10-Q 1 hti930201810-q.htm 10-Q HTI 9.30.2018 Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 000-55201
hti2a14.jpg
Healthcare Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
38-3888962
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., 3rd Floor, New York, NY      
  
10022
(Address of principal executive offices)
  
(Zip Code)
(212) 415-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
Smaller reporting company o
 
 
Emerging growth company x
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of October 31, 2018, the registrant had 91,374,181 shares of common stock outstanding.


HEALTHCARE TRUST, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Part I — FINANCIAL INFORMATION



Item 1. Financial Statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
 
September 30,
2018
 
December 31, 2017
ASSETS
 
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
202,720

 
$
201,427

Buildings, fixtures and improvements
 
1,957,560

 
1,955,940

Construction in progress
 
78,692

 
72,007

Acquired intangible assets
 
255,993

 
256,678

Total real estate investments, at cost
 
2,494,965

 
2,486,052

Less: accumulated depreciation and amortization
 
(361,906
)
 
(309,711
)
Total real estate investments, net
 
2,133,059

 
2,176,341

Cash and cash equivalents
 
52,109

 
94,177

Restricted cash
 
17,097

 
8,411

Assets held for sale
 
79,995

 
37,822

Derivative assets, at fair value
 
9,271

 
2,550

Straight-line rent receivable, net
 
16,178

 
15,327

Prepaid expenses and other assets (including $68 due from related parties as of September 30, 2018)
 
30,302

 
22,099

Deferred costs, net
 
12,904

 
15,134

Total assets
 
$
2,350,915

 
$
2,371,861

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable, net
 
$
462,745

 
$
406,630

Credit facilities
 
549,022

 
534,869

Market lease intangible liabilities, net
 
17,579

 
18,829

Accounts payable and accrued expenses (including $732 and $1,637 due to related parties as of September 30, 2018 and December 31, 2017, respectively)
 
40,981

 
38,112

Deferred rent
 
6,242

 
6,201

Distributions payable
 
6,381

 
11,161

Total liabilities
 
1,082,950

 
1,015,802

 
 
 
 
 
Stockholders' Equity
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of September 30, 2018 and December 31, 2017
 

 

Common stock, $0.01 par value, 300,000,000 shares authorized, 91,608,625 and 91,002,766 shares of common stock issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
917

 
910

Additional paid-in capital
 
2,024,460

 
2,009,197

Accumulated other comprehensive income
 
9,017

 
2,473

Accumulated deficit
 
(774,441
)
 
(665,026
)
Total stockholders' equity
 
1,259,953

 
1,347,554

Non-controlling interests
 
8,012

 
8,505

Total equity
 
1,267,965

 
1,356,059

Total liabilities and equity
 
$
2,350,915

 
$
2,371,861


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

3

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)




 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
25,686

 
$
23,118

 
$
76,513

 
$
71,221

Operating expense reimbursements
 
4,579

 
3,906

 
15,377

 
11,896

Resident services and fee income
 
59,926

 
52,048

 
178,696

 
146,336

Total revenues
 
90,191

 
79,072

 
270,586

 
229,453

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Property operating and maintenance
 
59,298

 
48,443

 
166,161

 
135,414

Impairment charges
 
17,837

 
18,958

 
18,570

 
18,993

Operating fees to related parties
 
5,743

 
5,635

 
17,233

 
16,573

Acquisition and transaction related
 
40

 
(261
)
 
333

 
4,327

General and administrative
 
4,441

 
3,540

 
12,705

 
11,116

Depreciation and amortization
 
20,466

 
19,089

 
62,099

 
58,911

Total expenses
 
107,825

 
95,404

 
277,101

 
245,334

Operating loss
 
(17,634
)
 
(16,332
)
 
(6,515
)
 
(15,881
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(12,597
)
 
(8,838
)
 
(35,962
)
 
(20,908
)
Interest and other income
 
16

 
302

 
21

 
305

Gain on sale of real estate investment
 

 

 

 
438

Gain (loss) on non-designated derivatives
 
18

 
(22
)
 
46

 
(129
)
Total other expenses
 
(12,563
)
 
(8,558
)
 
(35,895
)
 
(20,294
)
Loss before income taxes
 
(30,197
)
 
(24,890
)
 
(42,410
)
 
(36,175
)
Income tax benefit (expense)
 
550

 
652

 
(225
)
 
1,049

Net loss
 
(29,647
)
 
(24,238
)
 
(42,635
)
 
(35,126
)
Net loss attributable to non-controlling interests
 
40

 
102

 
87

 
135

Net loss attributable to stockholders
 
(29,607
)
 
(24,136
)
 
(42,548
)
 
(34,991
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on designated derivative
 
998

 
172

 
6,544

 
(124
)
Comprehensive loss attributable to stockholders
 
$
(28,609
)
 
$
(23,964
)
 
$
(36,004
)
 
$
(35,115
)
 
 
 
 
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
 
90,203,311

 
89,821,799

 
90,983,620

 
89,599,655

Basic and diluted net loss per share
 
$
(0.33
)
 
$
(0.27
)
 
$
(0.47
)
 
$
(0.39
)
Distributions declared per share
 
$
0.22

 
$
0.37

 
$
0.73

 
$
1.15


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


4

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2018
(In thousands, except share data)
(Unaudited)



 
Common Stock
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional
Paid-in
Capital
 
 
Accumulated Deficit
 
Total Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2017
91,002,766

 
$
910

 
$
2,009,197

 
$
2,473

 
$
(665,026
)
 
$
1,347,554

 
$
8,505

 
$
1,356,059

Common stock issued through distribution reinvestment plan
1,365,726

 
14

 
28,537

 

 

 
28,551

 

 
28,551

Common stock repurchases
(759,867
)
 
(7
)
 
(14,195
)
 

 

 
(14,202
)
 

 
(14,202
)
Share-based compensation

 

 
921

 

 

 
921

 

 
921

Distributions declared

 

 

 

 
(66,867
)
 
(66,867
)
 

 
(66,867
)
Contributions from non-controlling interest holders

 

 

 

 

 

 

 

Distributions to non-controlling interest holders

 

 

 

 

 

 
(406
)
 
(406
)
Other comprehensive income

 

 

 
6,544

 

 
6,544

 

 
6,544

Net loss

 

 

 

 
(42,548
)
 
(42,548
)
 
(87
)
 
(42,635
)
Balance, September 30, 2018
91,608,625

 
$
917

 
$
2,024,460

 
$
9,017

 
$
(774,441
)
 
$
1,259,953

 
$
8,012

 
$
1,267,965


The accompanying notes are an integral part of this unaudited consolidated financial statement.


5

HEALTHCARE TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(42,635
)
 
$
(35,126
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
62,099

 
58,911

Amortization of deferred financing costs
 
6,448

 
4,271

Amortization of mortgage premiums and discounts, net
 
(200
)
 
(1,279
)
Amortization of market lease and other intangibles, net
 
205

 
222

Bad debt expense
 
9,227

 
9,945

Share-based compensation
 
921

 
144

Gain on sale of real estate investments, net
 

 
(438
)
(Gain) loss on non-designated derivatives
 
(46
)
 
129

Impairment charges
 
18,570

 
18,993

Changes in assets and liabilities:
 
 
 
 
Straight-line rent receivable
 
(6,302
)
 
(4,537
)
Prepaid expenses and other assets
 
(12,934
)
 
(9,969
)
Due from related party
 
14

 

Accounts payable, accrued expenses and other liabilities
 
2,875

 
7,216

Deferred rent
 
41

 
(488
)
Net cash provided by operating activities
 
38,283

 
47,994

Cash flows from investing activities:
 
 
 
 
Investments in real estate
 
(73,536
)
 
(61,788
)
Deposits paid for unconsummated acquisitions
 

 
(540
)
Deposits for real estate dispositions
 

 
1,125

Capital expenditures
 
(6,968
)
 
(5,569
)
Cash received in asset acquisition
 

 
865

Proceeds from sale of real estate
 

 
757

Net cash used in investing activities
 
(80,504
)
 
(65,150
)
Cash flows from financing activities:
 
 
 
 
Proceeds from credit facilities
 
94,153

 
128,116

Payments on credit facilities
 
(80,000
)
 
(187,000
)
Proceeds from mortgage notes payable
 
118,700

 
250,000

Payments on mortgage notes payable
 
(62,872
)
 
(34,417
)
Payments for derivative instruments
 
(131
)
 
(88
)
Payments of deferred financing costs
 
(3,307
)
 
(8,840
)
Common stock repurchases
 
(14,202
)
 
(33,599
)
Distributions paid
 
(43,096
)
 
(57,491
)
Distributions to non-controlling interest holders
 
(406
)
 
(495
)
Net cash provided by financing activities
 
8,839

 
56,186

Net change in cash, cash equivalents and restricted cash
 
(33,382
)
 
39,030

Cash, cash equivalents and restricted cash, beginning of period
 
102,588

 
33,187

Cash, cash equivalents and restricted cash, end of period
 
$
69,206

 
$
72,217



6

HEALTHCARE TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
 
$
31,192

 
$
18,187

Cash paid for income taxes
 
328

 
64

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Common stock issued through distribution reinvestment plan
 
28,551

 
47,342

Proceeds from sale of real estate investments payable to non-controlling interest holder
 

 
605

Capital expenditures assumed in asset acquisition
 

 
60


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


7

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)


Note 1 — Organization
Healthcare Trust, Inc. (including, as required by context, Healthcare Trust Operating Partnership, LP (the "OP") and its subsidiaries, the "Company") invests in healthcare real estate, focusing on seniors housing and medical office buildings ("MOB") located in the United States. As of September 30, 2018, the Company owned 196 properties located in 30 states and comprised of 9.3 million rentable square feet.
The Company, which was incorporated on October 15, 2012, is a Maryland corporation that elected and qualified to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. Substantially all of the Company's business is conducted through the OP.
The Company has no employees. Healthcare Trust Advisors, LLC (the "Advisor") has been retained by the Company to manage the Company's affairs on a day-to-day basis. The Company has retained Healthcare Trust Properties, LLC (the "Property Manager") to serve as the Company's property manager. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital VII, LLC (the "Sponsor"), as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements from the Company for services related to managing its business. The Advisor, Healthcare Trust Special Limited Partnership, LLC (the "Special Limited Partner") and Property Manager also have received or will receive compensation, fees and expense reimbursements related to the investment and management of the Company's assets.
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 20, 2018. There have been no significant changes to the Company's significant accounting policies during the nine months ended September 30, 2018 other than the updates described below.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Revenue Recognition
The Company's rental income is primarily related to rent received from tenants in MOBs and triple-net leased healthcare facilities. Rent from tenants in the Company's MOB and triple-net leased healthcare facilities operating segments (as discussed below) is recorded in accordance with the terms of each lease on a straight-line basis over the initial term of the lease. Because many of the leases provide for rental increases at specified intervals, GAAP requires the Company to record a receivable, and include in revenues on a straight-line basis, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When the Company acquires a property, the acquisition date is considered to be the commencement date for purposes of this calculation.

8

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Resident services and fee income primarily relates to rent from residents in the Company's Seniors Housing — Operating Properties ("SHOP") held using a structure permitted by the REIT Investment Diversification and Empowerment Act of 2007 ("RIDEA") and to fees for ancillary services performed for SHOP residents. Rental income from residents in the Company's SHOP operating segment is recognized as earned. Residents pay monthly rent that covers occupancy of their unit and basic services, including utilities, meals and some housekeeping services. The terms of the rent are short term in nature, primarily month-to-month. Fees for ancillary services are recorded in the period in which the services are performed.
The Company defers the revenue related to lease payments received from tenants and residents in advance of their due dates.
The Company continually reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company records an increase in the allowance for uncollectible accounts on the consolidated balance sheets or records a direct write-off of the receivable in the consolidated statements of operations.
Recently Issued Accounting Pronouncements
Adopted as of January 1, 2018
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued several additional amendments thereto (collectively referred to herein as "ASC 606"). ASC 606 establishes a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under ASC 606, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. A reporting entity may apply the amendments in ASC 606 using either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or a full retrospective approach. The Company adopted this guidance effective January 1, 2018 under the modified retrospective approach and it did not have an impact on the Company's consolidated financial statements. See above for further information on the Company's Revenue Recognition Accounting Policies under ASC 606.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The revised guidance amends the recognition and measurement of financial instruments. The new guidance significantly revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The Company adopted this guidance effective January 1, 2018, using the modified retrospective transition method, and there was no impact to the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The Company adopted the new guidance on January 1, 2018 and it did not have an impact on its statement of cash flows.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Assets Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which provides guidance related to partial sales of non-financial assets, eliminates rules specifically addressing the sales of real estate, clarifies the definition of in substance non-financial assets, removes the exception to the financial asset derecognition model and clarifies the accounting for contributions of non-financial assets to joint ventures. The Company adopted this guidance effective January 1, 2018 using the modified transition method and it did not have an impact on its financial statements. The Company expects that any future sales of real estate in which the Company retains a non-controlling interest in the property would result in the full gain amount being recognized at the time of the partial sale. Historically, the Company has not retained any interest in properties it has sold.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance that clarifies which changes to the terms or conditions of a share-based payment award

9

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

require an entity to apply modification accounting. The update states that modification accounting should be used unless the fair value of the award, the vesting terms of the award, and the classification of the award as either equity or liability, all do not change as a result of the modification. The Company adopted this guidance effective January 1, 2018 using the modified retrospective transition method and it did not have an impact on its consolidated financial statements. The Company expects that any future modifications to the Company's issued share-based awards will be accounted for using modification accounting, unless the modification meets all of the exception criteria noted above. As a result, the modification would be treated as an exchange of the original award for a new award, with any incremental fair value being treated as additional compensation cost.
Pending Adoption as of September 30, 2018
In February 2016, the FASB issued ASC 842, which originally stated that companies would be required to bifurcate certain lease revenues between lease and non-lease components, however, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, in July 2018 ("ASU 2018-11"), which allows lessors a practical expedient by class of underlying assets to account for lease and non-lease components as a single lease component if certain criteria are met. Additionally, only incremental direct leasing costs may be capitalized under this new guidance, which is consistent with the Company’s existing policies. ASC 842 originally required a modified retrospective method of adoption, however, ASU 2018-11 indicates that companies may be permitted to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The pronouncement allows some optional practical expedients.
From a lessor perspective the Company expects that the new standard will impact the presentation of lease and non-lease components of revenue such as rent, and operating expense reimbursements including common area maintenance, taxes, and insurance from leases for which the Company is a lessor. The Company does not expect this guidance to impact its existing lessor revenue recognition pattern. We expect to elect the practical expedient to account for costs paid by lessees directly to a third-party on a net basis. This reporting will have no impact on our net income. Resident leases within our Seniors Housing — Operating Properties business segment are accounted for as leases but also contain service elements. We expect to elect the practical expedient to account for our resident leases as a single lease component.
The Company is a lessee for 19 of its properties for which it has ground leases as of September 30, 2018. For these leases, the Company will be required to record a right-of-use asset and lease liability equal to the present value of the remaining lease payments upon adoption of this update. The new standard requires lessees to apply a dual lease classification approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today.
The Company intends to take the practical expedients allowed under ASU No. 2018-11 and adopt the new provisions of ASC 842 prospectively on January 1, 2019, therefore, financial information and disclosures under ASC 842 will not be provided for periods prior to January 1, 2019. The Company continuing to evaluate any differences in the timing, measurement, or presentation of lessor revenues as well as the impact of the new lessee accounting model on the Company’s consolidated financial position, results of operations and disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. On July 25, 2018, the FASB proposed an amendment to ASU 2016-13 to clarify that operating lease receivables recorded by lessors (including unbilled straight-line rent) are explicitly excluded from the scope of ASU 2016-13. Early adoption is permitted for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception guidance that changes the method to determine the classification of certain financial instruments with a down round feature as liabilities or equity instruments and clarify existing disclosure requirements for equity-classified instruments. A down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked

10

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

financial instrument no longer would be accounted for as a derivative liability, rather, an entity that presents earnings per share is required to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common stockholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features. The revised guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. Adoption should be applied retrospectively to outstanding financial instruments with a down round feature with a cumulative-effect adjustment to the statement of financial position. The Company is currently evaluating the impact of this new guidance.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method will require the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that the Company adopts the update. The Company is currently assessing the potential impacts of this new standard.
In July 2018, the FASB issued ASU 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting as an amendment and update expanding the scope of Topic 718. The amendment specifies that Topic 718 now applies to all share-based payment transactions, even non-employee awards, in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Under the new guidance, awards to nonemployees are measured on the grant date, rather than on the earlier of the performance commitment date or the date at which the nonemployee’s performance is complete. Also, the awards would be measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. In addition, entities may use the expected term to measure nonemployee awards or elect to use the contractual term as the expected term, on an award-by-award basis. The new guidance is effective for the Company in annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is currently evaluating the impact of this new guidance.

11

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Note 3 — Real Estate Investments
The Company owned 196 properties as of September 30, 2018. The Company invests in MOBs, seniors housing communities and other healthcare-related facilities primarily to expand and diversify its portfolio and revenue base.
During the nine months ended September 30, 2018, the Company, through wholly-owned subsidiaries of the OP, completed its acquisitions of six single tenant MOBs, five multi-tenant MOB, and acquired a parcel of land attached to an existing investment property for an aggregate contract purchase price of $66.7 million. Additionally, the Company incurred construction in progress costs during the period of $6.7 million. The following table presents the allocation of real estate assets acquired and liabilities assumed during the nine months ended September 30, 2018 and 2017 as well as capitalized construction in progress during the nine months ended September 30, 2018 and 2017:
 
 
Nine Months Ended September 30,
(In thousands)
 
2018
 
2017
Real estate investments, at cost:
 
 
 
 
Land
 
$
7,807

 
$
6,960

Buildings, fixtures and improvements
 
53,614

 
40,344

Construction in progress
 
6,685

 
7,871

Total tangible assets
 
68,106

 
55,175

Acquired intangibles:
 
 
 
 
In-place leases (1)
 
5,440

 
6,566

Market lease and other intangible assets (1)
 
276

 

Market lease liabilities (1)
 
(286
)
 
(13
)
Total intangible assets and liabilities
 
5,430

 
6,553

Other assets acquired and liabilities assumed in the Asset Acquisition, net (1)
 

 
(60
)
Cash paid for acquired real estate investments
 
$
73,536

 
$
61,788

Number of properties purchased
 
11

 
4

_______________
(1) 
Weighted-average remaining amortization periods for in-place leases, an above-market lease and a below-market lease liability acquired  were 6.7 years and 8.9 years as of September 30, 2018 and 2017, respectively.
The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter as of September 30, 2018. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to performance thresholds and increases in annual rent based on exceeding certain economic indexes, among other items.
(In thousands)
 
Future Minimum
Base Rent Payments
October 1, 2018 - December 31, 2018
 
$
24,112

2019
 
93,970

2020
 
89,151

2021
 
83,076

2022
 
75,755

Thereafter
 
335,900

Total
 
$
701,964


12

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

As of September 30, 2018 and 2017, the Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose annualized rental income on a straight-line basis represented 10% or greater of total annualized rental income for the portfolio on a straight-line basis. The following table lists the states where the Company had concentrations of properties where annualized rental income on a straight-line basis represented 10% or more of consolidated annualized rental income on a straight-line basis for all properties as of September 30, 2018 and 2017:
 
 
September 30,
State
 
2018
 
2017
Florida
 
16.6%
 
17.2%
Michigan
 
13.1%
 
15.2%
Georgia
 
10.1%
 
10.3%
Pennsylvania
 
10.1%
 
10.8%

Intangible Assets and Liabilities
Acquired intangible assets and liabilities consisted of the following as of the periods presented:
 
 
September 30, 2018
 
December 31, 2017
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
214,495

 
$
141,188

 
$
73,307

 
$
215,453

 
$
130,749

 
$
84,704

Market lease assets
 
30,911

 
9,467

 
21,444

 
30,636

 
7,853

 
22,783

Other intangible assets
 
10,587

 
1,037

 
9,550

 
10,589

 
838

 
9,751

Total acquired intangible assets
 
$
255,993

 
$
151,692

 
$
104,301

 
$
256,678

 
$
139,440

 
$
117,238

Intangible liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Market lease liabilities
 
$
26,237

 
$
8,658

 
$
17,579

 
$
25,956

 
$
7,127

 
$
18,829

The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangible assets, amortization and accretion of above- and below-market lease assets and liabilities, net and the amortization and accretion of above- and below-market ground leases, for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
 
2018
 
2017
 
2018
 
2017
Amortization of in-place leases and other intangible assets (1)
 
$
4,632

 
$
3,925

 
$
14,382

 
$
13,491

Amortization and (accretion) of above- and below-market leases, net (2)
 
$
(30
)
 
$
(64
)
 
$
(30
)
 
$
(230
)
Amortization and (accretion) of above- and below-market ground leases, net (3)
 
$
37

 
$
43

 
$
110

 
$
129

_______________
(1)
Reflected within depreciation and amortization expense
(2)  
Reflected within rental income
(3)
Reflected within property operating and maintenance expense

13

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The following table provides the projected amortization expense and adjustments to revenues for the next five years:
(In thousands)
 
October 1, 2018 - December 31, 2018
 
2019
 
2020
 
2021
 
2022
In-place lease assets
 
$
18,071

 
$
14,182

 
$
12,180

 
$
9,942

 
$
8,117

Other intangible assets
 
153

 
568

 
414

 
414

 
414

Total to be added to amortization expense
 
$
18,224

 
$
14,750

 
$
12,594

 
$
10,356

 
$
8,531

 
 
 
 
 
 
 
 
 
 
 
Above-market lease assets
 
$
(442
)
 
$
(1,625
)
 
$
(1,287
)
 
$
(934
)
 
$
(583
)
Below-market lease liabilities
 
461

 
1,694

 
1,537

 
1,387

 
1,347

Total to be added to rental income
 
$
19

 
$
69

 
$
250

 
$
453

 
$
764

 
 
 
 
 
 
 
 
 
 
 
Below-market ground lease assets
 
$
60

 
$
222

 
$
222

 
$
214

 
$
212

Above-market ground lease liabilities
 
(16
)
 
(65
)
 
(65
)
 
(65
)
 
(63
)
Total to be added to property operating and maintenance expense
 
$
44

 
$
157

 
$
157

 
$
149

 
$
149


14

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Assets Held for Sale
When assets are identified by management as held for sale, the Company stops recognizing depreciation and amortization expense on the identified assets and estimates the sales price, net of costs to sell, of those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company's estimate of the net sales price of the assets.
On November 6, 2018, the Company entered into an amendment to the January 2017 agreement to sell eight of its skilled nursing facility properties in Missouri (the "Missouri SNF Properties") for an aggregate contract purchase price of $27.5 million (the "Amended Missouri SNF PSA"). Under the Amended Missouri SNF PSA, the purchaser is required to close no later than November 30, 2018. The Amended Missouri SNF PSA also provides that the purchasers pay a $4 million non-refundable extension and waiver fee. Although the Company believes the disposition of the Missouri SNF Properties is probable, there can be no assurance that the disposition will be consummated by November 30, 2018, or at all. In connection with the Amended Missouri SNF PSA, the Company recognized an impairment charge of approximately $10.4 million on the Missouri SNF Properties for the three and nine months ended September 30, 2018 which is included on the consolidated statement of operations and comprehensive loss.
During the three months ended September 30, 2018, the Company reconsidered the intended holding period for six MOB properties within the state of New York (the "New York Six MOBs") due to various market conditions and the potential to reinvest in properties generating a higher yield. On July 26, 2018, the Company entered into a purchase and sale agreement for the sale of the New York Six MOBs, for an aggregate contract sale price of approximately $68.0 million. On September 25, 2018, the Company amended the purchase and sale agreement to decrease the aggregate contract sale price to $58.8 million. In connection with this amendment, the Company recognized an impairment charge of approximately $6.2 million on the New York Six MOBs for the three and nine months ended September 30, 2018, which is included on the consolidated statement of operations and comprehensive loss. Although the Company believes the disposition of the New York Six MOBs is probable, there can be no assurance that the disposition will be consummated, or that we will be able to reinvest the net proceeds in an accretive manner.
The following table details the major classes of assets associated with the properties that have been classified as held for sale as of September 30, 2018 and December 31, 2017:
(In thousands)
September 30, 2018
 
December 31, 2017
   Land
$
7,580

 
$
3,131

   Buildings, fixtures and improvements
72,415

 
34,691

Assets held for sale
$
79,995

 
$
37,822

Impairment of Held for Use Real Estate Investments
As of September 30, 2018, the Company owned held for use properties for which the Company had reconsidered the projected cash flows due to various performance indicators. As a result, the Company evaluated the impact on its ability to recover the carrying value of such properties based on the expected cash flows over its intended holding period. The Company primarily used an undiscounted cash flow approach to estimate the future cash flows expected to be generated. The Company made certain assumptions in this approach including, among others, the market and economic conditions, expected cash flow projections, intended holding periods and assessments of terminal values. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses for impairment may be realized in the future.
For one of these held for use properties, the Company used a purchase and sale agreement to estimate future cash flows expected to be generated. The Company made certain assumptions in this approach as well, mainly that the sale of these properties would close at this value and within a specified time in the future. There can be no guarantee that the sales of these properties would close under these terms, or at all. As a result of its consideration of impairment, the Company determined that the carrying value of this one held for use property exceeded its estimated undiscounted cash flows and recognized aggregate impairment charges of $1.3 million and $2.0 million which are included on the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2018, respectively.

