Griffin-American Healthcare REIT III Reports Third Quarter 2017 Results

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“In little more than three years, our international portfolio has achieved significant scale and diversity, with hundreds of healthcare real estate investments acquired for more than $2.9 billion1 located throughout the United States and the United Kingdom,” said Jeff Hanson, chairman and chief executive officer. “Most importantly, our portfolio continues to perform very well, with high occupancy in both our RIDEA2 and non-RIDEA segments, enviable average remaining lease term, and low portfolio-level debt.”

Chief financial officer Brian Peay added, “During the third quarter, Griffin-American Healthcare REIT III continued to enjoy impressive operational performance and year-over-year quarterly growth. “Funds from operations attributable to controlling interest grew by 137 percent, while both modified funds from operations attributable to controlling interest and net operating income expanded by approximately 6 percent and 3 percent, respectively. We remain very pleased with our performance and overall portfolio operations.”

Third Quarter 2017 Highlights and Subsequent Events

  • Modified funds from operations, as defined by the Investment Program Association, or the IPA, attributable to controlling interest, or MFFO, equaled $25.7 million for the quarter ended Sept. 30, 2017, representing year-over-year growth of approximately 6 percent compared to $24.2 million during the third quarter 2016. Funds from operations, as defined by the National Association of Real Estate Investment Trusts, or NAREIT, attributable to controlling interest, or FFO, equaled $27.7 million during the third quarter 2017, representing year-over-year growth of approximately 137 percent versus third quarter 2016 FFO of $11.7 million. Year-over-year growth in FFO is primarily due to the capitalization of direct acquisition-related costs in connection with the purchase of the company's properties in 2017 compared to expensing such costs in connection with the purchase of the company's properties in 2016, in accordance with accounting principles generally accepted in the United States of America, or GAAP. (Please see financial reconciliation tables and notes at the end of this release for more information regarding MFFO and FFO.)
  • Net income during the third quarter 2017 was $4.5 million, compared to a net loss of $(56.4) million during the third quarter 2016. Net operating income, or NOI, totaled $55.4 million for the quarter ended Sept. 30, 2017, representing an increase of approximately 3 percent over third quarter 2016 NOI of $54.0 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 Sept. 30, 2017, the company's non-RIDEA property portfolio achieved a leased percentage of approximately 95 percent and weighted average remaining lease term of 8.6 years. The company's portfolio of senior housing — RIDEA facilities and integrated senior health campuses achieved a leased percentage of approximately 85 percent and 86 percent, respectively, for the nine months ended Sept. 30, 2017. Portfolio leverage3 was approximately 37 percent.
  • The company declared and paid daily distributions equal to an annualized rate of 6 percent, based upon a $10.00 per share purchase price, to stockholders of record from July 1 to Sept. 30, 2017.
  • Subsequent to the close of the third quarter, on Oct. 4, 2017, the company's board of directors unanimously approved and established a revised estimated per share net asset value, or NAV, of our common stock of $9.27, a $0.26 increase over the per share NAV of $9.01 approved and established by the board of directors on Oct. 5, 2016. Consistent with the IPA's practice guideline regarding valuations of publicly registered non-listed real estate investment trusts, or REITs, the valuation upon which the per share NAV was based does not include a portfolio premium that may accrue in a typical real estate valuation process conducted for transaction purposes, nor does it reflect an enterprise value. Please refer to the company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on Oct. 5, 2017 for more information.

1

Based on aggregate contract purchase price of owned and/or operated real estate and real estate-related investments, including development projects, as of Sept. 30, 2017.

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 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 September 30, 2017 and December 31, 2016

(Unaudited)

September 30,

2017

December 31,

 2016

ASSETS

Real estate investments, net

$

2,158,882,000

$

2,138,981,000

Real estate notes receivable and debt security investment, net

100,133,000

101,117,000

Cash and cash equivalents

35,876,000

29,123,000

Accounts and other receivables, net

110,488,000

127,684,000

Restricted cash

29,734,000

26,554,000

Real estate deposits

3,344,000

3,173,000

Identified intangible assets, net

182,639,000

200,827,000

Goodwill

75,309,000

75,265,000

Other assets, net

100,785,000

91,794,000

Total assets

$

2,797,190,000

$

2,794,518,000

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Liabilities:

Mortgage loans payable, net

$

615,346,000

$

495,717,000

Lines of credit and term loans

593,035,000

649,317,000

Accounts payable and accrued liabilities

125,868,000

105,145,000

Accounts payable due to affiliates

2,013,000

2,186,000

Identified intangible liabilities, net

1,708,000

2,216,000

Capital lease obligations

17,857,000

45,295,000

Security deposits, prepaid rent and other liabilities

48,315,000

44,582,000

Total liabilities

1,404,142,000

1,344,458,000

Commitments and contingencies

Redeemable noncontrolling interests

33,352,000

31,507,000

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; 198,369,180 and 195,780,039 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

1,983,000

1,957,000

  Additional paid-in capital

1,776,787,000

1,754,160,000

  Accumulated deficit

(574,590,000)

(490,298,000)

  Accumulated other comprehensive loss

(2,052,000)

(3,029,000)

  Total stockholders' equity

1,202,128,000

1,262,790,000

Noncontrolling interests

157,568,000

155,763,000

  Total equity

1,359,696,000

1,418,553,000

Total liabilities, redeemable noncontrolling interests and equity

$

2,797,190,000

$

2,794,518,000

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three and Nine Months Ended September 30, 2017 and 2016

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

Resident fees and services

$

230,768,000

$

218,107,000

$

682,300,000

$

651,565,000

Real estate revenue

31,980,000

30,823,000

95,422,000

87,191,000

Total revenues

262,748,000

248,930,000

777,722,000

738,756,000

Expenses:

Property operating expenses

199,047,000

187,240,000

596,099,000

568,726,000

Rental expenses

8,299,000

7,653,000

24,925,000

21,582,000

General and administrative

9,270,000

7,232,000

24,642,000

21,379,000

Acquisition related expenses

71,000

15,936,000

532,000

24,184,000

Depreciation and amortization

27,579,000

71,384,000

88,442,000

212,596,000

Total expenses

244,266,000

289,445,000

734,640,000

848,467,000

Other income (expense):

Interest expense:

Interest expense (including amortization of deferred financing costs, debt discount/premium and loss on debt extinguishment)

(14,773,000)

(13,027,000)

(45,356,000)

(32,350,000)

(Loss) gain in fair value of derivative financial instruments

(59,000)

989,000

44,000

(54,000)

(Loss) gain on dispositions of real estate investments

(9,000)

3,370,000

Impairment of real estate investments

(4,883,000)

Loss from unconsolidated entities

(1,494,000)

(2,355,000)

(3,668,000)

(6,916,000)

Foreign currency gain (loss)

1,384,000

(1,502,000)

3,697,000

(6,544,000)

Other income

210,000

42,000

673,000

411,000

Income (loss) before income taxes

3,741,000

(56,368,000)

(3,041,000)

(155,164,000)

Income tax benefit (expense)

720,000

2,000

1,498,000

(173,000)

Net income (loss)

4,461,000

(56,366,000)

(1,543,000)

(155,337,000)

Less: net loss attributable to noncontrolling interests

176,000

13,921,000

6,051,000

39,245,000

Net income (loss) attributable to controlling interest

$

4,637,000

$

(42,445,000)

$

4,508,000

$

(116,092,000)

Net income (loss) per common share attributable to controlling interest — basic and diluted

$

0.02

$

(0.22)

$

0.02

$

(0.60)

Weighted average number of common shares outstanding — basic and diluted

198,733,528

195,027,512

197,832,280

193,660,666

Distributions declared per common share

$

0.15

$

0.15

$

0.45

$

0.45

Net income (loss)

$

4,461,000

$

(56,366,000)

$

(1,543,000)

$

(155,337,000)

Other comprehensive income (loss):

Foreign currency translation adjustments

355,000

(427,000)

977,000

(1,916,000)

Total other comprehensive income (loss)

355,000

(427,000)

977,000

(1,916,000)

Comprehensive income (loss)

4,816,000

(56,793,000)

(566,000)

(157,253,000)

Less: comprehensive loss attributable to noncontrolling interests

176,000

13,921,000

6,051,000

39,245,000

Comprehensive income (loss) attributable to controlling interest

$

4,992,000

$

(42,872,000)

$

5,485,000

$

(118,008,000)

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC.

NET OPERATING INCOME RECONCILIATION

For the Three and Nine Months Ended September 30, 2017 and 2016

NOI 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, gain or loss on dispositions, impairment of real estate investments, loss from unconsolidated entities, 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 and nine months ended September 30, 2017 and 2016:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income (loss)

$

4,461,000

$

(56,366,000)

$

(1,543,000)

$

(155,337,000)

General and administrative

9,270,000

7,232,000

24,642,000

21,379,000

Acquisition related expenses

71,000

15,936,000

532,000

24,184,000

Depreciation and amortization

27,579,000

71,384,000

88,442,000

212,596,000

Interest expense

14,832,000

12,038,000

45,312,000

32,404,000

Loss (gain) on dispositions of real estate investments

9,000

(3,370,000)

Impairment of real estate investments

4,883,000

Loss from unconsolidated entities

1,494,000

2,355,000

3,668,000

6,916,000

Foreign currency (gain) loss

(1,384,000)

1,502,000

(3,697,000)

6,544,000

Other income

(210,000)

(42,000)

(673,000)

(411,000)

Income tax (benefit) expense

(720,000)

(2,000)

(1,498,000)

173,000

Net operating income

$

55,402,000

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Brad Bennett

Brad Bennett

Brad grew up in a small town in northern Iowa. He studied chemistry in college, graduated, and married his wife one month later. They were then blessed with two baby boys within the first four years of marriage. Having babies gave their family a desire to return to the old paths – to nourish their family with traditional, homegrown foods; rid their home of toxic chemicals and petroleum products; and give their boys a chance to know a simple, sustainable way of life. They are currently building a homestead from scratch on two little acres in central Texas. There’s a lot to be done to become somewhat self-sufficient, but they are debt-free and get to spend their days living this simple, good life together with their five young children.
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