Griffin-American Healthcare REIT III Reports First Quarter 2018 Results

Published: May 17, 2018

IRVINE, Calif., May 17, 2018 /PRNewswire/ -- Griffin-American Healthcare REIT III, Inc. today announced operating results for the company's first quarter ended March 31, 2018.

"Since acquiring our first property in June 2014, Griffin-American Healthcare REIT III has built an international portfolio comprised of 208 healthcare properties and real estate-related investments valued at approximately $3.0 billion,1" said Jeff Hanson, chairman and chief executive officer. "Our selective acquisition strategy and active management philosophy has resulted in a portfolio that is performing well across all metrics and we remain very pleased with the progress we've made in a remarkably brief timespan."

Chief financial officer Brian Peay added, "Our portfolio continues to enjoy high occupancy and lengthy average remaining lease term paired with significant year-over-year growth in net income, net operating income, funds from operations and modified funds from operations. By nearly every measure, Griffin-American Healthcare REIT III is performing at a high level."

First Quarter 2018 Highlights

  • Modified funds from operations, as defined by the Institute for Portfolio Alternatives, or the IPA, attributable to controlling interest, or MFFO, equaled $24.9 million for the quarter ended March 31, 2018, representing year-over-year growth of approximately 10.7 percent compared to $22.5 million during the first quarter 2017. (Please see financial reconciliation tables and notes at the end of this release for more information regarding MFFO.)
  • Funds from operations, as defined by the National Association of Real Estate Investment Trusts, or NAREIT, attributable to controlling interest, or FFO, equaled $28.3 million during the first quarter 2018, as compared to $23.7 million during the first quarter 2017, representing year-over-year growth of approximately 19.3 percent. (Please see financial reconciliation tables and notes at the end of this release for more information regarding FFO.)
  • Net income during the first quarter 2018 was $8.4 million, compared to net loss of $(7.5) million during the first quarter 2017.
  • Net operating income, or NOI, totaled $51.6 million for the quarter ended March 31, 2018, an increase of approximately 5.5 percent over first quarter 2017 NOI of $48.9 million. (Please see financial reconciliation tables and notes at the end of this release for more information regarding NOI and net income (loss).)
  • As of March 31, 2018, the company's portfolio of senior housing - RIDEA2 facilities and integrated senior health campuses achieved a leased percentage of 85.5 percent and 82.3 percent, respectively, while the company's non-RIDEA property portfolio achieved a leased percentage of 93.0 percent and weighted average remaining lease term of 8.5 years. Portfolio leverage3 was 38.5 percent.
  • The company declared and paid daily distributions equal to an annualized rate of $0.60 per share to stockholders of record from Jan. 1 to March 31, 2018.

 

    ___________

    (1)          Based on aggregate contract purchase
                 price of owned and/or operated
                 real estate and real estate-
                 related investments, including
                 development projects, as of March
                 31, 2018.

    (2)          The operation of healthcare-related
                 facilities utilizing the structure
                 permitted by the REIT Investment
                 Diversification and Empowerment Act
                 of 2007 is commonly referred to as
                 a "RIDEA" structure.

    (3)          Total debt divided by total market
                 value of real estate and real
                 estate-related investments. Total
                 market value equals the aggregate
                 contract purchase price paid for
                 investments or, for investments
                 appraised subsequent to the date of
                 purchase, the aggregate value
                 reported in the most recent
                 independent appraisals of such
                 investments.

FINANCIAL TABLES AND NOTES FOLLOW

                                                          GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.


                                                             CONDENSED CONSOLIDATED BALANCE SHEETS

                                                          As of March 31, 2018 and December 31, 2017

                                                                          (Unaudited)


                                                                                 March 31,                    December 31,
                                                                                        2018                              2017
                                                                                        ----                              ----

                                                                          ASSETS

    Real estate investments, net                                                               $2,160,495,000                                $2,163,258,000

    Real estate notes receivable and debt security
     investment, net                                                              98,586,000                                     97,988,000

    Cash and cash equivalents                                                     37,926,000                                     33,656,000

    Accounts and other receivables, net                                          118,633,000                                    117,188,000

    Restricted cash                                                               31,888,000                                     30,487,000

    Real estate deposits                                                           3,190,000                                      3,261,000

    Identified intangible assets, net                                            177,398,000                                    180,308,000

