stockholders’ equity means: (a) the sum of (1) the Company stockholders’ equity as of March 31, 2016, (2) the aggregate amount of the conversion price (including interest) for the conversion of the Company’s outstanding convertible debentures into common stock and OP units upon completion of the initial public offering, and (3) the net proceeds from (or equity value assigned to) all issuances of equity and equity equivalent securities (including common stock, common stock equivalents, preferred stock, long-term incentive plan (“LTIP”) units and OP units issued by the Company or the Operating Partnership) in the initial public offering, or in any subsequent offering (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), less (b) any amount that the Company pays to repurchase shares of its common stock or equity securities of the OP. Stockholders’ equity also excludes (1) any unrealized gains and losses and other non-cash items (including depreciation and amortization) that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with GAAP, and (2) one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above, in each case after discussions between the Advisor and its independent directors and approval by a majority of the Company’s independent directors. As a result, the Company’s stockholders’ equity, for purposes of calculating the base management fee, could be greater or less than the amount of stockholders’ equity shown on its financial statements.

The base management fee of the Advisor shall be calculated within 30 days after the end of each quarter and such calculation shall be promptly delivered to the Company. The Company is obligated to pay the quarterly installment of the base management fee calculated for that quarter in cash within five business days after delivery to the Company of the written statement of the Advisor setting forth the computation of the base management fee for such quarter.

Incentive Compensation Fee

The Company will paypays its advisorAdvisor an incentive fee with respect to each calendar quarter (or part thereof that the management agreement is in effect) in arrears. The incentive fee will beis an amount, not less than zero, equal to the difference between (1) the product of (x) 20% and (y) the difference between (i) the Company’s AFFO (as defined below) for the previous 12-month period, and (ii) the product of (A) the weighted average of the issue price of equity securities issued in the initial public offering and in future offerings and transactions, multiplied by the weighted average number of all shares of common stock outstanding on a fully-diluted basis (including any restricted stock units, any restricted shares of common stock, OP units, LTIP units, and shares of common stock underlying awards granted under the 2016 Equity Incentive Plan (the “2016 Plan”) or any future plan in the previous 12-month period, and (B) 8%, and (2) the sum of any incentive fee paid to the Advisor with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any calendar quarter unless AFFO is greater than zero for the four most recently completed calendar quarters, or the number of completed calendar quarters since the closing date of the offering, whichever is less. For purposes of calculating the incentive fee during the first 12 months after completion of the offering, AFFO will be determined by annualizing the applicable period following completion of the offering.

AFFO is calculated by adjusting the Company’s funds from operations, or FFO, by adding back acquisition and disposition costs, stock based compensation expenses, amortization of deferred financing costs and any other non-recurring or non-cash expenses, which are costs that do not relate to the operating performance of the Company’s properties, and subtracting loss on extinguishment of debt, straight line rent adjustment, recurring tenant improvements, recurring leasing commissions and recurring capital expenditures.

Management Fee Expense Incurred and Accrued Management Fees

For the three and nine months ended September 30,March 31, 2017 and 2016, management fees of $627,147 and $807,147,$90,000, respectively were incurred and expensed by the Company. ForCompany and during the three and nine monthsquarter ended September 30, 2015,March 31, 2017 the Company paid management fees to the Advisor in the amount of $90,000 and $270,000, respectively$620,709. No management fees were incurred and expensed bypaid during the Company. During the nine monthsquarter ended September 30, 2016 the Company repaid $510,000 of the cumulative outstanding accrued management fee balance.March 31, 2016. As of September 30,March 31, 2017 and March 31, 2016, and December 31, 2015, accrued management fees of $927,147$627,147 and $630,000,$720,000, respectively, were due to the Advisor, and remain unpaid.Advisor.

Allocated General and Administrative Expenses

In the future, the Company may receive an allocation of general and administrative expenses from the Advisor that are either clearly applicable to or were reasonably allocated to the operations of the properties. There were no allocated general and administrative expenses from the Advisor for the three months ended September 30, 2016March 31, 2017 or the twelve months ended DecemberMarch 31, 2015.2016.

Convertible Debenture, dueNote Payable to Related PartyMajority Stockholder

The Company has received funds from its related partymajority stockholder ZH USA, LLC in the form of convertible interesta non-interest bearing notes (8% per annum, payable in arrears) due on demand unsecured debt,note payable, which areis classified as “Convertible debenture, due“Note payable to related party”majority stockholder” on the accompanying Consolidated Balance Sheets. The Company may prepaydid not receive any additional funds or make any payments on this note during the three months ended March 31, 2017. The balance of this note at any time, in whole or in part. Additionally, ZH USA, LLC may elect to convert all or a portion of the outstanding principal amount of the note into shares of common stock in an amount equal to the principal amount of the note, together with accrued but unpaid interest, divided by $12.748.

On March 2, 2016, ZH USA, LLC converted $15,000,000 of principal under the Convertible Debenture into 1,176,656 shares of the Company’s then unregistered common stock based on a conversion rate of $12.748 per share.

On June 15, 2016, in anticipation of its initial public offering, the Company entered into a Pay-Off Letter and Conversion Agreement (the “Pay-Off Letter and Conversion Agreement”) with ZH USA, LLC with regards to the Convertible Debentures loaned to the Company. Under the terms of the Pay-Off Letter and Conversion Agreement, upon the closing date of the initial public offering on July 1, 2016, ZH USA, LLC converted $15,030,134 of the principal under the Convertible Debenture into 1,179,019 shares of the Company’s registered common stock based on a conversion rate of $12.748 per share. Additionally, in accordance with the Pay-Off Letter and Conversion Agreement, on July 8, 2016 the Company paid off the remaining principal amount of $10,000,000 outstanding under the Convertible Debentures.

A rollforward of the funding from ZH USA, LLC classified as convertible debenture, due to related partywas $421,000 as of September 30,March 31, 2017 and December 31, 2016, is as follows:

On July 8, 2016, also in accordance with the Pay-Off Letter and Conversion Agreement, the Company paid all accrued interest owed and outstanding on the Convertible Debentures in the amount of $1,716,811. Accrued interest was included in the line item “Accrued Expenses” in the accompanying Consolidated Balance Sheets.

Interest expense on the Convertible Debentures was $43,889 and $1,242,899 for the three and nine months ended September 30, 2016, respectively, and $126,545 and $342,599 for the three and nine months ended September 30, 2015, respectively.

Prior to the conversions and the pay-off of the remaining outstanding principal balance of the Convertible Debentures discussed above, the Company analyzed the conversion option in the convertible debenture for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company performed an analysis in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options,” to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.  

