NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Brookdale Senior Living Inc. ("Brookdale" or the "Company") is an operator of 679 senior living communities throughout the United States. The Company is committed to its mission of enriching the lives of the people it serves with compassion, respect, excellence, and integrity. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company's senior living communities and its comprehensive network help to provide seniors with care and services in an environment that feels like home.
As of December 31, 2021, the Company owned 347 communities, representing a majority of the Company's consolidated community portfolio, leased 299 communities, and managed 33 communities. As of such date, the Company has three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. On July 1, 2021, the Company sold 80% of its equity in its Health Care Services segment, an additional reportable segment prior to that date, as described in Note 4. The accompanying consolidated financial statements include the financial position, results of operations, and cash flows of the Health Care Services segment through June 30, 2021. For periods beginning July 1, 2021, the results and financial position of the Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20% equity interest in the Health Care Services venture (the "HCS Venture") is accounted for under the equity method of accounting.
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles ("GAAP"). Except for the changes for the impact of the recently adopted accounting pronouncements discussed in this Note, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements. The significant accounting policies are summarized below:
Principles of Consolidation
The consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.
The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810"). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, other operating income, asset impairments, self-insurance reserves, performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.
Revenue Recognition
Resident Fees
Resident fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.
Under the Company's senior living residency agreements, which are generally for a contractual term of 30 days to one year, the Company provides senior living services to residents for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases ("ASC 842") and recognizes, measures, presents, and discloses the revenue for services under the Company's senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company's independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers ("ASC 606") for its independent living, assisted living, and memory care residency agreements for which it has estimated that the nonlease components of such residency agreements are the predominant component of the contract.
The Company receives payment for services under various third-party payor programs which include Medicare, Medicaid, and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicare or Medicaid are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.
Management Services
The Company manages certain communities under contracts which provide periodic management fee payments to the Company and reimbursement for costs and expense related to such communities. Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company estimates the amount of incentive fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company's estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue is included in reimbursed costs incurred on behalf of managed communities on the consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities on the consolidated statements of operations.
Government Grants
The Company recognizes income for government grants on a systematic and rational basis over the periods in which the Company recognizes the related expenses or loss of revenue for which the grants are intended to compensate when there is reasonable assurance that the Company will comply with the applicable terms and conditions of the grant and there is reasonable assurance that the grant will be received.
Lease Accounting
Refer to the Company's revenue recognition policy for discussion of the accounting policy for residency agreements, which include a lease component.
The Company, as lessee, recognizes a right-of-use asset and a lease liability on the Company's consolidated balance sheet for its community, office, and equipment leases. As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company's consolidated balance sheet at the present value of future minimum lease payments. The Company's community leases generally contain fixed annual rent escalators or annual rent escalators based on an index, such as the consumer price index. The future minimum lease payments recognized on the consolidated balance sheet include fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index or rate on the lease commencement date. The Company recognizes lease expense as incurred for additional variable payments. For the Company's leases that do not contain an implicit rate, the Company utilizes its estimated incremental borrowing rate to determine the present value of lease payments based on information available at commencement of the lease. The Company's estimated incremental borrowing rate reflects the fixed rate at which the Company could borrow a similar amount for the same term on a collateralized basis. The Company elected the short-term lease exception policy which permits leases with an initial term of 12 months or less to not be recorded on the Company's consolidated balance sheet and instead to be recognized as lease expense as incurred.
The Company, as lessee, makes a determination with respect to each of its community, office, and equipment leases as to whether each should be accounted for as an operating lease or financing lease. The classification criteria is based on estimates regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, economic life of the asset, and certain other terms in the lease agreements.
Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of right-of-use assets are assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates and estimated lease coverage ratios (Level 3).
Operating Leases
The Company recognizes operating lease expense for actual rent paid, generally plus or minus a straight-line adjustment for estimated minimum lease escalators if applicable. The right-of-use asset is generally reduced each period by an amount equal to the difference between the operating lease expense and the amount of expense on the lease liability utilizing the effective interest method. Subsequent to the impairment of an operating lease right-of-use asset, the Company recognizes operating lease expense consisting of the reduction of the right-of-use asset on a straight-line basis over the remaining lease term and the amount of expense on the lease liability utilizing the effective interest method.
Financing Leases
Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold intangibles, net on the Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term unless the lease contains an option to purchase the underlying asset that the Company is reasonably certain to exercise. If the Company is reasonably certain to exercise the purchase option, the asset is amortized over the useful life.
Sale-Leaseback Transactions
For transactions in which an owned community is sold and leased back from the buyer (sale-leaseback transactions), the Company recognizes an asset sale and lease accounting is applied if the Company has transferred control of the community. For such transactions, the Company removes the transferred assets from the consolidated balance sheet and a gain or loss on the sale is recognized for the difference between the carrying amount of the asset and the transaction price for the sale transaction.
For sale‑leaseback transactions in which the Company has not transferred control of the underlying asset, the Company does not recognize an asset sale or derecognize the underlying asset until control is transferred. For such transactions, the Company recognizes the underlying assets within assets under financing leases as a component of property, plant and equipment and leasehold intangibles, net on the consolidated balance sheets and continues to depreciate the assets over their useful lives. Additionally, the Company accounts for any amounts received as a financing lease liability and the Company recognizes
interest expense on the financing lease liability utilizing the effective interest method with the interest expense limited to an amount that is not greater than the cash payments on the financing lease liability over the term of the lease.
Gain (Loss) on Sale of Assets
The Company regularly enters into real estate transactions which may include the disposition of certain communities, including the associated real estate. The Company recognizes a gain or loss from real estate sales when the transfer of control is complete.
The Company recognizes a gain or loss from the sale of equity method investments when the transfer of control is complete and the Company has no continuing involvement with the transferred financial assets.
Purchase Accounting
For the acquisition of assets that do not meet the definition of a business, the Company accounts for the transaction as an asset acquisition at the purchase price, including acquisition costs, allocated among the acquired assets and assumed liabilities, including identified intangible assets and liabilities, based upon the relative fair values using Level 3 inputs at the date of acquisition.
For acquisitions of a business, the Company accounts for the transaction as a business combination pursuant to the acquisition method and assets acquired and liabilities assumed, including identified intangible assets and liabilities, are recorded at fair value. In determining the allocation of the purchase price of companies and communities to net tangible and identified intangible assets acquired and liabilities assumed, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, marketing, leasing activities, and/or independent appraisals.
In connection with a business combination, the excess of the fair value of liabilities assumed and common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill. Transaction costs associated with business combinations are expensed as incurred.
Deferred Financing Costs
Fees paid to lenders and third-party costs incurred to obtain debt are recorded as a direct adjustment to the carrying amount of debt and amortized on a straight-line basis, which approximates the effective yield method, over the term of the related debt. Unamortized deferred financing costs are written-off if the associated debt is retired before the maturity date. Upon the refinancing of mortgage debt or amendment of the line of credit, unamortized deferred financing costs and additional financing costs incurred are accounted for in accordance with ASC 470-50, Debt Modifications and Extinguishments.
Stock-Based Compensation
Measurement of the cost of employee services received in exchange for stock-based compensation is based on the grant-date fair value of the employee stock awards, which is based on the quoted price of the Company's common shares on the grant date for the majority of the Company's awards. The Company evaluates if grant-date fair value adjustments are necessary based on whether the Company is in possession of material non-public information at the grant date and the changes in the Company’s stock price subsequent to the release of such information and no adjustments were made. Generally, the cost is recognized as compensation expense ratably over the employee's requisite service period. The Company recognizes forfeitures of stock-based awards as they occur and any previously recognized compensation expense is reversed for forfeited awards. Stock-based awards that vest over a requisite service period, other than those with performance or market conditions, generally vest ratably in annual installments over a period of three to four years. Incremental compensation costs arising from subsequent modifications of awards after the grant date are recognized when incurred.
Certain of the Company's employee stock-based awards vest only upon the achievement of performance conditions. The Company recognizes compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock-based compensation expense requires judgment in estimating the probability of achievement of these performance conditions. Performance conditioned awards that vest dependent upon attainment of various levels of performance that equal or exceed threshold levels generally vest based upon performance at the end of a three-year performance period. The number of shares that ultimately vest can range from 0% to 125% of the stock-based awards granted depending on the level of achievement of the performance criteria.
Certain of the Company's employee stock-based awards vest only upon the achievement of a market condition where the measurement period is three years and vesting of the awards is based on the Company's level of attainment of a specified total
stockholder return relative to the percentage appreciation of a specified index of companies for the respective three-year measurement period. Compensation expense for awards with market conditions is recognized over the service period, which is generally four years, and the actual achievement of the market condition does not impact expense recognition. The Company uses a Monte Carlo valuation model to estimate the grant date fair value of such awards. Depending on the results achieved during the three-year measurement period, the number of shares that ultimately vest may range from 0% to 150% of the stock-based awards granted. The expected volatility of the Company's common stock at the date of grant is estimated based on a historical average volatility rate for the approximate three-year performance period and the estimated expected weighted average volatility was 42.5% and 45.2% for awards granted in 2020 and 2019, respectively. The risk-free interest rate assumption is based on observed interest rates consistent with the approximate three-year measurement period and the estimated weighted average risk free interest rate was 1.4% and 2.4% for awards granted in 2020 and 2019, respectively.
For all share-based awards with graded vesting other than performance conditioned awards, the Company records compensation expense for the entire award on a straight-line basis (or, if applicable, on the accelerated method) over the requisite service period. For performance conditioned awards, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance condition is deemed probable of achievement. Performance conditions are evaluated quarterly. If such conditions are not ultimately met or it is not probable the conditions will be achieved, no compensation expense for performance conditioned awards is recognized and any previously recognized compensation expense is reversed.
Income Taxes
The Company accounts for income taxes under the asset and liability approach which requires recognition of deferred tax assets and liabilities for the differences between the financial reporting and tax basis of assets and liabilities using the tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. When it is determined that it is more likely than not that the Company will be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset is made and reflected in income. This determination is made by considering various factors, including the reversal and timing of existing temporary differences, tax planning strategies, and estimates of future taxable income exclusive of the reversal of temporary differences.
Fair Value of Financial Instruments
Fair value measurements are based on a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows.
Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Marketable Securities
Marketable securities are investments in commercial paper and short-term corporate bond instruments with maturities of greater than 90 days as of their acquisition date by the Company.
Accounts Receivable, Net
Accounts receivable are reported net of an allowance for credit losses to represent the Company's estimate of expected losses at the balance sheet date. The adequacy of the Company's allowance for credit losses is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, a review of specific accounts, as well as expected future economic conditions and market trends, and adjustments are made to the allowance as necessary.