    Goodwill                                                                      75,309,000                                     75,309,000

    Other assets, net                                                            103,312,000                                     99,020,000
                                                                                 -----------                                     ----------

    Total assets                                                                               $2,806,737,000                                $2,800,475,000
                                                                                               ==============                                ==============


                                                LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

    Liabilities:

    Mortgage loans payable, net                                                                  $611,960,000                                  $613,558,000

    Lines of credit and term loans                                               650,556,000                                    624,125,000

    Accounts payable and accrued liabilities                                     122,204,000                                    124,503,000

    Accounts payable due to affiliates                                             1,986,000                                      2,057,000

    Identified intangible liabilities, net                                         1,429,000                                      1,568,000

    Capital lease obligations                                                     17,633,000                                     16,193,000

    Security deposits, prepaid rent and other liabilities                         40,860,000                                     39,461,000
                                                                                  ----------                                     ----------

    Total liabilities                                                          1,446,628,000                                  1,421,465,000


    Commitments and contingencies


    Redeemable noncontrolling interests                                           33,275,000                                     32,435,000


    Equity:

    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; 199,193,544 and 199,343,234 shares
     issued and outstanding as of March 31, 2018 and
     December 31, 2017, respectively                                               1,991,000                                      1,993,000

    Additional paid-in capital                                                 1,784,461,000                                  1,785,872,000

    Accumulated deficit                                                        (619,538,000)                                   (598,044,000)

    Accumulated other comprehensive loss                                         (1,525,000)                                    (1,971,000)
                                                                                  ----------                                     ----------

    Total stockholders' equity                                                 1,165,389,000                                  1,187,850,000

    Noncontrolling interests                                                     161,445,000                                    158,725,000
                                                                                 -----------                                    -----------

    Total equity                                                               1,326,834,000                                  1,346,575,000
                                                                               -------------                                  -------------

    Total liabilities, redeemable noncontrolling interests
     and equity                                                                                $2,806,737,000                                $2,800,475,000
                                                                                               ==============                                ==============

 

                                                       GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.


                                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

                                                   For the Three Months Ended March 31, 2018 and 2017

                                                                      (Unaudited)


                                                                                      Three Months Ended March 31,

                                                                                   2018                                   2017
                                                                                   ----                                   ----

    Revenues:

    Resident fees and services                                                             $245,393,000                          $225,053,000

    Real estate revenue                                                      32,499,000                               31,348,000
                                                                             ----------                               ----------

    Total revenues                                                          277,892,000                              256,401,000

    Expenses:

    Property operating expenses                                             217,359,000                              199,099,000

    Rental expenses                                                           8,940,000                                8,395,000

    General and administrative                                                6,388,000                                7,863,000

    Acquisition related expenses                                              (769,000)                                 318,000

    Depreciation and amortization                                            23,692,000                               29,822,000
                                                                             ----------

    Total expenses                                                          255,610,000                              245,497,000

    Other income (expense):

    Interest expense:

    Interest expense (including amortization of deferred
     financing costs and debt discount/premium)                            (15,352,000)                             (14,595,000)

    Gain in fair value of derivative financial
     instruments                                                                110,000                                  336,000

    Impairment of real estate investment                                              -                             (3,969,000)

    Loss from unconsolidated entity                                         (1,077,000)                               (962,000)

    Foreign currency gain                                                     1,796,000                                  513,000

    Other income, net                                                           295,000                                   33,000
                                                                                -------                                   ------

    Income (loss) before income taxes                                         8,054,000                              (7,740,000)

    Income tax benefit                                                          371,000                                  213,000
                                                                                -------                                  -------

    Net income (loss)                                                         8,425,000                              (7,527,000)

    Less: net (income) loss attributable to
     noncontrolling interests                                                 (272,000)                               4,008,000
                                                                               --------                                ---------

    Net income (loss) attributable to controlling
     interest                                                                                $8,153,000                          $(3,519,000)
                                                                                             ==========                           ===========

    Net income (loss) per common share attributable to
     controlling interest -basic and diluted                                                      $0.04                               $(0.02)
                                                                                                  =====                                ======

    Weighted average number of common shares outstanding
     -basic and diluted                                                     200,347,084                              196,897,807
                                                                            ===========                              ===========