15

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The LaSalle Tenant
The Company is currently exploring options to replace tenants at four properties in Texas (collectively, the "LaSalle Tenant"). In January 2018, the Company entered into an agreement with the LaSalle Tenant in which the Company agreed to forbear from exercising legal remedies, including staying a lawsuit against the tenant, as long as the tenant pays the amounts due for rent and property taxes on an updated payment schedule pursuant to a forbearance agreement. The LaSalle Tenant is currently in default of the forbearance agreement and owes the Company $2.9 million of rent, property taxes, late fees, and interest receivable thereunder. The Company has the entire receivable balance and related income from the LaSalle Tenant fully reserved as of September 30, 2018. The Company incurred $3.3 million and $3.6 million of bad debt expense, including straight-line rent write-offs, related to the LaSalle Tenant during the three and nine months ended September 30, 2018, which is included in property operating and maintenance expense on the consolidated statement of operations.
The NuVista Tenants
The Company had tenants and former tenants at two of its properties in Florida (collectively, the "NuVista Tenants") that have been in default under their leases since July 2017 and collectively owe the Company $8.0 million of rent, property taxes, late fees, and interest receivable under their leases as of September 30, 2018. There can be no guarantee on the collectibility of these receivables, and as such, the Company has the entire receivable balance and related income from the NuVista Tenants fully reserved as of September 30, 2018. The Company also incurred $1.6 million and $5.4 million of bad debt expense related to the NuVista Tenants during the three and nine months ended September 30, 2018 and incurred $2.3 million and $3.3 million of bad debt expense related to the NuVista Tenants during the three and nine months ended September 30, 2017, respectively which are included in property operating and maintenance expense on the consolidated statement of operations. The NuVista Tenants are related to Palm Health Partners, LLC ("Palm"), the developer of the Company's development property in Jupiter, Florida which is also currently in default to the Company (see Note 16 Commitments and Contingencies for more information on the status of the relationship with Palm).
At one of the properties which is occupied by the NuVista Tenants, located in Wellington, Florida, the Company and the tenant entered into an agreement (the “OTA”) pursuant to which the Company and the tenant agreed to cooperate in transitioning operations at the property to a third party operator selected by the Company. To date, the transition set forth in the OTA has not occurred, and the Company has commenced litigation to enforce the terms of the OTA and, in the alternative, pursue eviction proceedings against the NuVista Tenant and appoint a court ordered receiver in order to replace the NuVista Tenant with a new tenant and operator at the property.
The other property, located in Lutz, Florida, transitioned to the SHOP operating segment as of January 1, 2018. In connection with this transition, the Company replaced the NuVista Tenant as a tenant with a taxable REIT subsidiary ("TRS"), and has engaged a third party to operate the property. This structure is permitted by the REIT Investment Diversification and Empowerment Act of 2007, under which a REIT may lease qualified healthcare properties on an arm's length basis to a TRS if the property is operated on behalf of such subsidiary by an entity who qualifies as an eligible independent contractor. During the three months ended September 30, 2018, the new operator obtained a Medicare license. Prior to the operator obtaining this Medicare license, the Company was unable to bill Medicare for services performed, and therefore, accumulated $6.1 million of Medicare receivables as of September 30, 2018. The Company expects that $0.5 million of these receivables are not collectible and therefore has reserved them, resulting in bad debt expense during the three and nine months ended September 30, 2018, which are included in property operating and maintenance expense on the consolidated statement of operations. There can be no assurance as to the collectibility of these Medicare receivables.

16

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Note 4 — Mortgage Notes Payable, Net
The following table reflects the Company's mortgage notes payable as of September 30, 2018 and December 31, 2017:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
Portfolio
 
Encumbered Properties (1)
 
September 30,
2018
 
December 31, 2017
 
September 30,
2018
 
December 31, 2017
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
Countryside Medical Arts - Safety Harbor, FL
 
1
 
$
5,712

 
$
5,773

 
5.92
%
 
4.98
%
 
Variable
 
Apr. 2019
St. Andrews Medical Park - Venice, FL
 
3
 
6,313

 
6,381

 
5.92
%
 
4.98
%
 
Variable
 
Apr. 2019
Palm Valley Medical Plaza - Goodyear, AZ
 
1
 
3,249

 
3,327

 
4.15
%
 
4.15
%
 
Fixed
 
Jun. 2023
Medical Center V - Peoria, AZ
 
1
 
3,000

 
3,066

 
4.75
%
 
4.75
%
 
Fixed
 
Sep. 2023
Courtyard Fountains - Gresham, OR
 
1
 
24,024

 
24,372

 
3.87
%
 
3.87
%
 
Fixed
 
Jan. 2020
Fox Ridge Bryant - Bryant, AR
 
1
 
7,462

 
7,565

 
3.98
%
 
3.98
%
 
Fixed
 
May 2047
Fox Ridge Chenal - Little Rock, AR
 
1
 
17,059

 
17,270

 
3.98
%
 
3.98
%
 
Fixed
 
May 2049
Fox Ridge North Little Rock - North Little Rock, AR
 
1
 
10,585

 
10,716

 
3.98
%
 
3.98
%
 
Fixed
 
May 2049
Philip Professional Center - Lawrenceville, GA
 
2
 
4,819

 
4,895

 
4.00
%
 
4.00
%
 
Fixed
 
Oct. 2019
Capital One MOB Loan
 
32
 
250,000

 
250,000

 
4.44
%
 
4.44
%
 
Fixed
(3) 
Jun. 2022
Bridge Loan
 
16
 
20,271

 
82,000

 
4.54
%
 
4.13
%
 
Variable
 
Dec. 2019
Multi-Property CMBS Loan
 
21
 
118,700

 

 
4.60
%
 
%
 
Fixed
 
May 2028
Gross mortgage notes payable
 
81
 
471,194

 
415,365

 
4.46
%
 
4.31
%
(2) 
 
 
 
Deferred financing costs, net of accumulated amortization
 
 
 
(7,139
)
 
(7,625
)
 
 
 
 
 
 
 
 
Mortgage premiums and (discounts), net
 
 
 
(1,310
)
 
(1,110
)
 
 
 
 
 
 
 
 
Mortgage notes payable, net
 
 
 
$
462,745

 
$
406,630

 
 
 
 
 
 
 
 
_______________
(1) 
Does not include real estate assets mortgaged to secure advances under the Fannie Mae Master Credit Facilities (as defined below) or eligible unencumbered real estate assets comprising the borrowing base of the Revolving Credit Facility (as defined in Note 5 — Credit Facilities). The equity interests and related rights in the Company's wholly owned subsidiaries that directly own or lease the real estate assets comprising the borrowing base have been pledged for the benefit of the lenders thereunder (see Note 5 — Credit Facilities for additional details).
(2) 
Calculated on a weighted average basis for all mortgages outstanding as of September 30, 2018.
(3) 
Variable rate loan which is fixed as a result of entering into interest rate swap agreements (see Note 7 — Derivatives and Hedging Activities for additional details).
As of September 30, 2018, the Company had pledged $1,003.0 million in total real estate investments, at cost, as collateral for its $471.2 million of mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable secured by these properties. The Company makes payments of principal and interest, or interest only, depending upon the specific requirements of each mortgage note, on a monthly basis.
Some of the Company's mortgage note agreements require compliance with certain property-level financial covenants, including debt service coverage ratios. As of September 30, 2018, the Company was in compliance with these financial covenants.
Multi-Property CMBS Loan
On April 10, 2018, the Company, entered into a $118.7 million loan agreement (the “Multi-Property CMBS Loan”) with KeyBank National Association ("Key Bank").
The Multi-Property CMBS Loan requires monthly interest-only payments, with the principal balance due on the maturity date. The Multi-Property CMBS Loan permits KeyBank to securitize the entire Multi-Property CMBS Loan or any portion thereof.
At the closing of the Multi-Property CMBS Loan, the net proceeds after accrued interest and closing costs were used to (i) repay approximately $80.0 million of indebtedness under the Revolving Credit Facility, under which 14 of the properties were included as part of the borrowing base prior to the Multi-Property CMBS Loan, (ii) fund approximately $3.8 million in deposits

17

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

required to be made at closing into reserve accounts required under the loan agreement. The remaining $33.0 million net proceeds available to the Company may be used for general corporate purposes, including future acquisitions.
Bridge Loan
On December 28, 2017, 23 wholly owned subsidiaries of the OP entered into a loan agreement providing for an $82 million loan (the “Bridge Loan”) with Capital One, as administrative agent and lender.
On March 2, 2018, the Company used $64.2 million of advances under a Fannie Mae Master Credit Facility with Capital One, National Association ("Capital One") to prepay a portion of the Bridge Loan (see Note 5 — Credit Facilities for more information). Concurrent with this prepayment, the seven mortgaged properties that were identified for refinancing at the time the Bridge Loan was entered into, were added to the collateral pool securing the Fannie Mae Master Credit Facility with Capital One.
Future Principal Payments
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable for the five years subsequent to September 30, 2018 and thereafter:
(In thousands)
 
Future Principal
Payments
October 1, 2018 - December 31, 2018
 
$
391

2019
 
38,348

2020
 
24,279

2021
 
892

2022
 
250,929

Thereafter
 
156,355

Total
 
$
471,194

The Company plans on refinancing or exercising extension options for the mortgages due in 2019 prior to their maturity.

18

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Note 5 — Credit Facilities
The Company had the following credit facilities outstanding as of September 30, 2018 and December 31, 2017:
 
 
 
 
Outstanding Facility
Amount as of
 
Effective Interest Rate
 
 
 
 
Credit Facility
 
Encumbered Properties (1)
 
September 30,
2018
 
December 31, 2017
 
September 30,
2018
 
December 31, 2017
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
Revolving Credit Facility
 
55
(2) 
$
189,700

 
$
239,700

 
4.20
%
 
3.33
%
 
Variable
 
Mar. 2019
Fannie Mae Master Credit Facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital One Facility
 
12
(3) 
216,614

 
152,461

 
4.56
%
 
3.88
%
 
Variable
(6) 
Nov. 2026
KeyBank Facility
 
10
(4) 
142,708

 
142,708

 
4.61
%
 
3.89
%
 
Variable
(6) 
Nov. 2026
Total Fannie Mae Master Credit Facilities
 
 
 
359,322

 
295,169

 
 
 
 
 
 
 
 
Total Credit Facilities
 
77
 
$
549,022

 
$
534,869

 
4.44
%
(5) 
3.63
%
(5) 
 
 
 
_______________
(1) 
Encumbered as of September 30, 2018.
(2) 
The equity interests and related rights in the Company's wholly owned subsidiaries that directly own or lease the eligible unencumbered real estate assets comprising the borrowing base of the Revolving Credit Facility have been pledged for the benefit of the lenders thereunder.
(3) 
Secured by first-priority mortgages on 12 of the Company’s seniors housing properties located in Florida, Georgia, Iowa and Michigan as of September 30, 2018.
(4) 
Secured by first-priority mortgages on 10 of the Company’s seniors housing properties located in Michigan, Missouri, Kansas, California, Florida, Georgia and Iowa as of September 30, 2018.
(5) 
Calculated on a weighted average basis for all credit facilities outstanding as of September 30, 2018 and December 31, 2017.
(6) 
Variable rate loan which is capped as a result of entering into interest rate cap agreements (see Note 7 — Derivatives and Hedging Activities for additional details).
Revolving Credit Facility
On March 21, 2014, the Company entered into a senior secured revolving credit facility (as amended from time to time, the "Revolving Credit Facility"). The Revolving Credit Facility is secured by a pledged pool of the equity interests and related rights in the Company's wholly owned subsidiaries that directly own or lease the eligible unencumbered real estate assets comprising the borrowing base thereunder.
The Revolving Credit Facility allows for committed borrowings of up to $565.0 million. The Revolving Credit Facility also contains a sub-facility for letters of credit of up to $25.0 million and an "accordion" feature to allow the Company, under certain circumstances and at the discretion of the participating lenders, to increase the aggregate borrowings under the Revolving Credit Facility to a maximum of $750.0 million.
The Company has the option, to have the Revolving Credit Facility priced at either: (a) LIBOR, plus an applicable margin that ranges, depending on the Company's leverage, from 1.60% to 2.20%; or (b) the Base Rate (as defined in the Revolving Credit Facility), plus an applicable margin that ranges, depending on the Company's leverage, from 0.35% to 0.95%. The Base Rate is defined in the Revolving Credit Facility as the greater of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.5% above the federal funds effective rate or (iii) the applicable one-month LIBOR plus 1.0%.
At the closing of the Multi-Property CMBS Loan (see Note 4 — Mortgage Notes Payable, Net), the net proceeds after accrued interest and closing costs were used primarily to repay approximately $80.0 million of indebtedness under the Revolving Credit Facility, under which 14 of the properties were included as part of the borrowing base prior to the Multi-Property CMBS Loan.
During May and September of 2018, the Company added ten and five properties to the borrowing base of the Revolving Credit Facility, respectively.
As of September 30, 2018, $189.7 million was outstanding under the Revolving Credit Facility and the unused borrowing capacity under the Revolving Credit Facility was $32.4 million. Availability of borrowings is based on a pool of eligible otherwise unencumbered real estate assets comprising the borrowing base thereunder. The equity interests and related rights in the Company's wholly owned subsidiaries that directly own or lease the eligible unencumbered real estate assets comprising the borrowing base of the Revolving Credit Facility have been pledged for the benefit of the lenders thereunder.

19

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The Revolving Credit Facility requires the Company to meet certain financial covenants. As of September 30, 2018, the Company was in compliance with the financial covenants under the Revolving Credit Facility.
The Company plans on refinancing the Revolving Credit Facility prior to its maturity.
Fannie Mae Master Credit Facilities
On October 31, 2016, the Company, through wholly-owned subsidiaries of the OP, entered into a master credit facility agreement (the “KeyBank Credit Agreement”) relating to a secured credit facility (the "KeyBank Facility") with KeyBank and a master credit facility agreement with Capital One (the “Capital One Credit Agreement” and, together with the KeyBank Credit Agreement, the “Fannie Mae Master Credit Agreements”) for a secured credit facility (the "Capital One Facility"; the Capital One Facility and the KeyBank Facility are referred to herein individually as a "Fannie Mae Master Credit Facility" and together as the "Fannie Mae Master Credit Facilities") with Capital One Multifamily Finance, LLC (an affiliate of Capital One). Advances made under the Fannie Mae Master Credit Agreements are assigned by Capital One and KeyBank to Fannie Mae at closing for inclusion in Fannie Mae’s Multifamily MBS program.
Effective October 31, 2016, in conjunction with the execution of the Fannie Mae Master Credit Facilities, the OP entered into two interest rate cap agreements with an unrelated third party, which caps interest paid on amounts outstanding under the Fannie Mae Master Credit Facilities at a maximum of 3.5% (see Note 7 — Derivatives and Hedging Activities for additional disclosure regarding the Company's derivatives).
The Company may request future advances under the Fannie Mae Master Credit Facilities by borrowing against the value of the initial mortgaged properties, as described below, or by adding eligible properties to the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. During the year ended December 31, 2017, the Company increased its advances under the Capital One Facility and the KeyBank Facility to $152.5 million and $142.7 million, respectively. On March 2, 2018, the Company, increased its advances under the Capital One Facility by $64.2 million. The advance was secured by the addition of seven mortgaged properties subject to the Capital One Facility. All of the $61.7 million of the net proceeds, after closing costs, of the advance was used by the Company to prepay a portion of the Bridge Loan (see Note 4 — Mortgage Notes Payable, Net).
Note 6 — Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Derivative Instruments

20

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments, are incorporated into the fair values to account for the Company's potential nonperformance risk and the performance risk of the counterparties.
Real Estate Investments - Held for Use
The Company also had impaired real estate investments held for use, which were carried at fair value on a non-recurring basis on the consolidated balance sheet as of September 30, 2018. As of September 30, 2018, the Company owned held for use properties for which the Company had reconsidered the projected cash flows due to various performance indicators. As a result, the Company evaluated the impact on its ability to recover the carrying value of such properties based on the expected cash flows over its intended holding period. As a result of this evaluation and its consideration of impairment, the Company determined that the carrying value of one held for use property exceeded its estimated undiscounted cash flows. The Company primarily used a purchase and sale agreement to estimate the undiscounted cash flows expected to be generated for this one held for use property, which is an observable input. As a result, the impaired property that the Company evaluated using this approach is classified in Level 2 of the fair value hierarchy.
Real Estate Investments - Held for Sale
The Company has impaired real estate investments held for sale, which are carried at fair value on a non-recurring basis on the consolidated balance sheets as of September 30, 2018 and December 31, 2017. Impaired real estate investments held for sale were valued using the sale price from the applicable PSA less costs to sell, which is an observable input. As a result, the Company’s impaired real estate investments held for sale are classified in Level 2 of the fair value hierarchy.
The following table presents information about the Company's assets and liabilities measured at fair value as of September 30, 2018 and December 31, 2017, aggregated by the level in the fair value hierarchy within which those instruments fall.
(In thousands)
 
Basis of
Measurement
 
Quoted Prices in Active Markets
Level 1
 
Significant
Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
 
Derivative assets, at fair value
 
Recurring
 
$

 
$
9,271

 
$

 
$
9,271

Impaired real estate investments held for use
 
Non-recurring
 

 
3,814

 

 
3,814

Impaired real estate investments held for sale
 
Non-recurring
 

 
32,139

 

 
32,139

Total
 
 
 
$

 
$
45,224

 
$

 
$
45,224

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Derivative assets, at fair value
 
Recurring
 
$

 
$
2,550

 
$

 
$
2,550

Impaired real estate investments held for sale
 
Non-recurring
 

 
1,323

 

 
1,323

Total
 
 
 
$

 
$
3,873

 
$

 
$
3,873

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2018.

21

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair values of short-term financial instruments such as cash and cash equivalents, restricted cash, straight-line rent receivable, net, prepaid expenses and other assets, deferred costs, net, accounts payable and accrued expenses, deferred rent and distributions payable approximate their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:
 
 
 
 
September 30, 2018
 
December 31, 2017
(In thousands)
 
Level
 
Carrying
Amount (1)
 
Fair Value 
 
Carrying
Amount (1)
 
Fair Value 
Gross mortgage notes payable and mortgage premium and discounts, net
 
3
 
$
469,884

 
$
468,851

 
$
414,255

 
$
411,749

Revolving Credit Facility
 
3
 
$
189,700

 
$
189,700

 
$
239,700

 
$
239,700

Fannie Mae Master Credit Facilities
 
3
 
$
359,322

 
$
359,718

 
$
295,169

 
$
296,151

(1) Carrying value includes mortgage notes payable of $471.2 million and $415.4 million and mortgage premiums and (discounts), net of $(1.3) million and $(1.1) million as of September 30, 2018 and December 31, 2017, respectively.
The fair value of the mortgage notes payable is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of borrowing arrangements. Advances under the Revolving Credit Facility and Fannie Mae Master Credit Facilities are considered to be reported at fair value, because their interest rates vary with changes in LIBOR and there has not been a significant change in credit risk of the Company or credit markets since origination.
Note 7 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, collars, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings.
The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. Additionally, in using interest rate derivatives, the Company aims to add stability to interest expense and to manage its exposure to interest rate movements. The Company does not intend to utilize derivatives for speculative purposes or purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company, and its affiliates, may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2018 and December 31, 2017:
(In thousands)
 
Balance Sheet Location
 
September 30,
2018
 
December 31, 2017
Derivatives designated as hedging instruments:
 
 
 
 
 
 
    Interest rate swaps
 
Derivative assets, at fair value
 
$
9,017

 
$
2,473

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
    Interest rate caps
 
Derivative assets, at fair value
 
$
254

 
$
77

Cash Flow Hedges of Interest Rate Risk
The Company currently has two interest rate swaps that are designated as cash flow hedges. The interest rate swaps are used as part of the Company's interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

22

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives, if any, would be recognized directly in earnings.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, from October 1, 2018 through September 30, 2019, the Company estimates that $1.8 million will be reclassified from other comprehensive income as a decrease to interest expense.
As of September 30, 2018 and December 31, 2017, the Company had the following derivatives that were designated as cash flow hedges of interest rate risk:
 
 
September 30, 2018
 
December 31, 2017
Interest Rate Derivatives
 
Number of Instruments
 
Notional Amount
 
Number of Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate swap
 
2

 
$
250,000

 
2

 
$
250,000

The table below details the location in the financial statements of the loss recognized on interest rate derivatives designated as cash flow hedges for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
 
2018
 
2017
 
2018
 
2017
Amount of gain (loss) recognized in accumulated other comprehensive income on interest rate derivatives (effective portion)
 
$
1,133

 
$
(243
)
 
$
6,533

 
$
(539
)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as interest expense
 
$
135

 
$
(415
)
 
$
(11
)
 
$
(415
)
Non-Designated Derivatives
These derivatives are used to manage the Company's exposure to interest rate movements, but do not meet the strict hedge accounting requirements to be classified as hedging instruments. Changes in the fair value of derivatives not designated as hedges under a qualifying hedging relationship are recorded directly to net income (loss) and were gains of $18,000 and $46,000 for the three and nine months ended September 30, 2018, respectively, and a loss of $22,000 and $0.1 million for the three and nine months ended September 30, 2017, respectively.
The Company had the following outstanding interest rate derivatives that were not designated as hedges in qualified hedging relationships as of September 30, 2018 and December 31, 2017:
 
 
September 30, 2018
 
December 31, 2017
Interest Rate Derivatives
 
Number of Instruments
 
Notional Amount
 
Number of Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate caps
 
7

 
$
359,322

 
6

 
$
295,169

Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2018 and December 31, 2017. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheet.