NotesNote Payable to Related PartiesParty

During the nine months ended September 30, 2016, theThe Company received total funds in the amount of $450,000 in the form of an interest bearing note payable from a related party. The note bears interest at 4% per annum and iswas due on demand. The note was paid in full as of December 31, 2016. Interest expense incurred on this note was $4,150 and $10,284, for the three and nine months ended September 30,March 31, 2017 and March 31, 2016 respectively. This note was paid in fullzero and $1,634. Under the arrangement with a payment of $450,000 during the nine months ended September 30, 2016.

During the year ended December 31, 2015,related party the Company received fundshas the ability to receive additional loans in the amount of $421,000 from ZH USA, LLC in the form of a non-interest bearing due on demand note payable. No funds were received from ZH USA, LLC during the nine months ended September 30, 2016.

The total note payable balance from these related party loans was $421,000 as of September 30, 2016 and December 31, 2015, respectively, and are classified as “Notes payable to related parties” on the accompanying Consolidated Balance Sheets.

ZH USA, LLC Loan

On June 7, 2016, the Company received an interest free loan from ZH USA, LLC in the principal amount of $1.5 million, which was repaid in full on July 8, 2016, using a portion of the proceeds from the initial public offering.future.

Due to Related Parties, Net

A rollforward of the due (to) from related parties balance, net as of September 30, 2016March 31, 2017 is as follows:

Note 7 - 2016 Equity Incentive Plan– Stock-Based Compensation

On February 28, 2017, the Board approved the recommendations of the Compensation Committee of the Board with respect to the granting of 2017 annual performance-based equity incentive awards in the form of long-term incentive plan, or LTIP Unitsunits (the “Annual Awards”) and Related Accounting Impactlong-term performance-based LTIP awards (the “Long-Term Awards”) to the executive officers of the Company and other employees of the Company’s external manager who perform services for the Company (the “2017 Program”).

The 2017 Program is a part of the Company’s 2016 Plan and therefore the Annual Awards and Long-Term Awards were granted pursuant to the completion of the initial public offering on July 1, 2016 the Company’s board of directors approved and adopted the 2016 Equity Incentive Plan. The purpose of the 2016 Equity Incentive Plan is to attract and retain qualified persons upon whom, in large measure, our sustained progress, growth and profitability depend, to motivate the participants to achieve long-term company goals and to more closely align the participants’ interests with those of the Company’s other stockholders by providing them with a proprietary interest in the Company’s growth and performance. The Company’s executive officers, employees, employees of our advisor and its affiliates, consultants and non-employee directors are eligible to participate in the 2016 Equity Incentive Plan.

The Company granted LTIP units under the 2017 Program and experienced forfeitures during the three months ended March 31, 2017 as follows:

The Company granted LTIP units under the 2016 Plan during the year ended December 31, 2016 and experienced forfeitures during the three months ended March 31, 2017 as follows:

Under the 2016 Equity Incentive Plan a number of shares of the Company’s common stock equal to 7 percent of the outstanding shares of our common stock on a fully diluted basis upon the completion of the initial public offering (including 7 percent of the shares sold pursuant to the underwriters’ option), are available for issuance pursuant to awards under the 2016 Equity Incentive Plan, less the shares underlying the LTIP grants awarded upon completion of the initial public offering.

Specifically, an aggregate of 358,250 LTIP units were granted upon completion of the offering on July 1, 2016 pursuant to the 2016 Equity Incentive Plan. In addition, an aggregate of 874,147 additional shares are available for future issuance under the Company’s 2016 Equity Incentive Plan, or 7 percent of the fully diluted outstanding shares of the Company’s common stock upon completion of the initial public offering, including the underwriters’ over-allotment option, which was exercised in full on July 11, 2016.

Of the 358,250 LTIP units that were granted, 60,400 of the units vested immediately upon completion of the Company’s initial public offering on July 1, 2016 (the “IPO Units”). The remaining 297,850 LTIP units (the “Service LTIPs”) consist of 284,100 units granted to employees of the Advisor and its affiliates deemed to be non-employees in accordance with ASC Topic 505 and vest over a period of 42 to 54 months as well as 13,750 units granted to the Company’s independent directors that were deemed to be employees in accordance with ASC Topic 718 and vest over a period of 12 months. The Service LTIPs vest and are expensed ratably as service is performed over the periods described above using the straight-line method, subject to certain terms and conditions.

Total compensation expense of $830,827 related to all of the Company’s LTIP units was recorded for the three and nine months ended September 30, 2016 and was classified as “General and Administrative” expense in the Company’s accompanying Consolidated Statements of Operations. Total compensation expense recognized is comprised of a charge of $604,000 on the IPO Units, calculated based on a share price of $10.00 per unit, the closing share price for the Company’s common stock at the closing date of the initial public offering on July 1, 2016 and compensation expense of $226,827 incurred on of 23,056 Service LTIP using the straight-line method. The compensation expense incurred related to the Service LTIPs granted to independent directors that were deemed to be employees was based on a price of $10.00 per unit, the closing share price for the Company’s common stock on the closing date of the initial public offering on July 1, 2016. The compensation expense incurred related to the Service LTIPs granted to employees of the Advisor and its affiliates deemed to be non-employees was based on a share price of $9.76 per unit, the closing share price for the Company’s common stock on September 30, 2016. The Service LTIPs granted to non-employees are revalued each period at their then-current fair value at the end of that period, with a final measurement at the date of vesting.

There was a total of 274,794 LTIP units that no compensation expense has been incurred on as1,232,397 shares of September 30, 2016. Total unamortized compensation expense related to these units of approximately $2.7 million is expectedcommon stock are available to be recognized subsequent to September 30, 2016 over a weighted average remaining periodgranted or issued in respect of 3.30 years. Allother equity-based awards such as LTIP units provide for the payment of dividends at the same time dividends are paid to holders of the Company’s common stock.

units. Shares subject to awards under the 2017 Program and the 2016 Equity Incentive Plan that are forfeited, cancelled, lapsed, settled in cash or otherwise expired (excluding shares withheld to satisfy exercise prices or tax withholding obligations) will again be available for awards under the 2016 Equity Incentive Plan.grant. The 2016 Equity Incentive Plan2017 Program is administered by the Company’s compensation committee, which will interpret the 2016 Equity Incentive Plan2017 Program and havethe Committee has broad discretion to select the eligible personsindividuals to whom awards will be granted, as well as the type, size and terms and conditions of each award, including the fair market value of LTIP units, the exercise price of options, the number of shares subject to awards and the expiration date of, and the vesting schedule or other restrictions (including, without limitation, restrictive covenants) applicable to, awards.

