Item 1. Financial Statements
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)
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|
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|
|
|
|
|
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|
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March 31,
2021
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|
December 31,
2020
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|
Assets
|
(Unaudited)
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
303,952
|
|
|
$
|
380,420
|
|
|
Marketable securities
|
134,933
|
|
|
172,905
|
|
|
Restricted cash
|
26,503
|
|
|
28,059
|
|
|
Accounts receivable, net
|
52,588
|
|
|
109,221
|
|
|
Assets held for sale
|
247,627
|
|
|
16,061
|
|
|
Prepaid expenses and other current assets, net
|
90,949
|
|
|
66,937
|
|
|
Total current assets
|
856,552
|
|
|
773,603
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
5,018,409
|
|
|
5,068,060
|
|
|
Operating lease right-of-use assets
|
743,346
|
|
|
788,138
|
|
|
Restricted cash
|
71,468
|
|
|
56,669
|
|
|
Investment in unconsolidated ventures
|
4,972
|
|
|
4,898
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|
|
Goodwill
|
27,321
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|
|
154,131
|
|
|
|
|
|
|
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Other assets, net
|
24,085
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|
|
56,259
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|
|
Total assets
|
$
|
6,746,153
|
|
|
$
|
6,901,758
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|
|
Liabilities and Equity
|
|
|
|
|
Current liabilities
|
|
|
|
|
Current portion of long-term debt
|
$
|
224,890
|
|
|
$
|
68,885
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|
|
Current portion of financing lease obligations
|
20,083
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|
|
19,543
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|
Current portion of operating lease obligations
|
140,339
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|
|
146,226
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|
|
Trade accounts payable
|
65,278
|
|
|
71,233
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|
|
Liabilities held for sale
|
116,142
|
|
|
—
|
|
|
Accrued expenses
|
264,117
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|
|
287,851
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|
|
Refundable fees and deferred revenue
|
68,113
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|
|
96,995
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|
Total current liabilities
|
898,962
|
|
|
690,733
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|
Long-term debt, less current portion
|
3,664,901
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|
3,847,103
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Financing lease obligations, less current portion
|
539,071
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|
543,764
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|
Operating lease obligations, less current portion
|
797,311
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|
819,429
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Deferred tax liability
|
9,876
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|
9,557
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Other liabilities
|
140,925
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|
188,443
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Total liabilities
|
6,051,046
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|
|
6,099,029
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|
Preferred stock, $0.01 par value, 50,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding
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—
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—
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Common stock, $0.01 par value, 400,000,000 shares authorized at March 31, 2021 and December 31, 2020; 197,757,065 and 198,331,663 shares issued and 187,229,540 and 187,804,138 shares outstanding (including 2,063,391 and 4,349,421 unvested restricted shares), respectively
|
1,978
|
|
|
1,983
|
|
|
Additional paid-in-capital
|
4,213,095
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|
|
4,212,409
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|
|
Treasury stock, at cost; 10,527,525 shares at March 31, 2021 and December 31, 2020
|
(102,774)
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|
|
(102,774)
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Accumulated deficit
|
(3,419,469)
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|
|
(3,311,184)
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|
|
Total Brookdale Senior Living Inc. stockholders' equity
|
692,830
|
|
|
800,434
|
|
|
Noncontrolling interest
|
2,277
|
|
|
2,295
|
|
|
Total equity
|
695,107
|
|
|
802,729
|
|
|
Total liabilities and equity
|
$
|
6,746,153
|
|
|
$
|
6,901,758
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|
See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
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Three Months Ended
March 31,
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2021
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2020
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|
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Revenue
|
|
|
|
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Resident fees
|
$
|
664,350
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|
|
$
|
782,707
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|
|
|
|
Management fees
|
8,566
|
|
|
108,715
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|
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|
Reimbursed costs incurred on behalf of managed communities
|
65,794
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|
|
122,717
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|
|
|
|
|
|
Other operating income
|
10,735
|
|
|
—
|
|
|
|
|
|
|
Total revenue and other operating income
|
749,445
|
|
|
1,014,139
|
|
|
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|
|
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Expense
|
|
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Facility operating expense (excluding facility depreciation and amortization of $77,274 and $84,301, respectively)
|
556,312
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|
|
588,482
|
|
|
|
|
|
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|
|
|
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|
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|
General and administrative expense (including non-cash stock-based compensation expense of $4,783 and $5,957, respectively)
|
49,943
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|
|
54,595
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|
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|
|
|
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|
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|
|
Facility operating lease expense
|
44,418
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|
|
64,481
|
|
|
|
|
|
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Depreciation and amortization
|
83,891
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|
|
90,738
|
|
|
|
|
|
|
Asset impairment
|
10,677
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|
|
78,226
|
|
|
|
|
|
|
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|
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|
Costs incurred on behalf of managed communities
|
65,794
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|
|
122,717
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|
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|
|
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|
Total operating expense
|
811,035
|
|
|
999,239
|
|
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|
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Income (loss) from operations
|
(61,590)
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|
14,900
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|
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|
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|
|
|
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Interest income
|
421
|
|
|
1,455
|
|
|
|
|
|
|
Interest expense:
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|
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|
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Debt
|
(35,351)
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|
|
(41,763)
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|
|
|
|
|
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Financing lease obligations
|
(11,383)
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|
|
(13,282)
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|
|
|
|
|
|
Amortization of deferred financing costs and debt discount
|
(1,873)
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|
|
(1,315)
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|
|
|
|
|
|
Gain (loss) on debt modification and extinguishment, net
|
—
|
|
|
19,181
|
|
|
|
|
|
|
Equity in earnings (loss) of unconsolidated ventures
|
(531)
|
|
|
(1,008)
|
|
|
|
|
|
|
Gain (loss) on sale of assets, net
|
1,112
|
|
|
372,839
|
|
|
|
|
|
|
Other non-operating income (loss)
|
1,644
|
|
|
2,662
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(107,551)
|
|
|
353,669
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
(752)
|
|
|
15,828
|
|
|
|
|
|
|
Net income (loss)
|
(108,303)
|
|
|
369,497
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interest
|
18
|
|
|
18
|
|
|
|
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|
|
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders
|
$
|
(108,285)
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|
|
$
|
369,515
|
|
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|
Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:
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Basic
|
$
|
(0.59)
|
|
|
$
|
2.01
|
|
|
|
|
|
|
Diluted
|
$
|
(0.59)
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
184,011
|
|
|
184,186
|
|
|
|
|
|
|
Diluted
|
184,011
|
|
|
184,522
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, in thousands)
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|
|
|
|
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|
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|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Total equity, balance at beginning of period
|
$
|
802,729
|
|
|
$
|
698,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
1,983
|
|
|
$
|
1,996
|
|
|
|
|
|
|
Issuance of common stock under Associate Stock Purchase Plan
|
—
|
|
|
1
|
|
|
|
|
|
|
Restricted stock and restricted stock units, net
|
2
|
|
|
(6)
|
|
|
|
|
|
|
Shares withheld for employee taxes
|
(7)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
1,978
|
|
|
$
|
1,985
|
|
|
|
|
|
|
Additional paid-in-capital:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
4,212,409
|
|
|
$
|
4,172,099
|
|
|
|
|
|
|
Non-cash stock-based compensation expense
|
4,783
|
|
|
5,957
|
|
|
|
|
|
|
Issuance of common stock under Associate Stock Purchase Plan
|
224
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and restricted stock units, net
|
(2)
|
|
|
6
|
|
|
|
|
|
|
Shares withheld for employee taxes
|
(4,322)
|
|
|
(3,892)
|
|
|
|
|
|
|
Other, net
|
3
|
|
|
18
|
|
|
|
|
|
|
Balance at end of period
|
$
|
4,213,095
|
|
|
$
|
4,174,356
|
|
|
|
|
|
|
Treasury stock:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(102,774)
|
|
|
$
|
(84,651)
|
|
|
|
|
|
|
Purchase of treasury stock
|
—
|
|
|
(18,123)
|
|
|
|
|
|
|
Balance at end of period
|
$
|
(102,774)
|
|
|
$
|
(102,774)
|
|
|
|
|
|
|
Accumulated deficit:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(3,311,184)
|
|
|
$
|
(3,393,088)
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
—
|
|
|
(115)
|
|
|
|
|
|
|
Net income (loss)
|
(108,285)
|
|
|
369,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
(3,419,469)
|
|
|
$
|
(3,023,688)
|
|
|
|
|
|
|
Noncontrolling interest:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
2,295
|
|
|
$
|
2,369
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interest
|
(18)
|
|
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
2,277
|
|
|
$
|
2,351
|
|
|
|
|
|
|
Total equity, balance at end of period
|
$
|
695,107
|
|
|
$
|
1,052,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock share activity
|
|
|
|
|
|
|
|
|
Outstanding shares of common stock:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
187,804
|
|
|
192,129
|
|
|
|
|
|
|
Issuance of common stock under Associate Stock Purchase Plan
|
43
|
|
|
61
|
|
|
|
|
|
|
Restricted stock and restricted stock units, net
|
127
|
|
|
(504)
|
|
|
|
|
|
|
Shares withheld for employee taxes
|
(744)
|
|
|
(611)
|
|
|
|
|
|
|
Purchase of treasury stock
|
—
|
|
|
(3,063)
|
|
|
|
|
|
|
Balance at end of period
|
187,230
|
|
|
188,012
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
Cash Flows from Operating Activities
|
|
|
|
|
Net income (loss)
|
$
|
(108,303)
|
|
|
$
|
369,497
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