23

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
(In thousands)
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized (Liabilities)
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets presented in the Consolidated Balance Sheet
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
September 30, 2018
 
$
9,271

 
$

 
$

 
$
9,271

 
$

 
$

 
$
9,271

December 31, 2017
 
$
2,550

 
$

 
$

 
$
2,550

 
$

 
$

 
$
2,550

Credit-risk-related Contingent Features
The Company has agreements in place with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of September 30, 2018, there were no derivatives in a net liability position. As a result, there is no termination value associated with the settlement of the Company’s obligations under the agreement, and the Company has not posted any collateral related to the agreement.
Note 8 — Common Stock
As of September 30, 2018 and December 31, 2017, the Company had 91.6 million and 91.0 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the Company's distribution reinvestment plan ("DRIP"), net of share repurchases. As of September 30, 2018 and December 31, 2017, the Company had received total net proceeds from its initial public offering (the "IPO") and DRIP, net of share repurchases, of $2.3 billion.
In April 2013, the Company's board of directors (the "Board") authorized, and the Company began paying distributions on a monthly basis at a rate equivalent to $1.70 per annum, per share of common stock, which began in May 2013. In March 2017, the Board authorized a decrease in the rate at which the Company pays monthly distributions to stockholders, effective as of April 1, 2017, to a rate equivalent to $1.45 per annum per share of common stock. On February 20, 2018, the Board authorized a further decrease in the rate at which the Company pays monthly distributions to stockholders, effective as of March 1, 2018, to a rate equivalent to $0.85 per annum per share of common stock.
Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Board may further reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
On March 29, 2018, the independent directors of the Board approved an updated estimate of per-share net asset value ("Estimated Per-Share NAV") as of December 31, 2017, which was published on April 4, 2018. The Company intends to publish Estimated Per-Share NAV periodically at the discretion of the Board, provided that such estimates will be made at least once annually.
Share Repurchase Program
Under the Company's share repurchase program (the "SRP"), as amended from time to time stockholders are able to sell their shares to the Company in limited circumstances. The SRP permits investors to sell their shares back to the Company after they have held them for at least one year, subject to the significant conditions and limitations described below.
Beginning on April 7, 2016 (the "Original NAV Pricing Date"), the price per share that the Company will pay to repurchase its shares would have been prior to amendment and restatement of the SRP effective in July 2017 as described below, equal to its Estimated Per-Share NAV multiplied by a percentage equal to:
92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years;
95.0%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years;
97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or

24

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

100.0% if the person seeking repurchase has held his or her shares for a period greater than four years.
In cases of requests for death and disability, the repurchase price is equal to Estimated Per-Share NAV at the time of repurchase.
Repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Board. Until the First SRP Amendment (as defined below), the Company limited the number of shares repurchased during any calendar year to 5% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, the Company was only authorized to repurchase shares in a given quarter up to the amount of proceeds received from its DRIP in that same quarter.
On January 26, 2016, the Board approved and amended the SRP (the "First SRP Amendment") to supersede and replace the existing SRP. Under the First SRP Amendment, repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Board and generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year (the "Prior Year Outstanding Shares"), with a maximum for any fiscal year of 5.0% of the Prior Year Outstanding Shares. In addition, the Company is only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from its DRIP in that same fiscal semester. If an updated Estimated Per-Share NAV is published during any fiscal semester, any repurchase requests received during such fiscal semester will be paid at the applicable Estimated Per-Share NAV then in effect.
On June 14, 2017, the Board approved and adopted an amended and restated SRP that superseded and replaced the existing SRP, effective as of July 14, 2017. Under the amended and restated SRP, subject to certain conditions, only repurchase requests made following the death or qualifying disability of stockholders that purchased shares of our common stock or received their shares from us (directly or indirectly) through one or more non-cash transactions would be considered for repurchase. Other terms and provisions of the amended and restated SRP remained consistent with the existing SRP.
On March 13, 2018, the Company announced a tender offer (the "Tender Offer") to purchase up to 2.0 million shares of the Company’s common stock for cash at a purchase price equal to $13.15 per share with the proration period and withdrawal rights expiring on April 12, 2018. The Company suspended the SRP during the pendency of the Tender Offer. On June 29, 2018, the Company announced the Board unanimously determined to reactivate the SRP, effective June 30, 2018. In connection with reactivating the SRP, the Board approved all repurchase requests received during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018 (see table below for additional details).
When a stockholder requests redemption and redemption is approved by the Board, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through September 30, 2018:
 
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2017 (1)
 
2,529,798

 
$
22.43

Nine months ended September 30, 2018 (2)
 
529,871

 
$
21.10

Cumulative repurchases as of September 30, 2018
 
3,059,669

 
$
22.20

_______________
(1) Includes 1,554,768 shares repurchased during the year ended December 31, 2017 for approximately $33.6 million at a weighted average price per share of $21.61. In July 2017, following the effectiveness of the amendment and restatement of the SRP, the Board approved 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2017 to September 30, 2017, which was equal to 267,723 shares repurchased for approximately $5.7 million at an average price per share of $21.47. No repurchases have been or will be made with respect to requests received during 2017 that are not valid requests in accordance with the amended and restated SRP.
(2) Includes (i) 373,967 shares repurchased during January 2018 with respect to requests received following the death or qualifying disability of stockholders during the six months ended December 31, 2017 for approximately $8.0 million at a weighted average price per share of $21.45, and (ii) 155,904 shares that were repurchased for $3.2 million at an average price per share of $20.25 on July 31, 2018, representing 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018. No repurchase requests received during the SRP suspension were accepted.

25

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Tender Offer
On March 13, 2018, the Company announced the Tender Offer to purchase up to 2.0 million shares of the Company’s common stock for cash at a purchase price equal to $13.15 per share with the proration period and withdrawal rights expiring on April 12, 2018. The Company made the Tender Offer in response to an unsolicited offer to stockholders commenced on February 27, 2018. On April 4, 2018 and April 16, 2018, the Tender Offer was amended to reduce the number of shares the Company was offering to purchase to 230,000 shares and extend the expiration date to May 1, 2018. The Tender Offer expired in accordance with its terms on May 1, 2018. During May 2018, in accordance with the terms of the Tender Offer, the Company accepted for purchase 229,999 shares for a total cost of approximately $3.0 million.
Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased under the DRIP. The shares purchased pursuant to the DRIP have the same rights and are treated in the same manner as all of the other shares of outstanding common stock. The Board may designate that certain cash or other distributions be excluded from reinvestment pursuant to the DRIP. The Company has the right to amend the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded as equity in the accompanying consolidated balance sheet in the period distributions are declared. During the nine months ended September 30, 2018, the Company issued 1.4 million shares of common stock pursuant to the DRIP, generating aggregate proceeds of $28.6 million.
The Company offers shares pursuant to the DRIP at the then-current Estimated Per-Share NAV approved by the Board.
Note 9 — Related Party Transactions and Arrangements
As of September 30, 2018 and December 31, 2017, the Special Limited Partner owned 8,888 shares of the Company's outstanding common stock. The Advisor and its affiliates may incur and pay costs and fees on behalf of the Company. As of September 30, 2018 and December 31, 2017, the Advisor held 90 partnership units in the OP designated as "OP Units" ("OP Units").
Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the Company's initial public offering, which was ongoing from October 2012 to June 2014 and, together with its affiliates, continued to provide the Company with various services through December 31, 2015. RCS Capital Corporation ("RCAP"), which became the parent company of the Former Dealer Manager in December 2012, and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016. In May 2016, RCAP and its affiliated debtors emerged from bankruptcy under the new name of Aretec Group, Inc. On March 8, 2017, the creditor trust established in connection with the RCAP bankruptcy filed suit against AR Capital, AR Global, the Advisor, advisors of other entities sponsored by AR Global, and AR Global's principals, and RCAP Holdings, LLC. The suit alleges, among other things, certain breaches of duties to RCAP. The Company is not a defendant in the suit, nor are there any allegations that the Advisor engaged in any wrongful conduct. On May 26, 2017, the defendants moved to dismiss. On November 30, 2017, the Court issued an opinion partially granting the defendants’ motion to dismiss. On December 7, 2017, the creditor trust moved for limited reargument of the court's partial dismissal of its breach of fiduciary duty claim, and on January 10, 2018, the defendants filed a supplemental motion to dismiss certain claims. On April 5, 2018, the court issued an opinion denying the creditor trust's motion for reconsideration while partially granting the defendants' supplemental motion to dismiss. The Advisor has informed the Company that it believes that the suit is without merit and intends to defend against it vigorously.
The limited partnership agreement of the OP provides for a special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to the Advisor, a limited partner of the OP.  In connection with this special allocation, the Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP.

26

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Fees Incurred in Connection with the Operations of the Company
On February 17, 2017, the members of a special committee of the Board unanimously approved certain amendments to the then-effective advisory agreement, as amended (the "Original A&R Advisory Agreement"), by and among the Company, the OP and the Advisor (the "Second A&R Advisory Agreement"). The Second A&R Advisory Agreement, which superseded the Original A&R Advisory Agreement, took effect on February 17, 2017. The initial term of the Second A&R Advisory Agreement is ten years beginning on February 17, 2017, and is automatically renewable for another ten-year term upon each ten-year anniversary unless the Second A&R Advisory Agreement is terminated (i) with notice of an election not to renew at least 365 days prior to the applicable tenth anniversary, (ii) in accordance with a change of control or a transition to self-management (see the section titled "Termination Fees" included within this footnote), (iii) by 67% of the independent directors of the Board for cause, without penalty, with 45 days' notice or (iv) with 60 days prior written notice by the Advisor for (a) a failure to obtain a satisfactory agreement for any successor to the Company to assume and agree to perform obligations under the Second A&R Advisory Agreement or (b) any material breach of the Second A&R Advisory Agreement of any nature whatsoever by the Company.
Acquisition Fees
Under the Original A&R Advisory Agreement and until February 17, 2017, the Advisor was paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor was also reimbursed for services provided for which it incurred investment-related expenses, or insourced expenses. The amount reimbursed for insourced expenses was not permitted to exceed 0.5% of the contract purchase price of each acquired property or 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimbursed the Advisor for third party acquisition expenses. The aggregate amount of acquisition fees and financing coordination fees (as described below) could not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. As of September 30, 2018, aggregate acquisition fees and financing fees did not exceed the 1.5% threshold. In no event was the total of all acquisition fees, acquisition expenses and any financing coordination fees payable with respect to the Company's portfolio of investments or reinvestments permitted to exceed 4.5% of the contract purchase price of the Company's portfolio to be measured at the close of the acquisition phase or 4.5% of the amount advanced for all loans or other investments. As of September 30, 2018, the total of all cumulative acquisition fees, acquisition expenses and financing coordination fees did not exceed the 4.5% threshold.
The Second A&R Advisory Agreement does not provide for an acquisition fee, however the Advisor may continue to be reimbursed for services provided for which it incurs investment-related expenses, or insourced expenses. The amount reimbursed for insourced expenses may not exceed 0.5% of the contract purchase price of each acquired property or 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimburses the Advisor for third party acquisition expenses.
Financing Coordination Fees
Under the Original A&R Advisory Agreement and until February 17, 2017, if the Advisor provided services in connection with the origination or refinancing of any debt that the Company obtained and used to acquire properties or to make other permitted investments, or that was assumed, directly or indirectly, in connection with the acquisition of properties, the Company paid the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.
The Second A&R Advisory Agreement does not provide for a financing coordination fee.
Asset Management Fees and Variable Management/Incentive Fees
Under an advisory agreement that was superseded by the Original A&R Advisory Agreement and until March 31, 2015 and the limited partnership agreement of the OP, for its asset management services, the Company issued the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the Board) to the Advisor partnership units of the OP designated as "Class B Units" ("Class B Units"). The Class B Units were intended to be profit interests and vest, and no longer are subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) a listing; (2) another liquidity event or (3) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Unvested Class B Units will be forfeited immediately if: (a) the advisory agreement is terminated for any reason other than a termination without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.

27

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Subject to approval by the Board, the Class B Units were issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter was equal to: (i) the excess of (A) the product of (y) the cost of assets multiplied by (z) 0.1875% over (B) any amounts payable as an oversight fee (as described below) for such calendar quarter; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which was initially equal to $22.50 (the IPO price minus the selling commissions and dealer manager fees). The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. As of September 30, 2018, the Company cannot determine the probability of achieving the performance condition. The Advisor receives cash distributions on each issued Class B Units equal to the distribution rate received on the Company's common stock. Such distributions on Class B Units are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss until the performance condition is considered probable to occur. As of September 30, 2018, the Board had approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement.
On May 12, 2015, the Company, the OP and the Advisor entered into an amendment (the “Amendment”) to the advisory agreement, which, among other things, provided that the Company would cease causing the OP to issue Class B Units to the Advisor with respect to any period ending after March 31, 2015. Effective April 1, 2015, the Company began paying an asset management fee to the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets. The asset management fee was payable on the first business day of each month in the amount of 0.0625% multiplied by the lesser of (a) cost of assets or (b) fair value of assets for the preceding monthly period. The asset management fee was payable to the Advisor or its assignees in cash, in shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor. For the purposes of the payment of any fees in shares (a) prior to the Original NAV Pricing Date, each share was valued at $22.50, (b) after the Original NAV Pricing Date and prior to any listing on a national securities exchange, if it occurs, each share will be valued at the then-current Estimated Per-Share NAV and (c) at all other times, each share shall be valued by the Board in good faith at the fair market value.
Effective February 17, 2017, the Second A&R Advisory Agreement requires the Company to pay the Advisor a base management fee, which is payable on the first business day of each month. The fixed portion of the base management fee is equal to $1.625 million per month, while the variable portion of the base management fee is equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity (including convertible equity and certain convertible debt but excluding proceeds from the DRIP) raised subsequent to February 17, 2017 per month. The base management fee is payable to the Advisor or its assignees in cash, OP Units or shares, or a combination thereof, the form of payment to be determined at the discretion of the Advisor and the value of any OP Unit or share to be determined by the Advisor acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.
In addition, the Second A&R Advisory Agreement requires the Company to pay the Advisor a variable management/incentive fee quarterly in arrears equal to (1) the product of fully diluted shares of common stock outstanding multiplied by (2) (x) 15.0% of the applicable prior quarter's Core Earnings (as defined below) per share in excess of $0.375 per share plus (y) 10.0% of the applicable prior quarter's Core Earnings per share in excess of $0.47 per share. Core Earnings is defined as, for the applicable period, net income or loss, computed in accordance with GAAP, excluding non-cash equity compensation expense, the variable management/incentive fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains or losses or other non-cash items recorded in net income or loss for the applicable period, regardless of whether such items are included in other comprehensive income or loss, or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairments of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent and any associated bad debt reserves, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses (in each case after discussions between the Advisor and the independent directors and approved by a majority of the independent directors). The variable management/incentive fee is payable to the Advisor or its assignees in cash or shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor and the value of any share to be determined by the Advisor acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.

28

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Property Management Fees
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee of 1.5% of gross revenues from the Company's stand-alone single-tenant net leased properties and 2.5% of gross revenues from all other types of properties, respectively. The Company also reimburses the Property Manager for property level expenses incurred by the Property Manager. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and will pay the Property Manager an oversight fee of up to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Property Manager or any affiliate of the Property Manager both a property management fee and an oversight fee with respect to any particular property.
On February 17, 2017, the Company entered into the Amended and Restated Property Management and Leasing Agreement (the “A&R Property Management Agreement”) with the OP and the Property Manager. The A&R Property Management Agreement was entered into to reflect amendments to the original agreement between the parties and further amends the original agreement by extending the term of the agreement from one to two years, until February 17, 2019. The A&R Property Management Agreement will automatically renew for successive one-year terms unless any party provides written notice of its intention to terminate the A&R Property Management Agreement at least ninety days prior to the end of the term. The Property Manager may assign the A&R Property Management Agreement to any party with expertise in commercial real estate which has, together with its affiliates, over $100.0 million in assets under management.
On April 10, 2018, in connection with the Multi-Property CMBS Loan, the Company and the OP entered into an amendment to the A&R Property Management Agreement confirming, consistent with the intent of the parties, that the borrowers under the Multi-Property CMBS Loan and other subsidiaries of the OP that actually own or lease the Company’s properties are the direct obligors under the arrangements pursuant to which the Company’s properties are actually managed by either the Property Manager or a third party overseen by the Property Manager pursuant to the A&R Property Management Agreement.
Professional Fees and Other Reimbursements
The Company reimburses the Advisor's costs of providing administrative services. Until June 2015, reimbursement of these expenses was subject to the limitation that the Company did not reimburse the Advisor for any amount by which the Company's operating expenses at the end of the four preceding fiscal quarters exceeded the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash expenses and excluding any gain from the sale of assets for that period (the "2%/25% Limitation"), unless the Company's independent directors determined that such excess was justified based on unusual and nonrecurring factors which they deemed sufficient, in which case the excess amount could be reimbursed to the Advisor in subsequent periods. This limitation ceased to exist after June 2015, when the Original A&R Advisory Agreement became effective. The Company reimburses the Advisor for personnel costs, excluding any compensation paid to individuals who also serve as the Company’s executive officers, or the executive officers of the Advisor, the Property Manager or their respective affiliates. This reimbursement includes reasonable overhead expenses for employees of the Advisor or its affiliates directly involved in the performance of services on behalf of the Company, including the reimbursement of rent expense at certain properties that are both occupied by employees of the Advisor or its affiliates and owned by affiliates of the Advisor. During the three and nine months ended September 30, 2018, the Company incurred $2.0 million and $5.9 million, respectively, of reimbursement expenses from the Advisor for providing administrative services. During the three and nine months ended September 30, 2017, the Company incurred $1.9 million and $4.9 million, respectively, of reimbursement expenses from the Advisor for providing administrative services.
The Advisor may elect to forgive and absorb certain fees. Because the Advisor may forgive or absorb certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and, accordingly, will not be paid to the Advisor in the future. There were no such fees forgiven during the three and nine months ended September 30, 2018 or 2017. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's property operating and general and administrative costs, which the Company will not repay. No such fees were absorbed during the three and nine months ended September 30, 2018 or 2017.
The Advisor elected to, without interest accrual, defer cash payment of $1.7 million in certain fees and reimbursements due to the Advisor as of December 31, 2017. As of December 31, 2017, a portion of these fees and reimbursements were already paid and the Company had recorded a $0.7 million receivable due from the Advisor. As of September 30, 2018, there was no remaining receivable or payable due from the Advisor. The $1.7 million in deferred fees and reimbursements were repaid during April 2018.

29

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The following table details amounts incurred, forgiven and payable in connection with the Company's operations-related services described above as of and for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Payable (Receivable) as of
 
 
 
2018
 
2017
 
2018
 
2017
 
September 30,
 
December 31,
 
(In thousands)
 
Incurred (1)
 
Incurred (1)
 
Incurred (1)
 
Incurred (1)
 
2018
 
2017
 
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition cost reimbursements
 
$
34

 
$
77

 
$
144

 
$
99

 
$
34

 
$
36

 
Due to (from) HT III related to Asset Purchase (2)
 

 

 

 

 
(68
)
 
196

 
Ongoing fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees
 
4,875

 
4,875

 
14,625

 
14,314

 

 

 
Property management fees
 
868

 
758

 
2,608

 
2,257

 
3

 
66

 
Professional fees and other reimbursements
 
2,121

 
1,889

 
6,330

 
4,922

 
695

(4) 
1,339

(4) 
Distributions on Class B Units (3)
 
77

 
131

 
263

 
412

 

 

 
Total related party operation fees and reimbursements
 
$
7,975

 
$
7,730

 
$
23,970

 
$
22,004

 
$
664

 
$
1,637

 
_______________
(1) 
There were no fees or reimbursements forgiven during the three and nine months ended September 30, 2018 or 2017.
(2)
On December 22, 2017, the Company purchased substantially all the assets of American Realty Capital Healthcare Trust III, Inc. ("HT III"). Certain proration estimates were included within the closing. The purchase agreement calls for a final purchase price adjustment. The Company had a $68,000 net receivable and $196,000 net payable related to the Asset Purchase (as defined below) included on its consolidated balance sheet as of September 30, 2018 and December 31, 2017, respectively. Please see below for additional information related to the asset purchase.
(3)
Prior to April 1, 2015, the Company caused the OP to issue (subject to periodic approval by the Board) to the Advisor restricted performance based Class B Units for asset management services. As of December 31, 2017, the Board had approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement. Effective April 1, 2015, the Company began paying an asset management fee to the Advisor or its assignees in cash, in shares, or a combination of both and no longer issues any Class B Units.
(4) 
Balance includes costs which were incurred and accrued due to ANST and a subsidiary of RCAP which were related parties of the Company. See above for further details on the status of the ANST and RCAP relationship.
Fees and Participations Incurred in Connection with a Listing or the Liquidation of the Company's Real Estate Assets
Fees Incurred in Connection with a Listing
If the common stock of the Company is listed on a national exchange, the Special Limited Partner will be entitled to receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which the market value of all issued and outstanding shares of common stock plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distribution was incurred during the three and nine months ended September 30, 2018 or 2017. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution.
Annual Subordinated Performance Fees and Brokerage Commissions
Under the Original A&R Advisory Agreement and until February 17, 2017, the Advisor was entitled to an annual subordinated performance fee calculated on the basis of the Company's total return to stockholders, payable annually in arrears, such that for any year in which the Company's total return on stockholders' capital exceeded 6.0% per annum, the Advisor was entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee would have been payable only upon the sale of assets, distributions or another event which resulted in the return on stockholders' capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three and nine months ended September 30, 2018 or 2017.

