NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Business
Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) which, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). HealthpeakTM acquires, develops, leases, owns, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) life science; (ii) medical office; and (iii) continuing care retirement community (“CCRC”).
The Company’s corporate headquarters are in Denver, Colorado and it has additional offices in Irvine, California and Franklin, Tennessee.
Senior Housing Triple-Net and Senior Housing Operating Portfolio Dispositions
During 2020, the Company established and began executing a plan to dispose of its senior housing triple-net and Senior Housing Operating (“SHOP”) properties. As of December 31, 2020, the Company concluded the planned dispositions represented a strategic shift that has and will have a major effect on the Company’s operations and financial results. Therefore, assets meeting the held for sale criteria on or before March 31, 2021 are classified as discontinued operations in all periods presented herein. See Note 5 for further information.
COVID-19 Update
While the Coronavirus (“COVID-19”) continues to evolve daily and its ultimate outcome is uncertain, it has caused significant disruption to individuals, governments, financial markets, and businesses, including the Company. Global health concerns and increased efforts to reduce the spread of the COVID-19 pandemic prompted federal, state, and local governments to restrict normal daily activities, and resulted in travel bans, quarantines, school closings, “shelter-in-place” orders requiring individuals to remain in their homes other than to conduct essential services or activities, as well as business limitations and shutdowns, which resulted in closure of many businesses deemed to be non-essential. Although most of these restrictions have since been lifted or scaled back, certain restrictions remain in place or have been re-imposed and any future surges of COVID-19 may lead to other restrictions being re-implemented in response to efforts to reduce the spread. In addition, the Company’s tenants, operators and borrowers have faced significant cost increases as a result of increased health and safety measures, including increased staffing demands for patient care and sanitation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. These health and safety measures, which have been in place since the onset of the pandemic, continue to place a substantial strain on the business operations of many of the Company’s tenants, operators, and borrowers. The Company evaluated the impacts of COVID-19 on its business thus far and incorporated information concerning the impact of COVID-19 into its assessments of liquidity, impairments, and collectibility from tenants, residents, and borrowers as of March 31, 2021. The Company will continue to monitor such impacts and will adjust its estimates and assumptions based on the best available information.
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Management is required to make estimates and assumptions in the preparation of financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, joint ventures (“JVs”), and variable interest entities (“VIEs”) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation. All adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations, and cash flows have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The accompanying unaudited interim financial information should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”).
Government Grant Income
On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide financial aid to individuals, businesses, and state and local governments. During the three months ended March 31, 2021, the Company received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic. Grant income is recognized when there is reasonable assurance that the grant will be received and the Company will comply with all conditions attached to the grant. Additionally, grants are recognized over the periods in which the Company recognizes the increased expenses and lost revenue the grants are intended to defray. As of March 31, 2021, the amount of qualifying expenditures and lost revenue exceeded grant income recognized and the Company had complied or will continue to comply with all grant conditions.
The following table summarizes information related to government grant income received and recognized by the Company (in thousands):
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Three Months Ended
March 31,
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|
|
2021
|
|
2020
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|
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Government grant income recorded in other income (expense), net
|
$
|
1,310
|
|
|
$
|
—
|
|
|
|
|
|
|
Government grant income recorded in equity income (loss) from unconsolidated joint ventures
|
426
|
|
|
—
|
|
|
|
|
|
|
Government grant income recorded in income (loss) from discontinued operations
|
3,232
|
|
|
—
|
|
|
|
|
|
|
Total government grants received
|
$
|
4,968
|
|
|
$
|
—
|
|
|
|
|
|
Recent Accounting Pronouncements
Adopted
Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amendments in ASU 2016-13 eliminate the “probable” initial threshold for recognition of credit losses in previous accounting guidance and, instead, reflect an entity’s current estimate of all expected credit losses over the life of the financial instrument. Historically, when credit losses were measured under previous accounting guidance, an entity generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss.
As a result of adopting ASU 2016-13 on January 1, 2020 using the modified retrospective transition approach, the Company recognized a cumulative-effect adjustment to equity of $2 million as of January 1, 2020. Under ASU 2016-13, the Company began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historical GAAP. Under the new model, the Company is required to recognize future credit losses expected to be incurred over the life of its finance receivables, including loans receivable, direct financing leases (“DFLs”), and certain accounts receivable, at inception of those instruments. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized. The Company reassesses its reserves on finance receivables at each balance sheet date to determine if an adjustment to the previous reserve is necessary.
Accounting for Lease Concessions Related to COVID-19. In April 2020, the FASB staff issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under ASC 842, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. During the year ended December 31, 2020, the Company provided rent deferrals (to be repaid before the end of 2020) to certain tenants in its life science and medical office segments that were impacted by COVID-19 (discussed in further detail in Note 6). No such rent deferrals were provided to tenants during the three months ended March 31, 2021 and 2020. As it relates to these deferrals, the Company elected to not assess them on a lease-by-lease basis and to continue recognizing rent revenue on a straight-line basis.
While the Company’s election for rent deferrals will be applied consistently to future deferrals of a similar nature, if the Company grants future lease concessions of a different type (such as rent abatements), it will make an election related to those concessions at that time.
NOTE 3. Master Transactions and Cooperation Agreement with Brookdale
2019 Master Transactions and Cooperation Agreement with Brookdale
In October 2019, the Company and Brookdale Senior Living Inc. (“Brookdale”) entered into a Master Transactions and Cooperation Agreement (the “2019 MTCA”), which includes a series of transactions related to its previously jointly owned 15-campus CCRC portfolio (the “CCRC JV”) and the portfolio of senior housing properties Brookdale triple-net leased from the Company, which, at the time, included 43 properties.
In connection with the 2019 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, closed the following transactions related to the CCRC JV on January 31, 2020:
•The Company, which owned a 49% interest in the CCRC JV, purchased Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);
•The management agreements related to the CCRC Acquisition communities were terminated and management transitioned (under new management agreements) from Brookdale to Life Care Services LLC (“LCS”); and
•The Company paid a $100 million management termination fee to Brookdale.
In addition, pursuant to the 2019 MTCA, the Company and Brookdale closed the following transactions related to properties Brookdale triple-net leased from the Company on January 31, 2020:
•Brookdale acquired 18 of the properties from the Company (the “Brookdale Acquisition Assets”) for cash proceeds of $385 million;
•The remaining 24 properties (excludes one property to be transitioned or sold to a third party, as discussed below) were restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);
•A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining properties under the 2019 Amended Master Lease; and
•Brookdale paid down $20 million of future rent under the 2019 Amended Master Lease.
As agreed to by the Company and Brookdale under the 2019 MTCA, in December 2020, the Company terminated the triple-net lease related to one property and converted it to a structure permitted by the Housing and Economic Recovery Act of 2008, and includes most of the provisions previously proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”). The 24 assets under the 2019 Amended Master Lease were sold in January 2021 (see Note 5).
Additionally, under the 2019 MTCA, the Company and Brookdale agreed to the following transactions which have not yet been completed:
•The CCRC JV will sell the remaining two CCRCs, which are being marketed for sale to third parties; and
•The Company will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which will increase rent by 7% of the amount spent, per annum. As of December 31, 2020, the Company had funded $5 million of this capital investment. Upon selling the 24 assets under the 2019 Amended Master Lease in January 2021, the remaining capital investment obligation was transferred to the buyer.
As a result of the above transactions, on January 31, 2020, the Company began consolidating the 13 CCRCs in which it acquired Brookdale’s interest. Accordingly, the Company derecognized its investment in the CCRC JV of $323 million and recognized a gain upon change of control of $170 million, which is included in other income (expense), net. In connection with consolidating the 13 CCRCs during the first quarter of 2020, the Company recognized real estate and intangible assets of $1.8 billion, refundable entrance fee liabilities of $308 million, contractual liabilities associated with previously collected non-refundable entrance fees of $436 million, debt assumed of $215 million, other net assets of $48 million, and cash paid of $396 million.
Upon sale of the 18 senior housing triple-net assets to Brookdale, the Company recognized an aggregate gain on sales of real estate of $164 million, which is recorded within income (loss) from discontinued operations.
Fair Value Measurement Techniques and Quantitative Information
At January 31, 2020, the Company performed a fair value assessment of each of the 2019 MTCA components that provided measurable economic benefit or detriment to the Company. Each fair value calculation was based on an income or market approach and relied on historical and forecasted net operating income, actuarial assumptions about the expected resident length of stay, and market data, including, but not limited to, discount rates ranging from 10% to 12%, annual rent escalators ranging from 2% to 3%, and real estate capitalization rates ranging from 7% to 9%. All assumptions were considered to be Level 3 measurements within the fair value hierarchy.
NOTE 4. Real Estate Transactions
2021 Real Estate Investments
South San Francisco Land Site Acquisition
In October 2020, the Company executed a definitive agreement to acquire approximately 12 acres of land for $128 million. The acquisition site is located in South San Francisco, California, adjacent to two sites currently held by the Company as land for future development. The Company paid a $10 million nonrefundable deposit upon completing due diligence in November 2020. The first phase, with a purchase price of $61 million, closed in April 2021.
Westview Medical Plaza Acquisition
In February 2021, the Company acquired one medical office building (“MOB”) in Nashville, Tennessee for $13 million.
Pinnacle at Ridgegate Acquisition
In April 2021, the Company acquired one MOB in Denver, Colorado for $38 million.
MOB Portfolio Acquisition
In April 2021, the Company acquired 14 MOBs for $371 million (the “MOB Portfolio”). In conjunction with the acquisition, the Company issued $142 million of secured mortgage debt.
2020 Real Estate Investments
The Post Acquisition
In April 2020, the Company acquired a life science campus in Waltham, Massachusetts for $320 million.
Scottsdale Gateway Acquisition
In July 2020, the Company acquired one MOB in Scottsdale, Arizona for $27 million.
Midwest MOB Portfolio Acquisition
In October 2020, the Company acquired a portfolio of seven MOBs located in Indiana, Missouri, and Illinois for $169 million.
Cambridge Discovery Park Acquisition
In December 2020, the Company acquired three life science facilities in Cambridge, Massachusetts for $610 million and a 49% unconsolidated joint venture interest in a fourth property on the same campus for $54 million. If the fourth property is sold in a taxable transaction, the Company is generally obligated to indemnify its joint venture partner for its federal and state income taxes associated with the gain that existed at the time of the contribution to the joint venture.
Waldwick JV Interest Purchase
In October 2020, the Company acquired the remaining 15% equity interest of a senior housing joint venture structure (which owned one senior housing facility), in which the Company previously held an unconsolidated equity investment, for $4 million. Subsequent to acquisition, the Company owned 100% of the equity, began consolidating the facility, and recognized a gain upon change of control of $6 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. In December 2020, the Company sold the property as part of the Atria SHOP Portfolio disposition (see Note 5).
MBK JV Dissolution
In November 2020, as part of the dissolution of a senior housing joint venture, the Company was distributed one property, one land parcel, and $11 million in cash. Upon consolidating the property and land parcel at the time of distribution, the Company recognized a loss upon change of control of $16 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. In conjunction with the distribution of the property, the Company assumed $36 million of secured mortgage debt, which was recorded at its fair value through asset acquisition accounting. The property is classified as discontinued operations as of March 31, 2021.
Other Real Estate Acquisitions
In December 2020, the Company acquired one hospital in Dallas, Texas for $34 million.
Development Activities
The Company’s commitments related to development and redevelopment projects increased by $9 million, to $315 million at March 31, 2021, when compared to December 31, 2020, primarily as a result of increased commitments on existing projects and new projects started during the first quarter of 2021.
In March 2021, management reviewed the estimated useful lives of certain Life Science properties in connection with future plans of densification and related demolition. These changes in the planned use of the properties resulted in the Company updating their estimated useful lives, which differ from the Company’s previous estimates. The estimated useful lives of these assets was reduced from a weighted average remaining useful life of 15 years to 6 years to reflect the timing of the planned demolitions. This change in estimate increased depreciation expense by $3 million in the current quarter, resulting in a corresponding decrease to income (loss) from continuing operations and net income (loss) as well as a decrease of approximately $0.01 to basic and diluted earnings per share for the three months ended March 31, 2021.
NOTE 5. Dispositions of Real Estate and Discontinued Operations
2021 Dispositions of Real Estate
Sunrise Senior Housing Portfolio
In January 2021, the Company sold a portfolio of 32 SHOP assets (the “Sunrise Senior Housing Portfolio”) for $664 million, resulting in an immaterial loss on sale, which is recognized in income (loss) from discontinued operations, and provided the buyer with: (i) financing of $410 million and (ii) a commitment to finance up to $92 million of additional debt for capital expenditures, none of which has been funded as of March 31, 2021 (see Note 7). Under the Company’s definitive agreement, there are two remaining senior housing triple-net assets that are expected to be sold during the remainder of 2021, upon completion of the license transfer process.
Brookdale Triple-Net Portfolio
In January 2021, the Company sold 24 senior housing assets in a triple-net lease with Brookdale for $510 million, resulting in total gain on sale of $169 million, which is recognized in income (loss) from discontinued operations.
Additional SHOP Portfolio
In January 2021, the Company sold a portfolio of 16 SHOP assets for $230 million, resulting in total gain on sale of $59 million, which is recognized in income (loss) from discontinued operations, and provided the buyer with financing of $150 million (see Note 7).
HRA Triple-Net Portfolio
In February 2021, the Company sold eight senior housing assets in a triple-net lease with Harbor Retirement Associates for $132 million, resulting in total gain on sale of $33 million, which is recognized in income (loss) from discontinued operations.
2021 Other Dispositions
In addition to the sales discussed above, during the three months ended March 31, 2021, the Company sold one SHOP asset for $5 million, resulting in an immaterial gain on sale, which is recognized in income (loss) from discontinued operations.
SLC SHOP Portfolio
In October 2020, the Company entered into a definitive agreement to sell seven SHOP assets for $115 million. The Company received a $3 million nonrefundable deposit and expects to close the transaction during the remainder of 2021.
Oakmont SHOP Portfolio
In April 2021, the Company sold a portfolio of 12 SHOP assets for $564 million.
Discovery SHOP Portfolio
In April 2021, the Company sold a portfolio of 10 SHOP assets for $334 million. Also included in this transaction was the sale of two mezzanine loans and two preferred equity investments for $21 million (collectively, “the Discovery SHOP Portfolio”).
Sonata SHOP Portfolio
In April 2021, the Company sold a portfolio of five SHOP assets for $64 million.
Other Subsequent Dispositions
In April 2021, the Company sold two SHOP assets for $13 million, two senior housing triple-net assets for $7 million, and one MOB for $10 million.
2020 Dispositions of Real Estate
During the three months ended March 31, 2020, the Company sold 7 SHOP assets for $36 million and 18 senior housing triple-net assets for $385 million (representative of the 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), resulting in total gain on sales of $165 million, which is recognized in income (loss) from discontinued operations.
Aegis NNN Portfolio
In December 2020, the Company sold 10 senior housing triple-net assets (the “Aegis NNN Portfolio”) for $358 million, resulting in total gain on sale of $228 million, which is recognized in income (loss) from discontinued operations.
Atria SHOP Portfolio
In December 2020, the Company sold 12 SHOP assets (the “Atria SHOP Portfolio”) for $312 million, resulting in total gain on sale of $39 million, which is recognized in income (loss) from discontinued operations. The Company provided the buyer with financing of $61 million on four of the assets sold (see Note 7).
2020 Other Dispositions
In addition to the sales discussed above, during the year ended December 31, 2020, the Company sold the following: (i) 23 SHOP assets for $190 million, (ii) 21 senior housing triple-net assets for $428 million (inclusive of the 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), (iii) 11 MOBs for $136 million (inclusive of the exercise of a purchase option by a tenant to acquire 3 MOBs in San Diego, California), (iv) 2 MOB land parcels for $3 million, and (v) 1 asset from other non-reportable segments for $1 million, resulting in total gain on sales of $283 million ($193 million of which is reported in income (loss) from discontinued operations).
Held for Sale and Discontinued Operations
At March 31, 2021, 9 senior housing triple-net facilities, 8 MOBs, 48 SHOP facilities, and 1 SHOP joint venture were classified as held for sale and/or discontinued operations.
At December 31, 2020, 41 senior housing triple-net facilities, 6 MOBs, 97 SHOP facilities, and 1 SHOP joint venture were classified as held for sale and/or discontinued operations.
During 2020, the Company established and began executing a plan to dispose of its senior housing triple-net and SHOP properties. As of December 31, 2020, the Company concluded the planned dispositions represented a strategic shift that has and will have a major effect on the Company’s operations and financial results. Therefore, assets meeting the held for sale criteria on or before March 31, 2021 are classified as discontinued operations in all periods presented herein.
The following summarizes the assets and liabilities classified as discontinued operations at March 31, 2021 and December 31, 2020, which are included in assets held for sale and discontinued operations, net and liabilities related to assets held for sale and discontinued operations, net, respectively, on the consolidated balance sheets (in thousands):
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March 31,
2021
|
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December 31,
2020
|
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ASSETS
|
|
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|
|
Real estate:
|
|
|
|
|
Buildings and improvements
|
$
|
1,174,263
|
|
|
$
|
2,553,254
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|
|
Development costs and construction in progress
|
11,136
|
|
|
21,509
|
|
|
Land
|
201,699
|
|
|
355,803
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|
|
Accumulated depreciation and amortization
|
(221,246)
|
|
|
(615,708)
|
|
|
Net real estate
|
1,165,852
|
|
|
2,314,858
|
|
|
Investments in and advances to unconsolidated joint ventures
|
5,776
|
|
|
5,842
|
|
|
Accounts receivable, net of allowance of $5,132 and $5,873
|
13,976
|
|
|
20,500
|
|
|
Cash and cash equivalents
|
40,161
|
|
|
53,085
|
|
|
Restricted cash
|
5,817
|
|
|
17,168
|
|
|
Intangible assets, net
|
8,539
|
|
|
24,541
|
|
|
Right-of-use asset, net
|
937
|
|
|
4,109
|
|
|
Other assets, net(1)
|
43,224
|
|
|
103,965
|
|
|
Total assets of discontinued operations, net
|
1,284,282
|
|
2,544,068
|
|
Total medical office assets held for sale, net(2)
|
90,225
|
|
|
82,238
|
|
|
Assets held for sale and discontinued operations, net
|
$
|
1,374,507
|
|
|
$
|
2,626,306
|
|
|
LIABILITIES
|
|
|
|
|
Mortgage debt
|
278,172
|
|
|
318,876
|
|
|
Lease liability
|
935
|
|
|
3,189
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
41,977
|
|
|
79,411
|
|
|
Deferred revenue
|
3,985
|
|
|
11,442
|
|
|
Total liabilities of discontinued operations, net
|
325,069
|
|
|
412,918
|
|
|
Total liabilities related to medical office assets held for sale, net(2)
|
3,098
|
|
|
2,819
|
|
|
Liabilities related to assets held for sale and discontinued operations, net
|
$
|
328,167
|
|
|
$
|
415,737
|
|
_______________________________________
(1)Includes goodwill of $29 million as of March 31, 2021 and December 31, 2020.
(2)Primarily comprised of eight MOBs with net real estate assets of $81 million and deferred revenue of $2 million as of March 31, 2021 and six MOBs with net estate assets of $73 million and deferred revenue of $2 million as of December 31, 2020.
The results of discontinued operations through March 31, 2021, or the disposal date of each asset or portfolio of assets if they have been sold, are included in the consolidated results for the three months ended March 31, 2021 and 2020. Summarized financial information for discontinued operations for the three months ended March 31, 2021 and 2020 are as follows (in thousands):
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|
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|
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|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
Revenues:
|
|
|
|
|
Rental and related revenues
|
$
|
5,228
|
|
|
$
|
32,371
|
|
|
Resident fees and services
|
72,998
|
|
|
171,726
|
|
|
|
|
|
|
|
Total revenues
|
78,226
|
|
|
204,097
|
|
|
Costs and expenses:
|
|
|
|
|
Interest expense
|
2,676
|
|
|
2,685
|
|
|
Depreciation and amortization
|
—
|
|
|
64,164
|
|
|
Operating
|
71,519
|
|
|
138,637
|
|
|
Transaction costs
|
76
|
|
|
285
|
|
|
Impairments and loan loss reserves (recoveries), net
|
—
|
|
|
28,016
|
|
|
Total costs and expenses
|
74,271
|
|
|
233,787
|
|
|
Other income (expense):
|
|
|
|
|
Gain (loss) on sales of real estate, net
|
259,662
|
|
|
162,800
|
|
|
Other income (expense), net
|
5,885
|
|
|
(45)
|
|
|
Total other income (expense), net
|
265,547
|
|
|
162,755
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
269,502
|
|
|
133,065
|
|
|
Income tax benefit (expense)
|
821
|
|
|
3,176
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
(315)
|
|
|
(833)
|
|
|
Income (loss) from discontinued operations
|
$
|
270,008
|
|
|
$
|
135,408
|
|
Impairments of Real Estate
2021
During the three months ended March 31, 2021, the Company did not recognize any impairment charges.