    Distributions declared per common share                                                       $0.15                                 $0.15
                                                                                                  =====                                 =====


    Net income (loss)                                                                        $8,425,000                          $(7,527,000)

    Other comprehensive income:

    Foreign currency translation adjustments                                    446,000                                  142,000
                                                                                -------                                  -------

    Total other comprehensive income                                            446,000                                  142,000
                                                                                -------                                  -------

    Comprehensive income (loss)                                               8,871,000                              (7,385,000)

    Less: comprehensive (income) loss attributable to
     noncontrolling interests                                                 (272,000)                               4,008,000
                                                                               --------                                ---------

    Comprehensive income (loss) attributable to
     controlling interest                                                                    $8,599,000                          $(3,377,000)
                                                                                             ==========                           ===========

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NET OPERATING INCOME RECONCILIATION
For the Three Months Ended March 31, 2018 and 2017

NOI is a non-GAAP financial measure that is not computed in accordance with accounting principles generally accepted in the United States of America, or GAAP, 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, gain or loss on dispositions, impairment of real estate investments, loss from unconsolidated entity, foreign currency gain or loss, other income and income tax benefit (expense). Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand 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. Acquisition fees and expenses include payments to our advisor or its affiliates and third parties. Such fees and expenses are not reimbursed by our advisor or its affiliates and third parties, and therefore, if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. 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 cash on hand. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses 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.

NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows. Furthermore, NOI is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) 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. NOI 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 NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any acquisition related expenses.

We believe that NOI is an appropriate supplemental performance measure to reflect the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of the properties. We believe that NOI is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

To facilitate understanding of this financial measure, the following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to NOI for the three months ended March 31, 2018 and 2017:

                                                  Three Months Ended March 31,

                                                2018                               2017
                                                ----                               ----

    Net income (loss)                                    $8,425,000                       $(7,527,000)

    General and administrative             6,388,000                            7,863,000

    Acquisition related expenses           (769,000)                             318,000

    Depreciation and amortization         23,692,000                           29,822,000

    Interest expense                      15,242,000                           14,259,000

    Impairment of real estate investment           -                           3,969,000

    Loss from unconsolidated entity        1,077,000                              962,000

    Foreign currency gain                (1,796,000)                            (513,000)

    Other income, net                      (295,000)                            (33,000)

    Income tax benefit                     (371,000)                           (213,000)
                                            --------                             --------

    Net operating income                                $51,593,000                        $48,907,000
                                                        ===========                        ===========

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

FFO AND MFFO RECONCILIATION
For the Three Months Ended March 31, 2018 and 2017

Due to certain unique operating characteristics of real estate companies, NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. The use of funds from operations is recommended by the REIT industry as a supplemental performance measure, and our management uses FFO to evaluate our performance over time. 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 funds from operations approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines funds from operations 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 funds from operations. 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 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. Testing for an impairment of an asset is a continuous process and is analyzed on a quarterly basis. If certain impairment indications exist in an asset, and if the asset's 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. 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 further 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 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 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. We have used the proceeds raised in our initial 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 is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as modified funds from operations, which the IPA has recommended as a supplemental performance measure for publicly registered, non-listed REITs and which we believe to be another appropriate supplemental performance 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 expensed 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 expensed 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 modified funds from operations as funds from operations further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to deferred rent 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; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect modified funds from operations 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. In as much as interest rate hedges 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. In calculating MFFO, we exclude acquisition related expenses (which include gains or losses on contingent consideration), amortization of above- and below-market leases, amortization of loan and closing costs, change in deferred rent, fair value adjustments of derivative financial instruments, gains or losses on foreign currency transactions and the adjustments of such items related to unconsolidated properties and noncontrolling interests. The other adjustments included in the IPA's Practice Guideline are not applicable to us for the three months ended March 31, 2018 and 2017. Acquisition fees and expenses are paid in cash by us, and we have not set aside cash on hand 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 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 are not reimbursed by our advisor or its affiliates and third parties, and therefore if there is no further cash on hand to fund future acquisition fees and expenses, such fees and expenses will need to be paid from additional debt. Certain acquisition related expenses under GAAP, such as expenses incurred in connection with property acquisitions accounted for as business combinations, are considered operating expenses and as expenses included in the determination of net income (loss), which is a performance measure 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, we may pay acquisition fees or 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 from borrowings 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 cash on hand.