30

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Under the Original A&R Advisory Agreement and until February 17, 2017, the Advisor was entitled to a brokerage commission on the sale of property, not to exceed the lesser of (a) 2.0% of the contract sale price of the property and (b) 50.0% of the total brokerage commission paid if a third party broker was also involved; provided, however, that in no event could the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of (a) 6.0% of the contract sales price and (b) a reasonable, customary and competitive real estate commission. The brokerage commission payable to the Advisor was subject to approval by a majority of the independent directors upon a finding that the Advisor provided a substantial amount of services in connection with the sale. No such fees were incurred during the three and nine months ended September 30, 2018 or 2017.
The Second A&R Advisory Agreement does not provide for the annual subordinated performance fee and brokerage commissions payable to the Advisor, (all as defined in the Original A&R Advisory Agreement) effective February 17, 2017 and no such fees or commissions were incurred prior thereto.
Subordinated Participation in Real Estate Sales
The Special Limited Partner is entitled to receive a subordinated participation in the net sales proceeds of the sale of real estate assets from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax non-compounded annual return on the capital contributed by investors. The Special Limited Partner is not entitled to the subordinated participation in net sale proceeds unless the Company's investors have received their capital contributions, plus a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such participation in net sales proceeds became due and payable during the three and nine months ended September 30, 2018 or 2017. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution described above.
Termination Fees
Under the operating partnership agreement of the OP, upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, the Special Limited Partner is entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company's market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner is able to elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.
Under the Second A&R Advisory Agreement, upon the termination or non-renewal of the agreement, the Advisor will be entitled to receive from the Company all amounts due to the Advisor, including any change in control fee and transition fee (both described below), as well as the then-present fair market value of the Advisor's interest in the Company. All fees will be due within 30 days after the effective date of the termination of the Second A&R Advisory Agreement.
Upon a termination by either party in connection with a change of control (as defined in the Second A&R Advisory Agreement), the Company would pay the Advisor a change of control fee equal to the product of four (4) and the "Subject Fees."
Upon a termination by the Company in connection with transition to self-management, the Company would pay the Advisor a transition fee equal to (i) $15.0 million plus (ii) the product of four multiplied by the Subject Fees, provided that the transition fee shall not exceed an amount equal (i) 4.5 multiplied by (ii) the Subject Fees.
The Subject Fees are equal to (i) the product of four (4) multiplied by the actual base management fee plus (ii) the product of four (4) multiplied by the actual variable management/incentive fee, in each of clauses (i) and (ii), payable for the fiscal quarter immediately prior to the fiscal quarter in which the change of control or the transition to self-management is consummated, as applicable, plus (iii) without duplication, the annual increase in the base management fee resulting from the cumulative net proceeds of any equity raised in respect to the fiscal quarter immediately prior to the fiscal quarter in which the change of control or the transition to self-management is consummated, as applicable.
The right to termination of the Second A&R Advisory Agreement in connection with a change of control or transition to self-management is subject to a lockout period that requires the notice of any termination in connection with a change of control or transition to self-management to be delivered after February 14, 2019.
American Realty Capital Healthcare Trust III, Inc. Asset Purchase
On December 22, 2017, the Company, the OP and its subsidiary, ARHC TRS Holdco II, LLC, purchased all of the membership interests in indirect subsidiaries of HT III that own the 19 properties comprising substantially all of HT III’s assets (the “Asset Purchase”), pursuant to a purchase agreement (the “Purchase Agreement”), dated as of June 16, 2017. HT III is sponsored and

31

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

advised by an affiliate of the Company’s advisor. As of September 30, 2018 and December 31, 2017 the Company had a $68,000 net receivable and $0.2 million net payable, respectively, to HT III included on its consolidated balance sheet.
At the closing of the Asset Purchase, the Company paid HT III $108.4 million, representing the purchase price under the Purchase Agreement of $120.0 million, less (i) $0.7 million reflecting prorations and closing adjustments in accordance with the Purchase Agreement, (ii) $4.9 million reflecting the outstanding principal amount of the loan secured by HT III’s Philip Center property assumed by the Company at the closing in accordance with the Purchase Agreement, and (iii) $6.0 million deposited by the Company into an escrow account in accordance with the Purchase Agreement. This escrow amount, less any amounts paid or reserved for pending or unsatisfied indemnification claims that the Company may make pursuant to the Purchase Agreement, will be released to HT III in installments over a period of 14 months following the closing. In June 2018, one third of this escrow amount, representing $2.0 million, was released in accordance with the Purchase Agreement. To date, no indemnification claims have been made under the Purchase Agreement.
Note 10 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company and asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 11 — Share-Based Compensation
Restricted Share Plan
The Company has adopted an employee and director incentive restricted share plan (as amended from time to time, the "RSP"), which provides the Company with the ability to grant awards of restricted shares of common stock ("restricted shares") to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of shares of common stock that may be subject to awards granted under the RSP may not exceed 5.0% of the Company's outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).
Prior to August 2017, the RSP provided for an automatic grant of 1,333 restricted shares to each of the independent directors, without any further approval by the Board or the stockholders, on the date of his or her initial election to the Board and thereafter on the date of each annual stockholder meeting. The restricted shares granted as annual automatic awards prior to August 2017 were subject to vesting over a five-year period following the date of grant.
In August 2017, the Board amended the RSP to provide that the number of restricted shares comprising the automatic annual award to each of the independent directors would be equal to the quotient of $30,000 divided by the then-current Estimated Per-Share NAV and subsequently amended and restated the RSP to eliminate the automatic annual awards and to make other revisions related to the implementation of a new independent director equity compensation program. As part of this new independent director equity compensation program, the Board approved a one-time grant of restricted share awards to the independent directors as follows: (i) 300,000 restricted shares to the chairman, with one-seventh of the shares vesting annually in equal increments over a seven-year period with initial vesting on August 4, 2018; and (ii) 25,000 restricted shares to each of the three other independent directors, with one-fifth of the shares vesting annually in equal increments over a five-year period with initial vesting on August 4, 2018. In connection with these one-time grants, the restricted shares granted as automatic annual awards in connection with the Company’s 2017 annual meeting of stockholders on July 21, 2017 were forfeited. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares.

32

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The following table reflects restricted share award activity for the period presented:
 
 
Number of Shares of Common Stock
 
Weighted Average Issue Price
Unvested, December 31, 2017
 
382,510

 
$
21.47

Granted
 

 

Vested
 
(59,465
)
 
21.48

Forfeitures
 

 

Unvested, September 30, 2018
 
323,045

 
21.47

As of September 30, 2018, the Company had $6,769.8 million of unrecognized compensation cost related to unvested restricted share awards granted under the RSP. That cost is expected to be recognized over a weighted-average period of 5.4 years.
Compensation expense related to restricted shares was approximately $282,000 and $921,000 during the three and nine months ended September 30, 2018, respectively. Compensation expense related to restricted shares was approximately $117,000 and $144,000 during the three and nine months ended September 30, 2017, respectively. Compensation expense related to restricted shares is recorded as general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on shares issued in lieu of cash compensation since these payments in lieu of cash relate to fees earned for services performed. No such shares were issued during the three and nine months ended September 30, 2018 or 2017.
Note 12 — Accumulated Other Comprehensive Income
The following table illustrates the changes in accumulated other comprehensive income as of and for the period presented:
(In thousands)
 
Unrealized Gain on Designated Derivative
Balance, December 31, 2017
 
$
2,473

Other comprehensive income, before reclassifications
 
6,533

Amount of loss reclassified from accumulated other comprehensive income
 
11

Balance, September 30, 2018
 
$
9,017

Note 13 — Non-controlling Interests
Non-Controlling Interests in the Operating Partnership
The Company is the sole general partner and holds substantially all of the OP Units. As of September 30, 2018 and December 31, 2017, the Advisor held 90 OP Units, which represents a nominal percentage of the aggregate ownership in the OP.
In November 2014, the Company partially funded the purchase of a MOB from an unaffiliated third party by causing the OP to issue 405,908 OP Units, with a value of $10.1 million, or $25.00 per unit, to the unaffiliated third party.
A holder of OP Units has the right to distributions. After holding the OP Units for a period of one year, a holder of OP Units has the right to redeem OP Units for, at the option of the OP, the cash value of a corresponding number of shares of the Company's common stock or a corresponding number of shares of the Company's common stock. The remaining rights of the limited partners in the OP are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets. During the three and nine months ended September 30, 2018, OP Unit non-controlling interest holders were paid distributions of $0.1 million and $0.3 million, respectively. During the three and nine months ended September 30, 2017, OP Unit non-controlling interest holders were paid distributions of $0.1 million and $0.5 million, respectively.

33

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Non-Controlling Interests in Property Owning Subsidiaries
The Company also has investment arrangements with other unaffiliated third parties whereby such investors receive an ownership interest in certain of the Company's property-owning subsidiaries and are entitled to receive a proportionate share of the net operating cash flow derived from the subsidiaries' property. Upon disposition of a property subject to non-controlling interest, the investor will receive a proportionate share of the net proceeds from the sale of the property. The investor has no recourse to any other assets of the Company. Due to the nature of the Company's involvement with these arrangements and the significance of its investment in relation to the investment of the third party, the Company has determined that it controls each entity in these arrangements and therefore the entities related to these arrangements are consolidated within the Company's financial statements. A non-controlling interest is recorded for the investor's ownership interest in the properties.
During the three months ended September 30, 2018 and 2017 there were no distributions were paid to non-controlling interest holders in property owning subsidiaries. During the nine months ended September 30, 2018, approximately $87 thousand, representing a share of proceeds from the Multi-Property CMBS Loan was paid to non-controlling interest holders in property owning subsidiaries and during the nine months ended September 30, 2017, approximately $52,000 distributions were paid to non-controlling interest holders in property owning subsidiaries.
The following table summarizes the activity related to investment arrangements with the unaffiliated third parties:
 
 
 
 
 
 
 
 
 
 
Distributions (2) 
 
 
 
 
Third Party Net Investment Amount
 
Non-Controlling Ownership Percentage
 
Net Real Estate Assets Subject to Investment Arrangement (1)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Property Name
(Dollar amounts in thousands)
 
Investment Date
 
As of September 30, 2018
 
As of September 30, 2018
 
As of September 30, 2018
 
As of December 31, 2017
 
2018
 
2017
 
2018
 
2017
Plaza Del Rio Medical Office Campus Portfolio
 
May 2015
 
$
328

 
2.2
%
 
$
12,850

 
$
10,784

 
$

 
$

 
$
87

 
$
52

UnityPoint Clinic Portfolio (2)
 
December 2017
 
$
485

 
5.0
%
 
$
9,340

 
$
9,639

 
$

 
$

 
$

 
$

______________
(1) One property within the Plaza Del Rio Medical Office Campus Portfolio was mortgaged as part of the Multi-Property CMBS Loan. See Note 4 - Mortgage Notes Payable for additional information.
(2) Assumed as part of the HT III Asset Purchase. See Note 9 - Related Party Transactions and Arrangements for further information on the
Asset Purchase.
Note 14 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computation for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net loss attributable to stockholders (in thousands)
 
$
(29,607
)
 
$
(24,136
)
 
$
(42,548
)
 
$
(34,991
)
Basic and diluted weighted-average shares outstanding
 
90,203,311

 
89,821,799

 
90,983,620

 
89,599,655

Basic and diluted net loss per share
 
$
(0.33
)
 
$
(0.27
)
 
$
(0.47
)
 
$
(0.39
)

34

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Diluted net loss per share assumes the conversion of all common stock equivalents into an equivalent number of shares of common stock, unless the effect is antidilutive. The Company considers unvested restricted shares, OP Units and Class B Units to be common share equivalents. The Company had the following common stock equivalents on a weighted-average basis that were excluded from the calculation of diluted net loss per share attributable to stockholders as their effect would have been antidilutive for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Unvested restricted shares (1)
 
341,976

 
114,920

 
369,946

 
45,131

OP Units (2)
 
405,998

 
405,998

 
405,998

 
405,998

Class B Units (3)
 
359,250

 
359,250

 
359,250

 
359,250

Total weighted average antidilutive common stock equivalents
 
1,107,224

 
880,168

 
1,135,194

 
810,379

_______________
(1) 
Weighted average number of antidilutive unvested restricted shares outstanding for the periods presented. There were 323,045 and 9,121 unvested restricted shares outstanding as of September 30, 2018 and 2017, respectively.
(2) 
Weighted average number of antidilutive OP Units outstanding for the periods presented. There were 405,998 OP Units outstanding as of September 30, 2018 and 2017, respectively.
(3) 
Weighted average number of antidilutive Class B Units outstanding for the periods presented. There were 359,250 Class B Units outstanding as of September 30, 2018 and 2017, respectively.
Note 15 — Segment Reporting
During the nine months ended September 30, 2018 and 2017, the Company operated in three reportable business segments for management and internal financial reporting purposes: MOBs, triple-net leased healthcare facilities, and SHOPs.
The Company evaluates performance and makes resource allocations based on its three business segments. The medical office building segment primarily consists of MOBs leased to healthcare-related tenants under long-term leases, which may require such tenants to pay a pro rata share of property-related expenses. The triple-net leased healthcare facilities segment primarily consists of investments in seniors housing communities, hospitals, inpatient rehabilitation facilities and skilled nursing facilities under long-term leases, under which tenants are generally responsible to directly pay property-related expenses. The SHOP segment consists of direct investments in seniors housing communities, primarily providing assisted living, independent living and memory care services, which are operated through engaging independent third-party managers. There were no intersegment sales or transfers during the periods presented.
On June 8, 2017, the Company's taxable REIT subsidiary, through 12 separately executed membership interest or stock transfer agreements, acquired 12 operating entities that leased 12 healthcare facilities included in the Company's triple-net leased healthcare facilities segment. Concurrently with the acquisition of the 12 operating entities, the Company transitioned the management of the healthcare facilities to a third-party management company that manages other healthcare facilities in the Company's SHOP operating segment. The segment reporting results of these 12 operating entities is included in the Company's triple-net leased healthcare facilities segment through June 8, 2017. Subsequent to June 8, 2017, these operating entities are operated under the RIDEA structure and are included in the Company's SHOP segment.
On January 1, 2018, the Company transitioned six properties in its triple-net leased healthcare facilities segment to operating properties under a structure permitted by the RIDEA structure. The properties consist of two assisted living facilities located in Burlington and Cudahy, Wisconsin, two assisted living facilities located in Dixon and Rockford, Illinois, an assisted living facility located in Richmond, Kentucky and a skilled nursing facility located in Lutz, Florida. The prior tenants of the six properties transferred the operations of the properties to newly-formed subsidiaries of the Company and third-party managers engaged by those Company subsidiaries pursuant to market operations transfer agreements. The Company’s subsidiaries simultaneously entered into new management agreements with the third-party managers, who will operate and manage the facilities on behalf of the Company's subsidiaries.

35

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The Company evaluates the performance of the combined properties in each segment based on net operating income ("NOI"). NOI is defined as total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss). The Company uses NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. The Company believes that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).
NOI excludes certain components from net income (loss) in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by the Company may not be comparable to NOI reported by other REITs that define NOI differently. The Company believes that in order to facilitate a clear understanding of the Company's operating results, NOI should be examined in conjunction with net income (loss) as presented in the Company's consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of the Company's performance or to cash flows as a measure of the Company's liquidity or ability to make distributions.
The following tables reconcile the segment activity to consolidated net loss for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2018
(In thousands)
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
19,758

 
$
5,924

 
$
4

 
$
25,686

 
$
58,729

 
$
17,773

 
$
11

 
$
76,513

Operating expense reimbursements
 
4,428

 
151

 

 
4,579

 
14,653

 
724

 

 
15,377

Resident services and fee income
 

 

 
59,926

 
59,926

 

 

 
178,696

 
178,696

Total revenues
 
24,186

 
6,075

 
59,930

 
90,191

 
73,382

 
18,497

 
178,707

 
270,586

Property operating and maintenance
 
6,985

 
7,126

 
45,187

 
59,298

 
22,328

 
11,569

 
132,264

 
166,161

NOI
 
$
17,201

 
$
(1,051
)
 
$
14,743

 
30,893

 
$
51,054

 
$
6,928

 
$
46,443

 
104,425

Impairment charges
 
 
 
 
 
 
 
(17,837
)
 
 
 
 
 
 
 
(18,570
)
Operating fees to related parties
 
 
 
 
 
 
 
(5,743
)
 
 
 
 
 
 
 
(17,233
)
Acquisition and transaction related
 
 
 
 
 
 
 
(40
)
 
 
 
 
 
 
 
(333
)
General and administrative
 
 
 
 
 
 
 
(4,441
)
 
 
 
 
 
 
 
(12,705
)
Depreciation and amortization
 
 
 
 
 
 
 
(20,466
)
 
 
 
 
 
 
 
(62,099
)
Interest expense
 
 
 
 
 
 
 
(12,597
)
 
 
 
 
 
 
 
(35,962
)
Interest and other income
 
 
 
 
 
 
 
16

 
 
 
 
 
 
 
21

Gain (loss) on non-designated derivatives
 
 
 
 
 
 
 
18

 
 
 
 
 
 
 
46

Income tax benefit
 
 
 
 
 
 
 
550

 
 
 
 
 
 
 
(225
)
Net loss attributable to non-controlling interests
 
 
 
 
 
 
 
40

 
 
 
 
 
 
 
87

Net loss attributable to stockholders
 
 
 
 
 
 
 
$
(29,607
)
 
 
 
 
 
 
 
$
(42,548
)

36

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2017
(In thousands)
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
16,879

 
$
6,236

 
$
3

 
$
23,118

 
$
49,876

 
$
21,337

 
$
8

 
$
71,221

Operating expense reimbursements
 
4,009

 
(103
)
 

 
3,906

 
11,583

 
313

 

 
11,896

Resident services and fee income
 

 

 
52,048

 
52,048

 

 

 
146,336

 
146,336

Total revenues
 
20,888

 
6,133

 
52,051

 
79,072

 
61,459

 
21,650

 
146,344

 
229,453

Property operating and maintenance
 
6,338

 
3,742

 
38,363

 
48,443

 
18,219

 
13,255

 
103,940

 
135,414

NOI
 
$
14,550

 
$
2,391

 
$
13,688

 
30,629

 
$
43,240

 
$
8,395

 
$
42,404

 
94,039

Impairment charges
 
 
 
 
 
 
 
(18,958
)
 
 
 
 
 
 
 
(18,993
)
Operating fees to related parties
 
 
 
 
 
 
 
(5,635
)
 
 
 
 
 
 
 
(16,573
)
Acquisition and transaction related
 
 
 
 
 
 
 
261

 
 
 
 
 
 
 
(4,327
)
General and administrative
 
 
 
 
 
 
 
(3,540
)
 
 
 
 
 
 
 
(11,116
)
Depreciation and amortization
 
 
 
 
 
 
 
(19,089
)
 
 
 
 
 
 
 
(58,911
)
Interest expense
 
 
 
 
 
 
 
(8,838
)
 
 
 
 
 
 
 
(20,908
)
Interest and other income
 
 
 
 
 
 
 
302

 
 
 
 
 
 
 
305

Gain on sale of real estate investment
 
 
 
 
 
 
 

 
 
 
 
 
 
 
438

Loss on non-designated derivative instruments
 
 
 
 
 
 
 
(22
)
 
 
 
 
 
 
 
(129
)
Income tax (expense) benefit
 
 
 
 
 
 
 
652

 
 
 
 
 
 
 
1,049

Net loss attributable to non-controlling interests
 
 
 
 
 
 
 
102

 
 
 
 
 
 
 
135

Net loss attributable to stockholders
 
 
 
 
 
 
 
$
(24,136
)
 
 
 
 
 
 
 
$
(34,991
)

37

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

The following table reconciles the segment activity to consolidated total assets as of the periods presented:
(In thousands)
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Investments in real estate, net:
 
 
 
 
Medical office buildings
 
$
879,127

 
$
897,264

Triple-net leased healthcare facilities
 
245,936

 
294,727

Construction in progress
 
88,904

 
82,007

Seniors housing — operating properties
 
919,092

 
902,343

Total investments in real estate, net
 
2,133,059

 
2,176,341

Cash and cash equivalents
 
52,109

 
94,177

Restricted cash
 
17,097

 
8,411

Assets held for sale
 
79,995

 
37,822

Derivative assets, at fair value
 
9,271

 
2,550

Straight-line rent receivable, net
 
16,178

 
15,327

Prepaid expenses and other assets
 
30,302

 
22,099

Deferred costs, net
 
12,904

 
15,134

Total assets
 
$
2,350,915

 
$
2,371,861

The following table reconciles capital expenditures by reportable business segment, excluding corporate non-real estate expenditures, for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
 
2018
 
2017
 
2018
 
2017
Medical office buildings
 
$
1,834

 
$
1,120

 
$
4,060

 
$
2,712

Triple-net leased healthcare facilities
 
425

 
64

 
493

 
64

Seniors housing — operating properties
 
489

 
905

 
2,415

 
3,398

Total capital expenditures
 
$
2,748

 
$
2,089

 
$
6,968

 
$
6,174

Note 16 — Commitments and Contingencies
The Company has entered into operating and capital lease agreements related to certain acquisitions under leasehold interests arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter under these arrangements, including the present value of the net minimum payment due under capital leases. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items.
 
 
Future Minimum Base Rent Payments
(In thousands)
 
Operating Leases
 
Capital Leases
October 1, 2018 - December 31, 2018
 
$
221

 
$
20

2019
 
780

 
80

2020
 
781

 
82

2021
 
774

 
84

2022
 
790

 
86

Thereafter
 
35,104

 
7,678

Total minimum lease payments
 
$
38,450

 
8,030

Less: amounts representing interest
 
 
 
(3,202
)
Total present value of minimum lease payments
 
 
 
$
4,828


38

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Total rental expense from operating leases was $0.2 million during the three months ended September 30, 2018 and 2017, respectively, and $0.6 million for the nine months ended September 30, 2018 and 2017, respectively. Interest expense related to capital leases was approximately $21,000 during the three months ended September 30, 2018 and 2017, respectively, and $64,000 and $63,000 during the nine months ended September 30, 2018 and 2017, respectively.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. As of September 30, 2018, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.
Development Project Funding
In August 2015, the Company entered into an asset purchase agreement and development agreement to acquire land and construction in progress, and subsequently fund the remaining construction, of a development property in Jupiter, Florida for $82.0 million. As of September 30, 2018, the Company had funded $88.7 million, including $10.0 million for the land and $78.7 million for construction in progress. As a result, the Company believes that it has satisfied its funding commitments for the construction. As of September 30, 2018, the Company had funded $6.7 million in excess of its $72.0 million funding commitment for the construction. The Company has and may continue to, at its election, provide additional funding to ensure completion of the construction. To the extent the Company funds additional monies for the completion of the development, Palm, the developer of the facility, is responsible for reimbursing the Company for any amounts funded. Entities related to Palm, referred to herein as the NuVista Tenants, are, however, in default to the Company under leases at other properties in the Company's portfolio (see Note 3 Real Estate Investments for more information). The Company currently does not expect that Palm will reimburse the Company for construction overruns funded and there can be no assurance that they will do so, in whole or in part.
Palm is responsible for completing the development and obtaining a final certificate of occupancy for the facility (the "CO"). However, Palm is in default of the development agreement and has provided notice that it will cease providing services under the development agreement, which may result in additional delays in obtaining the CO. Until the CO is obtained, the Company will not receive income from the property. There is no assurance as to when and if Palm will comply with its obligations. The Company is currently working to obtain the CO.
Under the development agreement, the targeted completion date was December 31, 2016. Additionally, the estimated rent commencement date was expected to be no later than April 1, 2017 with entities related to Palm operating the property as the tenants (the "Jupiter Tenant"). The Company does not expect the Jupiter Tenant (or other entities related to Palm) to become the tenant and currently expects that it will need to identify a replacement tenant once it obtains the CO. Pursuant to an agreement between the Company and the Jupiter Tenant, the Jupiter Tenant has agreed to transfer all contracts, licenses and permits (including all operational permissions and certificates of need) to a replacement tenant designated by the Company. Until such replacement tenant is identified, there can be no assurance that this transfer will take place or that the Jupiter Tenant will comply with its obligations when required to do so.
Concurrent with the acquisition, the Company entered into a loan agreement and lease agreement with an affiliate of Palm. The loan agreement is intended to provide working capital to the tenant during the initial operating period of the facility and allows for borrowings of up to $2.7 million from the Company on a non-revolving basis. Any outstanding principal balances under the loan will bear interest at 7.0% per year, payable on the first day of each fiscal quarter. As of September 30, 2018 and December 31, 2017, there were no amounts outstanding under the loan agreement as operations at the facility have not yet started.
Note 17 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except the following disclosures:

39

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)

Amended Missouri SNF PSA
On November 6, 2018, the Company entered into the Amended Missouri SNF PSA to sell the Missouri SNF Properties for an aggregate contract purchase price of $27.5 million. In connection with the Amended Missouri SNF PSA, the Company recognized an impairment charge of approximately $10.4 million on the eight Missouri SNF Properties for the three and nine months ended September 30, 2018 which are included on the consolidated statement of operations and comprehensive loss. See Note 3 — Real Estate Investments for additional information.