2020
During the three months ended March 31, 2020, the Company recognized an aggregate impairment charge of $31 million ($28 million of which is reported in income (loss) from discontinued operations) related to 15 SHOP assets, 2 senior housing triple-net assets, and 2 MOBs as a result of being classified as held for sale and wrote down their aggregate carrying value of $200 million to their aggregate fair value, less estimated costs to sell, of $169 million.
The fair value of the impaired assets was based on forecasted sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Forecasted sales prices were determined using an income approach and/or a market approach (comparable sales model), which rely on certain assumptions by management, including: (i) market capitalization rates, (ii) comparable market transactions, (iii) estimated prices per unit, (iv) negotiations with prospective buyers, and (v) forecasted cash flow streams (lease revenue rates, expense rates, growth rates, etc.). There are inherent uncertainties in making these assumptions. For the Company’s impairment calculations during and as of the three months ended March 31, 2020, the Company estimated the fair value of each asset using either (i) market capitalization rates ranging from 7.16% to 9.92%, with a weighted average rate of 9.32% or (ii) prices per unit ranging from $38,000 to $95,000, with a weighted average price of $68,000.
Deferred Tax Asset Valuation Allowance
In conjunction with the Company establishing a plan during the year ended December 31, 2020 to dispose of all its SHOP assets and classifying such assets as discontinued operations, the Company concluded it was more likely than not that it would no longer realize the future value of certain deferred tax assets generated by the net operating losses of its taxable REIT subsidiary entities. Accordingly, the Company recognized a deferred tax asset valuation allowance of $33 million as of December 31, 2020.
As of March 31, 2021, the Company had a deferred tax asset valuation allowance of $35 million.
NOTE 6. Leases
Lease Income
The following table summarizes the Company’s lease income, excluding discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income from operating leases
|
$
|
262,937
|
|
|
$
|
226,226
|
|
|
|
|
|
|
Variable income from operating leases
|
65,035
|
|
|
56,091
|
|
|
|
|
|
|
Interest income from direct financing leases
|
2,163
|
|
|
3,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Present value of minimum lease payments receivable
|
$
|
7,758
|
|
|
$
|
9,804
|
|
|
Present value of estimated residual value
|
44,706
|
|
|
44,706
|
|
|
Less deferred selling profits
|
(7,758)
|
|
|
(9,804)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
$
|
44,706
|
|
|
$
|
44,706
|
|
|
Properties subject to direct financing leases
|
1
|
|
|
1
|
|
Direct Financing Lease Internal Ratings
At March 31, 2021, the Company had one hospital under a DFL with a carrying amount of $45 million and an internal rating of performing.
2020 Direct Financing Lease Sale
During the first quarter of 2020, the Company sold a hospital under a DFL for $82 million and recognized a gain on sale of $42 million, which is included in other income (expense), net.
Lease Costs
The following table provides supplemental cash flow information regarding the Company’s leases for which it is the lessee, such as ground leases (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Supplemental Cash Flow Information:
|
|
2021
|
|
2020
|
|
Right-of-use asset obtained in exchange for new lease liability:
|
|
|
|
|
|
Operating leases
|
|
$
|
5,020
|
|
|
$
|
—
|
|
COVID-19 Rent Deferrals
During the second and third quarters of 2020, the Company agreed to defer rent from certain tenants in the medical office segment, with the requirement that all deferred rent be repaid by the end of 2020. Under this program, through December 31, 2020, approximately $6 million of rent was deferred for the medical office segment, all of which had been collected as of December 31, 2020.
Additionally, through December 31, 2020, the Company granted approximately $1 million of rent deferrals to certain tenants in the life science segment, all of which had been collected as of December 31, 2020.
No such deferrals were granted during the three months ended March 31, 2021 and 2020.
The rent deferrals granted do not impact the pattern of revenue recognition or amount of revenue recognized (refer to Note 2 for additional information).
NOTE 7. Loans Receivable
The following table summarizes the Company’s loans receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Secured loans(1)
|
$
|
724,389
|
|
|
$
|
161,530
|
|
|
Mezzanine and other
|
44,513
|
|
|
44,347
|
|
|
Unamortized discounts, fees, and costs
|
(14,626)
|
|
|
(222)
|
|
|
Reserve for loan losses
|
(14,134)
|
|
|
(10,280)
|
|
|
Loans receivable, net
|
$
|
740,142
|
|
|
$
|
195,375
|
|
_______________________________________
(1)At March 31, 2021, the Company had $100 million remaining of commitments to fund senior housing redevelopment and capital expenditure projects. At December 31, 2020, the Company had $11 million remaining of commitments to fund senior housing redevelopment and capital expenditure projects.
2021 Loans Receivable Transactions
In April 2021, the Company sold two mezzanine loans for carrying value as part of the Discovery SHOP Portfolio disposition (see Note 5).
2020 Loans Receivable Transactions
For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the previous residence. Upon completing the CCRC Acquisition (see Note 3) in January 2020, the Company began consolidating 13 CCRCs, which held approximately $30 million of such notes receivable from various community residents at the time of acquisition. At March 31, 2021 and December 31, 2020, the Company held $24 million and $23 million of such receivables, respectively, which are included in mezzanine and other in the table above.
In November 2020, the Company sold one mezzanine loan with a $10 million principal balance for $8 million, resulting in a $2 million loss recognized in impairments and loan loss reserves (recoveries), net.
In December 2020, the Company sold one secured loan with a $115 million principal balance for $109 million, resulting in a $6 million loss recognized in impairments and loan loss reserves (recoveries), net.
SHOP Seller Financing
In conjunction with the sale of 32 SHOP facilities in the Sunrise Senior Housing Portfolio for $664 million in January 2021 (see Note 5), the Company provided the buyer with initial financing of $410 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $92 million of additional financing for capital expenditures (up to 65% of the estimated cost of capital expenditures), none of which has been funded as of March 31, 2021. The initial and additional financing is secured by the buyer's equity ownership in each property.
In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 5), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property.
In December 2020, in conjunction with the sale of 4 of the 12 SHOP facilities in the Atria SHOP Portfolio for $94 million (see Note 5), the Company provided the buyer with financing of $61 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in the four properties.
During the three months ended March 31, 2021, the Company reduced the consideration and reported gain on sales of real estate and recognized a mark-to-market discount of $16 million for certain transactions with seller financing. The Company’s discount is based on the difference between the stated interest rates (ranging from 3.50% to 4.50%) and corresponding prevailing market rates of approximately 5.25% as of the transaction dates. The discount is recognized as interest income over the term of the discounted loans (ranging from one to three years) using the effective interest rate method. During the three months ended March 31, 2021, the Company recognized $2 million of non-cash interest income related to the amortization of its mark-to-market discounts. The Company did not recognize any non-cash interest income associated with seller financing notes receivable during the three months ended March 31, 2020.
Loans Receivable Internal Ratings
In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
The following table summarizes, by year of origination, the Company’s internal ratings for loans receivable, net of unamortized discounts, fees, and costs and reserves for loan losses, as of March 31, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Type
|
|
Year of Origination
|
|
Total
|
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
Prior
|
|
|
Secured loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
543,310
|
|
|
$
|
96,665
|
|
|
$
|
63,381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
703,356
|
|
|
Watch list loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Workout loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total secured loans
|
|
$
|
543,310
|
|
|
$
|
96,665
|
|
|
$
|
63,381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
703,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
12,274
|
|
|
$
|
12,113
|
|
|
$
|
10,535
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
34,922
|
|
|
Watch list loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1,864
|
|
|
1,864
|
|
|
Workout loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total mezzanine and other
|
|
$
|
12,274
|
|
|
$
|
12,113
|
|
|
$
|
10,535
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
1,864
|
|
|
$
|
36,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for Loan Losses
The Company evaluates the liquidity and creditworthiness of its borrowers on a quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The Company’s borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis, which the Company utilizes to calculate the debt service coverages used in its assessment of internal ratings, which is a primary credit quality indicator. Debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rates, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures.
In its assessment of current expected credit losses for loans receivable and unfunded loan commitments, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each loan to estimate a probability of default and a resulting loss for each loan receivable. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends.
The following table summarizes the Company’s reserve for loan losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Secured Loans
|
|
Mezzanine and Other
|
|
Total
|
|
Secured Loans
|
|
Mezzanine and Other
|
|
Total
|
|
Reserve for loan losses, beginning of period
|
$
|
3,152
|
|
|
$
|
7,128
|
|
|
$
|
10,280
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cumulative-effect of adopting of ASU 2016-13 to beginning retained earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
907
|
|
|
1,420
|
|
|
Provision for expected loan losses
|
2,740
|
|
|
1,114
|
|
|
3,854
|
|
|
2,639
|
|
|
6,221
|
|
|
8,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for loan losses, end of period
|
$
|
5,892
|
|
|
$
|
8,242
|
|
|
$
|
14,134
|
|
|
$
|
3,152
|
|
|
$
|
7,128
|
|
|
$
|
10,280
|
|
Additionally, at March 31, 2021 and December 31, 2020, a liability of $0.4 million and $1 million, respectively, related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities.
Credit loss expenses and recoveries are recorded in impairments and loan loss reserves (recoveries), net. During the three months ended March 31, 2021 and 2020, the net credit loss expense was $3 million and $8 million, respectively. The change in the provision for expected loan losses during the three months ended March 31, 2021 is primarily due to new seller financing.
NOTE 8. Investments in and Advances to Unconsolidated Joint Ventures
The Company owns interests in the following entities that are accounted for under the equity method, excluding investments classified as discontinued operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Entity(1)(2)
|
|
Segment
|
|
|
Property Count(3)
|
|
|
Ownership %(3)
|
|
|
2021
|
|
2020
|
|
SWF SH JV(4)
|
|
Other
|
|
|
19
|
|
|
54
|
|
|
$
|
349,804
|
|
|
$
|
357,581
|
|
|
Life Science JV(5)
|
|
Life science
|
|
|
1
|
|
|
49
|
|
|
24,786
|
|
|
24,879
|
|
|
Medical Office JVs(6)
|
|
Medical office
|
|
|
3
|
|
|
20 - 67
|
|
|
9,613
|
|
|
9,673
|
|
|
Other JVs(7)
|
|
Other
|
|
|
—
|
|
|
41 - 47
|
|
|
9,157
|
|
|
9,157
|
|
|
CCRC JV(8)
|
|
CCRC
|
|
|
2
|
|
|
49
|
|
|
6,481
|
|
|
1,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
399,841
|
|
|
$
|
402,871
|
|
_______________________________________
(1)These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.
(2)Excludes the Otay Ranch JV (90% ownership percentage), which is classified as discontinued operations and had an aggregate carrying value of $6 million at March 31, 2021 and December 31, 2020 (see Note 5). In April 2021, the Company sold its share of the SHOP property in the Otay Ranch JV for $32 million.