Assets Held for Sale
The Company designates communities as held for sale when certain criteria are met, including when management has committed to a plan to sell the community and the sale is probable within one year of the reporting date. The Company records these assets on the consolidated balance sheet at the lesser of the carrying amount and fair value less estimated selling costs. If the carrying amount is greater than the fair value less the estimated selling costs, the Company records an impairment charge. The Company evaluates the fair value of the assets held for sale each period to determine if it has changed. The long-lived assets are not depreciated while classified as held for sale.
Property, Plant and Equipment and Leasehold Intangibles, Net
Property, plant and equipment and leasehold intangibles, net are recorded at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, which are as follows.
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Asset Category
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Estimated
Useful Life
(in years)
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Buildings and improvements
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40
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Furniture and equipment
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3 – 10
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Resident lease intangibles
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1 – 3
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Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements, which improve and/or extend the useful life of the asset, are capitalized and depreciated over the estimated useful life of the renovations or improvements. For communities subject to operating or financing leases, leasehold improvements are depreciated over the shorter of the estimated useful life of the assets or the term of the lease. For financing leases that have a purchase option the Company is reasonably certain to exercise, the leasehold improvements are depreciated over their estimated useful life. Facility operating expense excludes facility depreciation and amortization.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, the Company is required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods, and estimated capitalization rates (Level 3).
Investment in Unconsolidated Ventures
The initial carrying amount of investments in unconsolidated ventures is based on the amount paid to purchase the investment or its fair value in the case of a retained noncontrolling interest upon deconsolidation of a former subsidiary. The Company's reported share of earnings of an unconsolidated venture is adjusted for the impact, if any, of basis differences between its carrying amount of the equity investment and its share of the venture's underlying assets.
Distributions received from an investee are recognized as a reduction in the carrying amount of the investment. If distributions are received from an investee that would reduce the carrying amount of an equity method investment below zero, the Company evaluates the facts and circumstances of the distributions to determine the appropriate accounting for the excess distribution, including an evaluation of the source of the proceeds and implicit or explicit commitments to fund the investee. The excess distribution is either recorded as a gain on investment, or in instances where the source of proceeds is from financing activities or the Company has a significant commitment to fund the investee, the excess distribution would result in an equity method liability and the Company would continue to record its share of the investee's earnings and losses.
The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other than temporarily impaired. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. If the Company determines that an equity method investment is other than temporarily impaired, it is recorded at its fair value with an impairment charge recognized in asset impairment expense for the difference between its carrying amount and fair value.
Goodwill
The Company tests goodwill for impairment annually during the fourth quarter or more frequently if indicators of impairment arise. Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for a sustained period since the last testing date, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, the Company performs a quantitative goodwill impairment test based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying amount. The fair values used in the quantitative goodwill impairment test are estimated using Level 3 inputs based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions such as revenue and expense growth rates, capitalization rates, and discount rates. The Company also considers market-based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit.
Self-Insurance Liability Accruals
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the Company maintains general liability and professional liability insurance policies for its owned, leased, and managed communities under a master insurance program, the Company's current policies provide for deductibles for each claim and contain various exclusions from coverage. As a result, the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of the Company’s wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. In addition, the Company maintains a high deductible workers compensation program and a self-insured employee medical program.
The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel, and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored, and estimates are updated as information becomes available.
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders' equity.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard effective January 1, 2020 and recognized the cumulative effect of the adoption as an immaterial adjustment to beginning accumulated deficit as of January 1, 2020.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which amends the former accounting principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability on the consolidated balance sheet for most leases. Additionally, ASU 2016-02 made targeted changes to lessor accounting, including changes to align certain aspects with the revenue recognition model, and enhanced disclosure of lease arrangements.
In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements ("ASU 2018-11"), which provides entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and a practical expedient allowing lessors to not separate nonlease components from the associated lease components when certain criteria are met. The Company adopted these lease accounting standards effective January 1, 2019 and utilized the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, the Company elected the package of practical expedients within ASU 2016-02
that allows an entity to not reassess, as of January 1, 2019, its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs. The Company did not elect the hindsight practical expedient which would have allowed it to revisit key assumptions, such as lease term, that were made when it originally entered into the lease.
The Company's adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $1.6 billion and right-of-use assets of $1.3 billion on the consolidated balance sheet for its existing community, office, and equipment operating leases based on the remaining present value of the minimum lease payments as of January 1, 2019. The future minimum lease payments recognized on the consolidated balance sheet included fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index or rate as of January 1, 2019. Such right-of-use asset amounts were recognized based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, intangible assets, and the recognition of right-of-use asset impairments. As of December 31, 2018, the Company had a net liability of $231.4 million recognized on its consolidated balance sheet for accrued lease payments and intangible assets for operating leases. Additionally, $58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to beginning accumulated deficit as of January 1, 2019.
In addition to the previously unrecognized right-of-use asset impairment of $58.1 million, the Company recognized cumulative effect adjustments to beginning accumulated deficit as of January 1, 2019 for the impact of the adoption of accounting standards by its equity method investees and the deferred tax impact of these adjustments. The recognition of the right-of-use assets and corresponding liabilities and the removal of the deferred tax position related to these leases as of December 31, 2018 had a $0.3 million impact on the Company's net deferred tax position. A deferred tax asset of $14.1 million and an increase to the valuation allowance of $13.8 million was recorded against accumulated deficit reflecting the tax impact of the previously unrecognized right-of-use asset impairments.
The adoption of the new accounting standards resulted in the following adjustments to the Company's consolidated balance sheet as of January 1, 2019.
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(in millions)
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Assets
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
(11)
|
|
|
Operating lease right-of-use assets
|
1,329
|
|
|
Investment in unconsolidated ventures
|
(2)
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|
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Other intangible assets, net
|
(5)
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|
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Other assets, net
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(6)
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Total assets
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$
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1,305
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|
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Liabilities and Equity
|
|
|
Operating lease obligations
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$
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1,618
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|
|
Deferred liabilities
|
(257)
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|
|
Total liabilities
|
1,361
|
|
|
Total equity
|
(56)
|
|
|
Total liabilities and equity
|
$
|
1,305
|
|
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional guidance for a limited period of time through December 31, 2022 to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or other reference rates expected to be discontinued. The guidance may be elected over time and the Company elected the optional practical expedient provided by ASU 2020-04 for debt contract modifications related to the discontinuation of reference rates. The adoption of the optional expedient has not had and is not expected to have a material impact on the Company's consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The
Company early adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective method of adoption. Subsequent to the Company's adoption of ASU 2020-06, the Company's issuance of $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes") on October 1, 2021 was recognized as a single liability presented as long-term debt measured at its amortized cost within the Company’s consolidated balance sheet rather than separate presentation of the embedded conversion feature at fair value within stockholders’ equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's consolidated financial position or results of operations.
3. COVID-19 Pandemic
The COVID-19 pandemic significantly disrupted the senior living industry and the Company's business beginning in March 2020. The health and wellbeing of the Company's residents and associates has been and continues to be its highest priority. As of January 31, 2022, substantially all of the Company’s communities were open for new resident move-ins. The Company may revert to more restrictive measures at its communities, including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities having jurisdiction.
Pandemic-Related Expenses. In the aggregate, for the years ended December 31, 2021 and 2020, the Company has incurred $173.2 million of facility operating expense for incremental direct costs to respond to the pandemic, including $47.7 million and $125.5 million, for the years ended December 31, 2021 and 2020, respectively. The direct costs include those for: acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. For the years ended December 31, 2021 and 2020, the Company recorded $23.0 million and $105.6 million, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets and property, plant, and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at certain communities.
Financial Relief. The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things. Certain impacts of such programs are provided below.
•During the years ended December 31, 2021 and 2020, the Company accepted $0.8 million and $109.8 million, respectively, of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by U.S. Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. During the three months ended December 31, 2021, the Company applied for the Phase 4 general distribution from the Provider Relief Fund. There can be no assurance that the Company will qualify for, or receive, such future grants in the amount it expects, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which it qualifies.
•During the year ended December 31, 2020, the Company received $87.5 million under the Accelerated and Advance Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS"), $75.2 million of which related to its former Health Care Services segment and $12.3 million of which related to its CCRCs segment. Recoupment of advanced payments began one year after payments were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months. Any outstanding balance of advanced payments will be due following such recoupment period. During the year ended December 31, 2021, $20.8 million of the advanced payments were recouped. Pursuant to the sale of 80% of the Company's equity in its Health Care Services segment (as described in Note 4), $63.6 million of such obligations related to its former Health Care Services segment were retained by the unconsolidated HCS Venture. As of December 31, 2021, the outstanding balance of advanced payments related to the CCRCs segment was $3.1 million.
•During the year ended December 31, 2020, the Company deferred payment of $72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act. Pursuant to the sale of 80% of the Company's equity in its Health Care Services segment, $9.6 million of such obligations related to its former Health Care Services segment were retained by the unconsolidated HCS Venture. In December 2021,
the Company paid $31.6 million of its retained deferred amount and the remaining deferred amount of $31.6 million is due December 31, 2022.
•The Company was eligible to claim the employee retention credit for certain of its associates under the CARES Act. The credit for 2020 was available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and was equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. During the year ended December 31, 2021, the Company recognized $9.9 million of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which the Company has received $3.4 million in cash as of December 31, 2021. The Company recognized a receivable for the remaining $6.5 million within prepaid expenses and other current assets, net on the consolidated balance sheet as of December 31, 2021. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and the Company is assessing its eligibility to claim such credit. There can be no assurance that the Company will qualify for, or receive, credits in the amount or on the timing it expects.
In addition to the grants described above, during the years ended December 31, 2021 and 2020, the Company received and recognized $1.7 million and $5.9 million, respectively, of other operating income from grants from other government sources.
The Company cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on its business, results of operations, cash flow, and liquidity, and its response efforts may continue to delay or negatively impact its strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in the Company's markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and the Company's ability to adapt its sales and marketing efforts to meet that demand; the impact of COVID-19 on the Company's residents’ and their families’ ability to afford its resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of the Company's new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in the Company's communities; the duration and costs of the Company's response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses; potentially greater use of contract labor and overtime due to COVID-19 and general labor market conditions; the impact of COVID-19 on the Company's ability to complete financings and refinancings of various assets, or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in its debt and lease documents; increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to the Company's health plan participants; increased enforcement actions resulting from COVID-19; government action that may limit the Company's collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts.
4. Acquisitions, Dispositions, and Other Significant Transactions
Sale of Health Care Services
On July 1, 2021, the Company completed the sale of 80% of its equity in its Health Care Services segment to affiliates of HCA Healthcare, Inc. ("HCA Healthcare") for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment (the "HCS Sale"). The Company received net cash proceeds of $312.6 million, including $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021. The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. At closing of the transaction, the Company retained a 20% equity interest in the HCS Venture.