Loss (gain) on debt modification and extinguishment, net
|
—
|
|
|
(19,181)
|
|
|
Depreciation and amortization, net
|
85,764
|
|
|
92,053
|
|
|
Asset impairment
|
10,677
|
|
|
78,226
|
|
|
Equity in (earnings) loss of unconsolidated ventures
|
531
|
|
|
1,008
|
|
|
|
|
|
|
|
Amortization of entrance fees
|
(364)
|
|
|
(377)
|
|
|
Proceeds from deferred entrance fee revenue
|
670
|
|
|
343
|
|
|
Deferred income tax (benefit) provision
|
319
|
|
|
(21,767)
|
|
|
Operating lease expense adjustment
|
(4,664)
|
|
|
(6,733)
|
|
|
Loss (gain) on sale of assets, net
|
(1,112)
|
|
|
(372,839)
|
|
|
|
|
|
|
|
Non-cash stock-based compensation expense
|
4,783
|
|
|
5,957
|
|
|
|
|
|
|
|
Other
|
(1,416)
|
|
|
(1,460)
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
(5,768)
|
|
|
(2,033)
|
|
|
Prepaid expenses and other assets, net
|
(6,769)
|
|
|
(1,696)
|
|
|
Prepaid insurance premiums financed with notes payable
|
(12,985)
|
|
|
(17,434)
|
|
|
Trade accounts payable and accrued expenses
|
(500)
|
|
|
(47,919)
|
|
|
Refundable fees and deferred revenue
|
7,717
|
|
|
(2,254)
|
|
|
Operating lease assets and liabilities for lessor capital expenditure reimbursements
|
7,563
|
|
|
4,088
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
(23,857)
|
|
|
57,479
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
Change in lease security deposits and lease acquisition deposits, net
|
(62)
|
|
|
3,211
|
|
|
Purchase of marketable securities
|
(79,932)
|
|
|
(89,414)
|
|
|
Sale and maturities of marketable securities
|
117,995
|
|
|
50,000
|
|
|
Capital expenditures, net of related payables
|
(40,361)
|
|
|
(69,385)
|
|
|
Acquisition of assets, net of related payables and cash received
|
—
|
|
|
(446,688)
|
|
|
Investment in unconsolidated ventures
|
(5,206)
|
|
|
(268)
|
|
|
|
|
|
|
|
Proceeds from sale of assets, net
|
3,760
|
|
|
304,617
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
(3,806)
|
|
|
(247,927)
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
Proceeds from debt
|
18,575
|
|
|
471,785
|
|
|
Repayment of debt and financing lease obligations
|
(49,924)
|
|
|
(263,226)
|
|
|
Proceeds from line of credit
|
—
|
|
|
166,381
|
|
|
|
|
|
|
|
Purchase of treasury stock, net of related payables
|
—
|
|
|
(18,123)
|
|
|
Payment of financing costs, net of related payables
|
(87)
|
|
|
(5,815)
|
|
|
Payments of employee taxes for withheld shares
|
(4,329)
|
|
|
(3,898)
|
|
|
Other
|
203
|
|
|
146
|
|
|
Net cash provided by (used in) financing activities
|
(35,562)
|
|
|
347,250
|
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
(63,225)
|
|
|
156,802
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
465,148
|
|
|
301,697
|
|
|
Cash, cash equivalents, and restricted cash at end of period
|
$
|
401,923
|
|
|
$
|
458,499
|
|
See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
Brookdale Senior Living Inc. ("Brookdale" or the "Company") is an operator of senior living communities throughout the United States. The Company is committed to providing senior living solutions primarily within properties that are designed, purpose-built, and operated to provide quality service, care, and living accommodations for residents. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company also offers a range of home health, hospice, and outpatient therapy services to residents of many of its communities and to seniors living outside of its communities.
The Company has five reportable segments: Independent Living; Assisted Living and Memory Care; CCRCs; Health Care Services; and Management Services. The Company expects to sell 80% of its equity in its Health Care Services segment, as described in Note 4.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations, and cash flows of the Company for all periods presented. Certain information and footnote disclosures included in annual financial statements have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.
Principles of Consolidation
The condensed 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 condensed 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.
Use of Estimates
The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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.
Lease Accounting
The Company, as lessee, recognizes a right-of-use asset and a lease liability on the Company's condensed 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 condensed 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 condensed 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 condensed 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 condensed 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 condensed 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 condensed 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.
Property, Plant and Equipment and Leasehold Intangibles, Net
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).
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.
3. COVID-19 Pandemic
The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the senior living industry and the Company's business. Due to the average age and prevalence of chronic medical conditions among the Company's residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. The health and wellbeing of the Company's residents, patients, and associates is and has been its highest priority as it continues to serve and care for seniors through the pandemic.
Community Restrictions. To help protect the Company's residents, patients, and associates from contracting COVID-19, the Company imposed significant restrictions at its communities beginning in March 2020, including closing its communities to visitors and prospective residents, and in some cases restricting new resident move-ins, suspending group outings, modifying communal dining and programming to comply with social distancing and other regulatory guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. The Company has adopted a framework for determining when to ease restrictions at each of its communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed COVID-19 positive cases. The Company may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities. As of April 30, 2021, 100% of the Company's communities have opened for visitors and new prospects.
Pandemic-Related Expenses. The Company incurred $27.3 million of facility operating expense during the first quarter of 2021 for incremental direct costs to respond to the pandemic. Such costs include those for: acquisition of additional 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; increased expense for general liability claims; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. On a cumulative basis, the Company has incurred $152.9 million of pandemic related facility operating expense since the beginning of fiscal 2020. The Company recorded non-cash impairment charges in its operating results of $9.0 million for the three months ended March 31, 2021, for its operating lease right-of-use assets, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.
Liquidity. As of March 31, 2021, the Company's total liquidity was $438.9 million, consisting of $304.0 million of unrestricted cash and cash equivalents and $134.9 million of marketable securities. The Company's cash flows from operations, excluding management agreement termination fees and the impact of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") funding, have been insufficient to cover its operating expenses, capital expenditures, and required interest and lease payments during the pandemic. However, the Company was able to satisfy its liquidity needs over such period utilizing a portion of its preexisting liquidity, together with CARES Act funding. The Company currently estimates that its cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of the equity in its Health Care Services segment will be sufficient to fund its liquidity needs for at least the next 12 months. The Company continues to seek opportunities to enhance and preserve its liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with the Company's expectations or at all, that its efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with the Company's expectations, or at all, or generate cash proceeds to the Company in the amount it anticipates.
Financial Relief. The 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 first quarter of 2021, the Company accepted $0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the 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. The grants represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to the Company's skilled nursing care provided through its CCRCs. HHS continues to evaluate future allocations under the Provider Relief Fund and the regulation and guidance regarding grants made under the Provider Relief Fund. The Company intends to pursue additional funding that may become available. 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 CMS, $75.2 million of which related to its Health Care Services segment and $12.3 million related to its CCRCs segment. Recoupment of advanced payments will begin 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. Pursuant to the Purchase Agreement providing for the sale of 80% of the Company's equity in its Health Care Services segment (as described below), its net cash proceeds at closing will include a reduction for the then outstanding balance of such advanced payments related to its Health Care Services segment.
•During fiscal 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. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. Pursuant to the Purchase Agreement providing for the sale of 80% of the Company's equity in its Health Care Services segment, its net cash proceeds at closing will include a reduction for the $8.9 million of deferred payroll tax payments related to its Health Care Services segment. The Company expects to pay approximately $32 million of the deferred payments in both December 2021 and 2022.
•The Company is eligible to claim the employee retention credit for certain of its associates under the CARES Act. The credit for 2020 is 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 is 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 first quarter of 2021, the Company recognized $9.0 million of employee retention credits on wages paid from March 12, 2020 through September 30, 2020 within other operating income. 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 three months ended March 31, 2021, the Company has received and recognized $0.9 million 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 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, and other expenses; the impact of COVID-19 on the Company's ability to complete financings and refinancings of various assets, or other transactions (including dispositions and the pending sale of 80% of the equity in the Company's Health Care Services segment) 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 unfunded, mandatory testing; 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 Transactions
During the period from January 1, 2020 through March 31, 2021, the Company acquired 27 communities that the Company formerly leased, disposed of eight owned communities (including the conveyance of five communities to Ventas, Inc. ("Ventas")), and sold its ownership interest in its unconsolidated entry fee CCRC Venture (the "CCRC Venture") with Healthpeak Properties, Inc. ("Healthpeak"), and the Company's triple-net lease obligations on five communities were terminated.
The Company expects to sell 80% of its equity in its Health Care Services segment, as described below. Additionally, one unencumbered community in the Assisted Living and Memory Care segment and one unencumbered community in the CCRCs segment were classified as held for sale, resulting in $14.0 million being recorded as assets held for sale within the condensed consolidated balance sheet for senior housing communities as of March 31, 2021.
The closings of the various pending and expected transactions described within this note are, or will be, 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 three months ended March 31, 2021, the Company completed the sale of one owned community for cash proceeds of $2.7 million, net of transaction costs, and recognized a net gain on sale of assets of $0.5 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. These dispositions included the sale of one owned community during the three months ended March 31, 2020 for which the Company received cash proceeds of $5.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.2 million.
Pending Sale of Health Care Services
On February 24, 2021, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc., providing for the sale of 80% of the Company’s equity in its Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, 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, which were $75.2 million and $8.9 million respectively, as of March 31, 2021. The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser. The closing of the sale transaction is anticipated to occur in the early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, the Company will retain a 20% equity interest in the business.