(3)Property count and ownership percentage are as of March 31, 2021.
(4)In December 2019, the Company formed the SWF SH JV with a sovereign wealth fund.
(5)In December 2020, the Company acquired a joint venture interest in a life science facility in Cambridge, Massachusetts (see Note 4).
(6)Includes three unconsolidated medical office joint ventures (and the Company’s ownership percentage): (i) Ventures IV (20%); (ii) Ventures III (30%); and (iii) Suburban Properties, LLC (67%).
(7)Includes two unconsolidated other joint ventures (and the Company’s ownership percentage): (i) Discovery Naples JV (41%) and (ii) Discovery Sarasota JV (47%). The Discovery Naples JV and Discovery Sarasota JV are joint ventures that have developed or are developing senior housing facilities and the Company’s investments in those joint ventures are preferred equity investments earning a 10% per annum fixed-rate return. In April 2021, the Company sold these two preferred equity investments for carrying value as part of the Discovery SHOP Portfolio disposition (see Note 5).
(8)See Note 3 for discussion of the 2019 MTCA with Brookdale, including the acquisition of Brookdale’s interest in 13 of the 15 communities in the CCRC JV in January 2020.
NOTE 9. Intangibles
Intangible assets primarily consist of lease-up intangibles and above market tenant lease intangibles. The following table summarizes the Company’s intangible lease assets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible lease assets
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Gross intangible lease assets
|
|
$
|
758,424
|
|
|
$
|
761,328
|
|
|
Accumulated depreciation and amortization
|
|
(262,505)
|
|
|
(241,411)
|
|
|
Intangible assets, net(1)
|
|
$
|
495,919
|
|
|
$
|
519,917
|
|
|
|
|
|
|
|
|
Weighted average remaining amortization period in years
|
|
6
|
|
5
|
_______________________________________
(1)Excludes intangible assets reported in assets held for sale and discontinued operations, net of $9 million and $25 million as of March 31, 2021 and December 31, 2020, respectively.
Intangible liabilities consist of below market lease intangibles. The following table summarizes the Company’s intangible lease liabilities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible lease liabilities
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Gross intangible lease liabilities
|
|
$
|
193,140
|
|
|
$
|
194,565
|
|
|
Accumulated depreciation and amortization
|
|
(54,523)
|
|
|
(50,366)
|
|
|
Intangible liabilities, net
|
|
$
|
138,617
|
|
|
$
|
144,199
|
|
|
|
|
|
|
|
|
Weighted average remaining amortization period in years
|
|
8
|
|
8
|
During the three months ended March 31, 2021, in conjunction with the Company’s acquisitions of real estate, the Company acquired intangible assets of $1 million and intangible liabilities of $0.2 million. The intangible assets and liabilities acquired each had a weighted average amortization period at acquisition of 4 years.
During the year ended December 31, 2020, in conjunction with the Company’s acquisitions of real estate, the Company acquired intangible assets of $352 million and intangible liabilities of $83 million. The intangible assets and intangible liabilities acquired had a weighted average amortization period at acquisition of 7 years and 9 years, respectively.
NOTE 10. Debt
Bank Line of Credit and Term Loan
On May 23, 2019, the Company executed a $2.5 billion unsecured revolving line of credit facility (the “Revolving Facility”), which matures on May 23, 2023 and contains two six-month extension options, subject to certain customary conditions. Borrowings under the Revolving Facility accrue interest at LIBOR plus a margin that depends on credit ratings of the Company’s senior unsecured long-term debt. The Company pays a facility fee on the entire revolving commitment that depends on its credit ratings. Based on those credit ratings at March 31, 2021, the margin on the Revolving Facility was 0.83% and the facility fee was 0.15%. At March 31, 2021, the Company had $110 million outstanding under the Revolving Facility, with a weighted average interest rate of 1.23%.
In May 2019, the Company also entered into a $250 million unsecured term loan facility, which the Company fully drew down during the second quarter of 2019 (the “2019 Term Loan” and, together with the Revolving Facility, the “Facilities”). The 2019 Term Loan matures on May 23, 2024. Based on credit ratings for the Company’s senior unsecured long-term debt at March 31, 2021, the 2019 Term Loan accrues interest at a rate of LIBOR plus 0.90%, with a weighted average effective interest rate of 1.10%.
The Facilities include a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments. The Facilities also contain certain financial restrictions and other customary requirements, including cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreements: (i) limit the ratio of Enterprise Total Indebtedness to Enterprise Gross Asset Value to 60%; (ii) limit the ratio of Enterprise Secured Debt to Enterprise Gross Asset Value to 40%; (iii) limit the ratio of Enterprise Unsecured Debt to Enterprise Unencumbered Asset Value to 60%; (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times; and (v) require a minimum Consolidated Tangible Net Worth of $7.0 billion. At March 31, 2021, the Company believes it was in compliance with each of these restrictions and requirements of the Facilities.
Commercial Paper Program
In September 2019, the Company established an unsecured commercial paper program (the “Commercial Paper Program”). Under the terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured short-term debt securities with varying maturities. Amounts available under the Commercial Paper Program may be borrowed, repaid, and re-borrowed from time to time, with the maximum aggregate face or principal amount outstanding at any one time not exceeding $1.0 billion. Amounts borrowed under the Commercial Paper Program will be sold on terms that are customary for the U.S. commercial paper market and will be at least equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company uses its Revolving Facility as a liquidity backstop for the repayment of unsecured short-term debt securities issued under the Commercial Paper Program. At March 31, 2021, the Company had $928 million of securities outstanding under the Commercial Paper Program, with original maturities of one month and a weighted average interest rate of 0.26%. At December 31, 2020, the Company had $130 million of securities outstanding under the Commercial Paper Program, with original maturities of one month and a weighted average interest rate of 0.30%.
In April 2021, the Company increased the maximum aggregate face or principal amount outstanding at any one time for the Commercial Paper Program from $1.0 billion to $1.25 billion.
Senior Unsecured Notes
At March 31, 2021, the Company had senior unsecured notes outstanding with an aggregate principal balance of $4.30 billion. The senior unsecured notes contain certain covenants including limitations on debt, maintenance of unencumbered assets, cross-acceleration provisions and other customary terms. The Company believes it was in compliance with these covenants at March 31, 2021.
During the three months ended March 31, 2021, the Company had no senior unsecured note issuances.
The following table summarizes the Company’s senior unsecured notes repurchases and redemptions during the three months ended March 31, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payoff Date(1)
|
|
Amount
|
|
Coupon Rate
|
|
Maturity Year
|
|
January 28, 2021
|
|
$
|
112,000
|
|
|
4.25
|
%
|
|
2023
|
|
January 28, 2021
|
|
$
|
201,000
|
|
|
4.20
|
%
|
|
2024
|
|
January 28, 2021
|
|
$
|
469,000
|
|
|
3.88
|
%
|
|
2024
|
|
February 26, 2021
|
|
$
|
188,000
|
|
|
4.25
|
%
|
|
2023
|
|
February 26, 2021
|
|
$
|
149,000
|
|
|
4.20
|
%
|
|
2024
|
|
February 26, 2021
|
|
$
|
331,000
|
|
|
3.88
|
%
|
|
2024
|
_______________________________________
(1)Upon completing the repurchases and redemptions of all outstanding 4.25%, 4.20%, and 3.88% senior unsecured notes due in 2023 and 2024, the Company recognized a $164 million loss on debt extinguishment.
On May 4, 2021, the Company announced the commencement of tender offers to purchase up to an aggregate principal amount of $550 million for cash, targeting (i) $250 million of the Company’s 3.40% senior unsecured notes due in 2025 and (ii) $300 million of the Company’s 4.00% senior unsecured notes due in 2025.
The following table summarizes the Company’s senior unsecured notes issuances during the year ended December 31, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Amount
|
|
Coupon Rate
|
|
Maturity Year
|
|
Year ended December 31, 2020:
|
|
|
|
|
|
|
|
June 23, 2020
|
|
$
|
600,000
|
|
|
2.88
|
%
|
|
2031
|
The following table summarizes the Company’s senior unsecured notes repurchases and redemptions during the year ended December 31, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payoff Date
|
|
Amount
|
|
Coupon Rate
|
|
Maturity Year
|
|
Year ended December 31, 2020:
|
|
|
|
|
|
|
|
July 9, 2020(1)
|
|
$
|
300,000
|
|
|
3.15
|
%
|
|
2022
|
|
June 24, 2020(2)
|
|
$
|
250,000
|
|
|
4.25
|
%
|
|
2023
|
_______________________________________
(1)Upon completing the redemption of all outstanding 3.15% senior unsecured notes due in 2022, the Company recognized an $18 million loss on debt extinguishment.
(2)Upon repurchasing a portion of the 4.25% senior unsecured notes due in 2023, the Company recognized a $26 million loss on debt extinguishment.
Mortgage Debt
At March 31, 2021 and December 31, 2020, the Company had $215 million and $217 million, respectively, in aggregate principal of mortgage debt outstanding (excluding mortgage debt on assets held for sale and discontinued operations), which is secured by six healthcare facilities, with an aggregate carrying value of $511 million and $517 million, respectively.
Mortgage debt generally requires monthly principal and interest payments, is collateralized by real estate assets, and is non-recourse. Mortgage debt typically restricts transfer of the encumbered assets, prohibits additional liens, restricts prepayment, requires payment of real estate taxes, requires maintenance of the assets in good condition, requires insurance on the assets, and includes conditions to obtain lender consent to enter into or terminate material leases. Some of the mortgage debt may require tenants or operators to maintain compliance with the applicable leases or operating agreements of such real estate assets.
During the three months ended March 31, 2021 and 2020, the Company made aggregate principal repayments of mortgage debt of $42 million and $5 million, respectively. The amount of repayments during the three months ended March 31, 2021 includes the repayment of $39 million of variable rate secured debt on two SHOP assets classified as discontinued operations and $1 million of scheduled repayments on mortgage debt classified as discontinued operations. During the three months ended March 31, 2020, $4 million of the repayments were associated with mortgage debt classified as discontinued operations.
In April 2021, in conjunction with the acquisition of the MOB Portfolio, the Company issued $142 million of secured mortgage debt (see Note 4).
In conjunction with the sale of the Aegis NNN Portfolio (see Note 5) in December 2020, the Company repaid $6 million of variable rate secured mortgage debt on one SHOP asset classified as discontinued operations as of December 31, 2020.
In November 2020, upon consolidating one property as part of a joint venture dissolution, the Company assumed $36 million of secured mortgage debt (classified as liabilities related to assets held for sale and discontinued operations, net) maturing in 2025 (see Note 4).
Debt Maturities
The following table summarizes the Company’s stated debt maturities and scheduled principal repayments at March 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured
Notes(2)
|
|
Mortgage
Debt(3)
|
|
|
|
Year
|
|
Bank Line of
Credit
|
|
Commercial Paper(1)
|
|
Term Loan
|
|
Amount
|
|
Interest Rate
|
|
Amount
|
|
Interest Rate
|
|
Total
|
|
2021 (nine months)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
11,572
|
|
|
4.86
|
%
|
|
$
|
11,572
|
|
|
2022
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
4,843
|
|
|
3.80
|
%
|
|
4,843
|
|
|
2023
|
|
110,000
|
|
|
928,150
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
89,874
|
|
|
3.80
|
%
|
|
1,128,024
|
|
|
2024
|
|
—
|
|
|
—
|
|
|
250,000
|
|
|
—
|
|
|
—
|
%
|
|
3,050
|
|
|
3.80
|
%
|
|
253,050
|
|
|
2025
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,350,000
|
|
|
3.93
|
%
|
|
3,209
|
|
|
3.80
|
%
|
|
1,353,209
|
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,950,000
|
|
|
3.68
|
%
|
|
102,789
|
|
|
3.54
|
%
|
|
3,052,789
|
|
|
|
|
110,000
|
|
|
928,150
|
|
|
250,000
|
|
|
4,300,000
|
|
|
|
|
215,337
|
|
|
|
|
5,803,487
|
|
|
(Discounts), premium and debt costs, net
|
|
—
|
|
|
—
|
|
|
(757)
|
|
|
(44,303)
|
|
|
|
|
4,622
|
|
|
|
|
(40,438)
|
|
|
|
|
110,000
|
|
|
928,150
|
|
|
249,243
|
|
|
4,255,697
|
|
|
|
|
219,959
|
|
|
|
|
5,763,049
|
|
|
Debt on assets held for sale and discontinued operations(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
278,172
|
|
|
|
|
278,172
|
|
|
|
|
$
|
110,000
|
|
|
$
|
928,150
|
|
|
$
|
249,243
|
|
|
$
|
4,255,697
|
|
|
|
|
$
|
498,131
|
|
|
|
|
$
|
6,041,221
|
|
_______________________________________
(1)Commercial Paper Program borrowings are backstopped by the Revolving Facility. As such, we calculate the weighted average remaining term of our Commercial Paper Program borrowings using the maturity date of our Revolving Facility.
(2)Effective interest rates on the senior notes range from 3.10% to 6.91% with a weighted average effective interest rate of 3.77% and a weighted average maturity of 8 years.
(3)Excluding mortgage debt on assets classified as held for sale and discontinued operations, effective interest rates on the mortgage debt range from 3.42% to 5.91% with a weighted average effective interest rate of 3.73% and a weighted average maturity of 4 years.
(4)Represents mortgage debt on assets held for sale and discontinued operations with interest rates ranging from 3.45% to 5.88% that mature between 2025 and 2044.
NOTE 11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to, or has a significant relationship to, legal proceedings, lawsuits and other claims. Except as described below, the Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations, or cash flows. The Company’s policy is to expense legal costs as they are incurred.
Class Action. On May 9, 2016, a purported stockholder of the Company filed a putative class action complaint, Boynton Beach Firefighters’ Pension Fund v. HCP, Inc., et al., Case No. 3:16-cv-01106-JJH, in the U.S. District Court for the Northern District of Ohio against the Company, certain of its officers, HCR ManorCare, Inc. (“HCRMC”), and certain of its officers, asserting violations of the federal securities laws. The suit asserted claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and alleged that the Company made certain false or misleading statements relating to the value of and risks concerning its investment in HCRMC by allegedly failing to disclose that HCRMC had engaged in billing fraud, as alleged by the U.S. Department of Justice (“DoJ”) in a suit against HCRMC arising from the False Claims Act that the DoJ voluntarily dismissed with prejudice. On November 22, 2019, the Court granted the class action motion to dismiss. On December 20, 2019, Co-Lead Plaintiffs filed a motion to amend the Court's judgment to permit amendment of the complaint, and on November 30, 2020, the Court denied Co-Lead Plaintiffs’ motion. Co-Lead Plaintiffs have not appealed the dismissal and denial of leave to amend their compliant.
Derivative Actions. On June 16, 2016 and July 5, 2016, purported stockholders of the Company filed two derivative actions, Subodh v. HCR ManorCare Inc., et al., Case No. 30-2016-00858497-CU-PT-CXC and Stearns v. HCR ManorCare, Inc., et al., Case No. 30-2016-00861646-CU-MC-CJC, in the Superior Court of California, County of Orange, against certain of the Company’s current and former directors and officers and HCRMC. The Company was named as a nominal defendant. As both derivative actions contained substantially the same allegations, they were consolidated into a single action (the “California derivative action”). The consolidated action alleged that the defendants engaged in various acts of wrongdoing, including, among other things, breaching fiduciary duties by publicly making false or misleading statements of fact regarding HCRMC’s finances and prospects, and failing to maintain adequate internal controls. On February 11, 2021, the Court dismissed the California derivative actions without prejudice.
On April 10, 2017, a purported stockholder of the Company filed a derivative action, Weldon v. Martin et al., Case No. 3:17-cv-755, in federal court in the Northern District of Ohio, Western Division, against certain of the Company’s current and former directors and officers and HCRMC. The Company was named as a nominal defendant. The Weldon complaint asserted similar claims to those asserted in the California derivative action. In addition, the complaint asserted a claim under Section 14(a) of the Exchange Act, alleging that the Company made false statements in its 2016 proxy statement by not disclosing that the Company’s performance issues in 2015 were the direct result of alleged billing fraud at HCRMC. On January 5, 2021, the Court dismissed the Weldon case without prejudice.
On July 21, 2017, a purported stockholder of the Company filed another derivative action, Kelley v. HCR ManorCare, Inc., et al., Case No. 8:17-cv-01259, in federal court in the Central District of California, against certain of the Company’s current and former directors and officers and HCRMC. The Company was named as a nominal defendant. The Kelley complaint asserted similar claims to those asserted in Weldon and in the California derivative action. Like Weldon, the Kelley complaint also additionally alleged that the Company made false statements in its 2016 proxy statement, and asserted a claim for a violation of Section 14(a) of the Exchange Act. On November 28, 2017, the federal court in the Central District of California granted Defendants’ motion to transfer the action to the Northern District of Ohio (i.e., the court where the class action and other federal derivative action are pending). On January 5, 2021, the Court dismissed the Kelley case with prejudice.
The Company’s Board of Directors received letters dated August 17, 2016, April 19, 2017, and April 20, 2017 from private law firms acting on behalf of clients who are purported stockholders of the Company, each asserting allegations similar to those made in the California derivative action matters discussed above. Each letter demands that the Board of Directors take action to assert the Company’s rights. The Board of Directors completed its evaluation and rejected the demand letters in December of 2017. One of the law firms requested that the Board of Directors reconsider its determination after a ruling on the motion to dismiss in the class action litigation. In February 2021, the Board of Directors reaffirmed its rejection of the demand letters.
The Company believes that the demands are without merit, but cannot predict their outcome or reasonably estimate any potential loss at this time. Accordingly, no loss contingency has been recorded for these matters as of March 31, 2021, as the likelihood of loss is not considered probable or estimable.
DownREIT LLCs
In connection with the formation of certain DownREIT LLCs, members may contribute appreciated real estate to a DownREIT LLC in exchange for DownREIT units. These contributions are generally tax-deferred, so that the pre-contribution gain related to the property is not taxed to the member. However, if a contributed property is later sold by the DownREIT LLC, the unamortized pre-contribution gain that exists at the date of sale is specifically allocated and taxed to the contributing members. In many of the DownREITs, the Company has entered into indemnification agreements with those members who contributed appreciated property into the DownREIT LLC. Under these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT LLC in a taxable transaction within a specified number of years, the Company will reimburse the affected members for the federal and state income taxes associated with the pre-contribution gain that is specially allocated to the affected member under the Code (“make-whole payments”). These make-whole payments include a tax gross-up provision. These indemnification agreements have expirations terms that range through 2039 on a total of 23 properties.
NOTE 12. Equity
Dividends
On April 29, 2021, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.30 per share. The common stock cash dividend will be paid on May 21, 2021 to stockholders of record as of the close of business on May 10, 2021.
During the three months ended March 31, 2021 and 2020, the Company declared and paid common stock cash dividends of $0.30 per share and $0.37 per share, respectively.
At-The-Market Equity Offering Program
In June 2015, the Company established an at-the-market equity offering program (“ATM Program”) to sell shares of its common stock from time to time through a consortium of banks acting as sales agents or directly to the banks acting as principals. In February 2020, the Company terminated its previous ATM Program (the “2019 ATM Program”) and established a new ATM Program (the “2020 ATM Program”) pursuant to which shares of common stock having an aggregate gross sales price of up to approximately $1.25 billion may be sold (i) by the Company through a consortium of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement. The use of a forward sale agreement allows the Company to lock in a share price on the sale of shares at the time the forward sales agreement is effective, but defer receiving the proceeds from the sale of shares until a later date.
ATM forward sale agreements generally have a one year term. At any time during the term, the Company may settle a forward sale by delivery of physical shares of common stock to the forward seller or, at the Company’s election, in cash or net shares. The forward sale price the Company expects to receive upon settlement of outstanding forward contracts will be the initial forward price established upon the effective date, subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain fixed price reductions during the term of the forward sale agreement.
ATM Forward Contracts
During the three months ended March 31, 2021, the Company did not utilize the forward provisions under the 2020 ATM Program. During the three months ended March 31, 2020, the Company utilized the forward provisions under the 2019 ATM Program to allow for the sale of up to an aggregate of 2 million shares of its common stock at an initial weighted average net price of $35.23 per share, after commissions.
During the three months ended March 31, 2020, the Company settled all 16.8 million shares previously outstanding under ATM forward contracts at a weighted average net price of $31.38 per share, after commissions, resulting in net proceeds of $528 million. No shares were settled subsequent to March 31, 2020 and therefore, at March 31, 2021, no shares remained outstanding under ATM forward contracts.
At March 31, 2021, approximately $1.25 billion of the Company’s common stock remained available for sale under the 2020 ATM Program.
ATM Direct Issuances
During the three months ended March 31, 2021 and 2020, no shares of common stock were issued under the 2019 ATM Program or 2020 ATM Program.