2017 Program

Of the 244,324 LTIP units that were granted under the 2017 Program (prior to forfeitures) during the three months ended March 31, 2017, an aggregate of 97,243 target LTIP units were awarded under the Annual Awards and an aggregate of 147,081 target LTIP units were awarded under the Long-Term Awards. All the 244,324 LTIP units were granted to non-employees. The 2016 Equity Incentive Plan allowsnumber of target LTIP units comprising each Annual Award was based on the closing price of the Company’s common stock reported on the New York Stock Exchange (“NYSE”) on the date of grant (February 28, 2017) and the number of target LTIP Units comprising each Long-Term Award was based on the fair value of the Long-Term Awards as determined by an independent valuation consultant, in each case rounded to the next whole LTIP unit in order to eliminate fractional units. There was an aggregate of 2,662 forfeited units that will not be eligible to vest.

Annual Awards. The Annual Awards are subject to the terms and conditions of LTIP Annual Award Agreements (“LTIP Annual Award Agreements”) between the Company to grant the following types of awards:

Operating Partnership and LTIP Unitseach grantee.

As disclosed on March 14, 2016,The Compensation Committee established various operating performance goals for calendar year 2017, as set forth in Exhibit A to the Company entered into the Agreement of Limited Partnership of Global Medical REIT, L.P. (“Partnership Agreement”LTIP Annual Award Agreements (the “Performance Goals”), pursuantthat will be used to determine the actual number of LTIP Units earned by each grantee under each LTIP Annual Award Agreement. As soon as reasonably practicable following the last day of the 2017 fiscal year, the Compensation Committee will determine the extent to which the Company through a wholly-owned subsidiary, serves ashas achieved the sole general partnerPerformance Goals and, based on such determination, will calculate the number of LTIP Units that each grantee is entitled to receive under the grantee’s Annual Award based on the performance percentages described in the grantee’s LTIP Annual Award Agreement. Each grantee may earn up to 150% of the Operating Partnership and may not be removed as general partnernumber of target LTIP units covered by the limited partners with or without cause.

The Partnership Agreement, as amended, provides, among other things,grantee’s Annual Award. Any target LTIP Units that the Operating Partnership initially has two classes of limited partnership interests, which are Units of limited partnership interest (“OP Units”), and the Operating Partnership’s LTIP units. In calculating the percentage interests of the partners in the Operating Partnership, LTIP units are treated as OP Units. In general, LTIP units will receive the same per-unit distributions as the OP Units. Initially, each LTIP unit will have a capital account balance of zero and, therefore, will not have full parity with OP Units with respect to any liquidating distributions. However, the Partnership Agreement, as amended provides that “book gain,” or economic appreciation, in the Company’s assets realized by the Operating Partnership as a result of the actual sale of all or substantially all of the Operating Partnership’s assets, or the revaluation of the Operating Partnership’s assets as provided by applicable U.S. Department of Treasury regulations,earned will be allocated first to the holders of LTIP units until their capital account per unit is equal to the average capital account per-unit of the Company’s OP Unit holders in the Operating Partnership. We expect that the Operating Partnership will issue OP Units to limited partners,forfeited and the Company, in exchange for capital contributions of cash or property, and will issue LTIP units pursuant to the Company’s 2016 Equity Incentive Plan to persons who provide services to the Company, including the Company’s officers, directors and employees.cancelled.

PursuantThe Company expenses the fair value of all unit awards in accordance with the fair value recognition requirements of ASC Topic 718, Compensation-Stock Compensation, for “employees,” and ASC Topic 505, Equity, for “non-employees.”

As the Annual Awards were granted to non-employees, in accordance with the provisions of ASC Topic 505, the Annual Awards utilize the grant date fair value for expense recognition; however, the accounting after the measurement date requires a fair value re-measurement each reporting period until the awards vest. Since these are performance based awards with no market condition, the closing price on the valuation date and revaluation date will be used for expense recognition purposes.

Long-Term Awards. The Long-Term Awards are subject to the Partnership Agreement, as amended, any holdersterms and conditions of OP Units, other thanLTIP Long-Term Award Agreements (“LTIP Long-Term Award Agreements”) between the Company or its subsidiaries,and each grantee. The number of LTIP Units that each grantee is entitled to earn under the LTIP Long-Term Award Agreements will receive redemption rightsbe determined following the conclusion of a three-year performance period based on the Company’s total shareholder return, which subjectis determined based on a combination of appreciation in stock price and dividends paid during the performance period (“TSR”). Each grantee may earn up to certain restrictions200% of the number of target LTIP units covered by the grantee’s Long-Term Award. Any target LTIP Units that are not earned will be forfeited and limitations,cancelled. The number of LTIP Units earned under the Long-Term Awards will enable thembe determined as soon as reasonably practicable following the end of the three-year performance period based on the Company’s TSR on an absolute basis (as to cause75% of the Operating PartnershipLong-Term Award) and relative to redeem their OP Unitsthe SNL Healthcare REIT Index (as to 25% of the Long-Term Award).

As the Long-Term Awards were granted to non-employees and involved market-based performance conditions, in exchangeaccordance with the provisions of ASC Topic 505, the Long-Term Awards utilize a Monte Carlo simulation to provide a grant date fair value for cash or,expense recognition; however, the accounting after the measurement date requires a fair value re-measurement each reporting period until the awards vest. The fair value re-measurement will be performed by calculating a Monte Carlo produced fair value at the Company’s option, sharesconclusion of each reporting period until vesting.

The Monte Carlo simulation is a generally accepted statistical technique used, in this instance, to simulate a range of possible future stock prices for the Company and the members of the SNL Healthcare REIT Index (the “Index”) over the Performance Period (February 28, 2017 to February 27, 2020). The purpose of this modeling is to use a probabilistic approach for estimating the fair value of the performance share award for purposes of accounting under ASC Topic 718. ASC Topic 505 does not provide guidance on how to derive a fair value, so the valuation defaults to that described in ASC Topic 718.

The assumptions used in the Monte Carlo simulation include beginning average stock price, valuation date stock price, expected volatilities, correlation coefficients, risk-free rate of interest, and expected dividend yield. The beginning average stock price is the beginning average stock price for the Company and each member of the Index for the 5 trading days leading up to February 28, 2017. The valuation date stock price is the closing stock price of the Company and each of the peer companies in the Index on February 28, 2017 for the grant date fair value, and the closing stock price on March 31, 2017 for revaluation. The expected volatilities are modeled using the historical volatilities for the Company and the members of the Index. The correlation coefficients are calculated using the same data as the historical volatilities. The risk-free rate of interest is taken from the U.S. Treasury website, and relates to the expected life of the remaining performance period on valuation or revaluation. Lastly, the dividend yield assumption is 0.0%, which is mathematically equivalent to reinvesting dividends in the issuing entity, which is part of the Company’s common stock, on a one-for-one basis. The Company has agreed to file, not earlier than one year after the closingaward agreement assumptions.