The results and financial position of the Health Care Services segment were deconsolidated from its consolidated financial statements as of July 1, 2021 and its 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date. As of July 1, 2021, the Company recognized a $100.0 million asset within investment in unconsolidated ventures on its consolidated balance sheet for the estimated fair value of its retained 20% noncontrolling interest in the HCS Venture. The Company recognized a $286.5 million gain on sale, net of transaction costs, within its consolidated
statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 21 for selected financial data for the Health Care Services segment through June 30, 2021.
On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, the Company received $35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which decreased its investment in unconsolidated ventures. The Company continues to own a 20% equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy agencies in areas served by HCA Healthcare.
Community Transactions
The Company entered into transactions with Ventas, Inc. ("Ventas"), announced on July 27, 2020, and Healthpeak Properties, Inc. ("Healthpeak"), announced on October 1, 2019, which together restructured a significant portion of the Company's triple-net lease obligations. As a result of the transactions with Healthpeak, as well as other community transactions, the Company acquired 27 communities that the Company formerly leased or managed and sold substantially all of its ownership interests in unconsolidated senior housing ventures during 2019 through 2021. Additionally, the Company disposed of an aggregate of 24 owned communities (including the conveyance of five communities to Ventas) and the Company's triple-net lease obligations on 17 communities were terminated from 2019 to 2021 (ten in 2019, five in 2020, and two in 2021).
The following table sets forth the amounts included within the Company's consolidated financial statements for the 41 communities that it disposed of through sales, conveyances, and lease terminations for the years ended December 31, 2021, 2020, and 2019 through the respective disposition dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Resident fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assisted Living and Memory Care
|
$
|
5,445
|
|
|
$
|
24,105
|
|
|
$
|
60,204
|
|
|
CCRCs
|
6,471
|
|
|
29,203
|
|
|
74,090
|
|
|
Senior housing resident fees
|
$
|
11,916
|
|
|
$
|
53,308
|
|
|
$
|
134,294
|
|
|
Facility operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assisted Living and Memory Care
|
$
|
5,142
|
|
|
$
|
22,723
|
|
|
$
|
52,228
|
|
|
CCRCs
|
7,680
|
|
|
30,310
|
|
|
72,096
|
|
|
Senior housing facility operating expense
|
$
|
12,822
|
|
|
$
|
53,033
|
|
|
$
|
124,324
|
|
|
Cash lease payments
|
$
|
1,726
|
|
|
$
|
6,752
|
|
|
$
|
11,014
|
|
As of December 31, 2021, two communities in the Assisted Living and Memory Care segment were classified as held for sale, resulting in $3.6 million being recorded as assets held for sale within the consolidated balance sheet. The closings of the sales of the communities are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
Completed Dispositions of Owned Communities
During the year ended December 31, 2021, the Company completed the sale of three owned communities for cash proceeds of $16.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.3 million. In addition to the conveyance of five communities to Ventas, during the year ended December 31, 2020, the Company completed the sale of two owned communities for cash proceeds of $38.1 million, net of transaction costs, and recognized a net gain on sale of assets of $2.7 million. During the year ended December 31, 2019, the Company completed the sale of 14 owned communities for cash proceeds of $85.4 million, net of transaction costs, and recognized a net gain on sale of assets of $5.5 million.
Ventas Lease Restructuring
On July 26, 2020 (the "Effective Date"), the Company entered into definitive agreements with Ventas in connection with the restructuring of the Company’s lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master Agreement"). Pursuant to the Master Agreement:
•On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the "Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, the Company continues to lease 120 communities for an aggregate initial annual minimum rent of approximately $100.0 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent is subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to the Company. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by the Company. The Master Lease requires the Company to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ended December 31, 2021. In addition, Ventas agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.
The Company’s subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that the Company satisfy, at the parent level, financial covenants and that the Company maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the Guaranty, the Company may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600.0 million, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that the Company fund additional capital expenditures, and that the Company extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as the Company exercises its lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.
•On the Effective Date, the Company entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with the Company pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition one or more communities from the Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition.
•On the Effective Date, the Company conveyed five owned communities to Ventas in full release and satisfaction of $78.4 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which the Company manages the communities. The Company also paid to Ventas $115.0 million in cash, released all security deposits to Ventas under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45.0 million unsecured interest-only promissory note to
Ventas. The initial interest rate of the promissory note was 9.0% per annum and was subject to increase by 0.50% on each anniversary of the date of issuance. The promissory note was scheduled to mature on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty). In October 2021, the Company repaid the $45.0 million promissory note without premium or penalty.
•On the Effective Date, the Company issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of the Company’s common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas' option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all the Company’s classes of capital stock or of the total value of shares of all the Company’s classes of capital stock (the "Ownership Cap") (other than as a result of actions taken by Ventas), the Company would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require the Company to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights. Pursuant to the terms of the agreement, the Company filed a shelf registration statement with the SEC with respect to the shares of common stock underlying the Warrant, which was declared effective on August 17, 2020. Ventas is entitled to customary underwritten offering, piggyback, and additional demand registration rights with respect to the shares underlying the Warrant.
As a result of the modification of the community leases with Ventas, the Company reduced the carrying amount of lease obligations and assets under leases by $370.0 million and $159.5 million, respectively, in the three months ended September 30, 2020. As the Company's community leases do not contain an implicit rate, the Company utilized its incremental borrowing rate based on information available on the Effective Date to determine the present value of remaining lease payments for the community leases with Ventas. Additionally, the results and financial position of the five communities conveyed to Ventas were deconsolidated from the Company's financial statements prospectively as of the Effective Date. As of the Effective Date, the Warrant was recognized as a component of stockholders’ equity at its estimated fair value of $22.9 million. The Company’s net cash provided by operating activities for the year ended December 31, 2020 includes the $119.2 million one-time cash lease payment made to Ventas in connection with its lease restructuring transaction effective July 26, 2020. See Note 20 for more information regarding the adjustments to the Company’s consolidated balance sheet as a result of this transaction.
Healthpeak CCRC Venture and Master Lease Transactions
On October 1, 2019, the Company entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of the Company's interest in its unconsolidated entry fee CCRC venture with Healthpeak (the "CCRC Venture") (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction included:
•CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired the Company's 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs, for a total purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). The $289.2 million of cash received from Healthpeak is presented within net cash used in investing activities for the year ended December 31, 2020. The Company recognized a $369.8 million gain on sale of assets for the year ended December 31, 2020, and the Company derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the Company's existing management agreements with the 14 entry fee CCRCs, Healthpeak paid the Company a $100.0 million management agreement termination fee, and the Company transitioned operations of the entry fee CCRCs to a new operator. The Company recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities.
•Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated the existing master lease pursuant to which the Company continued to lease 25 communities from Healthpeak, and the Company acquired 18 formerly leased communities from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, the Company paid $405.5 million to acquire such communities and to reduce its annual rent under the amended and restated master lease. The $405.5 million of cash paid to Healthpeak and $1.7 million of direct acquisition costs are presented within net cash used in investing activities for the year ended December 31, 2020. The Company funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak agreed to terminate the lease for one leased community, which occurred during December 2020. As a result of the lease termination, the Company recognized a $2.3 million gain on lease termination during the year ended December 31, 2020 for the amount by which the lease obligations exceeded the net carrying amount of the Company's assets under the operating lease as of the lease termination date. With respect to the continuing 24 communities, the Company's amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at the Company's election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, the Company recognized a $19.7 million gain on debt extinguishment during the year ended December 31, 2020 and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement. During March 2020, the Company obtained $30.0 million of additional non-recourse mortgage financing on the acquired communities.
During the year ended December 31, 2021, the new unconsolidated entry fee CCRC venture completed the sale of the two remaining entry fee CCRCs for cash proceeds of $14.0 million, net of associated mortgage debt repayments and transaction costs. Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations. During the year ended December 31, 2021, the Company received $8.3 million of cash distributions from the new unconsolidated entry fee CCRC venture and recognized $13.6 million of equity in earnings of unconsolidated ventures for the Company’s proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the sale of the two remaining entry fee CCRCs. Subsequent to these transactions, the Company has exited substantially all of its entry fee CCRC operations.
5. Fair Value Measurements
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value due to their short maturity of 90 days or less.
Marketable Securities
As of December 31, 2021, marketable securities of $182.4 million are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.
Investment in Unconsolidated Ventures
As of July 1, 2021, the Company recognized a $100.0 million asset within investment in unconsolidated ventures on its consolidated balance sheet for the estimated fair value of its retained 20% noncontrolling interest in the HCS Venture. The initial recognized amount of the Company’s 20% equity interest in the HCS Venture was determined based upon a pro-rata share of the total enterprise value of the HCS Venture considering the $400.0 million purchase price paid by HCA Healthcare, as the Company's 20% interest shares ratably in all of the benefits and losses expected to be generated by the HCS Venture. The fair value measurement is classified within Level 2 of the valuation hierarchy.
Interest Rate Derivatives
The Company's derivative assets include interest rate caps that effectively manage the risk above certain interest rates for a portion of the Company's variable rate debt. The derivative positions are valued using models developed internally by the respective counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and
are classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.
The following table summarizes the Company's interest rate cap instruments as of December 31, 2021.
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Current notional balance
|
$
|
1,461,665
|
|
|
Weighted average fixed cap rate
|
4.33
|
%
|
|
Earliest maturity date
|
2022
|
|
|
Latest maturity date
|
2024
|
|
|
Estimated asset fair value (included in other assets, net) at December 31, 2021
|
$
|
313
|
|
|
Estimated asset fair value (included in other assets, net) at December 31, 2020
|
$
|
22
|
|
Debt
The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding long-term debt with a carrying amount of approximately $3.8 billion and $3.9 billion as of December 31, 2021 and 2020, respectively. Fair value of the long-term debt approximates carrying amount in all periods presented. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.
Warrant
On July 26, 2020, the Company issued to Ventas a warrant to purchase up to 16.3 million shares of the Company’s common stock, at a price per share of $3.00. The fair value of this warrant of $22.9 million as of July 26, 2020 was estimated using the Black-Scholes option-pricing model utilizing a stock price volatility assumption of 65% which is considered a Level 2 input of the valuation hierarchy.
Asset Impairment Expense
The following is a summary of asset impairment expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in millions)
|
2021
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
16.6
|
|
|
$
|
76.3
|
|
|
$
|
10.2
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
6.4
|
|
|
29.3
|
|
|
27.2
|
|
|
Investment in unconsolidated ventures
|
—
|
|
|
1.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
—
|
|
|
0.2
|
|
|
1.3
|
|
|
Other assets, net
|
—
|
|
|
—
|
|
|
10.6
|
|
|
Asset impairment
|
$
|
23.0
|
|
|
$
|
107.3
|
|
|
$
|
49.3
|
|
Although the Company cannot predict with reasonable certainty the ultimate impacts of the COVID-19 pandemic, the Company concluded that the impacts of the pandemic have adversely affected the Company’s projections of revenue, expense, and cash flow for its senior housing community long-lived assets and constitute an indicator of potential impairment. Accordingly, the Company assessed its long-lived assets for recoverability. Refer to Note 3 for additional information on the COVID-19 pandemic.