40


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Healthcare Trust, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to Healthcare Trust, Inc., a Maryland corporation, including, as required by context, Healthcare Trust Operating Partnership, LP (our "OP"), a Delaware limited partnership, and its subsidiaries. The Company is externally managed by Healthcare Trust Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
Certain of our executive officers and directors are also officers, managers, employees or holders of a direct or indirect controlling interest in our Advisor and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of our sponsor. As a result, certain of our executive officers and directors, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investment programs advised by affiliates of AR Global and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions that adversely affect us.
Because investment opportunities that are suitable for us may also be suitable for other investment programs advised by affiliates of AR Global, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.
Although we intend to seek a listing of our shares of common stock on a national stock exchange when we believe market conditions are favorable to do so, there is no assurance that our shares of common stock will be listed. No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.
We focus on acquiring and owning a diversified portfolio of healthcare-related assets located in the United States and are subject to risks inherent in concentrating investments in the healthcare industry.
If our Advisor loses or is unable to obtain qualified personnel, our ability to continue to achieve our investment strategies could be delayed or hindered.
The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of tenants to make lease payments to us.
We are depending on our Advisor to select investments and conduct our operations. Adverse changes in the financial condition of our Advisor and its affiliates or our relationship with our Advisor could adversely affect us.
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates.
Our revenue is dependent upon the success and economic viability of our tenants, as well as our ability to collect rent from defaulting tenants and replace them with new tenants, which we may not be able to do on a timely basis, or at all.
We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact our results of operations.
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions.
We have not generated, and in the future may not generate, operating cash flows sufficient to fund all of the distributions we pay to our stockholders, and, as such, we may be forced to fund distributions from other sources, including borrowings, which may not be available on favorable terms, or at all.

41


There can be no assurance we will continue to pay distributions at our current level.
Any distributions, especially those not covered by our cash flows from operations, may reduce the amount of capital available for other purposes included investment in properties and other permitted investments and may negatively impact the value of our stockholders' investment.
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States from time to time.
We are subject to risks associated with changes in general economic, business and political conditions including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets.
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and the cash available for distributions.
The offering price and repurchase price for our shares under our distribution reinvestment plan (the "DRIP") and our share repurchase program (as amended, the "SRP") may not, among other things, accurately reflect the value of our assets and may not represent what a stockholder may receive on a sale of the shares, what they may receive upon a liquidation of our assets and distribution of the net proceeds or what a third party may pay to acquire the Company.
Overview
We invest in healthcare real estate, focusing on seniors housing and medical office buildings ("MOB"), located in the United States. As of September 30, 2018, we owned 196 properties located in 30 states and comprised of 9.3 million rentable square feet.
We were incorporated on October 15, 2012 as a Maryland corporation that elected and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2013. Substantially all of our business is conducted through our OP.
On March 29, 2018, our board of directors (the "Board") approved a new estimate of per share net asset value ("Estimated Per-Share NAV") equal to $20.25 as of December 31, 2017. Our previous Estimated Per-Share NAV was equal to $21.45 as of December 31, 2016. We intend to publish Estimated Per-Share NAV periodically at the discretion of the Board, provided that such estimates will be made at least once annually.
We have no employees. The Advisor has been retained by us to manage our affairs on a day-to-day basis. We have retained Healthcare Trust Properties, LLC (the "Property Manager") to serve as our property manager. The Advisor and Property Manager are under common control with AR Global, the parent of our sponsor, as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements for services related to managing our business. The Advisor, Healthcare Trust Special Limited Partnership, LLC and the Property Manager also have received or will receive compensation, fees and expense reimbursements from us related to the investment and management of our assets.
On December 22, 2017, we purchased all of the membership interests in indirect subsidiaries of American Realty Capital Healthcare Trust III, Inc. (“HT III”) that own the 19 properties that comprised substantially all of HT III’s assets (the “Asset Purchase”), pursuant to a purchase agreement (the “Purchase Agreement”), dated as of June 16, 2017. HT III is sponsored and advised by an affiliate of our Advisor.
Significant Accounting Estimates and Critical Accounting Policies
Our Annual Report on Form 10-K for the year ended December 31, 2017 contains a discussion of our significant accounting estimates and critical accounting policies. There have been no significant changes in our significant accounting estimates and critical accounting policies since December 31, 2017. See also Note 2 — Summary of Significant Accounting Policies to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.

42


Properties
The following table presents certain additional information about the properties we owned as of September 30, 2018:
Portfolio
 
Number
of Properties
 
Rentable
Square Feet
 
Percentage
    Leased (1)
 
Weighted Average Remaining
Lease Term in Years (2)
 
Gross Asset Value (4)
 
 
 
 
 
 
 
 
 
 
(In thousands)
Medical Office Buildings
 
110
 
3,854,921

 
88.7%
 
4.9
 
$
1,046,360

Triple-Net Leased Healthcare Facilities (3):
 

 


 
 
 
 
 
 
Seniors Housing — Triple-Net Leased
 
4
 
102,753

 
100.0%
 
12.3
 
55,000

Hospitals
 
4
 
428,620

 
88.8%
 
4.7
 
87,199

Post-Acute / Skilled Nursing
 
17
 
721,844

 
100.0%
 
10.0
 
167,011

Total Triple-Net Leased Healthcare Facilities
 
25
 
1,253,217

 
96.2%
 
9.0
 
309,210

Seniors Housing — Operating Properties
 
58
 
4,152,207

 
85.9%
 
N/A
 
1,100,584

Land
 
2
 
N/A

 
N/A
 
N/A
 
3,665

Construction in Progress
 
1
 
N/A

 
N/A
 
N/A
 
88,904

Total Portfolio
 
196
 
9,260,345

 

 
 
 
$
2,548,723

_______________
(1) 
Inclusive of leases signed but not yet commenced as of September 30, 2018.
(2) 
Based on annualized rental income calculated on a straight-line basis.
(3) 
Revenues for our triple-net leased healthcare facilities generally consist of fixed rental amounts (subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms and do not vary based on the underlying operating performance of the properties.
(4) 
Gross Asset Value represents the total real estate investments, at cost, assets held for sale at carrying value, net of gross market lease intangible liabilities.
N/A
Not applicable.

43


Results of Operations
As of September 30, 2018, we operated in three reportable business segments for management and internal financial reporting purposes: MOBs, triple-net leased healthcare facilities, and Seniors Housing — Operating Properties ("SHOPs"). In our MOB operating segment, we own, manage and lease, through the Property Manager or third party property managers, single and multi-tenant MOBs where tenants are required to pay their pro rata share of property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. In our triple-net leased healthcare facilities operating segment, we own, manage and lease seniors housing communities, hospitals, post-acute care and skilled nursing facilities throughout the United States under long-term triple-net leases, which tenants are generally directly responsible for all operating costs of the respective properties. In our SHOP operating segment, we invest in seniors housing communities under a structure permitted by the REIT Investment Diversification and Empowerment Act of 2007 ("RIDEA"). Under RIDEA, a REIT may lease qualified healthcare properties on an arm's length basis to a taxable REIT subsidiary ("TRS") if the property is operated on behalf of such subsidiary by an entity who qualifies as an eligible independent contractor. As of September 30, 2018, we had 17 eligible independent contractors operating 58 SHOP properties. All of our properties across all three business segments are located throughout the United States.
As of September 30, 2018, we owned 196 properties. There were 162 properties (our "Same Store" properties) owned for the entire three and nine months ended September 30, 2018 and 2017, including two vacant land parcels and one property under development. During the period from January 1, 2017 through September 30, 2018, we acquired 11 properties (our "Acquisitions") and disposed of one property (our "Disposition").
As described in more detail below, our Same Store properties include 12 properties and six properties that were transitioned from our triple-net leased healthcare facilities segment to our SHOP segment during the year ended December 31, 2017 and the nine months ended September 30, 2018, respectively. For purposes of the segment reporting below, these properties were treated as "Acquisitions" in the SHOP segment and "Dispositions" in the triple-net leased healthcare facilities segment.
The following table presents a roll-forward of our properties owned from January 1, 2017 to September 30, 2018:
 
Number of Properties
Number of properties, January 1, 2017
163

Acquisition activity during the year ended December 31, 2017
23

Disposition activity during the year ended December 31, 2017
(1
)
Number of properties, December 31, 2017
185

Acquisition activity during the nine months ended September 30, 2018
11

Number of properties, September 30, 2018
196

 
 
Number of Same Store Properties (1)
162

_______________
(1) Includes the 2018 acquisition of a land parcel adjacent to an existing property which is not considered an Acquisition.
On June 8, 2017, our TRS acquired 12 operating entities that leased 12 healthcare facilities included in our triple-net leased healthcare facilities segment due to declining performance under the triple-net leased structure. Concurrently with the acquisition of the 12 operating entities, we transitioned the management of the healthcare facilities to a third-party management company that manages other healthcare facilities in our SHOP segment. As a part of the transition, our subsidiary property companies executed leases with the acquired operating entities and the acquired operating entities executed management agreements with the management company under the RIDEA structure. As a part of the transition of operations, we now control the operating entities that hold the operating licenses for these healthcare facilities. The results of operations of these properties are included in the Dispositions under our triple-net leased healthcare facilities segment through June 7, 2017 and results of operations since June 8, 2017 are included in Acquisitions under our SHOP segment.
On January 1, 2018, we transitioned six properties in our triple-net leased healthcare facilities segment to operating properties under a structure permitted by the RIDEA structure due to declining performance under the triple-net leased structure. The prior tenants of the six properties transferred the operations of the properties to our newly-formed subsidiaries and third-party managers engaged by those subsidiaries pursuant to market operations transfer agreements. Our subsidiaries simultaneously entered into new management agreements with the third-party managers, who will operate and manage the facilities on behalf of our subsidiaries.
We may in the future, through similar transactions, transition other triple-net leased facilities, which may or may not be experiencing declining performance, to third-party managed facilities under a structure permitted by RIDEA, in connection with which they would also transition from our triple-net leased healthcare facilities segment to our SHOP operating segment. As described in more detail below, tenants at certain properties in our triple-net leased healthcare facilities segment have been in

44


default under their leases to us, and our results of operations have been adversely impacted by our inability to collect rent from these tenants. The bad debt expense relating to these properties is included in property operating and maintenance expense on the consolidated statement of operations. We may enter into settlement agreements, appoint court order receivers or otherwise replace these tenants in a manner that will allow us to transition the properties to our SHOP operating segment. By doing so, we will gain more control over the operations of the applicable properties, and we believe this will allow us to improve performance and the cash flows generated by the properties. There can be no assurance, however, that we will be able to replace these tenants on a timely basis, or at all, and our results of operations may therefore continue to be adversely impacted by bad debt expenses related to our inability to collect rent from defaulting tenants.
Comparison of the Three Months Ended September 30, 2018 and 2017
Net loss attributable to stockholders was $29.6 million and $24.1 million for the three months ended September 30, 2018 and 2017, respectively. The following table shows our results of operations for the three months ended September 30, 2018 and 2017 and the period to period change by line item of the consolidated statements of operations:
 
 
Three Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
25,686

 
$
23,118

 
$
2,568

 
11.1
 %
Operating expense reimbursements
 
4,579

 
3,906

 
673

 
17.2
 %
Resident services and fee income
 
59,926

 
52,048

 
7,878

 
15.1
 %
Total revenues
 
90,191

 
79,072

 
11,119

 
14.1
 %
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Property operating and maintenance
 
59,298

 
48,443

 
10,855

 
22.4
 %
Impairment charges
 
17,837

 
18,958

 
(1,121
)
 
(5.9
)%
Operating fees to related parties
 
5,743

 
5,635

 
108

 
1.9
 %
Acquisition and transaction related
 
40

 
(261
)
 
301

 
NM

General and administrative
 
4,441

 
3,540

 
901

 
25.5
 %
Depreciation and amortization
 
20,466

 
19,089

 
1,377

 
7.2
 %
Total expenses
 
107,825

 
95,404

 
12,421

 
13.0
 %
Operating loss
 
(17,634
)
 
(16,332
)
 
(1,302
)
 
NM

Other income (expense):
 
 
 
 
 


 


Interest expense
 
(12,597
)
 
(8,838
)
 
(3,759
)

(42.5
)%
Interest and other income
 
16

 
302

 
(286
)
 
NM

Gain on sale of real estate investment
 

 

 

 
NM

Gain (loss) on non-designated derivatives
 
18

 
(22
)
 
40

 
NM

Total other expenses
 
(12,563
)
 
(8,558
)
 
(4,005
)
 
(46.8
)%
Loss before income taxes
 
(30,197
)
 
(24,890
)
 
(5,307
)
 
(21.3
)%
Income tax (expense) benefit
 
550

 
652

 
(102
)
 
(15.6
)%
Net loss
 
(29,647
)
 
(24,238
)
 
(5,409
)
 
(22.3
)%
Net loss attributable to non-controlling interests
 
40

 
102

 
(62
)
 
(60.8
)%
Net loss attributable to stockholders
 
$
(29,607
)
 
$
(24,136
)
 
$
(5,471
)
 
(22.7
)%
_______________
NM — Not Meaningful

45


Net Operating Income
Net operating income (“NOI”) is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio. NOI is equal to rental income and operating expense reimbursements less property operating expense. NOI excludes all other financial statement amounts included in net income (loss) attributable to stockholders. We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. See “— Non-GAAP Financial Measures” included elsewhere in this Quarterly Report for additional disclosure and a reconciliation to our net income (loss) attributable to stockholders.
Segment Results — Medical Office Buildings
The following table presents the revenue and property operating and maintenance expense and the period to period change within our MOB segment for the three months ended September 30, 2018 and 2017:
 
 
Same Store (1)
 
Acquisitions (2)
 
Dispositions (3)
 
Segment Total (4)
 
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Rental income
 
$
16,226

 
$
16,358

 
$
(132
)
 
(0.8
)%
 
$
3,532

 
$
521

 
$
3,011

 
NM
 
$

 
$

 
$

 
NM
 
$
19,758

 
$
16,879

 
$
2,879

 
17.1
%
 Operating expense reimbursements
 
3,526

 
3,908

 
(382
)
 
(9.8
)%
 
902

 
101

 
801

 
NM
 

 
 
 

 
NM
 
4,428

 
4,009

 
419

 
10.5
%
    Total revenues
 
19,752

 
20,266

 
(514
)
 
(2.5
)%
 
4,434

 
622

 
3,812

 
NM
 

 

 

 
NM
 
24,186

 
20,888

 
3,298

 
15.8
%
 Property operating and maintenance
 
5,645

 
6,247

 
418

 
6.7
 %
 
1,340

 
90

 
1,250

 
NM
 

 
1

 
(1
)
 
NM
 
6,985

 
6,338

 
647

 
10.2
%
      NOI
 
$
14,107

 
$
14,019

 
$
88

 
0.6
 %
 
$
3,094

 
$
532

 
$
2,562

 
NM
 
$

 
$
(1
)
 
$
1

 
NM
 
$
17,201

 
$
14,550

 
$
2,651

 
18.2
%
_______________
(1) 
Our MOB segment included 79 Same Store properties.
(2) 
Our MOB segment included 31 Acquisition properties.
(3) 
Our MOB segment included one Disposition property.
(4) 
Our MOB segment included 110 properties as of September 30, 2018.
NM — Not Meaningful
Rental income is primarily related to contractual rent received from tenants in our MOBs. Generally, operating expense reimbursements increase in proportion with the increase in property operating and maintenance expenses in our MOB segment. Pursuant to many of our lease agreements in our MOBs, tenants are required to pay their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors, in addition to base rent. Property operating and maintenance relates to the costs associated with our properties, including real estate taxes, utilities, repairs, maintenance, bad debt expense and unaffiliated third party property management fees.
All of our Acquisitions during 2018 were MOB properties. During the quarter ended September 30, 2018, MOB Acquisitions contributed $3.1 million of NOI which represented the $2.6 million increase in the MOB segment NOI.
During the three months ended September 30, 2018, our Same Store property operating and maintenance expenses decreased $0.4 million due to one-time legal fees incurred during the three months ended September 30, 2017. Property operating expense reimbursements decreased $0.4 million due to lower property operating and maintenance expenses that are reimbursable by our tenants. Reimbursement of property operating and maintenance expenses in our Same Store properties was relatively unchanged, decreasing 0.1% from 62.6% during the three months ended September 30, 2017, to 62.5% during the three months ended September 30, 2018.
New York Six MOBs
During the three months ended September 30, 2018, we reconsidered the intended holding period for six MOB properties within the state of New York (the "New York Six MOBs") due to various market conditions and the potential to reinvest in properties generating a higher yield. On July 26, 2018, we entered into a purchase and sale agreement for the sale of the New York Six MOBs, for an aggregate contract sale price of approximately $68.0 million. On September 25, 2018, we amended the purchase and sale agreement to decrease the aggregate contract sale price to $58.8 million. In connection with this amendment, we recognized an impairment charge of approximately $6.2 million on the New York Six MOBs for the three months ended September 30, 2018 which is included on the consolidated statement of operations and comprehensive loss. Although we believe the disposition of the New York Six MOBs is probable, there can be no assurance that the disposition will be consummated, or that we will be able to reinvest the net proceeds in an accretive manner.
Five of the New York Six MOBs are included on the borrowing base of the Revolving Line of Credit and one is mortgaged under the Multi-Property CMBS Loan. We expect the total cost of repaying the debt associated with the New York Six MOBs at closing, including prepayment penalties, would be $23.3 million.

46


Segment Results — Triple-Net Leased Healthcare Facilities
The following table presents the revenue and property operating and maintenance expense and the period to period change within our triple net leased healthcare facilities segment for the three months ended September 30, 2018 and 2017:
 
 
Same Store (1)
 
Dispositions (2)
 
Segment Total
 
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
5,924

 
$
6,236

 
(312
)
 
(5.0
)%
 
$

 
$

 
$

 
NM
 
$
5,924

 
$
6,236

 
$
(312
)
 
(5.0
)%
Operating expense reimbursements
 
151

 
(102
)
 
253

 
(248.0
)%
 

 
(1
)
 
1

 
NM
 
151

 
(103
)
 
254

 
(246.6
)%
Total revenues
 
6,075

 
6,134

 
(59
)
 
(1.0
)%
 

 
(1
)
 
1

 
NM
 
6,075

 
6,133

 
(58
)
 
(0.9
)%
Property operating and maintenance
 
7,126

 
3,740

 
3,386

 
90.5
 %
 

 
2

 
(2
)
 
NM
 
7,126

 
3,742

 
3,384

 
90.4
 %
NOI
 
$
(1,051
)
 
$
2,394

 
$
(3,445
)
 
(143.9
)%
 
$

 
$
(3
)
 
$
3

 
NM
 
$
(1,051
)
 
$
2,391

 
$
(3,442
)
 
(144.0
)%
_______________
(1) 
Our triple-net leased healthcare facilities segment included 26 Same Store properties.
(2) 
Includes 18 properties that are deemed Dispositions as they were transitioned to our SHOP operating segment.
NM — Not Meaningful
Revenues for our triple-net leased healthcare facilities generally consist of fixed rental amounts (which may be subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms. Rental income is related to contractual rent received from tenants that does not vary based on the underlying operating performance of the properties. During the three months ended September 30, 2018, rental income in our triple-net leased healthcare facilities segment decreased $0.3 million compared to the three months ended September 30, 2017 due to lower rental rates for certain properties within the portfolio.
Operating expense reimbursements in our triple-net leased healthcare facilities segment generally include reimbursement for property operating expenses that we pay on behalf of tenants in this segment. However, pursuant to many of our lease agreements in this segment tenants are generally directly responsible for all operating costs of the respective properties in addition to base rent. Property operating and maintenance expense should typically include minimal activity in our triple-net leased healthcare facilities segment except for real estate taxes, insurance, and bad debt expense. Real estate taxes are typically paid directly by the tenants; however, they may be paid by us and reimbursed by the tenants.
Property operating and maintenance expenses of $7.1 million during the three months ended September 30, 2018 primarily relates to $4.9 million of bad debt expense recorded on four properties in Texas, and one property in Florida, which is described below in more detail. Property operating and maintenance expense during the three months ended September 30, 2017 primarily related to real estate taxes that were not reimbursed and bad debt expense in one of our triple-net leased facilities located in Florida, which is described below in more detail.
The LaSalle Tenant
We are currently exploring options to replace tenants at four properties in Texas (collectively, the "LaSalle Tenant"). In January 2018, we agreed to forbear from exercising legal remedies, including staying a lawsuit against the LaSalle Tenant, as long as the LaSalle Tenant pays the amounts due for rent and property taxes on an updated payment schedule pursuant to a forbearance agreement. The LaSalle Tenant is currently in default of the forbearance agreement and owes us $2.9 million of rent, property taxes, late fees, and interest receivable thereunder. We have the entire receivable balance and related income from the LaSalle Tenant fully reserved as of September 30, 2018. We incurred $3.3 million and $0.4 million of bad debt expense, including straight-line rent write-offs, related to the LaSalle Tenant during the three months ended September 30, 2018 and 2017, respectively which is included in property operating and maintenance expense on the consolidated statement of operations.

47


The NuVista Tenants
We had tenants and former tenants at two of our properties in Florida (collectively, the "NuVista Tenants") that have been in default under their leases since July 2017 and collectively owe us $8.0 million of rent, property taxes, late fees, and interest receivable with respect to these properties as of September 30, 2018. There can be no guarantee on the collectibility of these receivables, as such, we have the entire receivable balance and related income from the NuVista Tenants fully reserved as of September 30, 2018. We incurred $1.6 million and $2.3 million of bad debt expense related to the NuVista Tenants during the three months ended September 30, 2018 and 2017, respectively which is included in property operating and maintenance expense on the consolidated statement of operations. The NuVista Tenants are related to Palm Health Partners, LLC ("Palm"), the developer of our development property in Jupiter, Florida which is also currently in default to us (see Note 16 Commitments and Contingencies for more information on the status of the relationship with Palm).
At one of the properties which is occupied by the NuVista Tenants, located in Wellington, Florida, we and the tenant entered into an agreement (the “OTA”) pursuant to which we and the tenant agreed to cooperate in transitioning operations at the property to a third party operator selected by us. To date, the transition set forth in the OTA has not occurred and we have filed litigation to enforce the terms of the OTA and, in the alternative, pursue eviction proceedings against the NuVista Tenant and appoint a court ordered receiver in order to replace the NuVista Tenant with a new tenant and operator at the property.
The other property, located in Lutz, Florida, transitioned to the SHOP operating segment as of January 1, 2018. In connection with this transition, we have replaced the NuVista Tenant as a tenant with a TRS, and has engaged a third party to operate the property. This structure is permitted by the REIT Investment Diversification and Empowerment Act of 2007, under which a REIT may lease qualified healthcare properties on an arm's length basis to a TRS if the property is operated on behalf of such subsidiary by an entity who qualifies as an eligible independent contractor. During the three months ended September 30, 2018, the new operator obtained a Medicare license. Prior to the operator obtaining this Medicare license, we were unable to bill Medicare for services performed, and therefore, accumulated $6.1 million of Medicare receivables as of September 30, 2018. We expect that $0.5 million of these receivables are not collectible and therefore have reserved them, resulting in bad debt expense during the three months ended September 30, 2018, which is included in property operating and maintenance expense on the consolidated statement of operations. There can be no assurance as to the collectibility of these Medicare receivables.The NuVista Tenants are related to Palm, the developer of our development property in Jupiter, Florida which is also currently in default to us. See “—Liquidity and Capital Resources — Palm and the NuVista Tenants” for further details.