The assets and liabilities of the Health Care Services segment are included within assets held for sale and liabilities held for sale, respectively, within the Company’s condensed consolidated balance sheet as of March 31, 2021. As of March 31, 2021, assets held for sale and liabilities held for sale of the Health Care Services segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
62,401
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
1,964
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
9,688
|
|
|
|
|
|
|
Goodwill
|
126,810
|
|
|
|
|
|
|
Prepaid expenses and other assets, net
|
32,722
|
|
|
|
|
|
|
Assets held for sale
|
$
|
233,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
1,201
|
|
|
|
|
|
|
Accrued expenses
|
30,030
|
|
|
|
|
|
|
Refundable fees and deferred revenue
|
75,223
|
|
|
|
|
|
|
Operating lease obligations
|
9,688
|
|
|
|
|
|
|
Liabilities held for sale
|
$
|
116,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 16 for selected financial data for the Health Care Services segment.
5. Fair Value Measurements
Marketable Securities
As of March 31, 2021, marketable securities of $134.9 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.
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 $3.9 billion as of both March 31, 2021 and December 31, 2020. 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.
Asset Impairment Expense
The following is a summary of asset impairment expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in millions)
|
2021
|
|
2020
|
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
9.0
|
|
|
$
|
65.7
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
1.7
|
|
|
11.0
|
|
|
|
|
|
|
Investment in unconsolidated ventures
|
—
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
$
|
10.7
|
|
|
$
|
78.2
|
|
|
|
|
|
6. Revenue
Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by payor source as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Resident fee revenue by payor source and reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
(in thousands)
|
Independent Living
|
|
Assisted Living and Memory Care
|
|
CCRCs
|
|
Health Care Services
|
|
Total
|
|
Private pay
|
$
|
118,322
|
|
|
$
|
370,494
|
|
|
$
|
52,213
|
|
|
$
|
337
|
|
|
$
|
541,366
|
|
|
Government reimbursement
|
460
|
|
|
16,444
|
|
|
12,487
|
|
|
67,465
|
|
|
96,856
|
|
|
Other third-party payor programs
|
—
|
|
|
—
|
|
|
7,079
|
|
|
19,049
|
|
|
26,128
|
|
|
Total resident fee revenue
|
$
|
118,782
|
|
|
$
|
386,938
|
|
|
$
|
71,779
|
|
|
$
|
86,851
|
|
|
$
|
664,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
(in thousands)
|
Independent Living
|
|
Assisted Living and Memory Care
|
|
CCRCs
|
|
Health Care Services
|
|
Total
|
|
Private pay
|
$
|
135,290
|
|
|
$
|
440,613
|
|
|
$
|
64,703
|
|
|
$
|
170
|
|
|
$
|
640,776
|
|
|
Government reimbursement
|
572
|
|
|
16,866
|
|
|
19,405
|
|
|
73,689
|
|
|
110,532
|
|
|
Other third-party payor programs
|
—
|
|
|
—
|
|
|
10,439
|
|
|
20,960
|
|
|
31,399
|
|
|
Total resident fee revenue
|
$
|
135,862
|
|
|
$
|
457,479
|
|
|
$
|
94,547
|
|
|
$
|
94,819
|
|
|
$
|
782,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. A portion of the Company's reimbursement from Medicare for certain healthcare services is billed near the start of each period of care, and cash is generally received before all services are rendered. The amount of revenue recognized for periods of care which are incomplete at period end is based on the Company's historical average percentage of days complete on each period of care and any unearned amounts are deferred and recognized when the service is performed. 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, liabilities held for sale, and other liabilities within the condensed consolidated balance sheets) of $146.0 million and $138.3 million, including $30.1
million and $21.1 million of monthly resident fees billed and received in advance, as of March 31, 2021 and December 31, 2020, respectively. Such amount of total deferred revenue as of both March 31, 2021 and December 31, 2020 also included $87.5 million received in the year ended December 31, 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by CMS. Refer to Note 3 for additional information on such program. For the three months ended March 31, 2021 and 2020, the Company recognized $30.8 million and $48.3 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2021 and 2020, respectively.
7. Property, Plant and Equipment and Leasehold Intangibles, Net
As of March 31, 2021 and December 31, 2020, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Land
|
$
|
504,698
|
|
|
$
|
505,298
|
|
|
Buildings and improvements
|
5,222,741
|
|
|
5,215,460
|
|
|
Furniture and equipment
|
953,773
|
|
|
945,783
|
|
|
Resident and leasehold operating intangibles
|
305,960
|
|
|
307,071
|
|
|
Construction in progress
|
64,003
|
|
|
61,491
|
|
|
Assets under financing leases and leasehold improvements
|
1,534,468
|
|
|
1,523,055
|
|
|
Property, plant and equipment and leasehold intangibles
|
8,585,643
|
|
|
8,558,158
|
|
|
Accumulated depreciation and amortization
|
(3,567,234)
|
|
|
(3,490,098)
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
5,018,409
|
|
|
$
|
5,068,060
|
|
Assets under financing leases and leasehold improvements includes $0.4 billion of financing lease right-of-use assets, net of accumulated amortization, as of both March 31, 2021 and December 31, 2020. 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. The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $83.9 million and $90.7 million for the three months ended March 31, 2021 and 2020, respectively.
8. Goodwill
The Company's Independent Living and Health Care Services segments had a carrying value of goodwill of $27.3 million and $126.8 million, respectively, as of both March 31, 2021 and December 31, 2020. The goodwill of the Health Care Services segment is included within assets held for sale within the Company’s condensed consolidated balance sheet as of March 31, 2021.
9. Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Fixed mortgage notes payable due 2022 through 2047; weighted average interest rate of 4.17% and 4.18% as of March 31, 2021 and December 31, 2020, respectively
|
$
|
2,334,151
|
|
|
$
|
2,366,996
|
|
|
Variable mortgage notes payable due 2022 through 2030, weighted average interest rate of 2.46% and 2.49% as of March 31, 2021 and December 31, 2020, respectively
|
1,524,496
|
|
|
1,529,935
|
|
|
Other notes payable due 2021 to 2025; weighted average interest rate of 7.79% and 8.98% as of March 31, 2021 and December 31, 2020, respectively
|
57,468
|
|
|
46,557
|
|
|
Debt discount and deferred financing costs, net
|
(26,324)
|
|
|
(27,500)
|
|
|
Total long-term debt
|
3,889,791
|
|
|
3,915,988
|
|
|
Current portion
|
224,890
|
|
|
68,885
|
|
|
Total long-term debt, less current portion
|
$
|
3,664,901
|
|
|
$
|
3,847,103
|
|
As of March 31, 2021, 97.9%, or $3.8 billion of the Company's total debt obligations represented non-recourse property-level mortgage financings.
As of March 31, 2021, $69.9 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 March 31, 2021 under which $13.6 million had been issued as of that date.
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, 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 March 31, 2021, the Company is in compliance with the financial covenants of its debt agreements.
10. Leases
As of March 31, 2021, the Company operated 301 communities under long-term leases (235 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. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.
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 March 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 condensed consolidated statements of operations) and net cash outflows from leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Operating Leases (in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
Facility operating expense
|
$
|
4,842
|
|
|
$
|
4,850
|
|
|
|
|
|
|
Facility lease expense
|
44,418
|
|
|
64,481
|
|
|
|
|
|
|
Operating lease expense
|
49,260
|
|
|
69,331
|
|
|
|
|
|
|
Operating lease expense adjustment (1)
|
4,664
|
|
|
6,733
|
|
|
|
|
|
|
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements
|
(7,563)
|
|
|
(4,088)
|
|
|
|
|
|
|
Operating net cash outflows from operating leases
|
$
|
46,361
|
|
|
$
|
71,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense recognized in accordance with Accounting Standards Codification 842, Leases ("ASC 842").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Financing Leases (in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
Depreciation and amortization
|
$
|
7,630
|
|
|
$
|
9,144
|
|
|
|
|
|
|
Interest expense: financing lease obligations
|
11,383
|
|
|
13,282
|
|
|
|
|
|
|
Financing lease expense
|
$
|
19,013
|
|
|
$
|
22,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from financing leases
|
$
|
11,383
|
|
|
$
|
13,282
|
|
|
|
|
|
|
Financing cash flows from financing leases
|
4,789
|
|
|
5,087
|
|
|
|
|
|
|
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement
|
(1,389)
|
|
|
(1,739)
|
|
|
|
|
|
|
Total net cash outflows from financing leases
|
$
|
14,783
|
|
|
$
|
16,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amounts of future minimum lease payments, including community, office, and equipment leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale) recognized on the condensed consolidated balance sheet as of March 31, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating Leases
|
|
Financing Leases
|
|
2021 (nine months)
|
$
|
151,681
|
|
|
$
|
48,807
|
|
|
2022
|
203,946
|
|
|
65,609
|
|
|
2023
|
192,625
|
|
|
66,341
|
|
|
2024
|
193,377
|
|
|
67,553
|
|
|
2025
|
191,131
|
|
|
57,595
|
|
|
Thereafter
|
280,960
|
|
|
109,684
|
|
|
Total lease payments
|
1,213,720
|
|
|
415,589
|
|
|
Purchase option liability and non-cash gain on future sale of property
|
—
|
|
|
413,617
|
|
|
Imputed interest and variable lease payments
|
(276,070)
|
|
|
(270,052)
|
|
|
Total lease obligations
|
$
|
937,650
|
|
|
$
|
559,154
|
|
11. 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.
Similarly, the senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement activities or litigation related to regulatory compliance matters. In addition, as a result of the Company's participation in the Medicare and Medicaid programs, the Company is subject to various governmental reviews, audits and investigations, including but not limited to audits under various government programs, such as the Recovery Audit Contractors (RAC), Zone Program Integrity Contractors (ZPIC), and Unified Program Integrity Contractors (UPIC) programs. The costs to respond to and defend such reviews, audits, and investigations may be significant, and an adverse determination could result in citations, sanctions and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and/or damage to the Company's business reputation.