In estimating the recoverability of asset groups for purposes of the Company’s long-lived asset impairment testing, the Company utilizes future cash flow projections that are developed internally. Any estimates of future cash flow projections necessarily involve predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving at the cash flow projections, the Company considers its estimates of the impacts of the pandemic, historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors.
As of December 31, 2021 and 2020 there was a wide range of possible outcomes as a result of the pandemic, as there was a high degree of uncertainty about its ultimate impact. Management’s estimates of the impact of the pandemic are highly
dependent on variables that are difficult to predict, as further described in Note 3. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.
Operating Lease Right-of-Use Assets
During the years ended December 31, 2021, 2020, and 2019, the Company evaluated operating lease right-of-use assets for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over fair value. During the year ended December 31, 2021, the Company recognized the right-of-use assets for the operating leases for 11 communities on the consolidated balance sheet at the estimated fair value of $31.0 million. The Company recognized the right-of-use assets for the operating leases for 35 communities on the consolidated balance sheet as of March 31, 2020 at the estimated fair value of $106.7 million. During the three months ended June 30, 2020, the Company recognized the right-of-use assets for the operating leases for nine communities on the consolidated balance sheet at the estimated fair value of $10.3 million. During the three months ended September 30, 2020, the Company recognized the right-of-use assets for the operating leases for two communities on the consolidated balance sheets at the estimated fair value of $3.0 million. During the three months ended December 31, 2020, the Company recognized the right-of-use assets for the operating leases for five communities on the consolidated balance sheet at the estimated fair value of $2.3 million. In the aggregate, the Company recorded a non-cash impairment charge of $16.6 million, $76.3 million, and $10.2 million for the years ended December 31, 2021, 2020, and 2019, respectively, to operating lease right-of-use assets. These impairment charges in 2021 and 2020 are primarily due to the COVID-19 pandemic and the lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.
The Company's adoption of ASU 2016-02 resulted in the recognition of the right-of-use assets for the operating leases for 25 communities on the consolidated balance sheet as of January 1, 2019 at the estimated fair value of $56.6 million, and $58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to accumulated deficit as the Company determined that the long-lived assets of such communities were not recoverable as of such date. See Note 2 for more information regarding the recognition of right-of-use assets for operating leases upon the adoption of ASU 2016-02.
The fair values of the operating lease right-of-use assets were estimated utilizing a discounted cash flow approach based upon projected community cash flows and market data, including management fees and a market supported lease coverage ratio, all of which are considered Level 3 inputs within the valuation hierarchy. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The range of discount rates utilized was 9.0% to 12.3%, depending upon the property type, geographical location, and the quality of the respective community.
Property, Plant and Equipment and Leasehold Intangibles, Net
During the years ended December 31, 2021, 2020, and 2019, the Company evaluated property, plant and equipment and leasehold intangibles for impairment and identified properties with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying amount for these identified properties and recorded an impairment charge for the excess of carrying amount over fair value.
The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $6.4 million, $29.3 million, and $27.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. The fair values of the assets of these communities were primarily determined utilizing a discounted cash flow approach or direct capitalization method considering stabilized facility operating income and market capitalization rates. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. The range of capitalization rates utilized was 7.0% to 9.0%, depending upon the property type, geographical location, and the quality of the respective community. The Company corroborated the estimated fair values with a sales comparison approach with information observable from recent market transactions. These impairment charges are primarily due to the COVID-19 pandemic, lower than expected operating performance at these properties, or the Company's decision to dispose of assets and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.
6. Revenue
Disaggregation of Revenue
Resident fee revenue by payor source and reportable segment is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2021
|
|
(in thousands)
|
Independent Living
|
|
Assisted Living and Memory Care
|
|
CCRCs
|
|
Health Care Services
|
|
Total
|
|
Private pay
|
$
|
473,740
|
|
|
$
|
1,521,588
|
|
|
$
|
212,981
|
|
|
$
|
601
|
|
|
$
|
2,208,910
|
|
|
Government reimbursement
|
1,798
|
|
|
68,133
|
|
|
57,362
|
|
|
134,083
|
|
|
261,376
|
|
|
Other third-party payor programs
|
—
|
|
|
—
|
|
|
34,082
|
|
|
39,480
|
|
|
73,562
|
|
|
Total resident fee revenue
|
$
|
475,538
|
|
|
$
|
1,589,721
|
|
|
$
|
304,425
|
|
|
$
|
174,164
|
|
|
$
|
2,543,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
(in thousands)
|
Independent Living
|
|
Assisted Living and Memory Care
|
|
CCRCs
|
|
Health Care Services
|
|
Total
|
|
Private pay
|
$
|
510,254
|
|
|
$
|
1,622,117
|
|
|
$
|
235,018
|
|
|
$
|
906
|
|
|
$
|
2,368,295
|
|
|
Government reimbursement
|
2,344
|
|
|
69,159
|
|
|
59,614
|
|
|
287,512
|
|
|
418,629
|
|
|
Other third-party payor programs
|
—
|
|
|
—
|
|
|
27,251
|
|
|
78,392
|
|
|
105,643
|
|
|
Total resident fee revenue
|
$
|
512,598
|
|
|
$
|
1,691,276
|
|
|
$
|
321,883
|
|
|
$
|
366,810
|
|
|
$
|
2,892,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
(in thousands)
|
Independent Living
|
|
Assisted Living and Memory Care
|
|
CCRCs
|
|
Health Care Services
|
|
Total
|
|
Private pay
|
$
|
542,112
|
|
|
$
|
1,748,364
|
|
|
$
|
281,197
|
|
|
$
|
753
|
|
|
$
|
2,572,426
|
|
|
Government reimbursement
|
2,446
|
|
|
67,574
|
|
|
81,054
|
|
|
357,963
|
|
|
509,037
|
|
|
Other third-party payor programs
|
—
|
|
|
—
|
|
|
39,924
|
|
|
88,544
|
|
|
128,468
|
|
|
Total resident fee revenue
|
$
|
544,558
|
|
|
$
|
1,815,938
|
|
|
$
|
402,175
|
|
|
$
|
447,260
|
|
|
$
|
3,209,931
|
|
Contract Balances
The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source, although terms generally include payment to be made within 30 days. Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care residency agreements. Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears. Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.
The Company had total deferred revenue (included within refundable fees and deferred revenue, and other liabilities within the consolidated balance sheets) of $67.5 million and $138.3 million, including $27.5 million and $21.1 million of monthly resident fees billed and received in advance, as of December 31, 2021 and 2020, respectively. During the year ended December 31, 2020, the Company received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, of which $3.1 million and $87.5 million was included in such total deferred revenue as of December 31, 2021 and 2020, respectively. Refer to Note 3 for additional information on such program. Pursuant to the HCS Sale, $63.6 million of such obligations related to the Company's Health Care Services segment were retained by the HCS Venture and therefore derecognized from the Company's consolidated balance sheet. For the years ended December 31, 2021, 2020, and 2019 the Company recognized $60.2 million, $60.6 million, and $94.6 million respectively, of revenue that was included in the deferred revenue balance as of January 1, 2021, 2020, and 2019, respectively. The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose amounts for remaining performance obligations that have original expected durations of one year or less.
The following table presents the changes in allowance for credit losses on accounts receivable for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
9.8
|
|
|
$
|
7.8
|
|
|
$
|
7.9
|
|
|
Provision within facility operating expense
|
|
21.6
|
|
|
16.7
|
|
|
15.2
|
|
|
Write-offs
|
|
(19.2)
|
|
|
(16.2)
|
|
|
(19.5)
|
|
|
Recoveries and other
|
|
1.1
|
|
|
1.5
|
|
|
4.2
|
|
|
Balance at end of period
|
|
$
|
13.3
|
|
|
$
|
9.8
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Property, Plant and Equipment and Leasehold Intangibles, Net
As of December 31, 2021 and 2020, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Land
|
$
|
502,610
|
|
|
$
|
505,298
|
|
|
Buildings and improvements
|
5,262,136
|
|
|
5,215,460
|
|
|
Furniture and equipment
|
990,006
|
|
|
945,783
|
|
|
Resident and leasehold operating intangibles
|
303,737
|
|
|
307,071
|
|
|
Construction in progress
|
51,037
|
|
|
61,491
|
|
|
Assets under financing leases and leasehold improvements
|
1,609,217
|
|
|
1,523,055
|
|
|
Property, plant and equipment and leasehold intangibles
|
8,718,743
|
|
|
8,558,158
|
|
|
Accumulated depreciation and amortization
|
(3,814,451)
|
|
|
(3,490,098)
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
4,904,292
|
|
|
$
|
5,068,060
|
|
Assets under financing leases and leasehold improvements includes $332.3 million and $363.1 million of financing lease right-of-use assets, net of accumulated amortization, as of December 31, 2021 and 2020, respectively. Refer to Note 10 for further information on the Company's financing leases.
Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. Refer to Note 5 for information on impairment expense for property, plant and equipment and leasehold intangibles.
For the years ended December 31, 2021, 2020, and 2019, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $337.6 million, $359.2 million, and $377.6 million, respectively.
8. Goodwill
The following is a summary of the carrying amount of goodwill presented on a reportable segment basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
(in thousands)
|
Gross Carrying Amount
|
|
Dispositions and Other Reductions
|
|
Accumulated Impairment
|
|
Net
|
|
Independent Living
|
$
|
28,141
|
|
|
$
|
(820)
|
|
|
$
|
—
|
|
|
$
|
27,321
|
|
|
Assisted Living and Memory Care
|
605,469
|
|
|
(48,817)
|
|
|
(556,652)
|
|
|
—
|
|
|
Total
|
$
|
633,610
|
|
|
$
|
(49,637)
|
|
|
$
|
(556,652)
|
|
|
$
|
27,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(in thousands)
|
Gross Carrying Amount
|
|
Dispositions and Other Reductions
|
|
Accumulated Impairment
|
|
Net
|
|
Independent Living
|
$
|
28,141
|
|
|
$
|
(820)
|
|
|
$
|
—
|
|
|
$
|
27,321
|
|
|
Assisted Living and Memory Care
|
605,469
|
|
|
(48,817)
|
|
|
(556,652)
|
|
|
—
|
|
|
Health Care Services
|
126,810
|
|
|
—
|
|
|
—
|
|
|
126,810
|
|
|
Total
|
$
|
760,420
|
|
|
$
|
(49,637)
|
|
|
$
|
(556,652)
|
|
|
$
|
154,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's Health Care Services segment had a carrying amount of goodwill of $126.8 million as of December 31, 2020, which was derecognized upon completion of the HCS Sale on July 1, 2021.
9. Debt
Long-term debt consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Fixed mortgage notes payable due 2023 through 2047; weighted average interest rate of 4.14% and 4.18% as of December 31, 2021 and 2020, respectively.
|
$
|
2,164,115
|
|
|
$
|
2,366,996
|
|
|
Variable mortgage notes payable due 2022 through 2030; weighted average interest rate of 2.44% and 2.49% as of December 31, 2021 and 2020, respectively.
|
1,476,943
|
|
|
1,529,935
|
|
|
Convertible notes payable due October 2026; weighted average interest rate of 2.00% as of December 31, 2021.
|
230,000
|
|
|
—
|
|
|
Other notes payable; weighted average interest rate of 8.98% as of December 31, 2020.
|
—
|
|
|
46,557
|
|
|
Deferred financing costs, net
|
(29,846)
|
|
|
(27,500)
|
|
|
Total long-term debt
|
3,841,212
|
|
|
3,915,988
|
|
|
Current portion
|
63,125
|
|
|
68,885
|
|
|
Total long-term debt, less current portion
|
$
|
3,778,087
|
|
|
$
|
3,847,103
|
|
As of December 31, 2021, 94.1%, or $3.6 billion of the Company's total debt obligations represented non-recourse property-level mortgage financings.
The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of December 31, 2021 are as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Long-term
Debt
|
Weighted Rate
|
|
2022
|
$
|
68,609
|
|
3.54
|
%
|
|
2023
|
234,453
|
|
3.49
|
%
|
|
2024
|
304,294
|
|
4.29
|
%
|
|
2025
|
348,044
|
|
2.81
|
%
|
|
2026
|
309,269
|
|
2.38
|
%
|
|
Thereafter
|
2,606,389
|
|
3.43
|
%
|
|
Total obligations
|
3,871,058
|
|
3.37
|
%
|
|
Less amount representing deferred financing costs, net
|
(29,846)
|
|
|
|
|
|
|
|
Total
|
$
|
3,841,212
|
|
|
Convertible Debt Offering
On October 1, 2021, the Company issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes"). The Company received net proceeds of $224.3 million at closing after the deduction of the initial purchasers' discount. The Company used $15.9 million of the net proceeds to pay the Company’s cost of the capped call transactions described below. Additionally, the Company used the remaining net proceeds together with cash on hand to repay $284.4 million of mortgage debt and a $45.0 million note payable.
The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee. The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment to any of the Company’s indebtedness that is not so subordinated. The Notes are effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of current or future subsidiaries of the Company.
The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2026, unless earlier converted, redeemed, or repurchased in accordance with their terms. Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock of the Company for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock of the Company and the conversion rate for the Notes on each such trading day; (3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or after July 15, 2026, holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock at the Company’s election.
The conversion rate for the Notes is initially 123.4568 shares of the Company’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.
The Company may not redeem the Notes prior to October 21, 2024. The Company may redeem for cash all or (subject to certain limitations) any portion of the Notes, at the Company's option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
The Company has recognized the Notes in their entirety as a liability on the consolidated balance sheet and no portion of the proceeds from the issuance of the convertible debt instrument was accounted for separately as an embedded conversion feature within stockholders’ equity. The Notes were initially recognized at $223.3 million, which reflects $230.0 million principal amount less the $5.7 million initial purchasers' discount and $1.0 million of debt issuance costs.
Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Notes and initially have an exercise price of $8.10 per share of common stock. The cap price of the Capped Call Transactions is initially approximately $9.90 per share of the Company’s common stock, representing a premium of 65% above the last reported sale price of $6.00 per share of the Company’s common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of the Company’s common stock upon conversion of the Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.
The Capped Call Transactions are separate transactions entered into by the Company with the Capped Call counterparties and are not part of the terms of the Notes. The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1, 2021 from the proceeds of the Notes. The Company accounted for the Capped Call Transactions separately from the Notes and recognized the $15.9 million cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to the Company’s common stock.
Credit Facilities
On December 11, 2020, the Company entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to $80.0 million which can be drawn in cash or as letters of credit. The agreement matures on January 15, 2024. Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of December 31, 2021. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of December 31, 2021. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of the Company’s communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility.
As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under the Company's $80.0 million secured credit facility. The Company also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of December 31, 2021 under which $13.6 million had been issued as of that date.
2021 Financings
On December 17, 2021, the Company obtained $100.0 million of debt secured by the non-recourse first mortgages on 11 communities. The loan bears interest at a variable rate equal to the 30-day Secured Overnight Financing Rate ("SOFR") plus a margin of 215 basis points and matures in January 2025, with the option to extend for two additional terms of one year each.
2020 Financings
On January 31, 2020, the Company obtained $238.2 million of debt secured by the non-recourse first mortgages on 14 communities, including $192.6 million of non-recourse first mortgage financing on 13 communities acquired from Healthpeak on such date. Seventy percent of the principal amount bears interest at a fixed rate of 3.62%, and the remaining thirty percent of the principal amount bears interest at a variable rate equal to 30-day LIBOR plus a margin of 209 basis points. The debt matures in February 2030. The proceeds from the financing were utilized to fund the acquisition of communities from Healthpeak and repay $33.1 million of outstanding mortgage debt maturing in 2020. Refer to Note 4 for more information about the Company's acquisition of communities from Healthpeak.
On March 19, 2020, the Company obtained $29.2 million of debt secured by the non-recourse first mortgages on seven communities, primarily communities acquired during the three months ended March 31, 2020. The loan bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 225 basis points and matures in April 2030.
On March 20, 2020, the Company obtained $30.0 million of debt secured by the non-recourse first mortgage on one community acquired from Healthpeak on January 31, 2020. The loan bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 250 basis points and matures in March 2022, with the option to extend for one year subject to certain financial covenants.
On March 31, 2020, the Company obtained $149.3 million of debt secured by the non-recourse first mortgages on 18 communities. Of the total principal, $73.1 million bears interest at a fixed rate of 3.55%, and the remaining $76.2 million bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 210 basis points. The debt matures in April 2030. The $149.3 million of proceeds from the financing were primarily utilized to repay $136.3 million of outstanding mortgage debt maturing in 2020.
On August 31, 2020, the Company obtained $266.9 million of debt secured by the non-recourse first mortgages on 16 communities, most of which secured the credit facility prior to its termination. Of the total principal, $191.3 million bears interest at a fixed rate of 2.89%, and the remaining $75.6 million bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 249 basis points. The debt matures in September 2030. The $266.9 million of proceeds from the financing were primarily utilized to repay the outstanding principal amount under the Credit Agreement and to cash collateralize letters of credit.
On September 9, 2020, the Company obtained $220.5 million of debt secured by the non-recourse first mortgages on 27 communities. Of the total principal, $156.5 million bears interest at a fixed rate of 3.18%, and the remaining $64.0 million bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 254 basis points. The debt matures in October 2030. The $220.5 million of proceeds from the financing were primarily utilized to repay outstanding mortgage debt maturing in 2020 and 2021.
Financial Covenants
Certain of the Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service ratios, and requiring the Company not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. In addition, the Company's debt documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
The Company's failure to comply with applicable covenants could constitute an event of default under the applicable debt documents. Many of the Company's debt documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, the Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.
As of December 31, 2021, the Company is in compliance with the financial covenants of its debt agreements.
10. Leases
As of December 31, 2021, the Company operated 299 communities under long-term leases (233 operating leases and 66 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.
The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs, property taxes, and insurance. As of December 31, 2021, the weighted average remaining lease term of the Company's operating and financing leases was 5.9 and 5.3 years, respectively. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options. For accounting purposes, renewal or extension options are included in the lease term at lease inception or modification when it is reasonably certain that the Company will exercise the option. Generally, renewal or extension options are not included in the lease term for accounting purposes.
The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.
As of December 31, 2021, the Company is in compliance with the financial covenants of its long-term leases.
A summary of operating and financing lease expense (including the respective presentation on the consolidated statements of operations) and net cash outflows from leases is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Operating Leases (in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Facility operating expense
|
$
|
12,606
|
|
|
$
|
19,241
|
|
|
$
|
18,677
|
|
|
Facility lease expense
|
174,358
|
|
|
224,033
|
|
|
269,666
|
|
|
Operating lease expense
|
186,964
|
|
|
243,274
|
|
|
288,343
|
|
|
Operating lease expense adjustment (1)
|
23,280
|
|
|
136,276
|
|
|
19,453
|
|
|
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements
|
(30,965)
|
|
|
(22,242)
|
|
|
(31,305)
|
|
|
Operating net cash outflows from operating leases
|
$
|
179,279
|
|
|
$
|
357,308
|
|
|
$
|
276,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense. Operating cash flows from operating leases for the year ended December 31, 2020 includes the $119.2 million one-time cash lease payment made to Ventas in connection with the Company's lease restructuring transaction effective July 26, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Financing Leases (in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Depreciation and amortization
|
$
|
30,542
|
|
|
$
|
32,647
|
|
|
$
|
46,646
|
|
|
Interest expense: financing lease obligations
|
46,282
|
|
|
48,534
|
|
|
66,353
|
|
|
Financing lease expense
|
$
|
76,824
|
|
|
$
|
81,181
|
|
|
$
|
112,999
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from financing leases
|
$
|
46,282
|
|
|
$
|
48,534
|
|
|
$
|
66,353
|
|
|
Financing cash outflows from financing leases
|
19,874
|
|
|
18,867
|
|
|
22,242
|
|
|
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement
|
(11,135)
|
|
|
(5,603)
|
|
|
(3,504)
|
|
|
Total net cash outflows from financing leases
|
$
|
55,021
|
|
|
$
|
61,798
|
|
|
$
|
85,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021, the weighted average discount rate of the Company's operating and financing leases was 7.2% and 8.0%, respectively.
The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the consolidated balance sheet as of December 31, 2021 are as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating Leases
|
|
Financing Leases
|
|
2022
|
$
|
204,702
|
|
|
$
|
68,101
|
|
|
2023
|
193,070
|
|
|
68,840
|
|
|
2024
|
193,796
|
|
|
70,044
|
|
|
2025
|
191,439
|
|
|
59,413
|
|
|
2026
|
76,228
|
|
|
60,659
|
|
|
Thereafter
|
206,388
|
|
|
52,881
|
|
|
Total lease payments
|
1,065,623
|
|
|
379,938
|
|
|
Purchase option liability and non-cash gain on future sale of property
|
—
|
|
|
418,542
|
|
|
Imputed interest and variable lease payments
|
(235,105)
|
|
|
(244,193)
|
|
|
Total lease obligations
|
$
|
830,518
|
|
|
$
|
554,287
|
|
11. Accrued Expenses
Accrued expenses reflected within current liabilities on the Company’s consolidated balance sheets consist of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Salaries and wages
|
$
|
60,601
|
|
|
$
|
65,310
|
|
|
Insurance reserves
|
55,309
|
|
|
64,633
|
|
|
Deferred payroll taxes (Note 3)
|
31,553
|
|
|
36,336
|
|
|
Paid time off
|
26,821
|
|
|
37,848
|
|
|
Real estate taxes
|
25,826
|
|
|
25,495
|
|
|
Interest
|
11,239
|
|
|
11,453
|
|
|
Utilities
|
7,430
|
|
|
7,507
|
|
|
Taxes payable
|
1,978
|
|
|
3,806
|
|
|
Other
|
34,074
|
|
|
35,463
|
|
|
Total
|
$
|
254,831
|
|
|
$
|
287,851
|
|
12. Investment in Unconsolidated Ventures
As of December 31, 2021, the Company holds a 20% equity interest, and HCA Healthcare owns an 80% interest, in the HCS Venture, and the Company has determined the HCS Venture is a VIE. The Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance. The Company's interest in the HCS Venture is accounted for under the equity method of accounting. The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture was $62.5 million, which is included in investments in unconsolidated ventures on the accompanying consolidated balance sheet, as of December 31, 2021. As of December 31, 2021, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIE. Refer to Note 4 for information on the formation of the HCS Venture.
13. Commitments and Contingencies
Litigation
The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company’s communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards. The Company's current policies provide for deductibles for each claim and contain various exclusions from coverage. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.
The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters. In addition, the Company is subject to various government reviews, audits, and investigations to verify compliance with Medicare and Medicaid programs and other applicable laws and regulations. CMS has engaged third-party firms to review claims data to evaluate appropriateness of billings. In addition to identifying overpayments, audit contractors can refer suspected violations to government authorities. An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and damage to the Company’s business reputation. The Company’s costs to respond to and defend any such audits, reviews, and investigations may be significant.
In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee. The lawsuit asserted that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and April 2020. The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the plaintiffs did not file an appeal. Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which was subsequently transferred to the Middle District of Tennessee. The derivative lawsuits are currently pending and assert claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company. The complaints refer to the securities lawsuit described above and incorporate substantively similar allegations.
Other
The Company has employment or letter agreements with certain officers of the Company and has adopted policies to which certain officers of the Company are eligible to participate, which grant these employees the right to receive a portion or multiple of their base salary, pro-rata bonus, bonus, and/or continuation of certain benefits, for a defined period of time, in the event of certain terminations of the officers' employment, as described in those agreements and policies.
14. Self-Insurance
The Company obtains various insurance coverages, including general and professional liability and workers compensation programs, from commercial carriers at stated amounts as defined in the applicable policy. The Company's current general and
professional liability policies provide for deductibles for each claim and contain various exclusions from coverage. As a result, the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of the Company’s wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. Losses related to self-insured amounts are accrued based on the Company's estimate of expected losses plus incurred but not reported claims.
As of December 31, 2021 and 2020, the Company accrued reserves of $130.7 million and $153.0 million, respectively, under the Company's insurance programs, of which $75.4 million and $88.4 million is classified as other liabilities as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Company accrued $14.3 million and $18.0 million, respectively, of estimated amounts receivable from the insurance companies under these insurance programs.
The Company has secured self-insured retention risk under its primary workers' compensation programs with restricted cash deposits of $15.8 million as of both December 31, 2021 and 2020. Letters of credit securing the programs aggregated to $62.1 million and $61.3 million as of December 31, 2021 and 2020, respectively. In addition, the Company also had deposits of $6.5 million and $7.7 million, as of December 31, 2021 and 2020, respectively, to fund claims paid under a high deductible, collateralized insurance policy.
15. Stock-Based Compensation
The following table sets forth information about the Company's restricted stock awards and restricted stock units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except value per share and unit)
|
Number of Restricted Stock Units and Stock Awards
|
|
Weighted
Average
Grant Date Fair Value
|
|
Outstanding on January 1, 2019
|
5,756
|
|
|
$
|
11.78
|
|
|
Granted
|
4,381
|
|
|
7.81
|
|
|
Vested
|
(1,571)
|
|
|
13.71
|
|
|
Cancelled/forfeited
|
(1,314)
|
|
|
11.18
|
|
|
Outstanding on December 31, 2019
|
7,252
|
|
|
9.08
|
|
|
Granted
|
4,603
|
|
|
6.92
|
|
|
Vested
|
(2,073)
|
|
|
10.19
|
|
|
Cancelled/forfeited
|
(1,277)
|
|
|
8.83
|
|
|
Outstanding on December 31, 2020
|
8,505
|
|
|
7.68
|
|
|
Granted
|
1,998
|
|
|
5.12
|
|
|
Vested
|
(2,641)
|
|
|
8.40
|
|
|
Cancelled/forfeited
|
(2,851)
|
|
|
6.77
|
|
|
Outstanding on December 31, 2021
|
5,011
|
|
|
6.80
|
|
As of December 31, 2021, there was $20.4 million of total unrecognized compensation cost related to outstanding, unvested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.2 years and is based on grant date fair value.
During 2021, grants of restricted stock and restricted stock units under the Company's 2014 Omnibus Incentive Plan were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for weighted average amounts)
|
Restricted Stock Unit and Stock Award Grants
|
|
Weighted Average Grant Date Fair Value
|
|
Total Grant Date Fair Value
|
|
Three months ended March 31, 2021
|
1,961
|
|
|
$
|
5.09
|
|
|
$
|
9,988
|
|
|
Three months ended June 30, 2021
|
20
|
|
|
$
|
6.62
|
|
|
$
|
130
|
|
|
Three months ended September 30, 2021
|
3
|
|
|
$
|
7.76
|
|
|
$
|
22
|
|
|
Three months ended December 31, 2021
|
14
|
|
|
$
|
6.69
|
|
|
$
|
97
|
|
Through December 31, 2021, the Company had an employee stock purchase plan for all eligible employees. Under the plan, eligible employees of the Company could purchase shares of the Company's common stock on a quarterly basis at a discounted price through accumulated payroll deductions. Each participating employee could elect to deduct up to 15% of his or her base pay each quarter and no more than 200 shares could be purchased by a participating employee each quarter. Subject to certain limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant's pay over the course of the quarter was used to purchase whole shares of the Company's common stock at a purchase price equal to 90% of the closing market price on the New York Stock Exchange on that date. This plan was terminated effective December 31, 2021.
16. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. Diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units, the Warrant, and the Notes. Refer to Note 4 for information on the Warrant. Refer to Note 9 for information on the issuance of the Notes on October 1, 2021.
The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands, except for per share amounts)
|
2021
|
|
2020
|
|
2019
|
|
Income attributable to common stockholders:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(99,290)
|
|
|
$
|
82,019
|
|
|
$
|
(267,931)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
184,975
|
|
|
183,498
|
|
|
185,907
|
|
|
Effect of dilutive securities
|
—
|
|
|
888
|
|
|
—
|
|
|
Weighted average shares outstanding - diluted
|
184,975
|
|
|
184,386
|
|
|
185,907
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders - basic
|
$
|
(0.54)
|
|
|
$
|
0.45
|
|
|
$
|
(1.44)
|
|
|
Net income (loss) per share attributable to common stockholders - diluted
|
$
|
(0.54)
|
|
|
$
|
0.44
|
|
|
$
|
(1.44)
|
|
For the purposes of computing diluted EPS, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period. The following potentially outstanding shares of common stock were excluded from the computation of diluted net income (loss) per share attributable to common stockholders because including them would have been antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
(in millions)
|
2021(1)
|
|
2020
|
|
2019(1)
|
|
|
Non-performance-based restricted stock and restricted stock units
|
4.7
|
|
6.8
|
|
6.4
|
|
|
Performance-based restricted stock and restricted stock units
|
0.3
|
|
1.6
|
|
1.1
|
|
|
Warrant
|
16.3
|
|
—
|
|
|
—
|
|
|
|
Notes
|
38.3
|
|
—
|
|
|
—
|
|
|
|
Total
|
59.6
|
|
8.4
|
|
7.5
|
|
(1) As a result of the net loss reported for the period, all unvested restricted stock, restricted stock units, and potential shares issuable under the Warrant and the Notes were antidilutive for the period and as such were not included in the computation of diluted weighted average shares outstanding.
As of December 31, 2021, the maximum number of shares issuable upon conversion of the Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).
17. Share Repurchase Program
On November 1, 2016, the Company announced that its Board of Directors had approved a share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of the Company's common stock. The share repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions, or block trades, or by any combination of these methods, in accordance with applicable insider trading and other securities laws and regulations.
The size, scope, and timing of any purchases will be based on business, market, and other conditions and factors, including price, regulatory, and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended, modified, or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. The Company temporarily suspended purchases under the share repurchase plan in March 2020 in response to the COVID-19 pandemic.
Repurchases under the share repurchase program were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(amounts in thousands, except per share amounts)
|
|
|
2020
|
|
2019
|
|
Total number of shares repurchased
|
|
|
3,063
|
|
|
3,005
|
|
|
Average price paid per share
|
|
|
$
|
5.92
|
|
|
$
|
6.56
|
|
|
Aggregate purchase price
|
|
|
$
|
18,123
|
|
|
$
|
19,710
|
|
There were no repurchases under the share repurchase program in 2021. As of December 31, 2021, approximately $44.0 million remains available under the share repurchase program.
18. Retirement Plans
The Company maintains a 401(k) retirement savings plan for all employees that meet minimum employment criteria. Such plan provides that the participants may defer eligible compensation subject to certain Internal Revenue Code maximum amounts. The Company makes matching contributions in amounts equal to 25.0% of the employee's contribution to such plan, for contributions up to a maximum of 4.0% of eligible compensation. An additional matching contribution of 12.5%, subject to the same limit on eligible compensation, may be made at the discretion of the Company based upon the Company's performance. For the years ended December 31, 2021, 2020, and 2019, the Company's expense for such plan was $4.6 million, $6.2 million, and $8.0 million, respectively.
19. Income Taxes
The benefit (provision) for income taxes is comprised of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Federal:
|
|
|
|
|
|
|
Current
|
$
|
161
|
|
|
$
|
55
|
|
|
$
|
64
|
|
|
Deferred
|
9,837
|
|
|
5,840
|
|
|
2,654
|
|
|
Total federal
|
9,998
|
|
|
5,895
|
|
|
2,718
|
|
|
State:
|
|
|
|
|
|
|
Current
|
(1,835)
|
|
|
(11,247)
|
|
|
(449)
|
|
|
Deferred (included in federal above)
|
—
|
|
|
—
|
|
|
—
|
|
|
Total state
|
(1,835)
|
|
|
(11,247)
|
|
|
(449)
|
|
|
Total
|
$
|
8,163
|
|
|
$
|
(5,352)
|
|
|
$
|
2,269
|
|
A reconciliation of the benefit (provision) for income taxes to the amount computed at the U.S. Federal statutory rate of 21% is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Tax benefit (provision) at U.S. statutory rate
|
$
|
22,565
|
|
|
$
|
(18,348)
|
|
|
$
|
56,742
|
|
|
State taxes, net of federal income tax
|
7,673
|
|
|
(11,909)
|
|
|
10,423
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
13,027
|
|
|
27,913
|
|
|
(60,376)
|
|
|
Goodwill derecognition
|
(31,829)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation
|
(1,856)
|
|
|
(2,118)
|
|
|
(2,639)
|
|
|
Officer compensation
|
(1,107)
|
|
|
(280)
|
|
|
(204)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meals and entertainment
|
(146)
|
|
|
(169)
|
|
|
(416)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
(164)
|
|
|
(441)
|
|
|
(1,261)
|
|
|
Total
|
$
|
8,163
|
|
|
$
|
(5,352)
|
|
|
$
|
2,269
|
|
Significant components of the Company's deferred tax assets and liabilities are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Deferred income tax assets:
|
|
|
|
|
Operating loss carryforwards
|
$
|
281,384
|
|
|
$
|
237,728
|
|
|
Operating lease obligations
|
208,460
|
|
|
322,122
|
|
|
Financing lease obligations
|
87,992
|
|
|
90,011
|
|
|
Accrued expenses
|
56,151
|
|
|
96,410
|
|
|
Intangible assets
|
50,576
|
|
|
60,069
|
|
|
Tax credits
|
50,415
|
|
|
50,356
|
|
|
Investment in unconsolidated ventures
|
—
|
|
|
5,105
|
|
|
Capital loss carryforward
|
2,205
|
|
|
2,263
|
|
|
Other
|
6,450
|
|
|
8,561
|
|
|
Total gross deferred income tax asset
|
743,633
|
|
|
872,625
|
|
|
Valuation allowance
|
(367,963)
|
|
|
(380,990)
|
|
|
Net deferred income tax assets
|
375,670
|
|
|
491,635
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
(202,103)
|
|
|
(223,703)
|
|
|
Operating lease right-of-use assets
|
(158,237)
|
|
|
(277,489)
|
|
|
Investment in unconsolidated ventures
|
(15,051)
|
|
|
—
|
|
|
|
|
|
|
|
Total gross deferred income tax liability
|
(375,391)
|
|
|
(501,192)
|
|
|
Net deferred tax asset (liability)
|
$
|
279
|
|
|
$
|
(9,557)
|
|
As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards generated in 2017 and prior of approximately $808.7 million and $812.0 million, respectively, which are available to offset future taxable income from 2022 through 2037. Additionally, as of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards generated after 2017 of $335.8 million and $181.1 million, respectively, which have an indefinite life, but with usage limited to 80% of taxable income in any given year. The Company had state capital loss carryforwards of $2.2 million and $2.3 million as of December 31, 2021 and 2020, respectively, which are available to offset future capital gains through 2023. The Company determined that a valuation allowance was required after consideration of the Company's estimated future reversal of existing timing differences as of December 31, 2021 and 2020. The Company does not consider estimates of future taxable income in its determination due to the existence of cumulative historical operating losses. For the years ended December 31, 2021 and 2020, the Company recorded a reduction to the valuation allowance of approximately $13.0 million and $27.9 million, respectively, to reflect the required valuation allowance of $368.0 million and $381.0 million as of December 31, 2021 and 2020, respectively.
The Company has recorded valuation allowances of $315.3 million and $328.4 million against its federal and state net operating losses as of December 31, 2021 and 2020, respectively. The Company has recorded a valuation allowance against its state capital loss carryforward of $2.2 million as of December 31, 2021. The Company's sale of its ownership interest in the CCRC Venture in 2020 utilized all of the capital loss carryforward for federal tax purposes and a portion of its net operating losses. The Company recorded a decrease in the valuation allowance of $95.2 million for the year ended December 31, 2021 as a result of the HCS Sale that occurred on July 1, 2021, offset by an increase in the valuation allowance of $82.2 million established against current operating losses during the year ended December 31, 2021. The Company also recorded a valuation allowance against federal and state credits of $50.4 million and $50.3 million as of December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Company had gross tax affected unrecognized tax benefits of $18.1 million and $18.4 million, respectively, of which, if recognized, would result in an income tax benefit recorded in the consolidated statement of operations. Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated financial statements. Total interest and penalties reserved is $0.1 million as of both December 31, 2021 and 2020. As of December 31, 2021, the Company's tax returns for years 2017 through 2020 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination. The Company does not expect that unrecognized tax benefits for tax positions taken with respect to 2021 and prior years will significantly change in 2022.
A reconciliation of the unrecognized tax benefits is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Balance at beginning of period
|
$
|
18,385
|
|
|
$
|
18,326
|
|
|
Additions for tax positions related to the current year
|
—
|
|
|
—
|
|
|
Additions (reductions) for tax positions related to prior years
|
(296)
|
|
|
59
|
|
|
Balance at end of period
|
$
|
18,089
|
|
|
$
|
18,385
|
|
20. Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
For the Years Ended December 31,
|
|
Supplemental Disclosure of Cash Flow Information:
|
2021
|
|
2020
|
|
2019
|
|
Interest paid
|
$
|
188,791
|
|
|
$
|
204,696
|
|
|
$
|
244,469
|
|
|
Income taxes paid, net of refunds
|
$
|
5,923
|
|
|
$
|
8,878
|
|
|
$
|
1,534
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of related payables:
|
|
|
|
|
|
|
Capital expenditures - non-development, net
|
$
|
137,410
|
|
|
$
|
139,592
|
|
|
$
|
235,797
|
|
|
Capital expenditures - development, net
|
3,208
|
|
|
13,667
|
|
|
24,595
|
|
|
Capital expenditures - non-development - reimbursable
|
42,100
|
|
|
27,846
|
|
|
34,809
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
(6,061)
|
|
|
4,766
|
|
|
8,891
|
|
|
Net cash paid
|
$
|
176,657
|
|
|
$
|
185,871
|
|
|
$
|
304,092
|
|
|
|
|
|
|
|
|
|
Acquisition of communities from Healthpeak:
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
286,734
|
|
|
$
|
—
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
(63,285)
|
|
|
—
|
|
|
Financing lease obligations
|
—
|
|
|
129,196
|
|
|
—
|
|
|
Operating lease obligations
|
—
|
|
|
74,335
|
|
|
—
|
|
|
Loss (gain) on debt modification and extinguishment, net
|
—
|
|
|
(19,731)
|
|
|
—
|
|
|
Net cash paid
|
$
|
—
|
|
|
$
|
407,249
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Agreement with Ventas:
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
(66,444)
|
|
|
$
|
—
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
(153,213)
|
|
|
—
|
|
|
Other assets, net
|
—
|
|
|
(42,354)
|
|
|
—
|
|
|
Long-term debt
|
—
|
|
|
34,053
|
|
|
—
|
|
|
Financing lease obligations
|
—
|
|
|
7,077
|
|
|
—
|
|
|
Operating lease obligations
|
—
|
|
|
362,944
|
|
|
—
|
|
|
Additional paid-in-capital
|
—
|
|
|
(22,883)
|
|
|
—
|
|
|
Net cash paid
|
$
|
—
|
|
|
$
|
119,180
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from HCS Sale, net:
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
(57,582)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
(1,806)
|
|
|
—
|
|
|
—
|
|
|
Operating lease right-of-use assets
|
(8,145)
|
|
|
—
|
|
|
—
|
|
|
Investments in unconsolidated ventures
|
100,000
|
|
|
—
|
|
|
—
|
|
|
Goodwill
|
(126,810)
|
|
|
—
|
|
|
—
|
|
|
Prepaid expenses and other assets, net
|
(32,963)
|
|
|
—
|
|
|
—
|
|
|
Trade accounts payable
|
1,387
|
|
|
—
|
|
|
—
|
|
|
Accrued expenses
|
25,226
|
|
|
—
|
|
|
—
|
|
|
Refundable fees and deferred revenue
|
57,314
|
|
|
—
|
|
|
—
|
|
|
Operating lease obligations
|
8,145
|
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
9,165
|
|
|
—
|
|
|
—
|
|
|
Loss (gain) on sale of assets, net
|
(286,489)
|
|
|
—
|
|
|
—
|
|
|
Net cash received
|
$
|
(312,558)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Acquisition of other assets, net of related payables and cash received:
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
684
|
|
|
$
|
44
|
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
453
|
|
|
Financing lease obligations
|
—
|
|
|
64,260
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid
|
$
|
—
|
|
|
$
|
64,944
|
|
|
$
|
497
|
|
|
Proceeds from sale of CCRC Venture, net:
|
|
|
|
|
|
|
Investments in unconsolidated ventures
|
$
|
—
|
|
|
$
|
(14,848)
|
|
|
$
|
—
|
|
|
Current portion of long-term debt
|
—
|
|
|
34,706
|
|
|
—
|
|
|
Other liabilities
|
—
|
|
|
60,748
|
|
|
—
|
|
|
Loss (gain) on sale of assets, net
|
—
|
|
|
(369,831)
|
|
|
—
|
|
|
Net cash received
|
$
|
—
|
|
|
$
|
(289,225)
|
|
|
$
|
—
|
|
|
Proceeds from sale of other assets, net:
|
|
|
|
|
|
|
Prepaid expenses and other assets, net
|
$
|
(1,983)
|
|
|
$
|
(1,318)
|
|
|
$
|
(4,422)
|
|
|
Assets held for sale
|
(16,166)
|
|
|
(34,348)
|
|
|
(79,054)
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
(878)
|
|
|
(938)
|
|
|
(379)
|
|
|
Investments in unconsolidated ventures
|
—
|
|
|
—
|
|
|
(156)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
(75)
|
|
|
(786)
|
|
|
(1,479)
|
|
|
Loss (gain) on sale of assets, net
|
(2,346)
|
|
|
(4,701)
|
|
|
(7,245)
|
|
|
Net cash received
|
$
|
(21,448)
|
|
|
$
|
(42,091)
|
|
|
$
|
(92,735)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2021
|
|
2020
|
|
2019
|
|
Assets designated as held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
$
|
3,612
|
|
|
$
|
7,935
|
|
|
$
|
28,608
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
(3,612)
|
|
|
(7,935)
|
|
|
(28,608)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Healthpeak master lease modification:
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
(57,462)
|
|
|
$
|
—
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
88,044
|
|
|
—
|
|
|
Financing lease obligations
|
—
|
|
|
70,874
|
|
|
—
|
|
|
Operating lease obligations
|
—
|
|
|
(101,456)
|
|
|
—
|
|
|
Net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other non-cash lease transactions, net:
|
|
|
|
|
|
|
Prepaid expenses and other assets, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(636)
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
4,056
|
|
|
10,707
|
|
|
(1,963)
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
17,197
|
|
|
(7,941)
|
|
|
18,148
|
|
|
Operating lease obligations
|
(17,197)
|
|
|
15,126
|
|
|
(18,206)
|
|
|
Financing lease obligations
|
(4,056)
|
|
|
(15,483)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
—
|
|
|
(77)
|
|
|
(731)
|
|
|
|
|
|
|
|
|
|
Loss (gain) on facility operating lease termination, net
|
—
|
|
|
(2,332)
|
|
|
3,388
|
|
|
Net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
During 2019, the Company and its venture partner contributed cash in an aggregate amount of $13.3 million to a consolidated venture which owns two senior housing communities as of December 31, 2021. The Company obtained a $6.6 million promissory note receivable from its venture partner secured by a 50% equity interest in the venture in a non-cash exchange for the Company funding the $13.3 million aggregate contribution in cash. At the closing of the sale of a senior housing community during 2019 by the consolidated venture, the consolidated venture distributed $6.3 million to the partners with the Company receiving a $3.1 million repayment on the promissory note in a non-cash exchange.
Refer to Note 2 for a schedule of the non-cash adjustments to the Company's consolidated balance sheet as of January 1, 2019 as a result of the adoption of new accounting standards.
Restricted cash consists principally of deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs, escrow deposits for real estate taxes, property insurance, and capital expenditures, and debt service reserve accounts required by certain lenders under mortgage debt agreements. The components of restricted cash are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Current:
|
|
|
|
|
Real estate tax and property insurance escrows
|
$
|
16,272
|
|
|
$
|
17,465
|
|
|
Replacement reserve escrows
|
9,756
|
|
|
9,465
|
|
|
Resident deposits
|
93
|
|
|
253
|
|
|
Other
|
724
|
|
|
876
|
|
|
Subtotal
|
26,845
|
|
|
28,059
|
|
|
Long term:
|
|
|
|
|
Insurance deposits
|
30,932
|
|
|
21,903
|
|
|
Debt service reserve
|
18,053
|
|
|
17,784
|
|
|
CCRCs escrows
|
15,346
|
|
|
15,329
|
|
|
Letters of credit collateral
|
107
|
|
|
1,653
|
|
|
|
|
|
|
|
Subtotal
|
64,438
|
|
|
56,669
|
|
|
Total
|
$
|
91,283
|
|
|
$
|
84,728
|
|
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sums to the total of the same such amounts shown in the consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Reconciliation of cash, cash equivalents, and restricted cash:
|
|
|
|
|
Cash and cash equivalents
|
$
|
347,031
|
|
|
$
|
380,420
|
|
|
Restricted cash
|
26,845
|
|
|
28,059
|
|
|
Long-term restricted cash
|
64,438
|
|
|
56,669
|
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
438,314
|
|
|
$
|
465,148
|
|
21. Segment Information
As of December 31, 2021, the Company has three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment. Prior to July 1, 2021, the Company had an additional reportable segment, Health Care Services. On July 1, 2021, the Company sold 80% of its equity in its Health Care Services segment, as described in Note 4. For periods beginning July 1, 2021, the results and financial position of its Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20% equity interest in the HCS Venture is accounted for under the equity method of accounting as of that date.
As of December 31, 2021, the Company's Management Services operating segment is no longer identified as a reportable segment as a result of the reduction in the number of communities it manages, which has reduced the operating segment's revenue, operating income, and assets below the reporting threshold. Management services operations are reported within the All Other category. All prior period segment disclosures reflect this reportable segment change.
Independent Living. The Company's Independent Living segment includes owned or leased communities that are primarily designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts of ownership. The majority of the Company's independent living communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing needs.
Assisted Living and Memory Care. The Company's Assisted Living and Memory Care segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily living for the Company's residents. The Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as smaller, freestanding, single story communities. The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.
CCRCs. The Company's CCRCs segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs. Most of the Company's CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus or within the immediate area.
All Other. All Other includes communities operated by the Company pursuant to management agreements. Under the management agreements for these communities, the Company receives management fees as well as reimbursement of expenses it incurs on behalf of the owners.
Health Care Services. The Company's former Health Care Services segment included the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities. The Health Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.
The accounting policies of the Company's reportable segments are the same as those described in the summary of significant accounting policies in Note 2.
The following table sets forth selected segment financial data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2019
|
|
Revenue and other operating income:
|
|
|
|
|
|
|
Independent Living (1)(2)
|
$
|
477,050
|
|
|
$
|
524,421
|
|
|
$
|
544,558
|
|
|
Assisted Living and Memory Care (1)(2)
|
1,595,684
|
|
|
1,753,861
|
|
|
1,815,938
|
|
|
CCRCs (1)(2)
|
306,213
|
|
|
340,337
|
|
|
402,175
|
|
|
All Other (3)
|
202,043
|
|
|
531,879
|
|
|
847,157
|
|
|
Health Care Services (1)(2)
|
177,269
|
|
|
389,697
|
|
|
447,260
|
|
|
Total revenue and other operating income
|
$
|
2,758,259
|
|
|
$
|
3,540,195
|
|
|
$
|
4,057,088
|
|
|
Segment operating income:(4)
|
|
|
|
|
|
|
Independent Living
|
$
|
146,108
|
|
|
$
|
182,813
|
|
|
$
|
203,741
|
|
|
Assisted Living and Memory Care
|
294,320
|
|
|
428,601
|
|
|
518,636
|
|
|
CCRCs
|
34,109
|
|
|
53,180
|
|
|
72,072
|
|
|
All Other
|
20,598
|
|
|
130,690
|
|
|
57,108
|
|
|
Health Care Services
|
5,816
|
|
|
1,863
|
|
|
24,987
|
|
|
Total segment operating income
|
500,951
|
|
|
797,147
|
|
|
876,544
|
|
|
General and administrative expense (including non-cash stock-based compensation expense)
|
184,916
|
|
|
206,575
|
|
|
219,289
|
|
|
Facility operating lease expense:
|
|
|
|
|
|
|
Independent Living
|
42,162
|
|
|
60,445
|
|
|
81,680
|
|
|
Assisted Living and Memory Care
|
111,117
|
|
|
137,900
|
|
|
157,823
|
|
|
CCRCs
|
15,932
|
|
|
20,406
|
|
|
24,248
|
|
|
Corporate and All Other
|
5,147
|
|
|
5,282
|
|
|
5,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Independent Living
|
74,922
|
|
|
70,803
|
|
|
81,745
|
|
|
Assisted Living and Memory Care
|
200,677
|
|
|
224,790
|
|
|
222,574
|
|
|
CCRCs
|
37,891
|
|
|
38,426
|
|
|
44,163
|
|
|
Corporate and All Other
|
23,783
|
|
|
24,458
|
|
|
28,704
|
|
|
Health Care Services
|
340
|
|
|
749
|
|
|
2,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment:
|
|
|
|
|
|
|
Independent Living
|
3,483
|
|
|
31,317
|
|
|
1,812
|
|
|
Assisted Living and Memory Care
|
14,384
|
|
|
61,640
|
|
|
32,229
|
|
|
CCRCs
|
4,790
|
|
|
12,413
|
|
|
4,983
|
|
|
Corporate and All other
|
346
|
|
|
1,938
|
|
|
2,664
|
|
|
Health Care Services
|
—
|
|
|
—
|
|
|
7,578
|
|
|
Loss (gain) on facility operating lease termination, net
|
(2,003)
|
|
|
(2,303)
|
|
|
3,388
|
|
|
Income (loss) from operations
|
$
|
(216,936)
|
|
|
$
|
(97,692)
|
|
|
$
|
(44,498)
|
|
|
|
|
|
|
|
|
|
Total interest expense:
|
|
|
|
|
|
|
Independent Living
|
$
|
45,209
|
|
|
$
|
44,682
|
|
|
$
|
46,713
|
|
|
Assisted Living and Memory Care
|
121,785
|
|
|
134,015
|
|
|
166,097
|
|
|
CCRCs
|
18,756
|
|
|
19,928
|
|
|
27,426
|
|
|
Corporate and All Other
|
9,390
|
|
|
10,154
|
|
|
8,105
|
|
|
|
$
|
195,140
|
|
|
$
|
208,779
|
|
|
$
|
248,341
|
|
|
|
|
|
|
|
|
|
Total capital expenditures for property, plant and equipment, and leasehold intangibles:
|
|
|
|
|
|
|
Independent Living
|
$
|
36,992
|
|
|
$
|
47,889
|
|
|
$
|
78,831
|
|
|
Assisted Living and Memory Care
|
105,177
|
|
|
90,354
|
|
|
157,845
|
|
|
CCRCs
|
19,086
|
|
|
18,709
|
|
|
33,535
|
|
|
Corporate and All Other
|
21,463
|
|
|
23,638
|
|
|
24,506
|
|
|
Health Care Services
|
—
|
|
|
515
|
|
|
484
|
|
|
|
$
|
182,718
|
|
|
$
|
181,105
|
|
|
$
|
295,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Total assets:
|
|
|
|
|
Independent Living
|
$
|
1,349,341
|
|
|
$
|
1,419,838
|
|
|
Assisted Living and Memory Care
|
3,601,144
|
|
|
3,787,611
|
|
|
CCRCs
|
693,386
|
|
|
738,121
|
|
|
Corporate and All Other
|
766,596
|
|
|
723,010
|
|
|
Health Care Services
|
—
|
|
|
233,178
|
|
|
Total assets
|
$
|
6,410,467
|
|
|
$
|
6,901,758
|
|
(1)All revenue and other operating income is earned from external third parties in the United States.
(2)Includes other operating income recognized for the credits or grants pursuant to the employee retention credit, Provider Relief Fund, and other government sources, as described in Note 3. Allocations to the applicable segment generally reflect the credits earned by the segment, the segment’s receipt and acceptance of the grant, or the segment’s proportional utilization of the grant. Other operating income by segment is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
Independent Living
|
1,512
|
|
|
$
|
11,823
|
|
|
|
|
Assisted Living and Memory Care
|
5,963
|
|
|
62,585
|
|
|
|
|
CCRCs
|
1,788
|
|
|
18,454
|
|
|
|
|
Health Care Services
|
3,105
|
|
|
22,887
|
|
|
|
|
Total other operating income
|
$
|
12,368
|
|
|
$
|
115,749
|
|
|
|
|
|
|
|
|
|
|
(3)All Other revenue and other operating income includes management fees and reimbursements of costs incurred on behalf of managed communities. For the years ended December 31, 2021, 2020, and 2019, revenue and other operating income includes $17.2 million, $67.2 million, and $329.9 million of revenue earned from unconsolidated ventures in which the Company had or has an ownership interest.
(4)Segment operating income is defined as segment revenues and other operating income less segment facility operating expenses (excluding facility depreciation and amortization) and costs incurred on behalf of managed communities.