48


Segment Results — Seniors Housing - Operating Properties
The following table presents the revenue and property operating and maintenance expense and the period to period change within our SHOP segment for the three months ended September 30, 2018 and 2017:
 
 
Same Store (1)
 
Acquisitions (2)
 
Segment Total (3)
 
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
 
Three Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resident services and fee income
 
$
46,405

 
$
45,923

 
$
482

 
1.0
 %
 
$
13,521

 
$
6,125

 
$
7,396

 
120.8
%
 
$
59,926

 
$
52,048

 
$
7,878

 
15.1
%
Rental income
 
4

 
3

 
1

 
NM

 

 

 

 
NM

 
4

 
3

 
1

 
NM

Total revenues
 
46,409

 
45,926

 
483

 
1.1
 %
 
13,521

 
6,125

 
7,396

 
120.8
%
 
59,930

 
52,051

 
7,879

 
15.1
%
Property operating and maintenance
 
33,099

 
32,431

 
668

 
2.1
 %
 
12,088

 
5,932

 
6,156

 
103.8
%
 
45,187

 
38,363

 
6,824

 
17.8
%
NOI
 
$
13,310

 
$
13,495

 
$
(185
)
 
(1.4
)%
 
$
1,433

 
$
193

 
$
1,240

 
NM

 
$
14,743

 
$
13,688

 
$
1,055

 
7.7
%
_______________
(1) 
Our SHOP segment included 57 Same Store properties.
(2) 
Our SHOP segment included three properties acquired from third parties, as well as 18 properties that are deemed Acquisitions as they were transitioned from our triple-net leased healthcare facilities operating segment.
(3) 
Our SHOP segment included 58 properties as of September 30, 2018, including two operating properties and two land parcels.
NM — Not Meaningful
Resident services and fee income is generated in connection with rent and services offered to residents in our SHOPs depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance expense relates to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third party operators and costs associated with maintaining the physical site.
During the three months ended September 30, 2018, resident services and fee income and rental income increased by $7.9 million in our SHOP segment as compared to the three months ended September 30, 2017. Acquisitions, primarily comprising our 18 triple-net leased healthcare facilities that transitioned to our SHOP operating segment, contributed to an increase of $7.4 million in revenues, while Same Store properties experienced slight improvement, contributing an additional $0.5 million increase in revenues.
During the three months ended September 30, 2018, property operating and maintenance expense increased $6.8 million in our SHOP segment as compared to the three months ended September 30, 2017. Acquisitions, primarily comprising our 18 triple-net leased healthcare facilities that transitioned to our SHOP operating segment, contributed to an increase of $6.2 million in property operating and maintenance expense. The $0.7 million increase in Same Store property operating and maintenance expense is due to increased wages and building operational expenses.
Other Results of Operations
Impairment Charges
We recorded $17.8 million and approximately $19.0 million of impairment charges for the three months ended September 30, 2018 and 2017, respectively. See Note 3 — Real Estate Investments for additional information on the impairment charges for the three months ended September 30, 2018. The impairment charges for the three months ended September 30, 2017 relate to six held for use properties that had carrying values in excess of their estimated fair values.
Operating Fees to Related Parties
Operating fees to related parties increased $0.1 million to $5.7 million for the three months ended September 30, 2018 from $5.6 million for the three months ended September 30, 2017.
Our Advisor and Property Manager are paid for asset management and property management services for managing our properties on a day-to-day basis. Effective February 17, 2017, we pay a base management fee equal to $1.6 million per month, while the variable portion of the base management fee is equal, per month, to one twelfth per month of 1.25% of the cumulative net proceeds of any equity raised subsequent to February 17, 2017. During the period preceding the February 17, 2017 amendment, our asset management fee was based on a percentage of the lesser of (a) cost of assets and (b) fair value of assets. Asset management fees remained unchanged at $4.9 million for the three months ended September 30, 2018 and 2017.
Property management fees increased $0.1 million to $0.9 million for the three months ended September 30, 2018 from $0.8 million for the three months ended September 30, 2017. Property management fees increase or decrease in direct correlation with gross revenues of the properties managed.

49


See Note 9 Related Party Transactions and Arrangements to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q which provides detail on our fees and expense reimbursements.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses were approximately $40 thousand for the three months ended September 30, 2018 compared to income of approximately $261 thousand for the three months ended September 30, 2017. The expenses in 2018 relate to indirect costs related to acquisitions, and the income in 2017 was due to a $0.4 million adjustment for previously recorded legal fees associated with the negotiation and execution of the purchase agreement related to the Asset Purchase, partially offset by costs incurred related to our Acquisitions.
General and Administrative Expenses
General and administrative expenses increased $0.9 million to $4.4 million for the three months ended September 30, 2018 compared to $3.5 million for the three months ended September 30, 2017, which includes $2.2 million and $2.0 million incurred in expense reimbursements and distributions on partnership units of the OP designated as "Class B Units" ("Class B Units") to related parties, respectively. General and administrative expenses primarily relate to professional fees for audit, transfer agent and legal services as well as certain expenses reimbursed to related parties.
Depreciation and Amortization Expenses
Depreciation and amortization expense increased $1.4 million to $20.5 million for the three months ended September 30, 2018 from $19.1 million for the three months ended September 30, 2017. Our acquisitions contributed approximately $2.5 million to the increase. Same Store depreciation and amortization decreased $1.0 million primarily due to several intangible assets becoming fully amortized.
Interest Expense
Interest expense increased $3.8 million to $12.6 million for the three months ended September 30, 2018 from $8.8 million for the three months ended September 30, 2017. The increase in interest expense is related to increasing interest rates as well as higher overall outstanding debt including new borrowings under our master credit facilities related to Fannie Mae's Multifamily MBS program (the "Fannie Mae Master Credit Facilities") and the $118.7 million loan from KeyBank National Association (the "Multi-Property CMBS Loan") in April 2018. This increase in outstanding debt was partially offset by paydowns of our multi-property mortgage loan with Capital One, National Association (the "Bridge Loan") entered into in December 2017. As of September 30, 2018, we had total borrowings of $1,020.2 million, at a weighted average interest rate of 4.45%. As of September 30, 2017 we had total borrowings of $782.0 million, at a weighted average interest rate of 3.55%.
Our interest expense in future periods will vary based on our level of future borrowings, the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives.
Interest and Other Income
Interest and other income includes income from our investment securities and interest income earned on cash and cash equivalents held during the period. Interest and other income decreased approximately $286 thousand to $16 thousand for the three months ended September 30, 2018 and 2017. Interest and other Income of $302 thousand during the three months ended September 30, 2017 resulted from the recognition of a prospective buyer's non-refundable deposit on an unconsummated sale of a vacant land parcel.
Gain (Loss) on Non-Designated Derivatives
Gain (loss) on non-designated derivative instruments for the three months ended September 30, 2018 and 2017 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with our Fannie Mae Master Credit Facilities, which have floating interest rates.
Income Tax (Expense) Benefit
Income tax (expense) benefit of approximately $0.6 million and $0.7 million for the three months ended September 30, 2018 and 2017 primarily related to deferred tax assets generated by temporary differences and current period net operating income associated with our TRS. These deferred tax assets are partially offset by other income tax expenses incurred during the same period. Income taxes generally relate to our SHOPs, which are leased by our TRS.
Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests was approximately $40 thousand and approximately $102 thousand for the three months ended September 30, 2018 and 2017, respectively, which represents the portion or our net income that is related to limited partner interests in the OP ("OP Units") and non-controlling interest holders.

50


Comparison of the Nine Months Ended September 30, 2018 and 2017
Information based on Same Store, Acquisitions and Dispositions allows us to evaluate the performance of our portfolio based on a consistent population of properties. Net loss attributable to stockholders was $42.5 million and $35.0 million for the nine months ended September 30, 2018 and 2017, respectively. The following table shows our results of operations for the nine months ended September 30, 2018 and 2017 and the period to period change by line item of the consolidated statements of operations:
 
 
Nine Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
76,513

 
$
71,221

 
$
5,292

 
7.4
 %
Operating expense reimbursements
 
15,377

 
11,896

 
3,481

 
29.3
 %
Resident services and fee income
 
178,696

 
146,336

 
32,360

 
22.1
 %
Total revenues
 
270,586

 
229,453

 
41,133

 
17.9
 %
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Property operating and maintenance
 
166,161

 
135,414

 
30,747

 
22.7
 %
Impairment charges
 
18,570

 
18,993

 
(423
)
 
(2.2
)%
Operating fees to related parties
 
17,233

 
16,573

 
660

 
4.0
 %
Acquisition and transaction related
 
333

 
4,327

 
(3,994
)
 
(92.3
)%
General and administrative
 
12,705

 
11,116

 
1,589

 
14.3
 %
Depreciation and amortization
 
62,099

 
58,911

 
3,188

 
5.4
 %
Total expenses
 
277,101

 
245,334

 
31,767

 
12.9
 %
Operating loss
 
(6,515
)
 
(15,881
)
 
9,366

 
59.0
 %
Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(35,962
)
 
(20,908
)
 
(15,054
)
 
(72.0
)%
Interest and other income
 
21

 
305

 
(284
)
 
(93.1
)%
Gain on sale of real estate investment
 

 
438

 
(438
)
 
NM

Gain (loss) on non-designated derivatives
 
46

 
(129
)
 
175

 
NM

Total other expenses
 
(35,895
)
 
(20,294
)
 
(15,601
)
 
(76.9
)%
Loss before income taxes
 
(42,410
)
 
(36,175
)
 
(6,235
)
 
(17.2
)%
Income tax (expense) benefit
 
(225
)
 
1,049

 
(1,274
)
 
NM

Net loss
 
(42,635
)
 
(35,126
)
 
(7,509
)
 
(21.4
)%
Net loss attributable to non-controlling interests
 
87

 
135

 
(48
)
 
(35.6
)%
Net loss attributable to stockholders
 
$
(42,548
)
 
$
(34,991
)
 
$
(7,557
)
 
(21.6
)%
_______________
NM — Not Meaningful



51


Segment Results — Medical Office Buildings
The following table presents the revenue and property operating and maintenance expense and the period to period change within our MOB segment for the nine months ended September 30, 2018 and 2017:
 
 
Same Store(1)
 
Acquisitions(2)
 
Dispositions(3)
 
Segment Total
 
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
49,091

 
$
49,093

 
$
(2
)
 
 %
 
$
9,638

 
$
747

 
$
8,891

 
NM
 
$

 
$
36

 
$
(36
)
 
NM
 
$
58,729

 
$
49,876

 
$
8,853

 
17.8
%
Operating expense reimbursements
 
12,117

 
11,460

 
657

 
5.7
 %
 
2,536

 
121

 
2,415

 
NM
 

 
2

 
(2
)
 
NM
 
14,653

 
11,583

 
3,070

 
26.5
%
Total revenues
 
61,208

 
60,553

 
655

 
1.1
 %
 
12,174

 
868

 
11,306

 
NM
 

 
38

 
(38
)
 
NM
 
73,382

 
61,459

 
11,923

 
19.4
%
Property operating and maintenance
 
18,739

 
18,042

 
697

 
3.9
 %
 
3,589

 
140

 
3,449

 
NM
 

 
37

 
(37
)
 
NM
 
22,328

 
18,219

 
4,109

 
22.6
%
NOI
 
$
42,469

 
$
42,511

 
$
(42
)
 
(0.1
)%
 
$
8,585

 
$
728

 
$
7,857

 
NM
 
$

 
$
1

 
$
(1
)
 
NM
 
$
51,054

 
$
43,240

 
$
7,814

 
18.1
%
_______________
(1) 
Our MOB segment included 79 Same Store properties.
(2) 
Our MOB segment included 31 Acquisition properties.
(3) 
Our MOB segment included one Disposition property.
NM — Not Meaningful
Rental income is primarily related to contractual rent received from tenants in our MOBs. Generally, operating expense reimbursements increase in proportion with the increase in property operating and maintenance expenses in our MOB segment. Pursuant to many of our lease agreements in our MOBs, tenants are required to pay their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors, in addition to base rent. Property operating and maintenance relates to the costs associated with our properties, including real estate taxes, utilities, repairs, maintenance, bad debt expense and unaffiliated third party property management fees.
All of our Acquisitions during 2018 were MOBs. During the nine months ended September 30, 2018, MOB Acquisitions contributed $8.6 million of NOI which represented the increase in the MOB segment NOI.
During the nine months ended September 30, 2018, our Same Store property operating and maintenance expenses increased $0.7 million due to increased property tax expectations and higher building operating and maintenance costs. Property operating expense reimbursements increased $0.7 million due to the increased property operating and maintenance expenses that are reimbursable by our tenants. Reimbursement of property operating and maintenance expenses in our Same Store properties increased 1.2% from 63.5% during the nine months ended September 30, 2017, to 64.7% during the nine months ended September 30, 2018 due to increased expenses which are reimbursable under leases.
New York Six MOBs
During the nine months ended September 30, 2018, we reconsidered the intended holding period for the New York Six MOBs due to various market conditions and the potential to reinvest in properties generating a higher yield. On July 26, 2018, we entered into a purchase and sale agreement for the sale of the New York Six MOBs, for an aggregate contract sale price of approximately $68.0 million. On September 25, 2018, we amended the purchase and sale agreement to decrease the aggregate contract sale price to $58.8 million. In connection with this amendment, we recognized an impairment charge of approximately $6.2 million on the New York Six MOBs for the nine months ended September 30, 2018 which is included on the consolidated statement of operations and comprehensive loss. Although we believe the disposition of the New York Six MOBs is probable, there can be no assurance that the disposition will be consummated, or that we will be able to reinvest the net proceeds in an accretive manner.
Five of the New York Six MOBs are included on the borrowing base of the Revolving Line of Credit and one is mortgaged under the Multi-Property CMBS Loan. We expect the total cost of repaying the debt associated with the New York Six MOBs at closing, including prepayment penalties, would be $23.3 million.



52


Segment Results — Triple - Net Leased Healthcare Facilities
The following table presents the revenue and property operating and maintenance expense and the period to period change within our triple net leased healthcare facilities segment for the nine months ended September 30, 2018 and 2017:
 
 
Same Store (1)
 
Dispositions (2)
 
Segment Total
 
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
17,773

 
$
18,720

 
$
(947
)
 
(5.1
)%
 
$

 
$
2,617

 
$
(2,617
)
 
(100.0
)%
 
$
17,773

 
$
21,337

 
$
(3,564
)
 
(16.7
)%
Operating expense reimbursements
 
724

 
314

 
410

 
NM

 

 
(1
)
 
1

 
NM

 
724

 
313

 
411

 
NM

Total revenues
 
18,497

 
19,034

 
(537
)
 
(2.8
)%
 

 
2,616

 
(2,616
)
 
(100.0
)%
 
18,497

 
21,650

 
(3,153
)
 
(14.6
)%
Property operating and maintenance
 
11,569

 
10,330

 
1,239

 
12.0
 %
 

 
2,925

 
(2,925
)
 
NM

 
11,569

 
13,255

 
(1,686
)
 
(12.7
)%
NOI
 
$
6,928

 
$
8,704

 
$
(1,776
)
 
(20.4
)%
 
$

 
$
(309
)
 
$
309

 
(100.0
)%
 
$
6,928

 
$
8,395

 
$
(1,467
)
 
(17.5
)%
_______________
(1) 
Our triple-net leased healthcare facilities segment included 26 Same Store properties.
(2) 
Includes 18 properties that are deemed Dispositions as they were transitioned to our SHOP operating segment.
NM — Not Meaningful
Revenues for our triple-net leased healthcare facilities generally consist of fixed rental amounts (which may be subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms. Rental income is related to contractual rent received from tenants that does not vary based on the underlying operating performance of the properties. During the nine months ended September 30, 2018, rental income in our triple-net leased healthcare facilities segment decreased $3.6 million compared to the nine months ended September 30, 2017. $2.6 million of this decrease resulted from the 18 Dispositions which were transitioned to the SHOP segment due to tenants' failure or inability to meet their contractual lease obligations. During the nine months ended September 30, 2018, our Same Store property revenues decreased $947 thousand due to lower rents at our six triple net leased healthcare facilities located in Illinois.
Operating expense reimbursements in our triple-net leased healthcare facilities segment generally include reimbursement for property operating expenses that we pay on behalf of tenants in this segment. However, pursuant to many of our lease agreements in this segment, tenants are generally directly responsible for all operating costs of the respective properties in addition to base rent. Property operating and maintenance expense should typically include minimal activity in our triple-net leased healthcare facilities segment except for real estate taxes, insurance, and bad debt expense. Real estate taxes are typically paid directly by the tenants; however, they may be paid by us and reimbursed by the tenants.
Property operating and maintenance expenses of $11.6 million during the nine months ended September 30, 2018 primarily relates to $5.3 million of bad debt expense recorded on four properties in Texas, and one property in Florida, which is described below in more detail, and real estate taxes that were not reimbursed by tenants. Property operating and maintenance expense during the nine months ended September 30, 2017 primarily related to real estate taxes that were not reimbursed and bad debt expense in our triple-net leased facilities located in Texas, Illinois and Wisconsin.
The LaSalle Tenant
We are currently exploring options to replace the LaSalle Tenant. See — Results of Operations Comparison of the Three Months Ended September 30, 2018 and 2017 for additional information on the LaSalle Tenant. We have the entire receivable balance and related income from the LaSalle Tenant fully reserved as of September 30, 2018. We incurred $3.6 million and $0.2 million of bad debt expense, including straight-line rent write-offs, related to the LaSalle Tenant during the nine months ended September 30, 2018 and 2017, respectively which is included in property operating and maintenance expense on the consolidated statement of operations.
The NuVista Tenants
The NuVista Tenants at two of our properties in Florida have been in default under their leases since July 2017. See — Results of Operations Comparison of the Three Months Ended September 30, 2018 and 2017 for additional information on the NuVista Tenants. We incurred $5.4 million and $3.3 million of bad debt expense related to the NuVista Tenants during the nine months ended September 30, 2018 and 2017, respectively, which is included in property operating and maintenance expense on the consolidated statement of operations. The NuVista Tenants are related to Palm, the developer of our development property in Jupiter, Florida which is also currently in default to us. See "Liquidity and Capital Resources — Palm and the NuVista Tenants" for further details.


53


Segment Results — Seniors Housing Operating Properties
The following table presents the revenue and property operating and maintenance expense and the period to period change within our SHOP segment for the nine months ended September 30, 2018 and 2017:
 
 
Same Store (1)
 
Acquisitions (2)
 
Segment Total
 
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
 
Nine Months Ended September 30,
 
Increase (Decrease)
(Dollars in thousands)
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resident services and fee income
 
$
138,841

 
$
138,688

 
$
153

 
0.1
 %
 
$
39,855

 
$
7,648

 
$
32,207

 
NM
 
$
178,696

 
$
146,336

 
$
32,360

 
22.1
%
Rental income
 
10

 
8

 
2

 
NM

 
1

 

 
1

 
NM
 
11

 
8

 
3

 
NM

Total revenues
 
138,851

 
138,696

 
155

 
0.1
 %
 
39,856

 
7,648

 
32,208

 
NM
 
178,707

 
146,344

 
32,363

 
22.1
%
Property operating and maintenance
 
97,802

 
96,528

 
1,274

 
1.3
 %
 
34,462

 
7,412

 
27,050

 
NM
 
132,264

 
103,940

 
28,324

 
27.3
%
NOI
 
$
41,049

 
$
42,168

 
$
(1,119
)
 
(2.7
)%
 
$
5,394

 
$
236

 
$
5,158

 
NM
 
$
46,443

 
$
42,404

 
$
4,039

 
9.5
%
_______________
(1) 
Our SHOP segment included 57 Same Store properties.
(2) 
Our SHOP segment included three Acquisitions properties acquired from third parties, as well as 18 properties that are deemed Acquisitions as they were transitioned from our triple-net leased healthcare facilities operating segment.
NM — Not Meaningful
Resident services and fee income is generated in connection with rent and services offered to residents in our SHOPs depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance relates to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third party operators and costs associated with maintaining the physical site.
During the nine months ended September 30, 2018, resident services and fee income and rental income increased by $32.4 million in our SHOP segment as compared to the nine months ended September 30, 2017. Acquisitions, primarily comprising of our six triple-net leased healthcare facilities that transitioned to our SHOP operating segment on January 1, 2018 and 12 triple-net leased healthcare facilities that transitioned to our SHOP operating segment on June 8, 2017 contributed to an increase of $32.2 million, partially offset by a decrease of $0.2 million in revenues in our Same Store properties (see — Segment Results — Triple-Net Leased Healthcare Facilities for further details on the properties which were transitioned to our SHOP operating segment).
During the nine months ended September 30, 2018, property operating and maintenance expense increased $28.3 million in our SHOP segment as compared to the nine months ended September 30, 2017. Acquisitions, primarily comprising our 18 triple-net leased healthcare facilities that transitioned to our SHOP operating segment, contributed to an increase of $27.1 million in property operating and maintenance expense. The $1.3 million increase in Same Store property operating and maintenance expense is due to increased wages and building operational expenses.

Other Results of Operations
Impairment Charges
We recorded $18.6 million and approximately $19.0 million of impairment charges for the nine months ended September 30, 2018 and 2017, respectively. See Note 3 — Real Estate Investments for additional information on the impairment charges for the nine months ended September 30, 2018. The impairment charges for the nine months ended September 30, 2017 relate to six held for use properties that had carrying values in excess of their estimated fair values.
Operating Fees to Related Parties
Operating fees to related parties increased $0.7 million to $17.2 million for the nine months ended September 30, 2018 from $16.6 million for the nine months ended September 30, 2017.
Our Advisor and Property Manager are paid for asset management and property management services for managing our properties on a day-to-day basis. Effective February 17, 2017, we pay a base management fee equal to $1.6 million per month, while the variable portion of the base management fee is equal, per month, to one twelfth per month of 1.25% of the cumulative net proceeds of any equity raised subsequent to February 17, 2017. During the period preceding the February 17, 2017 amendment, our asset management fee was based on a percentage of the lesser of (a) cost of assets and (b) fair value of assets. Asset management fees increased $0.3 million to $14.6 million for the nine months ended September 30, 2018 from $14.3 million for the nine months ended September 30, 2017.

54


Property management fees increased $0.4 million to $2.6 million during the nine months ended September 30, 2018 from $2.3 million for the nine months ended September 30, 2017. Property management fees increase or decrease in direct correlation with gross revenues of the properties managed.
See Note 9 Related Party Transactions and Arrangements to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q which provides detail on our fees and expense reimbursements.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses of $0.3 million for the nine months ended September 30, 2018 primarily related to indirect costs associated with acquisitions. Acquisition and transaction related expenses of approximately $4.3 million for the nine months ended September 30, 2017 primarily related to costs associated with the negotiation and execution of the Purchase Agreement.
General and Administrative Expenses
General and administrative expenses increased $1.6 million to $12.7 million for the nine months ended September 30, 2018 from $11.1 million for the nine months ended September 30, 2017, including $6.6 million and $5.3 million incurred from related parties during the nine months ended September 30, 2018 and 2017, respectively. Expenses incurred primarily relate to professional fees for audit, transfer agent and legal services as well as certain expenses reimbursed to related parties and distributions on Class B Units.
Depreciation and Amortization Expenses
Depreciation and amortization expense increased $3.2 million to $62.1 million for the nine months ended September 30, 2018 from $58.9 million for the nine months ended September 30, 2017. Our acquisitions contributed $7.3 million to the increase. Same Store depreciation and amortization decreased $4.0 million primarily due to several intangible assets becoming fully amortized.
Interest Expense
Interest expense increased $15.1 million to $36.0 million for the nine months ended September 30, 2018 from $20.9 million for the nine months ended September 30, 2017. The increase in interest expense is related to increasing interest rates as well as higher overall outstanding debt, including new borrowings under the Fannie Mae Master Credit Facilities and a $250.0 million secured loan with KeyBank (the "MOB Loan"). This increase in outstanding debt under the Fannie Mae Master Credit Facilities was offset by paydowns of the Bridge Loan entered into in December 2017. As of September 30, 2018, we had total borrowings of $1,020.2 million, at a weighted average interest rate of 4.45%. As of September 30, 2017 we had total borrowings of $782.0 million, at a weighted average interest rate of 3.55%.
Our interest expense in future periods will vary based on our level of future borrowings, the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives.
Interest and Other Income
Interest and other income includes income from our investment securities and interest income earned on cash and cash equivalents held during the period. Interest and other income was approximately $21 thousand for the nine months ended September 30, 2018. Interest and other Income of $305 thousand during the for the nine months ended September 30, 2017 resulted from the recognition of a prospective buyer's non refundable deposit on an unconsummated sale of a vacant land parcel.
Gain on Sale of Real Estate Investment
Gain on sale of investment property for the nine months ended September 30, 2017 pertained to the sale of a real estate investment, which resulted in a gain of $0.4 million during the period.
Gain (Loss) on Non-Designated Derivatives
Loss on non-designated derivative instruments for the nine months ended September 30, 2018 and 2017 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with the Fannie Mae Master Credit Facilities, which have floating interest rates.
Income Tax (Expense) Benefit
Income tax expense of $0.2 million and benefit of $1.0 million for the nine months ended September 30, 2018 and 2017, respectively, related to deferred tax assets generated by current period net operating losses associated with our TRS. These deferred tax assets are partially offset by other income tax expenses incurred during the same period. Income taxes generally relate to our SHOPs, which are leased by our TRS.

