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EX-32.1 - EXHIBIT 32.1 - Griffin-American Healthcare REIT II, Inc.ex321-201410xqhc2.htm

 
 
 
 
 
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 June 30, 2014
or
¨
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: 000-54371

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
26-4008719
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
18191 Von Karman Avenue, Suite 300,
Irvine, California
 
92612
(Address of principal executive offices)
 
(Zip Code)

(949) 270-9200
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
___________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
¨
Accelerated filer
¨
 
Non-accelerated filer
x (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨  Yes   x  No
As of August 8, 2014, there were 293,399,469 shares of common stock of Griffin-American Healthcare REIT II, Inc. outstanding.
 
 
 
 
 



GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 


2


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2014 and December 31, 2013
(Unaudited) 
 
June 30,
 
December 31,
 
2014
 
2013
ASSETS
Real estate investments, net
$
2,641,620,000

 
$
2,523,699,000

Real estate notes receivable, net
29,210,000

 
18,888,000

Cash and cash equivalents
30,878,000

 
37,955,000

Accounts and other receivables, net
10,110,000

 
6,906,000

Restricted cash
14,845,000

 
12,972,000

Real estate and escrow deposits
1,500,000

 
4,701,000

Identified intangible assets, net
269,127,000

 
285,667,000

Other assets, net
49,953,000

 
37,938,000

Total assets
$
3,047,243,000

 
$
2,928,726,000

 
 
 
 
LIABILITIES AND EQUITY
Liabilities:
 
 
 
Mortgage loans payable, net
$
320,643,000

 
$
329,476,000

Line of credit
217,300,000

 
68,000,000

Accounts payable and accrued liabilities
49,161,000

 
42,717,000

Accounts payable due to affiliates
3,124,000

 
2,407,000

Derivative financial instruments
27,249,000

 
16,940,000

Identified intangible liabilities, net
11,579,000

 
11,693,000

Security deposits, prepaid rent and other liabilities
72,704,000

 
72,262,000

Total liabilities
701,760,000

 
543,495,000

 
 
 
 
Commitments and contingencies (Note 11)

 

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding

 

Common stock, $0.01 par value; 1,000,000,000 shares authorized; 293,399,469 and 290,003,240 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
2,933,000

 
2,900,000

Additional paid-in capital
2,667,638,000

 
2,635,175,000

Accumulated deficit
(366,901,000
)
 
(277,826,000
)
Accumulated other comprehensive income
39,676,000

 
22,776,000

Total stockholders’ equity
2,343,346,000

 
2,383,025,000

Noncontrolling interests (Note 12)
2,137,000

 
2,206,000

Total equity
2,345,483,000

 
2,385,231,000

Total liabilities and equity
$
3,047,243,000

 
$
2,928,726,000

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

3


GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2014 and 2013
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Real estate revenue
$
72,935,000

 
$
45,394,000

 
$
145,203,000

 
$
85,612,000

Resident fees and services
20,987,000

 

 
40,175,000

 

Total revenues
93,922,000

 
45,394,000

 
185,378,000

 
85,612,000

Expenses:
 
 
 
 
 
 
 
Rental expenses
34,992,000

 
10,217,000

 
66,303,000

 
18,457,000

General and administrative
11,704,000

 
4,369,000

 
19,890,000

 
8,439,000

Acquisition related expenses
1,101,000

 
3,674,000

 
2,743,000

 
7,279,000

Depreciation and amortization
34,326,000

 
16,420,000

 
67,927,000

 
31,238,000

Total expenses
82,123,000

 
34,680,000

 
156,863,000

 
65,413,000

Income from operations
11,799,000

 
10,714,000

 
28,515,000

 
20,199,000

Other income (expense):
 
 
 
 
 
 
 
Interest expense (including amortization of deferred financing costs and debt discount/premium):
 
 
 
 
 
 
 
Interest expense
(5,445,000
)
 
(4,488,000
)
 
(10,538,000
)
 
(8,565,000
)
Gain in fair value of derivative financial instruments
25,000

 
123,000

 
75,000

 
212,000

Foreign currency and derivative loss
(7,682,000
)
 
(330,000
)
 
(9,904,000
)
 
(330,000
)
Interest income
1,000

 
34,000

 
4,000

 
37,000

(Loss) income before income taxes
(1,302,000
)
 
6,053,000

 
8,152,000

 
11,553,000

Income tax benefit
805,000

 

 
1,437,000

 

Net (loss) income
(497,000
)
 
6,053,000

 
9,589,000

 
11,553,000

Less: net loss (income) attributable to noncontrolling interests
3,000

 
(9,000
)
 
(10,000
)
 
(13,000
)
Net (loss) income attributable to controlling interest
$
(494,000
)
 
$
6,044,000

 
$
9,579,000

 
$
11,540,000

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

 
$
0.04

 
$
0.03

 
$
0.08

Weighted average number of common shares outstanding — basic and diluted
293,304,968

 
155,827,697

 
292,474,061

 
140,121,582

Distributions declared per common share
$
0.17

 
$
0.17

 
$
0.34

 
$
0.34

 
 
 
 
 
 
 
 
Net (loss) income
$
(497,000
)
 
$
6,053,000

 
$
9,589,000

 
$
11,553,000

Other comprehensive income:
 
 
 
 
 
 
 
Gains on intra-entity foreign currency transactions that are of a long-term investment nature
13,194,000

 

 
16,388,000

 

Foreign currency translation adjustments
424,000

 

 
528,000

 

Total other comprehensive income
13,618,000

 

 
16,916,000

 

Comprehensive income
13,121,000

 
6,053,000

 
26,505,000

 
11,553,000

Less: comprehensive income attributable to noncontrolling interests
(10,000
)
 
(9,000
)
 
(26,000
)
 
(13,000
)
Comprehensive income attributable to controlling interest
$
13,111,000

 
$
6,044,000

 
$
26,479,000

 
$
11,540,000


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

4


GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, 2014 and 2013
(Unaudited)
 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of
Shares
 
Amount
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income
 
Total Stockholders' Equity
 
Noncontrolling
Interests
 
Total Equity
BALANCE — December 31, 2013
290,003,240

 
$
2,900,000

 
$
2,635,175,000

 
$
(277,826,000
)
 
$
22,776,000

 
$
2,383,025,000

 
$
2,206,000

 
$
2,385,231,000

Issuance of common stock
17,066

 

 
157,000

 

 

 
157,000

 

 
157,000

Offering costs — common stock

 

 
(3,000
)
 

 

 
(3,000
)
 

 
(3,000
)
Issuance of vested and nonvested restricted common stock
81,540

 

 
167,000

 

 

 
167,000

 

 
167,000

Issuance of common stock under the DRIP
3,801,067

 
38,000

 
36,871,000

 

 

 
36,909,000

 

 
36,909,000

Repurchase of common stock
(503,444
)
 
(5,000
)
 
(4,855,000
)
 

 

 
(4,860,000
)
 

 
(4,860,000
)
Amortization of nonvested common stock compensation

 

 
126,000

 

 

 
126,000

 

 
126,000

Distributions to noncontrolling interests

 

 

 

 

 

 
(95,000
)
 
(95,000
)
Distributions declared

 

 

 
(98,654,000
)
 

 
(98,654,000
)
 

 
(98,654,000
)
Net income

 

 

 
9,579,000

 

 
9,579,000

 
10,000

 
9,589,000

Other comprehensive income

 

 

 

 
16,900,000

 
16,900,000

 
16,000

 
16,916,000

BALANCE — June 30, 2014
293,399,469

 
$
2,933,000

 
$
2,667,638,000

 
$
(366,901,000
)
 
$
39,676,000

 
$
2,343,346,000

 
$
2,137,000

 
$
2,345,483,000


 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of
Shares
 
Amount
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income
 
Total Stockholders' Equity
 
Noncontrolling
Interests
 
Total Equity
BALANCE — December 31, 2012
113,199,988

 
$
1,132,000

 
$
1,010,152,000

 
$
(150,977,000
)
 
$

 
$
860,307,000

 
$
439,000

 
$
860,746,000

Issuance of common stock
68,344,459

 
683,000

 
695,839,000

 

 

 
696,522,000

 

 
696,522,000

Offering costs — common stock

 

 
(69,889,000
)
 

 

 
(69,889,000
)
 

 
(69,889,000
)
Issuance of common stock under the DRIP
2,351,143

 
24,000

 
22,806,000

 

 

 
22,830,000

 

 
22,830,000

Repurchase of common stock
(544,675
)
 
(5,000
)
 
(5,249,000
)
 

 

 
(5,254,000
)
 

 
(5,254,000
)
Amortization of nonvested common stock compensation

 

 
53,000

 

 

 
53,000

 

 
53,000

Issuance of limited partnership units

 

 
268,000

 

 

 
268,000

 
1,744,000

 
2,012,000

Offering costs — limited partnership units

 

 
(21,000
)
 

 

 
(21,000
)
 

 
(21,000
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(43,000
)
 
(43,000
)
Distributions declared

 

 

 
(47,271,000
)
 

 
(47,271,000
)
 

 
(47,271,000
)
Net income

 

 

 
11,540,000

 

 
11,540,000

 
13,000

 
11,553,000

BALANCE — June 30, 2013
183,350,915

 
$
1,834,000

 
$
1,653,959,000

 
$
(186,708,000
)
 
$

 
$
1,469,085,000

 
$
2,153,000

 
$
1,471,238,000


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

5

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014 and 2013
(Unaudited)

 
 
 
 
 
Six Months Ended June 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
9,589,000

 
$
11,553,000

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization (including deferred financing costs, above/below market leases, leasehold interests, above market leasehold interests, debt discount/premium, closing costs and origination fees)
69,314,000

 
32,312,000

Contingent consideration related to acquisition of real estate

 
(51,198,000
)
Deferred rent
(11,887,000
)
 
(5,646,000
)
Stock based compensation
293,000

 
53,000

Acquisition fees paid in stock
67,000

 
351,000

Bad debt expense, net
98,000

 
118,000

Unrealized foreign currency (gain) loss
(398,000
)
 
330,000

Change in fair value of contingent consideration
(78,000
)
 
273,000

Changes in fair value of derivative financial instruments
10,309,000

 
(212,000
)
Gain on property insurance settlement
(338,000
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
(3,210,000
)
 
(1,855,000
)
Other assets
(1,550,000
)
 
(2,834,000
)
Accounts payable and accrued liabilities
7,666,000

 
5,596,000

Accounts payable due to affiliates
694,000

 
128,000

Security deposits, prepaid rent and other liabilities
(1,979,000
)
 
(519,000
)
Net cash provided by (used in) operating activities
78,590,000

 
(11,550,000
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of real estate operating properties
(138,524,000
)
 
(173,016,000
)
Advances on real estate notes receivable
(10,767,000
)
 
(5,200,000
)
Principal repayment on real estate note receivable
999,000

 

Closing costs and origination fees on real estate notes receivable, net
(27,000
)
 
(116,000
)
Capital expenditures
(3,225,000
)
 
(1,255,000
)
Restricted cash
(1,873,000
)
 
(4,769,000
)
Real estate and escrow deposits
3,201,000

 
(21,242,000
)
Proceeds from property insurance settlement
343,000

 

Net cash used in investing activities
(149,873,000
)
 
(205,598,000
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments on mortgage loans payable
(16,958,000
)
 
(7,446,000
)
Borrowings under the line of credit
195,700,000

 
86,900,000

Payments under the line of credit
(46,400,000
)
 
(286,900,000
)
Proceeds from issuance of common stock

 
688,902,000

Deferred financing costs
(152,000
)
 
(2,677,000
)
Contingent consideration related to acquisition of real estate
(1,028,000
)
 
(3,077,000
)
Repurchase of common stock
(4,860,000
)
 
(5,254,000
)
Distributions to noncontrolling interests
(95,000
)
 
(28,000
)
Purchase of noncontrolling interest
(6,000
)
 

Security deposits
305,000

 
(1,959,000
)
Payment of offering costs — common stock
(35,000
)
 
(69,204,000
)
Payment of offering costs — limited partnership units

 
(77,000
)
Distributions paid
(62,091,000
)
 
(21,108,000
)
Net cash provided by financing activities
64,380,000

 
378,072,000

NET CHANGE IN CASH AND CASH EQUIVALENTS
(6,903,000
)
 
160,924,000

EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS
(174,000
)
 


6

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Six Months Ended June 30, 2014 and 2013
(Unaudited)

 
 
 
 
 
Six Months Ended June 30,
 
2014
 
2013
CASH AND CASH EQUIVALENTS — Beginning of period
37,955,000

 
94,683,000

CASH AND CASH EQUIVALENTS — End of period
$
30,878,000

 
$
255,607,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for:
 
 
 
Interest
$
10,083,000

 
$
8,180,000

Income taxes
$
1,114,000

 
$
88,000

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
 
 
 
Investing Activities:
 
 
 
Accrued capital expenditures
$
2,351,000

 
$
1,584,000

Accrued closing costs — real estate note receivable
$
12,000

 
$
4,000

Tenant improvement overage
$
948,000

 
$
42,000

The following represents the increase in certain assets and liabilities in connection with our acquisitions of operating properties:
 
 
 
Other receivables
$
86,000

 
$

Other assets
$
120,000

 
$
561,000

Mortgage loans payable, net
$
9,360,000

 
$
62,712,000

Accounts payable and accrued liabilities
$
317,000

 
$
1,448,000

Security deposits, prepaid rent and other liabilities
$
647,000

 
$
1,100,000

Financing Activities:
 
 
 
Issuance of common stock under the DRIP
$
36,909,000

 
$
22,830,000

Issuance of common stock for acquisitions
$
90,000

 
$

Distributions declared but not paid — common stock
$
16,398,000

 
$
9,724,000

Distributions declared but not paid — limited partnership units
$
16,000

 
$
15,000

Issuance of limited partnership units
$

 
$
2,012,000

Accrued offering costs — common stock
$

 
$
246,000

Accrued offering costs — limited partnership units
$

 
$
8,000

Receivable from transfer agent
$

 
$
9,850,000

Accrued deferred financing costs
$
26,000

 
$
54,000

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


7


GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended June 30, 2014 and 2013
The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT II, Inc. and its subsidiaries, including Griffin-American Healthcare REIT II Holdings, LP, except where the context otherwise requires.
1. Organization and Description of Business
Griffin-American Healthcare REIT II, Inc., a Maryland corporation, was incorporated on January 7, 2009 and therefore we consider that our date of inception. We were initially capitalized on February 4, 2009. We invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings and healthcare-related facilities. We may also originate and acquire secured loans and real estate-related investments. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a "RIDEA" structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). We generally seek investments that produce current income. We qualified to be taxed as a real estate investment trust, or REIT, under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2010 and we intend to continue to be taxed as a REIT.
As of February 14, 2013, the termination date of our initial public offering, or our initial offering, we had received and accepted subscriptions in our initial offering for 123,179,064 shares of our common stock, or $1,233,333,000, and a total of $40,167,000 in distributions were reinvested and 4,205,920 shares of our common stock were issued pursuant to the distribution reinvestment plan, or the DRIP.
As of October 30, 2013, the termination date of our follow-on public offering, or our follow-on offering, we had received and accepted subscriptions in our follow-on offering for 157,622,743 shares of our common stock, or $1,604,996,000, and a total of $42,713,000 in distributions were reinvested and 4,398,862 shares of our common stock were issued pursuant to the DRIP.
We conduct substantially all of our operations through Griffin-American Healthcare REIT II Holdings, LP, or our operating partnership. Until January 6, 2012, we were externally advised by Grubb & Ellis Healthcare REIT II Advisor, LLC, or our former advisor, pursuant to an advisory agreement, as amended and restated, between us and our former advisor. Effective January 7, 2012, we are externally advised by Griffin-American Healthcare REIT Advisor, LLC, or Griffin-American Advisor, or our advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us and our advisor. The Advisory Agreement had an initial one-year term, but was subject to successive one year renewals upon mutual consent of the parties. The Advisory Agreement was most recently renewed pursuant to the mutual consent of the parties for a period beginning on June 6, 2014 and ending on January 7, 2015; provided, however, that in the event a definitive agreement relating to a Merger or Terminating Sale Transaction (as such terms are defined in the Amended and Restated Agreement of Limited Partnership, dated April 26, 2014, of our operating partnership) is entered into but not consummated prior to January 7, 2015, the Advisory Agreement will be automatically extended until the consummation or earlier termination of such Merger or Terminating Sale Transaction. Our advisor delegates advisory duties to Griffin-American Healthcare REIT Sub-Advisor, LLC, or Griffin-American Sub-Advisor, or our sub-advisor. Griffin-American Sub-Advisor is jointly owned by American Healthcare Investors LLC, or American Healthcare Investors, and Griffin Capital Corporation, or Griffin Capital, or our co-sponsors. Our advisor, through our sub-advisor, uses its best efforts, subject to the oversight, review and approval of our board of directors, to, among other things, research, identify, review and make investments in and dispositions of properties, real estate-related investments and securities on our behalf consistent with our investment policies and objectives. Our advisor also provides marketing, sales and client services on our behalf. Our advisor performs its duties and responsibilities under the Advisory Agreement as our fiduciary. Our sub-advisor performs its duties and responsibilities pursuant to a sub-advisory agreement with our advisor and also acts as our fiduciary. Collectively, we refer to our advisor and our sub-advisor as our advisor entities. Griffin Capital Securities, Inc., or Griffin Securities, or our dealer manager, an affiliate of Griffin Capital, served as our dealer manager in our initial offering effective as of January 7, 2012 and in our follow-on offering. We are not affiliated with Griffin Capital, Griffin-American Advisor or Griffin Securities; however, we are affiliated with Griffin-American Sub-Advisor and American Healthcare Investors.
We currently operate through five reportable business segments — medical office buildings, hospitals, skilled nursing facilities, senior housing and senior housingRIDEA. As of June 30, 2014, we had completed 75 acquisitions comprising 289 buildings and approximately 11,277,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $2,929,461,000.

8

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



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

Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries and any variable interest entities, or VIEs, as defined in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation, or ASC Topic 810, which we have concluded should be consolidated pursuant to ASC Topic 810.
We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership, will own substantially all of the properties acquired on our behalf. We are the sole general partner of our operating partnership and as of June 30, 2014 and December 31, 2013, we owned greater than a 99.90% general partnership interest therein. On January 4, 2012, our advisor contributed $2,000 to acquire 200 limited partnership units of our operating partnership and as such, as of June 30, 2014 and December 31, 2013, owns less than a 0.01% noncontrolling limited partnership interest in our operating partnership. Between December 31, 2012 and July 16, 2013, 12 investors contributed their interests in 15 buildings in exchange for 281,600 limited partnership units in our operating partnership. As of June 30, 2014 and December 31, 2013, these investors collectively owned less than a 0.10% noncontrolling limited partnership interest in our operating partnership. Because we are the sole general partner and a limited partner of our operating partnership and have unilateral control over its management and major operating decisions, the accounts of our operating partnership are consolidated in our condensed consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.
In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2013 Annual Report on Form 10-K/A, as filed with the SEC on March 21, 2014.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.
Allowance for Uncollectible Accounts
Tenant receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations

9

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



under their lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight line recognition of rents. Such allowances are charged to bad debt expense which is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant's financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of June 30, 2014 and December 31, 2013, we had $321,000 and $323,000, respectively, in allowance for uncollectible accounts which was determined necessary to reduce receivables to our estimate of the amount recoverable.
For the three months ended June 30, 2014 and 2013, $70,000 and $0, respectively, of our receivables were directly written off to bad debt expense. For the six months ended June 30, 2014 and 2013, $70,000 and $91,000, respectively, of our receivables were directly written off to bad debt expense.
For the three and six months ended June 30, 2014, $23,000 of our receivables were written off against the allowance for uncollectible accounts. For the three and six months ended June 30, 2013, $25,000 of our receivables were written off against the allowance for uncollectible accounts.
As of June 30, 2014 and December 31, 2013, we did not have an allowance for uncollectible accounts for deferred rent receivables. For the three months ended June 30, 2014 and 2013, $6,000 and $7,000, respectively, of our deferred rent receivables were directly written off to bad debt expense. For the six months ended June 30, 2014 and 2013, $7,000 and $18,000, respectively, of our deferred rent receivables were directly written off to bad debt expense.
Income Taxes
We qualified and elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2010. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our annual taxable income, excluding net capital gains, to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.
If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders.
We may be subject to certain state and local income taxes on our income, property or net worth in some jurisdictions, and in certain circumstances we may also be subject to federal excise taxes on undistributed income. In addition, certain activities that we undertake are conducted by subsidiaries which we elected to be treated as taxable REIT subsidiaries, or TRSs, to allow us to provide services that would otherwise be considered impermissible for REITs. Also, we have real estate investments in the United Kingdom, which does not recognize REITs and does not accord REIT status under its tax laws. Accordingly, we recognize income tax benefit (expense) for the federal, state and local income taxes incurred by our TRSs and foreign income taxes on our real estate investments in the United Kingdom.
We follow ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our condensed consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would be sustained (including the impact of appeals, as applicable), assuming the applicable taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of June 30, 2014 and December 31, 2013, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our condensed consolidated financial statements.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in income tax benefit (expense) in our accompanying condensed consolidated statements of operations and comprehensive income when such

10

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



changes occur. Deferred tax assets, net of valuation allowances are included in other assets in our accompanying condensed consolidated balance sheets. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is recorded in income tax benefit (expense) in our accompanying condensed consolidated statements of operations and comprehensive income when such changes occur. Deferred tax liabilities are included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets.
See Note 15, Income Taxes, for a further discussion.
Recently Issued Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update, or ASU, 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08, which amends the definition of a discontinued operation to raise the threshold for disposals to qualify as discontinued operations and requires additional disclosures about disposal transactions. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components either (i) has been disposed of or (ii) is classified as held for sale. In addition, ASU 2014-08 requires additional disclosures about both (i) a disposal transaction that meets the definition of a discontinued operation and (ii) an individually significant component of an entity that is disposed of or held for sale that does not qualify for discontinued operations presentation in the financial statements. We anticipate that the majority of our property dispositions will not be classified as discontinued operations. ASU 2014-08 is effective prospectively for interim and annual reporting periods beginning after December 15, 2014 with early adoption permitted. We early adopted ASU 2014-08 on January 1, 2014, which did not have an impact on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance, and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Further, the application of ASU 2014-09 permits the use of either the full retrospective or cumulative effect transition approach. Early application is not permitted. We have not yet selected a transition method nor have we determined the impact the adoption of ASU 2014-09 on January 1, 2017 will have on our consolidated financial statements, if any.
3. Real Estate Investments, Net
Our real estate investments, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
June 30,
 
December 31,
 
2014
 
2013
Building and improvements
$
2,324,609,000

 
$
2,189,345,000

Land
438,121,000

 
414,179,000

Furniture, fixtures and equipment
6,664,000

 
6,410,000

 
2,769,394,000

 
2,609,934,000

Less: accumulated depreciation
(127,774,000
)
 
(86,235,000
)
 
$
2,641,620,000

 
$
2,523,699,000

Depreciation expense for the three months ended June 30, 2014 and 2013 was $21,295,000 and $10,920,000, respectively. Depreciation expense for the six months ended June 30, 2014 and 2013 was $41,942,000 and $20,821,000, respectively.
In addition to the acquisitions discussed below, for the three months ended June 30, 2014, we had capital expenditures of $1,940,000 on our medical office buildings, $45,000 on our skilled nursing facilities and $325,000 on our senior housingRIDEA facilities. We did not have any capital expenditures on our hospitals and senior housing facilities for the three months ended June 30, 2014.
In addition to the acquisitions discussed below, for the six months ended June 30, 2014, we had capital expenditures of $4,550,000 on our medical office buildings, $126,000 on our skilled nursing facilities and $335,000 on our senior housing

11

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



RIDEA facilities. We did not have any capital expenditures on our hospitals and senior housing facilities for the six months ended June 30, 2014.
We reimburse our advisor entities or their affiliates for acquisition expenses related to selecting, evaluating, acquiring and investing in properties. The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our directors, including a majority of our independent directors. For the three and six months ended June 30, 2014 and 2013, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions, except with respect to our acquisition of land in May 2013, for which we previously owned a leasehold interest, in Hope, Arkansas for a contract purchase price of $50,000 subsequent to the initial purchase of Dixie-Lobo Medical Office Building Portfolio. Pursuant to our charter, prior to the acquisition of the land, our directors, including a majority of our independent directors, not otherwise interested in the transaction, approved the fees and expenses associated with the acquisition of the land in excess of the 6.0% limit and determined that such fees and expenses were commercially competitive, fair and reasonable to us.
Acquisitions in 2014
For the six months ended June 30, 2014, we acquired 10 buildings from unaffiliated parties. The aggregate contract purchase price of these properties was $143,750,000 and we incurred $3,737,000 to our advisor entities and their affiliates in acquisition fees in connection with these property acquisitions. The following is a summary of our property acquisitions for the six months ended June 30, 2014:
Acquisition(1)
 
Location
 
Type
 
Date Acquired
 
Contract
 Purchase
Price
 
Mortgage Loan Payable(2)
 
Line of
Credit(3)
 
Acquisition Fee
 
Dux MOB Portfolio(4)
 
Chillicothe, OH
 
Medical Office
 
01/09/14
 
$
25,150,000

 
$

 
$
23,500,000

 
$
654,000

(8)
North Carolina ALF Portfolio(5)
 
Durham, NC
 
Senior Housing
 
02/06/14
 
21,000,000

 

 
21,600,000

 
546,000

(8)
Pennsylvania SNF Portfolio(6)
 
Royersford, PA
 
Skilled Nursing
 
03/06/14
 
39,000,000

 

 
40,530,000

 
1,014,000

(8)
Eagle Carson City MOB
 
Carson City, NV
 
Medical Office
 
03/19/14
 
19,500,000

 

 
11,000,000

 
507,000

(8)
Surgical Hospital of Humble(7)
 
Humble, TX
 
Medical Office
 
04/01/14
 
13,700,000

 

 
13,650,000

 
356,000

(9)
Brentwood CA MOB
 
Brentwood, CA
 
Medical Office
 
05/29/14
 
16,000,000

 
9,181,000

 
7,000,000

 
416,000

(9)
Villa Rosa MOB
 
San Antonio, TX
 
Medical Office
 
06/16/14
 
9,400,000

 

 
3,200,000

 
244,000

(9)
Total
 
 
 
 
 
 
 
$
143,750,000

 
$
9,181,000

 
$
120,480,000

 
$
3,737,000

 
___________
(1)
We own 100% of our properties acquired in 2014.

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

(3)
Represents borrowings under our unsecured revolving line of credit, as defined in Note 8, Line of Credit, at the time of acquisition. We periodically advance funds and pay down our unsecured revolving line of credit as needed. See Note 8, Line of Credit, for a further discussion.

(4)
On January 9, 2014, we added one additional building to our existing Dux MOB Portfolio. The other 14 buildings were purchased in December 2013.

(5)
On February 6, 2014, we added one additional building to our existing North Carolina ALF Portfolio. The other five buildings were purchased in December 2012.

(6)
On March 6, 2014, we added four additional buildings to our existing Pennsylvania SNF Portfolio. The other two buildings were purchased in April 2013.


12

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



(7)
On April 1, 2014, we added one additional building to our existing Surgical Hospital of Humble Portfolio. The other building was purchased in December 2010.

(8)
Our sub-advisor and its affiliates were paid, as compensation for services rendered in connection with the investigation, selection and acquisition of our properties, an acquisition fee of 2.60% of the contract purchase price which was paid as follows: (i) in shares of our common stock in an amount equal to 0.15% of the contract purchase price, at $9.20 per share, the price paid to acquire a share of our common stock in our follow-on offering, net of selling commissions and dealer manager fees, and (ii) the remainder in cash equal to 2.45% of the contract purchase price.

(9)
Our sub-advisor was paid in cash, as compensation for services rendered in connection with the investigation, selection and acquisition of our property, an acquisition fee of 2.60% of the contract purchase price.
4. Real Estate Notes Receivable, Net
Real estate notes receivable, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
 
 
 
 
 
 
 
 
 
Outstanding Balance(2)
 
 
Notes Receivable
Location of Related Property or Collateral
 
Origination Date
 
Maturity Date
 
Contractual Interest Rate(1)
 
Maximum Advances Available
 
June 30, 2014
 
December 31, 2013
 
Acquisition Fee(3)
UK Development Facility(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United Kingdom
 
09/11/13
 
various
 
7.50%
 
$
114,081,000

 
$
20,107,000

 
$
16,593,000

 
$
400,000

Kissito Note
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Roanoke, VA
 
09/20/13
 
03/19/15
 
7.25%
 
$
4,400,000

 
3,672,000

 
2,002,000

 
73,000

Landmark Naples Note
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Naples, FL
 
03/28/14
 
03/28/16
 
6.00%
 
$
18,900,000

 
5,177,000

 

 
104,000

 
 
 
 
 
 
 
 
 
 
28,956,000

 
18,595,000

 
$
577,000

Unamortized closing costs and origination fees, net
 
 
 
 
 
 
 
 
 
254,000

 
293,000

 
 
Real estate notes receivable, net
 
 
 
 
 
 
 
 
 
$
29,210,000

 
$
18,888,000

 
 
___________
(1)
Represents the per annum interest rate in effect as of June 30, 2014.

(2)
Outstanding balance represents the original principal balance, increased by any subsequent advances and decreased by any subsequent principal paydowns, and only requires monthly interest payments. The UK Development Facility is subject to certain prepayment restrictions if repaid on or before the maturity date. Based on the currency exchange rate as of June 30, 2014, approximately $107,312,000 remained available for future funding under our real estate notes receivable, subject to certain conditions set forth in the applicable loan agreements.

(3)
Our sub-advisor was paid, as compensation for services in connection with real estate-related investments, an acquisition fee of 2.00% of the total amount advanced through June 30, 2014.

(4)
We entered into the UK Development Facility agreement on July 6, 2013, which was effective upon the acquisition of UK Senior Housing Portfolio on September 11, 2013. There are various maturity dates depending upon the timing of advances; however, the maturity date will be no later than March 10, 2022. Based on the currency exchange rate as of June 30, 2014, the maximum amount of advances available was £66,691,000, or approximately $114,081,000, and the outstanding balance as of June 30, 2014 was £11,754,000, or approximately $20,107,000.
Pursuant to certain terms and conditions which may or may not be satisfied, we have the option to purchase the properties securing the UK Development Facility, Kissito Note and Landmark Naples Note.

13

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



The following shows the change in the carrying amount of real estate notes receivable, net for the six months ended June 30, 2014 and 2013:
 
 
Six Months Ended June 30,
 
 
2014
 
2013
Beginning balance
 
$
18,888,000

 
$
5,182,000

Additions:
 
 
 
 
Advances on real estate notes receivable
 
10,767,000

 
5,200,000

Closing costs and origination fees, net
 
39,000

 
104,000

Unrealized foreign currency gain from remeasurement
 
593,000

 

Deductions:
 
 
 
 
Principal repayment of real estate note receivable
 
(999,000
)
 

Amortization of closing costs and origination fees
 
(78,000
)
 
(67,000
)
Ending balance
 
$
29,210,000

 
$
10,419,000

Amortization expense on closing costs and origination fees for the three months ended June 30, 2014 and 2013 was $2,000 and $42,000, respectively, and for the six months ended June 30, 2014 and 2013, was $78,000 and $67,000, respectively, which was recorded against real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income.
5. Identified Intangible Assets, Net
Identified intangible assets, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
June 30,
 
December 31,
 
2014
 
2013
Tenant relationships, net of accumulated amortization of $17,868,000 and $11,128,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 17.6 years and 17.8 years as of June 30, 2014 and December 31, 2013, respectively)
$
130,845,000

 
$
131,816,000

In-place leases, net of accumulated amortization of $39,542,000 and $23,364,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 8.3 years and 8.1 years as of June 30, 2014 and December 31, 2013, respectively)
109,162,000

 
123,780,000

Leasehold interests, net of accumulated amortization of $799,000 and $658,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 63.4 years and 63.8 years as of June 30, 2014 and December 31, 2013, respectively)
15,936,000

 
16,077,000

Above market leases, net of accumulated amortization of $4,474,000 and $3,466,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 6.2 years and 6.6 years as of June 30, 2014 and December 31, 2013, respectively)
12,597,000

 
13,400,000

Defeasible interest, net of accumulated amortization of $36,000 and $29,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 39.3 years and 39.8 years as of June 30, 2014 and December 31, 2013, respectively)
587,000

 
594,000

 
$
269,127,000

 
$
285,667,000

Amortization expense for the three months ended June 30, 2014 and 2013 was $13,757,000 and $6,185,000, respectively, which included $799,000 and $688,000, respectively, of amortization recorded against real estate revenue for above market leases and $70,000 and $68,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income.
Amortization expense for the six months ended June 30, 2014 and 2013 was $27,392,000 and $11,685,000, respectively, which included $1,542,000 and $1,246,000, respectively, of amortization recorded against real estate revenue for above market leases and $141,000 and $138,000, respectively, of amortization recorded to rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations and comprehensive income.
The aggregate weighted average remaining life of the identified intangible assets was 16.0 and 15.7 years as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014, estimated amortization expense on the identified intangible

14

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



assets for the six months ending December 31, 2014 and for each of the next four years ending December 31 and thereafter was as follows:
Year
 
Amount
2014
 
$
25,510,000

2015
 
26,200,000

2016
 
23,955,000

2017
 
21,836,000

2018
 
20,033,000

Thereafter
 
151,593,000

 
 
$
269,127,000

6. Other Assets, Net
Other assets, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
June 30,
 
December 31,
 
2014
 
2013
Deferred rent receivables
$
36,531,000

 
$
24,494,000

Deferred financing costs, net of accumulated amortization of $5,016,000 and $3,627,000 as of June 30, 2014 and December 31, 2013, respectively
4,866,000

 
6,282,000

Prepaid expenses and deposits
2,651,000

 
2,485,000

Lease commissions, net of accumulated amortization of $637,000 and $393,000 as of June 30, 2014 and December 31, 2013, respectively
5,905,000

 
4,677,000

 
$
49,953,000

 
$
37,938,000

Amortization expense on lease commissions for the three months ended June 30, 2014 and 2013 was $143,000 and $71,000, respectively, and for the six months ended June 30, 2014 and 2013 was $276,000 and $116,000, respectively.
Amortization expense on deferred financing costs for the three months ended June 30, 2014 and 2013 was $840,000 and $622,000, respectively, and for the six months ended June 30, 2014 and 2013 was $1,592,000 and $1,081,000, respectively. Amortization expense on deferred financing costs is recorded to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income.
For the six months ended June 30, 2014, $90,000 of the total $1,592,000 was related to the write-off of deferred financing costs due to the early extinguishment of the mortgage loans payables secured by a property in the FLAGS MOB Portfolio and Muskogee Long-Term Acute Care Hospital. For the six months ended June 30, 2013, $56,000 of the $1,081,000 was related to the write-off of deferred financing costs due to the early extinguishment of a mortgage loan payable secured by Hardy Oak Medical Office Building.
As of June 30, 2014, estimated amortization expense on deferred financing costs and lease commissions for the six months ending December 31, 2014 and for each of the next four years ending December 31 and thereafter was as follows:
Year
 
Amount
2014
 
$
1,851,000

2015
 
2,243,000

2016
 
1,062,000

2017
 
866,000

2018
 
780,000

Thereafter
 
3,969,000

 
 
$
10,771,000


15

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



7. Mortgage Loans Payable, Net
Mortgage loans payable were $307,946,000 ($320,643,000, net of discount and premium) and $315,722,000 ($329,476,000, net of discount and premium) as of June 30, 2014 and December 31, 2013, respectively.
As of June 30, 2014, we had 42 fixed rate and two variable rate mortgage loans payable with effective interest rates ranging from 1.25% to 6.60% per annum and a weighted average effective interest rate of 4.94% per annum based on interest rates in effect as of June 30, 2014. The mortgage loans payable as of June 30, 2014 had maturity dates ranging from February 28, 2015 to September 1, 2047. As of June 30, 2014, we had $298,880,000 ($311,775,000, net of discount and premium) of fixed rate debt, or 97.1% of mortgage loans payable, at a weighted average effective interest rate of 5.01% per annum, and $9,066,000 ($8,868,000, net of discount) of variable rate debt, or 2.9% of mortgage loans payable, at a weighted average effective interest rate of 2.57% per annum.
As of December 31, 2013, we had 42 fixed rate and three variable rate mortgage loans payable with effective interest rates ranging from 1.27% to 6.60% per annum and a weighted average effective interest rate of 4.87% per annum based on interest rates in effect as of December 31, 2013. The mortgage loans payable as of December 31, 2013 had maturity dates ranging from March 1, 2014 to September 1, 2047. As of December 31, 2013, we had $299,680,000 ($313,646,000, net of discount and premium) of fixed rate debt, or 94.9% of mortgage loans payable, at a weighted average effective interest rate of 5.00% per annum, and $16,042,000 ($15,830,000, net of discount) of variable rate debt, or 5.1% of mortgage loans payable, at a weighted average effective interest rate of 2.57% per annum.
We are required by the terms of certain loan documents to meet certain covenants, such as occupancy ratios, leverage ratios, net worth ratios, debt service coverage ratios, liquidity ratios, operating cash flow to fixed charges ratios, distribution ratios and reporting requirements. As of June 30, 2014 and December 31, 2013, we were in compliance with all such covenants and requirements.
Mortgage loans payable, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
 
June 30,
 
December 31,
 
 
2014
 
2013
Total fixed rate debt
 
$
298,880,000

 
$
299,680,000

Total variable rate debt
 
9,066,000

 
16,042,000

 
 
307,946,000

 
315,722,000

Less: discount
 
(201,000
)
 
(216,000
)
Add: premium
 
12,898,000

 
13,970,000

Mortgage loans payable, net
 
$
320,643,000

 
$
329,476,000

The following shows the change in the carrying amount of mortgage loans payable, net for the six months ended June 30, 2014 and 2013:
 
 
Six Months Ended June 30,
 
 
2014
 
2013
Beginning balance
 
$
329,476,000

 
$
291,052,000

Additions:
 
 
 
 
Assumptions of mortgage loans payable, net
 
9,360,000

 
62,712,000

Deductions:
 
 
 
 
Scheduled principal payments on mortgage loans payable
 
(2,815,000
)
 
(2,410,000
)
Principal payments on early extinguishment of mortgage loans payable
 
(14,143,000
)
 
(5,036,000
)
Amortization of premium/discount on mortgage loans payable
 
(1,235,000
)
 
(1,091,000
)
Ending balance
 
$
320,643,000

 
$
345,227,000


16

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



As of June 30, 2014, the principal payments due on our mortgage loans payable for the six months ending December 31, 2014 and for each of the next four years ending December 31 and thereafter was as follows:
Year
 
Amount
2014
 
$
5,154,000

2015
 
42,092,000

2016
 
58,839,000

2017
 
24,574,000

2018
 
34,069,000

Thereafter
 
143,218,000

 
 
$
307,946,000

8. Line of Credit
Unsecured Revolving Line of Credit
On June 5, 2012, we, our operating partnership and certain of our subsidiaries, or the subsidiary guarantors, entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A., or Bank of America, as administrative agent, swingline lender and issuer of letters of credit; KeyBank National Association, or KeyBank, as syndication agent; Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBanc Capital Markets as joint lead arrangers and joint book managers; and the lenders named therein, to obtain an unsecured revolving line of credit, with an aggregate maximum principal amount of $200,000,000, or our unsecured line of credit. The proceeds of loans made under our unsecured line of credit may be used for working capital, capital expenditures and other general corporate purposes (including, without limitation, property acquisitions and repayment of debt). Our operating partnership may obtain up to 10.0% of the maximum principal amount in the form of standby letters of credit and up to 15.0% of the maximum principal amount in the form of swingline loans.
On May 24, 2013, we entered into a Second Amendment to the Credit Agreement, or the Amendment, which increased the aggregate maximum principal amount of our unsecured line of credit to $450,000,000, with Bank of America, KeyBank, RBS Citizens, N.A., and Comerica Bank, as existing lenders, and Barclays Bank PLC, Fifth Third Bank, Wells Fargo Bank, N.A., Credit Agricole Corporate and Investment Bank, and Sumitomo Mitsui Banking Corporation, as new lenders. The Amendment also revised the amount that may be obtained by our operating partnership in the form of swingline loans from up to 15.0% of the maximum principal amount to up to $50,000,000.
The maximum principal amount of the Credit Agreement, as amended, may be increased by up to $200,000,000, for a total principal amount of $650,000,000, subject to (a) the terms of the Credit Agreement, as amended, and (b) such additional financing amount being offered and provided by current lenders or additional lenders under the Credit Agreement, as amended.
At our option, loans under the Credit Agreement, as amended, bear interest at per annum rates equal to (a) (i) the Eurodollar Rate plus (ii) a margin ranging from 2.00% to 3.00% based on our consolidated leverage ratio, or (b) (i) the greater of: (x) the prime rate publicly announced by Bank of America, (y) the Federal Funds Rate (as defined in the Credit Agreement, as amended) plus 0.50% and (z) the one-month Eurodollar Rate (as defined in the Credit Agreement, as amended) plus 1.00%, plus (ii) a margin ranging from 1.00% to 2.00% based on our consolidated leverage ratio. Accrued interest under the Credit Agreement, as amended, is payable monthly. Our unsecured line of credit matures on June 5, 2015, and may be extended by one 12-month period subject to satisfaction of certain conditions, including payment of an extension fee.
We are required to pay a fee on the unused portion of the lenders' commitments under the Credit Agreement, as amended, at a per annum rate equal to 0.25% if the average daily used amount is greater than 50.0% of the commitments and 0.35% if the average daily used amount is less than 50.0% of the commitments.
The Credit Agreement, as amended, contains various affirmative and negative covenants that are customary for credit facilities and transactions of this type, including limitations on the incurrence of debt by our operating partnership and its subsidiaries and limitations on secured recourse indebtedness. The Credit Agreement, as amended, imposes the following financial covenants, which are specifically defined in the Credit Agreement, as amended: (a) a maximum consolidated leverage ratio; (b) a maximum consolidated secured leverage ratio; (c) a minimum consolidated tangible net worth covenant; (d) a minimum consolidated fixed charge coverage ratio; (e) a maximum dividend payout ratio; (f) a maximum consolidated unencumbered leverage ratio; and (g) a minimum consolidated unencumbered interest coverage ratio. As of June 30, 2014 and December 31, 2013, we were in compliance with all such covenants and requirements.

17

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



The Credit Agreement, as amended, requires us to add additional subsidiaries as guarantors in the event the value of the assets owned by the subsidiary guarantors falls below a certain threshold as set forth in the Credit Agreement, as amended. In the event of default, the lenders have the right to terminate its obligations under the Credit Agreement, as amended, including the funding of future loans, and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon.
The actual amount of credit available under our unsecured line of credit at any given time is a function of, and is subject to, loan to value and debt service coverage ratios based on net operating income as contained in the Credit Agreement, as amended. Based on the value of our borrowing base properties, as such term is used in the Credit Agreement, as amended, our aggregate borrowing capacity under our unsecured line of credit was $450,000,000 as of June 30, 2014 and December 31, 2013. As of June 30, 2014 and December 31, 2013, borrowings outstanding under our unsecured line of credit totaled $217,300,000 and $68,000,000, respectively, and $232,700,000 and $382,000,000, respectively, remained available thereunder. The weighted average interest rate on borrowings outstanding as of June 30, 2014 and December 31, 2013 was 2.15% and 2.32%, respectively, per annum.
9. Derivative Financial Instruments
ASC Topic 815, Derivatives and Hedging, or ASC Topic 815, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. We utilize derivatives such as fixed interest rate swaps to add stability to interest expense and to manage our exposure to interest rate movements. We also use derivative instruments, such as foreign currency forward contracts, to mitigate the effects of the foreign currency fluctuations on future cash flows. Consistent with ASC Topic 815, we record derivative financial instruments in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. ASC Topic 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item or items or to be deferred in other comprehensive income.
As of June 30, 2014 and December 31, 2013, no derivatives were designated as hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and foreign currency fluctuations, but do not meet the strict hedge accounting requirements of ASC Topic 815. Changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income. Changes in the fair value of foreign currency derivative financial instruments are recorded in foreign currency and derivative loss in our accompanying condensed consolidated statements of operations and comprehensive income.
See Note 14, Fair Value Measurements, for a further discussion of the fair value of our derivative financial instruments.
Interest Rate Swaps
For the three months ended June 30, 2014 and 2013, we recorded $25,000 and $123,000, respectively, and for the six months ended June 30, 2014 and 2013, we recorded $75,000 and $212,000, respectively, as a decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive income related to the change in the fair value of our interest rate swaps.
The following table lists the interest rate swap contracts held by us as of June 30, 2014:
Notional Amount
 
Index
 
Interest Rate
 
Fair Value
 
Instrument
 
Maturity Date
$
2,354,000

 
one month LIBOR
 
6.00
%
 
$
(295,000
)
 
Swap
 
08/15/21
6,712,000

 
one month LIBOR
 
4.11
%
 
(81,000
)
 
Swap
 
10/01/15
$
9,066,000

 
 
 
 
 
$
(376,000
)
 
 
 
 

18

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



The following table lists the interest rate swap contracts held by us as of December 31, 2013:
Notional Amount
 
Index
 
Interest Rate
 
Fair Value
 
Instrument
 
Maturity Date
$
2,483,000

 
one month LIBOR
 
6.00
%
 
$
(309,000
)
 
Swap
 
08/15/21
6,798,000

 
one month LIBOR
 
4.41
%
 

 
Swap
 
01/01/14
6,761,000

 
one month LIBOR
 
4.28
%
 
(39,000
)
 
Swap
 
05/01/14
6,784,000

 
one month LIBOR
 
4.11
%
 
(103,000
)
 
Swap
 
10/01/15
$
22,826,000

 
 
 
 
 
$
(451,000
)
 
 
 
 
Foreign Currency Forward Contract
On September 9, 2013, we entered into a foreign currency forward contract to sell £180,000,000 at the fixed foreign currency exchange rate of 1.5606 on September 10, 2014. For the three and six months ended June 30, 2014, we recorded an unrealized loss of $8,185,000 and $10,384,000, respectively, to foreign currency and derivative loss in our accompanying condensed consolidated statements of operations and comprehensive income related to the change in the fair value of our foreign currency forward contract. As of June 30, 2014 and December 31, 2013, the fair value of our foreign currency forward contract was $(26,873,000) and $(16,489,000), which is included in derivative financial instruments in our accompanying condensed consolidated balance sheets. For the three and six months ended June 30, 2013, we did not enter into any foreign currency forward contracts.
10. Identified Intangible Liabilities, Net
Identified intangible liabilities, net consisted of the following as of June 30, 2014 and December 31, 2013:
 
June 30,
 
December 31,
 
2014
 
2013
Below market leases, net of accumulated amortization of $1,354,000 and $887,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 7.4 years and 7.8 years as of June 30, 2014 and December 31, 2013, respectively)
$
6,408,000

 
$
6,884,000

Above market leasehold interests, net of accumulated amortization of $136,000 and $83,000 as of June 30, 2014 and December 31, 2013, respectively (with a weighted average remaining life of 67.7 years and 70.0 years as of June 30, 2014 and December 31, 2013, respectively)
5,171,000

 
4,809,000

 
$
11,579,000

 
$
11,693,000

Amortization expense on below market leases for the three months ended June 30, 2014 and 2013 was $303,000 and $193,000, respectively, and for the six months ended June 30, 2014 and 2013 was $678,000 and $340,000, respectively. Amortization expense on below market leases is recorded to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income.
Amortization expense on above market leasehold interests for the three months ended June 30, 2014 and 2013 was $26,000 and $14,000, respectively, and for the six months ended June 30, 2014 and 2013 was $53,000 and $26,000, respectively. Amortization expense on above market leasehold interests is recorded against rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income.
The aggregate weighted average remaining life of the identified intangible liabilities was 34.3 and 33.4 years as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014, estimated amortization expense on below market leases and above market leasehold interests for the six months ending December 31, 2014 and for each of the next four years ending December 31 and thereafter was as follows:

19

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Year
 
Amount
2014
 
$
639,000

2015
 
1,214,000

2016
 
1,149,000

2017
 
994,000

2018
 
885,000

Thereafter
 
6,698,000

 
 
$
11,579,000

11. Commitments and Contingencies
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
Environmental Matters
We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our condensed consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
12. Equity
Preferred Stock
Our charter authorizes us to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of June 30, 2014 and December 31, 2013, no shares of preferred stock were issued and outstanding.
Common Stock
Our charter authorizes us to issue 1,000,000,000 shares of our common stock. Until November 6, 2012, we offered to the public up to $3,000,000,000 of shares of our common stock for $10.00 per share in our primary offering and $285,000,000 of shares of our common stock pursuant to the DRIP for $9.50 per share. On November 7, 2012, we began selling shares of our common stock in our initial offering at $10.22 per share in our primary offering and issuing shares pursuant to the DRIP for $9.71 per share. On February 14, 2013, we terminated our initial offering.
On February 14, 2013, we commenced our follow-on offering of up to $1,650,000,000 of shares of our common stock, in which we initially offered to the public up to $1,500,000,000 of shares of our common stock for $10.22 per share in our primary offering and up to $150,000,000 of shares of our common stock for $9.71 per share pursuant to the DRIP. We reserved the right to reallocate the shares of common stock we offered in our follow-on offering between the primary offering and the DRIP. As such, during our follow-on offering, we reallocated an aggregate of $107,200,000 of shares from the DRIP to the primary offering. Accordingly, we offered to the public $1,607,200,000 in our primary offering and $42,800,000 of shares of our common stock pursuant to the DRIP. On October 30, 2013, we terminated our follow-on offering.
On September 9, 2013, we filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, or the Securities Act, to register $100,000,000 of additional shares of our common stock pursuant to our distribution reinvestment plan, or the Secondary DRIP. The Registration Statement on Form S-3 was automatically effective with the SEC upon its

20

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



filing; however, we did not commence offering shares pursuant to the Secondary DRIP until October 30, 2013 following the termination of our follow-on offering. On March 28, 2014, our board of directors suspended the Secondary DRIP effective beginning with the distributions declared for the month of April 2014, which were payable in May 2014, and all future distributions declared will be paid in cash to our stockholders.
On January 4, 2012, Griffin-American Advisor acquired 22,222 shares of our common stock for $200,000.
Through June 30, 2014, we granted an aggregate of 149,040 shares of our restricted common stock to our independent directors. Through June 30, 2014, we had issued 280,801,806 shares of our common stock in connection with our offerings, 14,305,741 shares of our common stock pursuant to the DRIP and the Secondary DRIP and 105,337 shares of our common stock for property acquisition fees that were issued after the termination of our follow-on offering. We had also repurchased 1,984,677 shares of our common stock under our share repurchase plan through June 30, 2014. As of June 30, 2014 and December 31, 2013, we had 293,399,469 and 290,003,240 shares of our common stock issued and outstanding, respectively.
Offering Costs
Selling Commissions
Initial Offering
Through the termination of our initial offering on February 14, 2013, our dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager could have re-allowed all or a portion of these fees to participating broker-dealers. For the three and six months ended June 30, 2013, we incurred $0 and $9,102,000 in selling commissions to our dealer manager, respectively. Such commissions were charged to stockholders' equity as such amounts were paid to our dealer manager from the gross proceeds of our initial offering.
Follow-On Offering
Pursuant to our follow-on offering, which commenced February 14, 2013 and terminated on October 30, 2013, our dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our follow-on offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager could have re-allowed all or a portion of these fees to participating broker-dealers. For the three and six months ended June 30, 2013, we incurred $33,457,000 and $37,894,000 in selling commissions to our dealer manager, respectively. Such selling commissions were charged to stockholders’ equity as such amounts were reimbursed to our dealer manager from the gross proceeds of our follow-on offering.

Dealer Manager Fee
Initial Offering
Through the termination of our initial offering on February 14, 2013, our dealer manager received a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager could have re-allowed all or a portion of these fees to participating broker-dealers. For the three and six months ended June 30, 2013, we incurred $0 and $3,981,000 in dealer manager fees to our dealer manager, respectively. Such fees were charged to stockholders' equity as such amounts were paid to our dealer manager from the gross proceeds of our initial offering.
Follow-On Offering
Pursuant to our follow-on offering, which commenced February 14, 2013 and terminated on October 30, 2013, our dealer manager received a dealer manager fee of up to 3.0% of the gross offering proceeds from the sale of shares of our common stock in our follow-on offering other than shares of our common stock sold pursuant to the DRIP. Our dealer manager could have re-allowed all or a portion of the dealer manager fee to participating broker-dealers. For the three and six months ended June 30, 2013, we incurred $14,888,000 and $16,850,000 in dealer manager fees to our dealer manager. Such fees were charged to stockholders' equity as such amounts were paid to our dealer manager from the gross proceeds of our follow-on offering.

21

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Accumulated Other Comprehensive Income
For the three and six months ended June 30, 2013, we did not have other comprehensive income. The changes in accumulated other comprehensive income, net of noncontrolling interests, by component consisted of the following for the six months ended June 30, 2014:
 
Gains on Intra-Entity Foreign Currency Transactions That Are of a Long-Term Investment Nature
 
Foreign Currency Translation Adjustments
 
Total
Balance — December 31, 2013
$
22,037,000

 
$
739,000

 
$
22,776,000

Net change in current period
16,372,000

 
528,000

 
16,900,000

Balance — June 30, 2014
$
38,409,000

 
$
1,267,000

 
$
39,676,000

Noncontrolling Interests
On February 4, 2009, our former advisor made an initial capital contribution of $2,000 to our operating partnership in exchange for 200 limited partnership units. On January 4, 2012, Griffin-American Advisor contributed $2,000 to acquire 200 limited partnership units of our operating partnership. On September 14, 2012, we entered into an agreement whereby we purchased all of the limited partnership interests held by our former advisor in our operating partnership. Between December 31, 2012 and July 16, 2013, 12 investors contributed their interests in 15 buildings in exchange for 281,600 limited partnership units in our operating partnership at an offering price per unit of $9.50. Pursuant to the operating partnership agreement, each limited partnership unit may be exchanged, at any time on or after the first anniversary date of the issuance, on a one-for-one basis for shares of our common stock, or, at our option, cash equal to the value of an equivalent number of shares of our common stock, or any combination of both. Each limited partnership unit is also entitled to distributions in an amount equal to the per share distributions declared on shares of our common stock.
As of June 30, 2014 and 2013, we owned greater than a 99.90% and 99.86%, respectively, general partnership interest in our operating partnership and our limited partners owned less than a 0.10% and 0.14%, respectively, limited partnership interest in our operating partnership. As such, less than 0.10% and 0.14%, respectively, of the earnings of our operating partnership for the three and six months ended June 30, 2014 and 2013 were allocated to noncontrolling interests, subject to certain limitations.
Until December 31, 2013, we owned a 98.75% interest in the consolidated limited liability company that owns Pocatello East Medical Office Building, or the Pocatello East MOB property. As such, for the three and six months ended June 30, 2013, 1.25% of the earnings of the Pocatello East MOB property were allocated to noncontrolling interests.
On December 31, 2013, we purchased the remaining 1.25% noncontrolling interest in the consolidated limited liability company that owns the Pocatello East MOB property that was purchased on July 27, 2010.
Distribution Reinvestment Plan
We adopted the DRIP that allowed stockholders to purchase additional shares of our common stock through the reinvestment of distributions at an offering price equal to 95.0% of the primary offering price of our offerings, subject to certain conditions. On September 9, 2013, we filed a Registration Statement on Form S-3 under the Securities Act to register a maximum of $100,000,000 of additional shares of our common stock pursuant to the Secondary DRIP. We commenced offering shares under the Secondary DRIP on October 30, 2013 following the termination of our follow-on offering. Our board of directors is evaluating our strategic alternatives to maximize stockholder value. See Note 20, Subsequent Event — Entry into an Agreement and Plan of Merger, for a further discussion. As such, on March 28, 2014, our board of directors suspended the Secondary DRIP effective beginning with the distributions declared for the month of April 2014, which were payable in May 2014, and all future distributions declared will be paid in cash to our stockholders.
For the three months ended June 30, 2014 and 2013, $9,498,000 and $12,701,000, respectively, in distributions were reinvested and 978,027 and 1,307,929 shares of our common stock, respectively, were issued pursuant to the Secondary DRIP and the DRIP, respectively.
For the six months ended June 30, 2014 and 2013, $36,909,000 and $22,830,000, respectively, in distributions were reinvested and 3,801,067 and 2,351,143 shares of our common stock, respectively, were issued pursuant to the Secondary DRIP and the DRIP, respectively.

22

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



As of June 30, 2014 and December 31, 2013, a total of $138,238,000 and $101,329,000, respectively, in distributions were reinvested and 14,305,741 and 10,504,674 shares of our common stock, respectively, were issued pursuant to the DRIP and the Secondary DRIP.
Share Repurchase Plan
Our board of directors approved a share repurchase plan that allowed for repurchases of shares of our common stock by us when certain criteria were met. Share repurchases were made at the sole discretion of our board of directors. All repurchases were subject to a one-year holding period, except for repurchases made in connection with a stockholder’s death or “qualifying disability,” as defined in our share repurchase plan. Subject to the availability of the funds for share repurchases, we limited the number of shares of our common stock repurchased during any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year; provided, however, that shares subject to a repurchase requested upon the death of a stockholder were not subject to this cap. Funds for the repurchase of shares of our common stock came exclusively from the cumulative proceeds we received from the sale of shares of our common stock pursuant to the DRIP and the Secondary DRIP.
On November 6, 2012, our board of directors approved an Amended and Restated Share Repurchase Plan, whereby all shares repurchased on or after December 7, 2012 would be repurchased following a one year holding period at 92.5% to 100% of each stockholder's purchase amount depending on the period of time their shares had been held. Pursuant to the Amended and Restated Share Repurchase Plan, at any time we were engaged in an offering of shares of our common stock, the repurchase amount for shares repurchased under our share repurchase plan would always be equal to or lower than the applicable per share offering price. However, if shares of our common stock were to be repurchased in connection with a stockholder's death or qualifying disability, the repurchase price would be no less than 100% of the price paid to acquire the shares of our common stock from us. Furthermore, our share repurchase plan provided that if there were insufficient funds to honor all repurchase requests, pending requests would be honored among all requests for repurchase in any given repurchase period, as followed: first, pro rata as to repurchases sought upon a stockholder's death; next, pro rata as to repurchases sought by stockholders with a qualifying disability; and, finally, pro rata as to other repurchase requests. Our board of directors is evaluating our strategic alternatives to maximize stockholder value. See Note 20, Subsequent Event — Entry into an Agreement and Plan of Merger, for a further discussion. As such, on March 28, 2014, our board of directors suspended our share repurchase plan, and no stockholder repurchase requests submitted will be fulfilled beginning with requests with respect to the second quarter of 2014.
For the three months ended June 30, 2014 and 2013, we received share repurchase requests and repurchased 280,031 and 264,683 shares of our common stock, respectively, for an aggregate of $2,730,000 and $2,554,000, respectively, at an average repurchase price of $9.75 and $9.65 per share, respectively, and for the six months ended June 30, 2014 and 2013, we received share repurchase requests and repurchased 503,444 and 544,675 shares of our common stock, respectively, for an aggregate of $4,860,000 and $5,254,000, respectively, at an average repurchase price of $9.65 and $9.65 per share, respectively. All shares were repurchased using proceeds we received from the sale of shares of our common stock pursuant to the DRIP and the Secondary DRIP.
As of June 30, 2014 and December 31, 2013, we had received share repurchase requests and had repurchased 1,984,677 shares of our common stock for an aggregate of $19,159,000 at an average price of $9.65 per share and 1,481,233 shares of our common stock for an aggregate of $14,299,000 at an average price of $9.65, respectively, using proceeds we received from the sale of shares of our common stock pursuant to the DRIP and the Secondary DRIP.
2009 Incentive Plan
We adopted our incentive plan, pursuant to which our board of directors or a committee of our independent directors may make grants of options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, employees and consultants. The maximum number of shares of our common stock that may be issued pursuant to our incentive plan is 2,000,000.

Through June 30, 2014, we granted an aggregate of 60,000 shares of our restricted common stock, as defined in our incentive plan, to our independent directors in connection with their initial election or re-election to our board of directors, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant. In addition, on November 7, 2012 and January 20, 2014, we granted an aggregate of 7,500 and 81,540 shares, respectively, of restricted common stock to our independent directors in consideration of the board of directors' determination of market

23

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



compensation for independent directors of similar publicly registered real estate investment trusts and for their past services rendered, respectively. These shares of restricted common stock vest under the same period described above.
The fair value of each share of restricted common stock at the date of grant was estimated at $10.00 or $10.22 per share, as applicable, the then most recent price paid to acquire a share of our common stock in our offerings; and with respect to the initial 20.0% of shares of our restricted common stock that vested on the date of grant, expensed as compensation immediately, and with respect to the remaining shares of our restricted common stock, amortized on a straight-line basis over the vesting period. Shares of our restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. Shares of our restricted common stock have full voting rights and rights to distributions.
For the three months ended June 30, 2014 and 2013, we recognized compensation expense of $67,000 and $27,000, respectively, and for the six months ended June 30, 2014 and 2013, we recognized compensation expense of $293,000 and $53,000, respectively, related to the restricted common stock grants ultimately expected to vest. ASC Topic 718, Compensation Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three and six months ended June 30, 2014 and 2013, we did not assume any forfeitures. Stock compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income.
As of June 30, 2014 and December 31, 2013, there was $820,000 and $280,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested shares of our restricted common stock. This expense is expected to be recognized over a remaining weighted average period of 3.33 years.

As of June 30, 2014 and December 31, 2013, the weighted average grant date fair value of the nonvested shares of our restricted common stock was $942,000 and $306,000, respectively. A summary of the status of the nonvested shares of our restricted common stock as of June 30, 2014 and December 31, 2013, and the changes for the six months ended June 30, 2014, is presented below:
 
Number of Nonvested
Shares of our
Restricted Common Stock
 
Weighted
Average Grant
Date Fair Value
Balance — December 31, 2013
30,000

 
$
10.19

Granted
81,540

 
$
10.22

Vested
(19,308
)
 
$
10.19

Forfeited

 
$

Balance — June 30, 2014
92,232

 
$
10.22

Expected to vest — June 30, 2014
92,232

 
$
10.22

13. Related Party Transactions
Fees and Expenses Paid to Affiliates
All of our executive officers and our non-independent directors are also executive officers and employees and/or holders of a direct or indirect interest in our sub-advisor, one of our co-sponsors or other affiliated entities. We are affiliated with Griffin-American Sub-Advisor and American Healthcare Investors; however, we are not affiliated with Griffin Capital, Griffin-American Advisor or Griffin Securities. In the aggregate, for the three months ended June 30, 2014 and 2013, we incurred $13,689,000 and $10,633,000, respectively, and for six months ended June 30, 2014 and 2013, we incurred $25,673,000 and $17,778,000, respectively, in fees and expenses to our affiliates as detailed below. Our advisor, which is not our affiliate, delegates certain advisory duties pursuant to a sub-advisory agreement to our sub-advisor, which is our affiliate. Therefore, although certain obligations under the Advisory Agreement are contractually performed by or for our advisor, only such obligations pursuant to the sub-advisory agreement that are performed by or for our sub-advisor or its affiliates are disclosed in this related party transactions note.

24

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Offering Stage
Other Organizational and Offering Expenses
Other organizational expenses were expensed as incurred and offering expenses were charged to stockholders' equity as such amounts were paid from the gross proceeds of our offerings.
Initial Offering
Through the termination of our initial offering on February 14, 2013, our other organizational and offering expenses were paid by our sub-advisor or its affiliates on our behalf. Our sub-advisor or its affiliates were reimbursed for actual expenses incurred up to 1.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the three and six months ended June 30, 2013, we incurred $1,000 and $116,000, respectively, in offering expenses to our sub-advisor in connection with our initial offering.
Follow-On Offering
Pursuant to our follow-on offering, which commenced February 14, 2013 and terminated on October 30, 2013, our other organizational and offering expenses were paid by our sub-advisor or its affiliates on our behalf. Our sub-advisor or its affiliates were reimbursed for actual expenses incurred up to 1.0% of the gross offering proceeds from the sale of shares of our common stock in our follow-on offering other than shares of our common stock sold pursuant to the DRIP. For the three and six months ended June 30, 2013, we incurred $1,288,000 and $1,946,000 in offering expenses to our sub-advisor in connection with our follow-on offering.
Acquisition and Development Stage
Acquisition Fee
Our sub-advisor or its affiliates receive an acquisition fee of up to 2.60% of the contract purchase price for each property we acquire or 2.0% of the origination or acquisition price for any real estate-related investment we originate or acquire. Until March 31, 2014, the acquisition fee for property acquisitions was paid as follows: (i) in shares of common stock in an amount equal to 0.15% of the contract purchase price, at $9.20 per share, the price paid to acquire a share of our common stock in our offerings, net of selling commissions and dealer manager fees, and (ii) the remainder in cash equal to 2.45% of the contract purchase price. Since April 1, 2014, the acquisition fee for property acquisitions is paid in cash equal to 2.60% of the contract purchase price. Our sub-advisor or its affiliates are entitled to receive these acquisition fees for properties and real estate-related investments we acquire with funds raised in our offerings including acquisitions completed after the termination of the Advisory Agreement, or funded with net proceeds from the sale of a property or real estate-related investment, subject to certain conditions. For the three months ended June 30, 2014 and 2013, we incurred $1,107,000 and $3,713,000, respectively, and for the six months ended June 30, 2014 and 2013, we incurred $3,953,000 and $6,198,000, respectively, in acquisition fees to our sub-advisor and its affiliates, which included 0 shares and23,056 shares of common stock issued for the three months ended June 30, 2014 and 2013, respectively, and 17,066 shares and 38,213 shares of common stock for the six months ended June 30, 2014 and 2013, respectively.
Acquisition fees in connection with the acquisition of properties are (i) expensed as incurred when they relate to the purchase of a business in accordance with ASC Topic 805, Business Combinations, or ASC Topic 805, and are included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income, or (ii) are capitalized when they relate to the purchase of an asset and included in real estate investments, net, in our accompanying condensed consolidated balance sheets, as applicable. Acquisition fees in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.
Development Fee
In the event our sub-advisor or its affiliates provide development-related services, our sub-advisor or its affiliates receive a development fee in an amount that is usual and customary for comparable services rendered for similar projects in the geographic market where the services are provided; however, we will not pay a development fee to our sub-advisor or its affiliates if our sub-advisor or its affiliates elect to receive an acquisition fee based on the cost of such development. For the three and six months ended June 30, 2014 and 2013, we did not incur any development fees to our sub-advisor or its affiliates.

25

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Reimbursement of Acquisition Expenses
Our sub-advisor or its affiliates are reimbursed for acquisition expenses related to selecting, evaluating and acquiring assets, which is reimbursed regardless of whether an asset is acquired. For the three and six months ended June 30, 2014 and 2013, we did not incur any acquisition expenses to our sub-advisor or its affiliates.
Reimbursements of acquisition expenses related to real estate investments are (i) expensed as incurred when they relate to the purchase of a business in accordance with ASC Topic 805 and are included in acquisition related expenses in our accompanying condensed consolidated statements of operations and comprehensive income, or (ii) are capitalized when they relate to the purchase of an asset and included in real estate investments, net, in our accompanying condensed consolidated balance sheets, as applicable. Reimbursements of acquisition expenses in connection with the acquisition of real estate-related investments are capitalized as part of the associated investment in our accompanying condensed consolidated balance sheets.
The reimbursement of acquisition expenses, acquisition fees and real estate commissions and other fees paid to unaffiliated parties will not exceed, in the aggregate, 6.0% of the contract purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested directors, including a majority of our independent directors, not otherwise interested in the transaction. For the three and six months ended June 30, 2014 and 2013, such fees and expenses did not exceed 6.0% of the contract purchase price of our acquisitions, except with respect to our acquisition of land in the Dixie-Lobo Medical Office Building Portfolio on May 2, 2013. Pursuant to our charter, prior to the acquisition of the land, our directors, including a majority of our independent directors, not otherwise interested in the transaction, approved the fees and expenses associated with the acquisition of the land in excess of the 6.0% limit and determined that such fees and expenses were commercially competitive, fair and reasonable to us.
Operational Stage
Asset Management Fee
Our sub-advisor or its affiliates are paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.85% of average invested assets existing as of January 6, 2012 and one-twelfth of 0.75% of the average invested assets acquired after January 6, 2012, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of average invested capital. For such purposes, average invested assets means the average of the aggregate book value of our assets invested in real estate properties and real estate-related investments, before deducting depreciation, amortization, bad debt and other similar non-cash reserves, computed by taking the average of such values at the end of each month during the period of calculation; and average invested capital means, for a specified period, the aggregate issue price of shares of our common stock purchased by our stockholders, reduced by distributions of net sales proceeds by us to our stockholders and by any amounts paid by us to repurchase shares of our common stock pursuant to our share repurchase plan. For the three months ended June 30, 2014 and 2013, we incurred $5,783,000 and $3,011,000, respectively, and for the six months ended June 30, 2014 and 2013, we incurred $11,373,000 and $5,729,000, respectively, in asset management fees to our sub-advisor.
Asset management fees are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income.
Property Management Fee
Our sub-advisor or its affiliates are paid a monthly property management fee of up to 4.0% of the gross monthly cash receipts from each property managed by our sub-advisor or its affiliates. Our sub-advisor or its affiliates may sub-contract its duties to any third-party, including for fees less than the property management fees payable to our sub-advisor or its affiliates. In addition to the above property management fee, for each property managed directly by entities other than our sub-advisor or its affiliates, we pay our sub-advisor or its affiliates a monthly oversight fee of up to 1.0% of the gross cash receipts from the property; provided however, that in no event will we pay both a property management fee and an oversight fee to our sub-advisor or its affiliates with respect to the same property. For the three months ended June 30, 2014 and 2013, we incurred $1,638,000 and $1,033,000, respectively, and for six months ended June 30, 2014 and 2013, we incurred $3,248,000 and $1,858,000, respectively, in property management fees and oversight fees to our sub-advisor or its affiliates.
Property management fees and oversight fees are included in rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income.

26

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



On-site Personnel Payroll
For the three and six months ended June 30, 2014,  we incurred $4,480,000 and $5,491,000, respectively, as a reimbursement of payroll expense for on-site personnel to an affiliate of our advisor, which is included in rental expenses in our accompanying condensed consolidated statements of operations and comprehensive income. We did not incur any such amounts for the three and six months ended June 30, 2013.
Lease Fees
We pay our sub-advisor or its affiliates a separate fee for any leasing activities in an amount not to exceed the fee customarily charged in arm's-length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Such fee is generally expected to range from 3.0% to 8.0% of the gross revenues generated during the initial term of the lease. For the three months ended June 30, 2014 and 2013, we incurred $609,000 and $1,551,000, respectively, and for the six months ended June 30, 2014 and 2013, we incurred $1,469,000 and $1,856,000, respectively, in lease fees to our sub-advisor or its affiliates.
Lease fees are capitalized as lease commissions and included in other assets, net in our accompanying condensed consolidated balance sheets.
Construction Management Fee
In the event that our sub-advisor or its affiliates assist with planning and coordinating the construction of any capital or tenant improvements, our sub-advisor or its affiliates are paid a construction management fee of up to 5.0% of the cost of such improvements. For the three months ended June 30, 2014 and 2013, we incurred $72,000 and $36,000, respectively, and for the six months ended June 30, 2014 and 2013, we incurred $139,000 and $75,000, respectively, in construction management fees to our sub-advisor or its affiliates.
Construction management fees are capitalized as part of the associated asset and included in real estate investments, net in our accompanying condensed consolidated balance sheets or expensed and included in our accompanying condensed consolidated statements of operations and comprehensive income, as applicable.
Operating Expenses
We reimburse our sub-advisor or its affiliates for operating expenses incurred in rendering services to us, subject to certain limitations. However, we cannot reimburse our sub-advisor or its affiliates at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of: (i) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (ii) 25.0% of our net income, as defined in the Advisory Agreement, unless our independent directors determined that such excess expenses were justified based on unusual and nonrecurring factors.
For the 12 months ended June 30, 2014, our operating expenses did not exceed this limitation. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.1% and 23.9%, respectively, for the 12 months ended June 30, 2014. For the three and six months ended June 30, 2014 and 2013, our sub-advisor or its affiliates did not incur any operating expenses on our behalf.
Operating expense reimbursements are included in general and administrative in our accompanying condensed consolidated statements of operations and comprehensive income.
Compensation for Additional Services
Our sub-advisor and its affiliates are paid for services performed for us other than those required to be rendered by our sub-advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services has to be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated parties for similar services. For the three and six months ended June 30, 2014 and 2013, our sub-advisor and its affiliates were not compensated for any additional services.

27

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Liquidity Stage
Disposition Fees
For services relating to the sale of one or more properties, our sub-advisor or its affiliates are paid a disposition fee up to the lesser of 2.0% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors, including a majority of our independent directors, upon the provision of a substantial amount of the services in the sales effort. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. For the three and six months ended June 30, 2014 and 2013, we did not incur any disposition fees to our sub-advisor or its affiliates.
Subordinated Participation Interest
Subordinated Distribution of Net Sales Proceeds
In the event of liquidation, our sub-advisor will be paid a subordinated distribution of net sales proceeds. The distribution from our operating partnership will be equal to 77.09% of 15.0% of the net proceeds from the sales of properties, as set forth in the operating partnership agreement, as amended, after distributions to our stockholders, in the aggregate, of (i) a full return of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) plus (ii) an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock, as adjusted for distributions of net sale proceeds. Actual amounts to be received depend on the sale prices of properties upon liquidation. For the three and six months ended June 30, 2014 and 2013, we did not incur any such distributions to our sub-advisor.
Subordinated Distribution upon Listing
Upon the listing of shares of our common stock on a national securities exchange, our sub-advisor will be paid a distribution from our operating partnership equal to 77.09% of 15.0% of the amount by which (i) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the date of listing, as set forth in the operating partnership agreement, as amended. Actual amounts to be received depend upon the market value of our outstanding stock at the time of listing among other factors. For the three and six months ended June 30, 2014 and 2013, we did not incur any such distributions to our sub-advisor.
Subordinated Distribution Upon Termination
Upon termination or non-renewal of the Advisory Agreement, if the shares of our common stock are not listed on a national securities exchange, our sub-advisor will be entitled to a subordinated distribution from our operating partnership equal to 77.09% of 15.0% of the amount, if any, by which (i) the appraised value of our assets on the termination date, less any indebtedness secured by such assets, plus total distributions paid through the termination date, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) and the total amount of cash that, if distributed to them as of the termination date, will provide them an annual 8.0% cumulative, non-compounded return on the gross proceeds from the sale of shares of our common stock through the termination date, subject to certain reductions relating to properties acquired prior to Griffin-American Advisor's appointment as our advisor.
Upon termination or non-renewal of the Advisory Agreement in connection with a merger of our company, our sub-advisor will be entitled to a subordinated distribution from our operating partnership equal to 77.09% of 15.0% of the amount, if any, by which (i) the Implied Value (as defined below) of our assets, plus our cash, cash equivalents, deposits, receivables and prepaid assets as of the date of such merger, less any of our indebtedness or other liabilities, less the amount of transaction or selling expenses incurred in connection with such merger, plus total distributions paid through the date of such merger, exceeds (ii) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on the gross proceeds through the date of the merger; provided, that the term “Implied Value” means the sum of (A)(1) the total number of shares of our stock outstanding immediately prior to the merger, multiplied by (2) the aggregate consideration paid per share of our stock in connection with the merger, plus (B) any incentive distributions paid or payable to our advisor, our sub-advisor or our former

28

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



advisor in connection with the merger, plus (C) any of our indebtedness or other liabilities, plus (D) the amount of transaction or selling expenses incurred by us or on our behalf in connection with the merger as of the date of the merger, minus (E) our cash, cash equivalents, deposits, receivables and prepaid assets.
As of June 30, 2014 and 2013, we had not recorded any charges to earnings related to the subordinated distribution upon termination. See Note 20, Subsequent Event — Entry into an Agreement and Plan of Merger, for a further discussion.
Executive Stock Purchase Plans
Effective January 1, 2013, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey T. Hanson, our President and Chief Operating Officer, Danny Prosky, and our Executive Vice President, General Counsel, Mathieu B. Streiff, each executed a stock purchase plan, or the Executive Stock Purchase Plans, whereby they each irrevocably agreed to invest 100%, 50.0% and 50.0%, respectively, of their net after-tax base salary and cash bonus compensation earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. In addition, our Chief Financial Officer, Shannon K S Johnson, our Senior Vice President of Acquisitions, Stefan K.L. Oh, and our Secretary, Cora Lo, each executed similar Executive Stock Purchase Plans whereby each executive irrevocably agreed to invest 15.0%, 15.0% and 10.0%, respectively, of their net after-tax base salary earned as employees of American Healthcare Investors directly into our company by purchasing shares of our common stock. The Executive Stock Purchase Plans each were to terminate on the earlier of (i) December 31, 2013, (ii) the termination of our offerings, (iii) any suspension of our offerings by our board of directors or a regulatory body, or (iv) the date upon which the number of shares of our common stock owned by such person, when combined with all their other investments in our common stock, exceeds the ownership limits set forth in our charter. In connection with the termination of our follow-on offering on October 30, 2013, the Executive Stock Purchase Plans also terminated, and therefore we did not issue any shares of our common stock pursuant to the applicable stock purchase plan for the three and six months ended June 30, 2014.
For the three and six months ended June 30, 2013, our executive officers invested the following amounts and we issued the following shares of our common stock pursuant to the applicable stock purchase plan:
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
June 30, 2013
 
June 30, 2013
Officer's Name
 
Title
 
Amount
 
Shares
 
Amount
 
Shares
Jeffrey T. Hanson
 
Chairman of the Board of Directors and Chief Executive Officer
 
$
20,000

 
2,170

 
$
40,000

 
4,339

Danny Prosky
 
President and Chief Operating Officer
 
15,000

 
1,567

 
29,000

 
3,132

Mathieu B. Streiff
 
Executive Vice President, General Counsel
 
13,000

 
1,396

 
26,000

 
2,787

Shannon K S Johnson
 
Chief Financial Officer
 
6,000

 
597

 
11,000

 
1,145

Stefan K.L. Oh
 
Senior Vice President of Acquisitions
 
5,000

 
576

 
8,000

 
917

Cora Lo
 
Secretary
 
3,000

 
334

 
6,000

 
643

 
 
 
 
$
62,000

 
6,640

 
$
120,000

 
12,963

Accounts Payable Due to Affiliates
The following amounts were outstanding to our affiliates as of June 30, 2014 and December 31, 2013:
 
 
June 30,
 
December 31,
Fee
 
2014
 
2013
Asset and property management fees
 
$
2,539,000

 
$
2,201,000

Lease commissions
 
440,000

 
83,000

Construction management fees
 
145,000

 
94,000

Offering costs
 

 
28,000

Operating expenses
 

 
1,000

 
 
$
3,124,000

 
$
2,407,000


29

GRIFFIN-AMERICAN HEALTHCARE REIT II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Asset Allocation Policy
On April 10, 2014, American Healthcare Investors, acting as managing member of our sub-advisor and Griffin-American Healthcare REIT III Advisor, LLC, the advisor of Griffin-American Healthcare REIT III, Inc., or GA Healthcare REIT III, another publicly registered non-traded healthcare REIT also co-sponsored by American Healthcare Investors, adopted an asset allocation policy that initially applied until June 30, 2014 to allocate property acquisitions among us and GA Healthcare REIT III. On June 23, 2014, the asset allocation policy was renewed for another 30 days and subject to successive automatic 30 day renewals until terminated upon notice by American Healthcare Investors, our board of directors or the board of directors of GA Healthcare REIT III. Pursuant to the asset allocation policy, American Healthcare Investors will allocate potential investment opportunities to us and GA Healthcare REIT III based on the consideration of certain factors for each company such as investment objectives; the availability of cash and/or financing to acquire the investment; financial impact; strategic advantages; concentration and/or diversification; and income tax effects.
After consideration and analysis of such factors, if American Healthcare Investors determines that the investment opportunity is suitable for both companies, then: (i) we will have priority for (a) investment opportunities of $100,000,000