Forward Equity Offerings
November 2019 Offering. In November 2019, the Company entered into a forward equity sales agreement (the "2019 forward equity sales agreement") to sell an aggregate of 15.6 million shares of its common stock (including shares sold through the exercise of underwriters’ options) at an initial net price of $34.46 per share, after underwriting discounts and commissions, which was subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain fixed price reductions during the term of the agreement. During the three months ended March 31, 2020, the Company settled all 15.6 million shares under the 2019 forward equity sales agreement at a weighted average net price of $34.18 per share, resulting in net proceeds of $534 million (total net proceeds of $1.06 billion, when aggregated with the net proceeds from settling ATM forward contracts, as discussed above). Therefore, at March 31, 2021, no shares remained outstanding under the 2019 forward equity sales agreement.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the Company’s accumulated other comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
Unrealized gains (losses) on derivatives, net
|
$
|
—
|
|
|
$
|
(81)
|
|
|
Supplemental Executive Retirement Plan minimum liability
|
(3,497)
|
|
|
(3,604)
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
$
|
(3,497)
|
|
|
$
|
(3,685)
|
|
NOTE 13. Earnings Per Common Share
Basic income (loss) per common share (“EPS”) is computed based on the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding plus the impact of forward equity sales agreements using the treasury stock method and common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units. Only those instruments having a dilutive impact on the Company’s basic income (loss) per share are included in diluted income (loss) per share during the periods presented.
Restricted stock and certain performance restricted stock units are considered participating securities, because dividend payments are not forfeited even if the underlying award does not vest, and require use of the two-class method when computing basic and diluted earnings per share.
Refer to Note 12 for a discussion of the sale of shares under and settlement of forward sales agreements during the periods presented. The Company considered the potential dilution resulting from the forward agreements to the calculation of earnings per share. At inception, the agreements do not have an effect on the computation of basic EPS as no shares are delivered until settlement. However, the Company uses the treasury stock method to calculate the dilution, if any, resulting from the forward sales agreements during the period of time prior to settlement. The aggregate effect on the Company’s diluted weighted-average common shares for the three months ended March 31, 2021 and 2020 was zero and 0.8 million weighted-average incremental shares, respectively, from the forward equity sales agreements.
The following table illustrates the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(120,585)
|
|
|
$
|
147,132
|
|
|
|
|
|
|
Noncontrolling interests' share in continuing operations
|
(3,306)
|
|
|
(3,463)
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Healthpeak Properties, Inc.
|
(123,891)
|
|
|
143,669
|
|
|
|
|
|
|
Less: Participating securities' share in continuing operations
|
(2,451)
|
|
|
(1,616)
|
|
|
|
|
|
|
Income (loss) from continuing operations applicable to common shares
|
(126,342)
|
|
|
142,053
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
270,008
|
|
|
135,408
|
|
|
|
|
|
|
Noncontrolling interests' share in discontinued operations
|
(329)
|
|
|
3
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
$
|
143,337
|
|
|
$
|
277,464
|
|
|
|
|
|
|
Numerator - Dilutive
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
$
|
143,337
|
|
|
$
|
277,464
|
|
|
|
|
|
|
Add: distributions on dilutive convertible units and other
|
—
|
|
|
2,515
|
|
|
|
|
|
|
Dilutive net income (loss) available to common shares
|
$
|
143,337
|
|
|
$
|
279,979
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
538,679
|
|
|
506,476
|
|
|
|
|
|
|
Dilutive potential common shares - equity awards(1)
|
—
|
|
|
318
|
|
|
|
|
|
|
Dilutive potential common shares - forward equity agreements(2)
|
—
|
|
|
808
|
|
|
|
|
|
|
Dilutive potential common shares - DownREIT conversions
|
—
|
|
|
7,443
|
|
|
|
|
|
|
Diluted weighted average common shares
|
538,679
|
|
|
515,045
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.23)
|
|
|
$
|
0.28
|
|
|
|
|
|
|
Discontinued operations
|
0.50
|
|
|
0.27
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
$
|
0.27
|
|
|
$
|
0.55
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.23)
|
|
|
$
|
0.28
|
|
|
|
|
|
|
Discontinued operations
|
0.50
|
|
|
0.26
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
$
|
0.27
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
(1)For all periods presented, represents the dilutive impact of 1 million outstanding equity awards (restricted stock units and stock options).
(2)For the three months ended March 31, 2021, forward sales agreements had no dilutive impact as all agreements were settled prior to the start of the period. For the three months ended March 31, 2020, represents the dilutive impact of 32 million shares that were settled during the three months then ended. For the three months ended March 31, 2021, diluted loss per common share is calculated using the weighted average common shares outstanding as a result of the Company generating a loss from continuing operations for the period.
For the three months ended March 31, 2021, all 7 million shares issuable upon conversion of DownREIT units were not included because they are anti-dilutive. For the three months ended March 31, 2020, all 7 million DownREIT shares were dilutive.
NOTE 14. Segment Disclosures
The Company’s reportable segments, based on how its chief operating decision makers (“CODMs”) evaluates its business and allocates resources, are as follows: (i) life science, (ii) medical office, and (iii) CCRC. The Company has non-reportable segments that are comprised primarily of the Company’s interests in an unconsolidated senior housing joint venture and debt investments. The accounting policies of the segments are the same as those in Note 2 to the Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K filed with the SEC, as updated by Note 2 herein.
In December 2020, the Company’s senior housing triple-net and SHOP portfolios were classified as discontinued operations and are no longer reportable segments. See Notes 1 and 5 for further information.
In December 2020, as a result of a change in how operating results are reported to the Company's CODMs, the Company’s hospitals were reclassified from other non-reportable segments to the medical office segment and the Company’s one remaining unconsolidated investment in a senior housing joint venture was reclassified from the SHOP segment to other non-reportable segments.
All prior period segment information has been recast to conform to the current period presentation.
The Company evaluates performance based on property Adjusted NOI. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses (which exclude transition costs); NOI excludes all other financial statement amounts included in net income (loss). Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense.
NOI and Adjusted NOI include the Company’s share of income (loss) from unconsolidated joint ventures and exclude noncontrolling interests’ share of income (loss) from consolidated joint ventures. Management believes Adjusted NOI is an important supplemental measure because it provides relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and presenting it on an unlevered basis. Additionally, management believes that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items.
Non-segment assets consist of assets in the Company's other non-reportable segments and corporate non-segment assets. Corporate non-segment assets consist primarily of corporate assets, including cash and cash equivalents, restricted cash, accounts receivable, net, loans receivable, marketable equity securities, other assets, real estate assets held for sale and discontinued operations, and liabilities related to assets held for sale.
The following tables summarize information for the reportable segments (in thousands):
For the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
Total revenues
|
|
|
|
|
|
$
|
169,934
|
|
|
$
|
160,201
|
|
|
$
|
116,128
|
|
|
$
|
9,013
|
|
|
$
|
—
|
|
|
$
|
455,276
|
|
|
Government grant income(1)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
1,310
|
|
|
—
|
|
|
—
|
|
|
1,310
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,013)
|
|
|
—
|
|
|
(9,013)
|
|
|
Healthpeak's share of unconsolidated joint venture total revenues
|
|
|
|
|
|
1,337
|
|
|
715
|
|
|
4,488
|
|
|
16,753
|
|
|
—
|
|
|
23,293
|
|
|
Healthpeak's share of unconsolidated joint venture government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
227
|
|
|
—
|
|
|
426
|
|
|
Noncontrolling interests' share of consolidated joint venture total revenues
|
|
|
|
|
|
(65)
|
|
|
(8,926)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,991)
|
|
|
Operating expenses
|
|
|
|
|
|
(39,461)
|
|
|
(51,121)
|
|
|
(91,179)
|
|
|
—
|
|
|
—
|
|
|
(181,761)
|
|
|
Healthpeak's share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
(425)
|
|
|
(294)
|
|
|
(4,745)
|
|
|
(12,595)
|
|
|
—
|
|
|
(18,059)
|
|
|
Noncontrolling interests' share of consolidated joint venture operating expenses
|
|
|
|
|
|
20
|
|
|
2,504
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(2)
|
|
|
|
|
|
(11,810)
|
|
|
(1,923)
|
|
|
20
|
|
|
112
|
|
|
—
|
|
|
(13,601)
|
|
|
Adjusted NOI
|
|
|
|
|
|
119,530
|
|
|
101,156
|
|
|
26,221
|
|
|
4,497
|
|
|
—
|
|
|
251,404
|
|
|
Plus: Adjustments to NOI(2)
|
|
|
|
|
|
11,810
|
|
|
1,923
|
|
|
(20)
|
|
|
(112)
|
|
|
—
|
|
|
13,601
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,013
|
|
|
—
|
|
|
9,013
|
|
|
Interest expense
|
|
|
|
|
|
(102)
|
|
|
(95)
|
|
|
(1,918)
|
|
|
—
|
|
|
(44,728)
|
|
|
(46,843)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(68,434)
|
|
|
(57,954)
|
|
|
(31,150)
|
|
|
—
|
|
|
—
|
|
|
(157,538)
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,902)
|
|
|
(24,902)
|
|
|
Transaction costs
|
|
|
|
|
|
(32)
|
|
|
(330)
|
|
|
(432)
|
|
|
(4)
|
|
|
—
|
|
|
(798)
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,242)
|
|
|
—
|
|
|
(3,242)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(164,292)
|
|
|
(164,292)
|
|
|
Other income (expense), net
|
|
|
|
|
|
4
|
|
|
(2,279)
|
|
|
2,176
|
|
|
482
|
|
|
1,817
|
|
|
2,200
|
|
|
Less: Government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,310)
|
|
|
—
|
|
|
—
|
|
|
(1,310)
|
|
|
Less: Healthpeak's share of unconsolidated joint venture NOI
|
|
|
|
|
|
(912)
|
|
|
(421)
|
|
|
58
|
|
|
(4,385)
|
|
|
—
|
|
|
(5,660)
|
|
|
Plus: Noncontrolling interests' share of consolidated joint venture NOI
|
|
|
|
|
|
45
|
|
|
6,422
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,467
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
61,909
|
|
|
48,422
|
|
|
(6,375)
|
|
|
6,249
|
|
|
(232,105)
|
|
|
(121,900)
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
(8)
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
(93)
|
|
|
192
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
61,816
|
|
|
48,614
|
|
|
(6,375)
|
|
|
7,473
|
|
|
(232,113)
|
|
|
(120,585)
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
270,008
|
|
|
270,008
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
61,816
|
|
|
$
|
48,614
|
|
|
$
|
(6,375)