Vesting.LTIP units that are earned as of the IPO, one or more registration statements registering the issuance or resale of shares of its common stock issuable upon redemptionend of the OP Units, including those issued upon conversionapplicable performance period will be subject to forfeiture restrictions that will lapse (“vesting”), subject to continued employment through each vesting date, in two installments as follows: 50% of the earned LTIP units towill vest upon being earned as of the Managerend of the applicable performance period and the Former Advisor.

remaining 50% will vest on the first anniversary of the date on which such LTIP units are convertible into OP Units on a one for one basis, subjectearned.

Distributions.Pursuant to certain conditions as set forth inboth the LTIP Unit Vesting Agreement entered intoAnnual Award Agreements and LTIP Long-Term Award Agreements, distributions equal to the dividends declared and paid by each LTIP unit holder. First, the LTIP units must have vested. The existing LTIP Unit Vesting Agreements generally provide for a five-year vesting period. Second,Company will accrue during the applicable performance period on the maximum number of vestedLTIP Units that the grantee could earn and will be paid with respect to all of the earned LTIP Units at the conclusion of the applicable performance period, in cash or by the issuance of additional LTIP Units at the discretion of the Compensation Committee

2016 Plan

Of the aggregate 414,504 LTIP units that maywere granted under the 2016 Plan prior to December 31, 2016 (prior to forfeitures), 60,400 units vested immediately on July 1, 2016 upon completion of the Company’s initial public offering (the “IPO Units”), 68,900 LTIP units vested on December 1, 2016, and an additional 8,000 LTIP units vested immediately during December 2016 (a total of 137,300 vested units as of March 31, 2017). Additionally, there was an aggregate of 2,760 forfeited units that were not vested. The remaining unvested 274,444 LTIP units (the “Service LTIPs”), net of forfeitures, consists of 260,694 units granted to employees of the Advisor and its affiliates deemed to be converted into OP Units is limitednon-employees in accordance with ASC Topic 505 and vest over periods of 36 months, 41 months, and 53 months, from the grant date, dependent on the population granted to, as well as 13,750 units granted to the proportionCompany’s independent directors (that were treated as employees in accordance with ASC Topic 718), and vest over a period of 12 months from the "capital account equivalency" thatgrant date.

Detail of Compensation Expense Recognized For The Three Months Ended March 31, 2017

The Company incurred compensation expense of $419,610 for the LTIP units have achieved with the OP Units. The number of vested LTIP units that may be converted generally is equalthree months ended March 31, 2017 related to the capital account balancegrants awarded under the 2017 Program and the 2016 Plan. Compensation expense is classified as “General and Administrative” expense in the Company’s accompanying Consolidated Statements of such LTIP units dividedOperations. A detail of compensation expense recognized during the three months ended March 31, 2017, by the capital account balance per unit of the OP units held by the General Partner. LTIP unit holders initially receive a capital account with a zero balance and receive priority allocations of certain gains to increase their capital account balances until they equal the capital account balances of OP Unit holders. Upon capital account equalization and vesting, LTIP units are convertible into an equal number of OP Units at the holder’s election with notice to the Operating Partnership. The Operating Partnership, at any time at the election of the General Partner, may also force a conversion of vested LTIP units into OP Units, subject to the capital account equivalency requirement described in this paragraph.plan, is as follows:

LTIP unit holders have the same voting rights as holders of OP Units, with the LTIP units voting as a single class with the OP Units and having one vote per LTIP unit. With certain exceptions, a majority vote of the LTIP unit holders is required to amend the provisions of the Partnership Agreement related to LTIP units.

Note 8 – Rental Revenue

The aggregate annual minimum cash to be received by the Company on the noncancelable operating leases related to its portfolio of facilities in effect as of September 30, 2016,March 31, 2017, are as follows for the subsequent years ended December 31; as listed below:below.

For the three months ended September 30,March 31, 2017, the HealthSouth facilities constituted approximately 30% of the Company’s rental revenue, the Omaha and Plano facilities each constituted approximately 9% of the Company’s rental revenue, and the Tennessee facilities constituted approximately 8% of rental revenue. All other facilities in the Company’s portfolio constituted the remaining 44% of the total rental revenue with no individual facility representing greater than approximately 6% of total rental revenue.

For the three months ended March 31, 2016, the Omaha facility constituted approximately 22%34% of the Company’s rental revenue, the Tennessee facilities constituted approximately 18%27% of rental revenue, the Plano Facility constituted approximately 18% of rental revenue and the Pittsburgh facility constituted approximately 17% of rental revenue,revenue. All other facilities individually contributed the West Mifflin facility constitutedremaining total of approximately 11% of rental revenue, the Melbourne facility constituted approximately 15% of rental revenue, and the Reading facility constituted approximately 8% of rental revenue. The Asheville and Westland facilities constituted approximately 3% and 6% of rental revenue, respectively. Based on their dates of acquisition the East Orange and Watertown facilities constituted less than one percent of rental revenue.

For the nine months ended September 30, 2016, the Omaha facility constituted approximately 26% of the Company’s rental revenue, the Tennessee facilities constituted approximately 21% of rental revenue, the Plano facility constituted approximately 17% of rental revenue, the West Mifflin facility constituted approximately 13% of rental revenue, the Melbourne facility constituted approximately 12% of rental revenue, and the Reading facility constituted approximately 3% of rental revenue. The Asheville and Westland facilities each constituted approximately 4% of rental revenue. Based on their dates of acquisition the East Orange and Watertown facilities constituted approximately zero percent of rental revenue.

For the three months ended September 30, 2015, the Omaha facility constituted approximately 85% of the Company’s rental revenue, the Asheville facility constituted approximately 12% of rental revenue, and the West Mifflin facility constituted approximately 3% of rental revenue.

For the nine months ended September 30, 2015, the Omaha facility constituted approximately 87% of the Company’s rental revenue, the Asheville facility constituted approximately 12% of rental revenue, and the West Mifflin facility constituted approximately 1% of rental revenue.

Note 9 – Omaha and Clermont Land Lease Rent ExpenseLeases

The Omaha facility land lease initially was to expire in 2023 with options to renew up to 60 years. However, the Company exercised two five-year lease renewal options and therefore the land lease currently expires in 2033, subject to future renewal options by the Company. Under the terms of the Omaha land lease, annual rents increase 12.5% every fifth anniversary of the lease. The initial Omaha land lease increase will occur in April 2017. During both of the three and nine months ended September 30,March 31, 2017 and March 31, 2016, the Company expensed $18,153$18,154 related to the Omaha land lease.