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 asserts 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. While the Company cannot predict with certainty the result of this or any other legal proceedings, the Company believes the allegations in the suit are without merit and does not expect this matter to have a material adverse effect on the Company's financial condition, results of operations, or cash flows. In October 2020 and April 2021, alleged stockholders of the Company filed separate stockholder derivative lawsuits in the federal court for the Middle District of Tennessee, asserting 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.
12. Stock-Based Compensation
Grants of restricted stock and restricted stock units under the Company's 2014 Omnibus Incentive Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for per share and unit amounts)
|
Restricted Stock and Restricted Stock Unit Grants
|
|
Weighted Average Grant Date Fair Value
|
|
Total Grant Date Fair Value
|
|
Three months ended March 31, 2021
|
1,961
|
|
|
$
|
5.09
|
|
|
$
|
9,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. 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. Under the treasury stock method, 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, and warrants.
The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in thousands, except for per share amounts)
|
2021
|
|
2020
|
|
|
|
|
|
Income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(108,285)
|
|
|
$
|
369,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
184,011
|
|
|
184,186
|
|
|
|
|
|
|
Effect of dilutive securities - Unvested restricted stock, restricted stock units, and warrants
|
—
|
|
|
336
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
184,011
|
|
|
184,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders
|
$
|
(0.59)
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders
|
$
|
(0.59)
|
|
|
$
|
2.00
|
|
|
|
|
|
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, 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 dilutive securities were excluded from the computation of diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in millions)
|
2021(1)
|
|
2020
|
|
|
|
|
|
Non-performance-based restricted stock and restricted stock units
|
6.2
|
|
|
6.9
|
|
|
|
|
|
|
Performance-based restricted stock and restricted stock units
|
0.4
|
|
|
1.8
|
|
|
|
|
|
|
Warrants
|
16.3
|
|
|
—
|
|
|
|
|
|
(1)As a result of the net loss reported for the period, all unvested restricted stock, restricted stock units, and potential shares issuable under warrants were antidilutive for the period and as such were not included in the computation of diluted weighted average shares outstanding.
14. Income Taxes
The difference between the Company's effective tax rate for the three months ended March 31, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020. The impact represented the tax expense recorded on the gain of the sale of the Company's interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak.
The Company recorded an aggregate deferred federal, state, and local tax benefit of $25.2 million as a result of the operating loss for the three months ended March 31, 2021, which was offset by a proportionate increase in the valuation allowance of $25.5 million. The Company recorded an aggregate deferred federal, state, and local tax expense of $90.9 million for the three months ended March 31, 2020. The expense included $93.1 million as a result of the gain on the sale of the Company's interest in the CCRC Venture offset by a benefit of $2.2 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the three months ended March 31, 2020. The expense for the three months ended March 31, 2020 was offset by a reduction in the valuation allowance of $112.6 million.
The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of March 31, 2021 and December 31, 2020 was $406.5 million and $381.0 million, respectively.
The increase in the valuation allowance for the three months ended March 31, 2021 is the result of current operating losses during the three months ended March 31, 2021. The change in the valuation allowance for the three months ended March 31, 2020 was primarily the result of a reduction in the Company’s valuation allowance of $117.6 million as a result of the Healthpeak transaction offset by the anticipated reversal of future tax liabilities offset by future tax deductions.
The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended March 31, 2021 and 2020 which are included in income tax expense or benefit for the period. As of March 31, 2021, tax returns for years 2017 through 2019 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.
15. Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
Interest paid
|
$
|
47,129
|
|
|
$
|
59,479
|
|
|
Income taxes paid, net of refunds
|
904
|
|
|
957
|
|
|
|
|
|
|
|
Capital expenditures, net of related payables:
|
|
|
|
|
Capital expenditures - non-development, net
|
$
|
27,450
|
|
|
$
|
60,556
|
|
|
Capital expenditures - development, net
|
1,521
|
|
|
3,900
|
|
|
Capital expenditures - non-development - reimbursable
|
8,951
|
|
|
5,827
|
|
|
|
|
|
|
|
Trade accounts payable
|
2,439
|
|
|
(898)
|
|
|
Net cash paid
|
$
|
40,361
|
|
|
$
|
69,385
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of other assets, net of related payables and cash received:
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing lease obligations
|
—
|
|
|
39,260
|
|
|
|
|
|
|
|
Net cash paid
|
$
|
—
|
|
|
$
|
39,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of CCRC Venture, net:
|
|
|
|
|
Investments in unconsolidated ventures
|
$
|
—
|
|
|
$
|
(14,848)
|
|
|
Current portion of long-term debt
|
—
|
|
|
34,706
|
|
|
Accrued expenses
|
—
|
|
|
(5,025)
|
|
|
Other liabilities
|
—
|
|
|
60,748
|
|
|
Loss (gain) on sale of assets, net
|
—
|
|
|
(370,745)
|
|
|
Net cash received
|
$
|
—
|
|
|
$
|
(295,164)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of other assets, net:
|
|
|
|
|
Prepaid expenses and other assets, net
|
$
|
—
|
|
|
$
|
(1,261)
|
|
|
Assets held for sale
|
(2,125)
|
|
|
(5,274)
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
(597)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
74
|
|
|
(824)
|
|
|
Loss (gain) on sale of assets, net
|
(1,112)
|
|
|
(2,094)
|
|
|
|
|
|
|
|
Net cash received
|
$
|
(3,760)
|
|
|
$
|
(9,453)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment and leasehold intangibles, net
|
$
|
—
|
|
|
$
|
(9,441)
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
16,721
|
|
|
—
|
|
|
Financing lease obligations
|
—
|
|
|
9,516
|
|
|
Operating lease obligations
|
(16,721)
|
|
|
—
|
|
|
|
|
|
|
|
Other liabilities
|
—
|
|
|
(75)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash consists principally of deposits for letters of credit, escrow deposits for real estate taxes, property insurance, and capital expenditures, debt service reserve accounts required by certain lenders under mortgage debt agreements, and deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Reconciliation of cash, cash equivalents, and restricted cash:
|
|
|
|
|
Cash and cash equivalents
|
$
|
303,952
|
|
|
$
|
380,420
|
|
|
Restricted cash
|
26,503
|
|
|
28,059
|
|
|
Long-term restricted cash
|
71,468
|
|
|
56,669
|
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
401,923
|
|
|
$
|
465,148
|
|
16. Segment Information
The Company has five reportable segments: Independent Living; Assisted Living and Memory Care; CCRCs; Health Care Services; and Management Services. 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.
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 mid-acuity and frail elderly 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.
Health Care Services. The Company's Health Care Services segment includes 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 does 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.
Management Services. The Company's Management Services segment includes communities operated by the Company pursuant to management agreements. In some of the cases, the controlling financial interest in the community is held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest. Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of expenses it incurs on behalf of the owners.
The following table sets forth selected segment financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
Revenue and other operating income:
|
|
|
|
|
|
|
|
|
Independent Living(1)(2)
|
$
|
120,146
|
|
|
$
|
135,862
|
|
|
|
|
|
|
Assisted Living and Memory Care(1)(2)
|
392,042
|
|
|
457,479
|
|
|
|
|
|
|
CCRCs(1)(2)
|
73,463
|
|
|
94,547
|
|
|
|
|
|
|
Health Care Services(1)(2)
|
89,434
|
|
|
94,819
|
|
|
|
|
|
|
Management Services(3)
|
74,360
|
|
|
231,432
|
|
|
|
|
|
|
Total revenue and other operating income
|
$
|
749,445
|
|
|
$
|
1,014,139
|
|
|
|
|
|
|
Segment operating income:(4)
|
|
|
|
|
|
|
|
|
Independent Living
|
$
|
37,329
|
|
|
$
|
51,414
|
|
|
|
|
|
|
Assisted Living and Memory Care
|
71,433
|
|
|
132,001
|
|
|
|
|
|
|
CCRCs
|
7,608
|
|
|
19,931
|
|
|
|
|
|
|
Health Care Services
|
2,403
|
|
|
(9,121)
|
|
|
|
|
|
|
Management Services
|
8,566
|
|
|
108,715
|
|
|
|
|
|
|
Total segment operating income
|
127,339
|
|
|
302,940
|
|
|
|
|
|
|
General and administrative expense (including non-cash stock-based compensation expense)
|
49,943
|
|
|
54,595
|
|
|
|
|
|
|
Facility operating lease expense
|
44,418
|
|
|
64,481
|
|
|
|
|
|
|
Depreciation and amortization
|
83,891
|
|
|
90,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment:
|
|
|
|
|
|
|
|
|
Independent Living
|
520
|
|
|
31,317
|
|
|
|
|
|
|
Assisted Living and Memory Care
|
9,642
|
|
|
32,798
|
|
|
|
|
|
|
CCRCs
|
515
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Management Services
|
—
|
|
|
1,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
(61,590)
|
|
|
$
|
14,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Total assets:
|
|
|
|
|
Independent Living
|
$
|
1,399,489
|
|
|
$
|
1,419,838
|
|
|
Assisted Living and Memory Care
|
3,740,476
|
|
|
3,787,611
|
|
|
CCRCs
|
728,621
|
|
|
738,121
|
|
|
Health Care Services
|
233,585
|
|
|
233,178
|
|
|
Corporate and Management Services
|
643,982
|
|
|
723,010
|
|
|
Total assets
|
$
|
6,746,153
|
|
|
$
|
6,901,758
|
|
(1)All revenue is earned from external third parties in the United States.
(2)The Independent Living, Assisted Living and Memory Care, CCRCs, and Health Care Services segments include $1.4 million, $5.1 million, $1.7 million, and $2.6 million respectively, for the three months ended March 31, 2021 of 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.
(3)Management services segment revenue includes management fees and reimbursements of costs incurred on behalf of managed communities.