|
|
|
$
|
7,473
|
|
|
$
|
37,895
|
|
|
$
|
149,423
|
|
_______________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.
(2)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
For the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
Total revenues
|
|
|
|
|
|
$
|
128,883
|
|
|
$
|
156,641
|
|
|
$
|
91,780
|
|
|
$
|
3,750
|
|
|
$
|
—
|
|
|
$
|
381,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,688)
|
|
|
—
|
|
|
(3,688)
|
|
|
Healthpeak's share of unconsolidated joint venture total revenues
|
|
|
|
|
|
—
|
|
|
695
|
|
|
21,647
|
|
|
20,194
|
|
|
—
|
|
|
42,536
|
|
|
Noncontrolling interests' share of consolidated joint venture total revenues
|
|
|
|
|
|
(52)
|
|
|
(8,640)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,692)
|
|
|
Operating expenses
|
|
|
|
|
|
(30,201)
|
|
|
(50,694)
|
|
|
(156,482)
|
|
|
—
|
|
|
—
|
|
|
(237,377)
|
|
|
Healthpeak's share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
—
|
|
|
(275)
|
|
|
(18,037)
|
|
|
(13,278)
|
|
|
—
|
|
|
(31,590)
|
|
|
Noncontrolling interests' share of consolidated joint venture operating expenses
|
|
|
|
|
|
17
|
|
|
2,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(1)
|
|
|
|
|
|
(4,280)
|
|
|
(994)
|
|
|
91,561
|
|
|
(48)
|
|
|
—
|
|
|
86,239
|
|
|
Adjusted NOI
|
|
|
|
|
|
94,367
|
|
|
99,333
|
|
|
30,469
|
|
|
6,930
|
|
|
—
|
|
|
231,099
|
|
|
Plus: Adjustments to NOI(1)
|
|
|
|
|
|
4,280
|
|
|
994
|
|
|
(91,561)
|
|
|
48
|
|
|
—
|
|
|
(86,239)
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,688
|
|
|
—
|
|
|
3,688
|
|
|
Interest expense
|
|
|
|
|
|
(63)
|
|
|
(102)
|
|
|
(1,304)
|
|
|
—
|
|
|
(54,222)
|
|
|
(55,691)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(50,211)
|
|
|
(54,667)
|
|
|
(20,229)
|
|
|
(5)
|
|
|
—
|
|
|
(125,112)
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,349)
|
|
|
(22,349)
|
|
|
Transaction costs
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(14,474)
|
|
|
(89)
|
|
|
—
|
|
|
(14,563)
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
(2,706)
|
|
|
—
|
|
|
(8,401)
|
|
|
—
|
|
|
(11,107)
|
|
|
Gain (loss) on sales of real estate, net
|
|
|
|
|
|
—
|
|
|
2,109
|
|
|
—
|
|
|
(40)
|
|
|
—
|
|
|
2,069
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
833
|
|
|
833
|
|
|
Other income (expense), net
|
|
|
|
|
|
—
|
|
|
—
|
|
|
170,332
|
|
|
41,707
|
|
|
(1,386)
|
|
|
210,653
|
|
|
Less: Healthpeak's share of unconsolidated joint venture NOI
|
|
|
|
|
|
—
|
|
|
(420)
|
|
|
(3,610)
|
|
|
(6,916)
|
|
|
—
|
|
|
(10,946)
|
|
|
Plus: Noncontrolling interests' share of consolidated joint venture NOI
|
|
|
|
|
|
35
|
|
|
6,040
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,075
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
48,408
|
|
|
50,581
|
|
|
69,623
|
|
|
36,922
|
|
|
(77,124)
|
|
|
128,410
|
|
|
Income tax benefit (expense)(2)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,868
|
|
|
29,868
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
—
|
|
|
197
|
|
|
(1,880)
|
|
|
(9,463)
|
|
|
—
|
|
|
(11,146)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
48,408
|
|
|
50,778
|
|
|
67,743
|
|
|
27,459
|
|
|
(47,256)
|
|
|
147,132
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135,408
|
|
|
135,408
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
48,408
|
|
|
$
|
50,778
|
|
|
$
|
67,743
|
|
|
$
|
27,459
|
|
|
$
|
88,152
|
|
|
$
|
282,540
|
|
______________________________________________________________________________
(1)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
(2)Income tax benefit (expense) for the quarter ended March 31, 2020 includes: (i) a $52 million tax benefit recognized in conjunction with internal restructuring activities, which resulted in the transfer of assets subject to certain deferred tax liabilities from taxable REIT subsidiaries to the REIT in connection with the 2019 MTCA (see Note 3) and (ii) a $2.9 million net tax benefit recognized due to changes under the CARES Act, which resulted in net operating losses being utilized at a higher income tax rate than previously available.
The following table summarizes the Company’s revenues by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Segment
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life science
|
|
$
|
169,934
|
|
|
$
|
128,883
|
|
|
|
|
|
|
Medical office
|
|
160,201
|
|
|
156,641
|
|
|
|
|
|
|
CCRC
|
|
116,128
|
|
|
91,780
|
|
|
|
|
|
|
Other non-reportable
|
|
9,013
|
|
|
3,750
|
|
|
|
|
|
|
Total revenues
|
|
$
|
455,276
|
|
|
$
|
381,054
|
|
|
|
|
|
See Notes 3, 4, and 5 for significant transactions impacting the Company’s segment assets during the periods presented.
NOTE 15. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
Supplemental cash flow information:
|
|
|
|
|
Interest paid, net of capitalized interest
|
$
|
90,032
|
|
|
$
|
71,621
|
|
|
Income taxes paid (refunded)
|
2,521
|
|
|
(1,673)
|
|
|
Capitalized interest
|
5,453
|
|
|
6,970
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
Accrued construction costs
|
107,798
|
|
|
126,185
|
|
|
Vesting of restricted stock units and conversion of non-managing member units into common stock
|
838
|
|
|
1,077
|
|
|
Net noncash impact from the consolidation of previously unconsolidated joint ventures
|
—
|
|
|
323,138
|
|
|
Mortgages assumed with real estate acquisitions
|
—
|
|
|
215,335
|
|
|
Refundable entrance fees assumed with real estate acquisitions
|
—
|
|
|
307,954
|
|
|
Seller financing provided on disposition of real estate asset
|
559,745
|
|
|
—
|
|
See Note 3 for a discussion of the impact of the 2019 MTCA with Brookdale on the Company’s consolidated balance sheets and statements of operations.
The following table summarizes certain cash flow information related to assets classified as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
Depreciation and amortization of real estate, in-place lease, and other intangibles
|
$
|
—
|
|
|
$
|
64,164
|
|
|
Development, redevelopment, and other major improvements of real estate
|
3,861
|
|
|
11,252
|
|
|
Leasing costs, tenant improvements, and recurring capital expenditures
|
1,873
|
|
|
3,427
|
|
The following table summarizes cash, cash equivalents and restricted cash (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
Continuing operations
|
|
Discontinued operations
|
|
Total
|
|
Beginning of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,226
|
|
|
$
|
80,398
|
|
|
$
|
53,085
|
|
|
$
|
63,834
|
|
|
$
|
97,311
|
|
|
$
|
144,232
|
|
|
Restricted cash
|
|
67,206
|
|
|
13,385
|
|
|
17,168
|
|
|
27,040
|
|
|
84,374
|
|
|
40,425
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
111,432
|
|
|
$
|
93,783
|
|
|
$
|
70,253
|
|
|
$
|
90,874
|
|
|
$
|
181,685
|
|
|
$
|
184,657
|
|
|
End of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,007
|
|
|
$
|
716,750
|
|
|
$
|
40,161
|
|
|
$
|
66,791
|
|
|
$
|
74,168
|
|
|
$
|
783,541
|
|
|
Restricted cash
|
|
68,033
|
|
|
84,982
|
|
|
5,817
|
|
|
21,576
|
|
|
73,850
|
|
|
106,558
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
102,040
|
|
|
$
|
801,732
|
|
|
$
|
45,978
|
|
|
$
|
88,367
|
|
|
$
|
148,018
|
|
|
$
|
890,099
|
|
NOTE 16. Variable Interest Entities
Unconsolidated Variable Interest Entities
At March 31, 2021, the Company had investments in: (i) two properties leased to a VIE tenant, (ii) four unconsolidated VIE joint ventures, (iii) marketable debt securities of one VIE, and (iv) one loan to a VIE borrower. The Company determined it is not the primary beneficiary of and therefore does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact their economic performance. Except for the Company’s equity interest in the unconsolidated joint ventures (CCRC OpCo, development investments, and the LLC investment discussed below), it has no formal involvement in these VIEs beyond its investments.
VIE Tenant. The Company leases two properties to one tenant that has been identified as a VIE (“VIE tenant”). The VIE tenant is a “thinly capitalized” entity that relies on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under its leases.
CCRC OpCo. The Company holds a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operates senior housing properties in a RIDEA structure and has been identified as a VIE. The equity members of CCRC OpCo “lack power” because they share certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consist of the CCRCs that it owns and leases, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consist of operating lease obligations to CCRC PropCo, debt service payments, capital expenditures, accounts payable, and expense accruals. Assets generated by the operations of CCRC OpCo (primarily rents from CCRC residents) of CCRC OpCo may only be used to settle its contractual obligations (primarily from debt service payments, capital expenditures, and rental costs and operating expenses incurred to manage such facilities). Refer to Note 3 for additional discussion related to transactions impacting CCRC OpCo.
LLC Investment. The Company holds a limited partner ownership interest in an unconsolidated LLC that has been identified as a VIE. The Company’s involvement in the entity is limited to its equity investment as a limited partner and it does not have any substantive participating rights or kick-out rights over the general partner. The assets and liabilities of the entity primarily consist of those associated with its senior housing real estate and development activities. Any assets generated by the entity may only be used to settle its contractual obligations (primarily development expenses and debt service payments).
Development Investments. The Company holds investments (consisting of mezzanine debt and/or preferred equity) in two senior housing development joint ventures. The joint ventures are also capitalized by senior loans from a third party and equity from the third party managing-member, but are considered to be “thinly capitalized” as there is insufficient equity investment at risk.
Debt Securities Investment. The Company holds commercial mortgage-backed securities (“CMBS”) issued by Federal Home Loan Mortgage Corporation (commonly referred to as Freddie MAC) through a special purpose entity that has been identified as a VIE because it is “thinly capitalized.” The CMBS issued by the VIE are backed by mortgage debt obligations on real estate assets. These securities are classified as held-to-maturity because the Company has the intent and ability to hold the securities until maturity.
Seller Financing Loan. The Company provided seller financing related to its sale of seven senior housing triple-net facilities. The financing was provided in the form of a secured five–year mezzanine loan to a “thinly capitalized” borrower created to acquire the facilities.