On March 1, 2017, the Company acquired an interest, as ground lessee, in the ground lease that covers and $54,461, respectivelyaffects certain real property located in Clermont, Florida, along with the seller’s right, title and interest arising under the ground lease in and to the medical building located upon the land. The ground lease expense is a pass-through to the tenant so no expense related to this lease. Duringground lease is recorded on the threeCompany’s Statements of Operations. The Clermont ground Lease commenced in 2012 and nine months ended September 30, 2015, the Company expensed $46,768 and $61,738, respectively related to this lease.has an initial term of seventy-five years.

The aggregate minimum cash payments to be made by the Company on the non-cancelable Omaha facility relatedland lease and the Clermont land lease in effect as of September 30, 2016,March 31, 2017, are as follows for the subsequent years ended December 31; as listed below.

Note 10 - Commitments and Contingencies

Litigation

The Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company, which if determined unfavorably to the Company, would have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Environmental Matters

The Company follows a policy of monitoring its properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at its properties, the Company is not currently aware of any environmental liability with respect to its properties that would have a material effect on its financial position, results of operations, or cash flows. Additionally, the Company is not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that management believes would require additional disclosure or the recording of a loss contingency.

Note 11 – Subsequent Events

Summary of Property Acquired Subsequent to the Three Months Ended March 31, 2017

Sandusky Facility (One Property)

On April 21, 2017 the Company completed the acquisition of one remaining medical property (out of a total portfolio of seven medical properties) for which the Company assumed the original buyer’s interest in an asset purchase agreement effective September 29, 2016, for an allocated purchase price of approximately $1.1 million. The Company funded this acquisition using borrowings from its revolving credit facility. For details related to the completed acquisitions of the six of the seven medical properties on October 7, 2016 and March 10, 2017, respectively, for an aggregate purchase price of $8.9 million, refer to Note 3 – “Property Portfolio.”

Registration Statement

On April 18, 2017, the Company filed a universal shelf registration statement on Form S-3 with the SEC allowing the Company to offer up $500 million in securities, from time to time, including common stock, preferred shares, and debt securities.

Dividend Paid

On October 11, 2016,April 10, 2017, the Company paid the first quarter 2017 dividend that was declared on September 14, 2016,March 20, 2017, in the amount of $0.20 per share of common stock to stockholders of record as of SeptemberMarch 27, 2016.2017. At the same time, the Operating Partnership paid a cash distribution to holders of LTIP units in the amount of $0.20 per unit. The aggregate amount of the dividend and LTIP unit distribution paid was $3,592,786.

Property Acquisitions Completed Subsequent to September 30, 2016

Carson City Facilities

On October 31, 2016, the Company acquired land and two medical office buildings located in Carson City, Nevada for a total purchase price of $3.975 million and as part of the transaction assumed a seven-year triple net lease agreement with the existing tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Sandusky Facilities

As disclosed in Note 3 – “Property Portfolio,” on September 13, 2016, the Company entered into an assignment and assumption agreement to assume from a third party a purchase contract to acquire a portfolio of seven properties known as the NOMS portfolio located in Northern Ohio, for a total purchase price of $10.0 million. On October 7, 2016, the Company closed on the sale of five of the seven facilities representing approximately $4.6 million of the total $10 million purchase price. The acquisition of the remaining two buildings for approximately $5.4 million is expected to close in December 2016. The total NOMS portfolio covers an aggregate of 50,931 square feet. The NOMS portfolio was owned by a multi-specialty physician group which has been in operation since 2000. The group includes over 120 physicians of which approximately half are primary care providers. The Company is leasing the five acquired properties to NOMS and will lease the remaining two properties to NOMS using a triple-net lease structure with initial terms of 11 years with four additional five-year renewal options. NOMS was the tenant in the five buildings prior to the Company’s acquisition and is also currently the tenant in the remaining two buildings. The acquisition of the five buildings was funded using a portion of the proceeds from the Company’s initial public offering. The acquisition of the remaining two buildings will also be funded using proceeds from the initial public offering.$3,603,485.

Asset Purchase Agreements Executed Subsequent to September 30, 2016

Appointment of new General Counsel and Secretary; Grant of Equity Awards

Las Cruces Facility

On November 4, 2016,Effective May 8, 2017, pursuant to action by the Board, Jamie A. Barber was appointed to serve as the Secretary and General Counsel of the Company, entered into a purchase agreement to acquire a surgicalhold such offices until the earlier election and imaging center in Las Cruces, New Mexico for a total purchase pricequalification of $4.88 million. Thehis successor or until his earlier resignation or removal. In connection with such appointment on May 8, 2017, the Company will execute a 12-year triple net lease agreement with Las Cruces Orthopedic Associates upon completion ofgranted to Mr. Barber the transaction. The Company expects to complete this transaction duringfollowing incentive equity awards under the fourth quarter2016 Plan:

Reimbursement Agreement

Ellijay FacilitiesEffective May 8, 2017, the Company and the Company’s external advisor (the “Manager”) entered into an agreement pursuant to which, for a period of one year commencing on May 8, 2017, the Company has agreed to reimburse the Manager for $125,000 of the annual salary of Mr. Barber for his service as the General Counsel and Secretary of the Company, such reimbursement to be paid in arrears in 12 equal monthly installments beginning after the end of the month of May 2017 so long as Mr. Barber continues to be primarily dedicated to the Company in his capacity as its General Counsel and Secretary. A copy of this agreement is filed as an exhibit to this Report, and the foregoing summary description is qualified in its entirety by the terms and conditions of such agreement.

Removal of Former General Counsel and Secretary; Vesting of Certain Equity Awards and Forfeiture of Certain Equity Awards

On November 1, 2016,May 5, 2017, the Company’s former General Counsel and Secretary. Mr. Conn Flanigan, was removed from those positions and as a result has no further affiliation with the Company. In connection with such removal, and contingent upon Mr. Flanigan signing all applicable release forms and related documents, 15,258 LTIP Units that had previously been granted to Mr. Flanigan that were unvested as of the date of his removal became vested and all forfeiture restrictions with respect such LTIP Units lapsed. In addition, 2,038 of the target annual performance-based LTIP Units awarded to Mr. Flanigan on February 28, 2017, representing a pro rata portion of the total number of target annual performance-based LTIP Units awarded to Mr. Flanigan on February 28, 2017, based on the percentage of the one-year performance period that had elapsed as of the date of his removal, became vested but have not yet been earned or issued since they remain subject to the performance goals set forth in the Annual Performance-Based LTIP Award Agreement entered into by the Company and Mr. Flanigan effective February 28, 2017 as part of the 2017 Program, the form of which was filed with the SEC in a Current Report on Form 8-K on March 6, 2017. The remaining 3,914 of the target annual performance-based LTIP Units awarded to Mr. Flanigan on February 28, 2017 were forfeited. In addition, 635 of the target long-term performance-based LTIP Units awarded to Mr. Flanigan on February 28, 2017, representing a pro rata portion of the total number of target long-term performance-based LTIP Units awarded to Mr. Flanigan on February 28, 2017, based on the percentage of the three-year performance period that had elapsed as of the date of his removal, became vested but have not yet been earned or issued since they remain subject to the performance goals set forth in the Long-Term Performance-Based LTIP Award Agreement entered into a purchase agreement to acquire landby the Company and three office buildings located in Ellijay, Georgia for a total purchase priceMr. Flanigan effective February 28, 2017, the form of $4.9 million. The Company will assume a 10-year triple net lease agreementwhich was filed with the existing tenant upon the closingSEC in a Current Report on Form 8-K on March 6, 2017. The remaining 9,755 of the transaction. The Company expectstarget long-term performance-based LTIP Units awarded to complete this transaction during the fourth quarter of 2016.Mr. Flanigan on February 28, 2017 were forfeited.