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.

Our management uses 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 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 initial 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 funds from operations and modified funds from operations 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) 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 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 United States Securities and Exchange Commission, or 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.

The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for the three months ended March 31, 2018 and 2017:

                              Three Months Ended March 31,

                              2018                               2017
                              ----                               ----

    Net
     income
     (loss)                            $8,425,000                       $(7,527,000)

    Add:

     Depreciation
     and
     amortization
     -
     consolidated
     properties         23,692,000                           29,822,000

     Depreciation
     and
     amortization
     -
     unconsolidated
     properties            288,000                              264,000

     Impairment
     of
     real
     estate
     investment                  -                           3,969,000

    Loss
     on
     disposition
     of
     real
     estate
     investment                  -                             227,000

    Net
     (income)
     loss
     attributable
     to
     redeemable
     noncontrolling
     interests
     and
     noncontrolling
     interests           (272,000)                           4,008,000

    Less:

     Depreciation,
     amortization,  interests
     impairment     and
     and            noncontrolling
     loss           interests
     on
     disposition
     related
     to
     redeemable
     noncontrolling    (3,815,000)                         (7,018,000)
                        ----------                           ----------

    FFO
     attributable
     to
     controlling
     interest                         $28,318,000                        $23,745,000
                                      ===========                        ===========


     Acquisition
     related
     expenses(1)                       $(769,000)                          $318,000

     Amortization
     of
     above-
      and
      below-
     market
     leases(2)             199,000                              169,000

     Amortization
     of
     loan
     and
     closing
     costs(3)               59,000                               53,000

    Change
     in
     deferred
     rent(4)           (1,068,000)                         (1,341,000)

    Gain
     in
     fair
     value
     of
     derivative
     financial
     instruments(5)      (110,000)                           (336,000)

     Foreign
     currency
     gain(6)           (1,796,000)                           (513,000)

     Adjustments
     for
     unconsolidated
     properties(7)         439,000                              478,000

     Adjustments
     for
     redeemable
     noncontrolling
     interests
     and
     noncontrolling
     interests(7)        (401,000)                           (110,000)
                          --------                             --------

    MFFO
     attributable
     to
     controlling
     interest                         $24,871,000                        $22,463,000
                                      ===========                        ===========

     Weighted
     average
     common
     shares
     outstanding
     -
     basic
     and
     diluted           200,347,084                          196,897,807
                       ===========                          ===========

    Net
     income
     (loss)
     per
     common
     share
     -
     basic
     and
     diluted                                $0.04                            $(0.04)
                                            =====                             ======

    FFO
     attributable   diluted
     to
     controlling
     interest
     per
     common
     share
     -
     basic
     and                                    $0.14                              $0.12
                                            =====                              =====

    MFFO
     attributable   diluted
     to
     controlling
     interest
     per
     common
     share
     -
     basic
     and                                    $0.12                              $0.11
                                            =====                              =====
    ___________

    (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. Certain acquisition related
                     expenses under GAAP, such as
                     expenses incurred in connection with
                     property acquisitions accounted for
                     as business combinations, are
                     considered operating expenses and as
                     expenses included in the
                     determination of net income (loss),
                     which is a performance measure 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 and closing
                     costs are amortized over the term of
                     our notes receivable and debt
                     security investment as an adjustment
                     to the yield on our notes receivable
                     or debt security investment. This
                     may result in income recognition
                     that is different than the
                     contractual cash flows under our
                     notes receivable and debt security
                     investment. By adjusting for the
                     amortization of the loan and closing
                     costs related to our real estate
                     notes receivable and debt security
                     investment, MFFO may provide useful
                     supplemental information on the
                     realized economic impact of our
                     notes receivable and debt security
                     investment terms, providing insight
                     on the expected contractual cash
                     flows of such notes receivable and
                     debt security investment, and aligns
                     results with our analysis of
                     operating performance.