The classification of the related assets and liabilities and the maximum loss exposure as a result of the Company’s involvement with these VIEs at March 31, 2021 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE Type
|
|
Asset/Liability Type
|
|
Maximum Loss
Exposure
and Carrying
Amount(1)
|
|
Continuing operations:
|
|
|
|
|
|
Loans receivable and unconsolidated joint ventures
|
|
Loans receivable, net and Investments in unconsolidated joint ventures
|
|
$
|
21,970
|
|
|
Loan - seller financing
|
|
Loans receivable, net
|
|
1,865
|
|
|
CMBS and LLC investment
|
|
Marketable debt and LLC investment
|
|
35,610
|
|
|
Discontinued operations:
|
|
|
|
|
|
VIE tenant - operating leases(2)
|
|
Lease intangibles, net and straight-line rent receivables
|
|
$
|
—
|
|
_______________________________________
(1)The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).
(2)The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default.
As of March 31, 2021, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement or otherwise, to its unconsolidated VIEs, including under circumstances in which it could be exposed to further losses (e.g., cash shortfalls).
See Notes 3 and 8 for additional descriptions of the nature, purpose, and operating activities of the Company’s unconsolidated VIEs and interests therein.
Consolidated Variable Interest Entities
The Company’s consolidated total assets and total liabilities at March 31, 2021 and December 31, 2020 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to the Company.
Ventures V, LLC. The Company holds a 51% ownership interest in and is the managing member of a joint venture entity formed in October 2015 that owns and leases MOBs (“Ventures V”). The Company classifies Ventures V as a VIE due to the non-managing member lacking substantive participation rights in the management of Ventures V or kick-out rights over the managing member. The Company consolidates Ventures V as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of Ventures V primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by Ventures V may only be used to settle its contractual obligations (primarily from capital expenditures).
Life Science JVs. The Company holds a 99% ownership interest in multiple joint venture entities that own and lease life science assets (the “Life Science JVs”). The Life Science JVs are VIEs as the members share in control of the entities, but substantially all of the activities are performed on behalf of the Company. The Company consolidates the Life Science JVs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Life Science JVs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Life Science JVs may only be used to settle their contractual obligations (primarily from capital expenditures).
MSREI MOB JV. The Company holds a 51% ownership interest in, and is the managing member of, a joint venture entity formed in August 2018 that owns and leases MOBs (the “MSREI JV”). The MSREI JV is a VIE due to the non-managing member lacking substantive participation rights in the management of the joint venture or kick-out rights over the managing member. The Company consolidates the MSREI JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of the MSREI JV primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by the MSREI JV may only be used to settle its contractual obligations (primarily from capital expenditures).
Consolidated Lessees. The Company leases four senior housing properties to lessee entities under cash flow leases through which the Company receives monthly rent equal to the residual cash flows of the properties. The lessee entities are classified as VIEs as they are "thinly capitalized" entities. The Company consolidates the lessee entities as it has the ability to control the activities that most significantly impact the economic performance of the lessee entities. The lessee entities’ assets primarily consist of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to the Company and operating expenses of the senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior housing operations (primarily from senior housing resident rents) may only be used to settle contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facility and debt costs).
DownREITs. The Company holds a controlling ownership interest in and is the managing member of seven DownREITs. The Company classifies the DownREITs as VIEs due to the non-managing members lacking substantive participation rights in the management of the DownREITs or kick-out rights over the managing member. The Company consolidates the DownREITs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the DownREITs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the DownREITs (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).
Other Consolidated Real Estate Partnerships. The Company holds a controlling ownership interest in and is the general partner (or managing member) of multiple partnerships that own and lease real estate assets (the “Partnerships”). The Company classifies the Partnerships as VIEs due to the limited partners (non-managing members) lacking substantive participation rights in the management of the Partnerships or kick-out rights over the general partner (managing member). The Company consolidates the Partnerships as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Partnerships primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Partnerships (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).
Exchange Accommodation Titleholder. During the year ended December 31, 2020, the Company acquired one life science facility (the "acquired property") using a reverse like-kind exchange structure pursuant to Section 1031 of the Code (a "reverse 1031 exchange") and as of March 31, 2021, the Company had not completed the reverse 1031 exchange. As such, the acquired property remained in the possession of an Exchange Accommodation Titleholder ("EAT") as of March 31, 2021. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it has the ability to control the activities that most significantly impact the economic performance of the EAT and is, therefore, the primary beneficiary of the EAT. The property held by the EAT is reflected as real estate with a carrying value of $417 million as of March 31, 2021. The assets of the EAT primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of capital expenditures for the properties. Assets generated by the EAT may only be used to settle its contractual obligations (primarily from capital expenditures).
Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
Assets
|
|
|
|
|
|
Buildings and improvements
|
$
|
2,487,025
|
|
|
$
|
2,988,599
|
|
|
|
Development costs and construction in progress
|
48,600
|
|
|
85,595
|
|
|
|
Land
|
341,842
|
|
|
433,574
|
|
|
|
Accumulated depreciation and amortization
|
(533,328)
|
|
|
(602,491)
|
|
|
|
Net real estate
|
2,344,139
|
|
|
2,905,277
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
5,095
|
|
|
12,009
|
|
|
|
Cash and cash equivalents
|
16,464
|
|
|
16,550
|
|
|
|
Restricted cash
|
6
|
|
|
7,977
|
|
|
|
Intangible assets, net
|
89,692
|
|
|
179,027
|
|
|
|
Assets held for sale and discontinued operations, net
|
698,318
|
|
|
704,966
|
|
|
|
Right-of-use asset, net
|
89,017
|
|
|
95,407
|
|
|
|
Other assets, net
|
61,470
|
|
|
59,063
|
|
|
|
Total assets
|
$
|
3,304,201
|
|
|
$
|
3,980,276
|
|
|
|
Liabilities
|
|
|
|
|
|
Mortgage debt
|
4,537
|
|
|
39,085
|
|
|
|
|
|
|
|
|
|
Intangible liabilities, net
|
33,714
|
|
|
56,467
|
|
|
|
Liabilities related to assets held for sale and discontinued operations, net
|
186,562
|
|
|
190,919
|
|
|
|
Lease liability
|
90,397
|
|
|
97,605
|
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
53,438
|
|
|
102,391
|
|
|
|
Deferred revenue
|
31,279
|
|
|
90,183
|
|
|
|
Total liabilities
|
$
|
399,927
|
|
|
$
|
576,650
|
|
|
Total assets and liabilities related to assets held for sale and discontinued operations include VIE assets and liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
Buildings and improvements
|
|
$
|
633,243
|
|
|
$
|
639,759
|
|
|
Development costs and construction in progress
|
|
103
|
|
|
68
|
|
|
Land
|
|
105,769
|
|
|
106,209
|
|
|
Accumulated depreciation and amortization
|
|
(55,021)
|
|
|
(57,235)
|
|
|
Net real estate
|
|
684,094
|
|
|
688,801
|
|
|
Accounts receivable, net
|
|
1,885
|
|
|
1,700
|
|
|
Cash and cash equivalents
|
|
6,516
|
|
|
6,306
|
|
|
Restricted cash
|
|
1,388
|
|
|
3,124
|
|
|
|
|
|
|
|
|
Right-of-use asset, net
|
|
1,387
|
|
|
1,391
|
|
|
Other assets, net
|
|
3,048
|
|
|
3,644
|
|
|
Total assets
|
|
$
|
698,318
|
|
|
$
|
704,966
|
|
|
Liabilities
|
|
|
|
|
|
Mortgage debt
|
|
$
|
171,085
|
|
|
$
|
176,702
|
|
|
|
|
|
|
|
|
Lease liability
|
|
1,387
|
|
|
1,392
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
12,119
|
|
|
11,003
|
|
|
Deferred revenue
|
|
1,971
|
|
|
1,822
|
|
|
Total liabilities
|
|
$
|
186,562
|
|
|
$
|
190,919
|
|
NOTE 17. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are immaterial at March 31, 2021 and December 31, 2020.
The table below summarizes the carrying amounts and fair values of the Company’s financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021(3)
|
|
December 31, 2020(3)
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Loans receivable, net(2)
|
$
|
740,142
|
|
|
$
|
743,465
|
|
|
$
|
195,375
|
|
|
$
|
201,228
|
|
|
Marketable debt securities(2)
|
20,512
|
|
|
20,512
|
|
|
20,355
|
|
|
20,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit and commercial paper(2)
|
1,038,150
|
|
|
1,038,150
|
|
|
129,590
|
|
|
129,590
|
|
|
Term loan(2)
|
249,243
|
|
|
249,243
|
|
|
249,182
|
|
|
249,182
|
|
|
Senior unsecured notes(1)
|
4,255,697
|
|
|
4,664,075
|
|
|
5,697,586
|
|
|
6,517,650
|
|
|
Mortgage debt(2)(4)
|
219,959
|
|
|
219,510
|
|
|
221,621
|
|
|
221,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swap liabilities(2)
|
—
|
|
|
—
|
|
|
81
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
(1)Level 1: Fair value calculated based on quoted prices in active markets.
(2)Level 2: Fair value based on (i) for marketable debt securities, quoted prices for similar or identical instruments in active or inactive markets, respectively, or (ii) for loans receivable, net, mortgage debt, and swaps, standardized pricing models in which significant inputs or value drivers are observable in active markets. For bank line of credit, commercial paper, and term loan, the carrying values are a reasonable estimate of fair value because the borrowings are primarily based on market interest rates and the Company’s credit rating.
(3)During the three months ended March 31, 2021 and year ended December 31, 2020, there were no material transfers of financial assets or liabilities within the fair value hierarchy.
(4)For the three months ended March 31, 2021 and year ended December 31, 2020, excludes mortgage debt on assets held for sale and discontinued operations of $278 million and $319 million, respectively.
NOTE 18. Derivative Financial Instruments
The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in interest rates related to the potential impact these changes could have on future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes.
In March 2021, the Company repaid $39 million of variable rate secured debt on two SHOP assets classified as discontinued operations as of March 31, 2021 and terminated the two remaining related interest-rate swap contracts. Therefore, at March 31, 2021, the Company had no remaining interest-rate swap contracts.
NOTE 19. Accounts Payable, Accrued Liabilities, and Other Liabilities
The following table summarizes the Company’s accounts payable, accrued liabilities, and other liabilities, excluding accounts payable, accrued liabilities, and other liabilities related to assets classified as discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Refundable entrance fees
|
$
|
311,410
|
|
|
$
|
317,444
|
|
|
Construction related accrued liabilities
|
107,798
|
|
|
95,293
|
|
|
Accrued interest
|
36,013
|
|
|
78,735
|
|
|
Other accounts payable and accrued liabilities
|
241,819
|
|
|
271,919
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
$
|
697,040
|
|
|
$
|
763,391
|
|