Credit Facility Commitment Letter

Subsequent to quarter-end, the Company received a commitment for a $75 million secured credit facility that the Company will be able to use to finance acquisitions.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements included herein, including the notes to those financial statements, included elsewhere in this Report, and the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this Report.  As discussed in more detail in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” this discussion contains forward-looking statements which involve risks and uncertainties.  Our actual results may differ materially from the results discussed in the forward-looking statements.

OverviewBackground

Global Medical REIT Inc. (the “Company,” “us,” “we,” “our”) was incorporated in the state of Nevada on March 18, 2011 and re-domiciled into a Maryland corporation, effective January 6, 2014. Our principal investment strategy is to develop and manage a portfolio of real estate assets in the healthcare industry, which includes surgery centers, specialty hospitals, and outpatient treatment centers.

We formed our Operating Partnership in March 2016 and have contributed all of our then-owned healthcare facilities to the Operating Partnership in exchange for common units of limited partnership interest in the Operating Partnership. We intend to conduct all future acquisition activity and operations through our Operating Partnership. We own Global Medical REIT GP, LLC, a Delaware limited liability company, which is the sole general partner of our Operating Partnership.

Recent Developments

Initial Public Offering We intend to conduct all future acquisition activity and operations through our Operating Partnership.

On June 28, 2016, the Company, the Advisor, and the Operating Partnership entered into an Underwriting Agreement with Wunderlich Securities, Inc., as representative of the several underwriters named therein, relating to the offer and sale of the Company’s common stock in its initial public offering. As disclosed on July 1, 2016, the Company closed its initial public offering and issued 13,043,47915,000,000 shares of its common stock at a price of $10.00 per share resulting in grossnet proceeds of $130,434,790. After deducting amounts that the Company paid in costs that were directly attributable to the offering, underwriting discounts, advisory fees, and commissions, for a total of $11,272,068, the Company received net proceeds from the offering of $119,162,722. Additionally, on July 11, 2016, the underwriters exercised their over-allotment option in full, resulting in the issuance by the Company of an additional 1,956,521 shares of the Company’s common stock at a price of $10.00 per share for gross proceeds of $19,565,210. After deducting underwriting discounts, advisory fees, and commissions of $1,369,565, the Company received net proceeds from the over-allotment option shares of $18,195,645. Transaction costs incurred in connection with the offering were approximately $1,681,259. Total shares issued by the Company in the initial public offering, including over-allotment option shares, were 15,000,000 and the total net proceeds received were $137,358,367.$138,969,275.

In connection with the Company’s initial public offering, the Company’s common stock was listed on the New York Stock Exchange under the ticker symbol “GMRE.”Recent Developments

Amended Management AgreementWe Completed Eight Acquisitions During the Current Quarter

Upon completion of the Company’s initial public offering on July 1, 2016, the Company and the Advisor entered into an amended and restated management agreement, pursuant to which the Advisor manages the operations and investment activities of the Company.

2016 Equity Incentive Plan

Prior to the completion of the initial public offering on July 1, 2016, our board of directors approved and adopted the 2016 Equity Incentive Plan. The purposes of the 2016 Equity Incentive Plan will be to attract and retain qualified persons upon whom, in large measure, our sustained progress, growth and profitability depend, to motivate the participants to achieve long-term company goals and to more closely align the participants’ interests with those of our other stockholders by providing them with a proprietary interest in our growth and performance. An aggregate of 358,250 LTIP units and restricted shares of our common stock were granted upon completion of the offering on July 1, 2016 pursuant to the 2016 Equity Incentive Plan. In addition, we expect that an aggregate of 874,147 additional shares will be available for future issuance under our 2016 Equity Incentive Plan, or 7% of the fully diluted outstanding shares of our common stock upon completion of the initial public offering, including the underwriters’ over-allotment option, which was exercised in full on July 11, 2016.

Summary of Properties under Executed Asset Purchase Agreements as of September 30, 2016

Sandusky Facilities

On September 13, 2016, the Company entered into an assignment and assumption agreement to assume from a third party a purchase contract to acquire a portfolio of seven properties known as the NOMS portfolio located in Northern Ohio, for a total purchase price of $10.0 million. As disclosed in Note 11 – “Subsequent Events,” on October 7, 2016, the Company closed on the sale of five of the seven facilities representing approximately $4.6 million of the total $10 million purchase price. The acquisition of the remaining two buildings for approximately $5.4 million is expected to close in December 2016. The total NOMS portfolio covers an aggregate of 50,931 square feet. The NOMS portfolio was owned by a multi-specialty physician group which has been in operation since 2000. The group includes over 120 physicians of which approximately half are primary care providers. The Company is leasing the five acquired properties to NOMS and will lease the remaining two properties to NOMS using a triple-net lease structure with initial terms of 11 years with four additional five-year renewal options. NOMS was the tenant in the five buildings prior to the Company’s acquisition and is also currently the tenant in the remaining two buildings. The acquisition of the five buildings was funded using a portion of the proceeds from the Company’s initial public offering.

Summary of Properties Acquired During the Nine Months Ended September 30, 2016

During the three months ended September 30, 2016, the Company acquired three facilities. During the nine months ended September 30, 2016, the Company acquired six facilities.March 31, 2017, we completed eight acquisitions. A summary description of each facilitythe facilities acquired is as follows.

Watertown Facilities

On September 30, 2016,contained in Note 3 – “Property Portfolio,” to the Company closed on an asset purchase agreement with Brown Investment Group, LLC, a South Dakota limited liability company,notes to acquire a 30,062 square foot clinic and a 3,136 square foot administration building located at 506 1^st Avenue SE, Watertown, South Dakota and a 13,686 square foot facility located at 511 14^th Avenue NE, Watertown South Dakota (collectively, the “Facilities”), for a purchase price of approximately $9.0 million (approximately $9.1 million including legal and related fees). The acquisitions included the Facilities, together with the real property, the improvements, and all appurtenances thereto. The Facilities are operated by the Brown Clinic, P.L.L.P (“Brown Clinic”), a South Dakota professional limited liability partnership.consolidated financial statements.

Upon the closing of the transaction, the Company leased the portfolio properties to Brown Clinic via a 15-year triple-net lease that expires in 2031. The lease provides for two additional five-year extensions at the option of the tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

East Orange Facility

On September 29, 2016, the Company closed on an asset purchase agreement with Prospect EOGH, Inc. (“Prospect”), a New Jersey corporation, and wholly-owned subsidiary of Prospect Medical Holdings, Inc. (“PMH”), a Delaware corporation, to acquire a 60,442 square foot medical office building (“MOB”) located at 310 Central Avenue, East Orange, New Jersey on the campus of the East Orange General Hospital, for a purchase price of approximately $11.86 million (approximately $12.3 million including legal and related fees). The building currently houses physician offices, a 29-bed dialysis center, a wound center, a diagnostic lab, a hyperbaric chamber and a pharmacy. The acquisitions included the MOB, together with the real property, the improvements, and all appurtenances thereto.

Upon the closing of the transaction, the Company leased the MOB to PMH via a 10-year triple-net lease that expires in 2026. The lease provides for four additional five-year extensions at the option of the tenant. The acquisition was funded using a portion of the proceeds from the Company’s initial public offering.

Reading Facilities

On July 20, 2016, the Company closed on an asset purchase agreement to acquire a 17,000 square foot eye center located at 1802 Papermill Road, Wyomissing, PA 19610 (the “Eye Center”) owned and operated by Paper Mill Partners, L.P., a Pennsylvania limited partnership, and a 6,500 square foot eye surgery center located at 2220 Ridgewood Road, Wyomissing, PA 19610 (the “Surgery Center”) owned and operated by Ridgewood Surgery Center, L.P., a Pennsylvania limited partnership, for a purchase price of approximately $9.20 million (approximately $9.38 million including legal and related fees). The acquisition included both facilities, together with the real property, the improvements, and all appurtenances thereto.

Upon the closing of the transaction, the Eye Center was leased back to Berks Eye Physicians & Surgeons, Ltd., a Pennsylvania professional corporation (the “Eye Center Tenant”) and the Surgery Center was leased back to Ridgewood Surgery Associates, LLC, a Pennsylvania limited liability company (the “Surgery Center Tenant”). Both leases are 10-year absolute triple-net lease agreements that expire in 2026 and are cross defaulted. Both leases also provide for two consecutive five-year extensions at the option of the tenants. The Eye Center lease is guaranteed by the Surgery Center Tenant and the Surgery Center lease is guaranteed by the Eye Center Tenant, each pursuant to a written guaranty. The acquisition was funded using proceeds from the Company’s initial public offering.

Trends Which May Influence Results of Operations

We believe the following trends in the healthcare real estate market positively affect the acquisition, ownership, development and management of healthcare real estate:

We believe the following trends in the healthcare real estate market may negatively impact our lease revenues and the ability to make distributions to our shareholders:

Components of the Company’s Revenues, Expenses and Cash Flows

Revenue

Rental revenue

Our operations currently consist of rental revenue earned from our tenant-operators under leasing arrangements which provide for minimum rent escalations, and charges to the tenant-operator for the real estate taxes and operating expenses.escalations. The leases have been accounted for as operating leases. For operating leases with contingent rental escalators, revenue is recorded based on the contractual cash rental payments due during the period. Revenue from leases with fixed annual rental escalators are recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. If we determine that collectability of rents is not reasonably assured, future revenue recognition is limited to amounts contractually owed and paid, and, when appropriate, an allowance for estimated losses is established. Additionally, the capitalized above-market lease intangible is amortized as a reduction of rental revenue and the below-market lease intangible is amortized as an addition to rental revenue over the estimated remaining term of the respective leases.

Other income

Other income consists primarily of interest income earned on the net proceeds received from our initial public offering.

Expenses

Acquisition fees

Acquisition fees represent expenses incurred with unaffiliated entities related to the acquisition of a facility, primarily incurred with acquisitions that are accounted for as business combinations.

Acquisition fees – related party

Acquisition fees – related party represented an expense incurred for a fee paid by us to theour Advisor for each acquisitionfacility acquisitions in connection with the terms of the original management agreement. In accordance with the provisions of the amended and restated management agreement, which became effective July 1, 2016, the Advisor ceased charging us this acquisition fees are no longer charged to the Company by the Advisor.fee.

General and administrative

General and administrative expense primarily includes professional fees and services (legal and accounting), general office expenses, ground rent related to the Omaha facility, and travel and related expenses.

Management fees – related party

In accordance with the terms of the Company’s initial management agreement between us and the Advisor, we owed the Advisor a base management fee equal to the greater of (a) 2.0% per annum of our net asset value (the value of our assets less the value of our liabilities), or (b) $30,000 per calendar month. Historically this fee has resulted in a monthly charge to us of $30,000. Upon completion of the Company’s initial public offering on July 1, 2016, the Company’s amended and restated management agreement, which was approved by the Company’s board of directorsBoard on June 13, 2016, became effective. Refer to Note 6 – “Related Party Transactions” for details regarding the amended and restated management agreement, the management fee expense incurred for the three and nine months ended September 30,March 31, 2017 and March 31, 2016, and accrued management fees owed to the Advisor as of September 30, 2016.those dates.

Depreciation expense

Depreciation expense is computed using the straight-line method over the estimated useful lives of the buildings, site improvements, and tenant improvements, which are generally between 54 and 40 years.

Amortization expense

Amortization expense is incurred on the Company’s acquired lease intangible assets (consisting of in-place leases and leasing cost intangible assets) and is computed using the straight-line method over the remaining lives of the respective leases, which are generally between 4 and 10 years.

Interest expense

Interest expense is derived from interest incurred on our borrowings from third party institutional lenders as well as borrowings from related parties, the funds of which were primarily used to fund acquisitions. Additionally, the amortization of deferred financing costs (debt discount) incurred to obtain third party financing is classified as interest expense.

Cash Flow

Cash flows from operating activities

Cash flows from operating activities primarily represent activities related to us conducting our normal business activities and generally reflect the impact of transactions that enter into the determination of our net income or loss.

Cash flows from investing activities

Cash flows from investing activities primarily represent activities related to us acquiring healthcare facilities, plants, and equipment and making and collecting loans from other entities.