    (4)              Under GAAP, rental revenue or rental
                     expense is recognized on a straight-
                     line basis over the terms of the
                     related lease (including rent
                     holidays). This may result in income
                     or expense recognition that is
                     significantly different than the
                     underlying contract terms. By
                     adjusting for the change in deferred
                     rent, 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)              Under GAAP, we are required to record
                     our derivative financial instruments
                     at fair value at each reporting
                     period. We believe that adjusting
                     for the change in fair value of our
                     derivative financial instruments is
                     appropriate because such adjustments
                     may not be reflective of on-going
                     operations and reflect unrealized
                     impacts on value based only on then
                     current market conditions, although
                     they may be based upon general
                     market conditions. The need to
                     reflect the change in fair value of
                     our derivative financial instruments
                     is a continuous process and is
                     analyzed on a quarterly basis in
                     accordance with GAAP.

    (6)              We believe that adjusting for the
                     change in foreign currency exchange
                     rates provides useful information
                     because such adjustments may not be
                     reflective of on-going operations.

    (7)              Includes all adjustments to eliminate
                     the unconsolidated properties' share
                     or redeemable noncontrolling
                     interests and noncontrolling
                     interests' share, as applicable, of
                     the adjustments described in notes
                     (1) - (6) above to convert our FFO
                     to MFFO.

About Griffin-American Healthcare REIT III, Inc.
Griffin-American Healthcare REIT III, Inc. qualified to be taxed as a real estate investment trust for federal income tax purposes beginning with its taxable year ended December 31, 2014, and intends to continue to qualify to be taxed as a REIT. Griffin-American Healthcare REIT III invests in a diversified portfolio of healthcare real estate assets, focusing primarily on medical office buildings, hospitals, skilled nursing facilities, senior housing and other healthcare-related facilities. The REIT is co-sponsored by American Healthcare Investors, LLC and Griffin Capital Company, LLC. For more information regarding Griffin-American Healthcare REIT III, please visit www.HealthcareREIT3.com.

About American Healthcare Investors, LLC
American Healthcare Investors is an investment management firm that specializes in the acquisition and management of healthcare-related real estate. One of the world's largest managers of healthcare real estate, the company oversees an approximately 31 million-square-foot portfolio valued at approximately $8.9 billion, based on aggregate purchase price, on behalf of multiple investment programs that include thousands of individual and institutional investors. As of March 31, 2018, this international portfolio includes approximately 600 buildings comprised of medical office buildings, hospitals, senior housing, skilled nursing facilities and integrated senior health campuses located throughout the United States and the United Kingdom. The company and its principals have completed approximately $26 billion in aggregate acquisition and disposition transactions, approximately $16 billion of which have been healthcare-related. American Healthcare Investors is committed to providing investors with access to the potential benefits that healthcare-related real estate ownership can provide. For more information regarding American Healthcare Investors, please visit www.AmericanHealthcareInvestors.com.

About Griffin Capital Company, LLC
Griffin Capital Company, LLC ("Griffin Capital") is a leading alternative investment asset manager with approximately $10.3 billion in assets* under management. Founded in 1995, the privately-held firm is led by a seasoned team of senior executives with more than two decades of investment and real estate experience and who collectively have executed more than 650 transactions valued in excess of $22 billion. The firm manages, sponsors or co-sponsors a suite of carefully curated, institutional quality investment solutions distributed by Griffin Capital Securities, LLC to retail investors through a community of partners, including independent and insurance broker-dealers, wirehouses, registered investment advisory firms and the financial advisors who work with these enterprises. Additional information about Griffin Capital is available at www.griffincapital.com.

*Includes the property information related to interests held in certain joint ventures. As of December 31, 2017.

This release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements with respect to our current portfolio, our occupancy, weighted average lease term and projected growth of our net income, net operating income, modified funds from operations and funds from operations. We intend for all forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the following: our strength and financial condition; uncertainties relating to the strength and financial condition of our current and future real estate investments and their tenants; uncertainties regarding changes in the healthcare industry; uncertainties relating to the implementation of recent healthcare legislation and tax reform; uncertainties relating to the implementation of our real estate investment strategy; and other risk factors as outlined in our company's periodic reports, as filed with the SEC. Forward-looking statements in this document speak only as of the date on which such statements were made, and undue reliance should not be placed on such statements. We undertake no obligation to update any such statements that may become untrue because of subsequent events.

    Contact:                   Damon Elder

                               Spotlight Marketing Communications

                               (949) 427-5172 ext. 702

                               damon@spotlightmarcom.com

 

 

 

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SOURCE Griffin-American Healthcare REIT III, Inc.

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