UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, ~~2014~~2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: ~~333-186073 (1933 Act)~~000-55434

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(Exact name of registrant as specified in its charter)



Maryland		46-1749436
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

18191 Von Karman Avenue, Suite 300, Irvine, California		92612
(Address of principal executive offices)		(Zip Code)

(949) 270-9200

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ¨x Yes x¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of May ~~7, 2014,~~8, 2015, there were ~~22,222~~187,463,820 shares of common stock of Griffin-American Healthcare REIT III, Inc. outstanding.

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

(A Maryland Corporation)

TABLE OF CONTENTS



	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, ~~2014~~2015 and December 31, ~~2013~~2014	3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2014~~2015 and ~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~2014	4
Condensed Consolidated Statements of Equity for the Three Months Ended March 31, ~~2014~~2015 and ~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~2014	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2014~~2015 and ~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~2014	6
Notes to Condensed Consolidated Financial Statements	78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1834
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2948
Item 4. Controls and Procedures	3049

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	3150
Item 1A. Risk Factors	3150
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6352
Item 3. Defaults Upon Senior Securities	6453
Item 4. Mine Safety Disclosures	6453
Item 5. Other Information	6453
Item 6. Exhibits	6453
Signatures	6554

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, ~~2014~~2015 and December 31, ~~2013~~2014

(Unaudited)

March 31, December 31,
2014 2013
ASSETS
Cash $ 202,000
$ 202,000
Prepaid expenses 153,000
—
Total assets $ 355,000
$ 202,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 10,000
$ —
Accounts payable due to affiliates 174,000
—
Total liabilities 184,000
—

Commitments and contingencies (Note 3)

Redeemable noncontrolling interest (Note 4) 1,000
—

Equity:
Stockholder's equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding —
—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 22,222 shares issued and outstanding —
—
Additional paid-in capital 215,000
200,000
Accumulated deficit (45,000 ) —
Total stockholder's equity 170,000
200,000
Noncontrolling interest (Note 5) —
2,000
Total equity 170,000
202,000
Total liabilities, redeemable noncontrolling interest and equity $ 355,000
$ 202,000



	March 31,			December 31,
	2015			2014
ASSETS
Real estate investments, net	$	518,413,000		$	249,029,000
Real estate notes receivable, net	61,420,000			—
Cash and cash equivalents	1,026,387,000			504,894,000
Accounts and other receivables, net	3,869,000			40,314,000
Restricted cash	1,073,000			245,000
Real estate and escrow deposits	10,100,000			6,250,000
Identified intangible assets, net	52,952,000			29,636,000
Other assets, net	2,404,000			1,316,000
Total assets	$	1,676,618,000		$	831,684,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans payable, net	$	26,735,000		$	16,959,000
Accounts payable and accrued liabilities	15,389,000			5,924,000
Accounts payable due to affiliates	680,000			577,000
Identified intangible liabilities, net	1,125,000			841,000
Security deposits, prepaid rent and other liabilities	6,752,000			1,847,000
Total liabilities	50,681,000			26,148,000

Commitments and contingencies (Note 10)

Redeemable noncontrolling interest (Note 11)	2,000			2,000

Stockholders' equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 186,324,917 and 91,623,241 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively	1,863,000			916,000
Additional paid-in capital	1,673,070,000			821,043,000
Accumulated deficit	(48,998,000		)	(16,425,000		)
Total stockholders' equity	1,625,935,000			805,534,000
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	1,676,618,000		$	831,684,000

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, ~~2014~~2015 and

~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~ 2014

(Unaudited)


						Three Months Ended March 31,
	Three Months Ended March 31, 2014			Period from January 11, 2013 (Date of Inception) through March 31, 2013		2015			2014
Revenue:
Real estate revenue						$	12,763,000		$	—
Expenses:
Rental expenses						3,640,000			—
General and administrative	$	46,000		$	—	2,767,000			46,000
Acquisition related expenses						9,408,000			—
Depreciation and amortization						4,673,000			—
Total expenses	46,000			—		20,488,000			46,000
Loss from operations						(7,725,000		)	(46,000		)
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt premium)						(397,000		)	—
Interest income						24,000			—
Net loss	(46,000		)	—		(8,098,000		)	(46,000		)
Less: Net loss attributable to redeemable noncontrolling interest	1,000			—
Less: net loss attributable to redeemable noncontrolling interest						—			1,000
Net loss attributable to controlling interest	$	(45,000	)	$	—	$	(8,098,000	)	$	(45,000	)
Net loss per common share attributable to controlling interest — basic and diluted	$	(2.03	)	$	—	$	(0.05	)	$	(2.03	)
Weighted average number of common shares outstanding — basic and diluted	22,222			22,222		165,407,740			22,222
Distributions declared per common share						$	0.15		$	—

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended March 31, ~~2014~~2015 and

~~for the Period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~2014

(Unaudited)

Stockholder's Equity
Common Stock

Number
of
Shares
Amount
Additional
Paid-In Capital

Accumulated
Deficit
Total Stockholder's Equity
Noncontrolling
Interest
Total Equity
BALANCE — December 31, 2013 22,222
$ —
$ 200,000
$ —
$ 200,000
$ 2,000
$ 202,000
Amortization of restricted common stock compensation —
—
15,000
—
15,000
—
15,000
Reclassification of noncontrolling interest —
—
—
—
—
(2,000 ) (2,000 )
Net loss —
—
—
(45,000 ) (45,000 ) —
(45,000 )
BALANCE — March 31, 2014 22,222
$ —
$ 215,000
$ (45,000 ) $ 170,000
$ —
$ 170,000



	Common Stock
	Number of Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
BALANCE — December 31, 2014	91,623,241		$	916,000	$	821,043,000		$	(16,425,000	)	$	805,534,000
Issuance of common stock	93,633,371		936,000		932,914,000			—			933,850,000
Offering costs — common stock	—		—		(91,032,000		)	—			(91,032,000		)
Issuance of common stock under the DRIP	1,083,656		11,000		10,284,000			—			10,295,000
Repurchase of common stock	(15,351	)	—		(153,000		)	—			(153,000		)
Amortization of nonvested common stock compensation	—		—		14,000			—			14,000
Distributions declared	—		—		—			(24,475,000		)	(24,475,000		)
Net loss	—		—		—			(8,098,000		)	(8,098,000		)
BALANCE — March 31, 2015	186,324,917		$	1,863,000	$	1,673,070,000		$	(48,998,000	)	$	1,625,935,000

Stockholder's Equity
Common Stock

Number
of
Shares
Amount
Additional
Paid-In Capital

Accumulated
Deficit
Total Stockholder's Equity
Noncontrolling
Interest
Total Equity
BALANCE — January 11, 2013 —
$ —
$ —
$ —
$ —
$ —
$ —
Issuance of common stock 22,222
—
200,000
—
200,000
—
200,000
Issuance of limited partnership units —
—
—
—
—
2,000
2,000
BALANCE — March 31, 2013 22,222
$ —
$ 200,000
$ —
$ 200,000
$ 2,000
$ 202,000



	Stockholder's Equity
	Common Stock
	Number of Shares	Amount		Additional Paid-In Capital		Accumulated Deficit			Total Stockholder's Equity			Noncontrolling Interest			Total Equity
BALANCE — December 31, 2013	22,222	$	—	$	200,000	$	—		$	200,000		$	2,000		$	202,000
Amortization of restricted common stock compensation	—	—		15,000		—			15,000			—			15,000
Reclassification of noncontrolling interest	—	—		—		—			—			(2,000		)	(2,000		)
Net loss	—	—		—		(45,000		)	(45,000		)	—			(45,000		)
BALANCE — March 31, 2014	22,222	$	—	$	215,000	$	(45,000	)	$	170,000		$	—		$	170,000

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

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2015 and 2014 ~~and~~

~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~

(Unaudited)

Three Months Ended
March 31, 2014 Period from
January 11, 2013
(Date of Inception)
through
March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (46,000 ) $ —
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of restricted common stock compensation 15,000
—
Changes in operating assets and liabilities:
Prepaid expenses (153,000 ) —
Accounts payable and accrued liabilities 10,000
—
Accounts payable due to affiliates 174,000
—
Net cash provided by operating activities —
—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock —
200,000
Contribution from noncontrolling interest to operating partnership —
2,000
Net cash provided by financing activities —
202,000
NET CHANGE IN CASH —
202,000
CASH — Beginning of period 202,000
—
CASH — End of period $ 202,000
$ 202,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Reclassification of noncontrolling interest $ 2,000
$ —



	Three Months Ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,098,000	)	$	(46,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4,673,000			—
Other amortization (including deferred financing costs, above/below market leases, leasehold interests, debt premium and real estate notes receivable loan costs)	307,000			—
Deferred rent	(388,000		)	—
Stock based compensation	14,000			15,000
Acquisition fees paid in stock	501,000			—
Share discounts	636,000			—
Bad debt expense	42,000			—
Changes in operating assets and liabilities:
Accounts and other receivables	(2,117,000		)	—
Other assets, net	42,000			(153,000		)
Accounts payable and accrued liabilities	2,730,000			10,000
Accounts payable due to affiliates	401,000			174,000
Security deposits, prepaid rent and other liabilities	(691,000		)	—
Net cash used in operating activities	(1,948,000		)	—
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate investments	(282,259,000		)	—
Acquisition of real estate notes receivable	(60,217,000		)	—
Loan costs on real estate notes receivable	(1,205,000		)	—
Capital expenditures	(43,000		)	—
Restricted cash	(828,000		)	—
Real estate and escrow deposits	(3,850,000		)	—
Net cash used in investing activities	(348,402,000		)	—
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on mortgage loans payable	(118,000		)	—
Proceeds from issuance of common stock	975,131,000			—
Deferred financing costs	(153,000		)	—
Repurchase of common stock	(153,000		)	—
Payment of offering costs	(95,187,000		)	—
Distributions paid	(7,677,000		)	—
Net cash provided by financing activities	871,843,000			—
NET CHANGE IN CASH AND CASH EQUIVALENTS	521,493,000			—
CASH AND CASH EQUIVALENTS — Beginning of period	504,894,000			202,000
CASH AND CASH EQUIVALENTS — End of period	$	1,026,387,000		$	202,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	295,000		$	—

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Three Months Ended March 31, 2015 and 2014

(Unaudited)



	Three Months Ended March 31,
	2015		2014
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Accrued capital expenditures	$	290,000	$	—
Accrued loan costs — real estate notes receivable	$	68,000	$	—
Investing Activities:
The following represents the increase in certain assets and liabilities in connection with our acquisitions of real estate investments:
Other receivables	$	41,000	$	—
Other assets	$	678,000	$	—
Mortgage loans payable, net	$	9,946,000	$	—
Accounts payable and accrued liabilities	$	99,000	$	—
Security deposits, prepaid rent and other liabilities	$	5,596,000	$	—
Financing Activities:
Issuance of common stock under the DRIP	$	10,295,000	$	—
Distributions declared but not paid	$	9,495,000	$	—
Accrued offering costs due to affiliates	$	117,000	$	—
Reclassification of noncontrolling interest	$	—	$	2,000
Accrued deferred financing costs	$	9,000	$	—

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

Table of Contents

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three Months Ended March 31, 2015 and 2014 ~~and~~

~~for the Period from January 11, 2013 (Date of Inception) through March 31, 2013~~

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its ~~subsidiary,~~subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.

1. Organization and Description of Business

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 and therefore we consider that our date of inception. We were initially capitalized on January 15, 2013. We ~~intend to~~ invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We may also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We believe we currently qualify, and intend to elect to be treated, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes beginning with our taxable year ~~ending~~ended December 31, 2014, ~~or the first year in which~~and we ~~commence material operations.~~intend to continue to be taxed as a REIT.

~~We are conducting~~On February 26, 2014, we commenced a best efforts initial public offering, or our offering, in which we ~~are offering~~initially offered to the public ~~a minimum of $2,000,000 in shares of our common stock, or the minimum offering, and a maximum of~~up to $1,750,000,000 in shares of our common stock for $10.00 per share in our primary offering and up to $150,000,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $1,900,000,000,. We reserved the right to reallocate the shares of common stock we offered in our offering between the primary offering and the DRIP. As such, during our offering, we reallocated an aggregate of $115,000,000 in shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in shares of our common stock in our primary offering and up to $35,000,000 in shares of our common stock pursuant to the DRIP.

On March 12, 2015, we terminated the primary portion of our offering. As of March 31, 2015, we had received and accepted subscriptions in our offering for 184,931,598 shares of our common stock, or $1,842,628,000, excluding shares of our common stock issued pursuant to the DRIP. We continued to offer up to $35,000,000 in shares of our common stock through our offering pursuant to the DRIP until the termination of the DRIP portion of our offering and deregistration of our offering on April 22, 2015. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum ~~offering. Shares purchased by~~of $250,000,000 of additional shares of our ~~executive officers~~common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the Securities and ~~directors, by Griffin Capital Securities, Inc.,~~Exchange Commission, or ~~Griffin Securities, or~~the SEC, upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015, following the deregistration of our ~~dealer manager, by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, or by its affiliates are not counted towards the minimum~~ offering.

We ~~will~~ conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our ~~advisor that has~~advisor. The Advisory Agreement is effective as of February 26, 2014 and had aone-year term, ~~that expires on February 26, 2015 and is~~but was subject to successive one-year renewals upon the mutual consent of the parties. ~~Our~~ The Advisory Agreement was renewed pursuant to the mutual consent of the parties on February 24, 2015 and expires on February 26, 2016. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our ~~advisor~~advisor is ~~jointly~~75.0% owned and managed by American Healthcare Investors, LLC, or American Healthcare Investors, and 25.0% owned by a wholly owned subsidiary of Griffin Capital Corporation, or Griffin Capital, or collectively, our co-sponsors. Effective December 8, 2014, NorthStar Asset Management Group Inc., or NSAM, through certain of its subsidiaries, and James F. Flaherty, III, one of NSAM's partners, acquired ownership interests in American Healthcare Investors. Effective March 1, 2015, American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC (formerly known as American Healthcare Investors LLC), or AHI Group Holdings, 45.1% indirectly owned by NSAM and 7.8% owned by Mr. Flaherty. We are not affiliated with Griffin Capital, Griffin Capital Securities, Inc., or Griffin ~~Securities;~~Securities, or our dealer manager, NSAM or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor and American Healthcare Investors.

We currently operate through three reportable business segments — medical office buildings, hospitals and senior housing. As of March 31, ~~2014,~~2015, we ~~have neither purchased nor contracted to purchase any investments, and our advisor has not identified any~~had completed 18 real estate acquisitions comprising 40 properties, or ~~real estate-related investments in which it is probable that we will invest.~~42 buildings, and approximately 1,882,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $571,204,000.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.

Basis of Presentation

Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries and any variable interest entities, or VIEs, as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810, which we have concluded should be consolidated pursuant to ASC Topic 810.

We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership, will own substantially all of the properties acquired on our behalf. We are the sole general partner of ~~our~~our operating partnership, and as of March 31, ~~2014~~2015 and December 31, ~~2013,~~2014, we owned greater than a ~~99.0%~~99.99% general partnership interest therein. Our advisor is a limited partner of our operating partnership, and as of March 31, ~~2014~~2015 and December 31, ~~2013, our advisor~~2014, owned less than a ~~1.0%~~0.01% noncontrolling limited partnership interest ~~in our operating partnership.~~therein.

~~Our operating partnership currently has no operations and no assets other than the partners’ initial capital contributions.~~ Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our condensed consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.

~~Table of Contents~~

~~GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.~~

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

Interim Unaudited Financial Data

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

In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our ~~prospectus contained within our Registration Statement~~2014 Annual Report on Form ~~S-11 (File No. 333-186073, effective February 26, 2014),~~10-K, as filed with the ~~SEC.~~SEC on March 19, 2015.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~revenues~~ and ~~expenses, and related~~ disclosure of contingent assets and ~~liabilities.~~liabilities at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

~~Prepaid Expenses~~Allowance for Uncollectible Accounts

AsTenant receivables and unbilled deferred rent receivables are carried net of ~~March 31, 2014, prepaid expenses consists~~an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of ~~prepayments~~certain tenants to meet the contractual obligations under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight line recognition of ~~annual directors’ and officers’ liability insurance premiums. Prepaid expenses~~rents. Such allowances are ~~amortized over the related contract periods.~~

~~Restricted Cash Held in Escrow~~

~~Restricted funds held in escrow of $770,000 as of March 31, 2014, including $750,000 received from shares sold~~charged to ~~our executive officers and directors, our dealer manager, and our advisor and its affiliates, are not~~bad debt expense which is included in ~~our assets~~general and administrative in our accompanying condensed consolidated balance sheets and consist of funds received in connection with subscription agreements to purchase shares of our common stock in connection with our offering. We are required to raise the minimum offering on or before February 26, 2015 (one year following the commencement of our offering), or the funds raised, including interest, will be returned to the subscribers. As of March 31, 2014, we had not raised the minimum offering. Therefore, as of March 31, 2014, the funds were held in an escrow account and will not be released to or available to us until the minimum offering is raised.

~~Stock Compensation~~

~~We follow Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718,~~ ~~Compensation – Stock Compensation~~, or ASC Topic 718, to account for our stock compensation pursuant to the 2013 Incentive Plan, or our incentive plan. See Note 5, Equity — 2013 Incentive Plan, for a further discussion of grants under our incentive plan.

~~Income Taxes~~

~~We intend to make an election to be taxed as a~~ ~~REIT,~~ ~~under Sections 856 through 860 of the Code,~~ and we intend to be taxed as such beginning with our taxable year ending December 31, 2014, or the first year in which we commence material operations. We have not yet qualified as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our future annual ordinary taxable income, excluding net capital gains, to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

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~~If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates~~accompanying condensed consolidated statements of operations. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant's financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse affect on our net incomeother relevant factors.

As of March 31, 2015 and ~~net cash available for distribution to stockholders.~~ ~~Because of our intention to elect REIT status for our taxable year ending~~ December 31, 2014, we ~~will~~had $42,000 and $0, respectively, in allowance for uncollectible accounts which was determined necessary to reduce receivables to our estimate of the amount recoverable. As of March 31, 2015 and December 31, 2014, we did not ~~benefit from the loss incurred~~have any allowance for uncollectible accounts for deferred rent receivables and for the three months ended March 31, ~~2014~~.

~~We follow ASC Topic 740,~~ ~~Income Taxes, to recognize, measure, present~~2015 and ~~disclose in our accompanying condensed consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of~~ ~~March 31,~~ 2014,, we did not ~~have~~write-off any ~~liabilities~~of our receivables or deferred rent receivables directly to bad debt expense.

Real Estate Notes Receivable, Net

Real estate notes receivable, net consists of mortgage loans collateralized by interests in real property. Interest income on our real estate notes receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan costs are amortized over the term of the loan as an adjustment to the yield on the loan. We record loans at cost. We evaluate the collectability of both interest and principal for ~~uncertain tax positions~~each of our loans to determine whether they are impaired. A loan is considered impaired when, based on current information and events, it is probable that we ~~believe should~~will be ~~recognized in our accompanying condensed consolidated financial statements.~~unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the allowance is calculated by comparing the recorded investment to either the value determined by discounting the expected future cash flows using the loan's effective interest rate or to the fair value of the collateral if the loan is collateral dependent. For the three months ended March 31, 2015 and 2014, there were no impairment losses recorded.

Accounts Payable and Accrued Liabilities

As of March 31, 2015 and December 31, 2014, accounts payable and accrued liabilities consist primarily of distributions payable of $9,495,000 and $2,992,000, respectively, and accrued property taxes of $2,694,000 and $1,914,000, respectively.

Segment Disclosure

ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity's reportable segments. As of March 31, 2015, we operated through three reportable business segments — medical office buildings, hospitals and senior housing. Prior to December 2014, we ~~have neither purchased nor contracted~~operated through two reportable business segments; however, with the addition of our first hospital in December 2014, we segregated our operations into three reporting segments to ~~purchase any investments. As such,~~assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Prior to September 2014, we ~~evaluate current~~operated through one reportable business segment; however, with the addition of our first senior housing facility in September 2014, we segregated our operations ~~as one segment~~into two reporting segments to assess the performance of our business in the same way that management reviews our performance and ~~do not report segment information.~~makes operating decisions.

See Note 16, Segment Reporting, for a further discussion.

Recently Issued Accounting ~~Pronouncement~~Pronouncements

In ~~April~~May 2014, the FASB issued ~~Accounting Standards Update, or~~ ASU ~~2014-08,~~2014-09, ~~Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,~~Revenue from Contracts with Customers, or ASU ~~2014-08,~~2014-09, which ~~amends the definition of a discontinued operation to raise the threshold for disposals to qualify as discontinued operations and~~ requires ~~additional disclosures about disposal transactions. Under ASU 2014-08, a disposal of a component of~~ an entity to recognize revenue to depict the transfer of promised goods or ~~a group of components of~~services to customers in an amount that reflects the consideration to which the entity ~~is required~~expects to be ~~reported~~entitled in ~~discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations~~exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and financial results when the component or group of components either (i) has been disposed of or (ii) is classified as held for sale. In addition, ASU 2014-08 requires additional disclosures about both (i) a disposal transaction that meets the definition of a discontinued operation and (ii) an individually significant component of an entity that is disposed of or held for sale that does not qualify for discontinued operations presentation in the financial statements. We anticipate that the majority of our property dispositions will not be classified as discontinued operations. ASU 2014-08 is effective ~~prospectively~~for public entities for interim and annual reporting periods beginning after December 15, ~~2014~~2016. Further, the application of ASU 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Early application is not permitted. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, or ASU 2015-02, which amends the consolidation analysis required under ASC Topic 810. Specifically, ASU 2015-02: (i) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs, (ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) amends the effect of fee arrangements in the primary beneficiary determination. Further, the application of ASU 2015-02 permits the use of either the full retrospective or modified retrospective adoption approach. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 with early

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adoption permitted. We have not yet selected a transition method nor have we determined the impact the adoption of ASU 2015-02 on January 1, 2016 will have on our consolidated financial statements, if any.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, which amends the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Amortization of such costs is required to be reported as interest expense, which is consistent with the current presentation in our consolidated financial statements. Further, the application of ASU 2015-03 requires retrospective adjustment of all prior periods presented. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We ~~early adopted~~do not believe the adoption of ASU ~~2014-08~~2015-03 on January 1, ~~2014, which did not~~2016 will have ana material impact on our ~~condensed~~ consolidated financial statements.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,			December 31,
	2015			2014
Building and improvements	$	488,983,000		$	237,165,000
Land	33,901,000			12,988,000
	522,884,000			250,153,000
Less: accumulated depreciation	(4,471,000		)	(1,124,000		)
	$	518,413,000		$	249,029,000

Depreciation expense for the three months ended March 31, 2015 was $3,387,000. We did not incur any depreciation expense for the three months ended March 31, 2014. In addition to the acquisitions discussed below, for the three months ended March 31, 2015, we had capital expenditures of $333,000 on our medical office buildings. We did not have any capital expenditures on our senior housing facilities or our hospitals.

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three months ended March 31, 2015, such fees and expenses noted above did not exceed 6.0% of the contract purchase price of our acquisitions. We did not incur such fees and expenses for the three months ended March 31, 2014.

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Acquisitions in 2015

For the three months ended March 31, 2015, we completed seven property acquisitions comprising 18 buildings from unaffiliated parties. The aggregate contract purchase price of these properties was $293,504,000 and we incurred $6,603,000 to our advisor and its affiliates in acquisition fees in connection with these property acquisitions. The following is a summary of our property acquisitions for the three months ended March 31, 2015:



Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Acquisition Fee
Delta Valley ALF Portfolio(3)	Springdale, AR	Senior Housing	01/08/15	$	8,105,000	$	—	$	182,000	(4)
Independence MOB Portfolio	Southgate, KY; Somerville, MA, Verona and Morristown, NJ; and Bronx, NY	Medical Office	01/13/15 and 01/26/15	135,000,000		—		3,038,000		(4)
King of Prussia PA MOB	King of Prussia, PA	Medical Office	01/21/15	18,500,000		9,946,000		416,000		(4)
North Carolina ALF Portfolio	Mooresville and Raleigh, NC	Senior Housing	01/28/15	38,856,000		—		874,000		(4)
Orange Star Medical Portfolio	Durango, CO and Keller, Wharton and Friendswood, TX	Medical Office and Hospital	02/26/15	57,650,000		—		1,297,000		(5)
Kingwood MOB Portfolio	Kingwood, TX	Medical Office	03/11/15	14,949,000		—		336,000		(5)
Mt. Juliet TN MOB	Mount Juliet, TN	Medical Office	03/17/15	13,000,000		—		293,000		(5)
Homewood AL MOB	Homewood, AL	Medical Office	03/27/15	7,444,000		—		167,000		(5)
Total				$	293,504,000	$	9,946,000	$	6,603,000

___________


(1)	We own 100% of our properties acquired in 2015.


(2)	Represents the principal balance of the mortgage loan payable assumed by us at the time of acquisition.


(3)	On January 8, 2015, we added one additional building to our existing Delta Valley ALF Portfolio. The other two buildings were purchased in September 2014.

(4)

Our advisor and its affiliates were paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price which was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at $9.00 per share, the established offering price as of the date of closing, net of selling commissions and dealer manager fees.


(5)	Our advisor and its affiliates were paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price.

4. Real Estate Notes Receivable, Net

On February 4, 2015, we acquired eight promissory notes at par in the aggregate outstanding principal amount of $60,217,000, or the Notes, comprised of four fixed rate notes in the aggregate outstanding principal amount of $28,650,000, or the Fixed Rate Notes, and four floating rate notes in the aggregate outstanding principal amount of $31,567,000, or the Floating Rate Notes. The Notes evidence interests in a portion of a mezzanine loan that consisted in total of 40 promissory notes in the aggregate outstanding principal amount of $389,852,000. The mezzanine loan is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such owners are themselves owned indirectly by a non-wholly owned subsidiary of NorthStar Realty Finance Corp. The interest rate on the Fixed Rate Notes is 6.75% per annum. The interest rate on the Floating Rate Notes is equal to 6.00% per annum above the 30-day LIBOR (increasing to 6.25% per annum above

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the 30-day LIBOR during the second extension period, if any). As of March 31, 2015, the interest rate in effect on the Floating Rate Notes was 6.18%.

The Notes require monthly interest only payments. The Fixed Rate Notes are scheduled to mature on December 9, 2019, at which time all unpaid principal, plus accrued and unpaid interest on the Fixed Rate Notes, shall be due in full. The Floating Rate Notes are scheduled to mature on December 9, 2016, at which time all unpaid principal, plus accrued and unpaid interest on the Floating Rate Notes, shall be due in full. The maturity date of the Floating Rate Notes may be extended by three successive one-year extension periods at the borrower’s option, subject to satisfaction of certain conditions. Our advisor and its affiliates were paid, as compensation for services rendered in connection with the acquisition of the Notes, an acquisition fee of $1,204,000, or 2.00% of the aggregate principal amount.

Real estate notes receivable, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Real estate notes receivable	$	60,217,000	$	—
Add: unamortized loan costs	1,203,000		—
Real estate notes receivable, net	$	61,420,000	$	—

We did not have any real estate notes receivable as of March 31, 2014. The changes in the carrying amount of real estate notes receivable, net consisted of the following for the three months ended March 31, 2015:



	Amount
Real estate notes receivable, net — December 31, 2014	$	—
Additions:
Acquisition of real estate notes receivable	60,217,000
Loan costs	1,273,000
Deductions:
Amortization of loan costs	(70,000		)
Real estate notes receivable, net — March 31, 2015	$	61,420,000

Amortization expense on loan costs for the three months ended March 31, 2015 is recorded against real estate revenue in our accompanying condensed consolidated statements of operations. We did not incur any amortization expense on loan costs for the three months ended March 31, 2014.

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5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
In-place leases, net of accumulated amortization of $1,493,000 and $339,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 12.6 years and 15.9 years as of March 31, 2015 and December 31, 2014, respectively)	$	40,815,000	$	24,987,000
Leasehold interests, net of accumulated amortization of $24,000 and $1,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 56.7 years and 75.0 years as of March 31, 2015 and December 31, 2014, respectively)	7,278,000		1,492,000
Above market leases, net of accumulated amortization of $385,000 and $145,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 5.7 years and 7.0 years as of March 31, 2015 and December 31, 2014, respectively)	4,859,000		3,157,000
	$	52,952,000	$	29,636,000

Amortization expense for the three months ended March 31, 2015 was $1,569,000, which included $260,000 of amortization recorded against real estate revenue for above market leases and $23,000 of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations. We did not incur any amortization expense on identified intangible assets for the three months ended March 31, 2014.

The aggregate weighted average remaining life of the identified intangible assets was 18.0 years and 17.9 years as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, estimated amortization expense on the identified intangible assets for the nine months ending December 31, 2015 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2015	$	5,074,000
2016	6,334,000
2017	5,489,000
2018	4,421,000
2019	3,598,000
Thereafter	28,036,000
	$	52,952,000

6. Other Assets, Net

Other assets, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Deferred financing costs, net of accumulated amortization of $172,000 and $87,000 as of March 31, 2015 and December 31, 2014, respectively	$	963,000	$	899,000
Prepaid expenses and deposits	813,000		177,000
Deferred rent receivables	628,000		240,000
	$	2,404,000	$	1,316,000

Amortization expense on deferred financing costs for the three months ended March 31, 2015 was $85,000. We did not incur any amortization expense on deferred financing costs for the three months ended March 31, 2014. Amortization expense on deferred financing costs is recorded to interest expense in our accompanying condensed consolidated statements of operations.

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As of March 31, 2015, estimated amortization expense on deferred financing costs for the nine months ending December 31, 2015 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2015	$	259,000
2016	345,000
2017	202,000
2018	32,000
2019	32,000
Thereafter	93,000
	$	963,000

7. Mortgage Loans Payable, Net

Mortgage loans payable were $26,192,000 ($26,735,000, net of premium) and $16,364,000 ($16,959,000, net of premium) as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, we had three fixed rate mortgage loans with effective interest rates ranging from 4.50% to 6.29% per annum and a weighted average effective interest rate of 5.20%. As of December 31, 2014, we had two fixed rate mortgage loans with effective interest rates ranging from 5.00% to 6.29% per annum and a weighted average effective interest rate of 5.63%.

We are required by the terms of certain loan documents to meet certain reporting requirements. As of March 31, 2015 and December 31, 2014, we were in compliance with all such requirements.

Mortgage loans payable, net consisted of the following as of March 31, 2015 and December 31, 2014:



	Contractual Interest Rate(1)		Maturity Date	March 31, 2015		December 31, 2014
Fixed Rate Debt:
Carolina Commons MOB	5.00	%	01/01/23	$	8,353,000	$	8,426,000
Premier MOB	6.29	%	01/05/17	7,910,000		7,938,000
King of Prussia PA MOB	4.50	%	12/06/22	9,929,000		—
Total fixed rate debt				26,192,000		16,364,000
Add: premium				543,000		595,000
Mortgage loans payable, net				$	26,735,000	$	16,959,000

___________


(1)	Represents the per annum interest rate in effect as of March 31, 2015.

We did not have any mortgage loans payable as of March 31, 2014. The changes in the carrying amount of mortgage loans payable, net consisted of the following for the three months ended March 31, 2015:



	Amount
Mortgage loans payable, net — December 31, 2014	$	16,959,000
Additions:
Assumption of mortgage loans payable, net	9,946,000
Deductions:
Scheduled principal payments on mortgage loans payable	(118,000		)
Amortization of premium on mortgage loans payable	(52,000		)
Mortgage loans payable, net — March 31, 2015	$	26,735,000

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As of March 31, 2015, the principal payments due on our mortgage loans payable for the nine months ending December 31, 2015 and for each of the next four years ending December 31 and thereafter were as follows:



Year	Amount
2015	$	470,000
2016	658,000
2017	8,142,000
2018	542,000
2019	569,000
Thereafter	15,811,000
	$	26,192,000

8. Line of Credit

On August 18, 2014, we, through Griffin-American Healthcare REIT III Holdings, LP, our operating partnership, and certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A., or Bank of America, as lender, administrative agent, swing line lender and issuer of letters of credit; Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBanc Capital Markets as joint lead arrangers and joint bookrunners; and KeyBank, National Association, or KeyBank, as lender and syndication agent, to obtain a revolving line of credit with an aggregate maximum principal amount of $60,000,000, or our line of credit.