55


Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests was approximately $87 thousand and approximately $135 thousand for the nine months ended September 30, 2018 and 2017, which represents the portion of our net income that is related to OP Unit and non-controlling interest holders.
Cash Flows from Operating Activities
During the nine months ended September 30, 2018, net cash provided by operating activities was $38.3 million. The level of cash flows provided by operating activities is affected by, among other things, the number of properties owned, the performance of those properties, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses. Cash inflows include non-cash items of $54.6 million (net loss of $42.6 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, bad debt expense, share based compensation, gain on non-designated derivatives and impairment charges) and an increase in accounts payable and accrued expenses of $2.9 million related to higher accrued real estate taxes, property operating expenses and professional and legal fees. These cash inflows were partially offset by a net increase in prepaid and other assets of $12.9 million and a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $6.3 million.
During the nine months ended September 30, 2017, net cash provided by operating activities was $48.0 million. Cash inflows include non-cash items of $55.8 million (net loss of $35.1 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, bad debt expense, share-based compensation, gain on sale of real estate investments, net, gain on non-designated derivatives and impairment charges) and an increase in accounts payable and accrued expenses of $7.2 million related to higher accrued real estate taxes, property operating expenses and professional and legal fees. These cash inflows were partially offset by a net increase in prepaid and other assets of $10.0 million, a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $4.5 million and an increase of $0.5 million in deferred rent.
Cash Flows from Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2018 was $80.5 million. The cash used in investing activities included $73.5 million for the acquisition of nine MOBs during the period and to fund the ongoing development property in Jupiter, Florida, as well as $7.0 million in capital expenditures.
Net cash used in investing activities during the nine months ended September 30, 2017 was $65.2 million. The cash used in investing activities included $61.8 million for the acquisition of a SHOP and three MOBs during the period and to fund the ongoing development of a skilled nursing facility in Jupiter, Florida. We also invested $5.6 million in capital expenditures and $0.5 million in deposits for real estate acquisitions. These outflows were partially offset by $0.8 million of proceeds received from a property sale and $0.9 million of cash received in the asset acquisition and transfer of operations of 12 SHOPs during the nine months ended September 30, 2017.
Cash Flows from Financing Activities
Net cash provided by financing activities of $8.8 million during the nine months ended September 30, 2018 related to proceeds of $94.2 million from our Fannie Mae Master Credit Facilities and $118.7 million from the Multi-Property CMBS Loan. These cash inflows were partially offset by mortgage principal repayments of $62.9 million, payments on our senior secured revolving credit facility (the "Revolving Credit Facility") of $80.0 million, distributions to stockholders of $43.1 million, common stock repurchases of $14.2 million, deferred financing costs of $3.3 million, and distributions to non-controlling interest holders of $0.4 million.
Net cash provided by financing activities of $56.2 million during the nine months ended September 30, 2017 related to proceeds from the MOB Loan and proceeds from our Fannie Mae Master Credit Facilities of $128.1 million, partially offset by repayments on our Revolving Credit Facility of $187.0 million, common stock repurchases of $33.6 million, distributions to stockholders of $57.5 million, payments of deferred financing costs of $8.8 million, mortgage principal repayments of $34.4 million, distributions to non-controlling interest holders of $0.5 million and payments for non-designated derivative instruments of $0.1 million.
Liquidity and Capital Resources
As of September 30, 2018, we had $52.1 million of cash and cash equivalents. Following an amendment to the Revolving Credit Facility in October 2017, we are subject to a covenant that the aggregate amount of all our unrestricted cash and cash equivalents must be equal to at least $30.0 million at all times. Our principal demands for cash will be for funding our ongoing development project, acquisitions and capital expenditures, the payment of our operating and administrative expenses, debt service obligations (including principal repayment), share repurchases and distributions to our stockholders.

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We expect to fund our future short-term operating liquidity requirements, including distributions, through a combination of current cash on hand, proceeds from the DRIP, net cash provided by our property operations and proceeds from the Revolving Credit Facility, the Fannie Credit Facilities and other secured financings. Other potential future sources of capital include proceeds from secured and unsecured financings from banks or other lenders, proceeds from public and private offerings, proceeds from the sale of properties and undistributed funds from operations, if any.
Tender Offer
On March 13, 2018, we announced a tender offer (the "Tender Offer") to purchase up to 2.0 million shares of our common stock for cash at a purchase price equal to $13.15 per share with the proration period and withdrawal rights expiring on April 12, 2018. We made the Tender Offer in response to an unsolicited offer to stockholders commenced on February 27, 2018. On April 4, 2018 and April 16, 2018 the Tender offer was amended to reduce the number of shares we were offering to purchase to 230,000 shares and extend the expiration date to May 1, 2018. The Tender Offer expired in accordance with its terms on May 1, 2018. In accordance with the terms of the Tender Offer, we accepted for purchase 229,999 shares for a total cost of approximately $3.0 million, which was funded with available cash.
Financings
As of September 30, 2018, our total debt leverage ratio (total debt divided by total assets) was approximately 43.4% and we had total borrowings of $1.0 billion, at a weighted average interest rate of 4.45%. As of December 31, 2017 we had total borrowings of $950.2 million, at a weighted average interest rate of 3.93%. We expect to increase our leverage over time and utilize proceeds from our Revolving Credit Facility and our Fannie Mae Master Credit Facilities as well as other new and current secured financings to complete future property acquisitions. Such actions may require us to pledge some or all of our unencumbered properties as security for that debt or add them to the borrowing base under our Revolving Credit Facility. The gross carrying value of unencumbered assets as of September 30, 2018 was $423.6 million, although there can be no assurance as to the amount of liquidity we would be able to generate from using these unencumbered assets as collateral for mortgage loans or adding them to the borrowing base of our Revolving Credit Facility. We may borrow if we need funds to satisfy the REIT tax qualifications requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP, determined without regard to the deduction for dividends paid and excluding net capital gain). We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.
Mortgage Notes Payable
As of September 30, 2018, we had $471.2 million in mortgage notes payable outstanding, including the Bridge Loan with Capital One as administrative agent and lender. See Note 4 Mortgages Payable for additional information. Future scheduled principal payments on our mortgage notes payable for the remainder of 2018 and the year ended December 31, 2019 are $0.4 million and $38.3 million, respectively. We plan on refinancing or exercising extension options for the mortgages due in 2019 prior to their maturity.
On December 28, 2017, we entered into the Bridge Loan with Capital One as administrative agent and lender. See Note 4 — Mortgage Notes Payable for additional information.
On April 10, 2018, we entered into the $118.7 million Multi-Property CMBS Loan with KeyBank. The Multi-Property CMBS Loan has a fixed interest rate of 4.541% and a maturity date of May 1, 2028. The Multi-Property CMBS Loan requires monthly interest-only payments, with the principal balance due on the maturity date. The Multi-Property CMBS Loan is secured by, among other things, mortgages on 20 medical office buildings in 12 states. KeyBank is permitted to securitize the Multi-Property CMBS Loan or any portion thereof.
At the closing of the Multi-Property CMBS Loan, the net proceeds after accrued interest and closing costs were used to (i) repay approximately $80.0 million of indebtedness under the Revolving Credit Facility, under which 14 of the properties were included as part of the borrowing base prior to the Multi-Property CMBS Loan, and (ii) fund approximately $3.8 million in deposits required to be made at closing into reserve accounts required under the loan agreement. The approximately $33 million in remaining net proceeds available to us may be used for general corporate purposes.
Revolving Credit Facility
As of September 30, 2018, $189.7 million was outstanding under the Revolving Credit Facility and the unused borrowing capacity under the Revolving Credit Facility was $32.4 million. Availability of borrowings is based on a pool of eligible otherwise unencumbered real estate assets comprising the borrowing base thereunder. The equity interests and related rights in our wholly owned subsidiaries that directly own or lease the eligible unencumbered real estate assets comprising the borrowing base of the Revolving Credit Facility are pledged for the benefit of the lenders thereunder. During the nine months ended September 30, 2018, 15 properties were added to the borrowing base of the Revolving Credit Facility. The Revolving Credit Facility also contains a subfacility for letters of credit of up to $25.0 million. The Revolving Credit Facility matures on March 21, 2019. We plan on refinancing the Revolving Credit Facility prior to its maturity.

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The Revolving Credit Facility requires us to meet certain financial covenants on a quarterly basis. The Advisor has elected to, without any interest accrual, defer cash payment of $1.7 million in certain fees and reimbursements due to the Advisor as of December 31, 2017. The Advisor’s deferral enabled us to comply with such covenants as of December 31, 2017. These deferred fees and reimbursements are due to the Advisor upon demand within two business days' written notice and no later than June 30, 2018. These 2017 Advisor fee deferral amounts were fully paid in April 2018. As of September 30, 2018, we were in compliance with the financial covenants under the Revolving Credit Facility. There can be no assurance that the Advisor will agree to defer future fees or reimbursements, including deferrals required to meet financial covenants per the Revolving Credit Facility.
Fannie Mae Master Credit Facilities
As of September 30, 2018, $359.3 million was outstanding under the Fannie Mae Master Credit Facilities. We may request future advances under the Fannie Mae Master Credit Facilities by adding eligible properties to the collateral pool or by borrowing-up against the increased value of the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. Future advances based on the increased value of the collateral pool may only occur during the first five years of the term and not more than one annually for each of the Fannie Mae Master Credit Facilities. The Fannie Mae Master Credit Facilities mature on November 1, 2026.
On March 2, 2018, we incurred approximately $64.2 million in aggregate additional indebtedness under the Fannie Mae Master Credit Facilities. All of the $61.7 million of the net proceeds, after closing costs, of this advance were used to prepay a portion of mortgage notes payable.

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Acquisitions
On March 5, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of a multi-tenant, triple-net leased MOB for a contract purchase price of $6.7 million. The property is located in Houston, TX and comprises approximately 24,000 square feet. We accounted for the purchase as an asset acquisition.
On March 29, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of four single-tenant, triple-net leased MOBs for a contracted purchase price of $10.1 million. Three of the properties are located in Tampa, FL and one in Wesley Chapel, FL and comprise approximately 33,000 square feet. We accounted for the purchase as an asset acquisition.
On April 17, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of a single-tenant, triple-net leased MOB for a contracted purchase price of $6.0 million. The property is located in Milwaukee, WI and comprises approximately 24,000 square feet. We accounted for the purchase as an asset acquisition.
On May 11, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of a single-tenant, triple-net leased MOB for a contracted purchase price of $7.5 million. The property is located in Tallahassee, FL and comprises approximately 22,000 square feet. We accounted for the purchase as an asset acquisition.
On August 28, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of a multi-tenant, triple-net leased MOB for a contracted purchase price of $14.3 million. The property is located in Farmington Hills, MI and comprises approximately 45,000 square feet. We accounted for the purchase as an asset acquisition.
On September 12, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of two multi-tenant, triple-net leased MOBs for a contracted purchase price of $10.3 million. The properties are located in Sterling Heights, MI and Washington Heights, MI and comprise approximately 36,000 square feet. We accounted for the purchase as an asset acquisition.
On September 24, 2018, we, through a wholly-owned subsidiary of our OP, completed an acquisition of a single-tenant, triple-net leased MOB for a contracted purchase price of $11.3 million. The property is located in Elkhorn, WI and comprises approximately 30,000 square feet. We accounted for the purchase as an asset acquisition.
All 2018 acquisitions were funded with proceeds from financings (including amounts borrowed under our Revolving Credit Facility) and cash on hand.
Pending Acquisitions
We have entered into three definitive purchase and sale agreements to acquire seven MOBs for an aggregate contract purchase price of $84.5 million.
As of September 30, 2018, we had $52.1 million of cash and cash equivalents. Following an amendment to the Revolving Credit Facility in October 2017, we are subject to a covenant that the aggregate amount of all our unrestricted cash and cash equivalents must be equal to at least $30.0 million at all times. As of September 30, 2018, $189.7 million was outstanding under the Revolving Credit Facility and the unused borrowing capacity under the Revolving Credit Facility was $32.4 million.
We expect to finance these acquisitions primarily with additional borrowings under our Revolving Credit Facility, as well as cash on hand. In order to increase the amount available for borrowing under our Revolving Credit Facility, we intend to add these pending acquisitions, as well as additional, eligible unencumbered properties that we owned as of September 30, 2018, to the borrowing base of our Revolving Credit Facility. The gross carrying value of unencumbered assets as of September 30, 2018 was $423.6 million, although there can be no assurance as to the amount of liquidity we would be able to generate from using these unencumbered assets as collateral for mortgage loans or adding them to the borrowing base of our Revolving Credit Facility.
The pending acquisitions are subject to conditions, and there can be no assurance they will be completed on their current terms, or at all.
Assets Held for Sale
Missouri SNF Properties
In January 2017, we entered into a purchase and sale agreement to sell eight of our skilled nursing facility properties in Missouri (the "Missouri SNF Properties") to affiliates of the tenant-operators of the facilities for $42.0 million. Pursuant to their rights under the initial purchase and sale agreement, the contract purchasers had seven options to adjourn the closing date for the sale through December 31, 2018, with each adjournment conditioned on the purchasers' deposit of additional earnest money.
In December 2017, we entered into an amendment to the purchase and sale agreement in which we agreed to reduce the contract purchase price from $42.0 million to $40.0 million and finance $7.5 million of the reduced contract purchase price. In addition, the closing date was amended to occur on or before the sixtieth day following the date on which all of the tenants have received a permanent license to operate the Missouri SNF Properties, but in no event later than September 30, 2018.

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On November 6, 2018, we entered into an amendment to the January 2017 agreement to sell the Missouri SNF Properties for an aggregate contract purchase price of $27.5 million (the "Amended Missouri SNF PSA"). Under the Amended Missouri SNF PSA, the purchaser is required to close no later than November 30, 2018. The Amended Missouri SNF PSA also provides that the purchasers pay a $4 million non-refundable extension and waiver fee. Although we believe the disposition of the Missouri SNF Properties is probable, there can be no assurance that the disposition will be consummated by November 30, 2018, or at all, or that we will be able to reinvest the net proceeds in an accretive manner. In connection with the Amended Missouri SNF PSA, we recognized an impairment charge of approximately $10.4 million on the eight Missouri SNF Properties for the three and nine months ended September 30, 2018 which are included on the consolidated statement of operations and comprehensive loss.
Since 2017, the tenant operators have been engaged in a dispute with the Missouri regulators over potential actions against their licenses to operate the Missouri SNF Properties relating to the failure to pay vendors.  While the tenants currently have permanent licenses, the ongoing licensure issues could impact the purchasers‘ ability to obtain financing to consummate the purchase of the Missouri SNF Properties. If the purchasers fail to close by the November 30, 2018 outside closing date, our sole remedy under the purchase and sale agreement will be to terminate the purchase and sale agreement, retain the $4 million non-refundable extension and waiver fee and receive the earnest money in the amount of $1.4 million. Further, if the tenants fail to maintain permanent licenses, they may not be able to fulfill their rental obligations under their leases with us.
There is no debt encumbering the Missouri SNF Properties, and they are not included on the borrowing base of the Revolving Line of Credit.
New York Six MOBs
During the three months ended September 30, 2018, we reconsidered the intended holding period for the New York Six MOBs due to various market conditions and the potential to reinvest in properties generating a higher yield. On July 26, 2018, we entered into a purchase and sale agreement for the sale of the New York Six MOBs, for an aggregate contract sale price of approximately $68.0 million. On September 25, 2018, we amended the purchase and sale agreement to decrease the aggregate contract sale price to $58.8 million. In connection with this amendment, we recognized an impairment charge of approximately $6.2 million on the New York Six MOBs for the three and nine months ended September 30, 2018 which is included on the consolidated statement of operations and comprehensive loss. Although we believe the disposition of the New York Six MOBs is probable, there can be no assurance that the disposition will be consummated, or that we will be able to reinvest the net proceeds in an accretive manner.
Five of the New York Six MOBs are included on the borrowing base of the Revolving Line of Credit and one is mortgaged under the Multi-Property CMBS Loan. We expect the total cost of repaying the debt associated with the New York Six MOBs at closing, including prepayment penalties, would be $23.3 million.
The LaSalle Tenant
We are currently exploring options to replace the LaSalle Tenant. In January 2018, we entered into an agreement with the LaSalle Tenant in which we agreed to forbear from exercising legal remedies, including staying a lawsuit against the LaSalle Tenant, as long as the LaSalle Tenant pays the amounts due for rent and property taxes on an updated payment schedule pursuant to the forbearance agreement. The LaSalle Tenant is currently in default of the forbearance agreement and owes us $2.9 million of rent, property taxes, late fees, and interest receivable thereunder. We have the entire receivable balance and related income from the LaSalle Tenant fully reserved as of September 30, 2018. We incurred $3.3 million and $3.6 million of bad debt expense, including straight-line rent write-offs, related to the LaSalle Tenant during the three and nine months ended September 30, 2018, which is included in property operating and maintenance expense on the consolidated statement of operations.
Palm and the NuVista Tenants
In August 2015, we entered into an asset purchase agreement and development agreement to acquire land and construction in progress, and subsequently fund the remaining construction, of a development property in Jupiter, Florida for $82.0 million. As of September 30, 2018, we had funded $88.7 million, including $10.0 million for the land and $78.7 million for construction in progress. As a result, we believe that we have satisfied our funding commitments for the construction. As of September 30, 2018, we had funded $6.7 million in excess of its $72.0 million funding commitment for the construction. We have and may continue, at our election, to provide additional funding to ensure completion of the construction. To the extent we fund additional monies for the completion of the development, Palm, the developer of the facility, is responsible for reimbursing us for any amounts funded. As described in more detail below, entities related to Palm are, however, in default to us under leases at other properties in our portfolio and there can be no assurance that Palm will reimburse us for construction overruns so funded.
Palm is responsible for completing the development and obtaining a final certificate of occupancy for the facility (the "CO"). However, Palm is in default of the development agreement and has provided notice that it will cease providing services under the development agreement, which may result in additional delays in obtaining the CO. Until the CO is obtained, we will not receive income from the property, and, during this period, we have paid, and expect to continue to pay, ongoing maintenance expenses related to the property. There is no assurance as to when and if Palm will comply with its obligations. We are currently working to obtain the CO.

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Under the development agreement, the targeted completion date was December 31, 2016. Additionally, the estimated rent commencement date was expected to be no later than April 1, 2017 with entities related to Palm operating the property as the tenants (the “Jupiter Tenant”). We do not expect entities related to Palm to become the tenant and currently expect that we will need to find a replacement tenant once we obtain the CO. Pursuant to an agreement between the Jupiter Tenant and us, the Jupiter Tenant agreed to transfer all contracts, licenses and permits (including all operational permissions and certificates of need) to a replacement tenant designated by us. Until such replacement tenant is identified, there can be no assurance that the Jupiter Tenant will comply with the obligations set forth in such agreement.
The NuVista Tenants have been in default under their leases since July 2017 and collectively owe us $8.0 million of rent, property taxes, late fees, and interest receivable with respect to these properties as of September 30, 2018. There can be no guarantee on the collectibility of these receivables, and as such, we have the entire receivable balance and related income from the NuVista Tenants fully reserved as of September 30, 2018. We incurred $5.4 million and $3.3 million of bad debt expense related to the NuVista Tenants during the three and nine months ended September 30, 2018 and 2017, respectively which is included in property operating and maintenance expense on the consolidated statement of operations. The NuVista Tenants are related to Palm, the developer of our development property in Jupiter, Florida which is also currently in default to us.
At one of the properties which is occupied by the NuVista Tenants, located in Wellington, Florida, we and the tenant entered into the OTA pursuant to which we and the tenant agreed to cooperate in transitioning operations at the property to a third party operator selected by us. To date, the transition set forth in the OTA has not occurred and we have filed litigation to enforce the terms of the OTA and, in the alternative, pursue eviction proceedings against the NuVista Tenant and appoint a court ordered receiver in order to replace the NuVista Tenant with a new tenant and operator at the property.
The other property, located in Lutz, Florida, transitioned to the SHOP operating segment as of January 1, 2018. In connection with this transition, we replaced the NuVista Tenant as a tenant with a TRS, and have engaged a third party to operate the property. This structure is permitted by the REIT Investment Diversification and Empowerment Act of 2007, under which a REIT may lease qualified healthcare properties on an arm's length basis to a TRS if the property is operated on behalf of such subsidiary by an entity who qualifies as an eligible independent contractor. During the three months ended September 30, 2018, the new operator obtained a Medicare license. Prior to the operator obtaining this Medicare license, we were unable to bill Medicare for services performed, and therefore, accumulated $6.1 million of Medicare receivables as of September 30, 2018. We expect that $0.5 million of these receivables are not collectible and therefore have reserved them, resulting in bad debt expense during the three and nine months ended September 30, 2018, which is included in property operating and maintenance expense on the consolidated statement of operations. There can be no assurance as to the collectibility of these Medicare receivables.
Share Repurchase Program
Our Board has adopted the SRP, which enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, repurchase the shares presented for repurchase for cash. There are limits on the number of shares we may repurchase under this program during any calendar year. We are only authorized to repurchase shares using the proceeds secured from our DRIP in any given period, although the Board has the power, in its sole discretion, to determine the number of shares repurchased during any period as well as the amount of funds to be used for that purpose.
On June 14, 2017, we announced that the Board approved and adopted an amended and restated SRP that superseded and replaced the existing SRP, effective as of July 14, 2017. Under the amended and restated SRP, subject to certain conditions, only repurchase requests made following the death or qualifying disability of stockholders that purchased shares of our common stock or received their shares from us (directly or indirectly) through one or more non-cash transactions would be considered for repurchase. Other terms and provisions of the amended and restated SRP remained consistent with the existing SRP.
We suspended the SRP during the pendency of the Tender Offer which commenced on March 13, 2018. On June 29, 2018, we announced that the Board unanimously determined to reactivate the SRP, effective June 30, 2018. In connection with reactivating the SRP, the Board approved all repurchase requests received during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018. Accordingly, 155,904 shares were repurchased on July 31, 2018 for $3.2 million at an average price per share of $20.25, representing 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018. No repurchase requests received during the SRP suspension were accepted.