(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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and us on our business, results of operations, cash flow, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease, the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our 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 our 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 our ability to adapt our sales and marketing efforts to meet that demand, the impact of COVID-19 on our residents’ and their families’ ability to afford our 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 our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other transactions (including dispositions and our pending Health Care Services transaction) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including unfunded, mandatory testing, increased enforcement actions resulting from COVID-19, government action that may limit our 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 our response efforts; events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members; changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the impact of ongoing healthcare reform efforts; the effects of senior housing construction and development, lower industry occupancy (including due to the pandemic), and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where we are concentrated; terminations of our resident agreements and vacancies in the living spaces we lease, including due to the pandemic; limits on our ability to use net operating loss carryovers to reduce future tax payments; failure to maintain the security and functionality of our information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; our ability to complete our capital expenditures in accordance with our plans; our ability to identify and pursue development, investment and acquisition opportunities and our ability to successfully integrate acquisitions; competition for the acquisition of assets; our ability to complete pending or expected disposition, acquisition, or other transactions (including our pending Health Care Services transaction) on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future; risks related to the implementation of our strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results; delays in obtaining regulatory approvals; disruptions in the financial markets or decreases in the appraised values or performance of our communities that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs; our ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund our planned capital projects; the effect of our non-compliance with any of our debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of our indebtedness and long-term leases on our liquidity; the potential phasing out of LIBOR which may increase the costs of our debt obligations; our ability to obtain additional capital on terms acceptable to us; departures of key officers and
potential disruption caused by changes in management; increased competition for or a shortage of personnel (including due to the pandemic), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of our communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us, including class action and stockholder derivative complaints; the cost and difficulty of complying with increasing and evolving regulation; costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; unanticipated costs to comply with legislative or regulatory developments; the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate; actions of activist stockholders, including a proxy contest; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this Quarterly Report on Form 10-Q. We cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
Overview
As of March 31, 2021, we are the largest operator of senior living communities in the United States based on total capacity, with 695 communities in 42 states and the ability to serve approximately 60,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). We also offer a range of home health, hospice, and outpatient therapy services to more than 16,000 patients as of that date.
Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. Our community and service offerings combine housing with hospitality and healthcare services. Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living such as eating, bathing, dressing, toileting, transferring/walking, and, in certain communities, licensed skilled nursing services. We also provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives.
COVID-19 Pandemic Update
The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the senior living industry and our business. Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. The health and wellbeing of our residents, patients, and associates is and has been our highest priority as we continue to serve and care for seniors through the pandemic. In addition to the updates below, readers are directed to the "COVID-19 Pandemic" section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 for more information about the impact of the pandemic and our response efforts on our business, results of operations, and financial condition.
Vaccine Clinics Completed. We elected to work with CVS Health Corporation ("CVS") to administer vaccinations on site to our residents and associates through the Pharmacy Partnership for Long-Term Care Program offered through the U.S. Centers for Disease Control and Prevention ("CDC"). We worked extensively to prepare for and host CVS clinics as quickly as possible among our approximately 700 communities, which included extensive planning, gathering insurance information, obtaining consents, scheduling appointments, holding educational sessions with residents, families, and associates, detailed coordination of traffic flow, and staffing observation areas. We hosted our first clinics on December 18, 2020 and had completed at least three vaccine clinics at all of our communities by April 9, 2021. Through April 30, 2021, our resident vaccine acceptance rate was 93%, and our COVID-19 positive resident caseload had decreased by 97% since the peak in mid-December 2020. We continue to promote vaccine acceptance among our residents and associates and to work with state and local resources, including local health departments and pharmacies, to ensure our residents and associates can access the vaccine.
Community Restrictions. To help protect our residents, patients, and associates from contracting COVID-19, we imposed significant restrictions at our communities beginning in March 2020, including closing our communities to visitors and prospective residents, and in some cases restricting new resident move-ins, suspending group outings, modifying communal dining and programming to comply with social distancing and other regulatory guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. We have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed COVID-19 positive cases. We may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities. As of December 31, 2020, 89% of our communities were accepting new move-ins. With lower caseloads, restrictions on visits have been relaxed, and as of April 30, 2021, 100% of our communities have opened for visitors and new prospects.
Occupancy and Demand. According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), seniors housing occupancy again decreased to a record low for the first quarter of 2021. In our consolidated seniors housing portfolio, our monthly net move-ins and move-outs turned positive in March 2021 for the first time since the pandemic began. Move-ins increased sequentially each month during the first quarter of 2021 and increased 29% for the first quarter of 2021 compared to the fourth quarter of 2020. Our consolidated senior housing portfolio’s weighted average occupancy
decreased 310 basis points for the first quarter of 2021 from the fourth quarter of 2020. Weighted average occupancy for March 2021 increased slightly sequentially and for April 2021 increased 50 basis points sequentially, after having declined sequentially each month from March 2020 through February 2021. The table below sets forth our consolidated occupancy trend during the pandemic.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2020
|
Q2
2020
|
Q3
2020
|
Q4
2020
|
Q1
2021
|
January
2021
|
February
2021
|
March
2021
|
April
2021
|
|
Weighted average occupancy
|
83.2
|
%
|
78.7
|
%
|
75.3
|
%
|
72.7
|
%
|
69.6
|
%
|
70.0
|
%
|
69.4
|
%
|
69.4
|
%
|
69.9
|
%
|
|
Month-end occupancy
|
82.2
|
%
|
77.8
|
%
|
75.0
|
%
|
71.5
|
%
|
70.6
|
%
|
70.4
|
%
|
70.1
|
%
|
70.6
|
%
|
71.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents.
Lost Revenue. Compared to our pre-pandemic expectations for fiscal 2020, we estimate that the pandemic, including the related restrictions at our communities, resulted in $117.5 million of lost resident fee revenue for the first quarter of 2021. Estimated lost resident fee revenue for the first quarter of 2021 includes $94.2 million in our consolidated senior housing portfolio and $23.3 million for our Health Care Services segment. On a cumulative basis, we estimate that the pandemic has resulted in approximately $400 million of lost resident fee revenue compared to our pre-pandemic expectations for fiscal 2020.
Pandemic-Related Expenses. We incurred $27.3 million of facility operating expense during the first quarter of 2021 for incremental direct costs to respond to the pandemic. Such costs include those for: acquisition of additional 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; increased expense for general liability claims; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. On a cumulative basis, we have incurred $152.9 million of pandemic-related facility operating expense since the beginning of fiscal 2020. We also recorded non-cash impairment charges in our operating results of $9.0 million for the three months ended March 31, 2021, for our operating lease right-of-use assets, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.
Liquidity. As of March 31, 2021, our total liquidity was $438.9 million, consisting of $304.0 million of unrestricted cash and cash equivalents and $134.9 million of marketable securities. Our cash flows from operations, excluding management agreement termination fees and the impact of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") funding, have been insufficient to cover our operating expenses, capital expenditures, and required interest and lease payments during the pandemic. However, we were able to satisfy our liquidity needs over such period utilizing a portion of our preexisting liquidity, together with CARES Act funding. We currently estimate that our cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of the equity in our Health Care Services segment will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate.
Financial Relief. The 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 first quarter of 2021, we accepted $0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the 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. The grants represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to our skilled nursing care provided through our CCRCs. HHS continues to evaluate future allocations under the Provider Relief Fund and the regulation and guidance regarding grants made under the Provider Relief Fund. We intend to pursue additional funding that may become available. There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, 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 we qualify.
•During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, $75.2 million of which related to our Health Care Services segment and $12.3 million related to our CCRCs segment. Recoupment of advanced payments will begin 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. Pursuant to the Purchase Agreement providing for the sale of 80% of our equity in our Health Care Services segment (as described below), our net cash proceeds at closing will include a reduction for the then outstanding balance of such advanced payments related to our Health Care Services segment. We expect recoupment of approximately $6 million of advanced payments related to our CCRCs segment during 2021, beginning in the second quarter.
•During fiscal 2020, we 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. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. Pursuant to the Purchase Agreement providing for the sale of 80% of our equity in our Health Care Services segment, our net cash proceeds at closing will include a reduction for the $8.9 million of deferred payroll tax payments related to our Health Care Services segment. We expect to pay approximately $32 million of the deferred payments in both December 2021 and 2022.
•We are eligible to claim the employee retention credit for certain of our associates under the CARES Act. The credit for 2020 is 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 is 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 first quarter of 2021, we recognized $9.0 million of employee retention credits on wages paid from March 12, 2020 to September 30, 2020 within other operating income. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, credits in the amount or on the timing we expect.
In addition to the grants described above, during the three months ended March 31, 2021, we received and recognized $0.9 million of other operating income from grants from other government sources.
We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our 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 of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our 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 our 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 our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our 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 our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions (including dispositions and the pending sale of 80% of the equity in our Health Care Services segment) or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19; government action that may limit our 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 our response efforts.
Transaction Activity
During the period from January 1, 2020 through March 31, 2021, we terminated triple-net obligations on an aggregate of 32 communities (2,890 units), including through the acquisition of 27 formerly leased communities (2,453 units), we sold three owned communities (417 units), and we sold our ownership interest in our unconsolidated entry fee CCRC venture (the "CCRC Venture") with Healthpeak Properties, Inc. ("Healthpeak"). On July 26, 2020, we entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements. In addition, we conveyed to Ventas five communities (471 units) and manage the communities following the closing. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 for more details regarding the terms of significant transactions that occurred prior to 2021.
During the three months ended March 31, 2021, we completed the sale of one owned community (42 units) for cash proceeds of $2.7 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $0.5 million.
During the next twelve months, we expect to sell 80% of our equity in our Health Care Services segment and to close on the disposition of two owned unencumbered communities (207 units) classified as held for sale as of March 31, 2021. We also anticipate terminations of certain of our management arrangements with third parties as we transition to new operators our management on certain communities.