Cash flows from financing activities

Cash flows from financing activities primarily represent activities related to us borrowing and subsequently repaying funds from other entities as well as providing stockholders with a return on investment primarily in the form of a dividend payment.

Competition

Our healthcare facilities often face competition from nearby hospitals and other healthcare facilities that provide comparable services. Similarly, our tenant-operators face competition from other medical practices and service providers at nearby hospitals and other healthcare facilities. From time to time and for reasons beyond our control, managed-care organizations may change their lists of preferred hospitals or in-network physicians. Physicians also may change hospital affiliations. If competitors of our tenant-operators or competitors of the associated healthcare delivery systems with which our healthcare facilities are strategically aligned have greater geographic coverage, improve access and convenience to physicians and patients, provide or are perceived to provide higher quality services, recruit physicians to provide competing services at their facilities, expand or improve their services or obtain more favorable managed-care contracts, our tenant-operators may not be able to successfully compete. Any reduction in rental revenues resulting from the inability of our tenant-operators or the associated healthcare delivery systems with which our healthcare facilities are strategically aligned to compete in providing medical services and/or receiving sufficient rates of reimbursement for healthcare services rendered may have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders and the trading price of our common stock.

Qualification as a REIT

Our business strategy is conducive to a more favorable tax structure whereby we may qualify and elect to be treated as a REIT for U.S. federal income tax purposes. We plan to elect to be taxed as REIT under U.S. federal income tax laws commencing with our contemplated taxable year ending December 31, 2016. We believe that, commencing with 2016, we have organized and have operated in such a manner as to qualify for taxation as a REIT under all of the U.S. federal income tax laws, and we intend to continue to operate in such a manner. However, we cannot provide assurances that we will operate in a manner so as to qualify or remain qualified as a REIT.

In order to qualify as a REIT, a substantial percentage of our assets must be qualifying real estate assets and a substantial percentage of our income must be rental revenue from real property or interest on mortgage loans. We must elect under the U.S. Internal Revenue Code (the “Code”) to be treated as a REIT. Subject to a number of significant exceptions, a corporation that qualifies as a REIT generally is not subject to U.S. federal corporate income taxes on income and gains that it distributes to its stockholders, thereby reducing its corporate level taxes.

Management Agreement

On November 10, 2014, we entered into a Management Agreement, with an effective date of April 1, 2014, with Inter-American Management, LLC, our affiliate. This Management Agreement was amended and restated on July 1, 2016. See Note 6 – “Related Party Transactions” for additional information on these agreements.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. For a more detailed discussion of our significant accounting policies, see Note 2 – “Summary of Significant Accounting Policies” in the footnotes to the accompanying financial statements. Below is a discussion of accounting policies that we consider to be the most critical to understandingin that they may require complex judgments involved and the uncertaintiesjudgment in their application or require estimates about matters that could impact our results of operations, financial condition and cash flows.are inherently uncertain.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atin the date of theCompany’s financial statements and the reported amounts of revenues and expenses during the reporting period.accompanying notes. Actual results could differ from those estimates.

Purchase of Real Estate

Transactions in which real estate assets are purchased that are not subject to an existing significant lease or are attached or related to a major healthcare provider are treated as asset acquisitions and as such are recorded at their purchase price, including capitalized acquisition fees,costs, which is allocated to land and building based upon their relative fair values at the date of acquisition. Investment properties thatTransactions in which real estate assets are acquired either subject to a significantan existing lease or as part of a portfolio level transaction with significant leasing activity are treated as a business combination under Accounting Standards Codification (“ASC”) Topic 805, “BusinessBusiness Combinations,” which requires and the purchase price ofassets acquired properties be allocated to the acquired tangibleand liabilities assumed, including identified intangible assets and liabilities, consisting of land, building, and any identified intangible assets. Acquisition fees are expensed as incurred.recorded at their fair value. Fair value is determined based onupon the guidance of ASC Topic 820, “FairFair Value Measurements and Disclosures” primarily based on unobservable and generally are determined using Level 2 inputs, such as rent comparables, sales comparables, and broker indications. Although Level 3 Inputs are utilized, they are minor in comparison to the Level 2 data inputs. In making estimatesused for the primary assumptions. The determination of fair values for purposesvalue involves the use of allocating the purchase price of individually acquired properties, we utilize our own market knowledgesignificant judgment and published market data. In this regard, we also utilize information obtained from county tax assessment recordsestimates. We make estimates to assist in the determination ofdetermine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources, including pre-acquisition due diligence, and we routinely utilize the assistance of a third party appraiser. Initial valuations are subject to change until the information is finalized, no later than 12 months from the acquisition date. We expense transaction costs associated with acquisitions accounted for as business combinations in the period incurred.

Details regarding the valuation of tangible assets:

The fair value of land is determined using the sales comparison approach whereby recent comparable land sales and building. We utilizelistings are gathered and summarized. The available market comparable transactionsdata is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as price per square foot to assist inmarket conditions, size, and location. We estimate the determination of fair value for purposes of allocatingbuildings acquired on an as-if-vacant basis and depreciate the purchase price of properties acquired as part of portfolio level transactions.Thebuilding value over its estimated remaining life. We determine the fair value of acquiredsite improvements (non-building improvements that include paving and other) using the cost approach, with a deduction for depreciation, and depreciate the site improvements over their estimated remaining useful lives. Tenant improvements represent fixed improvements to tenant spaces, the fair value of which is estimated using prevailing market tenant improvement allowances that would be given to attract a new tenant, estimated based on the assumption that it is a necessary cost of leasing up a vacant building. Tenant improvements are amortized over the remaining term of the lease.

Details regarding the valuation of intangible assets:

In determining the fair value of in-place leases if applicable,(the avoided cost associated with existing in-place leases) management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes reimbursable (based on market lease terms) real estate taxes, insurance, other operating expenses, as well as estimates of lost market rental revenue during the expected lease-up periods. The values assigned to in-place leases are amortized over the remaining term of the lease.

The fair value of above-or-below market leases is estimated based uponon the present value (using an interest rate which reflected the risks associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. An above market lease is classified as an intangible asset and a below market lease is classified as an intangible liability. The capitalized above-market or below-market lease intangibles are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases. The capitalized above-market lease intangible is amortized as a reduction of rental revenue and the below-market lease intangible is amortized as an addition to rental revenue over the estimated remaining term of the respective leases.

Intangible assets related to leasing costs we would have incurred toconsist of leasing commissions and legal fees. Leasing commissions are estimated by multiplying the remaining contract rent associated with each lease by a market leasing commission. Legal fees represent legal costs associated with writing, reviewing, and sometimes negotiating various lease terms. Leasing costs are amortized over the property under similar terms.remaining useful life of the respective leases.