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The following table reflects the number of shares repurchased cumulatively through September 30, 2018:
 
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2017 (1)
 
2,529,798

 
$
22.43

Nine months ended September 30, 2018 (2)
 
529,871

 
$
21.10

Cumulative repurchases as of September 30, 2018
 
3,059,669

 
$
22.20

_______________
(1) Includes 1,554,768 shares repurchased during the year ended December 31, 2017 for approximately $33.6 million at a weighted average price per share of $21.61. In July 2017, following the effectiveness of the amendment and restatement of the SRP, the Board approved 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2017 to September 30, 2017, which was equal to 267,723 shares repurchased for approximately $5.7 million at an average price per share of $21.47. No repurchases have been or will be made with respect to requests received during 2017 that are not valid requests in accordance with the amended and restated SRP.
(2) Includes (i) 373,967 shares repurchased during January 2018 with respect to requests received following the death or qualifying disability of stockholders during the six months ended December 31, 2017 for approximately $8.0 million at a weighted average price per share of $21.45, and (ii) 155,904 shares that were repurchased for $3.2 million at an average price per share of $20.25 on July 31, 2018, representing 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018. No repurchase requests received during the SRP suspension were accepted.
Non-GAAP Financial Measures
This section includes non-GAAP financial measures including Funds from Operations ("FFO"), Modified Funds from Operations ("MFFO") and NOI. While NOI is a property-level measure, MFFO is based on our total performance as a company and therefore reflects the impact of other items not specifically associated with NOI such as, interest expense, general and administrative expenses and operating fees to related parties. Additionally, NOI as defined here, includes straight-line rent which is excluded from MFFO. A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure, which is net income, are provided below:
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as FFO, which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures, if any, are calculated to reflect FFO on the same basis.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

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Because of these factors, the Institute of Portfolio Alternatives ("IPA"), an industry trade group, has published a standardized measure of performance known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition fees and expenses, amortization of above and below market and other intangible lease assets and liabilities, amounts relating to straight-line rent adjustments (in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the lease and rental payments), contingent purchase price consideration, accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and adjustments for unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. We also exclude other non-operating items in calculating MFFO, such as transaction-related fees and expenses (which include costs associated with a strategic review we conducted during the year ended December 31, 2016) and capitalized interest.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guideline or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

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The tables below reflect the items deducted from or added to net loss attributable to stockholders in our calculation of FFO and MFFO for the periods indicated. In calculating our FFO and MFFO, we exclude the impact of amounts attributable to our non-controlling interests.
 
 
Three Months Ended
 
Nine Months Ended September 30, 2018
(In thousands)
 
March 31,
2018
 
June 30,
2018
 
September 30,
2018
 
Net loss attributable to stockholders (in accordance with GAAP)
 
$
(5,991
)
 
$
(6,950
)
 
$
(29,607
)
 
$
(42,548
)
Depreciation and amortization (1)
 
20,458

 
20,591

 
20,269

 
61,318

Impairment charges
 
733

 

 
17,837

 
18,570

Adjustments for non-controlling interests (2)
 
(103
)
 
(108
)
 
(98
)
 
(309
)
FFO attributable to stockholders
 
15,097

 
13,533

 
8,401

 
37,031

Acquisition and transaction related
 
173

 
120

 
40

 
333

Amortization of market lease and other intangibles, net
 
86

 
77

 
42

 
205

Straight-line rent adjustments, net of related bad debt expense of $1,468, $147, $3,381 and $5,451, respectively
 
(628
)
 
(2,027
)
 
1,926

 
(729
)
Amortization of mortgage premiums and discounts, net
 
(69
)
 
(64
)
 
(67
)
 
(200
)
(Gain) Loss on non-designated derivatives
 
(178
)
 
150

 
(18
)
 
(46
)
Capitalized construction interest costs
 
(670
)
 
(785
)
 
(848
)
 
(2,303
)
Adjustments for non-controlling interests (2)
 
6

 
13

 
(13
)
 
6

MFFO attributable to stockholders
 
$
13,817

 
$
11,017

 
$
9,463

 
$
34,297

_______________
(1) 
Net of non-real estate depreciation and amortization.
(2) 
Represents the portion of the adjustments allocable to non-controlling interest.

64


 
 
Three Months Ended
 
Nine Months Ended September 30, 2017
(In thousands)
 
March 31, 2017
 
June 30, 2017
 
September 30,
2017
 
Net loss attributable to stockholders (in accordance with GAAP)
 
$
(6,139
)
 
$
(4,716
)
 
$
(24,136
)
 
$
(34,991
)
Depreciation and amortization (1)
 
20,240

 
19,068

 
18,814

 
58,122

Impairment charges
 
35

 

 
18,958

 
18,993

Gain on sale of real estate investment
 

 
(438
)
 

 
(438
)
Adjustments for non-controlling interests (2)
 
(99
)
 
(77
)
 
(175
)
 
(351
)
FFO attributable to stockholders
 
14,037

 
13,837

 
13,461

 
41,335

Acquisition and transaction-related
 
2,845

 
1,743

 
(261
)
 
4,327

Amortization of market lease and other lease intangibles, net
 
119

 
76

 
27

 
222

Straight-line rent adjustments, net of related bad debt expense of $334, $1,286, $892 and $2,512, respectively
 
(1,052
)
 
(367
)
 
(504
)
 
(1,923
)
Amortization of mortgage premiums and discounts, net
 
(440
)
 
(439
)
 
(400
)
 
(1,279
)
Loss on non-designated derivative instruments
 
64

 
43

 
22

 
129

Capitalized construction interest costs
 
(418
)
 
(484
)
 
(566
)
 
(1,468
)
Adjustments for non-controlling interests (2)
 
(5
)
 
(4
)
 
8

 
(1
)
MFFO attributable to stockholders
 
$
15,150

 
$
14,405

 
$
11,787

 
$
41,342

_______________
(1) 
Net of non-real estate depreciation and amortization.
(2) 
Represents the portion of the adjustments allocable to non-controlling interests.
Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss).
We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).
NOI excludes certain components from net income (loss) in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to make distributions.

65


The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Acquisitions NOI for the three months ended March 31, 2018:
(In thousands)
 
Same Store
 
Acquisitions
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
13,968

 
$
665

 
$

 
$
(20,624
)
 
$
(5,991
)
Impairment charges
 
733

 

 

 

 
733

Operating fees to related parties
 

 

 

 
5,727

 
5,727

Acquisition and transaction related
 
1

 
61

 

 
111

 
173

General and administrative
 

 

 

 
3,652

 
3,652

Depreciation and amortization
 
17,241

 
3,395

 

 
133

 
20,769

Interest expense
 
205

 
61

 

 
10,891

 
11,157

Interest and other income
 
(3
)
 

 

 

 
(3
)
Loss on non-designated derivative instruments
 

 

 

 
(178
)
 
(178
)
Income tax benefit (expense)
 

 

 
 
 
309

 
309

Net income (loss) attributable to non-controlling interests
 
1

 
4

 

 
(21
)
 
(16
)
NOI
 
$
32,146

 
$
4,186

 
$

 
$

 
$
36,332

The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended March 31, 2017:
(In thousands)
 
Same Store
 
Acquisitions
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
7,835

 
$

 
$
2

 
$
(13,976
)
 
$
(6,139
)
Impairment charges
 

 

 

 
35

 
35

Operating fees to related parties
 

 

 

 
5,301

 
5,301

Acquisition and transaction related
 
2,801

 

 

 
44

 
2,845

General and administrative
 
1

 

 

 
4,156

 
4,157

Depreciation and amortization
 
20,350

 

 

 
133

 
20,483

Interest expense
 
1,255

 

 

 
4,227

 
5,482

Interest and other income
 
(1
)
 

 

 

 
(1
)
Loss on non-designated derivative instruments
 

 

 

 
64

 
64

Income tax benefit (expense)
 
(242
)
 

 
 
 
47

 
(195
)
Net income (loss) attributable to non-controlling interests
 
3

 

 

 
(31
)
 
(28
)
NOI
 
$
32,002

 
$

 
$
2

 
$

 
$
32,004


66


The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended June 30, 2018:
(In thousands)
 
Same Store
 
Acquisitions
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
15,265

 
$
923

 
$

 
$
(23,138
)
 
$
(6,950
)
Impairment charges
 

 

 

 

 

Operating fees to related parties
 

 

 

 
5,763

 
5,763

Acquisition and transaction related
 

 
51

 

 
69

 
120

General and administrative
 
6

 

 

 
4,606

 
4,612

Depreciation and amortization
 
18,167

 
2,614

 

 
83

 
20,864

Interest expense
 
108

 
61

 

 
12,039

 
12,208

Interest and other income
 
(1
)
 

 

 
(1
)
 
(2
)
Loss on non-designated derivative instruments
 

 

 

 
150

 
150

Income tax benefit
 

 

 
 
 
466

 
466

Net income (loss) attributable to non-controlling interests
 
2

 
4

 

 
(37
)
 
(31
)
NOI
 
$
33,547

 
$
3,653

 
$

 
$

 
$
37,200

The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended June 30, 2017:
(In thousands)
 
Same Store
 
Acquisition
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
11,874

 
$
(185
)
 
$
6

 
$
(16,411
)
 
$
(4,716
)
Impairment charges
 

 

 

 

 

Operating fees to related parties
 

 

 

 
5,637

 
5,637

Acquisition and transaction related
 

 

 

 
1,743

 
1,743

General and administrative
 

 

 

 
3,419

 
3,419

Depreciation and amortization
 
18,322

 
191

 
694

 
132

 
19,339

Gain on sale of real estate investment
 

 

 
(438
)
 

 
(438
)
Interest expense
 
1,172

 

 

 
5,416

 
6,588

Interest and other income
 
(2
)
 

 

 

 
(2
)
Loss on non-designated derivative instruments
 

 

 

 
43

 
43

Income tax benefit (expense)
 
(242
)
 
 
 
 
 
40

 
(202
)
Net income (loss) attributable to non-controlling interests
 
(4
)
 

 
18

 
(19
)
 
(5
)
NOI
 
$
31,120

 
$
6

 
$
280

 
$

 
$
31,406




67


The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended September 30, 2018
(In thousands)
 
Same Store
 
Acquisitions
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
(8,477
)
 
$
911

 
$

 
$
(22,041
)
 
$
(29,607
)
Impairment charges
 
17,837

 

 

 

 
17,837

Operating fees to related parties
 

 

 

 
5,743

 
5,743

Acquisition and transaction related
 
3

 
36

 

 
1

 
40

General and administrative
 
15

 
2

 

 
4,424

 
4,441

Depreciation and amortization
 
17,736

 
2,730

 

 

 
20,466

Interest expense
 
50

 
61

 

 
12,486

 
12,597

Interest and other income
 
(16
)
 

 

 

 
(16
)
Loss on non-designated derivative instruments
 

 

 

 
(18
)
 
(18
)
Income tax benefit (expense)
 

 

 

 
(550
)
 
(550
)
Net income (loss) attributable to non-controlling interests
 
1

 
4

 

 
(45
)
 
(40
)
NOI
 
$
27,149

 
$
3,744

 
$

 
$

 
$
30,893

The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended September 30, 2017:
(In thousands)
 
Same Store
 
Acquisition
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
(8,544
)
 
$
224

 
$
(1
)
 
$
(15,815
)
 
$
(24,136
)
Impairment charges
 
18,958

 

 

 

 
18,958

Operating fees to related parties
 

 

 

 
5,635

 
5,635

Acquisition and transaction related
 

 
101

 

 
(362
)
 
(261
)
General and administrative
 

 

 

 
3,541

 
3,541

Depreciation and amortization
 
18,714

 
242

 

 
133

 
19,089

Gain on sale of real estate investment
 

 

 

 

 

Interest expense
 
935

 

 

 
7,903

 
8,838

Interest and other income
 
(2
)
 

 

 
(300
)
 
(302
)
Loss on non-designated derivative instruments
 

 

 

 
22

 
22

Income tax benefit (expense)
 

 

 

 
(652
)
 
(652
)
Net income (loss) attributable to non-controlling interests
 
2

 

 

 
(105
)
 
(103
)
NOI
 
$
30,063

 
$
567

 
$
(1
)
 
$

 
$
30,629



68


The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the nine months ended September 30, 2018:
(In thousands)
 
Same Store
 
Acquisitions
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
20,832

 
$
2,423

 
$

 
$
(65,803
)
 
$
(42,548
)
Impairment charges
 
18,570

 

 

 

 
18,570

Operating fees to related parties
 

 

 

 
17,233

 
17,233

Acquisition and transaction related
 
5

 
148

 

 
180

 
333

General and administrative
 
19

 
2

 

 
12,684

 
12,705

Depreciation and amortization
 
54,177

 
7,706

 

 
216

 
62,099

Interest expense
 
364

 
183

 

 
35,415

 
35,962

Interest and other income
 
(20
)
 

 

 
(1
)
 
(21
)
Loss on non-designated derivative instruments
 

 

 

 
(46
)
 
(46
)
Income tax benefit
 

 

 
 
 
225

 
225

Net income (loss) attributable to non-controlling interests
 
4

 
12

 

 
(103
)
 
(87
)
NOI
 
$
93,951

 
$
10,474

 
$

 
$

 
$
104,425

The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the nine months ended September 30, 2017:
(In thousands)
 
Same Store
 
Acquisition
 
Dispositions
 
Non-Property Specific
 
Total
Net income (loss) attributable to stockholders (in accordance with GAAP)
 
$
9,988

 
$
294

 
$
412

 
$
(45,685
)
 
$
(34,991
)
Impairment charges
 
18,993

 

 

 

 
18,993

Operating fees to related parties
 

 

 

 
16,573

 
16,573

Acquisition and transaction related
 
2,800

 
101

 

 
1,426

 
4,327

General and administrative
 

 

 

 
11,116

 
11,116

Depreciation and amortization
 
58,133

 
368

 
10

 
400

 
58,911

Interest expense
 
3,362

 

 

 
17,546

 
20,908

Interest and other income
 
(5
)
 

 

 
(300
)
 
(305
)
Gain on sale of real estate investment
 

 

 
(438
)
 

 
(438
)
Loss on non-designated derivative instruments
 

 

 

 
129

 
129

Income tax benefit (expense)
 

 
 
 
 
 
(1,049
)
 
(1,049
)
Net income (loss) attributable to non-controlling interests
 
4

 

 
17

 
(156
)
 
(135
)
NOI
 
$
93,275

 
$
763

 
$
1

 
$

 
$
94,039

Refer to Note 15Segment Reporting for a reconciliation of NOI to net loss attributable to stockholders by reportable segment.

69


Distributions
In May 2013, we began paying distributions on a monthly basis at a rate equivalent to $1.70 per annum, per share of common stock. In March 2017, the Board authorized a decrease in the rate at which we pay monthly distributions to stockholders, effective as of April 1, 2017, to a rate equivalent to $1.45 per annum, per share of common stock. On February 20, 2018, the Board authorized a further decrease in the rate at which we pay monthly distributions to stockholders, effective as of March 1, 2018, to a rate equivalent to $0.85 per annum per share of common stock. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.
The amount of distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Distribution payments are dependent on the availability of funds. The Board may further reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
During the nine months ended September 30, 2018, distributions paid to common stockholders and OP Unit holders totaled $72.0 million, including $28.6 million which was reinvested into additional shares of common stock through our DRIP. For the nine months ended September 30, 2018, cash flows provided by operations were $38.3 million.
The following table shows the sources for the payment of distributions to common stockholders, including distributions on unvested restricted shares and OP Units, but excluding distributions related to Class B Units as these distributions are recorded as an expense in our consolidated statement of operations and comprehensive loss, for the periods indicated:
 
 
Three Months Ended
 
Year-To-Date
 
 
March 31, 2018
 
June 30, 2018
 
September 30, 2018
 
September 30, 2018
(In thousands)
 
 
 
Percentage of Distributions
 
 
 
Percentage of Distributions
 
 
 
Percentage of Distributions
 
 
 
Percentage of Distributions
Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions to stockholders not reinvested in common stock issued under the DRIP
 
$
19,126

 
 
 
$
11,816

 
 
 
$
12,154

 
 
 
$
43,096

 
 
Distributions reinvested in common stock issued under the DRIP
 
13,355

 
 
 
7,739

 
 
 
7,457

 
 
 
28,551

 
 
Distributions on OP Units
 
145

 
 
 
87

 
 
 
87

 
 
 
319

 
 
Total distributions (1)
 
$
32,626

 
 
 
$
19,642

 
 
 
$
19,698

 
 
 
$
71,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source of distribution coverage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operations
 
$
16,918

 
51.9
%
 
$
10,671

 
54.3
%
 
$
10,694

 
54.3
%
 
$
38,283

 
53.2
%
Proceeds received from common stock issued under the DRIP (2)
 
13,355

 
40.9
%
 
7,739

 
39.4
%
 
7,457

 
37.9
%
 
28,551

 
39.7
%
Available cash on hand (3)
 
2,353

 
7.2
%
 
1,232

 
6.3
%
 
1,547

 
7.8
%
 
5,132

 
7.1
%
Total source of distribution coverage
 
$
32,626

 
100.0
%
 
$
19,642

 
100.0
%
 
$
19,698

 
100.0
%
 
$
71,966

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operations (in accordance with GAAP)
 
$
16,918

 
 
 
$
10,671

 
 
 
$
10,694

 
 
 
$
38,283

 
 
Net loss attributable to stockholders (in accordance with GAAP)
 
$
(5,991
)
 
 
 
$
(6,950
)
 
 
 
$
(29,607
)
 
 
 
$
(42,548
)
 
 
_______________
(1) 
Excludes distributions related to Class B Units and distributions to non-controlling interest holders other than those paid on our OP Units.
(2) 
Net of share repurchases during the period.
(3) 
Includes proceeds received from credit facilities and mortgage notes payable.
For the nine months ended September 30, 2018, cash flows provided by operations were $38.3 million. As shown in the table above, we funded distributions with cash flows provided by operations as well as proceeds received from common stock issued under our DRIP and financings. To the extent we pay distributions in excess of cash flows provided by operations, our stockholders' investment may be adversely impacted. Distributions paid from sources other than our cash flows from operations will result in us having fewer funds available for other needs such as property acquisitions and other real estate-related investments.

70


We have historically not generated sufficient cash flow from operations to fund distributions. The amount of cash available for distributions is affected by many factors, such as rental income from acquired properties and our operating expense levels, as well as many other variables. Our interest expense in future periods will vary based on our level of future borrowings, the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives. To the extent interest expense increases, we will have less cash available for distribution. Actual cash available for distributions may vary substantially from estimates. We cannot give any assurance that future acquisitions of real properties, if any, will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by the Board in establishing a distribution rate to stockholders.
If we do not generate sufficient cash flows from our operations to fund distributions, we may have to further reduce or suspend distributions. We have funded a portion of our distributions from, among other things, DRIP proceeds, borrowings and proceeds from the sale of real estate investments. A decrease in the level of stockholder participation in our DRIP could have an adverse impact on our ability to continue to use DRIP proceeds. Borrowings required to fund distributions may not be available at favorable rates, or at all, and could restrict the amount we can borrow for investments and other purposes. Likewise, the proceeds from any property sale may not be available to fund distributions. Distributions paid from sources other than our cash flows from operations also reduce the funds available for other needs such as property acquisitions, capital expenditures and other real estate-related investments.
We may not have sufficient cash from operations to make a distribution required to maintain our REIT status, which may materially adversely affect an investment in our common stock. Moreover, the Board may change our distribution policy, in its sole discretion, at any time.
Further, paying distributions from sources other than operating cash flow is not sustainable particularly where limited by the terms of instruments governing borrowings. For example, our Revolving Credit Facility imposes limitations on our ability to pay distributions to stockholders and repurchase shares of common stock. Distributions to stockholders are limited, with certain exceptions, to a percentage of Modified FFO (as defined in the Revolving Credit Facility (which is different from MFFO as discussed in this Quarterly Report on Form 10-Q) during the applicable period as follows: (i) for the six months ending March 31, 2018, 130% of Modified FFO; (ii) for the nine months ending June 30, 2018, 120% of Modified FFO; (iii) for the 12 months ending September 30, 2018, 115% of Modified FFO; and (iv) for the 12 months ending December 31, 2018 and for each period of four fiscal quarters ending after that period, 110% of Modified FFO. This covenant was amended twice during 2017 to permit us to pay a certain level of distributions, but there is no assurance that our lenders will agree to future amendments if needed, or if Modified FFO is not sufficient.
Loan Obligations
The payment terms of our mortgage notes payable generally require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity. The payment terms of our Revolving Credit Facility require interest only amounts payable monthly with all unpaid principal and interest due at maturity. The payment terms of our Fannie Mae Master Credit Facilities require interest only payments through November 2021 and principal and interest payments thereafter. Our loan agreements require us to comply with specific reporting covenants. As of September 30, 2018, we were in compliance with the financial and reporting covenants under our loan agreements.
Contractual Obligations
On April 10, 2018, we entered into the Multi-Property CMBS Loan. See — Liquidity and Capital Resources for further discussion on material financing transactions.
There were no other material changes in the Company's contractual obligations at September 30, 2018, as compared to those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
Election as a REIT 
We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. Commencing with such taxable year, we were organized and operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner but no assurance can be given that we will operate in a manner so as to remain qualified for taxation as a REIT. In order to continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we continue to qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.

71


Inflation
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, we may be required to pay costs for maintenance and operation of properties, which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting from inflation.
Related-Party Transactions and Agreements
Please see Note 9Related Party Transactions and Arrangements to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in our exposure to market risk during the nine months ended September 30, 2018. For a discussion of our exposure to market risk, refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Item 2. Unregistered Sales of Equity Securities.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the nine months ended September 30, 2018.
Issuer Purchases of Equity Securities
The following table reflects the number of shares repurchased cumulatively through September 30, 2018:
 
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2017 (1)
 
2,529,798

 
$
22.43

Nine months ended September 30, 2018 (2)
 
529,871

 
$
21.10

Cumulative repurchases as of September 30, 2018
 
3,059,669

 
$
22.20

_______________
(1) Includes 1,554,768 shares repurchased during the year ended December 31, 2017 for approximately $33.6 million at a weighted average price per share of $21.61. In July 2017, following the effectiveness of the amendment and restatement of the SRP, the Board approved 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2017 to September 30, 2017, which was equal to 267,723 shares repurchased for approximately $5.7 million at an average price per share of $21.47. No repurchases have been or will be made with respect to requests received during 2017 that are not valid requests in accordance with the amended and restated SRP.
(2) Includes (i) 373,967 shares repurchased during January 2018 with respect to requests received following the death or qualifying disability of stockholders during the six months ended December 31, 2017 for approximately $8.0 million at a weighted average price per share of $21.45, and (ii) 155,904 shares that were repurchased for $3.2 million at an average price per share of $20.25 on July 31, 2018, representing 100% of the repurchase requests made following the death or qualifying disability of stockholders during the period from January 1, 2018 through the suspension of the SRP on March 13, 2018. No repurchase requests received during the SRP suspension were accepted.

Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HEALTHCARE TRUST, INC.
 
By:
/s/ Edward M. Weil, Jr.
 
 
Edward M. Weil, Jr.
 
 
Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
 
By:
/s/ Katie P. Kurtz
 
 
Katie P. Kurtz
 
 
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting Officer)

Dated: November 13, 2018

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EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.
  
Description
10.1 (1)
 
Form of Indemnification Agreement
31.1 *
 
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *
 
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *
 
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from Healthcare Trust, Inc.'s Report on Form 10-Q for the three months ended September 30, 2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
____________________
*
Filed herewith.
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 3, 2018.


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