The closings of the various pending and expected transactions described herein are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
Pending Sale of Health Care Services
On February 24, 2021, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc. ("HCA Healthcare"), providing for the sale of 80% of our equity in our Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, 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, which were $75.2 million and $8.9 million, respectively, as of March 31, 2021. We expect our net cash proceeds at the closing will be approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement. The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser. The closing of the sale transaction is anticipated to occur in the early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, we will retain a 20% equity interest in the business. Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements and that our interest in the joint venture will be accounted for under the equity method of accounting. We anticipate that the sale transaction will utilize a portion of our federal net operating loss carryforwards to offset the expected taxable gain on such transaction.
Results of Operations
As of March 31, 2021, our total operations included 695 communities with a capacity to serve approximately 60,000 residents. As of that date we owned 349 communities (31,819 units), leased 301 communities (21,127 units), and managed 45 communities (6,652 units). The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period of January 1, 2020 to March 31, 2021 affect the comparability of our results of operations.
We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.
•Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the
beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to respond to the COVID-19 pandemic.
•RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.
•RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.
•Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance.
This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Comparison of Three Months Ended March 31, 2021 and 2020
Summary Operating Results
The following table summarizes our overall operating results for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
(in thousands)
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Total resident fees and management fees revenue
|
$
|
672,916
|
|
|
$
|
891,422
|
|
|
$
|
(218,506)
|
|
|
(24.5)
|
%
|
|
Other operating income
|
10,735
|
|
|
—
|
|
|
10,735
|
|
|
NM
|
|
Facility operating expense
|
556,312
|
|
|
588,482
|
|
|
(32,170)
|
|
|
(5.5)
|
%
|
|
Net income (loss)
|
(108,303)
|
|
|
369,497
|
|
|
(477,800)
|
|
|
NM
|
|
Adjusted EBITDA
|
34,981
|
|
|
185,069
|
|
|
(150,088)
|
|
|
(81.1)
|
%
|
The decrease in total resident fees and management fees revenue was primarily attributable to a $118.4 million decrease in resident fees, including a 14.3% decrease in same community RevPAR, comprised of a 1,390 basis point decrease in same
community weighted average occupancy and a 2.9% increase in same community RevPOR. Revenue for home health services decreased $9.6 million, as our home health average daily census decreased 16.9% compared to the prior year period primarily due to the COVID-19 pandemic and lower occupancy in our communities. Additionally, the disposition of 13 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $15.3 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period. Management fee revenue decreased $100.1 million primarily due to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture.
During the three months ended March 31, 2021, we recognized $9.0 million of employee retention credits and $1.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the credits and grants during the period.
The decrease in facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, the disposition of communities since the beginning of the prior year period resulted in $13.6 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period. Same community facility operating expense decreased 1.0%, which was primarily due to decreases in food and supplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs. Facility operating expense for the three months ended March 31, 2021 and 2020 includes $27.3 million and $10.0 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
The change in net income (loss) was primarily attributable to a $371.7 million decrease in net gain on sale of assets, primarily resulting from the sale of our interest in the CCRC Venture, as well as the net impact of the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a decrease in asset impairment expense compared to the prior year period.
The decrease in Adjusted EBITDA was primarily attributable to the net impact of the revenue (including the $100.0 million management agreement termination fee payment received from Healthpeak), other operating income, and facility operating expense factors previously discussed, partially offset by decreases in cash facility operating lease payments and general and administrative expense.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Resident fees
|
$
|
577,499
|
|
|
$
|
687,888
|
|
|
$
|
(110,389)
|
|
|
(16.0)
|
%
|
|
Other operating income
|
$
|
8,152
|
|
|
$
|
—
|
|
|
$
|
8,152
|
|
|
NM
|
|
Facility operating expense
|
$
|
469,281
|
|
|
$
|
484,542
|
|
|
$
|
(15,261)
|
|
|
(3.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities (period end)
|
650
|
|
|
661
|
|
|
(11)
|
|
|
(1.7)
|
%
|
|
Number of units (period end)
|
52,946
|
|
|
54,037
|
|
|
(1,091)
|
|
|
(2.0)
|
%
|
|
Total average units
|
52,971
|
|
|
54,184
|
|
|
(1,213)
|
|
|
(2.2)
|
%
|
|
RevPAR
|
$
|
3,631
|
|
|
$
|
4,229
|
|
|
$
|
(598)
|
|
|
(14.1)
|
%
|
|
Occupancy rate (weighted average)
|
69.6
|
%
|
|
83.2
|
%
|
|
(1,360)
|
bps
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
RevPOR
|
$
|
5,219
|
|
|
$
|
5,085
|
|
|
$
|
134
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Community Operating Results and Data
|
|
|
|
|
|
|
|
|
Resident fees
|
$
|
551,467
|
|
|
$
|
643,232
|
|
|
$
|
(91,765)
|
|
|
(14.3)
|
%
|
|
Other operating income
|
$
|
7,554
|
|
|
$
|
—
|
|
|
$
|
7,554
|
|
|
NM
|
|
Facility operating expense
|
$
|
446,339
|
|
|
$
|
450,680
|
|
|
$
|
(4,341)
|
|
|
(1.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities
|
637
|
|
|
637
|
|
|
—
|
|
|
—
|
|
|
Total average units
|
50,455
|
|
|
50,458
|
|
|
(3)
|
|
|
—
|
|
|
RevPAR
|
$
|
3,643
|
|
|
$
|
4,249
|
|
|
$
|
(606)
|
|
|
(14.3)
|
%
|
|
Occupancy rate (weighted average)
|
69.5
|
%
|
|
83.4
|
%
|
|
(1,390)
|
bps
|
|
n/a
|
|
RevPOR
|
$
|
5,244
|
|
|
$
|
5,097
|
|
|
$
|
147
|
|
|
2.9
|
%
|
Independent Living Segment
The following table summarizes the operating results and data for our Independent Living segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Resident fees
|
$
|
118,782
|
|
|
$
|
135,862
|
|
|
$
|
(17,080)
|
|
|
(12.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
$
|
1,364
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
|
NM
|
|
Facility operating expense
|
$
|
82,817
|
|
|
$
|
84,448
|
|
|
$
|
(1,631)
|
|
|
(1.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities (period end)
|
68
|
|
|
68
|
|
|
—
|
|
|
—
|
|
|
Number of units (period end)
|
12,542
|
|
|
12,537
|
|
|
5
|
|
|
—
|
|
|
Total average units
|
12,539
|
|
|
12,529
|
|
|
10
|
|
|
0.1
|
%
|
|
RevPAR
|
$
|
3,158
|
|
|
$
|
3,615
|
|
|
$
|
(457)
|
|
|
(12.6)
|
%
|
|
Occupancy rate (weighted average)
|
73.6
|
%
|
|
87.1
|
%
|
|
(1,350)
|
bps
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
RevPOR
|
$
|
4,290
|
|
|
$
|
4,151
|
|
|
$
|
139
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Community Operating Results and Data
|
|
|
|
|
|
|
|
|
Resident fees
|
$
|
115,625
|
|
|
$
|
132,556
|
|
|
$
|
(16,931)
|
|
|
(12.8)
|
%
|
|
Other operating income
|
$
|
1,327
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
|
NM
|
|
Facility operating expense
|
$
|
80,367
|
|
|
$
|
82,172
|
|
|
$
|
(1,805)
|
|
|
(2.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities
|
66
|
|
|
66
|
|
|
—
|
|
|
—
|
|
|
Total average units
|
12,161
|
|
|
12,159
|
|
|
2
|
|
|
—
|
|
|
RevPAR
|
$
|
3,169
|
|
|
$
|
3,634
|
|
|
$
|
(465)
|
|
|
(12.8)
|
%
|
|
Occupancy rate (weighted average)
|
73.6
|
%
|
|
87.1
|
%
|
|
(1,350)
|
bps
|
|
n/a
|
|
RevPOR
|
$
|
4,307
|
|
|
$
|
4,174
|
|
|
$
|
133
|
|
|
3.2
|
%
|
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,350 basis point decrease in same community weighted average occupancy and a 3.2% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.