On August 18, 2014, we also entered into separate revolving notes, or the Revolving Notes, with each of Bank of America and KeyBank, whereby we promised to pay the principal amount of each revolving loan and accrued interest to the respective lender or its registered assigns, in accordance with the terms and conditions of the Credit Agreement. The proceeds of loans made under our line of credit may be used for working capital, capital expenditures and other general corporate purposes (including, without limitation, property acquisitions and repayment of debt). Our operating partnership may obtain up to $20,000,000 in the form of standby letters of credit and up to the greater of $25,000,000 or 10.0% of the maximum principal amount in the form of swingline loans. Our line of credit matures on August 18, 2017, and may be extended for two one-year periods subject to satisfaction of certain conditions, including payment of an extension fee.

The maximum principal amount of the Credit Agreement, as amended, may be increased up to a total principal amount of $350,000,000, subject to (a) the terms of the Credit Agreement, as amended, and (b) such additional financing being offered and provided by existing lenders or new lenders under the Credit Agreement, as amended.

At our option, loans under the Credit Agreement, as amended, bear interest at per annum rates equal to: (a) (i) the Eurodollar Rate plus (ii) a margin ranging from 1.95% to 2.45% based on our consolidated leverage ratio, or (b) (i) the greater of: (x) the prime rate publicly announced by Bank of America, (y) the Federal Funds Rate (as defined in the Credit Agreement, as amended,) plus 0.50% and (z) the one-month Eurodollar Rate (as defined in the Credit Agreement, as amended,) plus 1.00%, plus (ii) a margin ranging from 0.75% to 1.25% based on our consolidated leverage ratio. Accrued interest under the Credit Agreement, as amended, is payable monthly.

We are required to pay a fee on the unused portion of the lenders’ commitments under the Credit Agreement, as amended, at a per annum rate equal to 0.20% if the average daily used amount is greater than 50.0% of the commitments and 0.25% if the average daily used amount is less than or equal to 50.0% of the commitments.

The Credit Agreement, as amended, contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness. The Credit Agreement, as amended, imposes the following financial covenants, which are specifically defined in the Credit Agreement, as amended: (a) a maximum consolidated leverage ratio; (b) a maximum consolidated secured leverage ratio; (c) a minimum consolidated tangible net worth covenant; (d) a minimum consolidated fixed charge coverage ratio; (e) a minimum unencumbered indebtedness yield; (f) a maximum consolidated unencumbered leverage ratio; (g) a minimum consolidated unencumbered interest coverage ratio; (h) limitations on secured recourse indebtedness; and (i) limitations on consolidated unsecured indebtedness. As of March 31, 2015 and December 31, 2014, we were in compliance with all such covenants and requirements.

The Credit Agreement, as amended, requires us to add additional subsidiaries as guarantors in the event the value of the assets owned by the subsidiary guarantors falls below a certain threshold as set forth in the Credit Agreement, as

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amended. In the event of default, the lenders have the right to terminate their obligations under the Credit Agreement, as amended, including the funding of future loans, and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon. Additionally, until we achieved a consolidated total asset value of $750,000,000, we were required to enter into pledge agreements, pursuant to which we pledged the capital stock of our subsidiaries which owned the real property to be included in the Unencumbered Property Pool, as such term is defined in the Credit Agreement, as amended. The pledged collateral was released in February 2015.

Our aggregate borrowing capacity under our line of credit was $60,000,000 as of March 31, 2015 and December 31, 2014. As of March 31, 2015 and December 31, 2014, there were no borrowings outstanding and $60,000,000 remained available under our line of credit.

9. Identified Intangible Liabilities, Net

As of March 31, 2015 and December 31, 2014, identified intangible liabilities consisted of below market leases of $1,125,000 and $841,000, respectively, net of accumulated amortization of $114,000 and $35,000, respectively. Amortization expense on below market leases for the three months ended March 31, 2015 was $79,000. We did not incur any amortization expense on below market leases for the three months ended March 31, 2014. Amortization expense on below market leases is recorded to real estate revenue in our accompanying condensed consolidated statements of operations.

The weighted average remaining life of below market leases was 4.4 years and 4.9 years as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, estimated amortization expense on below market leases for the nine months ending December 31, 2015 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2015	$	258,000
2016	325,000
2017	221,000
2018	128,000
2019	67,000
Thereafter	126,000
	$	1,125,000

10. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our ~~condensed~~ consolidated financial position, results of operations or cash flows.

Environmental Matters

We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other Organizational and Offering Expenses

Our other organizational and offering expenses incurred in connection with our offering (other than selling commissions and the dealer manager fee which generally represent 7.0% and 3.0%, respectively, of our gross offering proceeds) ~~are being~~were paid by our advisor or its affiliates on our behalf. These other organizational and offering expenses included all expenses to be paid by us in connection with our offering. ~~As of March 31, 2014 and December 31, 2013, our advisor and its affiliates have incurred expenses of~~ ~~$1,414,000~~ ~~and $1,077,000, respectively, on our behalf.~~ These expenses ~~are not recorded in~~only became our ~~condensed consolidated balance sheets because such costs will not become our~~ liability ~~until we reach the minimum offering, and then only~~ to the extent that other organizational and offering expenses dodid not exceed 2.0% of the gross offering proceeds from our offering. On March 12, 2015, we terminated the primary portion of our offering. As of March 31, 2015 and December 31, 2014, our advisor and its affiliates had not incurred expenses on our behalf in excess of 2.0% of the gross offering proceeds from our offering. When recorded by us, other organizational

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expenses ~~will be~~were expensed as incurred, as applicable, and offering expenses ~~will be~~were charged to ~~stockholder's~~stockholders' equity as such amounts ~~will be~~were reimbursed to our advisor or its affiliates from the gross proceeds of our offering. See Note 13, Related Party Transactions — Offering Stage, for a further discussion of other organization and offering expenses.

Other

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

4.11. Redeemable Noncontrolling Interest

AAs of March 31, 2015 and December 31, 2014, we owned greater than a 99.99% general partnership interest in our operating partnership and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as redeemable noncontrolling interest and is presented in the mezzanine section of our accompanying condensed consolidated balance sheets. See Note 6,12, Equity — Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion. In addition, see Note 13, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 6,13, Related

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Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.

We record the carrying amount of ~~the~~ redeemable noncontrolling interest at the greater ofof: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of net income or loss and distributions or (ii) the redemption value.

As of March 31, 2014, we owned a 99.0% general partnership interest in our operating partnership and our advisor owned a 1.0% limited partnership interest in our operating partnership. See Note 5, Equity — Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion.

The changes in the carrying amount of redeemable noncontrolling interest consisted of the following for the three months ended March 31, 2015 and 2014:


	Amount			Three Months Ended March 31,
Balance — December 31, 2013	$	—
				2015		2014
Beginning Balance				$	2,000	$	—
Reclassification from equity	2,000			—		2,000
Net loss attributable to redeemable noncontrolling interest	(1,000		)
Balance — March 31, 2014	$	1,000
Net loss attributable to redeemable noncontrolling interest				—		(1,000		)
Ending Balance				$	2,000	$	1,000

5.12. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of March 31, ~~2014~~2015 and December 31, ~~2013,~~2014, no shares of preferred stock were issued and outstanding.

Common Stock

Our charter authorizes us to issue 1,000,000,000 shares of our common ~~stock. We are offering to the public up to$1,900,000,000 of shares of our common~~ stock, ~~consisting of up to $1,750,000,000 of shares of our common stock for $10.00~~par value $0.01 per ~~share in our primary offering and up to $150,000,000 of shares of our common stock for~~ ~~$9.50~~ ~~per share pursuant to the DRIP.~~

share. On January 15, 2013, our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership. On each of May 14, 2014 and December 10, 2014, we granted 10,000 and 5,000 shares, respectively, of our restricted common stock to our independent directors. On March 12, 2015, we terminated the primary portion of our offering. We continued to offer shares of our common stock in our offering pursuant to the DRIP until the termination of the DRIP portion of our offering and deregistration of our offering on April 22, 2015. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015 following the deregistration of our offering.

Through March 31, 2015, we had issued 184,931,598 shares of our common stock in connection with the primary portion of our offering and 1,371,448 shares of our common stock pursuant to the DRIP. We also repurchased 15,351 shares of

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our common stock under our share repurchase plan through March 31, 2015. As of March 31, 2015 and December 31, 2014, we had 186,324,917 and 91,623,241 shares of our common stock issued and outstanding, respectively.

Offering Costs

Selling Commissions

Our dealer manager ~~will receive~~received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager ~~may~~was allowed to re-allow all or a portion of these fees to participating broker-dealers. ~~Our dealer manager did not receive selling commissions for~~For the three months ended March 31, ~~2014 and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013. Selling commissions are not recorded~~2015, we incurred $62,362,000 in ~~our accompanying condensed consolidated financial statements because such commissions will not become our liability until we have raised the minimum offering. When recorded by us,~~ selling commissions ~~will be~~to our dealer manager, which were charged to ~~stockholder's~~stockholders' equity as such amounts ~~will be~~were reimbursed to our dealer manager from the gross proceeds of our offering. Our dealer manager did not receive any selling commissions for the three months ended March 31, 2014.

Dealer Manager Fee

Our dealer manager ~~will receive~~received a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. ~~Our dealer manager did not receive dealer manager fees for~~For the three months ended March 31, ~~2014 and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013. Dealer manager fees are not recorded~~2015, we incurred $27,789,000 in ~~our accompanying condensed consolidated financial statements because such~~ dealer manager fees ~~will not become~~to our ~~liability until we have raised the minimum offering. When recorded by us,~~ dealer manager, ~~fees will be~~which were charged to ~~stockholder's~~stockholders' equity as such amounts ~~will be~~were reimbursed to our dealer manager or its affiliates from the gross proceeds of our offering.

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~~Common Stock Held in Escrow~~

~~As of~~ Our dealer manager did not receive any dealer manager fees for the three months ended March 31, ~~2014, in connection with our offering, we had received subscriptions for~~ ~~$770,000, including~~ ~~$750,000~~ ~~invested by our executive officers that are not counted towards the minimum offering.~~2014.

Noncontrolling Interest of Limited Partner in Operating Partnership

On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, ~~Griffin American~~Griffin-American Advisor became our advisor. As our advisor, ~~Griffin American Advisor~~Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. Therefore, onas of February 26, 2014, such limited partnership units no longer meet the criteria for classification within the equity section of our accompanying condensed consolidated balance sheets and as such were reclassified to the mezzanine section of our accompanying condensed consolidated balance sheets. See Note 4,11, Redeemable Noncontrolling Interest, for a further discussion.

Distribution Reinvestment Plan

We adopted the DRIP that allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our offering, subject to certain conditions. We ~~have~~had registered and reserved ~~$150,000,000~~$35,000,000 in shares of our common stock for sale pursuant to the DRIP in our offering at an offering price of $9.50 per share. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015 following the deregistration of our offering. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

For the three months ended March 31, 2015, $10,295,000 in distributions were reinvested that resulted in 1,083,656 shares of our common stock being issued pursuant to the DRIP. No reinvestment of distributions ~~were~~was made for the three months ended March 31, ~~2014~~ ~~and for the period from January 11, 2013 (Date~~2014. As of ~~Inception) through~~ March 31, ~~2013~~.2015 and December 31, 2014, a total of $13,029,000 and $2,734,000, respectively, in distributions were reinvested that resulted in 1,371,448 and 287,792 shares of our common stock, respectively, being issued pursuant to the DRIP.

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Share Repurchase Plan

Our board of directors has approved a share repurchase plan. Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. Subject to the availability of the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP and the Secondary DRIP.

All repurchases will be subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Further, all share repurchases will be repurchased following a ~~one year~~one-year holding period at 92.5% to 100% of each stockholder's ~~repurchase~~purchase amount depending on the period of time their shares have been held. At any time we are engaged in an offering of shares of our common stock, the repurchase amount for shares repurchased under our share repurchase plan will always be equal to or lower than the applicable per share offering price. However, if shares of our common stock are repurchased in connection with a stockholder's death or qualifying disability, the repurchase price will be no less than 100% of the price paid to acquire the shares of our common stock from us. Furthermore, our share repurchase plan provides that if there isare insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period, as ~~followed:~~follows: first, pro rata as to repurchases sought upon a stockholder's death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

For the three months ended March 31, 2015, we received share repurchase requests and repurchased 15,351 shares of our common stock for an aggregate of $153,000, at an average repurchase price of $9.99 per share. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP. No share repurchases were requested or made for the three months ended March 31, ~~2014~~ ~~and for the period from January 11, 2013 (Date~~2014.

As of ~~Inception) through~~ March 31, ~~2013~~.

~~2013 Incentive Plan~~

~~Under the terms~~2015, we had received share repurchase requests and repurchased 15,351 shares of our ~~incentive plan,~~common stock for an aggregate of $153,000 at an average price of $9.99 per share using proceeds we received from the ~~aggregate number~~sale of shares of our common stock ~~subject~~pursuant to the DRIP. As of December 31, 2014, no share repurchases were requested or made.

2013 Incentive Plan

We adopted our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards ~~will~~to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be ~~no more than~~ ~~2,000,000~~ ~~shares. As of~~ ~~March 31, 2014, we have not granted any awards under~~issued pursuant to our incentive ~~plan. However, upon~~plan is 2,000,000 shares.

Upon the election of two of our ~~two~~ independent directors to our board of directors on February 25, 2014, or the service inception date, each of the independent directors ~~each~~ became entitled to 5,000 shares of our restricted common stock, as defined in our incentive plan, upon the initial release from escrow of the minimum offering of $2,000,000 in shares of our common stock, or the minimum offering. Having raised the minimum offering and upon the initial release from escrow on May 14, 2014, or the grant ~~date. On~~date, we granted an aggregate of 10,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election to our board of directors, of which 20.0% vested on the grant date~~20.0%~~ ~~of such restricted common stock will immediately vest~~ and 20.0% will vest on each of the first four anniversaries of the grant date. Upon the election of an additional independent director to our board of directors on December 10, 2014, we granted 5,000 shares of our restricted common stock, as defined in our incentive plan, to our independent director, which will vest over the same period described above. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock ~~will~~ have full voting rights and rights to distributions.

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From the service inception date to the grant date, we ~~recognize~~recognized compensation expense related to the shares of our restricted common stock based on the reporting date fair value, which was estimated at $10.00 per share, the price paid to acquire a share of common stock in our offering. ~~After~~Beginning on the grant date, compensation cost related to the shares of our restricted common stock is measured based on the grant date fair ~~value.~~value, which we estimated at $10.00 per share, the price paid to acquire a share of common stock in our offering. Stock compensation expense is recognized from the service inception date to the vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method. ASC Topic 718, Compensation – Stock Compensation,requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three months ended March 31, 2015

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and 2014,, we did not ~~anticipate or~~ assume any forfeitures. For the three months ended March 31, 2015 and 2014,, we recognized stock compensation expense of ~~$15,000~~,$14,000 and $15,000, respectively, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

As of March 31, 2015 and December 31, 2014, there was ~~$85,000~~$74,000 and $88,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. ~~This~~As of March 31, 2015, this expense is expected to be recognized over a remaining weighted average period of 1.81 years.

As of ~~2.07~~March 31, 2015 ~~years.~~and December 31, 2014, the weighted average grant date fair value of the nonvested shares of our restricted common stock was $120,000. A summary of the status of the nonvested shares of our restricted common stock as of March 31, 2015 and December 31, 2014 and the changes for the three months ended March 31, 2015, is presented below:



	Number of Nonvested Shares of our Restricted Common Stock	Weighted Average Grant Date Fair Value
Balance — December 31, 2014	12,000	$	10.00
Granted	—	$	—
Vested	—	$	—
Forfeited	—	$	—
Balance — March 31, 2015	12,000	$	10.00
Expected to vest — March 31, 2015	12,000	$	10.00

6.13. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor and American Healthcare Investors; however, we are not affiliated with Griffin Capital or Griffin Securities. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain ~~expenses, related to our offering. For~~expenses. In the aggregate, for the three months ended March 31, 2015 and 2014, we incurred $9,506,000 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,$174,000, respectively, in fees and expenses to our ~~advisor or its~~ affiliates ~~incurred operating expenses on our behalf of~~ ~~$174,000~~ ~~and $0, respectively.~~as detailed below.

Offering Stage

Other Organizational and Offering Expenses

Our other organizational and offering expenses ~~are~~were paid by our advisor or its affiliates on our behalf. Our advisor or its affiliates ~~are~~were reimbursed for actual expenses incurred up to 2.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. ~~We did not incur any other organizational and offering expenses for~~For the three months ended March 31, ~~2014 and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013. Other organizational and offering expenses are not recorded~~2015, we incurred $519,000 in ~~our accompanying condensed consolidated financial statements because such expenses will not become our liability until we have raised the minimum offering, and then only to the extent that~~ other organizational and offering expenses ~~do not exceed 2.0% of the gross~~to our advisor. Other organizational expenses were expensed as incurred and offering ~~proceeds from the sale of shares of our common stock in our offering. When recorded by us, such~~ expenses ~~will be~~were charged to ~~stockholder's~~stockholders' equity as such amounts ~~will be~~were reimbursed to our advisor or its affiliates from the gross proceeds of our offering. We did not incur other organizational and offering expenses to our advisor for the three months ended March 31, 2014.

Acquisition and Development Stage

Acquisition Fee

Our advisor or its affiliates ~~will~~ receive an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.0% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. ~~The~~Until January 30, 2015, the acquisition fee for property acquisitions ~~will be~~was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at ~~$9.00 per share,~~ the established offering price ~~paid to acquire a share~~as of ~~common stock in our offering,~~the date of closing, net of selling commissions and dealer manager fees, ~~and (ii)~~which was $9.00 per share. Since January 31, 2015, the ~~remainder~~acquisition fee for property acquisitions is paid in cash equal to ~~2.00%~~2.25% of the contract purchase price. ~~Notwithstanding the foregoing, if we are no longer in our offering stage, the~~ ~~2.25%~~ ~~acquisition fee for property acquisitions shall be paid in cash.~~ Our advisor or its affiliates ~~will be~~are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our offering including acquisitions completed after the termination of

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the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.

Acquisition fees in connection with the acquisition of properties ~~will be~~are expensed as incurred in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and included in acquisition related expenses in our accompanying

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condensed consolidated statements of operations. Acquisition fees in connection with the acquisition of real estate-related investments ~~will be~~are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

For the three months ended March 31, ~~2014 and~~2015, we incurred $7,894,000 in acquisition fees to our advisor or its affiliates, which included 55,684 shares of our common stock issued for the ~~period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ three months ended March 31, ~~2013, we~~2015. We did not incur any acquisition fees to our advisor or its ~~affiliates.~~affiliates for the three months ended March 31, 2014.

Development Fee

~~Our advisor or its affiliates will receive, in~~In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.

For the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2014, we did not incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

Our advisor or its affiliates ~~will be~~are reimbursed for acquisition expenses related to selecting, evaluating and acquiring assets, which ~~will be~~are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees and real estate commissions paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three months ended March 31, 2015, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions. We did not incur such fees and expenses for the three months ended March 31, 2014.

Reimbursements of acquisition expenses ~~will be~~are expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Reimbursements of acquisition expenses in connection with the acquisition of real estate-related investments ~~will be~~are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

For the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2014, we did not incur any acquisition expenses to our advisor or its affiliates.

Operational Stage

Asset Management Fee

Our advisor or its affiliates ~~will be~~are paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and ~~average~~ invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan.

For the three months ended March 31, ~~2014 and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2015, we incurred $957,000 in asset management fees to our advisor or its affiliates. We did not incur any asset management fees to our advisor or its ~~affiliates. When incurred by us, asset~~affiliates for the three months ended March 31, 2014. Asset management fees ~~will be~~are included in general and administrative in our accompanying condensed consolidated statements of operations.

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Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract ~~its~~their property management duties to any ~~third-party~~third party and provide oversight of such third party property manager. Our advisor or its affiliates ~~will be~~are paid a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a 1.0% property management oversight fee for any stand-alone, single-tenant net leased property, (ii) a 1.5% property management oversight fee for any property that is not a stand-alone, single-tenant net leased property and for which our advisor or its affiliates will provide oversight of a third party that performs the duties of a property manager with respect to such property, or

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(iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, ~~single tenant~~single-tenant net leased property and for which our advisor or its affiliates will directly serve as the property manager without sub-contracting such duties to a third party.

For the three months ended March 31, 2015, we incurred $136,000 in property management fees to our advisor or its affiliates. For the three months ended March 31, 2014, ~~and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~, we did not incur any property management fees to our advisor or its affiliates. ~~When incurred by us, property~~Property management fees ~~will be~~are included in rental expenses in our accompanying condensed consolidated statements of operations.

Lease Fees

We ~~may~~ pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm's-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of the gross revenues generated during the initial term of the lease.

For the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2014, we did not incur any lease fees to our advisor or its affiliates.

When incurred by us, lease fees will be capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates ~~will be~~are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2014, we did not incur any construction management fees to our advisor or its affiliates.

~~When incurred by us, construction~~Construction management fees ~~will be~~are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or ~~will be~~are expensed and included in our accompanying condensed consolidated statements of operations, as applicable.

Operating Expenses

We ~~will~~ reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (ii) 25.0% of our net income, as defined in the Advisory Agreement, ~~beginning with the four consecutive fiscal quarters ending June 30, 2014,~~ unless our independent directors determined that such excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient.

For the 12 months ended March 31, 2015, our operating expenses did not exceed this limitation. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.6% and (29.7)%, respectively, for the 12 months ended March 31, 2015.

For the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~,2014, our advisor or its affiliates incurred operating expenses on our behalf of ~~$174,000.~~$0 and $174,000, respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations.

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~~Compensation for Additional Services~~Recently Issued Accounting Pronouncements

~~Our advisor and its affiliates will be paid for~~In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services ~~performed for us other than those required~~ to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceedcustomers in an amount that ~~would~~reflects the consideration to which the entity expects to be ~~paid~~entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Further, the application of ASU 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Early application is not permitted. We are continuing to ~~unaffiliated parties for similar services. For the three months ended March 31, 2014 and for the period~~evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from ~~January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013, our advisor and its affiliates were not compensated for any additional services.~~leasing arrangements, which are specifically excluded from ASU 2014-09.

~~Liquidity Stage~~In February 2015, the FASB issued ASU 2015-02,

~~Disposition Fees~~

~~For services relating~~Amendments to the ~~sale~~Consolidation Analysis, or ASU 2015-02, which amends the consolidation analysis required under ASC Topic 810. Specifically, ASU 2015-02: (i) modifies the evaluation of ~~one~~whether limited partnerships and similar legal entities are VIEs, (ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) amends the effect of fee arrangements in the primary beneficiary determination. Further, the application of ASU 2015-02 permits the use of either the full retrospective or ~~more properties, our advisor or its affiliates will be paid a disposition fee up to the lesser of~~ ~~2.0%~~ ~~of the contract sales price or~~ ~~50.0%~~ ~~of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors, including a majority of our~~modified retrospective adoption approach. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 with early

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~~independent directors, upon~~adoption permitted. We have not yet selected a transition method nor have we determined the ~~provision~~impact the adoption of ASU 2015-02 on January 1, 2016 will have on our consolidated financial statements, if any.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, which amends the presentation of debt issuance costs in the financial statements to present such costs as a ~~substantial~~direct deduction from the carrying amount of the ~~services~~related debt liability rather than as an asset. Amortization of such costs is required to be reported as interest expense, which is consistent with the current presentation in our consolidated financial statements. Further, the ~~sales effort. The amount~~application of ~~disposition fees paid, when added~~ASU 2015-03 requires retrospective adjustment of all prior periods presented. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We do not believe the adoption of ASU 2015-03 on January 1, 2016 will have a material impact on our consolidated financial statements.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,			December 31,
	2015			2014
Building and improvements	$	488,983,000		$	237,165,000
Land	33,901,000			12,988,000
	522,884,000			250,153,000
Less: accumulated depreciation	(4,471,000		)	(1,124,000		)
	$	518,413,000		$	249,029,000

We reimburse our advisor or its affiliates for acquisition expenses related to selecting, evaluating and acquiring assets. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the ~~lesser of the customary competitive real estate commission or an amount equal to~~ aggregate, 6.0% of the contract ~~sales price.~~purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three months ended March 31, ~~2014~~2015, such fees and ~~for~~expenses noted above did not exceed 6.0% of the ~~period from January 11,~~ ~~2013~~ ~~(Date~~contract purchase price of ~~Inception) through~~ ~~March 31, 2013, we~~our acquisitions. We did not incur ~~any disposition~~such fees ~~to our advisor or its affiliates.~~

~~Subordinated Participation Interest~~

~~Subordinated Distribution of Net Sales Proceeds~~

~~In the event of liquidation, our advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to~~ ~~15.0%~~ of the remaining net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) plus (ii) an annual ~~7.0%~~ ~~cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted~~and expenses for ~~distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For~~ the three months ended March 31, ~~2014 and for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013, we did not incur any such distributions to our advisor.~~

~~Subordinated Distribution Upon Listing~~

~~Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor's limited partnership units, our advisor will be paid a distribution equal to~~ ~~15.0%~~ of the amount by which (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual ~~7.0%~~ cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be received depend upon the market value of our outstanding stock at the time of listing, among other factors. For the three months ended March 31, 2014 and for the period from January 11, ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013, we did not incur any such distributions to our advisor.~~

~~Subordinated Distribution Upon Termination~~

Pursuant to our Agreement of Limited Partnership, as amended by the Amendment to Agreement of Limited Partnership dated April 9, 2013, the Second Amendment to Agreement of Limited Partnership dated June 6, 2013 and the Third Amendment to Agreement of Limited Partnership dated November 8, 2013, upon termination or non-renewal of the advisory agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to 15.0% of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) an~~d the total amount of cash equal to an annual 7.0% cumula~~tive, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock shares of a company that are traded on a national securities exchange.

~~As of~~ ~~March 31, 2014, we had not recorded any charges to earnings related to the subordinated distribution upon termination.~~

~~Stock Purchase Plans~~

On March 5, 2014, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey T. Hanson, our President and Chief Operating Officer, Danny Prosky, and our Executive Vice President, General Counsel, Mathieu B. Streiff, each executed stock purchase plans, or the Stock Purchase Plans, whereby they each irrevocably agreed to invest 100% of their net after-tax base salary and cash bonus compensation earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. In addition, on March 5, 2014, our Chief Financial Officer, Shannon K S Johnson, our Senior Vice President of Acquisitions, Stefan K.L. Oh, our Secretary, Cora Lo, and our Vice President of Asset Management, Chris Rooney, each executed similar Stock Purchase Plans whereby they each irrevocably agreed to invest 15.0%, 15.0%, 10.0%, and 15.0%, respectively, of their net after-tax base salary earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock.2014.

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Purchases of shares of our common stock pursuant to the Stock Purchase Plans shall commence after the initial release from escrow of the minimum offering amount. Further, the Stock Purchase Plans each will terminate on December 31, 2014 or earlier upon the occurrence of certain events, including an early termination of our offering. The shares of common stock will be purchased at a price of $9.00 per share, reflecting the purchase price of the sharesAcquisitions in ~~our offering, exclusive of selling commissions and the dealer manager fee.~~2015

~~Accounts Payable Due to Affiliates~~

~~As of~~ ~~March 31, 2014, we had $174,000 of general and administrative expenses due to our advisor or its affiliates. We did not incur any accounts payable due to affiliates as of December 31, 2013.~~

~~7. Per Share Data~~

~~We report earnings (loss) per share pursuant to ASC Topic 260,~~ ~~Earnings per Share~~. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) allocated to controlling interest by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) allocated to controlling interest is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities. For the three months ended March 31, ~~2014~~2015, we completed seven property acquisitions comprising 18 buildings from unaffiliated parties. The aggregate contract purchase price of these properties was $293,504,000 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~, we did not allocate any distributions to participating securities. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock. As of March 31, 2014 and ~~2013~~, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

~~8. Subsequent Events~~

~~Declaration of Distributions~~

On April 10, 2014, our board of directors authorized a daily distribution to be paid to our stockholders of record as of the close of business on each day of the period from the date we receive and accept subscriptions aggregating at least the minimum offering, or the Commencement Date,through June 30, 2014, as a result of our advisor advising us that it intends to waive a combination of certain acquisition fees and/or asset management fees, or collectively, the Advisory Fees, that may otherwise be dueincurred $6,603,000 to our advisor ~~pursuant to~~and its affiliates in acquisition fees in connection with these property acquisitions. The following is a summary of our property acquisitions for the ~~Advisory Agreement,~~three months ended March 31, 2015:



Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Acquisition Fee
Delta Valley ALF Portfolio(3)	Springdale, AR	Senior Housing	01/08/15	$	8,105,000	$	—	$	182,000	(4)
Independence MOB Portfolio	Southgate, KY; Somerville, MA, Verona and Morristown, NJ; and Bronx, NY	Medical Office	01/13/15 and 01/26/15	135,000,000		—		3,038,000		(4)
King of Prussia PA MOB	King of Prussia, PA	Medical Office	01/21/15	18,500,000		9,946,000		416,000		(4)
North Carolina ALF Portfolio	Mooresville and Raleigh, NC	Senior Housing	01/28/15	38,856,000		—		874,000		(4)
Orange Star Medical Portfolio	Durango, CO and Keller, Wharton and Friendswood, TX	Medical Office and Hospital	02/26/15	57,650,000		—		1,297,000		(5)
Kingwood MOB Portfolio	Kingwood, TX	Medical Office	03/11/15	14,949,000		—		336,000		(5)
Mt. Juliet TN MOB	Mount Juliet, TN	Medical Office	03/17/15	13,000,000		—		293,000		(5)
Homewood AL MOB	Homewood, AL	Medical Office	03/27/15	7,444,000		—		167,000		(5)
Total				$	293,504,000	$	9,946,000	$	6,603,000

___________


(1)	We own 100% of our properties acquired in 2015.


(2)	Represents the principal balance of the mortgage loan payable assumed by us at the time of acquisition.


(3)	On January 8, 2015, we added one additional building to our existing Delta Valley ALF Portfolio. The other two buildings were purchased in September 2014.

(4)


(5)	Our advisor and its affiliates were paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price.

4. Real Estate Notes Receivable, Net

On February 4, 2015, we acquired eight promissory notes at par in ~~order to provide us with additional funds to pay distributions to our stockholders. Our advisor has agreed to waive~~ the ~~Advisory Fees only until such time as the~~aggregate outstanding principal amount of $60,217,000, or the Notes, comprised of four fixed rate notes in the aggregate outstanding principal amount of $28,650,000, or the Fixed Rate Notes, and four floating rate notes in the aggregate outstanding principal amount of $31,567,000, or the Floating Rate Notes. The Notes evidence interests in a portion of a mezzanine loan that consisted in total of 40 promissory notes in the aggregate outstanding principal amount of $389,852,000. The mezzanine loan is secured by pledges of equity interests in the owners of a portfolio of domestic healthcare properties, which such ~~waived Advisory Fees~~owners are themselves owned indirectly by a non-wholly owned subsidiary of NorthStar Realty Finance Corp. The interest rate on the Fixed Rate Notes is 6.75% per annum. The interest rate on the Floating Rate Notes is equal to 6.00% per annum above the ~~amount of distributions payable~~30-day LIBOR (increasing to our stockholders for the period commencing on the Commencement Date and ending on the date we acquire our first property or real estate-related investment. Our advisor will not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such Advisory Fees.

~~The distributions will be calculated based on 365 days in the calendar year and will be equal to~~ ~~$0.00164384~~6.25% per share of our common stock. These distributions will be aggregated and paid in cash or shares of our common stock pursuant to the DRIP monthly in arrears. The distributions, if any, declared for each record date in the May 2014 and June 2014 periods will be paid in June 2014 and July 2014, respectively.

~~Related Party Transaction~~

On April 10, 2014, American Healthcare Investors, acting as managing member of our advisor and Griffin-American Healthcare REIT Sub-Advisor, LLC, or GA Healthcare REIT II Sub-Advisor, which has been delegated the advisory duties for Griffin-American Healthcare REIT II, Inc., or GA Healthcare REIT II, another publicly registered non-traded healthcare REIT co-sponsored by American Healthcare Investors, adopted an asset allocation policy that would apply until June 30, 2014, to allocate property acquisitions among us and GA Healthcare REIT II. Pursuant to the asset allocation policy, American Healthcare Investors will allocate potential investment opportunities to us and GA Healthcare REIT II based on the consideration of certain factors for each company such as investment objectives; the availability of cash and/or financing to acquire the investment; financial impact; strategic advantages; concentration and/or diversification; and income tax effects.

After consideration and analysis of such factors, if American Healthcare Investors determines that the investment opportunity is suitable for both companies, then: (i) we will have priority for investment opportunities of $20,000,000 or less, until such time as we reach $500,000,000 in aggregate assets (based on contract purchase price); and (ii) GA Healthcare REITannum above

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the 30-day LIBOR during the second extension period, if any). As of March 31, 2015, the interest rate in effect on the Floating Rate Notes was 6.18%.

~~II will have priority for (a) investment opportunities~~Real estate notes receivable, net consisted of $100,000,000 or greater and (b) international investments, until such time as GA Healthcare REIT II reaches 30% portfolio leverage (calculated by dividing debt by contract purchase price and based on equity existingthe following as of ~~January 1, 2014). In~~March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Real estate notes receivable	$	60,217,000	$	—
Add: unamortized loan costs	1,203,000		—
Real estate notes receivable, net	$	61,420,000	$	—

We did not have any real estate notes receivable as of March 31, 2014. The changes in the ~~event all acquisition allocation factors have been exhausted and an investment opportunity remains equally suitable~~carrying amount of real estate notes receivable, net consisted of the following for ~~us and GA Healthcare REIT II,~~ the ~~investment opportunity will be offered to~~three months ended March 31, 2015:



	Amount
Real estate notes receivable, net — December 31, 2014	$	—
Additions:
Acquisition of real estate notes receivable	60,217,000
Loan costs	1,273,000
Deductions:
Amortization of loan costs	(70,000		)
Real estate notes receivable, net — March 31, 2015	$	61,420,000

Amortization expense on loan costs for the ~~company that has had~~three months ended March 31, 2015 is recorded against real estate revenue in our accompanying condensed consolidated statements of operations. We did not incur any amortization expense on loan costs for the ~~longest period of time elapse since it was offered an investment opportunity.~~

three months ended March 31, 2014.

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~~Item 2. Management’s Discussion~~5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of March 31, 2015 and ~~Analysis~~December 31, 2014:



	March 31,		December 31,
	2015		2014
In-place leases, net of accumulated amortization of $1,493,000 and $339,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 12.6 years and 15.9 years as of March 31, 2015 and December 31, 2014, respectively)	$	40,815,000	$	24,987,000
Leasehold interests, net of accumulated amortization of $24,000 and $1,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 56.7 years and 75.0 years as of March 31, 2015 and December 31, 2014, respectively)	7,278,000		1,492,000
Above market leases, net of accumulated amortization of $385,000 and $145,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 5.7 years and 7.0 years as of March 31, 2015 and December 31, 2014, respectively)	4,859,000		3,157,000
	$	52,952,000	$	29,636,000

Amortization expense for the three months ended March 31, 2015 was $1,569,000, which included $260,000 of ~~Financial Condition~~amortization recorded against real estate revenue for above market leases and ~~Results~~$23,000 of ~~Operations.~~amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations. We did not incur any amortization expense on identified intangible assets for the three months ended March 31, 2014.

The ~~use~~aggregate weighted average remaining life of the ~~words “we,” “us” or “our” refers~~identified intangible assets was 18.0 years and 17.9 years as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, estimated amortization expense on the identified intangible assets for the nine months ending December 31, 2015 and for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2015	$	5,074,000
2016	6,334,000
2017	5,489,000
2018	4,421,000
2019	3,598,000
Thereafter	28,036,000
	$	52,952,000

6. Other Assets, Net

Other assets, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Deferred financing costs, net of accumulated amortization of $172,000 and $87,000 as of March 31, 2015 and December 31, 2014, respectively	$	963,000	$	899,000
Prepaid expenses and deposits	813,000		177,000
Deferred rent receivables	628,000		240,000
	$	2,404,000	$	1,316,000

Amortization expense on deferred financing costs for the three months ended March 31, 2015 was $85,000. We did not incur any amortization expense on deferred financing costs for the three months ended March 31, 2014. Amortization expense on deferred financing costs is recorded to ~~Griffin-American Healthcare~~interest expense in our accompanying condensed consolidated statements of operations.

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As of March 31, 2015, estimated amortization expense on deferred financing costs for the nine months ending December 31, 2015 and ~~its subsidiary,~~for each of the next four years ending December 31 and thereafter was as follows:



Year	Amount
2015	$	259,000
2016	345,000
2017	202,000
2018	32,000
2019	32,000
Thereafter	93,000
	$	963,000

7. Mortgage Loans Payable, Net

We are required by the terms of certain loan documents to meet certain reporting requirements. As of March 31, 2015 and December 31, 2014, we were in compliance with all such requirements.

Mortgage loans payable, net consisted of the following as of March 31, 2015 and December 31, 2014:



	Contractual Interest Rate(1)		Maturity Date	March 31, 2015		December 31, 2014
Fixed Rate Debt:
Carolina Commons MOB	5.00	%	01/01/23	$	8,353,000	$	8,426,000
Premier MOB	6.29	%	01/05/17	7,910,000		7,938,000
King of Prussia PA MOB	4.50	%	12/06/22	9,929,000		—
Total fixed rate debt				26,192,000		16,364,000
Add: premium				543,000		595,000
Mortgage loans payable, net				$	26,735,000	$	16,959,000

___________


(1)	Represents the per annum interest rate in effect as of March 31, 2015.



	Amount
Mortgage loans payable, net — December 31, 2014	$	16,959,000
Additions:
Assumption of mortgage loans payable, net	9,946,000
Deductions:
Scheduled principal payments on mortgage loans payable	(118,000		)
Amortization of premium on mortgage loans payable	(52,000		)
Mortgage loans payable, net — March 31, 2015	$	26,735,000

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Year	Amount
2015	$	470,000
2016	658,000
2017	8,142,000
2018	542,000
2019	569,000
Thereafter	15,811,000
	$	26,192,000

8. Line of Credit

On August 18, 2014, we, through Griffin-American Healthcare REIT III Holdings, LP, ~~except where~~our operating partnership, and certain of our subsidiaries, or the ~~context otherwise requires.~~subsidiary guarantors, entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A., or Bank of America, as lender, administrative agent, swing line lender and issuer of letters of credit; Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBanc Capital Markets as joint lead arrangers and joint bookrunners; and KeyBank, National Association, or KeyBank, as lender and syndication agent, to obtain a revolving line of credit with an aggregate maximum principal amount of $60,000,000, or our line of credit.

The Credit Agreement, as amended, contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness. The Credit Agreement, as amended, imposes the following ~~discussion should~~financial covenants, which are specifically defined in the Credit Agreement, as amended: (a) a maximum consolidated leverage ratio; (b) a maximum consolidated secured leverage ratio; (c) a minimum consolidated tangible net worth covenant; (d) a minimum consolidated fixed charge coverage ratio; (e) a minimum unencumbered indebtedness yield; (f) a maximum consolidated unencumbered leverage ratio; (g) a minimum consolidated unencumbered interest coverage ratio; (h) limitations on secured recourse indebtedness; and (i) limitations on consolidated unsecured indebtedness. As of March 31, 2015 and December 31, 2014, we were in compliance with all such covenants and requirements.

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amended. In the event of default, the lenders have the right to terminate their obligations under the Credit Agreement, as amended, including the funding of future loans, and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon. Additionally, until we achieved a consolidated total asset value of $750,000,000, we were required to enter into pledge agreements, pursuant to which we pledged the capital stock of our subsidiaries which owned the real property to be ~~read~~included in ~~conjunction with~~the Unencumbered Property Pool, as such term is defined in the Credit Agreement, as amended. The pledged collateral was released in February 2015.

9. Identified Intangible Liabilities, Net



Year	Amount
2015	$	258,000
2016	325,000
2017	221,000
2018	128,000
2019	67,000
Thereafter	126,000
	$	1,125,000

10. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial ~~statements~~position, results of operations or cash flows.

Environmental Matters

Other Organizational and ~~notes thereto appearing elsewhere~~Offering Expenses

Our other organizational and offering expenses incurred in ~~this Quarterly Report~~connection with our offering (other than selling commissions and the dealer manager fee which generally represent 7.0% and 3.0%, respectively, of our gross offering proceeds) were paid by our advisor or its affiliates on ~~Form 10-Q. Such~~our behalf. These other organizational and offering expenses included all expenses to be paid by us in connection with our offering. These expenses only became our liability to the extent that other organizational and offering expenses did not exceed 2.0% of the gross offering proceeds from our offering. On March 12, 2015, we terminated the primary portion of our offering. As of March 31, 2015 and December 31, 2014, our advisor and its affiliates had not incurred expenses on our behalf in excess of 2.0% of the gross offering proceeds from our offering. When recorded by us, other organizational

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expenses were expensed as incurred, as applicable, and offering expenses were charged to stockholders' equity as such amounts were reimbursed to our advisor or its affiliates from the gross proceeds of our offering. See Note 13, Related Party Transactions — Offering Stage, for a further discussion of other organization and offering expenses.

Other

11. Redeemable Noncontrolling Interest

As of March 31, 2015 and December 31, 2014, we owned greater than a 99.99% general partnership interest in our operating partnership and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as redeemable noncontrolling interest and is presented in the mezzanine section of our accompanying condensed consolidated ~~financial statements~~balance sheets. See Note 12, Equity — Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion. In addition, see Note 13, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and ~~information have been prepared~~Note 13, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.

We record the carrying amount of redeemable noncontrolling interest at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interest consisted of the following for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015		2014
Beginning Balance	$	2,000	$	—
Reclassification from equity	—		2,000
Net loss attributable to redeemable noncontrolling interest	—		(1,000		)
Ending Balance	$	2,000	$	1,000

12. Equity

Preferred Stock

Our charter authorizes us to ~~reflect~~issue 200,000,000 shares of our ~~financial position as~~preferred stock, par value $0.01 per share. As of March 31, ~~2014~~2015 and December 31, 2014, no shares of preferred stock were issued and outstanding.

Common Stock

Our charter authorizes us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share. On January 15, 2013, ~~together~~our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership. On each of May 14, 2014 and December 10, 2014, we granted 10,000 and 5,000 shares, respectively, of our restricted common stock to our independent directors. On March 12, 2015, we terminated the primary portion of our offering. We continued to offer shares of our common stock in our offering pursuant to the DRIP until the termination of the DRIP portion of our offering and deregistration of our offering on April 22, 2015. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

Through March 31, 2015, we had issued 184,931,598 shares of ~~operations~~our common stock in connection with the primary portion of our offering and ~~cash flows~~1,371,448 shares of our common stock pursuant to the DRIP. We also repurchased 15,351 shares of

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Offering Costs

Selling Commissions

Our dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager was allowed to re-allow all or a portion of these fees to participating broker-dealers. For the three months ended March 31, 2015, we incurred $62,362,000 in selling commissions to our dealer manager, which were charged to stockholders' equity as such amounts were reimbursed to our dealer manager from the gross proceeds of our offering. Our dealer manager did not receive any selling commissions for the three months ended March 31, 2014 ~~and~~.

Dealer Manager Fee

Our dealer manager received a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended March 31, 2015, we incurred $27,789,000 in dealer manager fees to our dealer manager, which were charged to stockholders' equity as such amounts were reimbursed to our dealer manager or its affiliates from the gross proceeds of our offering. Our dealer manager did not receive any dealer manager fees for the ~~period from January 11, 2013 (Date of Inception) through~~three months ended March 31, ~~2013.~~2014.

~~Forward-Looking Statements~~Noncontrolling Interest of Limited Partner in Operating Partnership

~~Historical results and trends should not be taken as indicative~~On January 15, 2013, our advisor made an initial capital contribution of ~~future operations. Our statements contained~~$2,000 to our operating partnership in ~~this report that are not historical facts are forward-looking. Actual results may differ materially from those included in~~exchange for 222 limited partnership units. Upon the ~~forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use~~effectiveness of the words “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” orAdvisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. Therefore, as of February 26, 2014, such limited partnership units no longer meet the ~~negative~~criteria for classification within the equity section of our accompanying condensed consolidated balance sheets and as such ~~terms~~were reclassified to the mezzanine section of our accompanying condensed consolidated balance sheets. See Note 11, Redeemable Noncontrolling Interest, for a further discussion.

Distribution Reinvestment Plan

We adopted the DRIP that allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our offering, subject to certain conditions. We had registered and ~~other comparable terminology.~~ reserved $35,000,000 in shares of our common stock for sale pursuant to the DRIP in our offering at an offering price of $9.50 per share. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015 following the deregistration of our offering. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

For the three months ended March 31, 2015, $10,295,000 in distributions were reinvested that resulted in 1,083,656 shares of our common stock being issued pursuant to the DRIP. No reinvestment of distributions was made for the three months ended March 31, 2014. As of March 31, 2015 and December 31, 2014, a total of $13,029,000 and $2,734,000, respectively, in distributions were reinvested that resulted in 1,371,448 and 287,792 shares of our common stock, respectively, being issued pursuant to the DRIP.

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Share Repurchase Plan

Our ~~ability~~board of directors has approved a share repurchase plan. Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. Subject to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of ~~capital; changes~~the funds for share repurchases, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusively from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP and the Secondary DRIP.

All repurchases will be subject to a one-year holding period, except for repurchases made in ~~interest rates; competition in the real estate industry; the supply and demand for operating properties~~connection with a stockholder’s death or “qualifying disability,” as defined in our ~~proposed market areas; changes~~share repurchase plan. Further, all share repurchases will be repurchased following a one-year holding period at 92.5% to 100% of each stockholder's purchase amount depending on the period of time their shares have been held. At any time we are engaged in ~~accounting principles generally accepted in the United States~~an offering of ~~America, or GAAP, policies and guidelines applicable to REITs; the success~~shares of our ~~best efforts initial public offering;~~common stock, the ~~availability~~repurchase amount for shares repurchased under our share repurchase plan will always be equal to or lower than the applicable per share offering price. However, if shares of ~~properties~~our common stock are repurchased in connection with a stockholder's death or qualifying disability, the repurchase price will be no less than 100% of the price paid to ~~acquire;~~acquire the ~~availability~~shares of ~~financing;~~our common stock from us. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period, as follows: first, pro rata as to repurchases sought upon a stockholder's death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

For the three months ended March 31, 2015, we received share repurchase requests and repurchased 15,351 shares of our ~~ongoing relationship with American Healthcare Investors LLC,~~common stock for an aggregate of $153,000, at an average repurchase price of $9.99 per share. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP. No share repurchases were requested or ~~American Healthcare Investors,~~made for the three months ended March 31, 2014.

As of March 31, 2015, we had received share repurchase requests and ~~Griffin Capital Corporation, or Griffin Capital, or collectively~~repurchased 15,351 shares of our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us andcommon stock for an aggregate of $153,000 at an average price of $9.99 per share using proceeds we received from the sale of shares of our ~~business, including additional factors that could materially affect our financial results, is included herein and in our other filings with~~common stock pursuant to the ~~United States Securities and Exchange Commission, or SEC.~~

~~Overview and Background~~

~~Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on~~ ~~January 11, 2013~~ ~~and therefore we consider that our date~~DRIP. As of ~~inception. We were initially capitalized on~~ ~~January 15, 2013~~. We intend to invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We may also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We intend to elect to be treated as a REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes beginning with our taxable year ending December 31, 2014, no share repurchases were requested or made.

2013 Incentive Plan

We adopted our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares.

Upon the election of two of our independent directors to our board of directors on February 25, 2014, or the ~~first year~~service inception date, each of the independent directors became entitled to 5,000 shares of our restricted common stock, as defined in ~~which we commence material operations.~~

~~We are conducting a best efforts~~our incentive plan, upon the initial ~~public~~release from escrow of the minimum offering ~~or our offering, in which we are offering to the public a minimum~~ of $2,000,000 in shares of our common stock, or the minimum offering. Having raised the minimum offering and ~~a maximum~~upon the initial release from escrow on May 14, 2014, or the grant date, we granted an aggregate of ~~$1,750,000,000~~ in10,000 shares of our restricted common stock, ~~for~~as defined in our incentive plan, to our independent directors in connection with their initial election to our board of directors, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the grant date. Upon the election of an additional independent director to our board of directors on December 10, 2014, we granted 5,000 shares of our restricted common stock, as defined in our incentive plan, to our independent director, which will vest over the same period described above. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions.

From the service inception date to the grant date, we recognized compensation expense related to the shares of our restricted common stock based on the reporting date fair value, which was estimated at $10.00 per share, the price paid to acquire a share of common stock in our ~~primary offering and up~~offering. Beginning on the grant date, compensation cost related to ~~$150,000,000~~ inthe shares of our restricted common stock ~~pursuant to our distribution reinvestment plan, or~~is measured based on the ~~DRIP, for~~ ~~$9.50~~grant date fair value, which we estimated at $10.00 per share, ~~aggregating up~~the price paid to ~~$1,900,000,000, or~~acquire a share of common stock in our offering. Stock compensation expense is recognized from the maximum offering. Shares purchased by our executive officers and directors, by Griffin Capital Securities, Inc., or Griffin Securities, or our dealer manager, by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, or by its affiliates are not counted towards the minimum offering.

We will conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by our advisor pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor that has a one-year term that expires on February 26, 2015 and is subject to successive one-year renewals upon the mutual consent of the parties. Our advisor uses its best efforts, subjectservice inception date to the ~~oversight, review~~vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method. ASC Topic 718, Compensation – Stock Compensation, requires forfeitures to be estimated at the time of grant and ~~approval of our board of directors, to, among other things, research, identify, review and make investments~~revised, if necessary, in ~~and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under~~subsequent periods if actual forfeitures differ from those estimates. For the Advisory Agreement as our fiduciary. Our advisor is jointly owned and managed by our co-sponsors. We are not affiliated with Griffin Capital or Griffin Securities; however, we are affiliated with Griffin-American Advisor and American Healthcare Investors.three months ended March 31, 2015

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~~As of~~and 2014, we did not assume any forfeitures. For the three months ended March 31, 2015 and 2014, we ~~have neither purchased nor contracted to purchase any investments,~~recognized stock compensation expense of $14,000 and ~~our advisor has not identified any real estate or real estate-related investments in~~$15,000, respectively, which it is ~~probable that we will invest.~~

~~Critical Accounting Policies~~

We believe that our critical accounting policies once we commence material operations will be those that require significant judgments and estimates such as those related to revenue recognition, tenant receivables, allowance for uncollectible accounts, capitalization of expenditures, depreciation of assets, impairment of real estate, properties held for sale, purchase price allocation, and qualification as a REIT. These estimates will be made and evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances.

~~Use of Estimates~~

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

~~Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts~~

~~We will recognize revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605,~~ ~~Revenue Recognition~~, or ASC Topic 605. ASC Topic 605 requires that all four of the following basic criteria be met before revenue is realized or realizable and earned: (1) there is persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectability is reasonably assured.

~~In accordance with ASC Topic 840,~~ ~~Leases~~, minimum annual rental revenue will be recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between real estate revenue recognized and cash amounts contractually due from tenants under the lease agreements will be recorded to deferred rent receivable or deferred rent liability, as applicable. Tenant reimbursement revenue, which will be comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, will be recognized as revenue in the period in which the related expenses will be incurred. Tenant reimbursements will be recognized and presented in accordance with ASC Subtopic 605-45, ~~Revenue Recognition — Principal Agent Consideration~~, or ASC Subtopic 605-45. ASC Subtopic 605-45 requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We will recognize lease termination fees at such time when there is a signed termination letter agreement, all of the conditions of the agreement have been met and the tenant is no longer occupying the property.

Tenant receivables and unbilled deferred rent receivables will be carried net of an allowance for uncollectible amounts. An allowance will be maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. We will also maintain an allowance for deferred rent receivables arising from the straight line recognition of rents. Such allowance will be charged to bad debt expense, which will be included in general and administrative in our accompanying condensed consolidated statements of operations. ~~Our determination~~

As of March 31, 2015 and December 31, 2014, there was $74,000 and $88,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. As of March 31, 2015, this expense is expected to be recognized over a remaining weighted average period of 1.81 years.

As of March 31, 2015 and December 31, 2014, the weighted average grant date fair value of the ~~adequacy~~nonvested shares of ~~these allowances will be based primarily upon evaluations~~our restricted common stock was $120,000. A summary of ~~historical loss experience,~~ the ~~tenant’s financial condition, security deposits, letters~~status of ~~credit, lease guarantees~~the nonvested shares of our restricted common stock as of March 31, 2015 and ~~current economic conditions and other relevant factors.~~

~~Capitalization of Expenditures and Depreciation of Assets~~

~~The cost of operating properties will include the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties will be capitalized~~December 31, 2014 and the ~~cost~~changes for the three months ended March 31, 2015, is presented below:



	Number of Nonvested Shares of our Restricted Common Stock	Weighted Average Grant Date Fair Value
Balance — December 31, 2014	12,000	$	10.00
Granted	—	$	—
Vested	—	$	—
Forfeited	—	$	—
Balance — March 31, 2015	12,000	$	10.00
Expected to vest — March 31, 2015	12,000	$	10.00

13. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of ~~maintenance~~our executive officers and ~~repairs will be~~our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor and American Healthcare Investors; however, we are not affiliated with Griffin Capital or Griffin Securities. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. In the aggregate, for the three months ended March 31, 2015 and 2014, we incurred $9,506,000 and $174,000, respectively, in fees and expenses to our affiliates as detailed below.

Offering Stage

Other Organizational and Offering Expenses

Our other organizational and offering expenses were paid by our advisor or its affiliates on our behalf. Our advisor or its affiliates were reimbursed for actual expenses incurred up to 2.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended March 31, 2015, we incurred $519,000 in other organizational and offering expenses to our advisor. Other organizational expenses were expensed as incurred and offering expenses were charged to ~~expense~~stockholders' equity as ~~incurred. The cost~~such amounts were reimbursed to our advisor or its affiliates from the gross proceeds of ~~building~~our offering. We did not incur other organizational and ~~improvements will be depreciated on a straight-line basis over~~offering expenses to our advisor for the ~~estimated useful lives. The cost~~three months ended March 31, 2014.

Acquisition and Development Stage

Acquisition Fee

Our advisor or its affiliates receive an acquisition fee of ~~improvements will be depreciated on a straight-line basis over the shorter~~up to 2.25% of the ~~lease term~~contract purchase price, including any contingent or ~~useful life. Furniture, fixtures and equipment, if any, will~~earn-out payments that may be ~~depreciated over the estimated useful lives. When depreciable~~paid, for each property ~~is retired~~we acquire or ~~disposed~~2.0% of the ~~related costs~~origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Until January 30, 2015, the acquisition fee for property acquisitions was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and ~~accumulated depreciation will be removed from~~(ii) the ~~accounts~~remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at the established offering price as of the date of closing, net of selling commissions and ~~any gain~~dealer manager fees, which was $9.00 per share. Since January 31, 2015, the acquisition fee for property acquisitions is paid in cash equal to 2.25% of the contract purchase price. Our advisor or ~~loss is reflected~~its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in ~~operations.~~our offering including acquisitions completed after the termination of

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~~Impairment~~

~~Our operating properties will be carried at historical cost less accumulated depreciation. We will assess~~ the ~~impairment of an operating property when events~~Advisory Agreement, or changes in circumstances indicate that its carrying value may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include, among others, the following:

~~significant negative industry or economic trends;~~

~~a significant underperformance relative to historical or projected future operating results; and~~

~~a significant change in the extent or manner in which the asset is used or significant physical change in the asset.~~

~~In the event that the carrying amount of an operating property exceeds the sum of the future undiscounted cash flows expected to result~~funded with net proceeds from the use and eventual disposition of the property, we will recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. It will require us to make assumptions related to discount rates, future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels and the estimated proceeds generated from the future sale of ~~the property.~~

~~Properties Held for Sale~~

~~We will account for our properties held for sale in accordance with ASC Topic 360,~~ ~~Property, Plant, and Equipment, or ASC Topic 360, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC Topic 360 requires that~~ a property or ~~a group~~real estate-related investment, subject to certain conditions.

Acquisition fees in connection with the acquisition of properties ~~is required to be reported~~are expensed as incurred in discontinued operations in the statements of operations for current and prior periods, if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when either (i) the component has been disposed of or (ii) is classified as held for sale.

In accordance with ASC Topic 360, at such time as a property is held for sale, such property is carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We will classify operating properties as property held for sale in the period in which all of the following criteria are met:

~~management, having the authority to approve the action, commits to a plan to sell the asset;~~

~~the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;~~

~~an active program to locate a buyer or buyers and other actions required to complete the plan to sell the asset has been initiated;~~

~~the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;~~

~~the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and~~

~~given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.~~

~~Property Acquisitions~~

In accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Acquisition fees in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

For the three months ended March 31, 2015, we incurred $7,894,000 in acquisition fees to our advisor or its affiliates, which included 55,684 shares of our common stock issued for the three months ended March 31, 2015. We did not incur any acquisition fees to our advisor or its affiliates for the three months ended March 31, 2014.

Development Fee

In the event our advisor or its affiliates provide development-related services, our advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our advisor or its affiliates if our advisor or its affiliates elect to receive an acquisition fee based on the cost of such development.

For the three months ended March 31, 2015 and 2014, we did not incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

Our advisor or its affiliates are reimbursed for acquisition expenses related to selecting, evaluating and acquiring assets, which are reimbursed regardless of whether an asset is acquired. The reimbursement of acquisition expenses, acquisition fees and real estate commissions paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three months ended March 31, 2015, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions. We did not incur such fees and expenses for the three months ended March 31, 2014.

Reimbursements of acquisition expenses are expensed as incurred in accordance with ~~assistance from independent valuation specialists, will measure~~ASC Topic 805 and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Reimbursements of acquisition expenses in connection with the ~~fair~~acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

For the three months ended March 31, 2015 and 2014, we did not incur any acquisition expenses to our advisor or its affiliates.

Operational Stage

Asset Management Fee

Our advisor or its affiliates are paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.75% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. For such purposes, average invested assets means the average of the aggregate book value of ~~tangible~~our assets invested in real estate properties and identified intangible assets and liabilities, as applicable, based on their respective fair values for acquired properties. The determination of the fair value of land will be based upon comparable sales data. In cases where a leasehold interest in the land is acquired, the value of the leasehold interest will be determined by discounting the difference between the contract ground lease payments and a market ground lease payment back to a present value as of the acquisition date. The market ground lease payment will be estimated as a percentage of the land value. The fair value of buildings will be based upon our determination of the value as if it were to be replaced and vacant using cost data and discounted cash flow models similar to those used by independent appraisers. We will also recognize the fair value of furniture, fixtures and equipment on the premises, if any, as well as the above or below market rent, the value of in-place leases, the value of in-place lease costs, tenant relationships, master leases, above or below marketreal estate-related investments, before deducting depreciation, amortization, bad debt and ~~derivative financial instruments assumed. Factors to be considered~~other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us ~~include an estimate~~to our stockholders and by any amounts paid by us to repurchase shares of ~~carrying costs during~~our common stock pursuant to our share repurchase plan.

For the ~~expected lease-up periods considering current market conditions~~three months ended March 31, 2015, we incurred $957,000 in asset management fees to our advisor or its affiliates. We did not incur any asset management fees to our advisor or its affiliates for the three months ended March 31, 2014. Asset management fees are included in general and ~~costs to execute similar leases.~~

~~The value~~administrative in our accompanying condensed consolidated statements of the above or below market component of the acquired in-place leases will be determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference (if greater thanoperations.

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~~10.0%) between the level payment equivalent~~Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third party property manager. Our advisor or its affiliates are paid a monthly management fee equal to a percentage of the ~~contract rent paid pursuant~~gross monthly cash receipts of such property as follows: (i) a 1.0% property management oversight fee for any stand-alone, single-tenant net leased property, (ii) a 1.5% property management oversight fee for any property that is not a stand-alone, single-tenant net leased property and for which our advisor or its affiliates will provide oversight of a third party that performs the duties of a property manager with respect to such property, or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant net leased property and for which our advisor or its affiliates will directly serve as the ~~lease,~~property manager without sub-contracting such duties to a third party.

For the three months ended March 31, 2015, we incurred $136,000 in property management fees to our advisor or its affiliates. For the three months ended March 31, 2014, we did not incur any property management fees to our advisor or its affiliates. Property management fees are included in rental expenses in our accompanying condensed consolidated statements of operations.

Lease Fees

We pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm's-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and ~~our estimate~~agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of ~~market rent payments taking into account rent steps throughout~~the gross revenues generated during the initial term of the lease. In

For the ~~case of leases with options, unless an option rent is more than 5.0% below market rent, it will~~three months ended March 31, 2015 and 2014, we did not ~~be assumed~~incur any lease fees to ~~be exercised. The amounts related to above market leases~~our advisor or its affiliates. When incurred by us, lease fees will be capitalized as lease commissions and included in ~~identified intangible~~other assets, net in our accompanying condensed consolidated balance ~~sheets~~sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and ~~will be amortized against~~coordinating the construction of any capital or tenant improvements, our advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended March 31, 2015 and 2014, we did not incur any construction management fees to our advisor or its affiliates.

Construction management fees are capitalized as part of the associated asset and included in real estate ~~revenue over the remaining non-cancelable lease term of the acquired leases with each property. The amounts related to below market leases will be included in identified intangible liabilities,~~investments, net in our accompanying condensed consolidated balance sheets or are expensed and ~~will be amortized to real estate revenue over the remaining non-cancelable lease term plus any below market renewal options of the acquired leases with each property.~~

The value of in-place lease costs and the value of tenant relationships will be based on management's evaluation of the specific characteristics of the tenant's lease and our overall relationship with the tenants. Characteristics considered by us in allocating these values will include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The amounts related to in-place lease costs will be included ~~in identified intangible assets, net~~ in our accompanying condensed consolidated ~~balance sheets~~statements of operations, as applicable.

Operating Expenses

We reimburse our advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determined that such excess expenses were justified based on unusual and ~~will be amortized to depreciation~~nonrecurring factors which they deem sufficient.

For the 12 months ended March 31, 2015, our operating expenses did not exceed this limitation. Our operating expenses as a percentage of average invested assets and ~~amortization expense over~~as a percentage of net income were 1.6% and (29.7)%, respectively, for the ~~average remaining non-cancelable lease term~~12 months ended March 31, 2015.

For the three months ended March 31, 2015 and 2014, our advisor or its affiliates incurred operating expenses on our behalf of ~~the acquired leases with each property. The amounts related to the value of tenant relationships will be~~$0 and $174,000, respectively. Operating expenses are generally included in ~~identified intangible assets, net~~general and administrative in our accompanying condensed consolidated ~~balance sheets and will be amortized to depreciation and amortization expense over the average remaining non-cancelable lease term~~statements of the acquired leases plus the market renewal lease term. The value of a master lease, in which a previous owner or a tenant is relieved of specific rental obligations as additional space is leased, will be determined by discounting the expected real estate revenue associated with the master lease space over the assumed lease-up period.

The value of above or below market debt will be determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage at the time of assumption. The value of above or below market debt will be included in mortgage loans payable, net in our accompanying condensed consolidated balance sheets and will be amortized to interest expense over the remaining term of the assumed mortgage.

~~The value of derivative financial instruments will be determined in accordance with ASC Topic 820,~~ ~~Fair Value Measurements and Disclosures, or ASC Topic 820, and will be included in derivative financial instruments in our accompanying condensed consolidated balance sheets.~~

The values of contingent consideration assets and liabilities will be analyzed at the time of acquisition. For contingent purchase options, the fair market value of the asset will be compared to the specified option price at the exercise date. If the option price is below market, it will be assumed to be exercised and the difference between the fair market value and the option price will be discounted to the present value at the time of acquisition.

