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•	our ability to manage our liquidity and access to capital;

•	our ability to implement our business strategy;

•	our dependence on our managers and tenants to operate our properties successfully and in compliance with applicable law and the terms of our borrowings;

•	the ability and willingness of our tenants, operators, managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;

•	the ability of our property managers and tenants to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties;

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factors that can cause volatility in our operating income generated by our operating properties, including without limitation national and regional economic conditions, development of new competing properties, costs and availability of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, actual or threatened public health epidemics or outbreaks, such as coronavirus, and the timely delivery of accurate property-level financial results for those properties;

•	the ability and willingness of our tenants to renew their leases with us upon expiration of the leases and our ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event of a termination or default;

•	our ability to comply with the terms of our borrowings, which depends in part on the performance of our tenants and managers;

•	the nature and extent of future competition, including new construction in the markets in which our assets are located;

•	the extent and timing of future healthcare reform and regulation, including changes in reimbursement policies, procedures and rates;

•	risks associated with our joint ventures and unconsolidated entities, including our reliance on joint venture partners, lack of decision making authority and the financial condition of our joint venture partners;

•	our dependence on the resources and personnel of our advisor, our sponsor and their affiliates, including our advisor’s ability to manage our portfolio on our behalf;

•	the performance of our advisor, our sponsor and their affiliates;

•	the impact of continued business uncertainties surrounding our sponsor, as well as adverse changes in the financial health and public perception of our sponsor;

•	our advisor’s and its affiliates’ ability to attract and retain qualified personnel to support our operations and potential changes to key personnel providing management services to us;

•	our reliance on our advisor and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial fees to our advisor, and various potential conflicts of interest in our relationship with our sponsor;

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•	our use of leverage;

•	the impact of fluctuations in interest rates;

•	illiquidity of properties, joint venture or debt investments in our portfolio;

•	our ability to make distributions to our stockholders;

•	the lack of a public trading market for our shares;

•	the effect of paying distributions to our stockholders from sources other than cash flow provided by operations;

•	the potential failure to maintain effective internal controls and disclosure controls and procedures;

•	regulatory requirements with respect to our business and the healthcare industry generally, as well as the related cost of compliance;

•	legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs;

•	our ability to maintain our qualification as a REIT for federal income tax purposes and limitations imposed on our business by our status as a REIT;

•	the loss of our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act; and

•	other risks associated with investing in our targeted investments, including changes in our industry, interest rates, the securities markets, the general economy or the capital markets and real estate markets specifically.

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•	Grow the Operating Income Generated by Our Portfolio. Through active portfolio management, we will continue to review and implement operating strategies and initiatives in order to enhance the performance of our existing investment portfolio.

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Pursue Strategic Capital Expenditures and Development Opportunities. We will continue to invest capital into our operating portfolio in order to maintain market position as well as functional and operating standards. In addition, we will continue to execute on and identify strategic development opportunities for our existing investments that may involve replacing, converting or renovating facilities in our portfolio which, in turn, would allow us to provide an optimal mix of services and enhance the overall value of our assets.

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Consider Selective Dispositions and Opportunities for Asset Repositioning. We will consider selective dispositions of assets in connection with strategic repositioning of assets or otherwise where we believe the disposition will achieve a desired return or opportunities exist to enhance overall returns or improve our liquidity position. As the healthcare industry evolves, we will continue to assess the need for strategic asset repositioning, including evaluating assets, operators and markets to position our portfolio for optimal performance.

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Maintain a Diversified Portfolio. We believe that mid-acuity senior housing facilities provide an opportunity to generate risk-adjusted returns and benefit from positive future demographic trends. In addition, we believe that maintaining a balanced portfolio of assets diversified by investment type, geographic location, asset type, revenue source and operating model may mitigate the risk that any single factor or event could materially harm our business. Portfolio diversification also enhances the reliability of our cash flows by reducing our exposure to single-state regulatory or reimbursement changes, regional climate events and local economic downturns.

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Financing Strategy. We use asset-level financing as part of our investment strategy to leverage our investments while managing refinancing and interest rate risk. We typically finance our investments with medium to long-term, non-recourse mortgage loans, though our borrowing levels and terms vary depending upon the nature of the assets and the related financing. In addition, our Sponsor has made available a revolving line of credit to provide additional short-term liquidity as needed. Refer to “Liquidity and Capital Resources” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

•	Direct Investments - Net Lease - Healthcare properties operated under net leases with a tenant operator.

•	Direct Investments - Operating - Healthcare properties operated pursuant to management agreements with healthcare operators.

•	Unconsolidated Investments - Healthcare joint ventures, including properties operated under net leases or pursuant to management agreements with healthcare operators, in which we own a minority interest.

•	Debt and Securities Investments - Mortgage loans or mezzanine loans to owners of healthcare real estate and commercial mortgage backed securities, or CMBS, backed primarily by loans secured by healthcare properties. As of December 31, 2019, we had one mezzanine loan.

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(1)	Classification based on predominant services provided, but may include other services.

(2)	Excludes properties held for sale.

(3)

Based on cost for real estate equity investments, which includes purchase price allocations related to net intangibles, deferred costs, other assets, if any, and adjusted for subsequent capital expenditures. Does not include cost of properties held for sale. For real estate debt, based on principal amount. For real estate equity investments, includes cost associated with purchased land parcels that are not included in the count.

(4)	Watermark Fountains portfolio consists of six wholly-owned net lease properties totaling $288.8 million and nine operating facilities totaling $356.9 million, in which we own a 97.0% interest. One of the operating facilities consists of eight condominium units in which we hold future interests, or the Remainder Interests.

(5)	Includes institutional pharmacy, therapy businesses and lease purchase buy-out options in connection with the Trilogy investment, which are not subject to property count.

(6)	Represents our investment in Solstice Senior Living, LLC, or Solstice, the manager of the Winterfell portfolio. Solstice is a joint venture between affiliates of Integral Senior Living, LLC, or ISL, a management company of ILF, ALF and MCF founded in 2000, which owns 80.0%, and us, who owns 20.0%.

(7)	Our mezzanine loan was originated to a subsidiary of our joint venture with Formation Capital, LLC, or Formation, and Safanad Management Limited, which we refer to as Espresso.

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(1)	Classification based on predominant services provided, but may include other services.

•	Senior Housing. We define senior housing to include ILFs, ALFs, MCFs and CCRCs, as described in further detail below. Revenues generated by senior housing facilities typically come from private pay sources, including private insurance, and to a much lesser extent government reimbursement programs, such as Medicare and Medicaid.

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Assisted living facilities. ALFs provide services that include minimal assistance for activities in daily living and permit residents to maintain some of their privacy and independence as they do not require constant supervision and assistance. Services bundled within one regular monthly fee usually include three meals per day in a central dining room, daily housekeeping, laundry, medical reminders and 24-hour availability of assistance with the activities of daily living, such as eating, dressing and bathing. Professional nursing and healthcare services are usually available at the facility on call or at regularly scheduled times. ALFs typically are comprised of one and two bedroom suites equipped with private bathrooms and efficiency kitchens.

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Independent living facilities. ILFs are age-restricted multi-family properties with central dining facilities that provide services that include security, housekeeping, nutrition and limited laundry services. ILFs are designed specifically for independent seniors who are able to live on their own, but desire the security and conveniences of community living. ILFs typically offer several services covered under a regular monthly fee.

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Memory care facilities. MCFs offer specialized options for seniors with Alzheimer’s disease and other forms of dementia. Purpose built, free-standing MCFs offer an attractive alternative for private-pay residents affected by memory loss in comparison to other accommodations that typically have been provided within a secured unit of an ALF or SNF. These facilities offer dedicated care and specialized programming for various conditions relating to memory loss in a secured environment that is typically smaller in scale and more residential in nature than traditional ALFs. Residents require a higher level of care and more assistance with activities of daily living than in ALFs. Therefore, these facilities have staff available 24 hours a day to respond to the unique needs of their residents.

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Continuing care retirement community. CCRCs provide, as a continuum of care, the services described for ILFs, ALFs and SNFs in an integrated campus. CCRCs can be structured to offer services covered under a regular monthly rental fee or under a one-time upfront entrance fee, which is partially refundable in certain circumstances. Residents under entrance fee agreements may also pay a monthly service fee, which entitles them to the use of certain amenities and services, however, the monthly fees are generally less than fees at a comparable rental community. The refundable portion of a resident’s entrance fee is generally refundable within a certain period following contract termination or upon the resale of the unit, or in some agreements, upon the resale of a comparable unit or after the resident vacates the unit. Some entrance fee agreements entitle the resident to a refund of the original entrance fee paid plus a percentage of the appreciation of the unit upon resale.

•	Skilled Nursing Facilities. SNFs provide services that include daily nursing, therapeutic rehabilitation, social services, housekeeping, nutrition and administrative services for individuals requiring certain assistance for activities in daily

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Medical Office Buildings. MOBs are typically either single-tenant properties associated with a specialty group or multi-tenant properties leased to several unrelated medical practices. Tenants include physicians, dentists, psychologists, therapists and other healthcare providers, who require space devoted to patient examination and treatment, diagnostic imaging, outpatient surgery and other outpatient services. MOBs are similar to commercial office buildings, although they require greater plumbing, electrical and mechanical systems to accommodate physicians’ requirements such as sinks in every room, brighter lights and specialized medical equipment.

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Hospitals. Services provided by operators and tenants in hospitals are paid for by private sources, third-party payers (e.g., insurance and Health Maintenance Organizations), or through the Medicare and Medicaid programs. Our hospital properties typically will include acute care, long-term acute care, specialty and rehabilitation hospitals and generally are leased to single tenants or operators under triple-net lease structures.

(1)	Tenant is in default under its lease.

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(1)	Represents rooms for ALFs and ILFs and beds for MCFs and SNFs, based on predominant type.

(2)	Includes rental income received from our net lease properties as well as rental income, ancillary service fees and other related revenue earned from ILF residents and resident fee income derived from our ALFs, MCFs and CCRCs, which includes resident room and care charges, ancillary fees and other resident service charges.

(3)	Solstice is a joint venture of which affiliates of ISL own 80%.

(4)	In May 2019, we sold the two properties that were leased to Peregrine Senior Living.

(5)	Tenant has failed to remit rental payments during the year ended December 31, 2019. Properties and unit counts exclude one property held for sale.

(6)	Consists primarily of interest income earned on corporate-level cash accounts.

(1)	Excludes properties classified as held for sale.

(2)	Represents assets under management based on cost, which includes purchase price allocations related to net intangibles, deferred costs, other assets, if any, and adjusted for subsequent capital expenditures. Does not include cost of properties held for sale.

(3)

Represents initial and subsequent contributions to the underlying joint venture through December 31, 2019. During the year ended December 31, 2019, we funded an additional capital contribution of $2.4 million into the Trilogy joint venture and $37.4 million into the Griffin-American joint venture. The additional funding for Trilogy related to certain business initiatives, including the development of additional senior housing and SNFs. The additional funding for Griffin-American related to refinancing of existing mortgage debt.

(4)	In October 2018, we sold 20.0% of our ownership interest in the Trilogy joint venture, which reduced our ownership interest in the joint venture from approximately 29% to 23%.

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•	Eclipse. Portfolio of SNFs and ALFs leased to, or managed by, a variety of different operators across the United States. Our Sponsor and other minority partners and Formation own 86.4% and 8.0% of this portfolio, respectively.

•	Griffin-American. Portfolio of SNFs, ALFs, MOBs and hospitals across the United States and care homes in the United Kingdom. Our Sponsor and other minority partners own the remaining 85.7% of this portfolio.

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Espresso. Portfolio of predominantly SNFs, located in various regions across the United States, and organized in six sub-portfolios and currently leased to nine different operators under net leases. An affiliate of Formation acts as the general partner and manager of this investment. Formation and Safanad Management Limited own the remaining 63.3% of this portfolio. We also have extended a mezzanine loan to this portfolio. Refer to “—Debt and Securities Investments Overview” below.

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Trilogy. Portfolio of predominantly SNFs located in the Midwest and operated pursuant to management agreements with Trilogy Health Services, as well as ancillary services businesses, including a therapy business and a pharmacy business. Griffin-American Healthcare REIT III, Inc., or GAHR3, Griffin-American Healthcare REIT IV, Inc., or GAHR4, and management of Trilogy own the remaining 76.8% of this portfolio.

•	Solstice. Operator platform joint venture established to manage the operations of the Winterfell portfolio. An affiliate of ISL owns the remaining 80.0%.

•	Envoy. In March 2019, the Envoy joint venture, of which we own an 11.4% interest, completed the sale of its remaining 11 properties, for a sales price of $118.0 million, which generated net proceeds to us totaling $4.3 million.

(1)	Property type underlying the mezzanine loan predominately includes SNFs, which are located primarily in the Midwest, Northeast and Southeast regions of the United States.

(2)

As a result of impairments and other non-cash reserves recorded by the joint venture, the carrying value of our Espresso unconsolidated investment was reduced to zero in the fourth quarter of 2018. We have recorded the excess equity in losses related to our unconsolidated investment as a reduction to the carrying value of our mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. As of December 31, 2019 and December 31, 2018, the cumulative excess equity in losses included in our mezzanine loan carrying value were $18.6 million and $16.2 million, respectively.

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•	require compliance with applicable REIT rules;

•	regulate healthcare operators, including those in the senior housing sector that may be our operators, with respect to licensure, certification for participation in government programs and relationships with patients, physicians, tenants and other referral sources;

•	regulate occupational health and safety;

•	regulate removal or remediation of hazardous or toxic substances;

•	regulate land use and zoning;

•	regulate removal of barriers to access by persons with disabilities and other public accommodations;

•	regulate tax treatment and accounting standards; and

•	regulate use of derivative instruments and our ability to hedge our risks related to fluctuations in interest rates and exchange rates.

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•	For taxable years beginning after 2017, the percentage of a REIT’s total assets that may be represented by securities of one or more TRSs was reduced from 25% to 20%.

•	For distributions in taxable years beginning after 2014, the preferential dividend rules no longer apply to us as a “publicly offered REIT,” as defined in Internal Revenue Code Section 562(c)(2).

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For taxable years beginning after 2015, debt instruments issued by publicly offered REITs are treated as real estate assets for purposes of the 75% asset test, but interest on debt of a publicly offered REIT will not be qualifying income under the 75% gross income test unless the debt is secured by real property. Under a new asset test, not more than 25% of the value of a REIT’s assets may consist of debt instruments that are issued by publicly offered REITs and would not otherwise be treated as qualifying real estate assets.

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For taxable years beginning after 2015, to the extent rent attributable to personal property is treated as rents from real property (because rent attributable to the personal property for the taxable year does not exceed 15% of the total rent for the taxable year for such real and personal property), the personal property will be treated as a real estate asset for purposes of the 75% asset test. Similarly, a debt obligation secured by a mortgage on both real and personal property will be treated as a real estate asset for purposes of the 75% asset test, and interest thereon will be treated as interest on an obligation secured by real property, if the fair market value of the personal property does not exceed 15% of the fair market value of all property securing the debt.

•	For taxable years beginning after 2015, a 100% excise tax will apply to “redetermined services income,” i.e., non-arm’s-length income of a REIT’s TRS attributable to services provided to, or on behalf of, the REIT (other than services provided to REIT tenants, which are potentially taxed as redetermined rents).

•	For taxable years beginning after 2014, the period during which dispositions of properties with net built-in gains acquired from C corporations in carry-over basis transactions will trigger the built-in gains tax was reduced from ten years to five years.

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REITs are subject to a 100% tax on net income from “prohibited transactions,” i.e., sales of dealer property (other than “foreclosure property”). These rules also contain a safe harbor under which certain sales of real estate assets will not be treated as prohibited transactions. One of the requirements for the pre-PATH Act safe harbor was that (I) the REIT did not make more than seven sales of property (subject to specified exceptions) during the taxable year at issue, or (II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than excepted property) sold during the taxable year did not exceed 10% of the aggregate bases in the REIT’s assets as of the beginning of the taxable year, or (III) the fair market value of property (other than excepted property) sold during the taxable year did not exceed 10% of the fair market value of the REIT’s total assets as of the beginning of the taxable year. If a REIT relied on clause (II) or (III), substantially all of the marketing and certain development expenditures with respect to the properties sold must have been made through an independent contractor. For taxable years beginning after December 18, 2015, clauses (II) and (III) were liberalized to permit the REIT to sell properties with an aggregate adjusted basis (or fair market value) of up to 20% of the aggregate bases in (or fair market value of) the REIT’s assets as long as the 10% standard is satisfied on average over the three-year period comprised of the taxable year at issue and the two immediately preceding taxable years. In addition, for taxable years beginning after 2015, for REITs that rely on clauses (II) or (III), a TRS may make the marketing and development expenditures that previously had to be made by independent contractors.

•	A number of changes applicable to REITs were made to the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, rules for taxing non-U.S. persons on gains from sales of U.S. real property interests, or USRPIs:

•	For dispositions and distributions on or after December 18, 2015, the stock ownership thresholds for exemption from FIRPTA taxation on sale of stock of a publicly traded REIT and for recharacterizing capital gain dividends as ordinary dividends were increased from not more than 5% to not more than 10%.

•	Effective December 18, 2015, new rules simplified the determination of whether we are a “domestically controlled qualified investment entity.”

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•	For dispositions and distributions after December 18, 2015, “qualified foreign pension funds” as defined in new Internal Revenue Code Section 897(l)(2) and entities that are wholly owned by a qualified foreign pension fund are exempted from FIRPTA and FIRPTA withholding. New FIRPTA rules also apply to “qualified shareholders” as defined in Internal Revenue Code Section 897(k)(3).

•	For sales of USRPIs occurring after February 16, 2016, the FIRPTA withholding rate for sales of USRPIs and certain distributions generally increased from 10% to 15%.

•	With respect to individuals, the TCJA made significant changes to individual tax rates and deductions:

•	The TCJA created seven income tax brackets for individuals ranging from 10% to 37% that generally apply at higher thresholds than current law. For example, the highest 37% rate applies to joint return filer incomes above $600,000, instead of the highest 39.6% rate that applied to incomes above $470,700 under pre-TCJA law.

•	The maximum 20% rate that applies to long-term capital gains and qualified dividend income remained unchanged, as did the 3.8% Medicare tax on net investment income.

•	The TCJA eliminated personal exemptions, but nearly doubled the standard deduction for most individuals (for example, the standard deduction for joint return filers rose from $12,700 in 2017 to $24,000 in 2018).

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The TCJA eliminated many itemized deductions, limited individual deductions for state and local income, property and sales taxes (other than those paid in a trade or business) to $10,000 collectively for joint return filers, and limited the amount of new acquisition indebtedness on principal or second residences for which mortgage interest deductions are available to $750,000. Interest deductions for new home equity debt were eliminated.

•	Charitable deductions were generally preserved. The phaseout of itemized deductions based on income was eliminated.

•	The TCJA did not eliminate the individual alternative minimum tax, but it raised the exemption and exemption phaseout threshold for application of the tax.

•	These individual income tax changes were generally effective beginning in 2018, but without further legislation, they will sunset after 2025.

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Under the TCJA, individuals, trusts, and estates generally may deduct 20% of “qualified business income” (generally, domestic trade or business income other than certain investment items) of certain pass-through entities. In addition, “qualified REIT dividends” (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income, which in each case are already eligible for capital gain tax rates) and certain other income items are eligible for the deduction by the taxpayer. The overall deduction is limited to 20% of the sum of the taxpayer’s taxable income (less net capital gain) and certain cooperative dividends, subject to further limitations based on taxable income. In addition, for taxpayers with income above a certain threshold (e.g., $315,000 for joint return filers), the deduction for each trade or business is generally limited to no more than the greater of (i) 50% of the taxpayer’s proportionate share of total wages from the pass-through entity, or (ii) 25% of the taxpayer’s proportionate share of such total wages plus 2.5% of the unadjusted basis of acquired tangible depreciable property that is used to produce qualified business income and satisfies certain other requirements. The deduction for qualified REIT dividends is not subject to these wage and property basis limits. Consequently, the deduction equates to a maximum 29.6% tax rate on ordinary REIT dividends. As with the other individual income tax changes, the deduction provisions were effective beginning in 2018. Without further legislation, the deduction would sunset after 2025.

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Net operating loss, or NOL, provisions were modified by the TCJA. The TCJA limited the NOL deduction to 80% of taxable income (before the deduction). It also generally eliminated NOL carrybacks for individuals and non-REIT corporations (NOL carrybacks did not apply to REITs under prior law), but allows indefinite NOL carryforwards. The new NOL rules apply to losses arising in taxable years beginning in 2018.

•	The TCJA reduced the 35% maximum federal corporate income tax rate to a maximum 21% rate, and reduced the dividends-received deduction for certain corporate subsidiaries. The reduction of the federal corporate income tax rate to 21% also results in the reduction of the maximum rate of withholding with respect to our distributions to non-U.S.

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The TCJA limited a taxpayer’s net interest expense deduction to 30% of the sum of adjusted taxable income, business interest, and certain other amounts. Adjusted taxable income does not include items of income or expense not allocable to a trade or business, business interest or expense, the new deduction for qualified business income, NOLs, and for years prior to 2022, deductions for depreciation, amortization, or depletion. For partnerships, the interest deduction limit is applied at the partnership level, subject to certain adjustments to the partners for unused deduction limitation at the partnership level. The TCJA allows a real property trade or business to elect out of this interest limit so long as it uses a 40-year recovery period for nonresidential real property, a 30-year recovery period for residential rental property, and a 40-year recovery period for related improvements described below. For this purpose, a real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operating, management, leasing, or brokerage trade or business. We believe this definition encompasses our business and thus will allow us the option of electing out of the limits on interest deductibility should we determine it is prudent to do so. Nonetheless, if a domestic TRS borrows funds either from us or a third party, it may be unable to deduct all or a portion of the interest paid, resulting in a higher corporate-level tax liability. Disallowed interest expense is carried forward indefinitely (subject to special rules for partnerships). The interest deduction limit applied beginning in 2018.

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For taxpayers that do not use the TCJA’s real property trade or business exception to the business interest deduction limits, the TCJA maintains the current 39-year and 27.5-year straight line recovery periods for nonresidential real property and residential rental property, respectively, and provides that tenant improvements for such taxpayers are subject to a general 15-year recovery period. Also, the TCJA temporarily allows 100% expensing of certain new or used tangible property through 2022, phasing out at 20% for each following year. The changes apply, generally, to property acquired after September 27, 2017 and placed in service after September 27, 2017.

•	The TCJA continues the deferral of gain from the like kind exchange of real property, but provides that foreign real property is no longer “like-kind” to domestic real property. Furthermore, the TCJA eliminated like-kind exchanges for most personal property. These changes were effective generally for exchanges completed after December 31, 2017.

•	The TCJA moved the United States from a worldwide to a modified territorial tax system, with provisions included to prevent corporate base erosion. These provisions could affect the taxation of foreign subsidiaries and/or properties.

•	The TCJA made other significant changes to the Internal Revenue Code. These changes include provisions limiting the ability to offset dividend and interest income with partnership or S corporation net active business losses. These provisions were effective beginning in 2018, but without further legislation, will sunset after 2025.

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•	our joint venture partner in an investment could become insolvent or bankrupt;

•	fraud or other misconduct by our joint venture partners;

•	we may share decision-making authority with our joint venture partner regarding certain major decisions affecting the ownership of the joint venture and the joint venture property, such as the sale of the property or the making of additional capital contributions for the benefit of the property, which may prevent us from taking actions that are opposed by our joint venture partner;

•	such joint venture partner may at any time have economic or business interests or goals that are or that become in conflict with our business interests or goals, including for example the operation of the properties;

•	such joint venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;

•	our joint venture partners may be structured differently than us for tax purposes and this could create conflicts of interest and risk to our REIT status;

•	we may rely upon our joint venture partners to manage the day-to-day operations of the joint venture and underlying assets, as well as to prepare financial information for the joint venture and any failure to perform these obligations may have a negative impact on our performance and results of operations;

•	our joint venture partner may experience a change of control, which could result in new management of our joint venture partner with less experience or conflicting interests to ours and be disruptive to our business;

•	we may not be able to control distributions from our joint ventures; and

•	the terms of our joint ventures could restrict our ability to sell or transfer our interest to a third party when we desire on advantageous terms, which could result in reduced liquidity.

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•	local, state, national or international economic conditions, including market disruptions caused by regional concerns, political upheaval and other factors;

•	property operating costs, including insurance premiums, real estate taxes and maintenance costs;

•	changes in interest rates and in the availability, cost and terms of mortgage financing;

•	adverse changes in state and local laws, including zoning laws; and

•	other factors which are beyond our control.

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•	translation and transaction risks relating to fluctuations in foreign currency exchange rates;

•	adverse market conditions caused by inflation or other changes in national or local political and economic conditions;

•	challenges of complying with a wide variety of foreign laws;

•	changes in the availability, cost and terms of borrowings resulting from varying national economic policies; and

•	legal and logistical barriers to enforcing our contractual rights in other countries, including insolvency regimes, landlord/tenant rights and ability to take possession of the collateral.

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•	require us to dedicate a large portion of our cash flow to pay principal and interest on our borrowings, which reduces the availability of cash flow to fund working capital, capital expenditures and other business activities;

•	may require us to maintain minimum cash balances;

•	increase our vulnerability to general adverse economic and industry conditions, as well as operational failures by our tenants, operators and managers;

•	may require us to post additional reserves and other additional collateral to support our financing arrangements, which could reduce our liquidity and limit our ability to leverage our assets;

•	subject us to maintaining various debt, operating income, net worth, cash flow and other covenants and financial ratios;

•	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•	restrict our operating policies and ability to make strategic acquisitions, dispositions or exploit business opportunities;

•	place us at a competitive disadvantage compared to our competitors that have fewer borrowings;

•	put us in a position that necessitates raising equity capital at a time that is unfavorable to us and dilutive to our stockholders;

•	limit our ability to borrow additional funds (even when necessary to maintain adequate liquidity), dispose of assets or make distributions to stockholders; and

•	increase our cost of capital.

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•	the continuation, renewal or enforcement of our agreements with our Advisor and its affiliates, including our advisory agreement;

•	sales of investments, which may entitle our Advisor to disposition fees;

•	borrowings to originate or acquire investments, which borrowings which historically increased the fees payable to our Advisor;

•	whether and when we seek to list our common stock on a national securities exchange, which listing could entitle NorthStar Healthcare Income OP Holdings, LLC, an affiliate of our Sponsor, or the Special Unit Holder, to have its interest in our operating partnership redeemed;

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whether we seek approval to internalize our management, which may entail acquiring assets from our Sponsor (such as office space, furnishings and technology costs) and employing our Advisor’s or its affiliates’ professionals performing services for us for consideration that would be negotiated at that time and may result in these investment professionals receiving more compensation from us than they currently receive from our Advisor or its affiliates; and

•	whether and when we seek to sell our company or its assets, which may entitle the Special Unit Holder to a subordinated distribution.

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•	the election or removal of directors;

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

•	our liquidation or dissolution;

•	certain reorganizations of our company, as provided in our charter; and

•	certain mergers, consolidations or sales or other dispositions of all or substantially all our assets, as provided in our charter.

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

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“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

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•	limitations on capital structure;

•	restrictions on specified investments;

•	prohibitions on transactions with affiliates; and

•	compliance with reporting, recordkeeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

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In order to continue to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction or net capital gain for this purpose), if any, to stockholders. To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, if any, we will be subject to federal corporate income tax on the undistributed income.

•	We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

•	If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.

•	If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business and do not qualify for a safe harbor in the Internal Revenue Code, our gain would be subject to the 100% “prohibited transaction” tax.

•	Any domestic TRS of ours will be subject to federal corporate income tax on its income and on any non-arm’s-length transactions between us and any TRS, for instance, excessive rents charged to a TRS could be subject to a 100% tax.

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If a domestic TRS borrows funds either from us or a third party, it may be unable to deduct all or a portion of the interest paid, resulting in a higher corporate-level tax liability. Specifically, the TCJA imposes a disallowance of deductions for business interest expense (even if paid to third parties) in excess of the sum of a taxpayer’s business interest income and 30% of the adjusted taxable income of the business, which is its taxable income computed without regard to business interest income or expense, net operating losses or the pass-through income deduction (and for taxable years before 2022, excludes depreciation and amortization).

•	We may be subject to tax on income from certain activities conducted as a result of taking title to collateral.

•	We may be subject to state or local income, property and transfer taxes, such as mortgage recording taxes.

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•	their investment is consistent with the fiduciary obligations under ERISA and the Internal Revenue Code or any other applicable governing authority in the case of a government plan;

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•	their investment is made in accordance with the documents and instruments governing the Benefit Plan, including the Benefit Plan’s investment policy;

•	their investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA, if applicable and other applicable provisions of ERISA and the Internal Revenue Code;

•	their investment will not impair the liquidity of the Benefit Plan;

•	their investment will not unintentionally produce unrelated business taxable income for the Benefit Plan;

•	stockholders will be able to value the assets of the Benefit Plan annually in accordance with the applicable provisions of ERISA and the Internal Revenue Code; and

•	their investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

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(1)	Represents rooms for ALFs and ILFs and beds for MCFs and SNFs, based on predominant type.

(2)	Classification based on predominant services provided, but may include other services.

(3)

Based on initial lease term of the operator for our net lease properties. Our senior housing operating portfolio properties are owned and operated by us through management agreements with third parties, and as such, do not have property level tenant leases. For ILFs within our senior housing operating portfolio, individual units’ initial lease terms are generally less than one year with month-to-month renewal options.

(4)	Represents operating real estate before accumulated depreciation as presented in our consolidated financial statements and excludes purchase price allocations related to net intangibles and other assets and liabilities as of December 31, 2019. Refer to “Note 3, Operating Real Estate” of Part II, Item 8. “Financial Statements and Supplementary Data.”

(5)	Tenant is in default under its lease.

(6)	Excludes one property in which we hold a Remainder Interest in eight condominium units.

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(1)	Represents distributions declared for such period, even though such distributions are actually paid to stockholders the month following such period.

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(1)

In October 2018, our board of directors approved an amended and restated Share Repurchase Program, under which we will only repurchase shares in connection with the death or qualifying disability of a stockholder at a price equal to the lesser of the price paid for the shares, as adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transactions, or the most recently published estimated value per share.

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•	Direct Investments - Net Lease - Healthcare properties operated under net leases with a single tenant operator.

•	Direct Investments - Operating - Healthcare properties operated pursuant to management agreements with healthcare operators.

•	Unconsolidated Investments - Healthcare joint ventures, including properties operated under net leases or pursuant to management agreements with healthcare operators, in which we own a minority interest.

•	Debt and Securities Investments - Mortgage loans or mezzanine loans to owners of healthcare real estate and commercial mortgage backed securities, or CMBS, backed primarily by loans secured by healthcare properties.

•	higher operating revenues as a result of billing rate increases;

•	lower expenses, primarily staffing and salary related, in our ILF portfolios; and

•	non-recurring resident fee income and one-time expense savings recognized in select portfolios also contributed to improved financial performance.

•	the Espresso joint venture completed several operator transitions for its net lease SNF portfolios, which resulted in higher rental income collected;

•	the Trilogy joint venture continued its expansion and development of operating real estate while same store improvements drove higher operating results; and

•	the Envoy joint venture sold its remaining investments, which resulted in the recognition of residual earnings upon the completion of the sale.

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•	In March 2019, the Envoy joint venture, of which we own 11.4%, completed the sale of the remaining 11 properties in the portfolio, for a sales price of $118.0 million, generating net proceeds to us of $4.3 million.

•	In March 2019, we contributed $2.4 million to the Trilogy joint venture for development initiatives, including senior housing campus development.

•	In May 2019, we sold two properties within the Peregrine portfolio for $19.7 million, generating net proceeds of $3.3 million, after the repayment of the outstanding mortgage principal balance of $16.4 million and transaction costs.

•	In June 2019, we contributed $37.4 million to the Griffin-American joint venture to refinance outstanding mortgage debt.

•	In September 2019, the Eclipse joint venture, of which we own 5.6%, sold nine properties within the portfolio, generating net proceeds to us of $2.1 million.

•	In November 2019, we received a partial repayment of principal on the Espresso mezzanine loan totaling $0.8 million, in connection with the borrower’s sale of a net lease facility.

•	In December 2019, the Griffin-American joint venture, of which we own 14.3%, sold three properties within its portfolio. Our proportionate share of the net proceeds generated from the sale totaled $16.9 million.

•	Effective February 1, 2019, our board of directors determined to suspend distributions in order to preserve capital and liquidity.

•	In April 2019, we terminated our revolving credit facility, or our Corporate Facility, which we had not previously drawn upon.

•	In May 2019, we extended the maturity date of our revolving line of credit from an affiliate of Colony Capital, or the Sponsor Line, through December 2021.

•	In July 2019, we refinanced an existing $12.4 million seller note payable, collateralized by a property within the Rochester portfolio, with a $12.8 million mortgage note payable. The new mortgage note carries an interest rate of 2.90% plus LIBOR, with an initial maturity date of August 2021.

•	In December 2019, our board of directors approved and established an estimated value per share of our common stock of $6.25 as of June 30, 2019.

•	For the year ended December 31, 2019, our Winterfell portfolio’s average occupancy was 79.8%, consistent with the year ended December 31, 2018.

•	The operating portfolios managed by Watermark Retirement Communities maintained an overall average occupancy of 83.5% for the year ended December 31, 2019, which was overall consistent with the year ended December 31, 2018.

•	During 2019, impairment losses totaling $27.6 million were recorded due to performance issues at properties within the Rochester, Kansas City and Peregrine portfolios, as well as to reflect an updated net realizable value for a property designated as held for sale.

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•	Rochester portfolio. Impairment losses totaling $19.5 million for two ALFs with continuing poor performance and sustained declines in occupancy as a result of difficult market conditions.

•	Kansas City portfolio. Impairment losses totaling $3.9 million for two facilities which have generated operating losses due to the operator’s inability to sustain adequate occupancy to achieve profitable operating margins.

•	Peregrine portfolio. Impairment losses totaling $4.1 million for two net lease facilities, for which the tenant has sustained operating losses and has failed to remit rental payments during the year. One of the facilities was designated as held for sale during the year ended December 31, 2018 and has been impaired to its estimated fair value.

•	Griffin-American Joint Venture. Impairment losses for operating real estate and held for sale assets, of which our proportionate share totaled $1.9 million.

•	Eclipse Joint Venture. Impairment losses for a net lease SNF, of which our proportionate share totaled $0.2 million.

•	Espresso Joint Venture. Impairment losses for a net lease SNF, of which our proportionate share totaled $0.5 million.

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(1)	Represents our proportionate share of revenues and expenses excluded from the calculation of FFO and MFFO. Refer to “—Non-GAAP Financial Measures” for additional discussion.

(2)	Represents our investment in Solstice.

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(1)	Includes resident fee income generated from our Kansas City portfolio, which transitioned from a net leased portfolio to an operating portfolio during the year ended December 31, 2017.

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(1)	Primarily reserves for uncollectible rents from our net lease properties.

(2)	Includes operating expenses incurred by our Kansas City portfolio, which transitioned from a net leased portfolio to an operating portfolio during the year ended December 31, 2017.

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(1)	Represents our proportionate share of revenues and expenses excluded from the calculation of FFO and MFFO. Refer to “—Non-GAAP Financial Measures” for additional discussion.

(2)	Represents our investment in Solstice.

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(1)	Represents contractual amortization of principal and repayment upon contractual maturity.

(2)

Represents our proportionate interest in the underlying obligations and commitments of our unconsolidated ventures. We are not directly liable for the obligations and commitments of our unconsolidated ventures. Borrowings that are maturing in our unconsolidated ventures may require us to fund additional contributions if favorable refinancing is not obtained. We are not obligated to fund capital contributions, however our investment in the unconsolidated investment may be diluted and we may be prohibited from participating in future cash flows if we are unable to fund.

(3)	Estimated interest payments are based on the remaining life of the borrowings. Applicable LIBOR rate plus the respective spread as of December 31, 2019 was used to estimate payments for our floating-rate borrowings.

(4)

Subject to certain restrictions and limitations, our Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, originating, acquiring and managing investments on our behalf. For such services, our Advisor receives management fees from us based on our most recent net asset value. In addition, our advisory agreement must be renewed in June 2020 and may be renewed on different terms or may be terminated at any time, subject to notice requirements. As a result, the amount included in the table above is an estimate only and assumes the current net asset value and the continuation of our advisory agreement on its current terms. Included in the table is $10.0 million of advisor asset management fees per year that are payable in shares of our common stock. Refer to “—Related Party Arrangements” for additional information on our Advisor asset management fee.

(5)	Excludes construction related and other commitments for future development.

(6)	Total includes $290.4 million and $595.5 million for years ended December 31, 2021 and 2022, respectively.

(7)	Total includes $171.1 million and $402.1 million for years ended December 31, 2023 and 2024, respectively.

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(1)	We did not incur any disposition fees during the year ended December 31, 2019, nor were any such fees outstanding as of December 31, 2019.

(2)	Includes $9.9 million paid in shares of our common stock and a $0.1 million gain recognized on the settlement of the share-based payment.

(3)	As of December 31, 2019, our Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to us. For the year ended December 31, 2019, total operating expenses included in the 2%/25% Guidelines represented 0.3% of average invested assets and 61.8% of net loss without

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(1)	Includes $9.0 million paid in shares of our common stock and a $0.2 million gain recognized on the settlement of the share-based payment.

(2)	We did not incur any disposition fees during the year ended December 31, 2018, nor were any such fees outstanding as of December 31, 2017.

(3)

As of December 31, 2018, our Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to us. For the year ended December 31, 2018, total operating expenses included in the 2%/25% Guidelines represented 0.4% of average invested assets and 54.9% of net loss without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves. Cost of capital is included in net proceeds from issuance of common stock in our consolidated statements of equity. For the year ended December 31, 2018, we did not incur any offering costs.

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•	acquisition fees and expenses;

•	non-cash amounts related to straight-line rent and the amortization of above or below market and in-place intangible lease assets and liabilities (which are adjusted in order to reflect such payments from an accrual basis of accounting under U.S. GAAP to a cash basis of accounting);

•	amortization of a premium and accretion of a discount on debt investments;

•	non-recurring impairment of real estate-related investments that meet the specified criteria identified in the rules and regulations of the SEC;

•	realized gains (losses) from the early extinguishment of debt;

•	realized gains (losses) on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of our business;

•	unrealized gains (losses) from fair value adjustments on real estate securities, including CMBS and other securities, interest rate swaps and other derivatives not deemed hedges and foreign exchange holdings;

•	unrealized gains (losses) from the consolidation from, or deconsolidation to, equity accounting;

•	adjustments related to contingent purchase price obligations; and

•	adjustments for consolidated and unconsolidated partnerships and joint ventures calculated to reflect MFFO on the same basis as above.

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(1)	Primarily represents our proportionate share of liability extinguishment gains, loan loss reserves, transaction costs and amortization of above/below market debt adjustments, debt extinguishment losses and deferred financing costs, incurred through our investments in unconsolidated ventures.

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(1)	Represents distributions declared for such period, even though such distributions are actually paid to stockholders the month following such period.

(2)	From inception of our first investment on April 5, 2013 through December 31, 2019, we declared $433.8 million in distributions. Cumulative FFO for the period from April 5, 2013 through December 31, 2019 was $92.4 million.

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(1)	Represents rooms for ALFs and ILFs and beds for MCFs and SNFs, based on predominant type.

(2)	Includes rental income received from our net lease properties, as well as rental income, ancillary service fees and other related revenue earned from ILF residents and resident fee income derived from our ALFs, MCFs and CCRCs, which includes resident room and care charges, ancillary fees and other resident service charges.

(3)	Solstice is a joint venture of which affiliates of ISL own 80%.

(4)	In May 2019, we sold the two properties that were leased to Peregrine Senior Living.

(5)	Tenant has failed to remit rental payments during the year ended December 31, 2019. Properties and unit counts exclude one property held for sale.

(6)	Consists primarily of interest income earned on corporate-level cash accounts.

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(1)

Represents the consolidated assets and liabilities of NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which the Company is the sole general partner and owns approximately 99.99%. As of December 31, 2019, the Operating Partnership includes $0.6 billion and $0.5 billion of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. Refer to Note 2, “Summary of Significant Accounting Policies.”

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1.	Business and Organization

NorthStar Healthcare Income, Inc., together with its consolidated subsidiaries (the “Company”), was formed to acquire, originate and asset manage a diversified portfolio of equity, debt and securities investments in healthcare real estate, directly or through joint ventures, with a focus on the mid-acuity senior housing sector, which the Company defines as assisted living (“ALF”), memory care (“MCF”), skilled nursing (“SNF”), independent living (“ILF”) facilities and continuing care retirement communities (“CCRC”), which may have independent living, assisted living, skilled nursing and memory care available on one campus. The Company also invests in other healthcare property types, including medical office buildings (“MOB”), hospitals, rehabilitation facilities and ancillary healthcare services businesses. The Company’s investments are predominantly in the United States, but it also selectively makes international investments.

The Company was formed in October 2010 as a Maryland corporation and commenced operations in February 2013. The Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2013. The Company conducts its operations so as to continue to qualify as a REIT for U.S. federal income tax purposes.

Substantially all of the Company’s business is conducted through NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. The limited partners of the Operating Partnership are NorthStar Healthcare Income Advisor, LLC (the “Prior Advisor”) and NorthStar Healthcare Income OP Holdings, LLC (the “Special Unit Holder”), each an affiliate of the Company’s sponsor. The Prior Advisor invested $1,000 in the Operating Partnership in exchange for common units and the Special Unit Holder invested $1,000 in the Operating Partnership and was issued a separate class of limited partnership units (the “Special Units”), which are collectively recorded as non-controlling interests on the accompanying consolidated balance sheets as of December 31, 2019 and December 31, 2018. As the Company issued shares, it contributed substantially all of the proceeds from its continuous, public offerings to the Operating Partnership as a capital contribution. As of December 31, 2019, the Company’s limited partnership interest in the Operating Partnership was 99.99%.

The Company’s charter authorizes the issuance of up to 400.0 million shares of common stock with a par value of $0.01 per share and up to 50.0 million shares of preferred stock with a par value of $0.01 per share. The board of directors of the Company is authorized to amend its charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.

The Company completed its initial public offering (the “Initial Offering”) on February 2, 2015 by raising gross proceeds of $1.1 billion, including 108.6 million shares issued in its initial primary offering (the “Initial Primary Offering”) and 2.0 million shares issued pursuant to its distribution reinvestment plan (the “DRP”). In addition, the Company completed its follow-on offering (the “Follow-On Offering”) on January 19, 2016 by raising gross proceeds of $700.0 million, including 64.9 million shares issued in its follow-on primary offering (the “Follow-on Primary Offering”) and 4.2 million shares issued pursuant to the DRP. The Company refers to its Initial Primary Offering and its Follow-on Primary Offering collectively as the “Primary Offering” and its Initial Offering and Follow-On Offering collectively as the “Offering.” In December 2015, the Company registered an additional 30.0 million shares to be offered pursuant to the DRP. From inception through March 19, 2020, the Company raised total gross proceeds of $2.0 billion, including $232.6 million in DRP proceeds.

The Company is externally managed and has no employees. The Company is sponsored by Colony Capital, Inc. (NYSE: CLNY) (“Colony Capital” or the “Sponsor”), which was formed as a result of the mergers of NorthStar Asset Management Group Inc.(“NSAM”), its prior sponsor, with Colony Capital, Inc. (“Colony”) and NorthStar Realty Finance Corp. (“NorthStar Realty”) in January 2017. Effective June 25, 2018, the Sponsor changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and its ticker symbol from “CLNS” to “CLNY.” Following the mergers, the Sponsor became an internally-managed equity REIT, with a diversified real estate and investment management platform.

Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies. The Company’s advisor, CNI NSHC Advisors, LLC (the “Advisor”), is a subsidiary of Colony Capital and manages its day-to-day operations pursuant to an advisory agreement.

2.	Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

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Reclassifications

Certain prior period amounts have been reclassified on the consolidated statements of cash flows from the supplemental disclosure of non-cash investing and financing activities to adjustments to reconcile net income (loss) to net cash provided by operating activities to conform to current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates entities in which it has a controlling financial interest by first considering if an entity meets the definition of a variable interest entity (“VIE”) for which the Company is deemed to be the primary beneficiary or if the Company has the power to control an entity through majority voting interest or other arrangements. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

The Company evaluates its investments and financings, including investments in unconsolidated ventures and securitization financing transactions to determine whether each investment or financing is a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

As of December 31, 2019, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.

Consolidated VIEs

The most significant consolidated VIEs are the Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights. The Operating Partnership consolidates certain properties that have non-controlling interests. Included in operating real estate, net on the Company’s consolidated balance sheets as of December 31, 2019 is $585.4 million related to such consolidated VIEs. Included in mortgage and other notes payable, net on the Company’s consolidated balance sheet as of December 31, 2019 is $462.5 million, collateralized by the real estate assets of the related consolidated VIEs.

Investing VIEs

The Company’s investment in a securitization financing entity (“Investing VIE”) consisted of subordinate first-loss certificates in a securitization trust, generally referred to as Class B certificates, which represents interests in such VIE. Investing VIEs are structured as pass through entities that receive principal and interest payments from the underlying debt collateral assets and distribute those payments to the securitization trust’s certificate holders, including the Class B certificates. A securitization trust

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will name a directing certificate holder, who is generally afforded the unilateral right to terminate and appoint a replacement for the special servicer, and as such may qualify as the primary beneficiary of the trust.

The Company held Class B certificates in an Investing VIE for which the Company had determined it was the primary beneficiary because it had the power to direct the activities that most significantly impacted the economic performance of the securitization trust. As a result, all of the assets, liabilities (obligations to the certificate holders of the securitization trust, less the Company’s retained interest from the Class B certificates of the securitization), income and expense of the entire Investing VIE were presented in the consolidated financial statements of the Company as required by U.S. GAAP. The Company’s Class B certificates, which represented the retained interest and related interest income, were eliminated in consolidation. Regardless of the presentation, the Company’s consolidated financial statements of operations ultimately reflect the net income attributable to its retained interest in the Class B certificates.

In March 2018, the Company sold the Class B certificates of its consolidated Investing VIE, relinquishing its rights as directing certificate holder. As a result, the Company was no longer deemed the primary beneficiary of the securitization trust and, accordingly, did not present the assets or liabilities of the securitization trust on its consolidated balance sheets as of December 31, 2019 and December 31, 2018. The Company has presented the income and expenses of the securitization trust on its consolidated statements of operations for the periods that the Company owned the Class B certificates and was considered the primary beneficiary in 2018.

Unconsolidated VIEs

As of December 31, 2019, the Company identified unconsolidated VIEs related to its real estate equity investments with a carrying value of $268.9 million. The Company’s maximum exposure to loss as of December 31, 2019 would not exceed the carrying value of its investment in the VIEs and its investment in a mezzanine loan to a subsidiary of one of the VIEs. Based on management’s analysis, the Company determined that it is not the primary beneficiary of these VIEs and, accordingly, they are not consolidated in the Company’s financial statements as of December 31, 2019. The Company did not provide financial support to its unconsolidated VIEs during the year ended December 31, 2019, except for funding its proportionate share of capital call contributions. As of December 31, 2019, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to its unconsolidated VIEs.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method or the Company may elect the fair value option.

The Company will account for an investment under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of preferred returns and allocation formulas, if any, as described in such governing documents. Equity method investments are recognized using a cost accumulation model, in which the investment is recognized based on the cost to the investor, which includes acquisition fees. The Company records as an expense certain acquisition costs and fees associated with consolidated investments deemed to be business combinations and capitalizes these costs for investments deemed to be acquisitions of an asset, including an equity method investment.

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Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and comprehensive income (loss) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and other comprehensive income (loss) (“OCI”). The only component of OCI for the Company is foreign currency translation adjustments related to its investment in an unconsolidated venture.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

The Company elected the fair value option to account for the eligible financial assets and liabilities of its consolidated Investing VIEs in order to mitigate potential accounting mismatches between the carrying value of the instruments and the related assets and liabilities to be consolidated. The Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) allowing the Company to measure both the financial assets and liabilities of a qualifying collateralized financing entity (“CFE”) it consolidated using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly-liquid investments with an original maturity date of three months or less to be cash equivalents. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash and cash equivalents with major financial institutions. To date, the Company has not experienced any losses on cash and cash equivalents.

Restricted cash consists of amounts related to loan origination (escrow deposits) and operating real estate (escrows for taxes, insurance, capital expenditures, security deposits received from tenants and payments required under certain lease agreements).

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets to the total of such amounts as reported on the consolidated statements of cash flows (dollars in thousands):

		Year Ended December 31,
		2019				2018				2017
Cash and cash equivalents		$	41,884			$	73,811			$	50,046
Restricted cash		16,936				20,697				30,442
Total cash, cash equivalents and restricted cash		$	58,820			$	94,508			$	80,488

Operating Real Estate

The Company evaluates whether a real estate acquisition constitutes a business and whether business combination accounting is appropriate. The Company accounts for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, furniture, fixtures, and equipment, improvements and other identified intangibles such as in-place leases, goodwill and above or below market mortgages assumed,

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as applicable. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations.

Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their useful life. Ordinary repairs and maintenance are expensed as incurred. Operating real estate is carried at historical cost less accumulated depreciation. Operating real estate is depreciated using the straight-line method over the estimated useful life of the assets, summarized as follows:

Category:		Term:
Building		30 to 50 years
Building improvements		Lesser of the useful life or remaining life of the building
Land improvements		9 to 15 years
Tenant improvements		Lesser of the useful life or remaining term of the lease
Furniture, fixtures and equipment		5 to 14 years

Construction costs incurred in connection with the Company’s investments are capitalized and included in operating real estate, net on the consolidated balance sheets. Construction in progress is not depreciated until the development is substantially completed.

In a situation in which a net lease(s) associated with a significant tenant has been, or is expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within rental and other income for above- and below-market lease intangibles and depreciation and amortization for the remaining lease related asset groups in the consolidated statements of operations.

When the Company acquires a controlling interest in an existing unconsolidated joint venture, the Company records the consolidated investment at the updated purchase price, which is reflective of fair value. The difference between the carrying value of the Company’s investment in the existing unconsolidated joint venture on the acquisition date and the Company’s share of the fair value of the investment’s purchase price is recorded in gain (loss) on consolidation of unconsolidated venture in the Company’s consolidated statements of operations.

Lessee Accounting

A leasing arrangement, a right to control the use of an identified asset for a period of time in exchange for consideration, is classified by the lessee either as a finance lease, which represents a financed purchase of the leased asset, or as an operating lease. For leases with terms greater than 12 months, a lease asset and a lease liability are recognized on the balance sheet at commencement date based on the present value of lease payments over the lease term.

Lease renewal or termination options are included in the lease asset and lease liability only if it is reasonably certain that the option to extend would be exercised or the option to terminate would not be exercised. As the implicit rate in most leases are not readily determinable, the Company’s incremental borrowing rate for each lease at commencement date is used to determine the present value of lease payments. Consideration is given to the Company’s recent debt financing transactions, as well as publicly available data for instruments with similar characteristics, adjusted for the respective lease term, when estimating incremental borrowing rates.

Lease expense is recognized over the lease term based on an effective interest method for finance leases and on a straight-line basis for operating leases.

Right of Use (“ROU”) - Finance Assets

The Company has entered into finance leases for equipment totaling $3.4 million, which is included in furniture, fixtures, and equipment within operating real estate, net on the Company’s consolidated balance sheets. The leased equipment is amortized on a straight-line basis.

For the years ended December 31, 2019 and 2018, payments for finance leases totaled $0.7 million, respectively. The following table presents the future minimum lease payments under finance leases and the present value of the minimum lease payments as of December 31, 2019, which is included in other liabilities on the Company’s consolidated balance sheets (dollars in thousands):

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Years Ending December 31:
2020		$	686
2021		646
2022		554
2023		133
2024		40
Thereafter		—
Total minimum lease payments		$	2,059
Less: Amount representing interest		$	(189	)
Present value of minimum lease payments		$	1,870

The weighted average interest rate related to the finance lease obligations is 6.0% with a weighted average lease term of 3.1 years.

As of December 31, 2019, there were no leases that had yet to commence which would create significant rights and obligations to the Company as lessee.

Assets Held For Sale

The Company classifies certain long-lived assets as held for sale once the criteria, as defined by U.S. GAAP, have been met and are expected to sell within one year. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell, with any write-down recorded to impairment loss on the consolidated statements of operations. Depreciation and amortization is not recorded for assets classified as held for sale. As of December 31, 2019 and 2018, the Company classified one operating real estate property within the Peregrine portfolio as held for sale, as presented on its consolidated balance sheets.

In May 2019, the Company completed the sale of two properties within the Peregrine portfolio for a sales price totaling $19.7 million. These properties had been reclassified as held for sale in 2019.

Real Estate Debt Investments

Real estate debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments. Debt investments that are deemed to be impaired record an allowance for loan losses, which is generally measured as the difference between the carrying value of the loan and either the present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan, or an observable market price for the loan. Debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated fair value.

Deferred Costs and Intangible Assets

Deferred Costs

Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are recorded against the carrying value of such financing and are amortized to interest expense over the term of the financing using the effective interest method. Unamortized deferred financing costs are expensed to realized gain (loss) on investments and other, when the associated borrowing is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.

Identified Intangibles

The Company records acquired identified intangibles, which includes intangible assets (such as the value of the above-market leases, in-place leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value at the acquisition date. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases for which the Company is the lessor are amortized into rental income, above/below-market leases for which the Company is the lessee are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

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Impairment analysis for identified intangible assets is performed in connection with the impairment assessment of the related operating real estate. An impairment establishes a new basis for the identified intangible asset and any impairment loss recognized is not subject to subsequent reversal. Refer to “—Credit Losses and Impairment on Investments - Operating Real Estate” for additional information.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company performs an annual impairment test for goodwill and evaluates the recoverability whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment charge is recorded.

Identified intangible assets are recorded in deferred costs and intangible assets, net on the consolidated balance sheets. The following table presents a summary of deferred costs and intangible assets, net as of December 31, 2019 and 2018 (dollars in thousands):

		December 31, 2019				December 31, 2018
Deferred costs and intangible assets, net:
In-place lease value, net		$	6,437			$	14,559
Goodwill		21,387				21,387
Other intangible assets		380				380
Subtotal intangible assets		28,204				36,326
Deferred costs, net		151				670
Total		$	28,355			$	36,996

The Company recorded $8.3 million and $47.3 million of in-place lease and deferred cost amortization expense for the years ended December 31, 2019 and 2018, respectively.

In-place lease value, net includes a gross asset amount of $130.0 million for in-place leases related to the Company’s direct investment - net lease properties, of which $123.6 million has been amortized as of December 31, 2019. All other in-place leases related to the Company’s direct investment - operating properties have been fully amortized as of December 31, 2019.

The following table presents future amortization of in-place lease value and deferred costs (dollars in thousands):

Years Ending December 31:
2020		$	1,871
2021		1,871
2022		594
2023		337
2024		337
Thereafter		1,578
Total		$	6,588

Acquisition Fees and Expenses

The total of all acquisition fees and expenses for an investment, including acquisition fees to the Advisor, cannot exceed, in the aggregate, 6.0% of the contract purchase price of such investment unless such excess is approved by a majority of the Company’s directors, including a majority of its independent directors. Effective January 1, 2018, the Advisor no longer receives an acquisition fee in connection with the Company’s acquisitions of real estate properties or debt investments. For the year ended December 31, 2019, the Company did not incur any acquisition fees or expenses to the Advisor or third parties. The Company records as an expense for certain acquisition costs and fees associated with transactions deemed to be business combinations in which it consolidates the asset and capitalizes these costs for transactions deemed to be acquisitions of an asset, including an equity investment.

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Other Assets

The following table presents a summary of other assets as of December 31, 2019 and 2018 (dollars in thousands):

		December 31, 2019				December 31, 2018
Other assets:
Healthcare facility regulatory reserve deposit		$	6,000			$	6,000
Remainder interest in condominium units(1)		2,327				3,025
Prepaid expenses		3,841				3,536
Lease / rent inducements, net		1,636				1,254
Utility deposits		317				325
Other		368				320
Total		$	14,489			$	14,460

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(1)	Represents future interests in property subject to life estates (“Remainder Interest”).

Revenue Recognition

Operating Real Estate

Rental income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators, including rent received from the Company’s net lease properties and rent, ancillary service fees and other related revenue earned from ILF residents. Rental revenue recognition commences when the tenant takes legal possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. ILF resident agreements are generally short-term in nature and may allow for termination with 30 days notice. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in receivables, net on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease.

The Company also generates operating income from operating healthcare properties. Revenue related to operating healthcare properties includes resident room and care charges, ancillary fees and other resident service charges. Rent is charged and revenue is recognized when such services are provided, generally defined per the resident agreement as of the date upon which a resident occupies a room or uses the services. Resident agreements are generally short-term in nature and may allow for termination with 30 days notice. Income derived from our ALFs, MCFs and CCRCs is recorded in resident fee income in the consolidated statements of operations.

Lease income from tenants, operators, residents is recognized at lease commencement only to the extent collection is expected to be probable in consideration of tenants’, operators’, residents’ creditworthiness. If collection is assessed to not be probable thereafter, lease income recognized is limited to lease payments collected, with the reversal of any income recognized to date in excess of amounts received. If collection is subsequently reassessed to be probable, lease income is adjusted to reflect the amount of income that would have been recognized had collection always been assessed as probable. During the year ended December 31, 2019, the tenant of the Peregrine portfolio failed to remit rental payments and accordingly no rental income was recognized. Further, the Company continues to monitor the tenant for the Arbors portfolio, which is currently in lease default as a result of failing to remit rent timely. As of December 31, 2019, the Company expects rent collection to be probable for the Arbors portfolio.

For the years ended December 31, 2019 and 2018, total property and other revenues includes variable lease revenues of $16.2 million and $13.6 million, respectively. Variable lease income includes ancillary services provided to tenant/residents, as well as non-recurring services and fees at the Company’s operating facilities.

Real Estate Debt Investments

Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such investment is reclassified to held for sale.

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Healthcare-Related Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and Impairment on Investments

Generally, the carrying value of the Company’s investments represent depreciated historical cost bases or, for investments that have been previously impaired, fair value or net realizable value. Such amounts are based upon the Company’s reasonable assumptions about the highest and best use of the investments and the intent and ability to hold the investments for a reasonable period that would allow for the recovery of the investments’ carrying values. If such assumptions change, including shortening the expected hold period, impairment losses on investments may be required to adjust carrying values to fair value or fair value less costs to sell.

Operating Real Estate

The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow generated by the property is less than the carrying value. In conducting this review, the Company considers U.S. macroeconomic factors, real estate and healthcare sector conditions, together with asset specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value and recorded in impairment loss in the consolidated statements of operations.

Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal cost, with any write-down to disposal cost recorded as an impairment loss. For any increase in fair value less disposal cost subsequent to classification as held for sale, the impairment may be reversed, but only up to the amount of cumulative loss previously recognized.

During the year ended December 31, 2019, the Company recorded impairment losses totaling $27.6 million for operating real estate and held for sale investments with continuing poor performance and sustained declines in occupancy. Impairment losses include:

•	Rochester portfolio: recorded impairment for two facilities totaling $19.5 million.

•	Kansas City portfolio: recorded impairment for two facilities totaling $3.9 million.

•	Peregrine portfolio: recorded impairment for two facilities totaling $4.1 million. One of the properties was reclassified as held for sale during year ended December 31, 2018.

Refer to Note 3, “Operating Real Estate” for additional information regarding impairment of operating real estate.

Real Estate Debt Investments

Real estate debt investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the consolidated balance sheets date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the investment, a reserve is recorded with a corresponding charge to a credit provision. The reserve for each investment is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for an investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired investment is in doubt, all payments are applied to principal under the cost recovery method. When the

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ultimate collectability of the principal of an impaired investment is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the investment becomes contractually current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income. An investment is written off when it is no longer realizable and/or legally discharged. As of December 31, 2019, the Company did not have any impaired real estate debt investments.

Investments in Unconsolidated Ventures

The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in equity in earnings (losses) of unconsolidated ventures in the consolidated statements of operations.

During the year ended December 31, 2019, the Company did not impair any of its investments in unconsolidated ventures, however, the underlying ventures have recorded impairments and reserves on properties in their respective portfolios, which the Company has recognized through equity in earnings (losses). Significant impairment and reserves recorded by the unconsolidated ventures during the year ended December 31, 2019 include:

•	Griffin-American Joint Venture. Impairment losses for operating real estate and held for sale assets, of which the Company’s proportionate share totaled $1.9 million.

•	Eclipse Joint Venture. Impairment losses for a net lease SNF, of which the Company’s proportionate share totaled $0.2 million.

•	Espresso Joint Venture. Impairment losses for a net lease SNF, of which the Company’s proportionate share totaled $0.5 million.

Foreign Currency

Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.

Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period.

As of December 31, 2019 and December 31, 2018, the Company had exposure to foreign currency through an investment in an unconsolidated venture, the effects of which are reflected as a component of accumulated OCI in the consolidated statements of equity and in equity in earnings (losses) in the consolidated statements of operations.

Equity-Based Compensation

The Company accounts for equity-based compensation awards using the fair value method, which requires an estimate of fair value of the award at the time of grant. All fixed equity-based awards to directors, which have no vesting conditions other than time of service, are amortized to compensation expense over the awards’ vesting period on a straight-line basis. Equity-based compensation is classified within general and administrative expenses in the consolidated statements of operations.

Income Taxes

The Company elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code beginning in its taxable year ended December 31, 2013. Accordingly, the Company will generally not be subject to U.S. federal income tax to the extent of its distributions to stockholders as long as certain asset, gross income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute dividends equal to at least 90.0% of its REIT taxable income (with certain adjustments) to its stockholders and meet certain other requirements. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these

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criteria will continue to be met in subsequent periods. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax and potential interest and penalties, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable. The Company has assessed its tax positions for all open tax years, which include 2016 to 2019, and concluded there were no material uncertainties to be recognized.

The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income.

The Company made a joint election to treat certain subsidiaries as taxable REIT subsidiaries (“TRS”) which may be subject to U.S. federal, state and local income taxes. In general, a TRS of the Company may perform services for tenants/operators/residents of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.

Certain subsidiaries of the Company are subject to taxation by federal, state and foreign authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred taxes. Current and deferred taxes are provided on the portion of earnings (losses) recognized by the Company with respect to its interest in the TRS. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal and state income tax basis of assets and liabilities as of the consolidated balance sheets date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax benefit (expense) in the consolidated statements of operations. The Company has a deferred tax asset, which as of December 31, 2019 totaled $13.2 million and continues to have a full valuation allowance recognized, as there are no changes in the facts and circumstances to indicate that the Company should release the valuation allowance. 

On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which provides for a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effects of the tax rate change did not have a material impact on the Company’s existing deferred tax balances.

The Company recorded an income tax expense of approximately $75,000, $114,000 and $43,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Recent Accounting Pronouncements

Accounting Standards Adopted in 2019

Leases—In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases, which amended existing lease accounting standards. ASU 2016-02, along with several clarifying amendments were codified in Accounting Standards Codification (“ASC”) Topic 842. The new standard primarily requires lessees to recognize their rights and obligations under most leases on balance sheet, to be capitalized as an ROU asset and a corresponding liability for future lease obligations. Targeted changes were made to lessor accounting, primarily to align to the lessee model and the new revenue recognition standard.

ASC 842 also narrows the definition of initial direct costs to only the incremental costs of obtaining a lease, such as leasing commissions, for both lessee and lessor accounting. Indirect costs such as allocated overhead, certain legal fees and negotiation costs are no longer capitalized under the new standard. The application of ASC 842 did not have a material impact on the consolidated statements of operations.

The Company adopted the new lease standard and related amendments on January 1, 2019 using the modified retrospective method to leases existing or commencing on or after January 1, 2019. Comparative periods presented have not been restated and continue to be reported under the standards in effect for those prior periods.

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The Company applied the package of practical expedients, which exempts the Company from having to reassess whether any expired or expiring contracts contain leases, revisit lease classification for any expired or expiring leases and reassess initial direct costs for any existing leases. The Company also elected the practical expedient related to land easements, allowing us to carry forward the accounting treatment for land easements on existing agreements. The Company did not, however, elect the hindsight practical expedient to determine the lease terms for existing leases.

Lease Accounting—The Company determines if an arrangement contains a lease and determines the classification of leasing arrangements at inception. A leasing arrangement is classified by the lessee as either a finance lease, which represents a financed purchased asset of the leased asset, or an operating lease. The Company has elected the accounting policy to combine lease and nonlease components in these contracts as a single lease component in its lease contracts.

The Company made the accounting policy election to recognize lease payments on short-term leases on a straight-line basis over the lease term and will not record these leases on the balance sheet. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

Lease renewal or termination options are factored into the lease asset and lease liability only if it is reasonably certain that the option to extend or option to terminate would be exercised.

Lease expense is recognized over the lease term based on an effective interest method for finance leases and on a straight-line basis for operating leases.

The Company reclassified its capital lease assets to ROU-finance assets, within operating real estate, net, as of January 1, 2019, which had no material impact to the Company’s consolidated financial statements and related disclosures. There was no impact to beginning equity as a result of adoption related to lessee accounting.

Lessor Accounting—The Company determines if an arrangement contains a lease and determines the classification of leasing arrangements at inception. The Company has operating leases with property tenants that expire at various dates with renewal options typically exercised at the lessee's election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised.

As lessor, the Company made the accounting policy election to treat the lease and nonlease components in a contract as a single component to the extent that the timing and pattern of transfer are similar for the lease and nonlease components and the lease component qualifies as an operating lease. The services provided by the Company under the nonlease components of tenant reimbursements for net leases and resident fee income qualify for the practical expedient to be combined with their respective lease component and accounted for as a single component under the lease standard as the lease component is predominant.

Under ASC 842, lessors are required to evaluate collectability of all lease payments based upon the creditworthiness of the lessee. Rental and resident fee income is recognized only to the extent collection is determined to be probable. If collection is subsequently determined to no longer be probable, any previously accrued revenue that has not been collected is subject to reversal. If collection is subsequently determined to be probable, revenue and the corresponding receivable would be reestablished to an amount that would have been recognized if collection had always been deemed to be probable. The initial application of the collectability guidance did not have a material impact on the Company’s consolidated financial statements.

Goodwill Impairment—In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test that requires a hypothetical purchase price allocation. Goodwill impairment is now measured as the excess in carrying value over fair value of the reporting unit, with the loss recognized not to exceed the amount of goodwill assigned to that reporting unit. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, to be applied prospectively. Early adoption is permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. The Company adopted the standard on January 1, 2019. This guidance did not have a material impact on its consolidated financial statements and related disclosures.

Future Application of Accounting Standards

Credit Losses—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses, which amends the credit impairment model for financial instruments. The existing incurred loss model will be replaced with a lifetime current expected credit loss (“CECL”) model for financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments, held-to-maturity (“HTM”) debt securities, financial guarantees, net investment in leases, reinsurance and trade receivables, which will generally result in earlier recognition of allowance for credit losses. For available-for-sale

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(“AFS”) debt securities, unrealized credit losses will be recognized as allowances rather than reductions in amortized cost basis and elimination of the other than temporary impairment concept will result in more frequent estimation of credit losses. The accounting model for purchased credit impaired loans and debt securities will be simplified, including elimination of some of the asymmetrical treatment between credit losses and credit recoveries, to be consistent with the CECL model for originated and purchased non-credit impaired assets. The existing model for beneficial interests that are not of high credit quality will be amended to conform to the new impairment models for HTM and AFS debt securities. Expanded disclosures on credit risk include credit quality indicators by vintage for financing receivables and net investment in leases.

ASU No. 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company has identified its mezzanine loan debt investment to be within the scope of ASU No. 2016-13. The Company has developed the policies, systems and controls that will be required for the implementation and ongoing management of CECL. ASU 2016-13 specifies that an allowance for loan losses should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan. Based on its analysis, the Company does not expect to record any additional allowance for its mezzanine loan upon the adoption of this standard.

Variable Interest Entities—In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. The ASU amends the VIE guidance to align the evaluation of a decision maker's or service provider’s fee in assessing a variable interest with the guidance in the primary beneficiary test. Specifically, indirect interests held by a related party that is under common control will now be considered on a proportionate basis, rather than in their entirety, when assessing whether the fee qualifies as a variable interest. The proportionate basis approach is consistent with the treatment of indirect interests held by a related party under common control when evaluating the primary beneficiary of a VIE. This effectively means that when a decision maker or service provider has an interest in a related party, regardless of whether they are under common control, it will consider that related party’s interest in a VIE on a proportionate basis throughout the VIE model, for both the assessment of a variable interest and the determination of a primary beneficiary. Transition is generally on a modified retrospective basis, with the cumulative effect adjusted to retained earnings at the beginning of the earliest period presented. ASU No. 2018-17 is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted in an interim period for which financial statements have not been issued. The Company is currently evaluating the impact of this new guidance but does not expect the adoption of this standard to have a material effect on its financial condition or results of operations.

Income Tax Accounting—In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies accounting for income taxes by eliminating certain exceptions to the general approach in ASC 740, Income Taxes, and clarifies certain aspects of the guidance for more consistent application. The simplifications relate to intraperiod tax allocations when there is a loss in continuing operations and a gain outside of continuing operations, accounting for tax law or tax rate changes and year-to-date losses in interim periods, recognition of deferred tax liability for outside basis difference when investment ownership changes, and accounting for franchise taxes that are partially based on income. The ASU also provides new guidance that clarifies the accounting for transactions resulting in a step-up in tax basis of goodwill, among other changes. Transition is generally prospective, other than the provision related to outside basis difference which is on a modified retrospective basis with cumulative effect adjusted to retained earnings at the beginning of the period adopted, and franchise tax provision which is on either full or modified retrospective. ASU No. 2019-12 is effective January 1, 2021, with early adoption permitted in an interim period, to be applied to all provisions. The Company is currently evaluating the impact of this new guidance.

Accounting for Certain Equity Investments—In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The ASU clarifies that if as a result of an observable transaction, an equity investment under the measurement alternative is transitioned into equity method and vice versa, an equity method investment is transitioned into measurement alternative, the investment is to be remeasured immediately before and after the transaction, respectively. The ASU also clarifies that certain forward contracts or purchased options to acquire equity securities that are not deemed to be derivatives or in-substance common stock will generally be measured using the fair value principles of ASC 321 before settlement or exercise, and that an entity should not be considering how it will account for the resulting investments upon eventual settlement or exercise. ASU No. 2020-01 is to be applied prospectively, effective January 1, 2021, with early adoption permitted in an interim period. The Company is currently evaluating the impact of this new guidance.

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3.	Operating Real Estate

The following table presents operating real estate, net as of December 31, 2019 and 2018 (dollars in thousands):

		December 31, 2019				December 31, 2018
Land		$	236,036			$	236,736
Land improvements		23,287				22,453
Buildings and improvements		1,551,113				1,580,058
Tenant improvements		14,642				11,774
Construction in progress		4,956				5,605
Furniture, fixtures and equipment		100,998				93,371
Subtotal		$	1,931,032			$	1,949,997
Less: Accumulated depreciation		(230,814		)		(171,083		)
Operating real estate, net		$	1,700,218			$	1,778,914

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $62.8 million, $60.0 million and $53.8 million, respectively.

Within the table above, buildings and improvements have been reduced by impairment totaling $58.0 million and $31.0 million as of December 31, 2019 and 2018, respectively. Impairment loss, as presented on the consolidated statements of operations, totaled $27.6 million and $36.3 million for the years ended December 31, 2019 and 2018, respectively. Refer to Note 2, “Summary of Significant Accounting Policies” for further discussion.

Future Minimum Rental Income

Minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The following table presents approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter as of December 31, 2019 (dollars in thousands):

Years Ending December 31:(1)
2020		$	33,308
2021		34,141
2022		14,652
2023		10,919
2024		11,192
Thereafter		57,076
Total		$	161,288

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(1)	Excludes rental income from residents at ILFs that are subject to short-term leases.

Net lease rental properties owned as of December 31, 2019 are leased under noncancelable operating leases with current expirations ranging from 2022 to 2029, with certain tenant renewal rights. These net lease arrangements require the tenant to pay rent and substantially all the expenses of the leased property including maintenance, taxes, utilities and insurance. For certain properties, the tenants pay the Company, in addition to the contractual base rent, their pro rata share of real estate taxes and operating expenses. The Company’s net lease agreements provide for periodic rental increases based on the greater of certain percentages or increase in the consumer price index.

Dispositions

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4.	Investments in Unconsolidated Ventures

All investments in unconsolidated ventures are accounted for under the equity method. The following tables present the Company’s investments in unconsolidated ventures as of December 31, 2019 and 2018 and activity for the years ended December 31, 2019 and 2018 (dollars in thousands):

							Carrying Value
Portfolio		Acquisition Date		Ownership			December 31, 2019(1)				December 31, 2018(1)
Eclipse		May-2014		5.6	%		$	9,483			$	11,765
Envoy(2)		Sep-2014		11.4	%		399				4,717
Griffin-American		Dec-2014		14.3	%		125,597				113,982
Espresso(3)		Jul-2015		36.7	%		—				—
Trilogy(4)		Dec-2015		23.2	%		133,361				133,764
Subtotal							$	268,840			$	264,228
Operator Platform(5)		Jul-2017		20.0	%		54				91
Total							$	268,894			$	264,319

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(1)	Includes $1.3 million, $13.4 million, $7.6 million, and $9.8 million of capitalized acquisition costs for the Company’s investments in the Eclipse, Griffin-American, Espresso and Trilogy joint ventures, respectively.

(2)	In March 2019, the Envoy joint venture completed the sale of its remaining 11 properties for a sales price of $118.0 million, which generated net proceeds to the Company totaling $4.3 million.

(3)

As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero in the fourth quarter of 2018. The Company has recorded the excess equity in losses related to its unconsolidated venture as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture.

(4)	In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced the Company’s ownership interest in the joint venture from approximately 29% to 23%.

(5)

Represents investment in Solstice Senior Living, LLC (“Solstice”). In November 2017, the Company began the transition of operations of the Winterfell portfolio from the former manager, an affiliate of Holiday Retirement, to a new manager, Solstice, a joint venture between affiliates of Integral Senior Living, LLC (“ISL”), a management company of ILF, ALF and MCF founded in 2000, which owns 80.0%, and the Company, which owns 20.0%.

		Year Ended December 31, 2019												Year Ended December 31, 2018
Portfolio		Equity in Earnings (Losses)				Select Revenues and (Expenses), net(1)				Cash Distributions				Equity in Earnings (Losses)				Select Revenues and (Expenses), net(1)				Cash Distributions
Eclipse(2)		$	435			$	(987	)		$	2,717			$	(624	)		$	(2,280	)		$	754
Envoy		20				(892		)		4,339				(37		)		(301		)		283
Griffin - American(3)		(4,540		)		(16,359		)		23,061				(12,717		)		(24,780		)		5,553
Espresso		(2,426		)		(8,530		)		—				(21,460		)		(26,906		)		—
Trilogy		3,003				(13,797		)		5,805				1,153				(14,810		)		5,977
Subtotal		$	(3,508	)		$	(40,565	)		$	35,922			$	(33,685	)		$	(69,077	)		$	12,567
Operator Platform(4)		(37		)		—				—				168				—				107
Total		$	(3,545	)		$	(40,565	)		$	35,922			$	(33,517	)		$	(69,077	)		$	12,674

_______________________________________

(1)

Represents the net amount of the Company’s proportionate share of select revenues and expenses, including: straight-line rental income (expense), (above)/below market lease and in-place lease amortization, (above)/below market debt and deferred financing costs amortization, depreciation and amortization expense, acquisition fees and transaction costs, loan loss reserves, liability extinguishment gains, debt extinguishment losses, impairment, as well as unrealized and realized gain (loss) from sales of real estate and investments.

(2)	Equity in earnings for the year ended December 31, 2019 includes a gain on the sale of nine properties within the portfolio. The Company’s proportionate share of the net proceeds generated from the sale totaled approximately $2.1 million.

(3)	Equity in losses for the year ended December 31, 2019 includes a gain on the sale of three properties within the portfolio. The Company’s proportionate share of the net proceeds generated from the sale totaled approximately $16.9 million.

(4)	Represents the Company’s investment in Solstice.

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Summarized Financial Data

The combined balance sheets as of December 31, 2019 and 2018 and combined statements of operations for the years ended December 31, 2019, 2018 and 2017 for the Company’s unconsolidated ventures are as follows (dollars in thousands):

		December 31, 2019				December 31, 2018							Year Ended December 31,
													2019				2018				2017
Assets
Operating real estate, net		$	4,821,757			$	5,016,977				Total revenues		$	1,575,774			$	1,514,098			$	1,457,208
Other assets		1,199,552				1,003,614					Net income (loss)		$	(17,689	)		$	(150,170	)		$	(158,445	)
Total assets		$	6,021,309			$	6,020,591
Liabilities and equity
Total liabilities		$	4,578,905			$	4,565,451
Equity		1,442,404				1,455,140
Total liabilities and equity		$	6,021,309			$	6,020,591

5.	Real Estate Debt Investments

The following table presents the Company’s one debt investment as of December 31, 2019 and December 31, 2018 (dollars in thousands):

						Carrying Value(2)
Asset Type:		Principal Amount				December 31, 2019				December 31, 2018				Fixed Rate			Unlevered Current Yield
Mezzanine loan(1)		$	74,182			$	55,468			$	58,600			10.0	%		10.3	%

_______________________________________

(1)	Loan has a final maturity date of January 30, 2021.

(2)

As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero in the fourth quarter of 2018. The Company has recorded the excess equity in losses related to its unconsolidated investment as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. As of December 31, 2019 and December 31, 2018, the cumulative excess equity in losses included in the mezzanine loan carrying value were $18.6 million and $16.2 million, respectively.

Credit Quality Monitoring

The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as “performing.” The Company will categorize a weaker credit quality debt investment that is currently performing, but for which it believes future collection of all or some portion of principal and interest is in doubt, into a category called “performing with a loan loss reserve.” The Company will categorize a weaker credit quality debt investment that is not performing, which the Company defines as a loan in maturity default and/or past due at least 90 days on its contractual debt service payments, as a non-performing loan (“NPL”). The Company’s definition of an NPL may differ from that of other companies that track NPLs.

As of December 31, 2019, the Company’s debt investment was performing in accordance with the contractual terms of its governing documents.  Although various defaults under leases and senior secured loans existed as of December 31, 2019, none of these defaults resulted in a default under the Company’s debt investment as of December 31, 2019. The Company continues to assess the collectability of principal and interest. As of December 31, 2019, contractual debt service has been paid in accordance with contractual terms and the Company expects to receive full payment of contractual principal and interest. Accordingly, the debt investment was categorized as a performing loan.

For the year ended December 31, 2019, the debt investment contributed 100.0% of the Company’s interest income on debt investments as presented on the consolidated statements of operations.

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6.	Borrowings

The following table presents the Company’s borrowings as of December 31, 2019 and 2018 (dollars in thousands):

							December 31, 2019								December 31, 2018
	Recourse vs. Non-Recourse		Final Maturity		Contractual Interest Rate(1)		Principal Amount(2)				Carrying Value(2)				Principal Amount(2)				Carrying Value(2)
Mortgage notes payable, net
Peregrine Portfolio(3)
Various locations	Non-recourse		Dec 2019		LIBOR + 3.50%		$	—			$	—			$	16,545			$	16,277
Watermark Aqua Portfolio
Denver, CO	Non-recourse		Feb 2021		LIBOR + 2.92%		20,547				20,500				20,866				20,774
Frisco, TX	Non-recourse		Mar 2021		LIBOR + 3.04%		19,170				19,127				19,460				19,377
Milford, OH	Non-recourse		Sep 2026		LIBOR + 2.68%		18,760				18,357				18,760				18,288
Rochester Portfolio
Rochester, NY	Non-recourse		Feb 2025		4.25%		20,228				20,131				20,849				20,734
Rochester, NY(4)	Non-recourse		Aug 2027		LIBOR + 2.34%		101,224				100,267				101,224				100,162
Rochester, NY(5)	Non-recourse		Aug 2021		LIBOR + 2.90%		12,800				12,232				—				—
Arbors Portfolio(6)
Various locations	Non-recourse		Feb 2025		3.99%		89,026				88,020				90,751				89,508
Watermark Fountains Portfolio(7)
Various locations	Non-recourse		Jun 2022		3.92%		392,269				390,508				399,023				396,421
Various locations	Non-recourse		Jun 2022		5.56%		74,208				73,750				75,401				74,776
Winterfell Portfolio(8)
Various locations	Non-recourse		Jun 2025		4.17%		632,024				614,415				642,954				622,329
Avamere Portfolio(9)
Various locations	Non-recourse		Feb 2027		4.66%		71,464				70,922				72,466				71,848
Subtotal mortgage notes payable, net							$	1,451,720			$	1,428,229			$	1,478,299			$	1,450,494
Other notes payable
Oak Cottage
Santa Barbara, CA	Non-recourse		Feb 2022		6.00%		3,693				3,693				3,500				3,500
Rochester Portfolio
Rochester, NY(5)	Non-recourse		Aug 2019		6.00%		—				—				12,355				12,355
Subtotal other notes payable, net							$	3,693			$	3,693			$	15,855			$	15,855
Total mortgage and other notes payable, net							$	1,455,413			$	1,431,922			$	1,494,154			$	1,466,349

_______________________________________

(1)	Floating rate borrowings are comprised of $172.5 million principal amount at one-month London Interbank Offered Rate (“LIBOR”).

(2)	The difference between principal amount and carrying value of mortgage notes payable is attributable to deferred financing costs, net for all borrowings other than the Winterfell portfolio which is attributable to below market debt intangibles.

(3)	Mortgage note arrangement was secured and collateralized by three healthcare real estate properties and was repaid in May 2019.

(4)	Comprised of seven individual mortgage notes payable secured by seven healthcare real estate properties, cross-collateralized and subject to cross-default.

(5)	In July 2019, an existing $12.4 million seller note payable secured by one healthcare real estate property was refinanced with a $12.8 million mortgage note payable.

(6)	Comprised of four individual mortgage notes payable secured by four healthcare real estate properties, cross-collateralized and subject to cross-default.

(7)	Includes $392.3 million principal amount of fixed rate borrowings, secured by 14 healthcare real estate properties, cross-collateralized and subject to cross-default as well as a supplemental financing totaling $74.2 million of principal, secured by seven healthcare real estate properties, cross-collateralized and subject to cross-default.

(8)	Comprised of 32 individual mortgage notes payable secured by 32 healthcare real estate properties, cross-collateralized and subject to cross-default.

(9)	Comprised of five individual mortgage notes payable secured by five healthcare real estate properties, cross-collateralized and subject to cross-default.

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The following table presents scheduled principal payments on borrowings based on final maturity as of December 31, 2019 (dollars in thousands):

Years Ending December 31:
2020		$	23,751
2021		76,171
2022		466,725
2023		19,056
2024		19,778
Thereafter		849,932
Total		$	1,455,413

As of December 31, 2019, the operating performance of a property within the Company’s Rochester portfolio did not maintain certain minimum financial coverage ratios required under the contractual terms of its mortgage note, which resulted in a default. The Company is currently in discussions with the lender to cure or otherwise waive the default.

As of December 31, 2019, the tenant for the Arbors portfolio failed to remit rent timely, which resulted in a default under the tenant’s lease, which in turn, resulted in a default under the mortgage notes collateralized by the properties. The Company is currently in discussions with the tenant regarding the lease default.

Colony Capital Line of Credit

In October 2017, the Company obtained a revolving line of credit from an affiliate of Colony Capital, the Sponsor, for up to $15.0 million at an interest rate of 3.5% plus LIBOR (the “Sponsor Line”). The Sponsor Line had an initial one year term, with an extension option of six months. In November 2017, the borrowing capacity under the Sponsor Line was increased to $35.0 million. During 2017, the Company had drawn and fully repaid $25.0 million under the Sponsor Line. In March 2018, the Sponsor Line maturity was extended through December 2020, and in May 2019, the maturity date was further extended through December 2021. The Company did not utilize the Sponsor Line during the year ended December 31, 2019.

Corporate Credit Facility

7.	Related Party Arrangements

Advisor

Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying, acquiring, originating and asset managing investments on behalf of the Company. The Advisor may delegate certain of its obligations to affiliated entities, which may be organized under the laws of the United States or foreign jurisdictions. References to the Advisor include the Advisor and any such affiliated entities. For such services, to the extent permitted by law and regulations, the Advisor receives fees and reimbursements from the Company. Pursuant to the advisory agreement, the Advisor may defer or waive fees in its discretion.  Below is a description and table of the fees and reimbursements incurred to the Advisor.

In December 2017, the advisory agreement was amended with changes to the asset management and acquisition fee structure as further described below. In June 2019, the advisory agreement was renewed for an additional one-year term commencing on June 30, 2019, with terms identical to those in effect through June 30, 2019.

Fees to Advisor

Asset Management Fee

From inception through December 31, 2017, the Advisor received a monthly asset management fee equal to one-twelfth of 1.0% of the sum of the amount funded or allocated for investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or the proportionate share thereof in the case of an investment made through a joint venture).

Effective January 1, 2018, the Advisor receives a monthly asset management fee equal to one-twelfth of 1.5% of the Company’s most recently published aggregate estimated net asset value, as may be subsequently adjusted for any special distribution declared

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by the board of directors in connection with a sale, transfer or other disposition of a substantial portion of the Company’s assets, with $2.5 million per calendar quarter of such fee paid in shares of the Company’s common stock at a price per share equal to the most recently published net asset value per share.

The Advisor has also agreed that all shares of the Company’s common stock issued to it in consideration of the asset management fee will be subordinate in the share repurchase program to shares of the Company’s common stock held by third party stockholders for a period of two years, unless the advisory agreement is earlier terminated.

Incentive Fee

The Advisor is entitled to receive distributions equal to 15.0% of net cash flows of the Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.75% cumulative, non-compounded annual pre-tax return on such invested capital.

Acquisition Fee

From inception through December 31, 2017, the Advisor received fees for providing structuring, diligence, underwriting advice and related services in connection with real estate acquisitions equal to 2.25% of each real estate property acquired by the Company, including acquisition costs and any financing attributable to an equity investment (or the proportionate share thereof in the case of an indirect equity investment made through a joint venture or other investment vehicle) and 1.0% of the amount funded or allocated by the Company to acquire or originate debt investments, including acquisition costs and any financing attributable to such investments (or the proportionate share thereof in the case of an indirect investment made through a joint venture or other investment vehicle).

Effective January 1, 2018, the Advisor no longer receives an acquisition fee in connection with the Company’s acquisitions of real estate properties or debt investments.

Disposition Fee

For substantial assistance in connection with the sale of investments and based on the services provided, as determined by the Company’s independent directors, the Advisor may receive a disposition fee of 2.0% of the contract sales price of each property sold and 1.0% of the contract sales price of each debt investment sold. The Company does not pay a disposition fee upon the maturity, prepayment, workout, modification or extension of a debt investment unless there is a corresponding fee paid by the borrower, in which case the disposition fee is the lesser of: (i) 1.0% of the principal amount of the debt investment prior to such transaction; or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a debt investment, the Company will pay a disposition fee upon the sale of such property. A disposition fee from the sale of an investment is generally expensed and included in asset management and other fees - related party in the Company’s consolidated statements of operations. A disposition fee for a debt investment incurred in a transaction other than a sale is included in debt investments, net on the consolidated balance sheets and is amortized to interest income over the life of the investment using the effective interest method.

Reimbursements to Advisor

Operating Costs

The Advisor is entitled to receive reimbursement for direct and indirect operating costs incurred by the Advisor in connection with administrative services provided to the Company. The Advisor allocates, in good faith, indirect costs to the Company related to the Advisor’s and its affiliates’ employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the advisory agreement with the Advisor. The indirect costs include the Company’s allocable share of the Advisor’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The indirect costs also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses. However, there is no reimbursement for personnel costs related to executive officers (although there may be reimbursement for certain executive officers of the Advisor) and other personnel involved in activities for which the Advisor receives an acquisition fee or a disposition fee. The Advisor allocates these costs to the Company relative to its and its affiliates’ other managed companies in good faith and has reviewed the allocation with the Company’s board of directors, including its independent directors. The Advisor updates the board of directors on a quarterly basis of any material changes to the expense allocation and provides a detailed review to the board of directors, at least annually, and as otherwise requested by the board of directors. The Company reimburses the Advisor quarterly for operating costs (including

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the asset management fee) based on a calculation for the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of its average invested assets; or (ii) 25.0% of its net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period. Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company calculates the expense reimbursement quarterly based upon the trailing twelve-month period.

Summary of Fees and Reimbursements

The following tables present the fees and reimbursements incurred and paid to the Advisor for the years ended December 31, 2019 and 2018 and the amount due to related party as of December 31, 2019, 2018 and 2017 (dollars in thousands):

Type of Fee or Reimbursement				Due to Related Party as of December 31, 2018				Year Ended December 31, 2019								Due to Related Party as of December 31, 2019
		Financial Statement Location						Incurred				Paid
Fees to Advisor Entities(1)
Asset management(2)		Asset management and other fees-related party		$	1,665			$	19,789			$	(19,977	)	(2)	$	1,477
Reimbursements to Advisor Entities
Operating costs(3)		General and administrative expenses		4,010				11,892				(11,599		)		4,303
Total				$	5,675			$	31,681			$	(31,576	)		$	5,780

_______________________________________

(1)	The Company did not incur any disposition fees during the year ended December 31, 2019, nor were any such fees outstanding as of December 31, 2019.

(2)	Includes $9.9 million paid in shares of the Company’s common stock and a $0.1 million gain recognized on the settlement of the share-based payment.

(3)	As of December 31, 2019, the Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to the Company.

Type of Fee or Reimbursement				Due to Related Party as of December 31, 2017				Year Ended December 31, 2018								Due to Related Party as of December 31, 2018
		Financial Statement Location						Incurred				Paid
Fees to Advisor Entities
Asset management(1)		Asset management and other fees-related party		$	—			$	23,486			$	(21,821	)	(2)	$	1,665
Acquisition(2)		Investments in unconsolidated ventures/Asset management and other fees-related party		8				(8		)		—				—
Reimbursements to Advisor Entities
Operating costs(3)		General and administrative expenses		1,038				12,631				(9,659		)		4,010
Total				$	1,046			$	36,109			$	(31,480	)		$	5,675

_______________________________________

(1)	Includes $9.0 million paid in shares of the Company’s common stock and a $0.2 million gain recognized on the settlement of the share-based payment.

(2)	The Company did not incur any disposition fees during the year ended December 31, 2018, nor were any such fees outstanding as of December 31, 2017.

(3)	As of December 31, 2018, the Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to the Company.

Pursuant to the advisory agreement, for the year ended December 31, 2019, the Company issued 1.4 million shares totaling $9.9 million, based on the estimated share price on the date of each issuance, to an affiliate of the Advisor as part of its asset management fee.

As of December 31, 2019, the Advisor, the Sponsor and their affiliates owned a total of 3.1 million shares or $19.4 million of the Company’s common stock based on the Company’s most recent estimated value per share.

Investments in Joint Ventures

Solstice, the manager of the Winterfell portfolio, is a joint venture between affiliates of ISL, which owns 80.0%, and the Company, which owns 20.0%. For the year ended December 31, 2019, the Company recognized property management fee expense of $5.2 million paid to Solstice related to the Winterfell portfolio.

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The below table indicates the Company’s investments for which Colony Capital is also an equity partner in the joint venture. Each investment was approved by the Company’s board of directors, including all of its independent directors. Refer to Note 4, “Investments in Unconsolidated Ventures” for further discussion of these investments:

Portfolio		Partner(s)		Acquisition Date		Ownership
Eclipse		Colony Capital/Formation Capital, LLC		May 2014		5.6%
Griffin-American		Colony Capital		December 2014		14.3%

In connection with the acquisition of the Griffin-American portfolio by NorthStar Realty, now a subsidiary of Colony Capital, and the Company, the Sponsor acquired a 43.0%, as adjusted, ownership interest in American Healthcare Investors, LLC (“AHI”) and Mr. James F. Flaherty III, a partner of the Sponsor, acquired a 12.3% ownership interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by the Company and NorthStar Realty.

In December 2015, the Company, through a joint venture with Griffin-American Healthcare REIT III, Inc., a REIT sponsored and advised by AHI, acquired a 29.0% interest in the Trilogy portfolio, a $1.2 billion healthcare portfolio and contributed $201.7 million for its interest. The purchase was approved by the Company’s board of directors, including all of its independent directors. In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced its ownership interest in the joint venture from approximately 29% to 23%. The Company sold the ownership interest to a wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., a REIT sponsored by AHI.

Origination of Mezzanine Loan

In July 2015, the Company originated a $75.0 million mezzanine loan to a subsidiary of Espresso, which bears interest at a fixed rate of 10.0% per year and matures in January 2021. Refer to Note 5, “Real Estate Debt Investments” for further discussion.

Colony Capital Line of Credit

In October 2017, the Company obtained the Sponsor Line, which provides up to $35.0 million at an interest rate of 3.5% plus LIBOR. Refer to Note 6, “Borrowings” for further discussion.

8.	Equity-Based Compensation

The Company adopted a long-term incentive plan, as amended (the “Plan”), which it may use to attract and retain qualified officers, directors, employees and consultants, as well as an independent directors compensation plan, which is a component of the Plan. Under the Plan, 2.0 million shares of restricted common stock were eligible to be issued. Pursuant to the Plan, as of December 31, 2019, the Company’s independent directors were granted a total of 131,132 shares of restricted common stock for an aggregate $1.1 million, based on the share price on the date of each grant. The restricted stock granted prior to 2015 generally vested quarterly over four years and the restricted stock granted in and subsequent to 2015 generally vests quarterly over two years. However, the stock will become fully vested on the earlier occurrence of: (i) the termination of the independent director’s service as a director due to his or her death or disability; or (ii) a change in control of the Company.

9.	Stockholders’ Equity

Common Stock

The Company stopped accepting subscriptions for the Follow-On Offering on December 17, 2015 and all of the shares initially registered for the Follow-On Offering were issued on or before January 19, 2016. The Company issued 173.4 million shares of common stock generating gross proceeds of $1.7 billion in the Primary Offering.

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Distribution Reinvestment Plan

The Company adopted the DRP through which common stockholders may elect to reinvest an amount equal to the distributions declared on their shares in additional shares of the Company’s common stock in lieu of receiving cash distributions. The purchase price under the Company’s Initial DRP was $9.50. In connection with its determination of the offering price for shares of the Company’s common stock in the Follow-On Offering, the board of directors determined that distributions may be reinvested in shares of the Company’s common stock at a price of $9.69 per share, which was approximately 95% of the offering price of $10.20 per share established for purposes of the Follow-On Offering. In April 2016, the board of directors determined that distributions may be reinvested in shares of the Company’s common stock at a price equal to the most recent estimated value per share of the shares of common stock. The following table presents the price at which dividends were invested based on when the price became effective:

Effective Date		Estimated Value per Share				Valuation Date
April 2016		$	8.63			12/31/2015
December 2016		9.10				6/30/2016
December 2017		8.50				6/30/2017
December 2018		7.10				6/30/2018
December 2019		6.25				6/30/2019

No selling commissions or dealer manager fees were paid on shares issued pursuant to the DRP. The board of directors of the Company may amend, suspend or terminate the DRP for any reason upon ten-days’ notice to participants, except that the Company may not amend the DRP to eliminate a participant’s ability to withdraw from the DRP.

For the year ended December 31, 2019, the Company issued 0.7 million shares of common stock totaling $4.9 million of gross offering proceeds pursuant to the DRP. For the year ended December 31, 2018, the Company issued 4.0 million shares of common stock totaling $33.7 million of gross offering proceeds pursuant to the DRP. From inception through December 31, 2019, the Company issued 25.7 million shares of common stock, generating gross offering proceeds of $232.6 million pursuant to the DRP.

Distributions

From inception through December 31, 2017, distributions to stockholders were declared quarterly by the board of directors of the Company and paid monthly based on a daily amount of $0.00184932 per share, equivalent to an annualized distribution amount of $0.675 per share of the Company’s common stock.

During the year ended December 31, 2018, the Company’s board of directors approved daily cash distributions of $0.000924658 per share of common stock, equivalent to an annualized distribution amount of $0.3375 per share.

The Company’s board of directors approved daily cash distributions of $0.000924658 per share of common stock for the month ending January 31, 2019. Effective February 1, 2019, the Company’s board of directors determined to suspend distributions in order to preserve capital and liquidity.

Distributions were generally paid to stockholders on the first business day of the month following the month for which the distribution was accrued.

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The following table presents distributions declared for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

		Distributions(1)
Period		Cash				DRP				Total
2019
First Quarter		$	2,991			$	2,422			$	5,413
Second Quarter		—				—				—
Third Quarter		—				—				—
Fourth Quarter		—				—				—
Total		$	2,991			$	2,422			$	5,413
2018
First Quarter		$	7,684			$	7,876			$	15,560
Second Quarter		8,028				7,722				15,750
Third Quarter		8,374				7,567				15,941
Fourth Quarter		8,653				7,352				16,005
Total		$	32,739			$	30,517			$	63,256
2017
First Quarter		$	14,228			$	16,669			$	30,897
Second Quarter		14,557				16,804				31,361
Third Quarter		14,899				16,873				31,772
Fourth Quarter		15,082				16,691				31,773
Total		$	58,766			$	67,037			$	125,803

_________________________________________________

(1)	Represents distributions declared for the period, even though such distributions are actually paid to stockholders in the month following such period.

In order to continue to qualify as a REIT, the Company must distribute annually dividends equal to at least 90% of its REIT taxable income (with certain adjustments). For the year ended December 31, 2019, the Company generated net operating losses for tax purposes. The Company did not have positive REIT taxable income for its taxable year ending December 31, 2019, therefore, it was not required to make distributions to its stockholders in 2019 to qualify as a REIT. The Company’s most recently filed tax return is for the year ended December 31, 2018 and includes a net operating loss carry-forward of $73.5 million.

Share Repurchase Program

The Company adopted a share repurchase program that may enable stockholders to sell their shares to the Company in limited circumstances (the “Share Repurchase Program”). The Company is not obligated to repurchase shares under the Share Repurchase Program. The Company may amend, suspend or terminate the Share Repurchase Program at its discretion at any time, subject to certain notice requirements.

In December 2017, the Company’s board of directors approved the following amendments to the Share Repurchase Program:

•

Limit the amount of shares that may be repurchased pursuant to the Share Repurchase Program (including repurchases in the case of death or qualifying disability) as follows: (a) for repurchase requests made during the calendar quarter ending December 31, 2017, $8.0 million in aggregate repurchases and (b) for repurchase requests made in 2018 and thereafter, the lesser of (1) 5% of the weighted average number of shares of the Company’s common stock outstanding during the prior calendar year, less shares repurchased during the current calendar year, or (2) the net proceeds received by the Company during the calendar quarter in which such repurchase requests were made from the sale of shares pursuant to the Company’s DRP;

•	The price paid for shares was: (a) for shares repurchased in connection with a death or disability, the lesser of the price paid for the shares or the most recently published estimated value per share and (b) for all other shares, 90.0% of the Company’s most recently published estimated value per share; and

•	In the event all repurchase requests in a given quarter could not be satisfied, the Company first repurchased shares submitted in connection with a stockholder’s qualifying death or disability and thereafter repurchased shares pro rata, and the Company sought to honor any unredeemed shares in a future quarter (unless the stockholder withdrew its request).

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In October 2018, the Company’s board of directors approved an amended and restated Share Repurchase Program, under which the Company will only repurchase shares in connection with the death or qualifying disability of a stockholder at a price equal to the lesser of the price paid for the shares, as adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transactions, or the most recently published estimated value per share. The amended and restated Share Repurchase Program became effective October 29, 2018.

For the year ended December 31, 2019, the Company repurchased 1.5 million shares of common stock for $10.7 million at an average price of $7.10 per share. For the year ended December 31, 2018, the Company repurchased 3.3 million shares of common stock for $25.9 million at an average price of $7.91 per share pursuant to the Share Repurchase Program.

The Company has funded repurchase requests received during a quarter with cash on hand, borrowings or other available capital. Prior to the most recent amendments to the Share Repurchase Program, the Company had a total of 12.0 million shares, or $74.8 million, based on its most recently published estimated value per share of $6.25, in unfulfilled repurchase requests. Refer to Note 15, “Subsequent Events” for additional information regarding the Share Repurchase Program.

10.	Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate limited partnership interests in the Operating Partnership held by limited partners, other than the Company. Income (loss) attributable to the non-controlling interests is based on the limited partners’ ownership percentage of the Operating Partnership. Income (loss) allocated to the Operating Partnership non-controlling interests for the years ended December 31, 2019, 2018 and 2017 was de minimis.

Other

11.	Fair Value

Fair Value Measurement

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.	Quoted prices for identical assets or liabilities in an active market.

Level 2.	Financial assets and liabilities whose values are based on the following:

a)	Quoted prices for similar assets or liabilities in active markets.

b)	Quoted prices for identical or similar assets or liabilities in non-active markets.

c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability.

d)	Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3.	Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

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Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.

The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of December 31, 2019 and 2018 (dollars in thousands):

	December 31, 2019												December 31, 2018
	Principal Amount				Carrying Value				Fair Value				Principal Amount				Carrying Value				Fair Value
Financial assets:(1)
Real estate debt investments, net	$	74,182			$	55,468			$	74,182			$	75,000			$	58,600			$	75,000
Financial liabilities:(1)
Mortgage and other notes payable, net	$	1,455,413			$	1,431,922			$	1,450,876			$	1,494,154			$	1,466,349			$	1,464,533

_______________________________________

(1)	The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Real Estate Debt Investments, Net

For commercial real estate (“CRE”) debt investments, fair values were determined by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. As of the reporting date, the Company believes that principal amount approximates fair value. These fair value measurements of CRE debt are generally based on unobservable inputs, and as such, are classified as Level 3 of the fair value hierarchy.

Mortgage and Other Notes Payable, Net

For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury and LIBOR rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or otherwise, write-down of asset values due to impairment. The following table summarizes Level 3 assets carried at fair value on a nonrecurring basis as of December 31, 2019 and 2018 (dollars in thousands):

		December 31, 2019				December 31, 2018
Operating real estate, net		$	58,804			$	47,955
Assets held for sale		1,649				2,183

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The following table summarizes the fair value write-downs recorded as impairment losses in the years presented for assets carried at nonrecurring fair values as of December 31, 2019 and 2018 (dollars in thousands):

	Year Ended December 31,
	2019				2018				2017
Operating real estate, net	$	27,021			$	31,000			$	—
Assets held for sale	533				2,494				5,000
Total impairment loss	$	27,554			$	33,494			$	5,000

Operating Real Estate

Operating real estate that is impaired is carried at fair value at the time of impairment. Impairment was driven by various factors including changes in undiscounted future net cash flows expected to be generated by the properties and declines in operating performance. Fair value of impaired operating real estate was estimated based upon various approaches including discounted cash flow analysis using terminal capitalization rates ranging from 7.0% to 7.75% and discount rates ranging from 7.0% to 7.5%, third party appraisals, offer prices or broker opinions of value.

Assets Held For Sale

12.	Quarterly Financial Information (Unaudited)

The following tables present selected quarterly information for the years ended December 31, 2019 and 2018 (dollars in thousands, except per share data):

		Three Months Ended
		December 31,				September 30,				June 30,				March 31,
		2019				2019				2019				2019
Property and other revenues		$	72,907			$	72,778			$	74,972			$	72,521
Net interest income		1,932				1,946				1,923				1,902
Expenses		106,235				86,571				95,420				93,099
Equity in earnings (losses) of unconsolidated ventures		4,121				(3,037		)		(4,405		)		(224		)
Net income (loss)		(26,924		)		(14,697		)		(17,460		)		(18,669		)
Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders		(26,573		)		(14,624		)		(17,146		)		(18,617		)
Net income (loss) per share of common stock, basic/diluted (1)		$	(0.13	)		$	(0.08	)		$	(0.09	)		$	(0.10	)

_______________________________________

(1)	The total for the year may differ from the sum of the quarters as a result of weighting.

		Three Months Ended
		December 31,				September 30,				June 30,				March 31,
		2018				2018				2018				2018
Property and other revenues		$	73,721			$	73,470			$	72,777			$	74,303
Net interest income		1,943				1,943				1,921				3,224
Expenses		131,445				99,430				104,790				106,269
Equity in earnings (losses) of unconsolidated ventures		(37,424		)		16,631				(4,098		)		(8,626		)
Net income (loss)		(77,257		)		(6,670		)		(34,205		)		(33,888		)
Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders		(77,212		)		(6,604		)		(34,094		)		(33,668		)
Net income (loss) per share of common stock, basic/diluted (1)		$	(0.40	)		$	(0.04	)		$	(0.18	)		$	(0.18	)

_______________________________________

(1)	The total for the year may differ from the sum of the quarters as a result of weighting.

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13.	Segment Reporting

The Company conducts its business through the following five segments, which are based on how management reviews and manages its business.

•	Direct Investments - Net Lease - Healthcare properties operated under net leases with a tenant operator.

•	Direct Investments - Operating - Healthcare properties operated pursuant to management agreements with healthcare operators.

•	Unconsolidated Investments - Healthcare joint ventures, including properties operated under net leases or pursuant to management agreements with healthcare operators, in which we own a minority interest.

•	Debt and Securities Investments - Mortgage loans or mezzanine loans to owners of healthcare real estate and commercial mortgage backed securities backed primarily by loans secured by healthcare properties.

•	Corporate - The corporate segment includes corporate level asset management and other fees - related party and general and administrative expenses.

The Company primarily generates rental and resident fee income from its direct investments and net interest income on real estate debt and securities investments.

The following table presents the operators and tenants of the Company’s properties, excluding properties owned through unconsolidated joint ventures as of December 31, 2019 (dollars in thousands):

								Year Ended December 31, 2019
Operator / Tenant		Properties Under Management			Units Under Management(1)			Property and Other Revenues(2)				% of Total Property and Other Revenues
Watermark Retirement Communities		30			5,265			$	152,351			52.0	%
Solstice Senior Living	(3)	32			4,000			105,497				36.0	%
Avamere Health Services		5			453			16,979				5.8	%
Arcadia Management		4			572			10,615				3.6	%
Integral Senior Living	(3)	3			162			6,417				2.2	%
Peregrine Senior Living	(4)	—			—			598				0.2	%
Senior Lifestyle Corporation	(5)	1			63			—				—	%
Other	(6)	—			—			721				0.2	%
Total		75			10,515			$	293,178			100.0	%

______________________________________

(1)	Represents rooms for ALFs and ILFs and beds for MCFs and SNFs, based on predominant type.

(2)	Includes rental income received from the Company’s net lease properties as well as rental income, ancillary service fees and other related revenue earned from ILF residents and resident fee income derived from the Company’s ALFs, MCFs and CCRCs, which includes resident room and care charges, ancillary fees and other resident service charges.

(3)	Solstice is a joint venture of which affiliates of ISL own 80%.

(4)	In May 2019, the Company sold the two properties that were leased to Peregrine Senior Living.

(5)	Tenant has failed to remit rental payments during the year ended December 31, 2019. Properties and unit counts exclude one property held for sale.

(6)	Consists primarily of interest income earned on corporate-level cash accounts.

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The following tables present segment reporting for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

		Direct Investments
Year Ended December 31, 2019		Net Lease				Operating				Unconsolidated Investments				Debt and Securities				Corporate(1)				Total
Rental and resident fee income		$	33,423			$	257,796			$	—			$	—			$	—			$	291,219
Net interest income on debt and securities		—				—				—				7,703				—				7,703
Other revenue		1				1,237				—				35				686				1,959
Property operating expenses		(11		)		(181,203		)		—				—				—				(181,214		)
Interest expense		(12,434		)		(56,360		)		—				—				(102		)		(68,896		)
Transaction costs		—				(122		)		—				—				—				(122		)
Asset management and other fees - related party		—				—				—				—				(19,789		)		(19,789		)
General and administrative expenses		(268		)		(42		)		—				(38		)		(12,413		)		(12,761		)
Depreciation and amortization		(14,329		)		(56,660		)		—				—				—				(70,989		)
Impairment loss		(4,132		)		(23,422		)		—				—				—				(27,554		)
Realized gain (loss) on investments and other		5,872				719				—				—				(277		)		6,314
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)		8,122				(58,057		)		—				7,700				(31,895		)		(74,130		)
Equity in earnings (losses) of unconsolidated ventures		—				—				(3,545		)		—				—				(3,545		)
Income tax benefit (expense)		—				(75		)		—				—				—				(75		)
Net income (loss)		$	8,122			$	(58,132	)		$	(3,545	)		$	7,700			$	(31,895	)		$	(77,750	)

_______________________________________

(1)	Includes unallocated asset management fee-related party and general and administrative expenses.

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		Direct Investments
Year Ended December 31, 2018		Net Lease				Operating				Unconsolidated Investments				Debt and Securities				Corporate(1)				Subtotal				Investing VIE(2)				Total
Rental and resident fee income		$	34,275			$	255,061			$	—			$	—			$	—			$	289,336			$	—			$	289,336
Net interest income on debt and securities		—				—				—				8,534				(314		)	(3)	8,220				811				9,031
Other revenue		1				3,718				—				375				841				4,935				—				4,935
Property operating expenses		(1,346		)		(187,415		)		—				—				—				(188,761		)		—				(188,761		)
Interest expense		(13,326		)		(56,595		)		—				—				(275		)		(70,196		)		—				(70,196		)
Other expenses related to securitization trust		—				—				—				—				—				—				(811		)		(811		)
Transaction costs		(60		)		(828		)		—				—				—				(888		)		—				(888		)
Asset management and other fees - related party		—				—				—				—				(23,478		)		(23,478		)		—				(23,478		)
General and administrative expenses		(183		)		(856		)		(2		)		(46		)		(13,303		)		(14,390		)		—				(14,390		)
Depreciation and amortization		(13,694		)		(93,439		)		—				—				—				(107,133		)		—				(107,133		)
Impairment loss		(5,094		)		(31,183		)		—				—				—				(36,277		)		—				(36,277		)
Unrealized gain (loss) on mortgage loans held in securitization trust, net		—				—				—				(314		)		314			(3)	—				—				—
Realized gain (loss) on investments and other		—				2,525				14,086				3,495				137				20,243				—				20,243
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)		573				(109,012		)		14,084				12,044				(36,078		)		(118,389		)		—				(118,389		)
Equity in earnings (losses) of unconsolidated ventures		—				—				(33,517		)		—				—				(33,517		)		—				(33,517		)
Income tax benefit (expense)		—				(114		)		—				—				—				(114		)		—				(114		)
Net income (loss)		$	573			$	(109,126	)		$	(19,433	)		$	12,044			$	(36,078	)		$	(152,020	)		$	—			$	(152,020	)

_______________________________________

(1)	Includes unallocated asset management fee-related party and general and administrative expenses.

(2)

Investing VIEs are not considered to be a segment that the Company conducts its business through, however U.S. GAAP requires the Company, as the primary beneficiary, to present the assets and liabilities of the securitization trust on its consolidated balance sheets and recognize the related interest income and interest expense, as net interest income on the consolidated statements of operations. Though U.S. GAAP requires this presentation, the Company views its investment in the securitization trust as a net investment in debt and securities.

(3)	Represents income earned from the healthcare-related securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the year ended December 31, 2018, $0.3 million was attributable to discount accretion income and was eliminated in consolidation in the corporate segment.

---

		Direct Investments
Year Ended December 31, 2017		Net Lease				Operating				Unconsolidated Investments				Debt and Securities				Corporate(1)				Subtotal				Investing VIE(2)				Total
Rental and resident fee income		$	34,798			$	248,082			$	—			$	—			$	—			$	282,880			$	—			$	282,880
Net interest income on debt and securities		—				(1		)		—				11,749				(1,529		)	(3)	10,219				3,922				14,141
Other revenue		5				2,244				—				—				646				2,895				—				2,895
Property operating expenses		(31		)		(163,806		)		—				—				—				(163,837		)		—				(163,837		)
Interest expense		(12,266		)		(48,742		)		—				—				(74		)		(61,082		)		—				(61,082		)
Other expenses related to securitization trust		—				—				—				—				—				—				(3,922		)		(3,922		)
Transaction costs		(435		)		(8,972		)		—				—				—				(9,407		)		—				(9,407		)
Asset management and other fees - related party		—				—				—				—				(41,954		)		(41,954		)		—				(41,954		)
General and administrative expenses		(82		)		(866		)		—				(49		)		(12,491		)		(13,488		)		—				(13,488		)
Depreciation and amortization		(13,127		)		(92,332		)		—				—				—				(105,459		)		—				(105,459		)
Impairment of operating real estate		(5,000		)		—				—				—				—				(5,000		)		—				(5,000		)
Unrealized gain (loss) on mortgage loans held in securitization trust, net		—				—				—				(26		)		1,529			(3)	1,503				—				1,503
Realized gain (loss) on investments and other		—				116				—				—				—				116				—				116
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)		3,862				(64,277		)		—				11,674				(53,873		)		(102,614		)		—				(102,614		)
Equity in earnings (losses) of unconsolidated ventures		—				—				(35,314		)		—				—				(35,314		)		—				(35,314		)
Income tax benefit (expense)		—				(43		)		—				—				—				(43		)		—				(43		)
Net income (loss)		$	3,862			$	(64,320	)		$	(35,314	)		$	11,674			$	(53,873	)		$	(137,971	)		$	—			$	(137,971	)

_______________________________________

(1)	Includes unallocated asset management fee-related party and general and administrative expenses.

(2)

Investing VIEs are not considered to be a segment that the Company conducts its business through, however U.S. GAAP requires the Company, as the primary beneficiary, to recognize the related interest income and interest expense, as net interest income on the consolidated statements of operations. Though U.S. GAAP requires this presentation, the Company views its investment in the securitization trust as a net investment in debt and securities.

(3)	Represents income earned from the healthcare-related securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the year ended December 31, 2017, $1.5 million was attributable to discount accretion income and was eliminated in consolidation in the corporate segment.

The following table presents total assets by segment as of December 31, 2019 and 2018 (dollars in thousands):

		Direct Investments
Total Assets:		Net Lease				Operating				Unconsolidated Investments				Debt and Securities				Corporate(1)				Total
December 31, 2019		$	365,789			$	1,420,023			$	268,892			$	56,099			$	30,404			$	2,141,207
December 31, 2018		394,697				1,481,522				264,317				59,620				64,260				2,264,416

_______________________________________

(1)	Represents primarily corporate cash and cash equivalents balances.

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14.	Commitments and Contingencies

Litigation and Claims

The Company may be involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, any current legal proceedings are not expected to have a material adverse effect on its financial position or results of operations.

The Company’s tenants, operators and managers may be involved in various litigation matters arising in the ordinary course of their business. The unfavorable resolution of any such actions, investigations or claims could, individually or in the aggregate, materially adversely affect such tenants’, operators’ or managers’ liquidity, financial condition or results of operations and their ability to satisfy their respective obligations to the Company, which, in turn, could have a material adverse effect on the Company.

Environmental Matters

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

General Uninsured Losses

The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, flood, windstorm, earthquake, environmental and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits and deductibles considering the relative risk of loss, the cost of such coverage and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable.

Other

15.	Subsequent Events

The following is a discussion of material events which have occurred subsequent to December 31, 2019 through the issuance of the consolidated financial statements.

Share Repurchases

For the period from January 1, 2020 through March 19, 2020, the Company repurchased 0.3 million shares for a total of $2.0 million or a price of $6.25 per share under the Share Repurchase Program.

Coronavirus Outbreak

In December 2019, a novel strain of coronavirus emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally. The World Health Organization has declared the coronavirus outbreak a pandemic, the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak and the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from the coronavirus. Due to the fact the Company’s portfolio is comprised entirely of healthcare real estate, with a focus on the mid-acuity senior housing sector, the coronavirus will impact the Company’s operating results to the extent that its continued spread reduces occupancy at the Company’s properties, results in quarantines for residents and/or bans on admissions at the Company’s properties, reduces the ability to continue to obtain necessary goods and provide adequate staffing at its properties or increases the cost burdens faced by the Company’s operators. The extent to which the coronavirus impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat

---

its impact, among others. At this time, the Company is unable to estimate the impact of this event on its operations, but expects that it will have a material impact on its operations in the coming months.

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Column A		Column B				Column C Initial Cost								Column D Capitalized Subsequent to Acquisition(1)				Column E Gross Amount Carried at Close of Period(2)												Column F								Column G		Column H
Location City, State		Encumbrances				Land				Building & Improvements				Land, Buildings & Improvements				Land				Building & Improvements				Total				Accumulated Depreciation				Total				Date Acquired		Life on Which Depreciation is Computed
Net Lease Portfolio
Smyrna, GA		$	—			$	825			$	9,175			$	(5,730	)		$	825			$	3,445			$	4,270			$	1,469			$	2,801			Dec-13		40 years
Bohemia, NY		23,689				4,258				27,805				160				4,258				27,965				32,223				4,245				27,978				Sep-14		40 years
Hauppauge, NY		14,372				2,086				18,495				1,351				2,086				19,846				21,932				3,193				18,739				Sep-14		40 years
Islandia, NY		35,317				8,437				37,198				291				8,437				37,489				45,926				5,799				40,127				Sep-14		40 years
Westbury, NY		15,648				2,506				19,163				293				2,506				19,456				21,962				2,905				19,057				Sep-14		40 years
Bellevue, WA		30,227				13,801				18,208				3,839				13,801				22,047				35,848				3,929				31,919				Jun-15		40 years
Dana Point, CA		32,044				6,286				41,199				611				6,286				41,810				48,096				5,560				42,536				Jun-15		40 years
Kalamazoo, MI		34,042				4,521				30,870				2,824				4,521				33,694				38,215				5,548				32,667				Jun-15		40 years
Oklahoma City, OK		2,935				3,104				6,119				1,349				3,104				7,468				10,572				2,120				8,452				Jun-15		40 years
Palm Desert, CA		20,195				5,365				38,889				2,675				5,365				41,564				46,929				6,515				40,414				Jun-15		40 years
Sarasota, FL		73,073				12,845				64,403				4,421				12,845				68,824				81,669				10,296				71,373				Jun-15		40 years
Senior Housing Operating Portfolio
Leawood, KS		—				900				7,100				(2,959		)		900				4,141				5,041				1,362				3,679				Oct-13		40 years
Spring Hill, KS		—				430				6,570				(3,513		)		430				3,057				3,487				1,148				2,339				Oct-13		40 years
Milford, OH		18,760				1,160				14,440				1,560				1,160				16,000				17,160				3,261				13,899				Dec-13		40 years
Milford, OH		—				700				—				5,603				700				5,603				6,303				211				6,092				Jul-17		40 years
Denver, CO		20,547				4,300				27,200				9,417				4,300				36,617				40,917				6,278				34,639				Jan-14		40 years
Frisco, TX		19,170				3,100				35,874				2,107				3,100				37,981				41,081				6,239				34,842				Feb-14		40 years
Alexandria, VA		44,269				7,950				41,124				2,465				7,950				43,589				51,539				6,040				45,499				Jun-15		40 years
Crystal Lake, IL		27,028				6,580				28,210				2,893				6,580				31,103				37,683				4,406				33,277				Jun-15		40 years
Independence, MO		15,260				1,280				17,090				1,669				1,280				18,759				20,039				2,904				17,135				Jun-15		40 years
Millbrook, NY		24,285				6,610				20,854				3,732				6,610				24,586				31,196				4,088				27,108				Jun-15		40 years
St. Petersburg, FL		39,898				8,920				44,137				6,015				8,920				50,152				59,072				7,299				51,773				Jun-15		40 years
Tarboro, NC		22,130				2,400				17,800				4,211				2,400				22,011				24,411				3,460				20,951				Jun-15		40 years
Tuckahoe, NY		36,255				4,870				26,980				1,297				4,870				28,277				33,147				3,822				29,325				Jun-15		40 years
Tucson, AZ		64,836				7,370				60,719				5,097				7,370				65,816				73,186				9,393				63,793				Jun-15		40 years
Apple Valley, CA		21,304				1,168				24,625				605				1,168				25,230				26,398				3,176				23,222				Mar-16		40 years
Auburn, CA		24,069				1,694				18,438				965				1,694				19,403				21,097				2,632				18,465				Mar-16		40 years
Austin, TX		26,501				4,020				19,417				2,119				4,020				21,536				25,556				2,747				22,809				Mar-16		40 years
Bakersfield, CA		16,818				1,831				21,006				987				1,831				21,993				23,824				2,885				20,939				Mar-16		40 years
Bangor, ME		21,449				2,463				23,205				721				2,463				23,926				26,389				3,191				23,198				Mar-16		40 years
Bellingham, WA		23,816				2,242				18,807				1,098				2,242				19,905				22,147				2,670				19,477				Mar-16		40 years
Clovis, CA		18,743				1,821				21,721				638				1,821				22,359				24,180				2,833				21,347				Mar-16		40 years
Columbia, MO		22,677				1,621				23,521				715				1,621				24,236				25,857				3,061				22,796				Mar-16		40 years
Corpus Christi, TX		18,582				2,263				20,142				928				2,263				21,070				23,333				2,764				20,569				Mar-16		40 years
East Amherst, NY		18,509				2,873				18,279				495				2,873				18,774				21,647				2,427				19,220				Mar-16		40 years
El Cajon, CA		20,967				2,357				14,733				730				2,357				15,463				17,820				2,192				15,628				Mar-16		40 years
El Paso, TX		12,198				1,610				14,103				969				1,610				15,072				16,682				1,974				14,708				Mar-16		40 years
Fairport, NY		16,505				1,452				19,427				599				1,452				20,026				21,478				2,444				19,034				Mar-16		40 years
Fenton, MO		24,527				2,410				22,216				773				2,410				22,989				25,399				2,982				22,417				Mar-16		40 years
Grand Junction, CO		19,466				2,525				26,446				504				2,525				26,950				29,475				3,544				25,931				Mar-16		40 years
Grand Junction, CO		9,975				1,147				12,523				591				1,147				13,114				14,261				1,897				12,364				Mar-16		40 years
Grapevine, TX		22,312				1,852				18,143				1,079				1,852				19,222				21,074				2,572				18,502				Mar-16		40 years
Groton, CT		17,579				3,673				21,879				1,554				3,673				23,433				27,106				3,272				23,834				Mar-16		40 years
Guilford, CT		24,273				6,725				27,488				(13,990		)		6,725				13,498				20,223				3,553				16,670				Mar-16		40 years
Joliet, IL		14,896				1,473				23,427				(7,462		)		1,473				15,965				17,438				2,907				14,531				Mar-16		40 years
Kennewick, WA		7,669				1,168				18,933				702				1,168				19,635				20,803				2,498				18,305				Mar-16		40 years
Las Cruces, NM		11,175				1,568				15,091				891				1,568				15,982				17,550				2,091				15,459				Mar-16		40 years
Lees Summit, MO		27,159				1,263				20,500				937				1,263				21,437				22,700				2,930				19,770				Mar-16		40 years
Lodi, CA		20,090				2,863				21,152				824				2,863				21,976				24,839				2,884				21,955				Mar-16		40 years
Normandy Park, WA		16,213				2,031				16,407				839				2,031				17,246				19,277				2,303				16,974				Mar-16		40 years

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Column A		Column B				Column C Initial Cost								Column D Capitalized Subsequent to Acquisition(1)				Column E Gross Amount Carried at Close of Period(2)												Column F								Column G		Column H
Location City, State		Encumbrances				Land				Building & Improvements				Land, Buildings & Improvements				Land				Building & Improvements				Total				Accumulated Depreciation				Total				Date Acquired		Life on Which Depreciation is Computed
Palatine, IL		20,089				1,221				26,993				1,768				1,221				28,761				29,982				3,653				26,329				Mar-16		40 years
Plano, TX		16,073				2,200				14,860				1,468				2,200				16,328				18,528				2,205				16,323				Mar-16		40 years
Renton, WA		19,026				2,642				20,469				851				2,642				21,320				23,962				2,836				21,126				Mar-16		40 years
Sandy, UT		15,781				2,810				19,132				541				2,810				19,673				22,483				2,529				19,954				Mar-16		40 years
Santa Rosa, CA		27,916				5,409				26,183				1,230				5,409				27,413				32,822				3,596				29,226				Mar-16		40 years
Sun City West, AZ		25,649				2,684				29,056				1,663				2,684				30,719				33,403				4,122				29,281				Mar-16		40 years
Tacoma, WA		30,018				7,974				32,435				1,913				7,977				34,345				42,322				4,555				37,767				Mar-16		40 years
Frisco, TX		—				1,130				—				12,595				1,130				12,595				13,725				1,243				12,482				Oct-16		40 years
Albany, OR		8,777				958				6,625				552				758				7,377				8,135				749				7,386				Feb-17		40 years
Port Townsend, WA		16,781				1,613				21,460				619				996				22,696				23,692				2,183				21,509				Feb-17		40 years
Roseburg, OR		12,416				699				11,589				589				459				12,418				12,877				1,170				11,707				Feb-17		40 years
Sandy, OR		14,161				1,611				16,697				652				1,233				17,727				18,960				1,594				17,366				Feb-17		40 years
Santa Barbara, CA		3,693				2,408				15,674				116				2,408				15,790				18,198				1,254				16,944				Feb-17		40 years
Wenatchee, WA		19,329				2,540				28,971				744				1,534				30,721				32,255				2,589				29,666				Feb-17		40 years
Churchville, NY		6,575				296				7,712				421				296				8,133				8,429				767				7,662				Aug-17		35 years
Greece, NY		—				534				18,158				(9,134		)		533				9,025				9,558				1,240				8,318				Aug-17		49 years
Greece, NY		26,833				1,007				31,960				1,277				1,007				33,237				34,244				2,567				31,677				Aug-17		41 years
Henrietta, NY		11,881				1,153				16,812				732				1,152				17,545				18,697				1,771				16,926				Aug-17		36 years
Penfield, NY		12,502				781				20,273				(8,550		)		781				11,723				12,504				2,036				10,468				Aug-17		30 years
Penfield, NY		10,918				516				9,898				335				515				10,234				10,749				970				9,779				Aug-17		35 years
Rochester, NY		20,228				2,426				31,861				1,610				2,425				33,472				35,897				2,644				33,253				Aug-17		39 years
Rochester, NY		5,341				297				12,484				1,139				296				13,624				13,920				1,209				12,711				Aug-17		37 years
Victor, NY		27,174				1,060				33,246				1,552				1,059				34,799				35,858				2,616				33,242				Aug-17		41 years
Victor, NY		12,800				557				13,570				10				556				13,581				14,137				797				13,340				Nov-17		41 years
Undeveloped Land
Bellevue, WA		—				14,200				—				—				14,200				—				14,200				—				14,200				Jun-15		(3)
Kalamazoo, MI		—				100				—				—				100				—				100				—				100				Jun-15		(3)
Crystal Lake, IL		—				810				—				—				810				—				810				—				810				Jun-15		(3)
Millbrook, NY		—				1,050				—				—				1,050				—				1,050				—				1,050				Jun-15		(3)
Rochester, NY		—				544				—				—				544				—				544				—				544				Aug-17		(3)
Penfield, NY		—				534				—				—				534				—				534				—				534				Aug-17		(3)
Subtotal		$	1,455,413			$	238,481			$	1,627,369			$	65,182			$	236,036			$	1,694,996			$	1,931,032			$	230,814			$	1,700,218
Held for Sale
Clinton, CT		—				—				—				—				—				—				1,649				—				1,649				Oct-13		(3)
Total		$	1,455,413			$	238,481			$	1,627,369			$	65,182			$	236,036			$	1,694,996			$	1,932,681			$	230,814			$	1,701,867

_____________________________

(1)	Negative amount represents impairment of operating real estate.

(2)	The aggregate cost for federal income tax purposes is approximately $2.2 billion.

(3)	Depreciation is not recorded on land or assets held for sale.

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The following table presents changes in the Company’s operating real estate portfolio for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

		Year Ended December 31,
		2019				2018				2017
Balance at beginning of year		$	1,949,997			$	1,966,352			$	1,632,153
Property acquisitions		—				—				317,224
Dispositions		(16,645		)		(15,240		)		—
Improvements		24,701				35,889				21,251
Impairment		(27,021		)		(33,494		)		(5,000		)
Reclassification(1)		—				—				724
Subtotal		1,931,032				1,953,507				1,966,352
Classified as held for sale(2)		—				(3,510		)		—
Balance at end of year(3)		$	1,931,032			$	1,949,997			$	1,966,352

_____________________________

(1)	Represents a measurement period adjustment of operating real estate acquired in 2016 reclassified from below market debt in connection with the final purchase price allocation for the Winterfell portfolio.

(2)	Amounts classified as held for sale during the year and remain as held for sale at the end of the year.

(3)	The aggregate cost of the properties are approximately $263.6 million higher for federal income tax purposes as of December 31, 2019.

The following table presents changes in accumulated depreciation as of December 31, 2019, 2018 and 2017 (dollars in thousands):

		Year Ended December 31,
		2019				2018				2017
Balance at beginning of year		$	171,083			$	113,924			$	60,173
Depreciation expense		62,798				60,028				53,751
Property dispositions		(3,067		)		(1,542		)		—
Subtotal		230,814				172,410				113,924
Classified as held for sale		—				(1,327		)		—
Balance at end of year		$	230,814			$	171,083			$	113,924

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	Asset Type:	Location / Description		Count		Fixed Rate			Maturity Date(1)		Periodic Payment Terms(2)		Prior Liens(3)				Principal Amount				Carrying Value(4)				Principal Amount of Loans Subject to Delinquent Principal or Interest
	Espresso Mezzanine Loan	Various / SNF / ALF		1		10.0	%		Jan-21		I/O		$	560,632			$	74,182			$	55,468			$	—

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(1)	Reflects the initial maturity date of the investment and does not consider any options to extend beyond such date.

(2)	Interest Only, or I/O; principal amount due in full at maturity.

(3)	Represents only third-party liens.

(4)	The federal income tax basis is approximately $74.2 million.

Reconciliation of Carrying Value of Real Estate Debt (dollars in thousands):

		Year Ended December 31,
		2019				2018				2017
Balance at beginning of year		$	58,600			$	74,650			$	74,558
Additions:
Principal amount of new loans and additional funding on existing loans		—				—				—
Acquisition cost (fees) on new loans		—				—				—
Origination fees received on new loans		—				—				—
Deductions:
Reclassification (1)		(2,427		)		(16,151		)		—
Repayment of principal		(818		)		—				—
Amortization of acquisition costs, fees, premiums and discounts		113				101				92
Balance at end of year		$	55,468			$	58,600			$	74,650

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(1)

As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero as of December 31, 2018. The Company has recorded the excess equity in losses related to its unconsolidated venture as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture.

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(a)	Management’s Annual Report on Internal Control over Financial Reporting.

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*

The information that is required by Items 10, 11, 12, 13 and 14 (other than the information included in this Annual Report on Form 10-K) is incorporated herein by reference from the definitive proxy statement relating to our 2020 Annual Meeting of Stockholders, which is to be filed with the U.S. Securities and Exchange Commission pursuant to Regulation 14A under the Exchange Act, no later than 120 days after the end of our fiscal year ended December 31, 2019.

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*	Filed herewith

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