The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same community facility operating expense, including decreases in food and supplies costs due to reduced occupancy during the period. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $3.0 million and $1.2 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Resident fees
|
$
|
386,938
|
|
|
$
|
457,479
|
|
|
$
|
(70,541)
|
|
|
(15.4)
|
%
|
|
Other operating income
|
$
|
5,104
|
|
|
$
|
—
|
|
|
$
|
5,104
|
|
|
NM
|
|
Facility operating expense
|
$
|
320,609
|
|
|
$
|
325,478
|
|
|
$
|
(4,869)
|
|
|
(1.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities (period end)
|
562
|
|
|
571
|
|
|
(9)
|
|
|
(1.6)
|
%
|
|
Number of units (period end)
|
35,082
|
|
|
35,789
|
|
|
(707)
|
|
|
(2.0)
|
%
|
|
Total average units
|
35,110
|
|
|
35,944
|
|
|
(834)
|
|
|
(2.3)
|
%
|
|
RevPAR
|
$
|
3,673
|
|
|
$
|
4,242
|
|
|
$
|
(569)
|
|
|
(13.4)
|
%
|
|
Occupancy rate (weighted average)
|
68.3
|
%
|
|
81.9
|
%
|
|
(1,360)
|
bps
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
RevPOR
|
$
|
5,376
|
|
|
$
|
5,178
|
|
|
$
|
198
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Community Operating Results and Data
|
|
|
|
|
|
|
|
|
Resident fees
|
$
|
381,448
|
|
|
$
|
444,269
|
|
|
$
|
(62,821)
|
|
|
(14.1)
|
%
|
|
Other operating income
|
$
|
4,967
|
|
|
$
|
—
|
|
|
$
|
4,967
|
|
|
NM
|
|
Facility operating expense
|
$
|
315,009
|
|
|
$
|
316,338
|
|
|
$
|
(1,329)
|
|
|
(0.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities
|
556
|
|
|
556
|
|
|
—
|
|
|
—
|
|
|
Total average units
|
34,508
|
|
|
34,513
|
|
|
(5)
|
|
|
—
|
|
|
RevPAR
|
$
|
3,685
|
|
|
$
|
4,291
|
|
|
$
|
(606)
|
|
|
(14.1)
|
%
|
|
Occupancy rate (weighted average)
|
68.3
|
%
|
|
82.2
|
%
|
|
(1,390)
|
bps
|
|
n/a
|
|
RevPOR
|
$
|
5,396
|
|
|
$
|
5,221
|
|
|
$
|
175
|
|
|
3.4
|
%
|
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,390 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 11 communities (869 units) since the beginning of the prior year period resulted in $7.3 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period which resulted in $7.0 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period. The decrease in the segment's same community facility operating expense was primarily attributable to decreases in food and supplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $18.9 million and $7.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Resident fees
|
$
|
71,779
|
|
|
$
|
94,547
|
|
|
$
|
(22,768)
|
|
|
(24.1)
|
%
|
|
Other operating income
|
$
|
1,684
|
|
|
$
|
—
|
|
|
$
|
1,684
|
|
|
NM
|
|
Facility operating expense
|
$
|
65,855
|
|
|
$
|
74,616
|
|
|
$
|
(8,761)
|
|
|
(11.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities (period end)
|
20
|
|
|
22
|
|
|
(2)
|
|
|
(9.1)
|
%
|
|
Number of units (period end)
|
5,322
|
|
|
5,711
|
|
|
(389)
|
|
|
(6.8)
|
%
|
|
Total average units
|
5,322
|
|
|
5,711
|
|
|
(389)
|
|
|
(6.8)
|
%
|
|
RevPAR
|
$
|
4,473
|
|
|
$
|
5,496
|
|
|
$
|
(1,023)
|
|
|
(18.6)
|
%
|
|
Occupancy rate (weighted average)
|
68.5
|
%
|
|
82.4
|
%
|
|
(1,390)
|
bps
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
RevPOR
|
$
|
6,534
|
|
|
$
|
6,669
|
|
|
$
|
(135)
|
|
|
(2.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Community Operating Results and Data
|
|
|
|
|
|
|
|
|
Resident fees
|
$
|
54,394
|
|
|
$
|
66,407
|
|
|
$
|
(12,013)
|
|
|
(18.1)
|
%
|
|
Other operating income
|
$
|
1,260
|
|
|
$
|
—
|
|
|
$
|
1,260
|
|
|
NM
|
|
Facility operating expense
|
$
|
50,963
|
|
|
$
|
52,170
|
|
|
$
|
(1,207)
|
|
|
(2.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities
|
15
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
Total average units
|
3,786
|
|
|
3,786
|
|
|
—
|
|
|
—
|
|
|
RevPAR
|
$
|
4,789
|
|
|
$
|
5,847
|
|
|
$
|
(1,058)
|
|
|
(18.1)
|
%
|
|
Occupancy rate (weighted average)
|
67.1
|
%
|
|
82.4
|
%
|
|
(1,530)
|
bps
|
|
n/a
|
|
RevPOR
|
$
|
7,133
|
|
|
$
|
7,093
|
|
|
$
|
40
|
|
|
0.6
|
%
|
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,530 basis point decrease in same community weighted average occupancy and a 0.6% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases, partially offset by a mix shift from less skilled nursing services within the segment. Additionally, the disposition of two communities (456 units) since the beginning of the prior year period resulted in $8.0 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $6.6 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period and a decrease in the segment's same community facility operating expense. The decrease in the segment's same community facility operating expense was primarily attributable to decreases in healthcare supplies and food costs due to the reduced occupancy during the period and decreases in labor expense arising from fewer hours worked. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $4.0 million and $0.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
Operating Results - Health Care Services Segment
The following table summarizes the operating results and data for our Health Care Services segment for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except census)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Resident fees
|
$
|
86,851
|
|
|
$
|
94,819
|
|
|
$
|
(7,968)
|
|
|
(8.4)
|
%
|
|
Other operating income
|
$
|
2,583
|
|
|
$
|
—
|
|
|
$
|
2,583
|
|
|
NM
|
|
Facility operating expense
|
$
|
87,031
|
|
|
$
|
103,940
|
|
|
$
|
(16,909)
|
|
|
(16.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
Home health average daily census
|
11,647
|
|
|
14,020
|
|
|
(2,373)
|
|
|
(16.9)
|
%
|
|
Hospice average daily census
|
1,509
|
|
|
1,698
|
|
|
(189)
|
|
|
(11.1)
|
%
|
The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, as our home health average daily census decreased compared to the prior year period primarily due to the COVID-19 pandemic and lower occupancy in our communities.
The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new payment model. The decrease in the segment's facility operating expense was partially offset by a $1.0 million increase in incremental direct costs to respond to the COVID-19 pandemic. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $1.4 million and $0.4 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the early second half of 2021. Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements.
Operating Results - Management Services Segment
The following table summarizes the operating results and data for our Management Services segment for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except communities and units)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Management fees
|
$
|
8,566
|
|
|
$
|
108,715
|
|
|
$
|
(100,149)
|
|
|
(92.1)
|
%
|
|
Reimbursed costs incurred on behalf of managed communities
|
$
|
65,794
|
|
|
$
|
122,717
|
|
|
$
|
(56,923)
|
|
|
(46.4)
|
%
|
|
Costs incurred on behalf of managed communities
|
$
|
65,794
|
|
|
$
|
122,717
|
|
|
$
|
(56,923)
|
|
|
(46.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
Number of communities (period end)
|
45
|
|
|
80
|
|
|
(35)
|
|
|
(43.8)
|
%
|
|
Number of units (period end)
|
6,652
|
|
|
11,033
|
|
|
(4,381)
|
|
|
(39.7)
|
%
|
|
Total average units
|
8,258
|
|
|
13,325
|
|
|
(5,067)
|
|
|
(38.0)
|
%
|
|
|
|
|
|
|
|
|
|
The decrease in management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture. As of March 31, 2021, we have completed the transition of management arrangements on 55 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities. Management fees of $8.6 million for the three months ended March 31, 2021 include $4.6 million of management agreement termination fees and $2.0 million of other management fees
attributable to communities for which our management agreements were terminated during such period, or we expect the terminations of our management agreements to occur in the next approximately 12 months.
The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating results for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
General and administrative expense
|
$
|
49,943
|
|
|
$
|
54,595
|
|
|
$
|
(4,652)
|
|
|
(8.5)
|
%
|
|
Facility operating lease expense
|
44,418
|
|
|
64,481
|
|
|
(20,063)
|
|
|
(31.1)
|
%
|
|
Depreciation and amortization
|
83,891
|
|
|
90,738
|
|
|
(6,847)
|
|
|
(7.5)
|
%
|
|
Asset impairment
|
10,677
|
|
|
78,226
|
|
|
(67,549)
|
|
|
(86.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
421
|
|
|
1,455
|
|
|
(1,034)
|
|
|
(71.1)
|
%
|
|
Interest expense
|
(48,607)
|
|
|
(56,360)
|
|
|
(7,753)
|
|
|
(13.8)
|
%
|
|
Gain (loss) on debt modification and extinguishment, net
|
—
|
|
|
19,181
|
|
|
(19,181)
|
|
|
NM
|
|
Equity in earnings (loss) of unconsolidated ventures
|
(531)
|
|
|
(1,008)
|
|
|
477
|
|
|
47.3
|
%
|
|
Gain (loss) on sale of assets, net
|
1,112
|
|
|
372,839
|
|
|
(371,727)
|
|
|
(99.7)
|
%
|
|
Other non-operating income (loss)
|
1,644
|
|
|
2,662
|
|
|
(1,018)
|
|
|
(38.2)
|
%
|
|
Benefit (provision) for income taxes
|
(752)
|
|
|
15,828
|
|
|
(16,580)
|
|
|
NM
|
General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to a reduction in our corporate headcount as we scaled our general and administrative costs in connection with community dispositions and a reduction in our travel costs as we intentionally scaled back such activities. General and administrative expense includes transaction and organizational restructuring costs of $1.9 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year period.
Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year period and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period.
Asset Impairment. During the current year period, we recorded $10.7 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the period. During the prior year period, we recorded $78.2 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.
Interest Expense. The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.
Gain (Loss) on Sale of Assets, Net. The decrease in gain on sale of assets, net was primarily due to a $370.7 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period.
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the three months ended March 31, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020. The impact represented the tax expense recorded on the gain of the sale of our interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak.
We recorded an aggregate deferred federal, state, and local tax benefit of $25.2 million as a result of the operating loss for the three months ended March 31, 2021, which was offset by an increase in the valuation allowance of $25.5 million. We recorded an aggregate deferred federal, state, and local tax expense of $90.9 million, of which, $2.2 million was a result of the benefit on our operating loss for the three months ended March 31, 2020. The benefit was offset by $93.1 million of tax expense that was recorded on the sale of our interest in the CCRC Venture. The tax expense was offset by a decrease in the valuation allowance of $112.6 million.
We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of March 31, 2021 and December 31, 2020 was $406.5 million and $381.0 million, respectively.