The fair values will be subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.

~~Qualification as a REIT~~

We have not yet qualified as a REIT. We intend to qualify and make the election to be taxed as a REIT, under Sections 856 through 860 of the Code, when we file our tax return for the taxable year ending December 31, 2014, or the first year in which we commence material operations. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.

If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to our stockholders.

~~Interim Unaudited Financial Data~~

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~~and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.~~

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Further, the application of ASU 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Early application is not permitted. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09.

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In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03, which amends the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Amortization of such costs is required to be reported as interest expense, which is consistent with the current presentation in our consolidated financial statements. Further, the application of ASU 2015-03 requires retrospective adjustment of all prior periods presented. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. We do not believe the adoption of ASU 2015-03 on January 1, 2016 will have a material impact on our consolidated financial statements.

3. Real Estate Investments, Net

Our real estate investments, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,			December 31,
	2015			2014
Building and improvements	$	488,983,000		$	237,165,000
Land	33,901,000			12,988,000
	522,884,000			250,153,000
Less: accumulated depreciation	(4,471,000		)	(1,124,000		)
	$	518,413,000		$	249,029,000

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Acquisitions in 2015



Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Acquisition Fee
Delta Valley ALF Portfolio(3)	Springdale, AR	Senior Housing	01/08/15	$	8,105,000	$	—	$	182,000	(4)
Independence MOB Portfolio	Southgate, KY; Somerville, MA, Verona and Morristown, NJ; and Bronx, NY	Medical Office	01/13/15 and 01/26/15	135,000,000		—		3,038,000		(4)
King of Prussia PA MOB	King of Prussia, PA	Medical Office	01/21/15	18,500,000		9,946,000		416,000		(4)
North Carolina ALF Portfolio	Mooresville and Raleigh, NC	Senior Housing	01/28/15	38,856,000		—		874,000		(4)
Orange Star Medical Portfolio	Durango, CO and Keller, Wharton and Friendswood, TX	Medical Office and Hospital	02/26/15	57,650,000		—		1,297,000		(5)
Kingwood MOB Portfolio	Kingwood, TX	Medical Office	03/11/15	14,949,000		—		336,000		(5)
Mt. Juliet TN MOB	Mount Juliet, TN	Medical Office	03/17/15	13,000,000		—		293,000		(5)
Homewood AL MOB	Homewood, AL	Medical Office	03/27/15	7,444,000		—		167,000		(5)
Total				$	293,504,000	$	9,946,000	$	6,603,000

___________


(1)	We own 100% of our properties acquired in 2015.


(2)	Represents the principal balance of the mortgage loan payable assumed by us at the time of acquisition.


(3)	On January 8, 2015, we added one additional building to our existing Delta Valley ALF Portfolio. The other two buildings were purchased in September 2014.

(4)


(5)	Our advisor and its affiliates were paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price.

4. Real Estate Notes Receivable, Net

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the 30-day LIBOR during the second extension period, if any). As of March 31, 2015, the interest rate in effect on the Floating Rate Notes was 6.18%.

Real estate notes receivable, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Real estate notes receivable	$	60,217,000	$	—
Add: unamortized loan costs	1,203,000		—
Real estate notes receivable, net	$	61,420,000	$	—



	Amount
Real estate notes receivable, net — December 31, 2014	$	—
Additions:
Acquisition of real estate notes receivable	60,217,000
Loan costs	1,273,000
Deductions:
Amortization of loan costs	(70,000		)
Real estate notes receivable, net — March 31, 2015	$	61,420,000

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5. Identified Intangible Assets, Net

Identified intangible assets, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
In-place leases, net of accumulated amortization of $1,493,000 and $339,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 12.6 years and 15.9 years as of March 31, 2015 and December 31, 2014, respectively)	$	40,815,000	$	24,987,000
Leasehold interests, net of accumulated amortization of $24,000 and $1,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 56.7 years and 75.0 years as of March 31, 2015 and December 31, 2014, respectively)	7,278,000		1,492,000
Above market leases, net of accumulated amortization of $385,000 and $145,000 as of March 31, 2015 and December 31, 2014, respectively (with a weighted average remaining life of 5.7 years and 7.0 years as of March 31, 2015 and December 31, 2014, respectively)	4,859,000		3,157,000
	$	52,952,000	$	29,636,000



Year	Amount
2015	$	5,074,000
2016	6,334,000
2017	5,489,000
2018	4,421,000
2019	3,598,000
Thereafter	28,036,000
	$	52,952,000

6. Other Assets, Net

Other assets, net consisted of the following as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
	2015		2014
Deferred financing costs, net of accumulated amortization of $172,000 and $87,000 as of March 31, 2015 and December 31, 2014, respectively	$	963,000	$	899,000
Prepaid expenses and deposits	813,000		177,000
Deferred rent receivables	628,000		240,000
	$	2,404,000	$	1,316,000

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Year	Amount
2015	$	259,000
2016	345,000
2017	202,000
2018	32,000
2019	32,000
Thereafter	93,000
	$	963,000

7. Mortgage Loans Payable, Net

We are required by the terms of certain loan documents to meet certain reporting requirements. As of March 31, 2015 and December 31, 2014, we were in compliance with all such requirements.

Mortgage loans payable, net consisted of the following as of March 31, 2015 and December 31, 2014:



	Contractual Interest Rate(1)		Maturity Date	March 31, 2015		December 31, 2014
Fixed Rate Debt:
Carolina Commons MOB	5.00	%	01/01/23	$	8,353,000	$	8,426,000
Premier MOB	6.29	%	01/05/17	7,910,000		7,938,000
King of Prussia PA MOB	4.50	%	12/06/22	9,929,000		—
Total fixed rate debt				26,192,000		16,364,000
Add: premium				543,000		595,000
Mortgage loans payable, net				$	26,735,000	$	16,959,000

___________


(1)	Represents the per annum interest rate in effect as of March 31, 2015.



	Amount
Mortgage loans payable, net — December 31, 2014	$	16,959,000
Additions:
Assumption of mortgage loans payable, net	9,946,000
Deductions:
Scheduled principal payments on mortgage loans payable	(118,000		)
Amortization of premium on mortgage loans payable	(52,000		)
Mortgage loans payable, net — March 31, 2015	$	26,735,000

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Year	Amount
2015	$	470,000
2016	658,000
2017	8,142,000
2018	542,000
2019	569,000
Thereafter	15,811,000
	$	26,192,000

8. Line of Credit

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9. Identified Intangible Liabilities, Net



Year	Amount
2015	$	258,000
2016	325,000
2017	221,000
2018	128,000
2019	67,000
Thereafter	126,000
	$	1,125,000

10. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental Matters

Other Organizational and Offering Expenses

Our other organizational and offering expenses incurred in connection with our offering (other than selling commissions and the dealer manager fee which generally represent 7.0% and 3.0%, respectively, of our gross offering proceeds) were paid by our advisor or its affiliates on our behalf. These other organizational and offering expenses included all expenses to be paid by us in connection with our offering. These expenses only became our liability to the extent that other organizational and offering expenses did not exceed 2.0% of the gross offering proceeds from our offering. On March 12, 2015, we terminated the primary portion of our offering. As of March 31, 2015 and December 31, 2014, our advisor and its affiliates had not incurred expenses on our behalf in excess of 2.0% of the gross offering proceeds from our offering. When recorded by us, other organizational

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Other

11. Redeemable Noncontrolling Interest

As of March 31, 2015 and December 31, 2014, we owned greater than a 99.99% general partnership interest in our operating partnership and our advisor owned less than a 0.01% limited partnership interest in our operating partnership. The noncontrolling interest of our advisor in our operating partnership that has redemption features outside of our control is accounted for as redeemable noncontrolling interest and is presented in the mezzanine section of our accompanying condensed consolidated balance sheets. See Note 12, Equity — Noncontrolling Interest of Limited Partner in Operating Partnership, for a further discussion. In addition, see Note 13, Related Party Transactions — Liquidity Stage — Subordinated Participation Interest — Subordinated Distribution Upon Listing and Note 13, Related Party Transactions — Subordinated Distribution Upon Termination, for a further discussion of the redemption features of the limited partnership units.



	Three Months Ended March 31,
	2015		2014
Beginning Balance	$	2,000	$	—
Reclassification from equity	—		2,000
Net loss attributable to redeemable noncontrolling interest	—		(1,000		)
Ending Balance	$	2,000	$	1,000

12. Equity

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of March 31, 2015 and December 31, 2014, no shares of preferred stock were issued and outstanding.

Common Stock

Our charter authorizes us to issue 1,000,000,000 shares of our common stock, par value $0.01 per share. On January 15, 2013, our advisor acquired 22,222 shares of our common stock for total cash consideration of $200,000 and was admitted as our initial stockholder. We used the proceeds from the sale of shares of our common stock to our advisor to make an initial capital contribution to our operating partnership. On each of May 14, 2014 and December 10, 2014, we granted 10,000 and 5,000 shares, respectively, of our restricted common stock to our independent directors. On March 12, 2015, we terminated the primary portion of our offering. We continued to offer shares of our common stock in our offering pursuant to the DRIP until the termination of the DRIP portion of our offering and deregistration of our offering on April 22, 2015. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

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Offering Costs

Selling Commissions

Dealer Manager Fee

Noncontrolling Interest of Limited Partner in Operating Partnership

On January 15, 2013, our advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 222 limited partnership units. Upon the effectiveness of the Advisory Agreement on February 26, 2014, Griffin-American Advisor became our advisor. As our advisor, Griffin-American Advisor is entitled to special redemption rights of its limited partnership units. Therefore, as of February 26, 2014, such limited partnership units no longer meet the criteria for classification within the equity section of our accompanying condensed consolidated balance sheets and as such were reclassified to the mezzanine section of our accompanying condensed consolidated balance sheets. See Note 11, Redeemable Noncontrolling Interest, for a further discussion.

Distribution Reinvestment Plan

We adopted the DRIP that allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our offering, subject to certain conditions. We had registered and reserved $35,000,000 in shares of our common stock for sale pursuant to the DRIP in our offering at an offering price of $9.50 per share. On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $250,000,000 of additional shares of our common stock pursuant to the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015 following the deregistration of our offering. See Note 19, Subsequent Events — Status of our Offering, for a further discussion.

For the three months ended March 31, 2015, $10,295,000 in distributions were reinvested that resulted in 1,083,656 shares of our common stock being issued pursuant to the DRIP. No reinvestment of distributions was made for the three months ended March 31, 2014. As of March 31, 2015 and December 31, 2014, a total of $13,029,000 and $2,734,000, respectively, in distributions were reinvested that resulted in 1,371,448 and 287,792 shares of our common stock, respectively, being issued pursuant to the DRIP.

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Share Repurchase Plan

All repurchases will be subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Further, all share repurchases will be repurchased following a one-year holding period at 92.5% to 100% of each stockholder's purchase amount depending on the period of time their shares have been held. At any time we are engaged in an offering of shares of our common stock, the repurchase amount for shares repurchased under our share repurchase plan will always be equal to or lower than the applicable per share offering price. However, if shares of our common stock are repurchased in connection with a stockholder's death or qualifying disability, the repurchase price will be no less than 100% of the price paid to acquire the shares of our common stock from us. Furthermore, our share repurchase plan provides that if there are insufficient funds to honor all repurchase requests, pending requests will be honored among all requests for repurchase in any given repurchase period, as follows: first, pro rata as to repurchases sought upon a stockholder's death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests.

As of March 31, 2015, we had received share repurchase requests and repurchased 15,351 shares of our common stock for an aggregate of $153,000 at an average price of $9.99 per share using proceeds we received from the sale of shares of our common stock pursuant to the DRIP. As of December 31, 2014, no share repurchases were requested or made.

2013 Incentive Plan

We adopted our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000 shares.

Upon the election of two of our independent directors to our board of directors on February 25, 2014, or the service inception date, each of the independent directors became entitled to 5,000 shares of our restricted common stock, as defined in our incentive plan, upon the initial release from escrow of the minimum offering of $2,000,000 in shares of our common stock, or the minimum offering. Having raised the minimum offering and upon the initial release from escrow on May 14, 2014, or the grant date, we granted an aggregate of 10,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election to our board of directors, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the grant date. Upon the election of an additional independent director to our board of directors on December 10, 2014, we granted 5,000 shares of our restricted common stock, as defined in our incentive plan, to our independent director, which will vest over the same period described above. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions.

From the service inception date to the grant date, we recognized compensation expense related to the shares of our restricted common stock based on the reporting date fair value, which was estimated at $10.00 per share, the price paid to acquire a share of common stock in our offering. Beginning on the grant date, compensation cost related to the shares of our restricted common stock is measured based on the grant date fair value, which we estimated at $10.00 per share, the price paid to acquire a share of common stock in our offering. Stock compensation expense is recognized from the service inception date to the vesting date for each vesting tranche (i.e., on a tranche by tranche basis) using the accelerated attribution method. ASC Topic 718, Compensation – Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three months ended March 31, 2015

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and 2014, we did not assume any forfeitures. For the three months ended March 31, 2015 and 2014, we recognized stock compensation expense of $14,000 and $15,000, respectively, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

As of March 31, 2015 and December 31, 2014, the weighted average grant date fair value of the nonvested shares of our restricted common stock was $120,000. A summary of the status of the nonvested shares of our restricted common stock as of March 31, 2015 and December 31, 2014 and the changes for the three months ended March 31, 2015, is presented below:



	Number of Nonvested Shares of our Restricted Common Stock	Weighted Average Grant Date Fair Value
Balance — December 31, 2014	12,000	$	10.00
Granted	—	$	—
Vested	—	$	—
Forfeited	—	$	—
Balance — March 31, 2015	12,000	$	10.00
Expected to vest — March 31, 2015	12,000	$	10.00

13. Related Party Transactions

Fees and Expenses Paid to Affiliates

All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our advisor, one of our co-sponsors or other affiliated entities. We are affiliated with our advisor and American Healthcare Investors; however, we are not affiliated with Griffin Capital or Griffin Securities. We entered into the Advisory Agreement, which entitles our advisor and its affiliates to specified compensation for certain services, as well as reimbursement of certain expenses. In the aggregate, for the three months ended March 31, 2015 and 2014, we incurred $9,506,000 and $174,000, respectively, in fees and expenses to our affiliates as detailed below.

Offering Stage

Other Organizational and Offering Expenses

Our other organizational and offering expenses were paid by our advisor or its affiliates on our behalf. Our advisor or its affiliates were reimbursed for actual expenses incurred up to 2.0% of the gross offering proceeds from the sale of shares of our common stock in our offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended March 31, 2015, we incurred $519,000 in other organizational and offering expenses to our advisor. Other organizational expenses were expensed as incurred and offering expenses were charged to stockholders' equity as such amounts were reimbursed to our advisor or its affiliates from the gross proceeds of our offering. We did not incur other organizational and offering expenses to our advisor for the three months ended March 31, 2014.

Acquisition and Development Stage

Acquisition Fee

Our advisor or its affiliates receive an acquisition fee of up to 2.25% of the contract purchase price, including any contingent or earn-out payments that may be paid, for each property we acquire or 2.0% of the origination or acquisition price, including any contingent or earn-out payments that may be paid, for any real estate-related investment we originate or acquire. Until January 30, 2015, the acquisition fee for property acquisitions was paid as follows: (i) in cash equal to 2.00% of the contract purchase price and (ii) the remainder in shares of our common stock in an amount equal to 0.25% of the contract purchase price, at the established offering price as of the date of closing, net of selling commissions and dealer manager fees, which was $9.00 per share. Since January 31, 2015, the acquisition fee for property acquisitions is paid in cash equal to 2.25% of the contract purchase price. Our advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our offering including acquisitions completed after the termination of

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the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions.

Acquisition fees in connection with the acquisition of properties are expensed as incurred in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Acquisition fees in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

Development Fee

For the three months ended March 31, 2015 and 2014, we did not incur any development fees to our advisor or its affiliates.

Reimbursement of Acquisition Expenses

Reimbursements of acquisition expenses are expensed as incurred in accordance with ASC Topic 805 and included in acquisition related expenses in our accompanying condensed consolidated statements of operations. Reimbursements of acquisition expenses in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.

For the three months ended March 31, 2015 and 2014, we did not incur any acquisition expenses to our advisor or its affiliates.

Operational Stage

Asset Management Fee

For the three months ended March 31, 2015, we incurred $957,000 in asset management fees to our advisor or its affiliates. We did not incur any asset management fees to our advisor or its affiliates for the three months ended March 31, 2014. Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations.

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Property Management Fee

Our advisor or its affiliates may directly serve as property manager of our properties or may sub-contract their property management duties to any third party and provide oversight of such third party property manager. Our advisor or its affiliates are paid a monthly management fee equal to a percentage of the gross monthly cash receipts of such property as follows: (i) a 1.0% property management oversight fee for any stand-alone, single-tenant net leased property, (ii) a 1.5% property management oversight fee for any property that is not a stand-alone, single-tenant net leased property and for which our advisor or its affiliates will provide oversight of a third party that performs the duties of a property manager with respect to such property, or (iii) a fair and reasonable property management fee that is approved by a majority of our directors, including a majority of our independent directors, that is not less favorable to us than terms available from unaffiliated third parties for any property that is not a stand-alone, single-tenant net leased property and for which our advisor or its affiliates will directly serve as the property manager without sub-contracting such duties to a third party.

Lease Fees

We pay our advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm's-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 6.0% of the gross revenues generated during the initial term of the lease.

For the three months ended March 31, 2015 and 2014, we did not incur any lease fees to our advisor or its affiliates. When incurred by us, lease fees will be capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.

Construction Management Fee

In the event that our advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended March 31, 2015 and 2014, we did not incur any construction management fees to our advisor or its affiliates.

Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or are expensed and included in our accompanying condensed consolidated statements of operations, as applicable.

Operating Expenses

For the three months ended March 31, 2015 and 2014, our advisor or its affiliates incurred operating expenses on our behalf of $0 and $174,000, respectively. Operating expenses are generally included in general and administrative in our accompanying condensed consolidated statements of operations.

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Compensation for Additional Services

Our advisor and its affiliates are paid for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated parties for similar services. For the three months ended March 31, 2015 and 2014, our advisor and its affiliates were not compensated for any additional services.

Liquidity Stage

Disposition Fees

For services relating to the sale of one or more properties, our advisor or its affiliates are paid a disposition fee up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. For the three months ended March 31, 2015 and 2014, we did not incur any disposition fees to our advisor or its affiliates.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

In the event of liquidation, our advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the remaining net proceeds from the sales of properties, after distributions to our stockholders, in the aggregate, of: (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) plus (ii) an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sales proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three months ended March 31, 2015 and 2014, we did not incur any such distributions to our advisor.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, in redemption of our advisor's limited partnership units, our advisor will be paid a distribution equal to 15.0% of the amount by which (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing. Actual amounts to be received depend upon the market value of our outstanding stock at the time of listing, among other factors. For the three months ended March 31, 2015 and 2014, we did not incur any such distributions to our advisor.

Subordinated Distribution Upon Termination

Pursuant to the Agreement of Limited Partnership, as amended, of our operating partnership, upon termination or non-renewal of the Advisory Agreement, our advisor will also be entitled to a subordinated distribution in redemption of its limited partnership units from our operating partnership equal to 15.0% of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash equal to an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date. In addition, our advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing or other liquidity event, including a liquidation, sale of substantially all of our assets or merger in which our stockholders receive in exchange for their shares of our common stock, shares of a company that are traded on a national securities exchange.

As of March 31, 2015 and December 31, 2014, we had not recorded any charges to earnings related to the subordinated distribution upon termination.

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Stock Purchase Plans

On March 5, 2014, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey T. Hanson, our President and Chief Operating Officer, Danny Prosky, and our Executive Vice President, General Counsel, Mathieu B. Streiff, each executed stock purchase plans, or the 2014 Stock Purchase Plans, whereby they each irrevocably agreed to invest 100% of their net after-tax base salary and cash bonus compensation earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. In addition, on March 5, 2014, our Chief Financial Officer, Shannon K S Johnson, our Senior Vice President — Acquisitions, Stefan K.L. Oh, our Secretary, Cora Lo, and our Vice President — Asset Management, Chris Rooney, each executed similar 2014 Stock Purchase Plans whereby they each irrevocably agreed to invest 15.0%, 15.0%, 10.0%, and 15.0%, respectively, of their net after-tax base salaries that were earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. Such arrangements terminated on December 31, 2014.

Effective January 1, 2015, Messrs. Hanson, Prosky, Streiff, Oh and Rooney, and Mses. Johnson and Lo, each adopted a stock purchase plan, or the 2015 Stock Purchase Plans, on terms similar to each of the 2014 Stock Purchase Plans described above. The 2015 Stock Purchase Plans each terminated in connection with the termination of the primary portion of our offering.

Purchases of shares of our common stock pursuant to the 2014 Stock Purchase Plans commenced after the initial release from escrow of the minimum offering amount, beginning with the officers' regularly scheduled payroll payment on May 20, 2014. The shares of common stock were purchased at a price of $9.00 per share, reflecting the purchase price of the shares in our offering, exclusive of selling commissions and the dealer manager fee.

For the three months ended March 31, 2015, our officers invested the following amounts and we issued the following shares of our common stock pursuant to the applicable stock purchase plan:



		Three Months Ended
		March 31, 2015
Officer's Name	Title	Amount		Shares
Jeffrey T. Hanson	Chairman of the Board of Directors and Chief Executive Officer	$	17,000	1,902
Danny Prosky	President, Chief Operating Officer and Director	20,000		2,246
Mathieu B. Streiff	Executive Vice President, General Counsel	19,000		2,062
Shannon K S Johnson	Chief Financial Officer	1,000		165
Stefan K.L. Oh	Senior Vice President — Acquisitions	2,000		168
Cora Lo	Secretary	1,000		106
Chris Rooney	Vice President — Asset Management	1,000		135
		$	61,000	6,784

Accounts Payable Due to Affiliates

The following amounts were outstanding to our affiliates as of March 31, 2015 and December 31, 2014:



	March 31,		December 31,
Fee	2015		2014
Offering costs	$	117,000	$	415,000
Asset and property management fees	445,000		131,000
Acquisition fees	118,000		31,000
	$	680,000	$	577,000

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

14. Fair Value Measurements

Assets and Liabilities Reported at Fair Value

The table below presents our assets and liabilities measured at fair value on a recurring basis as of March 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall.



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Contingent consideration assets	$	—	$	—	$	—	$	—
Total assets at fair value	$	—	$	—	$	—	$	—
Liabilities:
Contingent consideration obligations	$	—	$	—	$	5,264,000	$	5,264,000
Total liabilities at fair value	$	—	$	—	$	5,264,000	$	5,264,000

The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2014, aggregated by the level in the fair value hierarchy within which those measurements fall.



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities:
Contingent consideration obligations	$	—	$	—	$	1,393,000	$	1,393,000
Total liabilities at fair value	$	—	$	—	$	1,393,000	$	1,393,000

There were no transfers into and out of fair value measurement levels during the three months ended March 31, 2015. We did not have any assets and liabilities measured at fair value on a recurring basis as of March 31, 2014.

Contingent Consideration

Asset

As of March 31, 2015, we have not recorded any contingent consideration receivables. In connection with our purchase of King of Prussia PA MOB on January 21, 2015, there is a contingent consideration receivable in the amount of either $0 or $1,100,000. $1,100,000 would be returned to us in the event that within one year of the acquisition date certain criteria are not met, including the seller leasing 4,536 square feet of GLA meeting certain lease criteria, occupancy by the tenant, delivery of a signed estoppel by the tenant and our receipt of the first month’s rent under the lease. We do not believe as of March 31, 2015 that we will receive such amount and therefore we have not recorded any contingent consideration receivables.

Obligations

As of March 31, 2015 and December 31, 2014, we have accrued $5,264,000 and $1,393,000, respectively, as contingent consideration obligations in connection with our property acquisitions, which is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. Such consideration will be paid upon various conditions being met, including our tenants achieving certain operating performance metrics and sellers' leasing unoccupied space, as discussed below. When recorded by us, contingent consideration assets will be included in other assets, net, in our accompanying condensed consolidated balance sheets.

Of the amount accrued as of March 31, 2015, $3,471,000 relates to our acquisition of North Carolina ALF Portfolio on January 28, 2015, $795,000 relates to our acquisition of Acworth Medical Complex and $998,000 relates to various other property acquisitions. Of the amount accrued as of December 31, 2014, $795,000 relates to our acquisition of Acworth Medical Complex and $598,000 relates to another property acquisition.

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

An estimated amount of $3,471,000 related to North Carolina ALF Portfolio will be paid based upon the computation in the lease agreement and receipt of notification within three years after the acquisition date that the tenant has increased its EBITDAR, as such term is used in the lease agreement, for the preceding three months. There is no minimum required payment but the maximum is capped at $13,144,000 and is also limited by the tenant’s ability to increase its EBITDAR. Any payment made will result in an increase in the monthly rent charged to the tenant and additional rental revenue to us. We have assumed that we will receive notification from the tenant for a payment three years from the date of acquisition, assumed an applicable rate, as such term is used in the lease agreement, of 7.2% and applied a discount rate of 1.25% per annum.

As of March 31, 2015, we have accrued $795,000 related to Acworth Medical Complex, and such consideration will be paid within 18 months of the acquisition date based on the seller's leasing of up to 6,767 square feet of unoccupied space and achieving certain lease criteria. The payment of such consideration will occur after a qualified tenant delivers an estoppel, has taken occupancy and has begun paying rent under the new lease. There is no minimum or maximum required payment and we have assumed that the seller will lease 4,891 square feet of the 6,767 unoccupied square feet within the specified time frame.

Unobservable Inputs and Reconciliation

The fair value of the contingent consideration is determined based on the facts and circumstances existing at each reporting date and the likelihood of the counterparty achieving the necessary conditions based on a probability weighted discounted cash flow analysis based, in part, on significant inputs which are not observable in the market. As a result, we have determined that our contingent consideration valuations are classified in Level 3 of the fair value hierarchy. Any changes in the fair value of our contingent consideration assets and obligations subsequent to their acquisition date valuations are charged to earnings. Gains and losses recognized on contingent consideration assets and obligations are included in acquisition related expenses in our accompanying condensed consolidated statements of operations.

The following table shows quantitative information about unobservable inputs related to Level 3 fair value measurements used as of March 31, 2015 and December 31, 2014 for the contingent consideration obligations:



		Range of Inputs/Inputs				Fair Value
Acquisition	Unobservable Inputs(4)	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
North Carolina ALF Portfolio(1)	Tenant’s Annualized EBITDAR, as Defined, for the Three Months Prior to Payment	$	3,516,000	N/A		$	3,471,000	$	—
	Timing of Payment	January 27, 2018		N/A
	Applicable Rate, as Defined	7.2%		N/A
	Discount Rate per Annum	1.25%		N/A
	Percentage of Eligible Payment Requested	100%		N/A
Acworth Medical Complex(2)	Percentage of Total Unoccupied Square Footage Leased Up	72.3%		72.3%		$	795,000	$	795,000
	Rental Rate per Square Foot	$	16.00	$	16.00
	Tenant Improvement Allowance per Square Foot	$	30.00	$	30.00
DeKalb Professional Center(2)	Percentage of Total Unoccupied Square Footage Leased Up	100%		100%		$	598,000	$	598,000
	Rental Rate per Square Foot	$	15.50	$	15.50
	Tenant Improvement Allowance per Square Foot	$	30.00	$	30.00
King of Prussia PA MOB(3)	Percentage of Total Unoccupied Square Footage Leased Up	100%		N/A		$	400,000	$	—
	Percentage of Allowance for Tenant Improvements and Leasing Commissions to be Paid	100%		N/A

___________


(1)	The most significant input to the valuation is the tenant’s annualized EBITDAR, as defined. An increase (decrease) in the tenant’s annualized EBITDAR, as defined, would increase (decrease) the fair value.

(2)

The most significant input to the valuation is the percentage of total unoccupied square footage leased up and the rental rate per square foot. An increase (decrease) in the percentage of total unoccupied square feet leased up and rental rate per square foot would increase (decrease) the fair value. An increase (decrease) in the tenant improvement allowance per square foot would decrease (increase) the fair value.

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


(3)	The most significant input to the valuation is the percentage of total unoccupied square footage leased up. An increase (decrease) in the percentage of total unoccupied square feet leased up would increase (decrease) the fair value. An increase (decrease) in the percentage of allowance for tenant improvements and leasing commissions to be paid would increase (decrease) the fair value.


(4)	Significant increases or decreases in any of the unobservable inputs in isolation or in the aggregate would result in a significantly higher or lower fair value measurement to the contingent consideration obligation as of March 31, 2015 and December 31, 2014.

We did not have any contingent consideration assets and obligations for the three months ended March 31, 2014. The following is a reconciliation of the beginning and ending balances of our contingent consideration asset and obligations for the three months ended March 31, 2015:



	Three Months Ended March 31, 2015
Contingent Consideration Asset:
Beginning balance	$	—
Additions to contingent consideration asset	—
Realized/unrealized (gains) losses recognized in earnings	—
Ending balance	$	—
Amount of total (gains) losses included in earnings attributable to the change in unrealized (gains) losses related to asset still held	$	—

Contingent Consideration Obligations:
Beginning balance	$	1,393,000
Additions to contingent consideration obligations	3,871,000
Realized/unrealized (gains) losses recognized in earnings	—
Ending balance	$	5,264,000
Amount of total (gains) losses included in earnings attributable to the change in unrealized (gains) losses related to obligations still held	$	—

Financial Instruments Disclosed at Fair Value

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC Topic 820, Fair Value Measurements and Disclosures.

Our accompanying condensed consolidated balance sheets include the following financial instruments: real estate notes receivable, net, cash and cash equivalents, accounts and other receivables, net, restricted cash, real estate and escrow deposits, accounts payable and accrued liabilities, accounts payable due to affiliates and mortgage loans payable, net.

We consider the carrying values of real estate notes receivable, net, cash and cash equivalents, accounts and other receivables, net, restricted cash, real estate and escrow deposits and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time since origination of the instruments or the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. The fair value of the other financial instruments is classified in Level 2 of the fair value hierarchy. The fair value of accounts payable due to affiliates is not determinable due to the related party nature of the accounts payable.

The fair value of the mortgage loans payable is estimated using a discounted cash flow analysis using borrowing rates available to us for debt instruments with similar terms and maturities. As of March 31, 2015 and December 31, 2014, the fair value of the mortgage loans payable was $27,428,000 and $17,058,000, respectively, compared to the carrying value of $26,735,000 and $16,959,000, respectively. We have determined that the mortgage loans payable valuations are classified as Level 2 within the fair value hierarchy.

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

15. Business Combinations

For the three months ended March 31, 2015, using net proceeds from our offering and the assumption of mortgage loans payable, we completed seven property acquisitions comprising 18 buildings, which have been accounted for as business combinations. The aggregate contract purchase price was $293,504,000, plus closing costs and acquisition fees of $8,759,000, which are included in acquisition related expenses in our accompanying condensed consolidated statements of operations. See Note 3, Real Estate Investments, Net for a listing of the properties acquired, acquisition dates and mortgage loans payable assumed. We did not complete any property acquisitions for the three months ended March 31, 2014.

Results of operations for the property acquisitions during the three months ended March 31, 2015 are reflected in our accompanying condensed consolidated statements of operations for the period from the date of acquisition of each property through March 31, 2015. We present separately Independence MOB Portfolio, which is the one individually significant property acquisition during the three months ended March 31, 2015, and aggregate the rest of the property acquisitions during the three months ended March 31, 2015. For the period from the acquisition date through March 31, 2015, we recognized the following amounts of revenue and net income for the property acquisitions:



Acquisition	Revenue		Net Income
Independence MOB Portfolio	$	3,056,000	$	287,000
Other 2015 Acquisitions	$	1,756,000	$	705,000

The fair value of our seven property acquisitions at the time of each acquisition is shown below:



	Independence MOB Portfolio			Other 2015 Acquisitions
Building and improvements	$	113,727,000		$	137,800,000
Land	7,367,000			13,546,000
In-place leases	7,182,000			9,931,000
Above market leases	1,321,000			641,000
Leasehold interest	5,715,000			94,000
Total assets acquired	135,312,000			162,012,000
Mortgage loans payable, net	—			(9,946,000		)
Below market leases	(350,000		)	(13,000		)
Other liabilities	—			(3,871,000		)	(1)
Total liabilities assumed	(350,000		)	(13,830,000		)
Net assets acquired	$	134,962,000		$	148,182,000

___________


(1)	Included in other liabilities is $400,000 and $3,471,000 accrued for as contingent consideration obligations in connection with the purchase of King of Prussia PA MOB and North Carolina ALF Portfolio, respectively. For a further discussion, see Note 14, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration.

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

Assuming the property acquisitions in 2015 discussed above had occurred on January 1, 2014, for the three months ended March 31, 2015 and 2014, unaudited pro forma revenue, net income (loss), net income (loss) attributable to controlling interest and net income (loss) per common share attributable to controlling interest — basic and diluted would have been as follows:



	Three Months Ended March 31,
	2015		2014
Revenue	$	15,208,000	$	7,251,000
Net income (loss)	$	1,272,000	$	(7,505,000	)
Net income (loss) attributable to controlling interest	$	1,272,000	$	(7,504,000	)
Net income (loss) per common share attributable to controlling interest — basic and diluted	$	0.01	$	(0.23	)

The unaudited pro forma adjustments assume that the offering proceeds, at a price of $10.00 per share, net of offering costs were raised as of January 1, 2014. In addition, acquisition related expenses associated with the acquisitions have been excluded from the pro forma results in 2015 and added to the 2014 pro forma results. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

16. Segment Reporting

ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity's reportable segments. As of March 31, 2015, we evaluated our business and made resource allocations based on three reportable business segments — medical office buildings, hospitals and senior housing. Our medical office buildings are typically leased to multiple tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). In addition, our medical office buildings segment includes our real estate notes receivable. Our hospital investments are primarily single-tenant properties which lease the facilities to unaffiliated tenants under "triple-net" and generally "master" leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. Our senior housing facilities are primarily single-tenant properties for which we lease the facilities to unaffiliated tenants under “triple-net” and generally “master” leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant.

We evaluate performance based upon segment net operating income. We define segment net operating income as total revenues, less rental expenses, which excludes depreciation and amortization, general and administrative expenses, acquisition related expenses, interest expense and interest income for each segment. We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment net operating income serves as a useful supplement to net income (loss) because it allows investors and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis.

Interest expense, depreciation and amortization and other expenses not attributable to individual properties are not allocated to individual segments for purposes of assessing segment performance.

Non-segment assets primarily consist of corporate assets including cash and cash equivalents, real estate and escrow deposits, and other assets not attributable to individual properties.

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

Summary information for the reportable segments during the three months ended March 31, 2015 and 2014 was as follows:



	Medical Office Buildings		Hospitals		Senior Housing		Three Months Ended March 31, 2015
Revenue:
Real estate revenue	$	8,310,000	$	3,368,000	$	1,085,000	$	12,763,000
Expenses:
Rental expenses	2,970,000		594,000		76,000		3,640,000
Segment net operating income	$	5,340,000	$	2,774,000	$	1,009,000	$	9,123,000
Expenses:
General and administrative							$	2,767,000
Acquisition related expenses							9,408,000
Depreciation and amortization							4,673,000
Loss from operations							(7,725,000		)
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt premium)							(397,000		)
Interest income							24,000
Net loss							$	(8,098,000	)



	Medical Office Buildings		Hospitals		Senior Housing		Three Months Ended March 31, 2014
Revenue:
Real estate revenue	$	—	$	��	$	—	$	—
Expenses:
Rental expenses	—		—		—		—
Segment net operating income	$	—	$	—	$	—	$	—
Expenses:
General and administrative							46,000
Net loss							$	(46,000	)

Assets by reportable segment as of March 31, 2015 and December 31, 2014 were as follows:



	March 31,		December 31,
	2015		2014
Medical office buildings	$	433,213,000	$	139,425,000
Hospitals	145,202,000		129,075,000
Senior housing	63,520,000		13,580,000
Other	1,034,683,000		549,604,000
Total assets	$	1,676,618,000	$	831,684,000

17. Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily real estate notes receivable, cash and cash equivalents, accounts and other receivables, restricted cash and escrow deposits. Cash and cash equivalents are generally invested in investment-grade, short-term instruments with a maturity of three months or less when purchased. We have cash and cash equivalents in financial institutions that are insured by the Federal Deposit Insurance Corporation, or FDIC.

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

As of March 31, 2015 and December 31, 2014, we had cash and cash equivalents in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants, and security deposits are obtained at the time of property acquisition and upon lease execution.

Based on leases in effect as of March 31, 2015, we owned properties in two states for which each state accounted for 10.0% or more of our annualized base rent. Properties located in Texas and New Jersey accounted for 43.1% and 11.4%, respectively, of our annualized base rent. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state's economies.

Based on leases in effect as of March 31, 2015, our three reportable business segments, medical office buildings, hospitals and senior housing, accounted for 65.9%, 25.0% and 9.1%, respectively, of our annualized base rent. As of March 31, 2015, one of our tenants at our properties accounted for 10.0% or more of our annualized base rent, as follows:

Tenant

Annualized
Base Rent(1)

Percentage of
Annualized
Base Rent

Acquisition

Reportable Segment

GLA
(Sq Ft)

Lease Expiration
Date

Forest Park Medical Center(2)

10,844,000

22.6

Southlake TX Hospital

Hospitals

142,000

12/31/34

___________


(1)	Annualized base rent is based on contractual base rent from leases in effect as of March 31, 2015. The loss of this tenant or its inability to pay rent could have a material adverse effect on our business and results of operations.


(2)	As of March 31, 2015, we had an outstanding receivable of $2,785,000 from Forest Park Medical Center and such outstanding receivable has increased to a total aggregate outstanding amount of $4,849,000 as of May 14, 2015.

For the three months ended March 31, 2014, we did not own any properties.

18. Per Share Data

We report earnings (loss) per share pursuant to ASC Topic 260, Earnings per Share. Basic earnings (loss) per share for all periods presented are computed by dividing net income (loss) allocated to controlling interest by the weighted average number of shares of our common stock outstanding during the period. Net income (loss) allocated to controlling interest is calculated as net income (loss) attributable to controlling interest less distributions allocated to participating securities of $2,000 for the three months ended March 31, 2015. For the three months ended March 31, 2014, we did not allocate any distributions to participating securities. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Nonvested shares of our restricted common stock and redeemable limited partnership units of our operating partnership are participating securities and give rise to potentially dilutive shares of our common stock. As of March 31, 2015 and 2014, there were 12,000 and 0 nonvested shares, respectively, of our restricted common stock outstanding, but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. As of March 31, 2015 and 2014, there were 222 units of redeemable limited partnership units of our operating partnership outstanding, but such units were also excluded from the computation of diluted earnings per share because such units were anti-dilutive during these periods.

19. Subsequent Events

Status of our Offering

On April 22, 2015, we terminated the DRIP portion of our offering and deregistered our offering. As of April 22, 2015, we had received and accepted subscriptions in our primary offering for 184,931,598 shares of our common stock, or $1,842,628,000, and a total of $18,511,000 in distributions were reinvested that resulted in 1,948,563 shares of our common stock being issued pursuant to the DRIP.

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GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

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

Property Acquisitions

Subsequent to March 31, 2015, we completed three property acquisitions comprising five buildings from an unaffiliated party. The aggregate contract purchase price of these properties was $56,520,000 and we paid $1,272,000 in acquisition fees to our advisor and its affiliates in connection with these acquisitions. We have not yet measured the fair value of the tangible and identified intangible assets and liabilities of the acquisitions. The following is a summary of our property acquisitions subsequent to March 31, 2015:



Acquisition(1)	Location	Type	Date Acquired	Contract Purchase Price		Mortgage Loans Payable(2)		Acquisition Fee(3)
Paoli Medical Plaza	Paoli, PA	Medical Office	04/10/15	$	24,820,000	$	14,004,000	$	558,000
Glen Burnie MD MOB	Glen Burnie, MD	Medical Office	05/06/15	18,650,000		—		420,000
Marietta GA MOB	Marietta, GA	Medical Office	05/07/15	13,050,000		—		294,000
				$	56,520,000	$	14,004,000	$	1,272,000

___________


(1)	We own 100% of our properties acquired subsequent to March 31, 2015.


(2)	Represents the principal balance of the mortgage loans payable assumed by us at the time of acquisition.


(3)	Our advisor and its affiliates were paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.25% of the contract purchase price.

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

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc. and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, except where the context otherwise requires.

The following discussion should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 2014 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or the SEC, on March 19, 2015. Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2015 and December 31, 2014, together with our results of operations and cash flows for the three months ended March 31, 2015 and 2014.

Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are forward-looking. Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future investments on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States of America, or GAAP, policies and guidelines applicable to REITs; the availability of properties to acquire; the availability of financing; and our ongoing relationship with American Healthcare Investors, LLC, or American Healthcare Investors, and Griffin Capital Corporation, or Griffin Capital, or collectively, our co-sponsors, and their affiliates. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview and Background

Griffin-American Healthcare REIT III, Inc., a Maryland corporation, was incorporated on January 11, 2013 and therefore we consider that our date of inception. We were initially capitalized on January 15, 2013. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We may also originate and acquire secured loans and real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income. We believe we currently qualify, and intend to elect to be treated, as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to be taxed as a REIT.

On February 26, 2014, we commenced a best efforts initial public offering, or our offering, in which we initially offered to the public up to $1,750,000,000 in shares of our common stock for $10.00 per share in our primary offering and up to $150,000,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $1,900,000,000. We reserved the right to reallocate the shares of common stock we offered in our offering between the primary offering and the DRIP. As such, during our offering, we reallocated an aggregate of $115,000,000 in shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in shares of our common stock in our primary offering and up to $35,000,000 in shares of our common stock pursuant to the DRIP.

On March 25, 2015, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register a maximum of $250,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC

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upon its filing; however, we did not commence offering shares pursuant to the Secondary DRIP until April 22, 2015, following the deregistration of our offering.

We conduct substantially all of our operations through Griffin-American Healthcare REIT III Holdings, LP, or our operating partnership. We are externally advised by Griffin-American Healthcare REIT III Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement is effective as of February 26, 2014 and had aone-year term, but was subject to successive one-year renewals upon the mutual consent of the parties. The Advisory Agreement was renewed pursuant to the mutual consent of the parties on February 24, 2015 and expires on February 26, 2016. Our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, to, among other things, research, identify, review and make investments in and dispositions of properties and securities on our behalf consistent with our investment policies and objectives. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our advisor is 75.0% owned and managed by American Healthcare Investors and 25.0% owned by a wholly owned subsidiary of Griffin Capital. Effective December 8, 2014, NorthStar Asset Management Group Inc., or NSAM, through certain of its subsidiaries, and James F. Flaherty, III, one of NSAM's partners, acquired ownership interests in American Healthcare Investors. Effective March 1, 2015, American Healthcare Investors is 47.1% owned by AHI Group Holdings, LLC (formerly known as American Healthcare Investors LLC), or AHI Group Holdings, 45.1% indirectly owned by NSAM and 7.8% owned by Mr. Flaherty. We are not affiliated with Griffin Capital, Griffin Capital Securities, Inc., or Griffin Securities, or our dealer manager, NSAM or Mr. Flaherty; however, we are affiliated with Griffin-American Advisor and American Healthcare Investors.

We currently operate through three reportable business segments — medical office buildings, hospitals and senior housing. As of March 31, 2015, we had completed 18 real estate acquisitions comprising 40 properties, or 42 buildings, and approximately 1,882,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $571,204,000.

Critical Accounting Policies

The complete listing of our Critical Accounting Policies was previously disclosed in our 2014 Annual Report on Form 10-K, as filed with the SEC on March 19, 2015, and there have been no material changes to our Critical Accounting Policies as disclosed therein.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2014 Annual Report on Form 10-K, as filed with the SEC on March 19, 2015.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies — Recently Issued Accounting ~~Pronouncement,~~Pronouncements, to our accompanying condensed consolidated financial statements.

Acquisitions in 2015

For a discussion of property acquisitions in 2015, see Note 3, Real Estate Investments, Net, and Note 19, Subsequent Events – Property Acquisitions, to our accompanying condensed consolidated financial statements.

Factors Which May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form ~~10-Q.~~10-Q and those Risk Factors previously disclosed in our 2014 Annual Report on Form 10-K, as filed with the SEC on March 19, 2015.

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Real Estate Revenue

The amount of revenue generated by our ~~future~~ properties ~~will depend~~depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations at the then existing rental rates. Negative trends in one or more of these factors could adversely affect our revenue in future periods.

~~Offering Proceeds~~Scheduled Lease Expirations

IfAs of March 31, 2015, our properties were 95.9% leased and during the remainder of 2015, 3.4% of the leased GLA is scheduled to expire. Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months. In the future, if we ~~fail~~are unable to ~~raise significant proceeds above our minimum offering,~~negotiate renewals, we will ~~not have enough proceeds~~try to ~~invest in a diversified real estate portfolio. Our real estate portfolio would be concentrated in a small number~~identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.

As of ~~properties, resulting in increased exposure to local and regional economic downturns and the poor performance of one or more of~~March 31, 2015, our properties and, therefore, expose our stockholders to increased risk. In addition, many of our expenses are fixed regardless of the size of our real estate portfolio. Therefore, depending on the amount of proceeds we raise from our offering, we would expend a larger portion of our income on operating expenses. This would reduce our profitability and, in turn, the amount of net income available for distribution to our stockholders.

~~Sarbanes-Oxley Act~~

The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies have increased the costs of compliance with corporate governance, reporting and disclosure practices. These costs may have a material adverse effect on our results of operations and could impact our ability to pay distributions at current rates to our stockholders. Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to distribute funds to our stockholders. As part of our compliance with the Sarbanes-Oxley Act, we will be providing management’s assessment of our internal control over financial reporting as of December 31, 2015.

In addition, these laws, rules and regulations create new legal bases for potential administrative enforcement, civil and criminal proceedings against us in the event of non-compliance, thereby increasing the risks of liability and potential sanctions against us. We expect that our efforts to comply with these laws and regulations will continue to involve significant and potentially increasing costs, and that our failure to comply with these laws could result in fees, fines, penalties or administrative remedies against us.remaining weighted average lease term was 8.4 years.

Results of Operations

~~For the three months ended~~ ~~March 31, 2014~~ ~~and for the period from~~We were incorporated on January 11, 2013, ~~(Date~~ but we did not commence material operations until the commencement of ~~Inception) through~~ ~~March 31, 2013, we had a net loss~~our offering on February 26, 2014. We purchased our first property in June 2014. Accordingly, our results of ~~$46,000 and $0, respectively, or $2.03 and $0, respectively, per share. The net loss~~operations for the three months ended March 31, ~~2014~~2015 ~~was due to~~and 2014 are not comparable. In general, and administrative expenses primarily related to directors’ and officers’ liability insurance of $15,000, restricted stock compensation expense of $15,000 and board of directors fees of $10,000. Wewe expect ~~general and administrative expenses~~all amounts to increase in the future based on a full year of operations as well as increased activity as we ~~make~~acquire additional real estate and real estate-related investments. Our results of operations are not indicative of those expected in future periods.

~~Liquidity~~As of March 31, 2015, we operated through three reportable business segments —medical office buildings, hospitals and ~~Capital Resources~~senior housing. Prior to December 2014, we operated through two reportable business segments; however, with the addition of our first hospital in December 2014, we segregated our operations into three reporting segments to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. Prior to September 2014, we operated through one reportable business segment; however, with the addition of our first senior housing facility in September 2014, we segregated our operations into two reporting segments to assess the performance of our business in the same way that management reviews our performance and makes operating decisions.

WeExcept where otherwise noted, our results of operations are ~~dependent upon~~primarily due to owning 42 buildings as of March 31, 2015, as compared to not owning any buildings as of March 31, 2014. As of March 31, 2015, we owned the ~~net proceeds to be received from our offering to conduct our proposed activities. The capital required to purchase~~following types of properties:



	March 31, 2015
	Number of Buildings	Aggregate Contract Purchase Price		Leased %
Medical office buildings	35	$	371,118,000	94.9	%
Hospitals	2	139,780,000		100	%
Senior housing	5	60,306,000		100	%
Total/weighted average	42	$	571,204,000	95.9	%

Real Estate Revenue

For the three months ended March 31, 2015, real estate revenue was $12,763,000, and ~~real estate-related investments will be obtained~~was primarily comprised of base rent of $10,038,000, expense recoveries of $1,865,000 and interest income from ~~our offering and from any indebtedness that we may incur. We have been initially capitalized with $200,000 from~~notes receivable of $534,000.

Real estate revenue by operating segment consisted of the ~~sale of 22,222 shares of our common stock to our advisor, and our advisor has invested $2,000 in our operating partnership,~~following for ~~a total of $202,000 in cash~~the three months ended March 31, 2015:



	Three Months Ended
	March 31, 2015
Medical office buildings	$	8,310,000
Hospitals	3,368,000
Senior housing	1,085,000
Total	$	12,763,000

2236

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~~as of~~Rental Expenses

For the three months ended March 31, ~~2014. As such, cash flows from financing activities for~~2015, rental expenses were $3,640,000. Rental expenses consisted of the ~~period from January 11, 2013 (Date of Inception) through~~ ~~March 31, 2013~~ ~~were $202,000 as compared to $0~~following for the three months ended March 31, ~~2014.~~ 2015:



	Three Months Ended
	March 31, 2015
Real estate taxes	$	1,426,000
Building maintenance	791,000
Utilities	774,000
Property management fees — third party	152,000
Property management fees — affiliates	136,000
Administration	92,000
Insurance	36,000
Amortization of leasehold interests	23,000
Other	210,000
Total	$	3,640,000

Rental expenses and rental expenses as a percentage of total revenue by operating segment consisted of the following for the three months ended March 31, 2015:



	Three Months Ended
	March 31, 2015
Medical office buildings	$	2,970,000	35.7	%
Hospitals	594,000		17.6	%
Senior housing	76,000		7.0	%
Total/weighted average	$	3,640,000	28.5	%

We ~~had no cash flows from operating~~anticipate that the percentage of rental expenses to revenue will fluctuate based on the types of property we buy in the future. Multi-tenant medical office buildings typically have a higher percentage of rental expenses to revenue than hospitals and senior housing facilities.

General and Administrative

For the three months ended March 31, 2015 and 2014, general and administrative was $2,767,000 and $46,000, respectively. General and administrative consisted of the following for the periods then ended:



	Three Months Ended March 31,
	2015		2014
Asset management fees — affiliates	$	957,000	$	—
Share discounts expense	580,000		—
Transfer agent services	529,000		—
Professional and legal fees	357,000		—
Franchise taxes	109,000		—
Board of directors fees	60,000		10,000
Directors’ and officers’ liability insurance	53,000		15,000
Bad debt expense	42,000		—
Restricted stock compensation	14,000		15,000
Other	66,000		6,000
Total	$	2,767,000	$	46,000

The increase in general and administrative for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 was primarily due to the purchase of properties in 2015 and thus incurring asset management fees to our

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advisor or ~~investing activities~~its affiliates and franchise taxes. We did not incur any asset management fees to our advisor or its affiliates or franchise taxes for the three months ended March 31, 2014 as we did not purchase our first property until June 2014. In addition, we incurred transfer agent service fees and share discounts expense for the ~~period from January 11, 2013 (Date of Inception) through~~ three months ended March 31, ~~2013~~.2015 as a result of raising the minimum offering of $2,000,000 in May 2014. We expect general and administrative to continue to increase in 2015 as we purchase additional properties in 2015.

Acquisition Related Expenses

For the three months ended March 31, 2015, acquisition related expenses were $9,408,000 and were related primarily to expenses associated with our seven property acquisitions, including acquisition fees of $6,690,000 incurred to our advisor and its affiliates.

Depreciation and Amortization

For the three months ended March 31, 2015, depreciation and amortization was $4,673,000 and consisted of depreciation on our operating properties of $3,387,000 and amortization on our identified intangible assets of $1,286,000.

Interest Expense

For the three months ended March 31, 2015, interest expense was $397,000, which was related to interest expense on our mortgage loans payable of $316,000, $85,000 in amortization of deferred financing costs on our mortgage loans payable and revolving line of credit with Bank of America, N.A., or Bank of America, or our line of credit, and $48,000 in unused fees on our line of credit, partially offset by amortization of debt premium of $52,000. See Note 7, Mortgage Loans Payable, Net, and Note 8, Line of Credit, to our accompanying condensed consolidated financial statements for a further discussion.

Interest Income

For the three months ended March 31, 2015, we had interest income of $24,000 related to interest earned on funds held in cash accounts.

Liquidity and Capital Resources

As of March 31, ~~2014, we had accrued liabilities and accounts payable due to affiliates for payments made~~2015, our cash on ~~our behalf in the amount of $184,000 primarily for insurance premiums for directors’ and officers’ liability insurance and directors’ fees. As of March 31, 2014, we had no outstanding debt.~~

We will experience a relative increase in liquidity as subscriptions for shares of our common stock are received and a relative decrease in liquidity as net offering proceeds are expended in connection with the acquisition, management and operation of our investments in real estate and real estate-related investments.

hand was $1,026,387,000. Our sources of funds will primarily be the cash on hand from the net proceeds of our offering, which we deregistered on April 22, 2015, operating cash flows and borrowings. We believe that these resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other sources within the next 12 months.

Our principal demands for funds ~~will be~~are for ~~acquisitions~~the acquisition of real estate and real estate-related investments, payment of operating expenses, ~~and interest on our future indebtedness and~~ payment of distributions to our ~~stockholders. In addition,~~stockholders and interest on our current and future indebtedness. We estimate that we will require ~~resources~~approximately $1,026,000 to ~~make certain payments~~pay interest on our outstanding indebtedness in the remainder of 2015, based on interest rates in effect as of March 31, 2015, and $470,000 to pay principal on our outstanding indebtedness in the remainder of 2015.

Generally, cash needs for items other than the acquisition of real estate and real estate-related investments will be met from operations, borrowings and cash on hand from the net proceeds of our offering. However, there may be a delay between the sale of shares of our common stock and our investments in real estate and real estate-related investments, which could result in a delay in the benefits to our ~~advisor and its affiliates, which during~~stockholders, if any, of returns generated from our ~~offering includes payments for reimbursement of other organizational and offering expenses, selling commissions and dealer manager fees.~~investment operations.

Our advisor ~~will evaluate~~evaluates potential investments and ~~engage~~engages in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. Investors should be aware that after a purchase contract for a property is executed that contains specific terms, the property will not be purchased until the successful completion of due diligence, which includes review of the title insurance commitment, market evaluation, review of leases, review of financing options and an environmental analysis. In some instances, the proposed acquisition will require the negotiation of final binding agreements, which may include financing documents. Until we fully invest the proceeds of our offering in real estate and real estate-related investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn significant returns, and we cannot predict how long it will take to fully invest the proceeds in real estate and real estate-related investments. The number of properties we may acquire and other investments we will make will depend upon the number of shares of our common stock sold and the resulting amount of the net proceeds available for investment as well as our ability to arrange debt financing.

When we acquire a property, our advisor ~~will prepare~~prepares a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan ~~will~~ also ~~set~~sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from the ~~gross~~net proceeds of our offering, proceeds from sales of other investments, borrowings, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

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Other Liquidity Needs

In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions or the timing of the collection of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, or our advisor or its affiliates. There are currently no limits or restrictions on the use of proceeds from our advisor or its affiliates which would prohibit us from making the proceeds available for distribution. We may also pay distributions from cash from capital transactions, including, without limitation, the sale of one or more of our properties.

Based on the properties we owned as of March 31, 2015, we estimate that our expenditures for capital improvements will require up to $1,133,000 for the remaining nine months of 2015. As of March 31, 2015, we had $587,000 of restricted cash in loan impounds and reserve accounts for capital expenditures, some of which may be used to fund our estimated expenditures for capital improvements and tenant improvements. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.

If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewed leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.

Cash Flows

Operating Activities

Cash flows used in operating activities for the three months ended March 31, 2015 and 2014 were $1,948,000 and $0, respectively. For the three months ended March 31, 2015, cash flows used in operating activities related to the cash flows provided by our property operations, offset by the payment of acquisition related expenses and general and administrative expenses. We anticipate cash flows from operating activities to increase as we purchase additional properties.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2015 and 2014 were $348,402,000 and $0, respectively. For the three months ended March 31, 2015, cash flows used in investing activities primarily related to our seven property acquisitions in the amount of $282,259,000, our acquisition of real estate notes receivables of $60,217,000, the payment of $3,850,000 in real estate deposits and the payment of loan costs related to our acquisition of real estate notes receivable in the amount of $1,205,000. Cash flows used in investing activities are heavily dependent upon the investment of our offering proceeds in properties and real estate-related assets. We anticipate cash flows used in investing activities to increase as we acquire additional properties and real estate-related investments.

Financing Activities

Cash flows provided by financing activities for the three months ended March 31, 2015 and 2014 were $871,843,000 and $0, respectively. For the three months ended March 31, 2015, such cash flows related to funds raised from investors in our offering in the amount of $975,131,000, partially offset by the payment of offering costs of $95,187,000 in connection with our offering, distributions to our common stockholders of $7,677,000, the payment of deferred financing costs of $153,000, share repurchases of $153,000 and principal payments on our mortgage loans payable in the amount of $118,000. Overall, we anticipate cash flows from financing activities to decrease in the future since we deregistered our offering on April 22, 2015. However, we anticipate our indebtedness to increase as we acquire additional properties and real estate-related investments.

Distributions

On April 10, 2014, our board of directors authorized a daily distribution to be paid to our stockholders of record as of the close of business on each day of the period from the date we ~~receive~~received and ~~accept~~accepted subscriptions aggregating at least the minimum offering of $2,000,000, or the Commencement Date, through June 30, 2014, as a result of our advisor advising us that it ~~intends~~intended to waive a combination of certain acquisition fees and/or asset management fees, or collectively, the Advisory Fees, that may otherwise be due to our advisor pursuant to the Advisory Agreement, in order to provide us with additional funds to pay distributions to our stockholders. Our advisor ~~has~~ agreed to waive the Advisory Fees only until such time as the amount of such waived Advisory Fees iswas equal to the amount of distributions payable to our stockholders for the period commencing on the Commencement Date and ending on the date we ~~acquire~~acquired our first property or real estate-related investment.

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Having raised the minimum offering of $2,000,000 in shares of our common stock, or the minimum offering, on May 12, 2014, the offering proceeds were released by the escrow agent to us on May 14, 2014 and the distributions declared for each record date for the period from May 14, 2014 through June 30, 2014 were paid in June 2014 and July 2014 from legally available funds. We acquired our first property on June 6, 2014, and as such, our advisor waived the Advisory Fees equal to the amount of distributions payable from May 14, 2014 through June 5, 2014. Our advisor ~~will~~did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such Advisory Fees.

In addition, our board of directors has authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on July 1, 2014 and ending on June 30, 2015. The distributions ~~will be~~are calculated based on 365 days in the calendar year and ~~will be~~are equal to ~~$0.00164384~~$0.001643836 per share of our common ~~stock. These~~stock, which is equal to an annualized distribution rate of 6.0%, assuming a purchase price of $10.00 per share. The distributions ~~will be~~are aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to the DRIP ~~monthly in arrears.~~and the Secondary DRIP. The distributions ~~if any,~~ declared for each record date ~~in the May 2014 and June 2014 periods would be~~are paid ~~in June 2014 and July 2014, respectively.~~only from legally available funds.

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~~We have not paid any distributions as of March 31, 2014.~~ The amount of the distributions paid to our stockholders is determined quarterly by our board of directors and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to qualify and maintain our qualification as a REIT under the Code. We have not established any limit on the amount of offering proceeds that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences; or (iii) jeopardize our ability to qualify and maintain our qualification as a REIT.

We did not pay any distributions for the three months ended March 31, 2014. The distributions paid for the three months ended March 31, 2015, along with the amount of distributions reinvested pursuant to the DRIP and the sources of our distributions as compared to cash flows from operations were as follows:



	Three Months Ended
	March 31, 2015
Distributions paid in cash	$	7,677,000
Distributions reinvested	10,295,000
	$	17,972,000
Sources of distributions:
Cash flows from operations	$	—	—	%
Offering proceeds	17,972,000		100
	$	17,972,000	100	%

Under GAAP, acquisition related expenses are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from offering proceeds or debt.

Our distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and all or any portion of a distribution to our stockholders may be paid from offering proceeds. The payment of distributions from our offering proceeds could reduce the amount of capital we ultimately invest in assets and negatively impact the amount of income available for future distributions.

As of March 31, 2015, we had an amount payable of $563,000 to our advisor or its affiliates for asset and property management fees and acquisition fees, which will be paid from cash flows from operations in the future as it becomes due and payable by us in the ordinary course of business consistent with our past practice.

As of March 31, 2015, no amounts due to our advisor or its affiliates had been deferred, waived or forgiven other than the $37,000 in asset management fees waived by our advisor discussed above. Other than the waiver of the Advisory Fees by our advisor to provide us with additional funds to pay initial distributions to our stockholders through June 5, 2014, our advisor and its affiliates, including our co-sponsors, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

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	Three Months Ended
	March 31, 2015
Distributions paid in cash	$	7,677,000
Distributions reinvested	10,295,000
	$	17,972,000
Sources of distributions:
FFO	$	—	—	%
Offering proceeds	17,972,000		100
	$	17,972,000	100	%

The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial measure, including a reconciliation of our GAAP net income (loss) to FFO, see Funds from Operations and Modified Funds from Operations below.

Financing

We intend to continue to finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that, after an initial phase of our operations (prior to the investment of all of the net proceeds of our offering) when we may employ greater amounts of leverage to enable us to purchase properties more quickly and therefore generate distributions for our stockholders sooner, our overall leverage will not exceed 45.0% of the combined market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year beginning with our first full year of operations. For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of March 31, 2015, our aggregate borrowings were 4.1% of the combined fair market value of all of our real estate and real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real estate or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we qualify and maintain our qualification as a REIT for federal income tax purposes.

As of May 14, 2015 and March 31, ~~2014~~2015, our leverage did not exceed 300% of the value of our net assets.

Mortgage Loans Payable, Net

For a discussion of our mortgage loans payable, net, see Note 7, Mortgage Loans Payable, Net, to our accompanying condensed consolidated financial statements.

Line of Credit

For a discussion of our line of credit, see Note 8, Line of Credit, to our accompanying condensed consolidated financial statements.

REIT Requirements

In order to qualify and maintain our qualification as a REIT for federal income tax purposes, we ~~have neither purchased nor contracted~~are required to ~~purchase any investments, thus consequently,~~make distributions to our stockholders of at least 90.0% of our annual taxable income, excluding net capital gains. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collection of receivables, we ~~have not incurred any debt.~~may seek to obtain capital to pay distributions by means of secured debt financing

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through one or more unaffiliated parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties or from the proceeds of our offering.

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 3,10, Commitments and Contingencies, to our accompanying condensed consolidated financial statements.

Debt Service Requirements

Our principal liquidity need is the payment of principal and interest on our outstanding indebtedness. As of March 31, ~~2014~~,2015, we ~~did not have any~~had $26,192,000 ($26,735,000, net of premium) of fixed rate debt outstanding ~~debt.~~secured by our properties. As of March 31, 2015, there were no borrowings outstanding and $60,000,000 remained available under our line of credit.

We are required by the terms of certain loan documents to meet certain covenants, such as leverage ratios, net worth ratios, debt service coverage ratios, fixed charge coverage ratios and reporting requirements. As of March 31, 2015, we were in compliance with all such covenants and requirements on our mortgage loans payable and our line of credit and we expect to remain in compliance with all such requirements for the next 12 months. As of March 31, 2015, the weighted average effective interest rate on our outstanding debt was 5.20% per annum.

Contractual Obligations

AsThe following table provides information with respect to: (i) the maturity and scheduled principal repayment of our secured mortgage loans payable, (ii) interest payments on our mortgage loans payable and (iii) obligations under our ground and other leases as of March 31, ~~2014~~,2015:



	Payments Due by Period
	Less than 1 Year (2015)		1-3 Years (2016-2017)		4-5 Years (2018-2019)		More than 5 Years (after 2019)		Total
Principal payments — fixed rate debt	$	470,000	$	8,800,000	$	1,111,000	$	15,811,000	$	26,192,000
Interest payments — fixed rate debt	1,026,000		2,198,000		1,559,000		2,136,000		6,919,000
Ground and other lease obligations	157,000		418,000		418,000		12,487,000		13,480,000
Total	$	1,653,000	$	11,416,000	$	3,088,000	$	30,434,000	$	46,591,000

The table above does not reflect any payments expected under our contingent consideration obligations in the estimated amount of $5,264,000, of which we ~~did not have any contractual obligations.~~expect to pay $1,793,000 in the next twelve months and $3,471,000 in 2018. For a further discussion of our contingent consideration obligations, see Note 14, Fair Value Measurements — Assets and Liabilities Reported at Fair Value — Contingent Consideration, to our accompanying condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of March 31, ~~2014~~2015, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.

Inflation

We expect to be exposed to inflation risk as income from future long-term leases will be the primary source of our cash flows from operations. We expect there to be provisions in the majority of our tenant leases that will protect us from the impact of inflation. These provisions will include negotiated rental increases, reimbursement billings for operating expense pass-through charges, and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Related Party Transactions

For a discussion of related party transactions, see Note 13, Related Party Transactions, to our accompanying condensed consolidated financial statements.

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Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as ~~funds from operations, or FFO. Although~~FFO, which we ~~have not acquired any real estate properties or real estate-related investments as of~~ ~~March 31, 2014, we are disclosing FFO and intend to disclose FFO in future filings because we consider FFO~~believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income (loss) as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which is the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, we believe it is appropriate to ~~disregard~~exclude impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist, and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, an impairment charge would be recognized. Testing for impairment charges ~~will be~~is a continuous process and is analyzed on a quarterly basis. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss).

However, FFO and modified funds from operations, or MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed as operating expenses under GAAP. We believe these fees and expenses ~~will~~do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. As disclosed in ~~the~~our prospectus for our offering, we will use the proceeds raised in our offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five years after the completion of our offering stage, which

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is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase assets

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and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs and ~~although~~which we ~~have not acquired any real estate properties or real estate-related investments as of~~ ~~March 31, 2014, we~~ believe ~~MFFO~~ to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired and that we consider more reflective of investing activities, as well as other non-operating items included in FFO, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering stage has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering stage and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired, as it excludes acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business ~~plan,~~plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity ~~accounting,~~accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. We are responsible for managing interest rate, hedge and foreign exchange risk, and we do not rely on another party to manage such risk. Inasmuch as interest rate hedges ~~are~~will not be a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are based on market fluctuations and may not be directly related or attributable to our operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. AsIn calculating MFFO, we ~~have not acquired any real estate properties or real estate-related investments as~~exclude acquisition related expenses (which includes gains and losses on contingent consideration), amortization of ~~March 31, 2014~~,above and below market leases, amortization of loan costs, change in deferred rent receivables and the adjustments of such items related to redeemable noncontrolling interest. The other adjustments included in the IPA’s Practice Guideline ~~to adjust FFO to MFFO~~ are not applicable to us for the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~2014. Acquisition fees and expenses are paid in cash by us, and we have not set aside or put into escrow any specific amount of proceeds from our offering to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent ~~re-deployment~~redeployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses will not be reimbursed by our advisor or its affiliates and third parties, and therefore if there ~~are not~~is no further cash on hand from the proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties, or from ancillary cash flows. Certain acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees

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and expenses and other costs related to such property. In the future, if we ~~are not able to raise significant proceeds from our offering, this could result in us paying~~may pay acquisition fees or ~~reimbursing~~reimbure acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from the proceeds of our offering.

Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as items which are unrealized and may not ultimately be realized or as items which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

We ~~will~~ use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it ~~will~~ allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO has limitations as a performance measure in offerings such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

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The following is a reconciliation of net loss, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~:2014:


						Three Months Ended March 31,
	Three Months Ended March 31, 2014			Period from January 11, 2013 (Date of Inception) through March 31, 2013		2015			2014
Net loss	$	(46,000	)	$	—	$	(8,098,000	)	$	(46,000	)
Add:
Depreciation and amortization — consolidated properties	—			—		4,673,000			—
Less:
Net loss attributable to redeemable noncontrolling interest	1,000			—		—			1,000
FFO and MFFO	$	(45,000	)	$	—
Depreciation and amortization related to redeemable noncontrolling interest						—			—
FFO						$	(3,425,000	)	$	(45,000	)

Acquisition related expenses(1)						$	9,408,000		$	—
Amortization of above and below market leases(2)						181,000			—
Amortization of loan costs(3)						70,000			—
Change in deferred rent receivables(4)						(388,000		)	—
Adjustments for redeemable noncontrolling interest(5)						—			—
MFFO						$	5,846,000		$	(45,000	)
Weighted average common shares outstanding — basic and diluted	22,222			22,222		165,407,740			22,222
Net loss per common share — basic and diluted	$	(2.07	)	$	—	$	(0.05	)	$	(2.07	)
FFO and MFFO per common share — basic and diluted	$	(2.03	)	$	—
FFO per common share — basic and diluted						$	(0.02	)	$	(2.03	)
MFFO per common share — basic and diluted						$	0.04		$	(2.03	)

_________

(1)

In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered, non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition related expenses, we believe MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.

(2)

Under GAAP, above and below market leases are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, we believe that by excluding charges relating to the amortization of above and below market leases, MFFO may provide useful supplemental information on the performance of the real estate.

(3)

Under GAAP, direct loan costs are amortized over the term of the notes receivable as an adjustment to the yield on the notes receivable. This may result in income recognition that is different than the contractual cash flows under the notes receivable. By adjusting for the amortization of the loan costs related to our real estate notes receivable, MFFO may provide useful supplemental information on the realized economic impact of the notes receivable terms, providing insight on the expected contractual cash flows of such notes receivable, and aligns results with our analysis of operating performance.


(4)	Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays). This may result in income recognition that is significantly different than the underlying contract terms. By

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adjusting for the change in deferred rent receivables, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns results with our analysis of operating performance.


(5)	Includes all adjustments to eliminate the redeemable noncontrolling interest's share of the adjustments described in Notes (1) - (4) to convert our FFO to MFFO.

Net Operating Income

Net operating income is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, acquisition related expenses, depreciation and amortization, interest expense and interest income. Acquisition fees and expenses ~~will be~~are paid in cash by us, and we ~~will~~have not set aside or put into escrow any specific amount of proceeds from our offering to be used to fund acquisition fees and expenses. The purchase of real estate and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our stockholders. However, we do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequent re-deployment of capital and concurrent incurring of acquisition fees and expenses. Acquisition fees and expenses ~~will~~ include payments to our advisor or its affiliates and third parties. Such fees and expenses ~~will~~are not be reimbursed by our advisor or its affiliates and third parties, and therefore if there ~~are not~~is no further cash on hand from the proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows. Acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses ~~will~~ have negative effects on returns to investors, the potential for future distributions and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, if we ~~are not able to raise significant proceeds from our offering, this could result in us paying~~may pay acquisition fees or ~~reimbursing~~reimburse acquisition expenses due to our advisor and its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties or ancillary cash flows. As a result, the amount of proceeds available for investment, operations and non-operating expenses would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, our advisor or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from the proceeds of our offering.

Net operating income is not equivalent to our net income (loss) or income (loss) from continuing operations as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, net operating income is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. Net operating income should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. Investors are also cautioned that net operating income should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.

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~~Although we have not acquired any real estate properties or real estate-related investments as of~~ ~~March 31, 2014, we are disclosing~~We believe that net operating income ~~and intend to disclose~~is useful for investors as it provides an accurate measure of the operating performance of our operating assets because net operating income ~~in future filings because we~~excludes certain items that are not associated with the management of the properties. We believe that net operating income is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term net operating income may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

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To facilitate understanding of this financial measure, the following is a reconciliation of net loss, which is the most directly comparable GAAP financial measure, to net operating income for the three months ended March 31, ~~2014~~2015 and ~~for the period from January 11,~~ ~~2013~~ ~~(Date of Inception) through~~ ~~March 31, 2013~~:2014:


						Three Months Ended March 31,
	Three Months Ended March 31, 2014			Period from January 11, 2013 (Date of Inception) through March 31, 2013		2015			2014
Net loss	$	(46,000	)	$	—	$	(8,098,000	)	$	(46,000	)
General and administrative	46,000			—
Acquisition related expenses	—			—		9,408,000			—
Depreciation and amortization	—			—		4,673,000			—
General and administrative						2,767,000			46,000
Interest expense	—			—		397,000			—
Interest income	—			—		(24,000		)	—
Net operating income	$	—		$	—	$	9,123,000		$	—

Subsequent Events

For a discussion of subsequent events, see Note 8,19, Subsequent Events, to our accompanying condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market ~~risks~~risk to which we will be exposed is interest rate risk. There were no material changes in our market risk exposures, or in the methods we use to manage market risk, from those that were provided for in our 2014 Annual Report on Form 10-K, as filed with the SEC on March 19, 2015.

Interest Rate Risk

We ~~may be~~are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. We are also exposed to the effects of changes in interest rates as a result of our investments in real estate notes receivable. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives ~~will be~~are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed ~~rates~~ or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into ~~derivative~~derivatives or interest rate transactions for speculative purposes. ~~Because~~

The table below presents, as of March 31, 2015, the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.



	Expected Maturity Date
	2015			2016			2017			2018			2019			Thereafter			Total			Fair Value
Assets
Fixed rate notes receivable — principal payments	$	—		$	—		$	—		$	—		$	28,650,000		$	—		$	28,650,000		$	29,238,000
Weighted average interest rate on maturing fixed rate notes receivable	—		%	—		%	—		%	—		%	6.75		%	—		%	6.75		%	—
Variable rate notes receivable — principal payments	$	—		$	31,567,000		$	—		$	—		$	—		$	—		$	31,567,000		$	32,182,000
Weighted average interest rate on maturing variable rate notes receivable (based on rates in effect as of March 31, 2015)	—		%	6.18		%	—		%	—		%	—		%	—		%	6.18		%	—
Liabilities
Fixed rate debt — principal payments	$	470,000		$	658,000		$	8,142,000		$	542,000		$	569,000		$	15,811,000		$	26,192,000		$	27,428,000
Weighted average interest rate on maturing debt	5.18		%	5.19		%	6.20		%	4.82		%	4.82		%	4.71		%	5.20		%	—

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Real Estate Notes Receivable

As of March 31, 2015, the carrying value of our real estate notes receivable was $61,420,000, which approximates the fair value. As we expect to hold our fixed rate notes receivable to maturity and the amounts due under such notes would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate notes receivable, would have a significant impact on our operations. Conversely, movements in interest rates on our variable rate notes receivable may change our future earnings and cash flows, but not significantly affect the fair value of those instruments. The weighted average effective interest rate on our outstanding real estate notes receivable was 6.45% per annum based on rates in effect as of March 31, 2015. A decrease in the variable interest rate on our real estate notes receivable constitutes a market risk. As of March 31, 2015, a 0.50% decrease in the market rates of interest would have no impact on our future earnings and cash flows due to interest rate floors on our variable rate real estate notes receivable.

Mortgage Loans Payable and Line of Credit

Mortgage loans payable were $26,192,000 ($26,735,000, net of premium) as of March 31, 2015. As of March 31, 2015, we had three fixed rate mortgage loans with effective interest rates ranging from 4.50% to 6.29% per annum and a weighted average effective interest rate of 5.20%. As of March 31, 2015, we did not ~~commenced real estate operations~~have any amounts outstanding under our line of credit.

An increase in the variable interest rate on our line of credit constitutes a market risk. However, as of March 31, ~~2014, we had limited exposure to financial market risks.~~2015, there were no borrowings outstanding on our line of credit.

Other Market Risk

In addition to changes in interest rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

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Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating ~~our~~the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, ~~2014~~2015 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of March 31, ~~2014~~2015, were effective ~~for~~at the ~~purposes stated above.~~reasonable assurance level.

(b) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended March 31, ~~2014~~2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

~~Investment Risks~~

There iswere no public market for the shares of our common stock. Therefore, it will be difficult for our stockholders to sell their shares of our common stock and, if our stockholders are able to sell their shares of our common stock, our stockholders will likely sell them at a substantial discount.

We commenced our initial public offering on February 26, 2014. However, there currently is no public market for shares of our common stock. We do not expect a public market for our stock to develop prior to the listing of the shares of our common stock on a national securities exchange, which we do not expect to occur in the near future and which may not occur at all. Additionally, our charter contains restrictions on the ownership and transfer of shares of our stock, and these restrictions may inhibit their ability to sell their shares of our common stock. Our charter provides that no person may own more than 9.9% in value of our issued and outstanding shares of capital stock or more than 9.9% in value or in number of shares, whichever is more restrictive, of the issued and outstanding shares of our common stock. Any purported transfer of the shares of our common stock that would result in a violation of either of these limits will result in such shares being transferred to a trust for the benefit of a charitable beneficiary or such transfer being declared null and void. We have adopted a share repurchase plan, but it is limited in terms of the amount of shares of our common stock which may be repurchased annually and is subject to our board of directors’ discretion. Our board of directors may also amend, suspend, or terminate our share repurchase plan upon 30 days’ written notice. Therefore, it will be difficult for our stockholders to sell their shares of our common stock promptly or at all. If our stockholders are able to sell their shares of our common stock, our stockholders may only be able to sell them at a substantial discountmaterial changes from the ~~price~~risk factors previously disclosed in our ~~stockholders paid. This may be~~2014 Annual Report on Form 10-K, as filed with the result, in part, of the fact that, at the time we make our investments, the amount of funds available for investment may be reduced by up to 11.0% of the gross offering proceeds, which will be used to pay selling commissions, a dealer manager fee and other organizational and offering expenses. We also will be required to use gross offering proceeds to pay acquisition fees, acquisition expenses and asset management fees. Unless our aggregate investments increase in value to compensate for these fees and expenses, which may not occur, it is unlikely that our stockholders will be able to sell their shares of our common stock, whether pursuant to our share repurchase plan or otherwise, without incurring a substantial loss. We cannot assure our stockholders that their shares of our common stock will ever appreciate in value to equal the price our stockholders paid for their shares of our common stock. Therefore, shares of our common stock should be considered illiquid and a long-term investment, and our stockholders must be prepared to hold their shares of our common stock for an indefinite length of time.SEC on March 19, 2015, except as noted below.

We have not ~~identified all of the real estate or real estate-related investments to acquire with the net proceeds from our offering.~~

We have not identified all of the real estate or real estate-related investments to acquire with the net proceeds of our offering. As a result, our stockholders will not have the opportunity to evaluate the transaction terms or other financial or operational data concerning the real estate or real estate-related investments we acquire in the future.

We have no operating history. Therefore, our stockholders may not be able to adequately evaluate our ability to achieve our investment objectives, and the prior performance of other programs sponsored by American Healthcare Investors and Griffin Capital may not be an accurate predictor of our future results.

We were formed in January 2013 and did not engage in any material business operations prior to our offering. As a result, an investment in shares of our common stock may entail more risks than the shares of common stock of a REIT with a more substantial operating history. In addition, our stockholders should not rely on the past performance of other American Healthcare Investors or Griffin Capital-sponsored programs to predict our future results. Our stockholders should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies like ours that do not have a substantial operating history, many of which may be beyond our control. Therefore, to be successful in this market, we must, among other things:

~~identify and acquire investments that further our investment strategy;~~

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~~rely on our dealer manager to build, expand and maintain its network of licensed securities brokers and other agents in order to sell shares of our common stock in our offering;~~

~~attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;~~

~~respond to competition both for investment opportunities and potential investors’ investment in us; and~~

~~build and expand our operational structure to support our business.~~

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause our stockholders to lose all or a portion of their investment and adversely effect our results of operations.

If we raise proceeds in our offering substantially less than the maximum offering amount, we may not be able to invest in a diverse portfolio of real estate and real estate-related investments, and the value of our stockholders' investment may fluctuate more widely with the performance of specific investments.

We are dependent upon the net proceeds to be received from our offering to conduct our proposed activities. Our stockholders, rather than us or our affiliates, will incur the bulk of the risk if we are unable to raise substantial funds. Our offering is being made on a “best efforts” basis, whereby our dealer manager and the broker-dealers participating in the offering are only required to use their best efforts to sell shares of our common stock and have no firm commitment or obligation to purchase any of the shares of our common stock. As a result, we cannot assure our stockholders as to the amount of proceeds that will be raised in our offering or that we will achieve sales of the maximum offering amount. If we are unable to raise substantially more than the minimum offering amount, we will have limited diversificationin terms of the number of investments owned, the geographic regions in which our investments are located and the types of investments that we make. Our stockholders' investment in shares of our common stock will be subject to greater risk to the extent that we lack a diversified portfolio of investments. In such event, the likelihood of our profitability being affected by the poor performance of any single investment will increase. In addition, our fixed operating expenses, as a percentage of gross income, would be higher, and our financial condition and ability to pay distributions could be adversely affected if we are unable to raise substantial funds.

~~Our co-sponsors and certain of their key personnel will face competing demands relating to their time, and this may cause our operating results to suffer.~~

Griffin Capital and certain of its key personnel and its respective affiliates serve as key personnel, advisors, managers and sponsors of 14 other Griffin Capital-sponsored real estate programs, including Griffin Capital Essential Asset REIT, Inc., or GC REIT, and may have other business interests as well. In addition, American Healthcare Investors and its key personnel serve as key personnel and co-sponsor of GA Healthcare REIT II, and may sponsor or co-sponsor additional real estate programs in the future. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our stockholders' investment may suffer.

In addition, executive officers of Griffin Capital also are officers of Griffin Securities and other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to allocation of management time and services between us and the other entities. Griffin Securities currently serves as dealer manager for GC REIT. If Griffin Securities is unable to devote sufficient time and effort to the distribution of shares of our common stock, we may not be able to raise significant additional proceeds in our offering for investment in real estate. Accordingly, competing demands of Griffin Capital personnel may cause us to be unable to successfully implement our investment objectives or generate cash needed to make distributions to our stockholders, and to maintain or increase the value of our assets.

~~If we are unable to find suitable investments, we may not have sufficient cash flows available for distributions to our stockholders.~~

Our ability to achieve our investment objectives and to pay distributions to our stockholders is dependent upon the performance of our advisor in selecting investments for us to acquire, selecting tenants for our properties and securing financing arrangements. Except for investments identified in our public filings, our stockholders generally will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. Investors must rely entirely on the management ability of our advisor and the oversight of our board of directors. Our advisor may not be successful in identifying suitable investments on financially attractive terms or that, if they identify suitable investments, our

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investment objectives will be achieved. If we, through our advisor, are unable to find suitable investments, we will hold the net proceeds of our offering in an interest-bearing account or invest the net proceeds in short-term, investment-grade investments. In such an event, our ability to pay distributions to our stockholders would be adversely affected.

~~We may not have~~had sufficient cash available from operations to pay distributions, and therefore, we ~~may pay~~have paid distributions from the net proceeds of our offering, and in the future, may pay distributions from net proceeds from our offering, from borrowings in anticipation of future cash flows or from other sources. Any such distributions may reduce the amount of capital we ultimately invest in assets, may negatively impact the value of our stockholders' investment and may cause subsequent investors to experience dilution.

~~Distributions~~We have used net proceeds from our offering and our advisor has waived certain fees payable to them as discussed below, and in the future, may use the net proceeds from our offering, borrowed funds or other sources, to pay cash distributions to our stockholders, which may reduce the amount of proceeds available for investment and operations, cause us to incur additional interest expense as a result of borrowed funds or cause subsequent investors to experience dilution. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated earnings and profits, the excess amount will be deemed a return of capital. Therefore, distributions payable to our stockholders may include a return of capital, rather than a return on capital, and it is likely that we will use offering proceeds to fund a majority of our initial distributions. We have not established any limit on the amount of proceeds from our offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences. The actual amount and timing of distributions ~~will be~~is determined by our board of directors in its sole discretion and typically ~~will depend~~depends on the amount of funds available for distribution, which will depend on items such as our financial condition, current and projected capital expenditure requirements, tax considerations and annual distribution requirements needed to qualify as a REIT. As a result, our distribution rate and payment frequency may vary from time to time.

~~We may use the net proceeds from~~On April 10, 2014, our ~~offering, borrowed funds, or other sources,~~board of directors authorized a daily distribution to ~~pay cash distributions~~be paid to our stockholders ~~in order to qualify~~of record as ~~a REIT, which may reduce~~of the ~~amount~~close of ~~proceeds available for investment and operations, cause us to incur additional interest expense~~business on each day of the period from the Commencement Date through June 30, 2014, as a result of ~~borrowed~~our advisor advising us that it intended to waive the Advisory Fees that may otherwise be due to our advisor pursuant to the Advisory Agreement in order to provide us with additional funds ~~or cause subsequent investors~~ to ~~experience dilution. Further, if~~pay distributions to our stockholders. Our advisor agreed to waive the ~~aggregate~~Advisory Fees only until such time as the amount of ~~cash distributed in any given year exceeds~~such waived Advisory Fees was equal to the amount of distributions payable to our stockholders for the period commencing on the Commencement Date and ending on the date we acquired our first property or real estate-related investment.

Having raised the minimum offering on May 12, 2014, the offering proceeds were released by the escrow agent to us on May 14, 2014 and the distributions declared for each record date in the May 2014 and June 2014 periods were paid in June 2014 and July 2014, respectively, from legally available funds. We acquired our first property on June 6, 2014, and as such, our advisor waived Advisory Fees equal to the amount of distributions payable from May 14, 2014 through June 5, 2014. Our advisor did not receive any additional securities, shares of our stock, or any other form of consideration or any repayment as a result of the waiver of such Advisory Fees.

In addition, our board of directors has authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on July 1, 2014 and ending on June 30, 2015. The distributions are calculated based on 365 days in the calendar year and are equal to $0.001643836 per share of our common stock, which is equal to an annualized distribution rate of 6.0%, assuming a purchase price of $10.00 per share. The distributions are aggregated and paid monthly in arrears in cash or shares of our common stock pursuant to the DRIP and the Secondary DRIP. The distributions declared for each record date are paid only from legally available funds.

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	Three Months Ended
	March 31, 2015
Distributions paid in cash	$	7,677,000
Distributions reinvested	10,295,000
	$	17,972,000
Sources of distributions:
Cash flows from operations	$	—	—	%
Offering proceeds	17,972,000		100
	$	17,972,000	100	%

Under GAAP, acquisition related expenses are expensed, and therefore, are subtracted from cash flows from operations. However, these expenses may be paid from offering proceeds or debt.

Our distributions of amounts in excess of our current and accumulated earnings and profits ~~the excess amount will be deemed~~have resulted in a return of ~~capital.~~

~~We face competition for the acquisition of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, which may impede our ability~~capital to ~~make acquisitions or may increase the cost of these acquisitions and may reduce our profitability and could cause~~ our stockholders, ~~to experience~~and all or any portion of a ~~lower return on our stockholders' investment.~~

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, including national, regional and local operators, acquirers and developers of healthcare real estate properties, as well as GA Healthcare REIT II. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings,hospitals, skilled nursing facilities, senior housing facilities, healthcare-related facilities or other assets we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets, and therefore, increased prices paid for them. Due to an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices per property if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices per property for medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities, our business, financial condition and results of operations and our ability to pay distributionsdistribution to our stockholders may be ~~materially and adversely affected and our stockholders may experience a lower return on their investment.~~

~~Our stockholders may be unable to sell their shares~~paid from offering proceeds. The payment of ~~our common stock because their ability to have their shares of our common stock repurchased pursuant to our share repurchase plan is subject to significant restrictions and limitations.~~

Our share repurchase plan includes significant restrictions and limitations. Except in cases of death or qualifying disability, our stockholders must hold their shares of our common stock for at least one year. Our stockholders must present at least 25.0% of their shares of our common stock for repurchase and until our stockholders have held their shares of our common stock for at least four years, repurchases will be made for less than our stockholders paid for their shares of our common stock. Shares of our common stock may be repurchased quarterly, at our discretion, on a pro rata basis, and are limited during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, that shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap. Funds for the repurchase of shares of our common stock will come exclusivelydistributions from the cumulative proceeds we receive from the sale of shares of our common stock pursuant to the DRIP. In addition, our board of directors may reject share repurchase requests in its sole discretion and reserves the right to amend, suspend or terminate our

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share repurchase plan at any time upon 30 days’ written notice. Therefore, in making a decision to purchase shares of our common stock, our stockholders should not assume that our stockholders will be able to sell any of their shares of our common stock back to us pursuant to our share repurchase plan and our stockholders also should understand that the repurchase price will not necessarily correlate to the value of our real estate holdings or other assets. If our board of directors terminates our share repurchase plan, our stockholders may not be able to sell their shares of our common stock even if our stockholders deem it necessary or desirable to do so.

Our advisor may be entitled to receive significant compensation in the event of our liquidation or in connection with a termination of the advisory agreement, even if such termination is the result of poor performance by our advisor.

~~We are externally advised by our advisor pursuant to an advisory agreement between us and our advisor which has a one-year~~term that will expire February 26, 2015 and is subject to successive one-year renewals upon the mutual consent of us and our advisor. In the event of a partial or full liquidation of our assets, our advisor will be entitled to receive an incentive distribution equal to 15.0% of the net proceeds of the liquidation, after we have received and paid to our stockholders the sum of the gross proceeds from the sale of shares of our common stock, and any shortfall in an annual 7.0% cumulative, non-compounded return to stockholders in the aggregate. In the event of a termination of the advisory agreement in connection with the listing of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (1) the market value of our outstanding common stock at listing plus distributions paid by us prior to the listing of the shares of our common stock on a national securities exchange, exceeds (2) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination or non-renewal of the advisory agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units equal to the amount that would be payable as an incentive distribution upon sales of properties, which equals 15.0% of the net proceeds if we liquidated all of our assets at fair market value, after we have received and paid to our stockholders the sum of the gross proceeds from the sale of shares of our common stock and an annual 7.0% cumulative, non-compounded return to our stockholders in the aggregate. Such distribution upon termination of the advisory agreement is payable to our advisor even upon termination or non-renewal of the advisory agreement as a result of poor performance by our advisor. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor in connection with the termination of the advisory agreement cannot be determined at the present time, but such amounts, if paid, will reduce the cash available for distribution to our stockholders.

~~We may not effect a liquidity event within our targeted time frame of five years after the completion of~~ our offering ~~stage, or at all. If we do not effect a liquidity event, our stockholders may have to hold their investment in shares of our common stock for an indefinite period of time.~~

On a limited basis, our stockholders may be able to sell shares of our common stock to us through our share repurchase plan. However, in the future we may also consider various forms of liquidity events, including but not limited to: (1) the listing of the shares of our common stock on a national securities exchange; (2) our sale or merger in a transaction that provides our stockholders with a combination of cash and/or securities of a publicly traded company; and (3) the sale of all or substantially all of our real estate and real estate-related investments for cash or other consideration. We presently intend to effect a liquidity event within five years after the completion of our offering stage, which we deem to be the completion of our offering and any subsequent public offerings, excluding any offerings pursuant to the DRIP or that is limited to any benefit plans. However, we are not obligated, through our charter or otherwise, to effectuate a liquidity event and may not effect a liquidity event within such time or at all. If we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in the shares of our common stock other than limited liquidity through our share repurchase plan.

Because a portion of our offering price from the sale of shares of our common stock is used to pay expenses and fees, the full offering price paid by our stockholders is not invested in real estate investments. As a result, our stockholders will only receive a full return of their invested capital if we either (1) sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets, or (2) list the shares of our common stock on a national securities exchange and the market value of our company after we list is substantially in excess of the original purchase price of our assets.

~~Our board of directors may change our investment objectives without seeking our stockholders' approval.~~

Our board of directors may change our investment objectives without seeking our stockholders' approval if our directors, in accordance with their fiduciary duties to our stockholders, determine that a change is in our stockholders' best interest. A

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~~change in our investment objectives~~proceeds could ~~reduce our payment of cash distributions to our stockholders or cause a decline in the value of our investments.~~

We may compete with other programs sponsored by our co-sponsors for investment opportunities, and American Healthcare Investors has adopted an asset allocation policy pursuant to which we will not have priority with respect to certain investment opportunities. As a result, we may be unable to find suitable investments, or our advisor may not cause us to invest in favorable investment opportunities, which may reduce our returns on our investments.

Griffin Capital and American Healthcare Investors are currently the co-sponsors for other publicly held, non-traded REITs, including Griffin-American Healthcare REIT II, Inc., or GA Healthcare REIT II, and are not precluded from sponsoring other real estate programs in the future. As a result, we may be buying properties at the same time as one or more other Griffin Capital or American Healthcare Investors programs that are managed or advised by affiliates of our advisor. Officers and employees of our advisor may face conflicts of interest in allocating investment opportunities between us and these other programs. Therefore, on April 10, 2014, American Healthcare Investors, acting as managing member of both our advisor and the sub-advisor of GA Healthcare REIT II, adopted an asset allocation policy that would apply until June 30, 2014, to allocate potential investment opportunities among us and GA Healthcare REIT II based on the consideration of certain factors for each company such as investment objectives; the availability of cash and/or financing to acquire the investment; financial impact; strategic advantages; concentration and/or diversification; and income tax effects. After consideration and analysis of such factors, if American Healthcare Investors determines that the investment opportunity is suitable for both companies, then: (i) we will have priority for investment opportunities of $20,000,000 or less, until such time as we reach $500,000,000 in aggregate assets (based on contract purchase price); and (ii) GA Healthcare REIT II will have priority for (a) investment opportunities of $100,000,000 or greater and (b) international investments, until such time as GA Healthcare REIT II reaches 30% portfolio leverage (calculated by dividing debt by contract purchase price and based on equity existing as of January 1, 2014). In the event all acquisition allocation factors have been exhausted and an investment opportunity remains equally suitable for us and GA Healthcare REIT II, the investment opportunity will be offered to the company that has had the longest period of time elapse since it was offered an investment opportunity. Because of this asset allocation policy, qualified investment opportunities may be rendered unavailable for acquisition by us, and therefore, we may be unable to find suitable investments as a result of this asset allocation policy, which could cause the returns on our stockholders’ investments to suffer.

In addition, our advisor may select properties for us that provide lower returns to us than properties that its affiliates select to be purchased by another Griffin Capital or American Healthcare Investors program. We are subject to the risk that as a result of the conflicts of interest between us, our advisor or programs managed by their affiliates, our advisor may not cause us to invest in favorable investment opportunities that our advisor locates when it would be in our best interest to make such investments. As a result, we may invest in less favorable investments, which may reduce our returns on our investments and ability to pay distributions.

~~Risks Related to Our Business~~

~~We may suffer from delays in locating suitable investments, which could reduce our ability to pay distributions to our stockholders and reduce their return on their investment.~~

There may be a substantial period of time before the proceeds of our offering are invested in suitable investments, particularly as a result of the current economic environment and capital constraints. Because we are conducting our offering on a “best efforts” basis over time, our ability to commit to purchase specific assets will also depend, in part, on the amount of proceeds we have received at a given time. If we are delayed or unable to find suitable investments, we may not be able to achieve our investment objectives or pay distributions to our stockholders, and our results of operations will suffer.

~~The availability and timing of cash distributions to our stockholders is uncertain. If we fail to pay distributions, our stockholders' investment in shares of our common stock could suffer.~~

We will bear all expenses incurred in our operations, which are deducted from cash flows generated by operations prior to computing the amount of cash distributions to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be available to pay monthly distributions to our stockholders or at all. Should we fail for any reason to distribute at least 90.0% of our annual taxable income, excluding net capital gains, we would not qualify for the favorable tax treatment accorded to REITs.

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We are uncertain of all of our sources of debt or equity for funding our capital needs. If we cannot obtain funding on acceptable terms, our ability to acquire, and make necessary capital improvements to, properties may be impaired or delayed.

To qualify as a REIT, we generally must distribute to our stockholders at least 90.0% of our annual taxable income, excluding net capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our capital needs from retained earnings. We have not identified all of our sources of debt or equity for funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to acquire, and make necessary capital improvements to, properties, pay other expenses or expand our business.

We intend to incur mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to pay distributions and could decrease the value of our stockholders' investment.

We will finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds. We anticipate that, after an initial phase of our operations (prior to the investment of all of the net proceeds of our offering of shares of our common stock) when we may employ greater amounts of leverage to enable us to purchase properties more quickly, and therefore, generate distributions for our stockholders sooner, our overall leverage will not exceed 45.0% of the combined market value of our real estate and real estate-related investments, as determined at the end of each calendar year beginning with our first full year of operations. Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300% of our net assets without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual taxable income, excluding net capital gains, to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we qualify as a REIT for federal income tax purposes.

High debt levels may cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flows from a property and the cash flows needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders' investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Higher mortgage rates may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash available for distribution to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

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~~Financial market disruptions may adversely affect our operating results and financial condition.~~

The global financial markets have undergone pervasive and fundamental disruptions over the past number of years. Such volatility may have an adverse impact on the availability of credit to businesses generally and could lead to weakening of the U.S. and global economies. To the extent that turmoil in the financial markets exists, it has the potential to materially affect the value of our properties and other investments, the availability or the terms of financing that we may anticipate utilizing, our ability to make principal and interest payments on, or refinance, any outstanding debt when due and/or the ability of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. Financial market disruptions could also affect our operating results and financial condition as follows:

~~Debt and Equity Markets~~ — Our results of operations are sensitive to the volatility of the credit markets. The real estate debt markets have experienced volatility as a result of certain factors in recent years, including the tightening of underwriting standards by lenders and credit rating agencies. Credit spreads for major sources of capital may widen significantly as investors demand a higher risk premium, which may result in lenders increasing the cost for debt financing. Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions, developments and property contributions. This may result in our property operations generating lower overall economic returns and a reduced level of cash flows, which could potentially impact our ability to pay distributions to our stockholders. In addition, any dislocation in the debt markets may reduce the amount of capital ~~that is~~we ultimately invest in assets and negatively impact the amount of income available for future distributions.

As of March 31, 2015, we had an amount payable of $563,000 to ~~finance real estate,~~our advisor or its affiliates for asset and property management fees and acquisition fees, which will be paid from cash flows from operations in ~~turn: (1) limits~~ the ability of real estate investors to benefit from reduced real estate values or to realize enhanced returns on real estate investments; (2) may slow real estate transaction activity; and (3) may result in an inability to refinance debtfuture as it becomes due ~~all of which may reasonably be expected to have a material impact, favorable or unfavorable, on revenues, income and/or cash flows from the acquisition~~ and operations of real estate and mortgage loans. In addition, the state of the debt markets could have an impact on the overall amount of capital being invested in real estate, which may result in price or value decreases of real estate assets and impact our ability to raise equity capital.

~~Valuations~~ ~~— Any persistent market volatility will likely make the valuation of our properties more difficult. There may be significant uncertainty~~payable by us in the ~~valuation, or in the stability~~ordinary course of ~~the value,~~business consistent with our past practice.

As of our properties that could result in a substantial decrease in the value of our properties. As a result, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge in earnings.

~~Government Intervention~~ — The pervasive and fundamental disruptions that the global financial markets have undergone have led to extensive and unprecedented governmental intervention, and there is a possibility that regulation of the financial markets will be significantly increased in the future. Such increased regulation could have a material impact on our operating results and financial condition.March 31, 2015

Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to international, national and local economic factors we cannot control or predict.

Our results of operations are subject to the risks of an international or national economic slowdown or downturn and other changes in international, national and local economic conditions. The following factors may affect income from our properties, our ability to acquire and dispose of properties, and yields from our properties:

~~poor economic times may result in defaults by tenants of our properties~~, no amounts due to ~~bankruptcy, lack of liquidity, or operational failures. We may also be required to provide rent concessions or reduced rental rates to maintain or increase occupancy levels;~~

reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;

the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment or other factors;

our lenders under a line of credit could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of such lender on favorable terms, or at all;

~~one or more counterparties to our interest rate swaps could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of these instruments;~~

~~increases in supply of competing properties or decreases in demand for our properties may impact our ability to maintain or increase occupancy levels and rents;~~

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~~constricted access to credit may result in tenant defaults or non-renewals under leases;~~

~~job transfers and layoffs may cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels; and~~

increased insurance premiums, real estate taxes or utilities or other expenses may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may make it difficult to increase rents to tenants on turnover, which may limit our ability to increase our returns.

The length and severity of any economic slowdown or downturn cannot be predicted. Our results of operations, our ability to continue to pay distributions to our stockholders and our ability to dispose of our investments may be negatively impacted to the extent an economic slowdown or downturn is prolonged or becomes more severe.

Increasing vacancy rates for commercial real estate may result from any increased disruptions in the financial markets and deterioration in economic conditions, which could reduce revenue and the resale value of our properties.

We will depend upon tenants for a majority of our revenue from real property investments. Future disruptions in the financial markets and deterioration in economic conditions may result in increased vacancy rates for commercial real estate, including medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities, due to generally lower demand for rentable space, as well as potential oversupply of rentable space. Increased unemployment rates may lead to reduced demand for medical services, causing physician groups and hospitals to delay expansion plans, leaving a growing number of vacancies in new buildings. Reduced demand for medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities could require us to increase concessions, tenant improvement expenditures or reduce rental rates to maintain occupancies beyond those anticipated at the time we acquire the property. In addition, the market value of a particular property could be diminished by prolonged vacancies. Future disruptions in the financial markets and deterioration in economic conditions could impact certain properties we acquire and such properties could experience higher levels of vacancy than anticipated at the time we acquire them. The value of our real estate investments could decrease below the amounts we paid for the investments. Revenues from properties could decrease due to lower occupancy rates, reduced rental rates and potential increases in uncollectible rent. We will incur expenses, such as for maintenance costs, insurance costs and property taxes, even though a property is vacant. The longer the period of significant vacancies for a property, the greater the potential negative impact on our revenues and results of operations.

~~We are dependent on tenants for our revenue, and lease terminations could reduce our distributions to our stockholders.~~

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could cause us to reduce the amount of distributions to our stockholders. If a property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.

~~If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.~~

Any of our future tenants, or any guarantor of one of our future tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the U.S. Such a bankruptcy filing would bar us from attempting to collect pre-bankruptcy debts from the bankrupt tenant or its properties unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If we assume a lease, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim would be capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15.0% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims.

The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past due balances under the relevant lease, and could ultimately preclude full collection of these sums. Such an event also could cause a decrease or cessation of current rental payments, reducing our cash flows and the amounts available for distributions to our stockholders. In the event a tenant or lease guarantor declares bankruptcy, the tenant or its trustee may not assume our lease or its guaranty. If a given lease or guaranty is not assumed, our cash flows and the amounts available for distributions to our stockholders may be adversely affected.

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~~Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions could be lower than if we did not enter into long-term leases.~~

We may enter into long-term leases with tenants of certain of our future properties. Our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.

~~We may incur additional costs in acquiring or re-leasing properties, which could adversely affect the cash available for distribution to our stockholders.~~

We may invest in properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If the tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant without making substantial capital improvements or incurring other significant re-leasing costs. We also may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant. These consequences could adversely affect our revenues and reduce the cash available for distribution to our stockholders.

We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract, replace or retain tenants and decrease our stockholders' return on investment.

When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements may require us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant improvements or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flows as a result of fewer potential tenants being attracted to the property or our existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or pay distributions to our stockholders.

~~Our success will be dependent on the performance of our advisor and certain key personnel.~~

Our ability to achieve our investment objectives and to conduct our operations will be dependent upon the performance of our advisor in identifying and acquiring investments, the determination of any financing arrangements, the asset management of our investments and the management of our day-to-day activities. Ouradvisor will have broad discretion over the use of proceeds from our offering and our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our offering or other periodic filings with the SEC. We will rely on the management ability of our advisor, subject to the oversight and approval of our board of directors. Accordingly, our stockholders should not purchase shares of our common stock unless our stockholders are willing to entrust all aspects of our day-to-day management to our advisor. If our advisor suffers or is distracted by adverse financial or operational problems in connection with their own operations or the operations of American Healthcare Investors or Griffin Capital unrelated to us, our advisor may be unable to allocate time and/or resources to our operations. If our advisor is unable to allocate sufficient resources to oversee and perform our operations for any reason, we may be unable to achieve our investment objectives or to pay distributions to our stockholders. In addition, our success depends to a significant degree upon the continued contributions of our advisor’s officers and certain of the principals, officers and employees of American Healthcare Investors, in particular Mr. Hanson and Mr. Prosky, each of whom would be difficult to replace. Mr. Hanson and Mr. Prosky currently serve as our executive officers and Mr. Hanson also serves as Chairman of our Board of Directors. We currently do not have an employment agreement with either Mr. Hanson or Mr. Prosky. In the event that Mr. Hanson or Mr. Prosky are no longer affiliated with American Healthcare Investors, for any reason, it could have a material adverse effect on our success and American Healthcare Investors may not be able to attract and hire as capable individuals to replace Mr. Hanson and/or Mr. Prosky. If our advisor or ~~American Healthcare Investors were to lose~~its affiliates had been deferred, waived or forgiven other than the ~~benefit~~$37,000 in asset management fees waived by our advisor as discussed above. Other than the waiver of the ~~experience, efforts and abilities of one or more of these individuals,~~Advisory Fees by our ~~operating results could suffer.~~

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~~Our advisor may terminate the advisory agreement, which could require us to pay substantial fees and may require us to find a new advisor.~~

Either we or our advisor will be able to terminate the advisory agreement subject to a 60-day transition period with respect to certain provisions of the advisory agreement. However, if the advisory agreement is terminated in connection with the listing of shares of our common stock on a national securities exchange, the partnership agreement provides that our advisor will receive an incentive distribution in redemption of its limited partnership units equal to 15.0% of the amount, if any, by which (1) the market value of the outstanding shares of our common stock at listing plus distributions paid by us prior to listing, exceeds (2) the sum of the gross proceeds from the sale of shares of our common stock (less amounts paid to repurchase shares of our common stock) plus an annual 7.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock. Upon our advisor’s receipt of the incentive distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Further, in connection with the termination of the advisory agreement other than due to a listing of the shares of our common stock on a national securities exchange, our advisor shall be entitled to receive a distribution in redemption of its limited partnership units equal to the amount that would be payable to our advisor pursuant to the incentive distribution upon sales if we liquidated all of our assets for their fair market value. Upon our advisor’s receipt of this distribution in redemption of its limited partnership units, our advisor will not be entitled to receive any further incentive distributions upon sales of our properties. Any amounts to be paid to our advisor upon termination of the advisory agreement cannot be determined at the present time.

~~If our advisor was to terminate the advisory agreement, we would need to find another~~ advisor to provide us with day-to-day management services or have employees to provide these services directly to us. There can be no assurances that we would be able to find new advisors or employees or enter into agreements for such services on acceptable terms.

~~If we internalize our management functions, we could incur significant costs associated with being self-managed.~~

~~Our strategy may involve internalizing our management functions. If we internalize our management functions, we would no longer bear the costs of the various fees and expenses we expect~~additional funds to pay initial distributions to our ~~advisor under the advisory agreement; however,~~stockholders through June 5, 2014, our direct expenses would include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, SEC reporting and compliance. We would also incur the compensation and benefits costs of our officers and other employees and consultants that are now paid by our advisor or its affiliates. In addition, we may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations, or FFO, and may further dilute our stockholders' investment. We cannot reasonably estimate the amount of fees to our advisor we would save and the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we no longer pay to our advisor, our net income per share and FFO per share may be lower as a result of the internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders.

As currently organized, we do not directly have any employees. If we elect to internalize our operations, we would employ personnel and would be subject to potential liabilities commonly faced by employers, such as worker’s disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. Upon any internalization of our advisor, certain key personnel of our advisor or American Healthcare Investors may not be employed by us, but instead may remain employees of our co-sponsors or their affiliates.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. They have a great deal of know-how and can experience economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could, therefore, result in our incurring additional costs and/or experiencing deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our properties.

~~Our success will be dependent on the performance of our co-sponsors.~~

Our ability to achieve our investment objectives and to conduct our operations will be dependent upon the performance of our advisor. Our advisor is a joint venture between our two co-sponsors. Our advisor’s and co-sponsors’ ability to manage our operations successfully will be impacted by trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment may negatively impact the value of commercial real estate assets and contribute to a general slow-down in our industry, which could put downward pressure on our co-sponsors’ revenues and operating results. To the extent that any decline in our co-sponsors’ revenues and operating results impacts the performance of our advisor, our results of operations and financial condition could also suffer.

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~~Our advisor and its affiliates will have no obligation to defer or forgive fees or loans or advance any funds to us, which could reduce our ability to acquire investments or pay distributions.~~

~~Our~~ advisor and its affiliates, including our co-sponsors, ~~will~~ have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. In the future, if our advisor or its affiliates do not defer, waive or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, or a portion thereof, using borrowed funds. As a result, the amount of proceeds available for investment and operations would be reduced, or we may ~~have less cash available to acquire investments or pay distributions.~~incur additional interest expense as a result of borrowed funds.

We ~~may structure acquisitions~~did not pay any distributions for the three months ended March 31, 2014. The distributions paid for the three months ended March 31, 2015, along with the amount of ~~property in exchange for limited partnership units in our operating partnership on terms that could limit our liquidity or our flexibility.~~

~~We may acquire properties by issuing limited partnership units in our operating partnership in exchange for a property owner contributing property~~distributions reinvested pursuant to the ~~partnership. If we enter into such transactions, in order to induce~~DRIP and the contributors of such properties to accept units in our operating partnership, rather than cash, in exchange for their properties, it may be necessary for us to provide them additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for sharessources of our ~~common stock, or, at our option, cash equal~~distributions as compared to the value of an equivalent number of shares of our common stock. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to redeem a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to redeem units for cash pursuant to such a provision, it would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or pay distributions to our stockholders. Moreover, if weFFO were required to redeem units for cash at a time when we did not have sufficient cash to fund the redemption, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with a defined return, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares of our common stock. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.follows:



	Three Months Ended
	March 31, 2015
Distributions paid in cash	$	7,677,000
Distributions reinvested	10,295,000
	$	17,972,000
Sources of distributions:
FFO	$	—	—	%
Offering proceeds	17,972,000		100
	$	17,972,000	100	%

The ~~failure~~payment of ~~any bank in which we deposit our funds could~~distributions from sources other than FFO may reduce the amount of ~~cash we have~~proceeds available for investment and operations or cause us to ~~pay distributions and acquire investments.~~

~~We expect that we will have cash and cash equivalents and restricted cash deposited in certain~~incur additional interest expense as a result of borrowed funds. For a further discussion of FFO, a non-GAAP financial ~~institutions in excess of federally insured levels. If any banking institution in which we have deposited funds ultimately fails, we may lose the amount~~measure, including a reconciliation of our ~~deposits over any federally-insured amount. The loss~~GAAP net income (loss) to FFO, see Part I, Item 2. Management's Discussion and Analysis of ~~our deposits could reduce the amount~~Financial Condition and Results of ~~cash we have available to distribute or invest~~Operations — Funds from Operations and ~~could result in a decline in the value of our stockholders' investment.~~

~~Because not all REITs calculate modified funds~~Modified Funds from ~~operations, or MFFO, the same way, our use of MFFO may not provide meaningful comparisons with other REITs.~~

We intend to use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. However, not all REITs calculate MFFO the same way. If REITs use different methods of calculating MFFO, it may not be possible for investors to meaningfully compare the performance of certain REITs.

Our use of derivative financial instruments to hedge against foreign currency exchange rate fluctuations could expose us to risks that may adversely affect our results of operations, financial condition and ability to pay distributions to our stockholders.

We may use derivative financial instruments to hedge against foreign currency exchange rate fluctuations, in which case we would be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.Operations.

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~~Risks Related to Conflicts of Interest~~

~~The conflicts of interest faced by our officers may cause us not to be managed solely in our stockholders' best interest, which may adversely affect our results of operations and the value~~A significant portion of our ~~stockholders' investment.~~

All of our officers also are principals, officers or employees of American Healthcare Investors or other affiliated entities that will receive fees in connection with our offering and our operations. These persons are not precluded from working with, being employed by, or investing in, any program American Healthcare Investors sponsors orannual base rent may sponsor in the future. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment strategy and our investment opportunities. Furthermore, they may have conflicts of interest in allocating their time and resources between our business and these other activities. During times of intense activity in other programs, the time they devote to our business may decline and be less than we require. If our officers, for any reason, are not able to provide sufficient resources to manage our business, our business will suffer and this may adversely affect our results of operations and the value of our stockholders' investment.

~~American Healthcare Investors~~’officers face conflicts of interest relating to the allocation of their time and other resources among the various entities that they serve or have interests in, and such conflicts may not be resolved in our favor.

Certain of the officers of American Healthcare Investors face competing demands relating to their time and resources because they are also or may become affiliated with entities with investment programs similar to ours, and they may have other business interests as well, including business interests that currently exist and business interests they develop in the future. Because these persons have competing interests for their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. Further, during times of intense activity in other programs, those executives may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. Poor or inadequate management of our business would adversely affect our results of operations and the ownership value of shares of our common stock.

Our advisor faces conflicts of interest relating to its compensation structure, including the payment of acquisition fees and asset management fees, which could result in actions that are not necessarily in our stockholders' long-term best interest.

Under the advisory agreement and pursuant to the subordinated participation interest our advisor holds in our operating partnership, our advisor will be entitled to fees and distributions that are structuredconcentrated in a ~~manner intended to provide incentives to our advisor to perform in both our and our stockholders' long-term best interests. The fees to which our advisor~~small number of tenants. Therefore, non-renewals,terminations or its affiliates will be entitled include acquisition fees, asset management fees, property management fees, disposition fees and other fees as provided for under the advisory agreement and agreement of limited partnership with our operating partnership. The distributions our advisor may become entitled to receive would be payable upon distribution of net sales proceeds to our stockholders, the listing of the shares of our common stock on a national securities exchange, certain merger transactions or the termination of the advisory agreement. However, because our advisor will be entitled to receive substantial minimum compensation regardless of our performance, our advisor’s interests may not be wholly aligned with our stockholders' interests. In that regard, our advisor or its affiliates will receive an asset management fee with respect to the ongoing operation and management of properties based on the amount of our initial investment and capital expenditures and not the performance of those investments, which could result in our advisor not having adequate incentive to manage ourportfolio to provide profitable operations during the period we hold our investments. On the other hand, our advisor could be motivated to recommend riskier or more speculative investments in order to increase the fees payable to our advisor or for us to generate the specified levels of performance or net sales proceeds that would entitle our advisor to fees or distributions. Furthermore, our advisor or its affiliates will receive an acquisition fee that is based on the contract purchase price of each property acquired or the origination or acquisition price of any real estate-related investment, rather than the performance of those investments. Therefore, our advisor or its affiliates may have an incentive to recommend investments with a higher purchase price or investments that may not produce the maximum risk adjusted returns.

~~Our advisor may receive economic benefits from its status as a limited partner without bearing~~lease defaults by any of ~~the investment risk.~~

~~Our advisor is a limited partner in~~these significant tenants could reduce our ~~operating partnership. Our advisor is entitled~~net income and limit our ability to receive an incentive distribution equal to 15.0% of net sales proceeds of properties after we have received and paid to our stockholders a return of their invested capital and an annual 7.0% cumulative, non-compounded return on the gross proceeds of the sale of shares of our common stock. We will bear all of the risk associated with the properties but, as a result of the incentivemake distributions to our ~~advisor,~~stockholders.

As of March 31, 2015, we ~~are not entitled to all~~had an outstanding receivable of $2,785,000 from one of our ~~operating partnership’s proceeds from property dispositions.~~

~~Table~~tenants, Forest Park Medical Center, and such outstanding receivable has increased to a total aggregate outstanding amount of ~~Contents~~

~~The distribution payable to our advisor may influence our decisions about listing the shares~~$4,849,000 as of May 14, 2015. As of May 14, 2015, rental payments by Forest Park Medical Center accounted for approximately 20.9% of our ~~common stock~~tenants' aggregate annual base rent based on ~~a national securities exchange, merging our company with another company and acquisition or disposition~~Forest Park Medical Center's annualized base rent of ~~our investments.~~

~~Our advisor’s entitlement to fees upon the sale~~$10,844,000 as of ~~our assets and to participate in net sales proceeds could result in our advisor recommending sales~~March 31, 2015. The success of our investments at the earliest possible time at which sales of investments would produce the level of return which would entitle our advisor to compensation relating to such sales, even if continued ownership of those investments might be in our stockholders' long-term best interest. The subordinated participation interest may require our operating partnership to make a distribution to our advisor in redemption of its limited partnership unitsmaterially depends upon the ~~listing~~financial stability of the ~~shares~~tenants leasing the properties we own. Therefore, a non-renewal after the expiration of ~~our common stock on~~ a national securities exchange or the merger of our company with another company in which our stockholders receive shares that are traded on a national securities exchange if our advisor meets the performance thresholds included in our operating partnership’s limited partnership agreement, even if our advisor is no longer serving as our advisor. To avoid making this distribution, our independent directors may decide against listing the shares of our common stock or merging with another company even if, but for the requirement to make this distribution, such listing or merger would be in our stockholders; best interest. In addition, the requirement to pay these fees could cause our independent directors to make different investment or disposition decisions than they would otherwise make, in order to satisfy our obligation to our advisor.

We may acquire assets from, or dispose of assets to, affiliates of our advisor, which could result in us entering into transactions on less favorable terms than we would receive from a third party or that negatively affect the public’s perception of us.

We may acquire assets from affiliates of our advisor. Further, we may also dispose of assets to affiliates of our advisor. Affiliates of our advisor may make substantial profits in connection with such transactions and may owe fiduciary and/lease term, termination, default or other ~~duties~~failure to ~~the selling or purchasing entity in these transactions, and conflicts of interest between us and the selling or purchasing entities could exist in~~meet rental obligations by a significant tenant, such ~~transactions. Because~~as Forest Park Medical Center, would significantly lower our independent directors would rely on our advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party. Also, the existence of conflicts, regardless of how they are resolved, might negatively affect the public’s perception of us.

If we enter into joint ventures with affiliates, we may face conflicts of interest or disagreements with our joint venture partners that may not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s-length with an independent joint venture partner.

In the event that we enter into a joint venture with any other program sponsored or advised by one of our co-sponsors or one of their affiliates, we may face certain additional risks and potential conflicts of interest. For example, securities issued by the other Griffin Capital programs or future American Healthcare Investors programs may never have an active trading market. Therefore, if we were to become listed on a national securities exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. Joint ventures between us and other Griffin Capital programs or future American Healthcare Investors programs will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could occur regarding matters pertaining to the joint venture, including determining when and whether to buy or sell a particular property and the timing of a liquidation, which might have a negative impact on the joint venture and decrease returns to our stockholders.

~~Risks Related to Our Organizational Structure~~

~~Several potential~~net income. These events could cause ~~our stockholders' investment in~~ us to ~~be diluted, which may reduce the overall value of our stockholders' investment.~~

~~Our stockholders' investment in us could be diluted by a number of factors, including:~~

~~future offerings of our securities, including issuances pursuant to the DRIP and up to 200,000,000 shares of any class or series of preferred stock that our board of directors may authorize;~~

~~private issuances of our securities to other investors, including institutional investors;~~

~~issuances of our securities pursuant to our 2013 Incentive Plan, or the 2013 plan; or~~

~~redemptions of units of limited partnership interest in our operating partnership in exchange for shares of our common stock.~~

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To the extent we issue additional equity interests after our stockholders purchase shares of our common stock in our offering, their percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate and real estate-related investments, our stockholders may also experience dilution in the book value and fair market value of their shares of our common stock.

Our ability to issue preferred stock may include a preference in distributions superior to our common stock and also may deter or prevent a sale of shares of our common stock in which our stockholder could profit.

Our charter authorizes our board of directors to issue up to 200,000,000 shares of preferred stock. Our board of directors has the discretion to establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock. If we authorize and issue preferred stock with a distribution preference over our common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount our common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:

~~a merger, tender offer or proxy contest;~~

~~assumption of control by a holder of a large block of our securities; or~~

~~removal of incumbent management.~~

~~The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.~~

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.9% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.9% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our stock on terms that might be financially attractive to our stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board of directors and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders' ability to sell their shares of our common stock.

~~Our stockholders' ability to control our operations is severely limited.~~

Our board of directors determines our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other strategies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the the NASAA Guidelines. Under our charter and Maryland law, our stockholders have a right to vote only on the following matters:

~~the election or removal of directors;~~

the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to change our name or the name of other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have the authority to issue, or effect certain reverse stock splits;

~~our dissolution; and~~

~~certain mergers, consolidations, statutory share exchanges and sales or other dispositions of all or substantially all of our assets.~~

~~All other matters are subject to the discretion of our board of directors.~~

~~Limitations on share ownership and transfer may deter a sale of our common stock in which our stockholders could profit.~~

The limits on ownership and transfer of our equity securities in our charter may have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our stockholders' common stock. The ownership limits and restrictions on transferability will continue to apply until our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT.

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~~Maryland takeover statutes may deter others from seeking to acquire us and prevent our stockholders from making a profit in such transaction.~~

The Maryland General Corporation Law, or the MGCL, contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of us. Our bylaws exempt us from the control share acquisition statute (which eliminates voting rights for certain levels of shares that could exercise control over us) and our board of directors has adopted a resolution opting out of the business combination statute (which, among other things, prohibits a merger or consolidation with a 10.0% stockholder for a period of time) with respect to any person, provided that any business combination with such person is first approved by our board of directors. However, if the bylaw provisions exempting us from the control share acquisition statute or our board resolutionopting out of the business combination statute were repealed, these provisions of Maryland law could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in our stockholders’ best interest.

~~The MGCL and our organizational documents limit our stockholders' right to bring claims against our officers and directors.~~

The MGCL provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under the MGCL, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities unless: (1) their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (2) they actually received an improper personal benefit in money, property or services; or (3) in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers and intend to enter into indemnification agreements with each of our future directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter also provides that we may not indemnify our directors, our advisor and its affiliates for any loss or liability suffered by them or hold them harmless for any loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interest, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from our stockholders.

~~Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholders' ability to dispose of their shares of our common stock.~~

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

~~any person who beneficially owns 10.0% or more of the voting power of the corporation’s outstanding voting stock; or~~

an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10.0% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.

After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

~~80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and~~

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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares of stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares of our common stock in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares of our common stock. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our board of directors. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed or our board of directors fails to first approve the business combination, the business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

~~Our charter includes a provision that may discourage a stockholder from launching a tender offer for shares of our common stock.~~

Our charter requires that any tender offer made by a person, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D of the Securities Exchange Act of 1934, as amended. The offeror must provide us notice of the tender offer at least ten business days before initiating the tender offer. If the offeror does not comply with these requirements, we will have the first right to purchase the shares of our stock at the tender offer price offered in such non-compliant tender offer. In addition, the non-complying offeror shall be responsible for all of our expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a person from initiating a tender offer for shares of our common stock and prevent our stockholders from receiving a premium price for their shares of our common stock in such a transaction.

Our stockholders' investment return may be reduced if we are required to register as an investment company under the Investment Company Act. To avoid registration as an investment company, we may not be able to operate our business successfully. If we become subject to registration under the Investment Company Act, we may not be able to continue our business.

We intend to conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:

~~pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or~~

pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, or the 40% test. “Investment securities” excludes U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

We intend to monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

~~limitations on capital structure;~~

~~restrictions on specified investments;~~

~~prohibitions on transactions with affiliates;~~

~~compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations; and~~

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~~potentially, compliance with daily valuation requirements.~~

In order for us to not meet the definition of an “investment company” and avoid regulation under the Investment Company Act, we must engage primarily in the business of buying real estate, and these investments must be made within one year after our offering period ends. If we are unable to invest a significant portion of the proceeds of our offering in properties within one year after our offering period, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in certificates of deposit or other cash items with low returns. This would reduce the cash available for distribution to investors and possibly lower our stockholders' returns.

To avoid meeting the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Similarly, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Accordingly, our board of directors may not be able to change our investment policies as our board of directors may deem appropriate if such change would cause us to meet the definition of an “investment company.” In addition, a change in the value of any of our assets could negatively affect our ability to avoid being required to register as an investment company. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

~~Risks Related to Investments in Real Estate~~

Changes in national, international, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations and our ability to pay distributions to our stockholders or reduce the value of our stockholders' investment.

We are subject to risks generally incidental to the ownership of real estate, including changes in national, international, regional or local economic, demographic or real estate market conditions. We are unable to predict future changes in national, international, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease real properties or dispose of them. In addition, rising interest rates could also make alternative interest-bearing and other investments more attractive, and therefore, potentially lower the relative value of our existing real estate investments. These conditions, or others we cannot predict, may adversely affect our results of operations, our ability to pay distributions to our stockholders or reduce the value of our stockholders' investment.

If we acquire real estate at a time when the real estate market is experiencing substantial influxes of capital investment and competition for income-producing properties, such real estate investments may not appreciate or may decrease in value.

Although the real estate market has been experiencing severe dislocations, in the future the market may experience a substantial influx of capital from investors. Any substantial flow of capital, combined with significant competition for income producing real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment in the future, we will be subject to the risk that the value of such investments may not appreciate or may decrease significantly below the amount we paid for such investment.

~~We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.~~

The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

~~Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.~~

From time to time, we may attempt to acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and expensive than single property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase

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one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on real property; therefore, accumulating such cash could reduce our funds available for distributions to our stockholders. Any of the foregoing events may have an adverse effect on our operations.

~~Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce our stockholders' returns.~~

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses,we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have a material adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.

~~Terrorist attacks and other acts of violence or war may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay~~ distributions to our stockholders.

Terrorist attacks may negatively affect our operations and our stockholders’ investments. We may acquire real estate assets located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the U.S. and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices, which could have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

~~Dramatic increases in insurance rates could adversely affect our cash flows and our ability to pay distributions to our stockholders.~~

We may not be able to obtain insurance coverage at reasonable rates due to high premium and/or deductible amounts. As a result, our cash flows could be adversely impacted due to these higher costs, which would adversely affect our ability to pay distributions to our stockholders.

~~Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and our ability to pay distributions to our stockholders.~~

Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders' returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks if we make periodic progress payments or other advances to builders prior to completion of construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of

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~~construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer.~~

We are permitted to invest in a limited amount of unimproved real property. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental concerns of governmental entities and/or community groups. If we invest in unimproved real property that we intend to develop, our stockholders' investment would be subject to the risks associated with investments in unimproved real property.

~~If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.~~

We may acquire one or more properties under development. We anticipate that if we do acquire properties that are under development, we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties, and that we will be required to close the purchase of the property upon completion of the development of the property. We may enter into such a contract with the development company even if at the time we enter into the contract, we have not yet raised sufficient proceeds in our offering to enable us to close the purchase of such property. However, we may not be required to close a purchase from the development company, and may be entitled to a refund of our earnest money, in the following circumstances:

~~the development company fails to develop the property;~~

~~all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; or~~

~~we are unable to raise sufficient proceeds from our offering to pay the purchase price at closing.~~

The obligation of the development company to refund our earnest money deposit will be unsecured, and we may not be able to obtain a refund of such earnest money deposit from it under these circumstances since the development company may be an entity without substantial assets or operations.

~~Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.~~

Our advisor, subject to the oversight and approval of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure our stockholders that we will be able to sell our properties at a profit in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions.

~~Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders.~~

The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand, and other factors that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have adequate funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our stockholders.

~~If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows from operations.~~

If we decide to sell any of our properties, in some instances we may provide financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations. Even in the absence of a purchaser default, the distribution of sale proceeds, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are

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actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.

Our stockholders may not receive any profits resulting from the sale of one of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.

If we sell one of our properties during liquidation, our stockholders may experience a delay before receiving their share of the proceeds of such liquidation. In a forced or voluntary liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We may take a purchase money obligation secured by a mortgage as partial payment. We do not have any limitations or restrictions on our taking such purchase money obligations. To the extent we receive promissory notes or other property instead of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be included in net sale proceeds until and to the extent the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In many cases, we will receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. Therefore, our stockholders may experience a delay in the distribution to them of the proceeds of a sale until such time.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to our stockholders.

Because we intend to own and operate real estate, we will be subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.

Our real estate investments may be concentrated in medical office buildings, hospitals, skilled nursing facilities, senior housing or other healthcare-related facilities, making us more vulnerable economically than if our investments were diversified.

As a REIT, we will invest primarily in real estate. Within the real estate industry, we intend to acquire or selectively develop and own medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in healthcare-related facilities.

A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to pay distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities.

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A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.

~~It is possible that a significant portion of our portfolio could be concentrated in a particular geographic area. In~~To the ~~event~~extent that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately effects that geographic area would have a magnified adverse effect on our portfolio.

~~Certain~~ As of May 14, 2015, properties located in Texas and New Jersey accounted for approximately 39.9% and 10.4%, respectively, of our properties may not have efficient alternative uses, so the loss of a tenant may cause us not to be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.

Some of the properties we will seek to acquire are specialized medical facilities. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

~~Our future medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities and tenants may be unable to compete successfully.~~

Our future medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities often will face competition from nearby medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.

Similarly, our tenants will face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.

Any reduction in rental revenues resulting from the inability of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

~~A proposed change in U.S. accounting standards for leases could reduce the overall demand to lease our properties.~~

The existing accounting standards for leases require lessees to classify their leases as either capital or operating leases. Under a capital lease, both the leased asset, which represents the tenant’s right to use the property, and the contractual lease obligation are recorded on the tenant’s balance sheet if one of the following criteria are met: (i) the lease transfers ownership of the property to the lessee by the end of the lease term; (ii) the lease contains a bargain purchase option; (iii) the non-cancellable lease term is more than 75.0% of the useful life of the asset; or (iv) if the present value of the minimum lease payments equals 90.0% or more of the leased property’s fair value. If the terms of the lease do not meet these criteria, the lease is considered an operating lease, and no leased asset or contractual lease obligation is recorded by the tenant.

In order to address concerns raised by the SEC regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the Financial Accounting Standards Board, or the FASB, and the International Accounting Standards Board, or the IASB, initiated a joint project to develop new guidelines to lease accounting. The FASB and IASB, or collectively, the Boards, issued an Exposure Draft on August 17, 2010 and a Revised Exposure Draft on May 16, 2013, or collectively, the Exposure Drafts, which propose substantial changes to the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation will be recorded on the tenant’s balance sheet for all lease arrangements. In addition, the Exposure Drafts will impact the method in which contractual lease payments will be recorded. In order to mitigate the effect of the proposed lease accounting, tenants may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms or fewer extension options, which would generally have less impact on tenant balance sheets. Also, tenants may reassess their lease-versus-buy strategies. This could result in a greater renewal risk, a delay in investing proceeds from our offering, or shorter lease terms, all of which may negatively impact our operations and ability to pay distributions.

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~~After receiving extensive comments on the Exposure Drafts, the Boards are considering all feedback received and are re-deliberating all significant issues through 2014.~~

~~Our costs associated with complying with the Americans with Disabilities Act may reduce our cash available for distributions.~~

The properties we will acquire may be subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may reduce cash available for distributions and the amount of distributions to our stockholders.

~~Increased operating expenses could reduce cash flows from operations and funds available to acquire investments or pay distributions.~~

Any property that we may acquire will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, insurance costs, repairs and maintenance costs, administrative costs and other operating expenses. Some of our property leases or future leases may not require the tenants to pay all or a portion of these expenses, in which event we may have to pay these costs. If we are unable to lease properties on terms that require the tenants to pay all or some of the properties’ operating expenses, if our tenants fail to pay these expenses as required or if expenses we are required to pay exceed our expectations, we could have less funds available for future acquisitions or cash available for distributions to our stockholders.

~~Our operating properties will be subject to real and personal property taxes that may increase in the future, which could adversely affect our cash flows.~~

Our operating properties will be subject to real and personal property taxes that may increase as tax rates change and as the operating properties are assessed or reassessed by taxing authorities. As the owner of the properties, we will be ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the operating property and the operating property may be subject to a tax sale. In addition, we are generally responsible for real property taxes related to any vacant space.

~~Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.~~

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate those substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our real properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and

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ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

~~Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations.~~

We will seek to acquire properties outside the United States, although we will not invest more than 25.0% of our offering proceeds available for investment in international properties. International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75% gross income test or the 95% gross income test that we must satisfy annually in order to maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally; challenges in managing international operations; challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and legal proceedings; foreign ownership restrictions with respect to operations in countries; diminished ability to legally enforce our contractual rights in foreign countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the United States that affect foreign operations. In addition, we have limited investing experience in international markets. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.

~~Investments in properties or other real estate-related investments outside the United States would subject us to foreign currency risks, which may adversely affect distributions and our REIT status.~~

We expect to generate a portion of our revenue in foreign currencies. Revenues generated from any properties or other real estate-related investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore, any investments we make outside the United States may subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. Dollar. As a result, changes in exchange rates of any such foreign currency to U.S. Dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity.

Changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our status as a REIT. Further, bank accounts in foreign currency which are not considered cash or cash equivalents may adversely affect our status as a REIT.

~~Risks Related to the Healthcare Industry~~

The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. Our tenants generally will be subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to pay distributions to our stockholders.

Many of our medical properties and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON, would prevent a facility from operating in the manner intended by the tenant. These events could materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change; therefore, this may adversely impact our tenants’ ability to provide services in different states. We cannot predict the impact of state CON laws on our development of facilities or the operations of our tenants.

In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make rent payments to us.

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In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

~~Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.~~

Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. Moreover, the state and federal governmental healthcare programs are subject to reductions by state and federal legislative actions. The American Taxpayer Relief Act of 2012 prevented the reduction in physician reimbursement of Medicare from being implemented in 2013. Therefore, the reduction of 27.0% for Medicare reimbursement to physicians that is related to the sustainable growth rate adjustment has been delayed until March 31, 2015. However, this is merely a delay in the implementation of the Medicare payment reduction to physicians and it may be implemented in 2015, which will adversely impact our tenants’ ability to make rental payments.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to managed care payors, and general industry trends that include pressures to control healthcare costs. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement to managed care plans have resulted in an increase in the number of patients whose healthcare coverage is provided under managed care plans, such as health maintenance organizations and preferred provider organizations. In 2014, state insurance exchanges will be implemented which will provide a new mechanism for individuals to obtain insurance. At this time, the number of payers that are participating in the state insurance exchanges varies, and in some regions there are very limited insurance plans available for individuals to choose from when purchasing insurance. In addition, not all healthcare providers will maintain participation agreements with the payers that are participating in the state health insurance exchange. Therefore, it is possible that our tenants may incur a change in their reimbursement if the tenant does not have a participation agreement with the state insurance exchange payers and a large number of individuals elect to purchase insurance from the state insurance exchange. Further, the rates of reimbursement from the state insurance exchange payers to healthcare providers will vary greatly. The rates of reimbursement will be subject to negotiation between the healthcare provider and the payer, which may vary based upon the market, the healthcare provider’s quality metrics, the number of providers participating in the area and the patient population, among other factors. Therefore, it is uncertain whether healthcare providers will incur a decrease in reimbursement from the state insurance exchange, which may impact a tenant’s ability to payannualized base rent.

In addition, the healthcare legislation passed in 2010 included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could have a material adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Some tenants of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities will be subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. In order to support compliance with the fraud and abuse laws, our lease agreements may be required to satisfy the Stark Law exception and the Anti-Kickback Statute safe harbor for lease arrangements, which impacts the terms and conditions that may be negotiated in the lease arrangements.

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~~These laws include:~~

the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by Medicare or Medicaid;

the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;

the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs; and

~~the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts.~~

Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

~~Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to pay distributions to our stockholders.~~

~~The healthcare industry is currently experiencing:~~

~~changes in the demand for and methods of delivering healthcare services;~~

~~changes in third party reimbursement policies;~~

~~significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;~~

~~increased expense for uninsured patients;~~

~~increased competition among healthcare providers;~~

~~increased liability insurance expense;~~

~~continued pressure by private and governmental payors to reduce payments to providers of services;~~

~~increased scrutiny of billing, referral and other practices by federal and state authorities;~~

~~changes in federal and state healthcare program payment models; and~~

~~increased emphasis on compliance with privacy and security requirements related to personal health information.~~

~~These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues and our ability to pay distributions to our stockholders.~~

Our healthcare-related tenants may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, our healthcare-related tenants may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities operating in these states may be liable for

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punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Comprehensive healthcare reform legislation, the effects of which are not yet known, could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

On March 23, 2010, the President signed into law the Patient Protection and Affordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act. Together, the two acts will serve as the primary vehicle for comprehensive healthcare reform in the U.S. The acts are intended to reduce the number of individuals in the U.S. without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital would be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments. The legislation will become effective through a phased approach, having begun in 2010 and concluding in 2018, although several provisions of the legislation have been delayed, and additional delays are being considered. At this time, the effects of healthcare reform, its success or delay in implementation and its impact on our properties are not yet known but could materially adversely affect our business, financial condition, results of operations and ability to pay distributions to our stockholders.

~~Risks Related to Debt Financing~~

~~Increases in interest rates could increase the amount of our debt payments, and therefore, negatively impact our operating results.~~

Interest we will pay on our debt obligations will reduce cash available for distributions. Whenever we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

~~To the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.~~

We are exposed to the effects of interest rate changes primarily as a result of borrowings we will use to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. To limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk, we may borrow at fixed rates or variable rates depending upon prevailing market conditions. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument.

~~Hedging activity may expose us to risks.~~

We may use derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates on loans secured by our assets. If we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. These derivative instruments are speculative in nature and there is no guarantee that they will be effective. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.

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~~Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to our stockholders.~~

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating strategies. We may enter into loan documents that contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

~~Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.~~

We may finance or refinance our properties using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to refinance or sell properties on favorable terms, and to pay distributions to our stockholders.

Some of our future financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the particular property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In an environment of increasing mortgage rates, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt if mortgage rates are higher at a time a balloon payment is due. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to qualify as a REIT. Any of these results would have a significant, negative impact on our stockholders' investment.

~~Risks Related to Real Estate-Related Investments~~

The mortgage loans in which we may invest and the mortgage loans underlying the mortgage-backed securities in which we may invest may be impacted by unfavorable real estate market conditions, which could decrease their value.

If we acquire investments in mortgage loans or mortgage-backed securities, such investments will involve special risks relating to the particular borrower or issuer of the mortgage-backed securities and we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate. If we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know whether the values of the property securing any of our real estate-related investments will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

~~Delays in liquidating defaulted mortgage loan investments could reduce our investment returns.~~

If there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

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~~The commercial mortgage-backed securities in which we may invest are subject to several types of risks.~~

~~Commercial mortgage-backed securities are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans.~~ Accordingly, ~~the mortgage-backed securities in which we may invest are subject to all the risks of the underlying mortgage loans.~~

In a rising interest rate environment, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of commercial mortgage-backed securities may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, commercial mortgage-backed securities are subject to the credit risk associated with the performance of the underlying mortgage properties.

Commercial mortgage-backed securities are also subject to several risks created through the securitization process. Subordinate commercial mortgage-backed securities are paid interest-only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a ~~risk that interest payments on subordinate commercial mortgage-backed securities will not be fully paid. Subordinate securities~~geographic concentration of ~~commercial mortgage-backed securities are also~~risk subject to ~~greater credit risk than those commercial mortgage-backed securities that are more highly rated.~~

~~The mezzanine loans~~fluctuations in ~~which we may invest would involve greater risks of loss than senior loans secured by income-producing real estate.~~

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real estate or loans secured by a pledge of the ownership interests of either the entity owning the real estate or the entity that owns the interest in the entity owning the real estate. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real estate because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real estate and increasing the risk of loss of principal.

Real estate-related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in real estate or real estate-related assets.

We may invest in the common and preferred stock of both publicly traded and private unaffiliated real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including the fact that such investments are subordinate to creditors and are not secured by the issuer’s property. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with acquiring real estate-related investments discussed elsewhere in this report, including risks relating to rising interest rates.

~~We expect a portion of our real estate-related investments to be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.~~

We may acquire real estate-related investments in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

~~Interest rate and related risks may cause the value of our real estate-related investments to be reduced.~~

Interest rate risk is the risk that fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stocks, will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market value of such securities will decline, and vice versa. Our investment in such securities means that the net asset value and market price of the common stock may tend to decline if market interest rates rise.

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During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as call or prepayment risk. If this occurs, we may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our real estate-related investments.

~~If we liquidate prior to the maturity of our real estate-related investments, we may be forced to sell those investments on unfavorable terms or at a loss.~~

Our board of directors may choose to effect a liquidity event in which we liquidate our assets, including our real estate-related investments. If we liquidate those investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

~~Risks Related to Joint Ventures~~

The terms of joint venture agreements or other joint ownership arrangements into which we have and may enter could impair our operating flexibility or result in litigation or liability, which could materially adversely affect our results of operations.

In connection with the purchase of real estate, we may enter into joint ventures with third parties, including affiliates of our advisor. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint venture partners may have rights to take some actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:

a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;

~~a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;~~

~~actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and~~

a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT.

Under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could occur, which might adversely affect the joint venture or result in litigation or liability and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal of our venture partner.

~~We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flows or appreciation of an investment.~~

We may enter into joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flows up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flows than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flows, including appreciation, of an investment than we would receive. If we do not

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accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to pay cash distributions to our stockholders.

~~Federal Income Tax Risks~~

Failure to qualify as a REIT for federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to pay distributions to our stockholders.

We intend to qualify and elect to be taxed as a REIT under the Internal Revenue Code beginning with our taxable year ending December 31, 2014, or the first year in which we commence material operations. To qualify as a REIT, we must meet various requirements set forth in the Internal Revenue Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board of directors to determine that it is not in our best interest to qualify as a REIT, maintain our qualification as a REIT or revoke our REIT election, which it may do without stockholder approval.

If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability. In addition, distributions would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to pay distributions to our stockholders.

To qualify as a REIT and to avoid the payment of federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities (including our offering), or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.

~~To obtain the favorable tax treatment accorded to REITs, we normally will be required~~ each year to distribute to our stockholders at least 90.0% of our annual taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4.0% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85.0% of our ordinary income, (2) 95.0% of our capital gain net income and (3) 100% of our undistributed income from prior years.

These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities (including our offering) or sell assets in order to distribute enough of our taxable income to qualify as a REIT and to avoid the payment of federal income and excise taxes.

Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through taxable REIT subsidiaries, each of which would diminish the return to our stockholders.

In light of our investment strategy, it is possible that one or more sales of our properties may be “prohibited transactions” under provisions of the Internal Revenue Code. If we are deemed to have engaged in a “prohibited transaction” (~~i.e.~~, we sell a property held by us primarily for sale in the ordinary course of our trade or business), all income that we derive from such sale would be subject to a 100% tax. The Internal Revenue Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale. Given our investment strategy, it is entirely possible, if not likely, that the sale of one or more of our properties will not fall within the prohibited transaction safe harbor.

If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to avoid the 100% penalty tax if we acquired the property through a taxable REIT subsidiary, or TRS, or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (~~i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe~~

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harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forego the use of a TRS in a transaction that does not meet the safe harbor based on our own internal analysis, the opinion of counsel or the opinion of other tax advisors that the disposition will not be subject to the 100% penalty tax. In cases where a property disposition is not effected through a TRS, the IRS could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net income from the sale of such property will be payable as a tax and none of the proceeds from such sale will be distributable by us to our stockholders or available for investment by us.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, then we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS if there is another, non-tax-related business purpose for the contribution of such property to the TRS. Following the transfer of the property to a TRS, the TRS will operate the property and may sell such property and distribute the net proceeds from such sale to us, and we may distribute the net proceeds distributed to us by the TRS to our stockholders. Though a sale of the property by a TRS likely would eliminate the danger of the application of the 100% penalty tax, the TRS itself would be subject to a tax at the federal level, and potentially at the state and local levels, on the gain realized by it from the sale of the property as well as on the income earned while the property is operated by the TRS. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the amount available for distribution to our stockholders would be substantially less than if the REIT had operated and sold such property directly and such transaction was not characterized as a prohibited transaction. The maximum federal income tax rate is currently 35.0%. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property through a TRS after the effective date of any increase in such tax rates.

If we own too many properties through one or more of our TRSs, then we may lose our status as a REIT. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. As a REIT, the value of the securities we hold in all of our TRSs may not exceed 25.0% of the value of all of our assets at the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded 25.0% of the value of total assets at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude that the value of our interests in our TRSs exceeds 25.0% of the value of our total assets at the end of any calendar quarter, and therefore, cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25.0% of our gross income with respect to any year may be from sources other than real estate. Distributions paid to us from a TRS are considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if distributions from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25.0% of our gross income with respect to such year. We will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our qualification as a REIT. Our failure to qualify as a REIT would adversely affect our stockholders' return on their investment.

~~Our stockholders may have a current tax liability on distributions they elect to reinvest in shares of our common stock.~~

If our stockholders participate in the DRIP, our stockholders will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless our stockholders are a tax-exempt entity, our stockholders may have to use funds from other sources to pay their tax liability on the value of the shares of common stock received.

~~Legislative or regulatory action with respect to taxes could adversely affect the returns to our investors.~~

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal and state income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our stock or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their own tax advisor with respect to the impact of recent legislation on their investment in our stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

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~~In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.~~

Even if we qualify as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders.

~~Distributions to tax-exempt stockholders may be classified as UBTI.~~

Neither ordinary nor capital gain distributions with respect to the shares of our common stock nor gain from the sale of the shares of our common stock should generally constitute UBTI to a tax-exempt stockholder. However, there are certain exceptions to this rule. In particular:

part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if the shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI;

part of the income and gain recognized by a tax exempt stockholder with respect to the shares of our common stock would constitute UBTI if the stockholder incurs debt in order to acquire the shares of our common stock; and

part or all of the income or gain recognized with respect to the shares of our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Internal Revenue Code may be treated as UBTI.

~~Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.~~

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to pay distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

~~Foreign purchasers of shares of our common stock may be subject to FIRPTA tax upon the sale of their shares of our common stock.~~

A foreign person disposing of a U.S. real property interest, including shares of stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA, on the amount received from the disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50.0% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, amounts received by foreign investors on a sale of shares of our common stock would be subject to FIRPTA tax, unless the shares of our common stock were traded on an established securities market and the foreign investor did not at any time during a specified period directly or indirectly own more than 5.0% of the value of our outstanding common stock.

~~Foreign stockholders may be subject to FIRPTA tax upon the payment of a capital gains dividend.~~

A foreign stockholder will likely be subject to FIRPTA upon the payment of any capital gain dividends by us if such gain is attributable to gain from sales or exchanges of U.S. real property interests.

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~~Employee Benefit Plan, IRA, and Other Tax-Exempt Investor Risks~~

We, and our stockholders that are employee benefit plans, IRAs, annuities described in Sections 403(a) or (b) of the Internal Revenue Code, Archer MSAs, health savings accounts, or Coverdell education savings accounts (referred to generally as Benefit Plans and IRAs) will be subject to risks relating specifically to our having such Benefit Plan and IRA stockholders, which risks are discussed below.

If our stockholders fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in shares of our common stock, our stockholders could be subject to criminal and civil penalties.

There are special considerations that apply to Benefit Plans or IRAs investing in shares of our common stock. If our stockholders are investing the assets of a Benefit Plan or IRA in us, they should consider:

~~whether their investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code, or any other applicable governing authority in the case of a government plan;~~

~~whether their investment is made in accordance with the documents and instruments governing their Benefit Plan or IRA, including their Benefit Plan or IRA’s investment policy;~~

~~whether their investment satisfies the prudence, diversification and other requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;~~

~~whether their investment will impair the liquidity needs and distribution requirements of the Benefit Plan or IRA;~~

~~whether their investment will constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code;~~

~~whether their investment will produce or result in UBTI, as defined in Sections 511 through 514 of the Internal Revenue Code, to the Benefit Plan or IRA; and~~

~~their need to value the assets of the Benefit Plan or IRA annually in accordance with ERISA and the Internal Revenue Code.~~

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Internal Revenue Code, a Benefit Plan or IRA purchasing shares of our common stock should consider the effect of the plan asset regulations of the U.S. Department of Labor. To avoid our assets from being considered plan assets under those regulations, our charter prohibits “benefit plan investors” from owning 25.0% or more of the shares of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the meaning of the ERISA plan asset regulations. However, we cannot assure our stockholders that those provisions in our charter will be effective in limiting benefit plan investor ownership to less than the 25.0% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA and/or the Internal Revenue Code) with respect to a Benefit Plan or IRA purchasing shares of our common stock, and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA and/or the Internal Revenue Code) of our stockholders' Benefit Plan or IRA, our stockholders should not purchase shares of our common stock unless an administrative or statutory exemption applies to their purchase.state's economy.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

None.

Use of Public Offering Proceeds

~~Our~~On February 26, 2014, pursuant to our Registration Statement on Form S-11 (File No. ~~333-186073, effective February 26, 2014)~~333-186073), ~~covering a public~~we commenced our offering of up to ~~$1,900,000,000~~ in shares of our common stock, was declared effective under the Securities Act of 1933, or the Securities Act. Griffin Capital Securities, Inc. is the dealer manager of our offering. We are offering to the public a minimum of $2,000,000 in shares of our common stock and a maximum of ~~$1,750,000,000~~$1,750,000,000 in shares of our common stock for ~~$10.00~~$10.00 per share in our primary offering and up to ~~$150,000,000~~$150,000,000 in shares of our common stock pursuant to the DRIP for ~~$9.50~~$9.50 per share.~~Until~~ We reserved the right to reallocate the shares of common stock we ~~raise~~offered in our offering between the ~~minimum~~primary offering ~~amount, all subscription payments will be placed~~and the DRIP. As such, during our offering, we reallocated an aggregate of $115,000,000 in ~~an account held by an escrow agent~~shares from the DRIP to the primary offering. Accordingly, we offered to the public up to $1,865,000,000 in ~~trust for subscribers’ benefit, provided that residents~~shares of ~~Washington will be admitted after aggregate subscriptions exceed $20,000,000~~our common stock in our primary offering and ~~provided further, that residents~~up to $35,000,000 in shares of ~~Pennsylvania will be admitted after aggregate subscriptions exceed $87,500,000. If we are unable~~our common stock pursuant to ~~raise at least~~ the ~~minimum offering amount by February 26,~~DRIP. Griffin Securities is the dealer manager of our offering.

On March 12, 2015, we ~~will be required to promptly return all funds raised, including interest, to subscribers and we will have to terminate~~terminated the primary portion of our offering. ~~Shares purchased by~~As of March 31, 2015, we had received and accepted subscriptions in our ~~executive officers~~primary offering for 184,931,598 shares of our common stock, or approximately $1,842,628,000, and ~~directors, by~~a total of $13,029,000 in distributions were reinvested that resulted in 1,371,448 shares of our common stock being issued pursuant to the DRIP. We continued to offer up to $35,000,000 in shares of our common stock through our offering pursuant to the DRIP until the termination of the DRIP portion of our offering and deregistration of our offering on April 22, 2015.

As of March 31, 2015, we had incurred other offering expenses of $3,493,000 to our advisor byand its respective affiliates in connection with our offering. In addition, as of March 31, 2015, we had incurred selling commissions of $123,146,000 and dealer manager fees of $55,097,000 to Griffin Securities, an unaffiliated entity. Such commissions, fees and reimbursements are charged to stockholders’ equity as such amounts are reimbursed from the gross proceeds of our offering. The cost of raising funds in our offering as a percentage of gross proceeds received in our primary offering was 9.9% as of March 31, 2015. As of March 31, 2015, net offering proceeds in our offering were $1,673,921,000, including proceeds from the DRIP and after deducting offering expenses.

As of March 31, 2015, $117,000 remained payable to our advisor or its affiliates ~~do not count toward the minimum~~for costs related to our offering.

As of March 31, 2015, we had used $541,455,000 in proceeds from our offering ~~amount.~~to purchase properties from unaffiliated third parties, $60,217,000 for real estate-related investments, $14,059,000 to pay acquisition fees and acquisition related expenses to affiliated parties, $10,100,000 to pay real estate deposits for proposed future acquisitions, $2,315,000 to pay acquisition related expenses to unaffiliated parties, $1,126,000 to pay for deferred financing costs to unaffiliated parties in connection with our line of credit and mortgage loans payable and $1,073,000 for lender required restricted cash accounts to unaffiliated parties.

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AsPurchase of ~~March 31, 2014, we had not received subscriptions~~Equity Securities by the Issuer and Affiliated Purchasers

Our share repurchase plan allows for repurchases of shares of our common stock by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. All repurchases are subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Funds for the ~~minimum offering and had not received any~~repurchase of shares of our common stock will come exclusively from the cumulative proceeds ~~from our offering.~~

~~As of~~ ~~March 31, 2014~~, we ~~had not paid any expenses in connection with~~receive from the sale of shares of our common stock pursuant to the DRIP.

The prices per share at which we will repurchase shares of our common stock will range, depending on the length of time the stockholder held such shares, from 92.5% to 100% of the price paid per share to acquire such shares from us. However, if shares of our common stock are to be repurchased in connection with a stockholder’s death or qualifying disability, the repurchase price will be no less than 100% of the price paid to acquire the shares of our ~~offering.~~common stock from us.

During the ~~period covered by this Quarterly Report on Form 10-Q,~~three months ended March 31, 2015, we ~~did not sell any equity securities that were not registered or otherwise exempt under the Securities Act, and we did not repurchase any~~repurchased shares of our ~~securities.~~common stock as follows:



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased As Part of Publicly Announced Plan or Program	(d) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2015 to January 31, 2015	3,750	$	10.00	37,000	(1	)
February 1, 2015 to February 28, 2015	—	$	—	—	(1	)
March 1, 2015 to March 31, 2015	11,601	$	9.99	116,000	(1	)
Total	15,351	$	9.99	153,000

___________


(1)	Subject to funds being available, we will limit the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided however, shares of our common stock subject to a repurchase requested upon the death of a stockholder will not be subject to this cap.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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SIGNATURES

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



		Griffin-American Healthcare REIT III, Inc. (Registrant)

May ~~7, 2014~~14, 2015	By:	/s/ JEFFREY T. HANSON
Date		Jeffrey T. Hanson
		Chief Executive Officer and Chairman of the Board of Directors
		(~~principal executive officer)~~Principal Executive Officer)

May ~~7, 2014~~14, 2015	By:	/s/ SHANNON K S JOHNSON
Date		Shannon K S Johnson
		Chief Financial Officer
		(~~principal financial officer~~Principal Financial Officer and ~~principal accounting officer)~~	Principal Accounting Officer)

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EXHIBIT INDEX

Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the period ended March 31, ~~2014~~2015 (and are numbered in accordance with Item 601 of Regulation S-K).



3.1	Articles of Amendment and Restatement of Griffin-American Healthcare REIT III, Inc. dated January 15, 2014 (included as Exhibit 3.1 to Pre-Effective Amendment No. 5 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 16, 2014 and incorporated herein by reference)

3.2	Bylaws of Griffin-American Healthcare REIT III, Inc. (included as Exhibit 3.2 to our Registration Statement on Form S-11 (File No. 333-186073) filed January 17, 2013 and incorporated herein by reference)

4.1	Form of Subscription Agreement of Griffin-American Healthcare REIT III, Inc. (included as Exhibit B to Supplement No. 4 to the prospectus dated February 26, 2014 filed pursuant to Rule 424(b)(3) (File No. 333-186073) on ~~February 26,~~August 28, 2014 and incorporated herein by reference)

4.2	Distribution Reinvestment Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit C4.7 to ~~the prospectus dated February 26, 2014 filed pursuant to Rule 424(b)(3)~~our Registration Statement on Form S-3) (File No. ~~333-186073)~~333-202975) filed on ~~February 26, 2014~~March 25, 2015 and incorporated herein by reference)

4.3	Share Repurchase Plan of Griffin-American Healthcare REIT III, Inc. (included as Exhibit D to the prospectus dated February 26, 2014 filed pursuant to Rule 424(b)(3) (File No. 333-186073) on February 26, 2014 and incorporated herein by reference)

4.4*4.4	Escrow Agreement by and between Griffin-American Healthcare REIT III, Inc., Griffin Capital Securities, Inc. and UMB Bank, N.A., dated February 26, 2014 (included as Exhibit 4.4 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed on May 7, 2014 and incorporated herein by reference)

10.1*10.1	~~Dealer Manager~~Fourth Amendment to Purchase and Sale Agreement and Escrow Instructions by and between ~~Griffin-American Healthcare REIT III, Inc.~~Kadima Medical Properties, LLC, GAHC3 Sommerville MA MOB, LLC, GAHC3 Bronx NY MOB, LLC, GAHC3 Verona NJ MOB, LLC, GAHC3 Morristown NJ MOB, LLC, GAHC3 Southgate KY MOB, LLC and ~~Griffin Capital Securities, Inc.~~First American Title Insurance Company, dated ~~February 26, 2014~~January 12, 2015 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on January 16, 2015 and incorporated herein by reference)

10.2*10.2	~~Advisory~~Purchase and Sale Agreement by and ~~among Griffin-American Healthcare REIT III, Inc., Griffin-American Healthcare REIT III Holdings, LP~~between GAHC3 North Carolina ALF Portfolio, LLC, Carillon Assisted Living of Clemmons, LLC, Carillon Assisted Living of Huntersville, LLC, Carillon Assisted Living of Mooresville, LLC, Carillon Assisted Living of Raleigh-Old Wake Forest Road, LLC and ~~Griffin-American Healthcare REIT III Advisor,~~Carillon Assisted Living of Wake Forest, LLC, dated January 28, 2015 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on February ~~26, 2014~~3, 2015 and incorporated herein by reference)

10.3*10.3	~~Griffin-American Healthcare REIT III, Inc. 2013 Incentive Plan (including the 2013~~Assignment of Purchase and Sale Agreement by and between GAHC3 North Carolina ALF Portfolio, LLC, GAHC3 North Raleigh NC ALF, LLC and GAHC3 Mooresville NC ALF, LLC, dated January 28, 2015 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on February 3, 2015 and incorporated herein by reference)

10.4	Asset Purchase Agreement by and between GAHC3 Pennsylvania Senior Housing Portfolio, LLC, Abeking Associates, L.P., Westrum Hanover LP and One Boyertown Properties LP, dated February 25, 2015 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 2, 2015 and incorporated herein by reference)

10.5	Asset Purchase Agreement by and between GAHC3 Nebraska Senior Housing Portfolio, LLC, Dial - Ridgewood Senior Living, L.L.C. and Silvercrest Fountain View Independent ~~Directors Compensation Plan)~~Living L.P., dated March 13, 2015 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 19, 2015 and incorporated herein by reference)

10.6	Purchase and Sale Agreement by and between GAHC3 Mountain Crest Senior Housing Portfolio, LLC, LaPorte Retirement L.L.C., Hobart Retirement L.L.C., Niles Retirement L.L.C., Elkhart Retirement L.L.C, CW LLC and Eastlake L.L.C., dated March 23, 2015 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on March 27, 2015 and incorporated herein by reference)

31.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS***	XBRL Instance Document

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101.SCH***	XBRL Taxonomy Extension Schema Document

101.CAL***	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB***	XBRL Taxonomy Extension Label Linkbase Document

101.PRE***	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF***	XBRL Taxonomy Extension Definition Linkbase Document

_________



*	Filed herewith.
**	Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
~~***~~	Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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