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Liquidity and Indebtedness
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Increase (Decrease)
|
|
(in thousands)
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
|
Net cash provided by (used in) operating activities
|
$
|
(23,857)
|
|
|
$
|
57,479
|
|
|
$
|
(81,336)
|
|
|
NM
|
|
Net cash provided by (used in) investing activities
|
(3,806)
|
|
|
(247,927)
|
|
|
(244,121)
|
|
|
(98.5)
|
%
|
|
Net cash provided by (used in) financing activities
|
(35,562)
|
|
|
347,250
|
|
|
(382,812)
|
|
|
NM
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
(63,225)
|
|
|
156,802
|
|
|
(220,027)
|
|
|
NM
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
465,148
|
|
|
301,697
|
|
|
163,451
|
|
|
54.2
|
%
|
|
Cash, cash equivalents, and restricted cash at end of period
|
$
|
401,923
|
|
|
$
|
458,499
|
|
|
$
|
(56,576)
|
|
|
(12.3)
|
%
|
|
Adjusted Free Cash Flow
|
$
|
(50,674)
|
|
|
$
|
5,182
|
|
|
$
|
(55,856)
|
|
|
NM
|
The change in net cash provided by (used in) operating activities was attributable primarily to the $100.0 million management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture in the prior year period and a decrease in same community revenue compared to the prior year period. These changes were partially offset by a decrease in cash payments for accounts payable and accrued expenses compared to the prior year period.
The decrease in net cash used in investing activities was primarily attributable to $446.7 million of cash paid for the acquisition of communities during the prior year period, a $68.0 million increase in proceeds from sales and maturities of marketable securities, a $29.0 million decrease in cash paid for capital expenditures, and a $9.5 million decrease in purchases of marketable securities compared to the prior year period. These changes were partially offset by a $300.9 million decrease in net proceeds from the sale of assets compared to the prior year period.
The change in net cash provided by (used in) financing activities was primarily attributable to a $453.2 million decrease in debt proceeds compared to the prior year period and $166.4 million of draws on our former secured credit facility during the prior year period. These changes were partially offset by a $213.3 million decrease in repayment of debt and financing lease
obligations, an $18.1 million decrease in cash paid for share repurchases, and a $5.7 million decrease in cash paid for financing costs compared to the prior year period.
The decrease in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities, partially offset by a $33.1 million decrease in non-development capital expenditures, net compared to the prior year period.
Our principal sources of liquidity have historically been from:
•cash balances on hand, cash equivalents, and marketable securities;
•cash flows from operations;
•proceeds from our credit facilities;
•funds generated through unconsolidated venture arrangements;
•proceeds from mortgage financing or refinancing of various assets;
•funds raised in the debt or equity markets; and
•proceeds from the disposition of assets.
Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. During 2020, we also received cash grants and advanced Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above. As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the early second half of 2021, for expected net cash proceeds of approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement described above. We are evaluating the use of the net proceeds from the pending Health Care Services transaction.
Our liquidity requirements have historically arisen from:
•working capital;
•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs;
•debt, interest, and lease payments;
•acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;
•capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our current communities and the development of new communities;
•cash collateral required to be posted in connection with our financial instruments and insurance programs;
•purchases of common stock under our share repurchase authorizations;
•other corporate initiatives (including integration, information systems, branding, and other strategic projects); and
•prior to 2009, dividend payments.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
•working capital;
•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic;
•debt, interest, and lease payments;
•payment of deferred payroll taxes under the CARES Act;
•recoupment of payments received under the Accelerated and Advance Payment Program;
•acquisition consideration;
•transaction costs and expansion of our healthcare services;
•capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities;
•cash collateral required to be posted in connection with our financial instruments and insurance programs; and
•other corporate initiatives (including information systems and other strategic projects).
We are highly leveraged and have significant debt and lease obligations. As of March 31, 2021, we had $3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%. As of such date, 97.9%, or $3.8 billion of our total debt obligations represented non-recourse property-level mortgage financings. As of March 31, 2021, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining $128.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements. As of March 31, 2021, $69.9 million of letters of credit and no cash borrowings
were outstanding under our $80.0 million secured credit facility. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.
As of March 31, 2021, we had $1.5 billion of operating and financing lease obligations. For the twelve months ending March 31, 2022, we will be required to make approximately $268.2 million of cash lease payments in connection with our existing operating and financing leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale).
Total liquidity of $438.9 million as of March 31, 2021 included $304.0 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $100.7 million in the aggregate) and $134.9 million of marketable securities. Total liquidity as of March 31, 2021 decreased $136.6 million from total liquidity of $575.5 million as of December 31, 2020. The decrease was primarily attributable to the negative $50.7 million of Adjusted Free Cash Flow and $38.3 million of payments of mortgage debt during the three months ended March 31, 2021.
As of March 31, 2021, our current liabilities exceeded current assets by $42.4 million. Included in our current liabilities is $224.9 million of the current portion of long term debt which we have historically refinanced in the normal course. Our current liabilities also include $160.4 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.
We currently estimate that our cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of our equity in our Health Care Services segment will be sufficient to fund our liquidity needs for at least the next 12 months.
We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate.
Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021. Disruptions in the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing of various assets. Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness. If we are unable to obtain refinancing proceeds sufficient to cover maturing indebtedness, our liquidity could be adversely impacted and we may seek alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.
Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence and for unit turnovers over $500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.
With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or
from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications.
The following table summarizes our capital expenditures for the three months ended March 31, 2021 for our consolidated business:
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Community-level capital expenditures, net(1)
|
$
|
21.9
|
|
|
Corporate capital expenditures, net(2)
|
5.6
|
|
|
Non-development capital expenditures, net(3)
|
27.5
|
|
|
Development capital expenditures, net
|
1.5
|
|
|
Total capital expenditures, net
|
$
|
29.0
|
|
(1)Reflects the amount invested, net of lessor reimbursements of $9.0 million.
(2)Includes $2.7 million of remediation costs at our communities resulting from natural disasters.
(3)Amount is included in Adjusted Free Cash Flow.
In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $140 million. In addition, we expect our full-year 2021 development capital expenditures to be approximately $10 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors.
Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Credit Facilities
On December 11, 2020, we 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 $80 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 March 31, 2021. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of March 31, 2021. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities and restricted cash deposits. 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 March 31, 2021, $69.9 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.
Long-Term Leases
As of March 31, 2021, we operated 301 communities under long-term leases (235 operating leases and 66 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our
leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, 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 leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options.
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 us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.
In addition, certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.
For the three months ended March 31, 2021, our cash lease payments for our operating and financing leases were $53.9 million and $16.2 million, respectively. For the twelve months ending March 31, 2022, we will be required to make $268.2 million of cash lease payments in connection with our existing operating and financing leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale). Our capital expenditure plans for 2021 include required minimum spend of approximately $18 million for capital expenditures under certain of our community leases. Additionally, we are required to spend an average of approximately $26 million per year for each of the following four years and approximately $17 million thereafter under the initial lease terms of such leases.
Debt and Lease Covenants
Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our 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).
Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.
As of March 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.
Contractual Commitments
Significant ongoing commitments consist primarily of leases, debt, and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021. There have been no material changes outside the ordinary course of business in our contractual commitments during the three months ended March 31, 2021.
Off-Balance Sheet Arrangements
As of March 31, 2021, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance.
We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry.
Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.
The table below reconciles Adjusted EBITDA from net income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
Net income (loss)
|
$
|
(108,303)
|
|
|
$
|
369,497
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
752
|
|
|
(15,828)
|
|
|
|
|
|
|
Equity in (earnings) loss of unconsolidated ventures
|
531
|
|
|
1,008
|
|
|
|
|
|
|
Loss (gain) on debt modification and extinguishment, net
|
—
|
|
|
(19,181)
|
|
|
|
|
|
|
Loss (gain) on sale of assets, net
|
(1,112)
|
|
|
(372,839)
|
|
|
|
|
|
|
Other non-operating (income) loss
|
(1,644)
|
|
|
(2,662)
|
|
|
|
|
|
|
Interest expense
|
48,607
|
|
|
56,360
|
|
|
|
|
|
|
Interest income
|
(421)
|
|
|
(1,455)
|
|
|
|
|
|
|
Income (loss) from operations
|
(61,590)
|
|
|
14,900
|
|
|
|
|
|
|
Depreciation and amortization
|
83,891
|
|
|
90,738
|
|
|
|
|
|
|
Asset impairment
|
10,677
|
|
|
78,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense adjustment
|
(4,664)
|
|
|
(6,733)
|
|
|
|
|
|
|
Non-cash stock-based compensation expense
|
4,783
|
|
|
5,957
|
|
|
|
|
|
|
Transaction and organizational restructuring costs
|
1,884
|
|
|
1,981
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
$
|
34,981
|
|
|
$
|
185,069
|
|
|
|
|
|
(1) Adjusted EBITDA includes:
•$10.7 million benefit for the three months ended March 31, 2021 of government grants and credits recognized in other operating income
•$100.0 million benefit for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities.
We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.
Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.
The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(23,857)
|
|
|
$
|
57,479
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
(3,806)
|
|
|
(247,927)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
(35,562)
|
|
|
347,250
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
$
|
(63,225)
|
|
|
$
|
156,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(23,857)
|
|
|
$
|
57,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in prepaid insurance premiums financed with notes payable
|
12,985
|
|
|
17,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases
|
(7,563)
|
|
|
(4,088)
|
|
|
|
|
|
|
Non-development capital expenditures, net
|
(27,450)
|
|
|
(60,556)
|
|
|
|
|
|
|
Payment of financing lease obligations
|
(4,789)
|
|
|
(5,087)
|
|
|
|
|
|
|
Adjusted Free Cash Flow(1)
|
$
|
(50,674)
|
|
|
$
|
5,182
|
|
|
|
|
|
(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $1.9 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively. Additionally, Adjusted Free Cash Flow includes:
•$1.7 million benefit for the three months ended March 31, 2021 from Provider Relief Funds and other government grants accepted
•$100.0 million benefit for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture