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”) that, 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.”). Healthpeak® 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 that the planned dispositions represented a strategic shift that has had and will have a major effect on the Company’s operations and financial results. Therefore, senior housing triple-net and SHOP assets meeting the held for sale criteria on or before September 30, 2021 are classified as discontinued operations in all periods presented herein. In September 2021, the Company successfully completed the disposition of the remaining senior housing triple-net and SHOP properties. See Note 5 for further information.
COVID-19 Update
The coronavirus (“COVID-19”) pandemic has caused significant disruption to individuals, governments, financial markets, and businesses, including the Company. The Company’s tenants, operators, and borrowers have experienced significant cost increases as a result of increased health and safety measures, staffing shortages, increased governmental regulation and compliance, vaccine mandates, and other operational changes necessitated either directly or indirectly by the COVID-19 pandemic. 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 September 30, 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 and nine months ended September 30, 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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission (“SEC”).
Revision to Additional Paid-In Capital and Redeemable Noncontrolling Interests
During the third quarter of 2021, the Company identified and corrected immaterial errors in the classification and redemption value of redeemable noncontrolling interests of consolidated joint ventures in its Life Sciences segment. On the Consolidated Balance Sheet as of December 31, 2020, the Company corrected the classification of its redeemable noncontrolling interests and increased the balance to its estimated redemption value, with a corresponding decrease to additional paid-in capital (“APIC”) in accordance with ASC 480, Distinguishing Liabilities from Equity.
The increase in the unrealized value of the redeemable noncontrolling interests was largely attributable to rapidly rising rents and compressing capitalization rates in the market in which the entities operate, and was identified and corrected by management. The Company determined the impact of the adjustments to be immaterial, individually and in the aggregate, based on consideration of quantitative and qualitative factors. As such, the Company made these adjustments in its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2021.
These adjustments had no impact on the Consolidated Statements of Cash Flows, Consolidated Statements of Operations, or any per share amounts. The following table provides the impact of the adjustment to the Company’s previously reported Consolidated Balance Sheet as of December 31, 2020 (in thousands):
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December 31, 2020
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Previously Reported
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Adjustments
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As Corrected
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Consolidated Balance Sheet
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Accounts payable, accrued liabilities, and other liabilities
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$
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763,391
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$
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(2,774)
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$
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760,617
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Total liabilities
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8,575,517
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(2,774)
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8,572,743
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Redeemable noncontrolling interests
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—
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57,396
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57,396
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|
|
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Additional paid-in capital
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10,229,857
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(54,622)
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|
10,175,235
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Total stockholders’ equity
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6,788,345
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(54,622)
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6,733,723
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Total equity
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7,344,572
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(54,622)
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7,289,950
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Total liabilities and equity
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15,920,089
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—
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15,920,089
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In addition to the changes made to reflect the impact of the correction described above, the Company made changes (all amounts in thousands) to the Consolidated Statements of Equity and Redeemable Noncontrolling Interests to decrease APIC, total stockholders’ equity, and total equity by $82,319, $44,117, and $31,465, as of July 1, 2021, September 30, 2020, and July 1, 2020, respectively, with a corresponding increase to redeemable noncontrolling interests of $85,367, $46,850, and $34,054, respectively, and a decrease to accounts payable, accrued liabilities, and other liabilities of $3,048, $2,733, and $2,589, respectively, on the Consolidated Balance Sheets.
The Company also made changes (all amounts in thousands) to the Consolidated Statement of Equity and Redeemable Noncontrolling Interests to decrease APIC, total stockholders’ equity, and total equity as of December 31, 2019 by $8,615 with a corresponding increase to redeemable noncontrolling interests of $11,106 and a decrease to accounts payable, accrued liabilities, and other liabilities as of December 31, 2019 of $2,491 on the Consolidated Balance Sheet.
Government Grant Income
On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide financial aid to individuals, businesses, and state and local governments. During the three and nine months ended September 30, 2021 and 2020, the Company received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic. Grant income is recognized when there is reasonable assurance that the grant will be received and the Company will comply with all conditions attached to the grant. Additionally, grants are recognized over the periods in which the Company recognizes the increased expenses and lost revenue the grants are intended to defray. As of September 30, 2021, the amount of qualifying expenditures and lost revenue exceeded grant income recognized and the Company believes it has complied and will continue to comply with all grant conditions.
The following table summarizes information related to government grant income received and recognized by the Company (in thousands):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2021
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2020
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|
2021
|
|
2020
|
|
Government grant income recorded in other income (expense), net
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$
|
15
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|
|
$
|
1,761
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|
|
$
|
1,412
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|
|
$
|
13,632
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|
|
Government grant income recorded in equity income (loss) from unconsolidated joint ventures
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—
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|
|
295
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|
|
1,010
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|
|
1,099
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Government grant income recorded in income (loss) from discontinued operations
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—
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|
|
392
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|
|
3,660
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|
|
2,601
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Total government grants received
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$
|
15
|
|
|
$
|
2,448
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|
|
$
|
6,082
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|
|
$
|
17,332
|
|
Recent Accounting Pronouncements
Adopted
Credit Losses. In June 2016, the Financial Accounting Standards Board (“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 Accounting Standards Codification (“ASC”) 842, Leases, 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 three and nine months ended September 30, 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 and nine months ended September 30, 2021. The Company elected to not assess these rent deferrals 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 with similar characteristics and similar circumstances, 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.
Not Yet Adopted
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which amends the scope of ASU 2020-04 to include derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in ASU 2020-04 and ASU 2021-01 are effective immediately and may be applied through December 31, 2022. The Company is evaluating: (i) how the transition away from LIBOR will impact the Company, (ii) whether the optional relief provided by these standards will be adopted, and (iii) the impact that adopting ASU 2020-04 or ASU 2021-01 will have on its consolidated financial position, results of operations, cash flows, or disclosures.
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 transitioned and 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, which includes most of the provisions previously proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”). During the quarter ended September 30, 2021, the Company sold this property (see Note 5).
The Company and Brookdale also agreed that the Company would provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which would 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 the Company’s sale of the 24 properties under the 2019 Amended Master Lease in January 2021 (see Note 5), 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 Brookdale Acquisition Assets in January 2020, the Company recognized an aggregate gain on sales of real estate of $164 million, which is recorded within income (loss) from discontinued operations.
In May 2021, the CCRC JV sold the two remaining CCRCs subject to the 2019 MTCA for $38 million, $19 million of which represents the Company’s 49% interest in the CCRC JV, resulting in an immaterial gain on sale recorded within equity income (loss) from unconsolidated joint ventures (see Note 8).
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 (“NOI”), 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 of the acquisition, with a purchase price of $61 million, closed in April 2021. The second phase of the acquisition, with a purchase price of $24 million, closed in September 2021. The final phase of the acquisition, with a purchase price of $43 million, closed in October 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 originated $142 million of secured mortgage debt.
Westside Medical Plaza Acquisition
In June 2021, the Company acquired one MOB in Fort Lauderdale, Florida for $16 million.
Wesley Woodlawn Acquisition
In July 2021, the Company acquired one MOB in Wichita, Kansas for $50 million.
Atlantic Health Acquisition
In July 2021, the Company acquired three MOBs in Morristown, New Jersey for $155 million.
Baylor Centennial Acquisition
In September 2021, the Company acquired two MOBs in Dallas, Texas for $60 million.
Concord Avenue Campus Acquisition
In September 2021, the Company acquired a life science campus, comprised of three buildings, in Cambridge, Massachusetts for $180 million.
10 Fawcett Acquisition
In October 2021, the Company closed a life science acquisition in Cambridge, Massachusetts for $73 million.
Vista Sorrento Phase 1 Acquisition
In October 2021, the Company closed a life science acquisition in San Diego, California for $20 million.
Swedish Medical Acquisition
In October 2021, the Company acquired one MOB in Seattle, Washington for $43 million.
Lakeview Medical Pavilion
In October 2021, the Company acquired one MOB in New Orleans, Louisiana for $34 million.
Mooney Street Parcels
In October 2021, the Company closed a life science acquisition in Cambridge, Massachusetts for $123 million.
725 Concord
In October 2021, the Company acquired an MOB and adjacent land parcel in Cambridge, Massachusetts for $80 million.
25 Spinelli
In October 2021, the Company closed a life science acquisition in Cambridge, Massachusetts for $34 million.
68 Moulton
In October 2021, the Company closed a life science acquisition in Cambridge, Massachusetts for $18 million.
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 the 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 (classified as liabilities related to assets held for sale and discontinued operations, net) maturing in 2025, which was recorded at its fair value through asset acquisition accounting. During the quarter ended September 30, 2021, the Company sold the property and the related secured mortgage debt was assumed by the buyer (see Note 5).
Other Real Estate Acquisitions
In December 2020, the Company acquired one hospital in Dallas, Texas for $34 million.
Development Activities
The Company’s commitments, which are primarily related to development and redevelopment projects and tenant improvements, increased by $89 million, to $395 million at September 30, 2021, when compared to December 31, 2020, primarily as a result of increased commitments on existing projects and new projects started during 2021.
During the nine months ended September 30, 2021, management reviewed the estimated useful lives of certain life science properties in connection with future plans of densification on campuses where the Company has densification opportunities. These changes in the planned use of the properties resulted in the Company updating the estimated useful lives of the properties, which differ from the Company’s previous estimates. The estimated useful lives of these properties was reduced from a weighted average remaining useful life of 15 years to 11 years to reflect the timing of the planned densification projects. For the three and nine months ended September 30, 2021, these changes in estimate increased depreciation expense by $9 million and $22 million, respectively, resulting in a corresponding decrease to income (loss) from continuing operations and net income (loss), as well as a decrease to both basic and diluted earnings per share of approximately $0.02 and $0.04, respectively.
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 (see Note 7) and (ii) a commitment to finance up to $92 million of additional debt for capital expenditures. The commitment to finance additional debt for capital expenditures was subsequently reduced to $56 million during June 2021, $0.4 million of which had been funded as of September 30, 2021 (see Note 7). Upon completion of the license transfer process in June 2021, the Company sold the two remaining Sunrise senior housing triple-net assets for $80 million, resulting in a gain on sale of $22 million, which is recognized in income (loss) from discontinued operations.
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. The Company 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.
Oakmont SHOP Portfolio
In April 2021, the Company sold a portfolio of 12 SHOP assets for $564 million. In conjunction with the sale, mortgage debt held on two properties with a carrying value of $64 million was repaid and the remaining mortgage debt held on four properties with a carrying value of $107 million was assumed by the buyer. The transaction resulted in total gain on sale of $80 million, which is recognized in income (loss) from discontinued operations.
Discovery SHOP Portfolio
In April 2021, the Company sold a portfolio of 10 SHOP assets for $334 million, resulting in total gain on sale of $9 million, which is recognized in income (loss) from discontinued operations. Also included in this transaction was the sale of two mezzanine loans and two preferred equity investments for $21 million, resulting in no gain or loss on sale of the investments (collectively, the “Discovery SHOP Portfolio”).
Sonata SHOP Portfolio
In April 2021, the Company sold a portfolio of five SHOP assets for $64 million, resulting in total gain on sale of $3 million, which is recognized in income (loss) from discontinued operations.
SLC SHOP Portfolio
In May 2021, the Company sold seven SHOP assets for $113 million and repaid $70 million of mortgage debt that was held on six of the assets, resulting in total gain on sale of $1 million, which is recognized in income (loss) from discontinued operations.
Hoag Hospital
In May 2021, the Company sold one hospital for $226 million through the exercise of a purchase option by a tenant, resulting in gain on sale of $172 million.
2021 Other Dispositions
During the three months ended September 30, 2021, the Company sold the following: (i) eight SHOP assets for $120 million, (ii) four senior housing triple-net assets for $12 million, and (iii) three MOBs for $36 million, resulting in total gain on sales of $42 million ($27 million of which is recognized in income (loss) from discontinued operations). In conjunction with one of the SHOP asset sales, mortgage debt held on the property with a carrying value of $36 million was assumed by the buyer.
In addition to the portfolio and individual sales discussed above, during the nine months ended September 30, 2021, the Company sold the following: (i) 15 SHOP assets for $169 million, (ii) 7 senior housing triple-net assets for $24 million, and (iii) 7 MOBs for $57 million, resulting in total gain on sales of $52 million ($34 million of which is recognized in income (loss) from discontinued operations).
2020 Dispositions of Real Estate
During the three months ended September 30, 2020, the Company sold the following: (i) four MOBs for $14 million, (ii) one undeveloped MOB land parcel for $2 million and (iii) one asset from other non-reportable segments for $1 million, resulting in total gain on sales of $2 million recognized in income (loss) from continuing operations. Additionally, during the three months ended September 30, 2020, the Company sold four SHOP assets for $12 million, resulting in total loss on sales of $2 million recognized in income (loss) from discontinued operations.
During the nine months ended September 30, 2020, the Company sold the following: (i) 13 SHOP assets for $76 million, (ii) 18 senior housing triple-net assets for $385 million (representative of the 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), (iii) 7 MOBs for $120 million (inclusive of the exercise of a purchase option by a tenant to acquire 3 MOBs in San Diego, California), (iv) one undeveloped MOB land parcel for $2 million and (v) one asset from other non-reportable segments for $1 million, resulting in total gain on sales of $248 million ($162 million of 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 and repaid $6 million of variable rate secured mortgage debt held on one asset, 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 portfolio 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 recognized in income (loss) from discontinued operations).
Held for Sale and 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 that the planned dispositions represented a strategic shift that has had and will have a major effect on the Company’s operations and financial results. Therefore, senior housing triple-net and SHOP assets meeting the held for sale criteria on or before September 30, 2021 are classified as discontinued operations in all periods presented herein. In September 2021, the Company successfully completed the disposition of the remaining senior housing triple-net and SHOP properties.
The following summarizes the assets and liabilities classified as discontinued operations at September 30, 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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September 30,
2021
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December 31,
2020
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ASSETS
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|
|
|
Real estate:
|
|
|
|
|
Buildings and improvements
|
$
|
98
|
|
|
$
|
2,553,254
|
|
|
Development costs and construction in progress
|
54
|
|
|
21,509
|
|
|
Land
|
—
|
|
|
355,803
|
|
|
Accumulated depreciation and amortization
|
—
|
|
|
(615,708)
|
|
|
Net real estate
|
152
|
|
|
2,314,858
|
|
|
Investments in and advances to unconsolidated joint ventures
|
—
|
|
|
5,842
|
|
|
Accounts receivable, net of allowance of $4,583 and $5,873
|
4,826
|
|
|
20,500
|
|
|
Cash and cash equivalents
|
14,005
|
|
|
53,085
|
|
|
Restricted cash
|
3
|
|
|
17,168
|
|
|
Intangible assets, net
|
—
|
|
|
24,541
|
|
|
Right-of-use asset, net
|
30
|
|
|
4,109
|
|
|
Other assets, net(1)
|
3,243
|
|
|
103,965
|
|
|
Total assets of discontinued operations, net(2)
|
22,259
|
|
2,544,068
|
|
Assets held for sale, net(3)
|
82,750
|
|
|
82,238
|
|
|
Assets held for sale and discontinued operations, net
|
$
|
105,009
|
|
|
$
|
2,626,306
|
|
|
LIABILITIES
|
|
|
|
|
Mortgage debt(4)
|
$
|
—
|
|
|
$
|
318,876
|
|
|
Lease liability
|
30
|
|
|
3,189
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
18,442
|
|
|
79,411
|
|
|
Deferred revenue
|
84
|
|
|
11,442
|
|
|
Total liabilities of discontinued operations, net(2)
|
18,556
|
|
|
412,918
|
|
|
Liabilities related to assets held for sale, net(3)
|
354
|
|
|
2,819
|
|
|
Liabilities related to assets held for sale and discontinued operations, net
|
$
|
18,910
|
|
|
$
|
415,737
|
|
_______________________________________
(1)Includes goodwill of zero and $29 million as of September 30, 2021 and December 31, 2020, respectively.
(2)At September 30, 2021, there were no senior housing triple-net or SHOP facilities classified as held for sale and discontinued operations. At December 31, 2020, 41 senior housing triple-net facilities, 97 SHOP facilities, and 1 SHOP joint venture were classified as held for sale and discontinued operations.
(3)As of September 30, 2021, primarily comprised of the following: (i) five MOBs and one life science facility with net real estate assets of $30 million and right-of-use asset, net of $0.6 million and (ii) one loan receivable with a total carrying value of $51 million. As of December 31, 2020, primarily comprised of six MOBs with net real estate assets of $73 million and deferred revenue of $2 million.
(4)During the three months ended September 30, 2021 and 2020, the Company made full and partial repayments of mortgage debt classified as discontinued operations of $37 million and $1 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company made full and partial repayments of mortgage debt classified as discontinued operations of $318 million and $7 million, respectively.
The results of discontinued operations through September 30, 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 and nine months ended September 30, 2021 and 2020. Summarized financial information for discontinued operations for the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Rental and related revenues
|
$
|
694
|
|
|
$
|
24,589
|
|
|
$
|
7,535
|
|
|
$
|
81,070
|
|
|
Resident fees and services
|
8,507
|
|
|
149,585
|
|
|
111,777
|
|
|
477,081
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
9,201
|
|
|
174,174
|
|
|
119,312
|
|
|
558,151
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
47
|
|
|
2,501
|
|
|
3,900
|
|
|
7,913
|
|
|
Depreciation and amortization
|
—
|
|
|
31,659
|
|
|
—
|
|
|
134,620
|
|
|
Operating
|
13,010
|
|
|
131,151
|
|
|
118,175
|
|
|
407,820
|
|
|
Transaction costs
|
—
|
|
|
602
|
|
|
76
|
|
|
1,141
|
|
|
Impairments and loan loss reserves (recoveries), net
|
21,740
|
|
|
36,327
|
|
|
32,736
|
|
|
81,556
|
|
|
Total costs and expenses
|
34,797
|
|
|
202,240
|
|
|
154,887
|
|
|
633,050
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of real estate, net
|
26,758
|
|
|
(2,134)
|
|
|
408,658
|
|
|
162,245
|
|
|
Other income (expense), net
|
(863)
|
|
|
316
|
|
|
5,150
|
|
|
2,442
|
|
|
Total other income (expense), net
|
25,895
|
|
|
(1,818)
|
|
|
413,808
|
|
|
164,687
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
299
|
|
|
(29,884)
|
|
|
378,233
|
|
|
89,788
|
|
|
Income tax benefit (expense)
|
221
|
|
|
(1,204)
|
|
|
1,345
|
|
|
9,424
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
81
|
|
|
(731)
|
|
|
4,991
|
|
|
(915)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
$
|
601
|
|
|
$
|
(31,819)
|
|
|
$
|
384,569
|
|
|
$
|
98,297
|
|
Impairments of Real Estate
2021
During the three and nine months ended September 30, 2021, the Company recognized an aggregate impairment charge of $2 million, which is reported in impairments and loan loss reserves (recoveries), net, related to two MOBs classified as held for sale. The Company wrote down the two properties’ aggregate carrying value of $13 million to their aggregate fair value, less estimated costs to sell, of $11 million.
Additionally, during the nine months ended September 30, 2021, the Company recognized an impairment charge of $4 million related to one SHOP asset classified as held for sale, which is reported in income (loss) from discontinued operations. Following a reduction in the expected sales price of the SHOP asset occurring in the second quarter of 2021, the Company wrote down its carrying value of $20 million to its fair value, less estimated costs to sell, of $16 million.
The fair values of the impaired assets were based on forecasted sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. The Company’s forecasted sales prices are typically 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 calculation as of September 30, 2021, the Company’s fair value estimates primarily relied on a market approach and utilized comparable market transactions and negotiations with prospective buyers.
2020
During the three months ended September 30, 2020, the Company recognized an aggregate impairment charge of $37 million ($36 million of which is reported in income (loss) from discontinued operations) related to nine SHOP assets, one senior housing triple-net asset and one MOB 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 $163 million.
During the nine months ended September 30, 2020, the Company recognized an aggregate impairment charge of $87 million ($82 million of which is reported in income (loss) from discontinued operations) related to 28 SHOP assets, 5 senior housing triple-net assets, 2 MOBs, and 1 undeveloped MOB land parcel as a result of being classified as held for sale and wrote down their aggregate carrying value of $424 million to their aggregate fair value, less estimated costs to sell, of $337 million.
For the Company’s impairment calculations during the nine months ended and as of September 30, 2020, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $33,000 to $300,000, with a weighted average price based on relative fair value of $136,000.
Goodwill Impairment
When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value, including goodwill, exceeds the reporting unit’s fair value.
Following the disposition of the Company’s remaining senior housing triple-net and SHOP assets in September 2021, the Company performed an impairment assessment to evaluate the fair value of its reporting units as of September 30, 2021. During the three months ended September 30, 2021, the Company recognized a $22 million goodwill impairment charge reported in income (loss) from discontinued operations to reduce the associated goodwill balance to zero as no assets remained in the reporting units associated with the senior housing triple-net and SHOP portfolios as of the assessment date.
During the nine months ended September 30, 2021, the Company recognized a $29 million goodwill impairment charge reported in income (loss) from discontinued operations, $7 million of which was recognized during the second quarter of 2021, as the fair value of the remaining assets based on forecasted sales prices was less than the carrying value of the assets, including the related goodwill as of the assessment date.
During the three and nine months ended September 30, 2021, the fair value of the assets within each of the Company’s other reporting units was greater than the respective carrying value of the assets and related goodwill, and as a result, no impairment loss was recognized with respect to the other reporting units. During the three and nine months ended September 30, 2020, no goodwill impairment loss was recognized.
These fair value estimates primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, and negotiations with prospective buyers. These estimates are considered to be a Level 3 measurement within the fair value hierarchy, and are subject to inherent uncertainties.
Deferred Tax Asset Valuation Allowance
In conjunction with the Company establishing a plan during the year ended December 31, 2020 to dispose of all of 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 September 30, 2021, the Company had a deferred tax asset valuation allowance of $36 million.
NOTE 6. Leases
Lease Income
The following table summarizes the Company’s lease income, excluding discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income from operating leases
|
$
|
276,430
|
|
|
$
|
239,715
|
|
|
$
|
807,677
|
|
|
$
|
697,510
|
|
|
Variable income from operating leases
|
77,086
|
|
|
62,226
|
|
|
214,453
|
|
|
175,001
|
|
|
Interest income from direct financing leases
|
2,179
|
|
|
2,150
|
|
|
6,522
|
|
|
7,569
|
|
|
|
|
|
|
|
|
|
|
Direct Financing Leases
Net investment in DFLs consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Present value of minimum lease payments receivable
|
$
|
3,399
|
|
|
$
|
9,804
|
|
|
Present value of estimated residual value
|
44,706
|
|
|
44,706
|
|
|
Less deferred selling profits
|
(3,399)
|
|
|
(9,804)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
$
|
44,706
|
|
|
$
|
44,706
|
|
|
|
|
|
|
Direct Financing Lease Internal Ratings
At September 30, 2021 and December 31, 2020, 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.
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 that were impacted by COVID-19, with the requirement that all deferred rent be repaid by the end of 2020. Under this program, through September 30, 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 September 30, 2020, the Company granted approximately $1 million of rent deferrals to certain tenants in the life science segment that were impacted by COVID-19, all of which had been collected as of December 31, 2020.
No such deferrals were granted during the three and nine months ended September 30, 2021.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Secured loans(1)
|
$
|
395,303
|
|
|
$
|
161,530
|
|
|
Mezzanine and other
|
23,701
|
|
|
44,347
|
|
|
Unamortized discounts, fees, and costs
|
(5,215)
|
|
|
(222)
|
|
|
Reserve for loan losses
|
(2,727)
|
|
|
(10,280)
|
|
|
Loans receivable, net
|
$
|
411,062
|
|
|
$
|
195,375
|
|
_______________________________________
(1)At September 30, 2021, the Company had $59 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.
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). The additional financing was subsequently reduced to $56 million in conjunction with the principal repayments discussed below, $0.4 million of which had been funded as of September 30, 2021. The initial and additional financing is secured by the buyer's equity ownership in each property.
In June 2021, the Company received principal repayments of $246 million on the initial financing provided in conjunction with the sale of the Sunrise Senior Housing Portfolio in January 2021. The Company accelerated recognition of $7 million of the related mark-to-market discount, which is included in interest income in the Consolidated Statements of Operations for the nine months ended September 30, 2021.
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 each of the four properties.
During the first quarter of 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 and nine months ended September 30, 2021, the Company recognized $1 million and $12 million, respectively, of non-cash interest income related to the amortization of its mark-to-market discounts, of which $7 million was recognized during the nine months ended September 30, 2021 as a result of the accelerated recognition discussed above related to the Sunrise Senior Housing Portfolio. The Company did not recognize any non-cash interest income associated with seller financing notes receivable during the three and nine months ended September 30, 2020.
2021 Other Loans Receivable Transactions
The Company classifies a loan receivable as held for sale when management no longer has the intent or ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, previously recorded reserves for loan losses are reversed and the loan is reported at the lower of amortized cost or fair value. During the second quarter of 2021, two loans receivable with a total amortized cost of $64 million were classified as held for sale. Upon the transfer of these two loans to held for sale, the carrying value was decreased by $11 million to an estimated fair value of $53 million, $8 million of which was previously recognized as a reserve for loan losses. As a result, a $3 million net loss was recognized in impairments and loan loss reserves (recoveries), net during the nine months ended September 30, 2021.
These fair value estimates were made for each individual loan classified as held for sale and primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, and negotiations with prospective buyers. These estimates are considered to be a Level 3 measurement within the fair value hierarchy, and are subject to inherent uncertainties.
In April 2021, the Company sold two mezzanine loans as part of the Discovery SHOP Portfolio disposition (see Note 5), resulting in no gain or loss on sale of the mezzanine loans.
In May 2021, the Company received a $10 million principal repayment related to one of its secured loans. In September 2021, the Company received repayment of the remaining $15 million balance.
In July 2021, the Company received full repayment of the outstanding balance of an $8 million secured loan.
In September 2021, the Company sold one of the loans previously classified as held for sale for its carrying value of $2 million. As of September 30, 2021, the Company had one loan receivable classified as held for sale with a carrying value of $51 million.
2020 Other 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 September 30, 2021 and December 31, 2020, the Company held $23 million of such notes receivable, 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.
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 September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Type
|
|
Year of Origination
|
|
Total
|
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
Prior
|
|
|
Secured loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
308,504
|
|
|
$
|
76,749
|
|
|
$
|
2,122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
387,375
|
|
|
Watch list loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Workout loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total secured loans
|
|
$
|
308,504
|
|
|
$
|
76,749
|
|
|
$
|
2,122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
387,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
21,808
|
|
|
$
|
1,777
|
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
23,687
|
|
|
Watch list loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Workout loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total mezzanine and other
|
|
$
|
21,808
|
|
|
$
|
1,777
|
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
23,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, NOI, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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
|
|
|
Expected loan losses related to loans sold or repaid(1)
|
(1,643)
|
|
|
(8,015)
|
|
|
(9,658)
|
|
|
(259)
|
|
|
(8,135)
|
|
|
(8,394)
|
|
|
Expected loan losses related to loans transferred to held for sale(2)
|
(498)
|
|
|
—
|
|
|
(498)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Provision for expected loan losses
|
1,702
|
|
|
901
|
|
|
2,603
|
|
|
2,898
|
|
|
14,356
|
|
|
17,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for loan losses, end of period
|
$
|
2,713
|
|
|
$
|
14
|
|
|
$
|
2,727
|
|
|
$
|
3,152
|
|
|
$
|
7,128
|
|
|
$
|
10,280
|
|
_______________________________________
(1)Includes five loans sold or repaid during the nine months ended September 30, 2021 and three loans sold or repaid during the year ended December 31, 2020.
(2)Includes one loan held for sale at September 30, 2021.
Additionally, at September 30, 2021 and December 31, 2020, a liability of $0.3 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 September 30, 2021 and 2020, the net credit loss recovery was $2 million and $3 million, respectively. During the nine months ended September 30, 2021 and 2020, the net credit loss expense was $3 million and $10 million, respectively. The change in the reserve for expected loan losses during the three months ended September 30, 2021 is primarily due to the following: (i) principal repayments on loans receivable, (ii) loans receivable sales, and (iii) a more positive economic outlook. Additionally, the change in the reserve for expected loan losses during the nine months ended September 30, 2021 is further impacted by (i) transfers of loans receivable held for investment to loans receivable held for sale and (ii) the sale of two mezzanine loans as part of the Discovery SHOP Portfolio disposition (see Note 5).
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
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
Entity(1)(2)
|
|
Segment
|
|
|
Property Count(3)
|
|
|
Ownership %(3)
|
|
|
2021
|
|
2020
|
|
SWF SH JV
|
|
Other
|
|
|
19
|
|
|
54
|
|
|
$
|
354,534
|
|
|
$
|
357,581
|
|
|
Life Science JV
|
|
Life science
|
|
|
1
|
|
|
49
|
|
|
25,135
|
|
|
24,879
|
|
|
Medical Office JVs(4)
|
|
Medical office
|
|
|
3
|
|
|
20 - 67
|
|
|
9,426
|
|
|
9,673
|
|
|
Other JVs(5)
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,157
|
|
|
CCRC JV(6)
|
|
CCRC
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
389,095
|
|
|
$
|
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 was classified as discontinued operations and had an aggregate carrying value of $6 million at December 31, 2020 (see Note 5). In April 2021, the SHOP property in the Otay Ranch JV was sold, resulting in the Company’s share of proceeds of $32 million and a gain on sale of $5 million recognized in equity income (loss) from unconsolidated joint ventures within income (loss) from discontinued operations for the nine months ended September 30, 2021.
(3)Property count and ownership percentage are as of September 30, 2021.
(4)Includes three unconsolidated medical office joint ventures in which the Company holds an ownership percentage as follows: (i) Ventures IV (20%); (ii) Ventures III (30%); and (iii) Suburban Properties, LLC (67%).
(5)In April 2021, the Company sold its two preferred equity investments for their carrying value as part of the Discovery SHOP Portfolio disposition (see Note 5). At December 31, 2020, includes two unconsolidated other joint ventures in which the Company’s ownership percentage is as follows: (i) Discovery Naples JV (41%) and (ii) Discovery Sarasota JV (47%).
(6)See Note 3 for a 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. In May 2021, the two remaining CCRCs were sold for $38 million, $19 million of which represents the Company’s 49% interest, resulting in an immaterial gain on sale recorded within equity income (loss) from unconsolidated joint ventures for the nine months ended September 30, 2021.
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
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Gross intangible lease assets
|
|
$
|
823,362
|
|
|
$
|
761,328
|
|
|
Accumulated depreciation and amortization
|
|
(303,027)
|
|
|
(241,411)
|
|
|
Intangible assets, net(1)
|
|
$
|
520,335
|
|
|
$
|
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 $25 million as of December 31, 2020.
Intangible liabilities consist of below market lease intangibles. The following table summarizes the Company’s intangible lease liabilities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible lease liabilities
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Gross intangible lease liabilities
|
|
$
|
208,031
|
|
|
$
|
194,565
|
|
|
Accumulated depreciation and amortization
|
|
(64,027)
|
|
|
(50,366)
|
|
|
Intangible liabilities, net
|
|
$
|
144,004
|
|
|
$
|
144,199
|
|
|
|
|
|
|
|
|
Weighted average remaining amortization period in years
|
|
8
|
|
8
|
During the nine months ended September 30, 2021, in conjunction with the Company’s acquisitions of real estate, the Company acquired intangible assets of $81 million and intangible liabilities of $17 million. The intangible assets and liabilities acquired had a weighted average amortization period at acquisition of 9 years and 8 years, respectively.
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, with a maturity date of May 23, 2023 and two six-month extension options, subject to certain customary conditions. Also in May 2019, the Company entered into a $250 million unsecured term loan facility, with a maturity date of May 23, 2024 (the “2019 Term Loan”). In July 2021, the Company repaid the $250 million 2019 Term Loan; therefore, at September 30, 2021, there was no outstanding balance. The outstanding balance on the 2019 Term Loan at December 31, 2020 was $250 million.
In September 2021, the Company executed an amended and restated unsecured revolving line of credit (the “Revolving Facility”) to increase total revolving commitments from $2.5 billion to $3.0 billion and extend the maturity date to January 20, 2026. This maturity date may be further extended pursuant to two six-month extension options, subject to certain customary conditions. Borrowings under the Revolving Facility accrue interest at the base rate or LIBOR (or other applicable rate with respect to non-dollar borrowings) plus a margin that depends on the credit ratings of the Company’s senior unsecured long-term debt. The Company also pays a facility fee on the entire revolving commitment that depends on its credit ratings. Based on the Company’s credit ratings at September 30, 2021, the margin on the Revolving Facility was 0.78% and the facility fee was 0.15%. At September 30, 2021 and December 31, 2020, the Company had no balance outstanding under the Revolving Facility.
The Revolving Facility includes 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. Further, the Revolving Facility includes customary LIBOR replacement language, including, but not limited to, the use of rates based on the secured overnight financing rate administered by the Federal Reserve Bank of New York. The Revolving Facility also includes a sustainability-linked pricing component whereby the applicable margin may be reduced by up to 0.025% based on the Company’s achievement of specified sustainability-linked metrics, subject to certain conditions.
The Revolving Facility also contains certain financial restrictions and other customary requirements, including financial covenants and cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreement: (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 $7.7 billion. The Company believes it was in compliance with each of these covenants at September 30, 2021.
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. During 2021, the Company increased the maximum aggregate face or principal amount that can be outstanding at any one time from $1.0 billion to $1.5 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 September 30, 2021, the Company had $1.02 billion of securities outstanding under the Commercial Paper Program, with original maturities of approximately one month and a weighted average interest rate of 0.22%. At December 31, 2020, the Company had $130 million of securities outstanding under the Commercial Paper Program, with original maturities of approximately one month and a weighted average interest rate of 0.30%.
Senior Unsecured Notes
At September 30, 2021, the Company had senior unsecured notes outstanding with an aggregate principal balance of $4.2 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 September 30, 2021.
The following table summarizes the Company’s senior unsecured notes repurchases and redemptions during the nine months ended September 30, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payoff Date
|
|
Amount
|
|
Coupon Rate
|
|
Maturity Year
|
|
May 19, 2021(1)
|
|
$
|
251,806
|
|
|
3.40
|
%
|
|
2025
|
|
May 19, 2021(1)
|
|
298,194
|
|
|
4.00
|
%
|
|
2025
|
|
February 26, 2021(2)
|
|
188,000
|
|
|
4.25
|
%
|
|
2023
|
|
February 26, 2021(2)
|
|
149,000
|
|
|
4.20
|
%
|
|
2024
|
|
February 26, 2021(2)
|
|
331,000
|
|
|
3.88
|
%
|
|
2024
|
|
January 28, 2021(2)
|
|
112,000
|
|
|
4.25
|
%
|
|
2023
|
|
January 28, 2021(2)
|
|
201,000
|
|
|
4.20
|
%
|
|
2024
|
|
January 28, 2021(2)
|
|
469,000
|
|
|
3.88
|
%
|
|
2024
|
_______________________________________
(1)Upon repurchasing a portion of the 3.40% and 4.00% senior unsecured notes due 2025, the Company recognized a $61 million loss on debt extinguishment during the nine months ended September 30, 2021.
(2)Upon completing the repurchases and redemptions of all outstanding 4.25%, 4.20%, and 3.88% senior unsecured notes due 2023 and 2024, the Company recognized a $164 million loss on debt extinguishment during the nine months ended September 30, 2021.
In July 2021, the Company completed its inaugural green bond offering. The net proceeds from the offering were allocated to the Company’s previous acquisition of Cambridge Discovery Park, completed in December 2020 (see Note 4), which has received LEED Gold certification and qualifies as an eligible green project. However, the Company may choose to allocate or re-allocate net proceeds to one more other eligible green projects. The senior unsecured notes were issued and the proceeds were received on July 12, 2021 as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Amount
|
|
Coupon Rate
|
|
Maturity Year
|
|
July 12, 2021
|
|
$
|
450,000
|
|
|
1.35
|
%
|
|
2027
|
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
|
|
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 2022, the Company recognized an $18 million loss on debt extinguishment during the three and nine months ended September 30, 2020.
(2)Upon repurchasing a portion of the 4.25% senior unsecured notes due 2023, the Company recognized a $26 million loss on debt extinguishment during the nine months ended September 30, 2020.
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
|
|
June 23, 2020
|
|
$
|
600,000
|
|
|
2.88
|
%
|
|
2031
|
Mortgage Debt
At September 30, 2021 and December 31, 2020, the Company had $355 million and $217 million, respectively, in aggregate principal of mortgage debt outstanding (excluding mortgage debt on assets held for sale and discontinued operations), which was secured by 19 and 6 healthcare facilities, respectively, with an aggregate carrying value of $835 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 and nine months ended September 30, 2021, the Company made aggregate principal repayments of mortgage debt of $1 million and $4 million, respectively (excluding mortgage debt on assets held for sale and discontinued operations). During the three and nine months ended September 30, 2020, the Company made aggregate principal repayments of mortgage debt of $1 million and $4 million, respectively (excluding mortgage debt on assets held for sale and discontinued operations).
In April 2021, in conjunction with the acquisition of the MOB Portfolio, the Company originated $142 million of secured mortgage debt (see Note 4) that matures in May 2026 and has a weighted average effective interest rate of 2.68% as of September 30, 2021.
Debt Maturities
The following table summarizes the Company’s stated debt maturities and scheduled principal repayments at September 30, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured
Notes(2)
|
|
Mortgage
Debt(3)
|
|
|
|
Year
|
|
Bank Line of
Credit
|
|
Commercial Paper(1)
|
|
|
|
Amount
|
|
Interest Rate
|
|
Amount
|
|
Interest Rate
|
|
Total
|
|
2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
8,731
|
|
|
4.86
|
%
|
|
$
|
8,731
|
|
|
2022
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
%
|
|
4,843
|
|
|
3.80
|
%
|
|
4,843
|
|
|
2023
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
%
|
|
89,874
|
|
|
3.80
|
%
|
|
89,874
|
|
|
2024
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
%
|
|
3,050
|
|
|
3.80
|
%
|
|
3,050
|
|
|
2025
|
|
—
|
|
|
—
|
|
|
|
|
800,000
|
|
|
3.93
|
%
|
|
3,209
|
|
|
3.80
|
%
|
|
803,209
|
|
|
Thereafter
|
|
—
|
|
|
1,024,000
|
|
|
|
|
3,400,000
|
|
|
3.39
|
%
|
|
244,889
|
|
|
3.12
|
%
|
|
4,668,889
|
|
|
|
|
—
|
|
|
1,024,000
|
|
|
|
|
4,200,000
|
|
|
|
|
354,596
|
|
|
|
|
5,578,596
|
|
|
(Discounts), premium and debt costs, net
|
|
—
|
|
|
—
|
|
|
|
|
(42,166)
|
|
|
|
|
1,974
|
|
|
|
|
(40,192)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
1,024,000
|
|
|
|
|
$
|
4,157,834
|
|
|
|
|
$
|
356,570
|
|
|
|
|
$
|
5,538,404
|
|
_______________________________________
(1)Commercial Paper Program borrowings are backstopped by the Revolving Facility. As such, the Company calculates the weighted average remaining term of its Commercial Paper Program borrowings using the maturity date of the Revolving Facility.
(2)Effective interest rates on the senior unsecured notes range from 1.54% to 6.91% with a weighted average effective interest rate of 3.51% and a weighted average maturity of 7 years.
(3)Effective interest rates on the mortgage debt range from 2.50% to 5.91% with a weighted average effective interest rate of 3.31% and a weighted average maturity of 4 years.
NOTE 11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to legal proceedings, lawsuits and other claims that arise in the ordinary course of the Company’s business. 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.
DownREITs
In connection with the formation of certain limited liability companies (“DownREITs”), members may contribute appreciated real estate to a DownREIT 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, 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. Under these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT 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 29 properties.
NOTE 12. Equity and Redeemable Noncontrolling Interests
Dividends
On October 27, 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 November 19, 2021 to stockholders of record as of the close of business on November 8, 2021.
During the three months ended September 30, 2021 and 2020, the Company declared and paid common stock cash dividends of $0.30 per share and $0.37 per share, respectively. During the nine months ended September 30, 2021 and 2020, the Company declared and paid common stock cash dividends of $0.90 and $1.11 per share, respectively.
At-The-Market Equity Offering Program
The Company previously established an at-the-market equity offering program (“ATM Program”), which was most recently amended in May 2021 (as amended, the “2020 ATM Program”) to increase the size of the program from $1.25 billion to $1.5 billion, pursuant to which shares of common stock having an aggregate gross sales price of up to $1.5 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 (each, an “ATM forward contract”). The use of ATM forward contracts allows the Company to lock in a share price on the sale of shares at the time the ATM forward contract is effective, but defer receiving the proceeds from the sale of shares until a later date.
ATM forward contracts generally have a one to two 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 ATM 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 ATM forward contract.
At September 30, 2021, $1.18 billion of the Company’s common stock remained available for sale under the 2020 ATM Program.
ATM Forward Contracts
During the three and nine months ended September 30, 2021, the Company utilized the forward provisions under the 2020 ATM Program to allow for the sale of an aggregate of 9.1 million shares of its common stock at an initial weighted average net price of $35.25 per share, after commissions.
During the three and nine months ended September 30, 2021, no shares were settled under ATM forward contracts. Therefore, at September 30, 2021, 9.1 million shares remained outstanding under ATM forward contracts.
During the three months ended September 30, 2020, the Company did not utilize the forward provisions under any previous ATM Program. During the nine months ended September 30, 2020, the Company utilized the forward provisions under a previous ATM Program established in 2019 to allow for the sale of an aggregate of 2.0 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. At September 30, 2020, no shares remained outstanding under these prior ATM forward contracts.
ATM Direct Issuances
During the three and nine months ended September 30, 2021 and September 30, 2020, no shares of common stock were issued under any 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 September 30, 2021 and September 30, 2020, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
Unrealized gains (losses) on derivatives, net
|
$
|
—
|
|
|
$
|
(81)
|
|
|
Supplemental Executive Retirement Plan minimum liability
|
(3,281)
|
|
|
(3,604)
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
$
|
(3,281)
|
|
|
$
|
(3,685)
|
|
Redeemable Noncontrolling Interests
Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption and other rights held by the noncontrolling interest holder. Certain of the Company’s noncontrolling interest holders have the ability to put their equity interests to the Company upon specified events or after the passage of a predetermined period of time. Each put option is payable in cash and subject to increases in redemption value in the event that the underlying property generates specified returns for the Company and meets certain promote thresholds pursuant to the respective agreements. Accordingly, the Company records redeemable noncontrolling interests outside of permanent equity and presents the redeemable noncontrolling interests at the greater of their carrying amount or redemption value at the end of each reporting period.
As of September 30, 2021, the put option related to $54 million of the redeemable noncontrolling interests balance was currently exercisable. The remaining redeemable noncontrolling interests had not yet met the conditions for redemption. Three of the interests will become redeemable following the passage of a predetermined amount of time, which will occur in 2022, 2023, and 2024. The fourth interest will become redeemable at the earlier of a predetermined passage of time or stabilization, which is expected to occur in 2023. The redemption values are subject to change based on the assessment of value at each redemption date. As of December 31, 2020, none of the redeemable noncontrolling interests were exercisable.
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 September 30, 2021 and 2020 was zero weighted-average incremental shares from the forward equity sales agreements. The aggregate effect on the Company’s diluted weighted-average common shares for the nine months ended September 30, 2021 and 2020 was zero and 0.3 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
61,305
|
|
|
$
|
(27,762)
|
|
|
$
|
108,785
|
|
|
$
|
179,711
|
|
|
Noncontrolling interests' share in continuing operations
|
(7,195)
|
|
|
(3,616)
|
|
|
(14,036)
|
|
|
(10,565)
|
|
|
Income (loss) from continuing operations attributable to Healthpeak Properties, Inc.
|
54,110
|
|
|
(31,378)
|
|
|
94,749
|
|
|
169,146
|
|
|
Less: Participating securities' share in continuing operations
|
(269)
|
|
|
(351)
|
|
|
(3,001)
|
|
|
(2,151)
|
|
|
Income (loss) from continuing operations applicable to common shares
|
53,841
|
|
|
(31,729)
|
|
|
91,748
|
|
|
166,995
|
|
|
Income (loss) from discontinued operations
|
601
|
|
|
(31,819)
|
|
|
384,569
|
|
|
98,297
|
|
|
Noncontrolling interests' share in discontinued operations
|
—
|
|
|
(220)
|
|
|
(2,539)
|
|
|
(274)
|
|
|
Net income (loss) applicable to common shares
|
$
|
54,442
|
|
|
$
|
(63,768)
|
|
|
$
|
473,778
|
|
|
$
|
265,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
539,021
|
|
|
538,333
|
|
|
538,879
|
|
|
527,908
|
|
|
Dilutive potential common shares - equity awards(1)
|
367
|
|
|
—
|
|
|
280
|
|
|
279
|
|
|
Dilutive potential common shares - forward equity agreements(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
|
539,388
|
|
|
538,333
|
|
|
539,159
|
|
|
528,455
|
|
|
Basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.10
|
|
|
$
|
(0.06)
|
|
|
$
|
0.17
|
|
|
$
|
0.32
|
|
|
Discontinued operations
|
0.00
|
|
|
(0.06)
|
|
|
0.71
|
|
|
0.18
|
|
|
Net income (loss) applicable to common shares
|
$
|
0.10
|
|
|
$
|
(0.12)
|
|
|
$
|
0.88
|
|
|
$
|
0.50
|
|
|
Diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.10
|
|
|
$
|
(0.06)
|
|
|
$
|
0.17
|
|
|
$
|
0.32
|
|
|
Discontinued operations
|
0.00
|
|
|
(0.06)
|
|
|
0.71
|
|
|
0.18
|
|
|
Net income (loss) applicable to common shares
|
$
|
0.10
|
|
|
$
|
(0.12)
|
|
|
$
|
0.88
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
(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 and nine months ended September 30, 2021, all 9 million shares that have not been settled as of September 30, 2021 were anti-dilutive. For the nine months ended September 30, 2020, represents the dilutive impact of 32 million shares that were settled during the nine months then ended. For the three months ended September 30, 2020, forward sales agreements had no dilutive impact as all agreements were settled prior to the start of the period.
For all periods presented in the table above, all 7 million shares issuable upon conversion of DownREIT units were not included because they were anti-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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 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 that 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 September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
Total revenues
|
|
|
|
|
|
$
|
184,213
|
|
|
$
|
171,482
|
|
|
$
|
119,022
|
|
|
$
|
6,748
|
|
|
$
|
—
|
|
|
$
|
481,465
|
|
|
Government grant income(1)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,748)
|
|
|
—
|
|
|
(6,748)
|
|
|
Healthpeak’s share of unconsolidated joint venture total revenues
|
|
|
|
|
|
1,521
|
|
|
737
|
|
|
—
|
|
|
17,109
|
|
|
—
|
|
|
19,367
|
|
|
Healthpeak’s share of unconsolidated joint venture government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Noncontrolling interests’ share of consolidated joint venture total revenues
|
|
|
|
|
|
(82)
|
|
|
(8,954)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,036)
|
|
|
Operating expenses
|
|
|
|
|
|
(44,923)
|
|
|
(58,430)
|
|
|
(98,799)
|
|
|
13
|
|
|
—
|
|
|
(202,139)
|
|
|
Healthpeak’s share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
(463)
|
|
|
(305)
|
|
|
(32)
|
|
|
(13,450)
|
|
|
—
|
|
|
(14,250)
|
|
|
Noncontrolling interests’ share of consolidated joint venture operating expenses
|
|
|
|
|
|
25
|
|
|
2,659
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(2)
|
|
|
|
|
|
(11,021)
|
|
|
(3,626)
|
|
|
724
|
|
|
(100)
|
|
|
—
|
|
|
(14,023)
|
|
|
Adjusted NOI
|
|
|
|
|
|
129,270
|
|
|
103,563
|
|
|
20,930
|
|
|
3,572
|
|
|
—
|
|
|
257,335
|
|
|
Plus: Adjustments to NOI(2)
|
|
|
|
|
|
11,021
|
|
|
3,626
|
|
|
(724)
|
|
|
100
|
|
|
—
|
|
|
14,023
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,748
|
|
|
—
|
|
|
6,748
|
|
|
Interest expense
|
|
|
|
|
|
(46)
|
|
|
(1,104)
|
|
|
(1,936)
|
|
|
—
|
|
|
(32,819)
|
|
|
(35,905)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(79,570)
|
|
|
(66,189)
|
|
|
(31,416)
|
|
|
—
|
|
|
—
|
|
|
(177,175)
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,270)
|
|
|
(23,270)
|
|
|
Transaction costs
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
(1,952)
|
|
|
—
|
|
|
1,667
|
|
|
—
|
|
|
(285)
|
|
|
Gain (loss) on sales of real estate, net
|
|
|
|
|
|
—
|
|
|
14,635
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,635
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(667)
|
|
|
(667)
|
|
|
Other income (expense), net
|
|
|
|
|
|
22
|
|
|
(30)
|
|
|
114
|
|
|
1
|
|
|
1,563
|
|
|
1,670
|
|
|
Less: Government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
Less: Healthpeak’s share of unconsolidated joint venture NOI
|
|
|
|
|
|
(1,058)
|
|
|
(432)
|
|
|
32
|
|
|
(3,659)
|
|
|
—
|
|
|
(5,117)
|
|
|
Plus: Noncontrolling interests’ share of consolidated joint venture NOI
|
|
|
|
|
|
57
|
|
|
6,295
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,352
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
59,696
|
|
|
58,412
|
|
|
(13,015)
|
|
|
8,429
|
|
|
(55,193)
|
|
|
58,329
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
649
|
|
|
649
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
630
|
|
|
220
|
|
|
845
|
|
|
632
|
|
|
—
|
|
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
60,326
|
|
|
58,632
|
|
|
(12,170)
|
|
|
9,061
|
|
|
(54,544)
|
|
|
61,305
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
601
|
|
|
601
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
60,326
|
|
|
$
|
58,632
|
|
|
$
|
(12,170)
|
|
|
$
|
9,061
|
|
|
$
|
(53,943)
|
|
|
$
|
61,906
|
|
_______________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(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 September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
Total revenues
|
|
|
|
|
|
$
|
148,702
|
|
|
$
|
155,381
|
|
|
$
|
115,031
|
|
|
$
|
4,451
|
|
|
$
|
—
|
|
|
$
|
423,565
|
|
|
Government grant income(1)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
1,761
|
|
|
—
|
|
|
—
|
|
|
1,761
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,443)
|
|
|
—
|
|
|
(4,443)
|
|
|
Healthpeak’s share of unconsolidated joint venture total revenues
|
|
|
|
|
|
—
|
|
|
699
|
|
|
4,295
|
|
|
17,853
|
|
|
—
|
|
|
22,847
|
|
|
Healthpeak’s share of unconsolidated joint venture government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
49
|
|
|
—
|
|
|
295
|
|
|
Noncontrolling interests’ share of consolidated joint venture total revenues
|
|
|
|
|
|
(66)
|
|
|
(8,788)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,854)
|
|
|
Operating expenses
|
|
|
|
|
|
(36,714)
|
|
|
(51,435)
|
|
|
(94,992)
|
|
|
—
|
|
|
—
|
|
|
(183,141)
|
|
|
Healthpeak’s share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
—
|
|
|
(296)
|
|
|
(4,797)
|
|
|
(13,485)
|
|
|
—
|
|
|
(18,578)
|
|
|
Noncontrolling interests’ share of consolidated joint venture operating expenses
|
|
|
|
|
|
18
|
|
|
2,630
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(2)
|
|
|
|
|
|
(8,330)
|
|
|
(1,729)
|
|
|
1,684
|
|
|
63
|
|
|
—
|
|
|
(8,312)
|
|
|
Adjusted NOI
|
|
|
|
|
|
103,610
|
|
|
96,462
|
|
|
23,228
|
|
|
4,488
|
|
|
—
|
|
|
227,788
|
|
|
Plus: Adjustments to NOI(2)
|
|
|
|
|
|
8,330
|
|
|
1,729
|
|
|
(1,684)
|
|
|
(63)
|
|
|
—
|
|
|
8,312
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,443
|
|
|
—
|
|
|
4,443
|
|
|
Interest expense
|
|
|
|
|
|
(57)
|
|
|
(100)
|
|
|
(1,983)
|
|
|
—
|
|
|
(51,594)
|
|
|
(53,734)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(57,170)
|
|
|
(54,693)
|
|
|
(30,106)
|
|
|
(2)
|
|
|
—
|
|
|
(141,971)
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,661)
|
|
|
(21,661)
|
|
|
Transaction costs
|
|
|
|
|
|
(79)
|
|
|
—
|
|
|
(1,897)
|
|
|
(8)
|
|
|
—
|
|
|
(1,984)
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
(1,208)
|
|
|
—
|
|
|
2,985
|
|
|
—
|
|
|
1,777
|
|
|
Gain (loss) on sales of real estate, net
|
|
|
|
|
|
—
|
|
|
2,283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,283
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,921)
|
|
|
(17,921)
|
|
|
Other income (expense), net
|
|
|
|
|
|
—
|
|
|
—
|
|
|
3,903
|
|
|
—
|
|
|
2,841
|
|
|
6,744
|
|
|
Less: Government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,761)
|
|
|
—
|
|
|
—
|
|
|
(1,761)
|
|
|
Less: Healthpeak’s share of unconsolidated joint venture NOI
|
|
|
|
|
|
—
|
|
|
(403)
|
|
|
256
|
|
|
(4,417)
|
|
|
—
|
|
|
(4,564)
|
|
|
Plus: Noncontrolling interests’ share of consolidated joint venture NOI
|
|
|
|
|
|
48
|
|
|
6,158
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,206
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
54,682
|
|
|
50,228
|
|
|
(10,044)
|
|
|
7,426
|
|
|
(88,335)
|
|
|
13,957
|
|
|
Income tax benefit (expense)(3)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,970)
|
|
|
(22,970)
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
—
|
|
|
198
|
|
|
(322)
|
|
|
(18,625)
|
|
|
—
|
|
|
(18,749)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
54,682
|
|
|
50,426
|
|
|
(10,366)
|
|
|
(11,199)
|
|
|
(111,305)
|
|
|
(27,762)
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,819)
|
|
|
(31,819)
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
54,682
|
|
|
$
|
50,426
|
|
|
$
|
(10,366)
|
|
|
$
|
(11,199)
|
|
|
$
|
(143,124)
|
|
|
$
|
(59,581)
|
|
______________________________________________________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(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.
(3)Income tax benefit (expense) for the three months ended September 30, 2020 includes a $31 million income tax expense related to the valuation allowance on deferred tax assets that are no longer expected to be realized (see Note 5).
For the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
|
Total revenues
|
|
|
|
|
|
$
|
531,674
|
|
|
$
|
496,978
|
|
|
$
|
352,458
|
|
|
$
|
31,869
|
|
|
$
|
—
|
|
|
$
|
1,412,979
|
|
|
|
Government grant income(1)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
1,412
|
|
|
—
|
|
|
—
|
|
|
1,412
|
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,869)
|
|
|
—
|
|
|
(31,869)
|
|
|
|
Healthpeak’s share of unconsolidated joint venture total revenues
|
|
|
|
|
|
4,270
|
|
|
2,162
|
|
|
6,903
|
|
|
50,602
|
|
|
—
|
|
|
63,937
|
|
|
|
Healthpeak’s share of unconsolidated joint venture government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
810
|
|
|
—
|
|
|
1,010
|
|
|
|
Noncontrolling interests’ share of consolidated joint venture total revenues
|
|
|
|
|
|
(222)
|
|
|
(26,704)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,926)
|
|
|
|
Operating expenses
|
|
|
|
|
|
(125,108)
|
|
|
(164,198)
|
|
|
(284,739)
|
|
|
13
|
|
|
—
|
|
|
(574,032)
|
|
|
|
Healthpeak’s share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
(1,316)
|
|
|
(915)
|
|
|
(6,985)
|
|
|
(38,496)
|
|
|
—
|
|
|
(47,712)
|
|
|
|
Noncontrolling interests’ share of consolidated joint venture operating expenses
|
|
|
|
|
|
66
|
|
|
7,714
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(2)
|
|
|
|
|
|
(35,197)
|
|
|
(7,553)
|
|
|
1,971
|
|
|
(15)
|
|
|
—
|
|
|
(40,794)
|
|
|
|
Adjusted NOI
|
|
|
|
|
|
374,167
|
|
|
307,484
|
|
|
71,220
|
|
|
12,914
|
|
|
—
|
|
|
765,785
|
|
|
|
Plus: Adjustments to NOI(2)
|
|
|
|
|
|
35,197
|
|
|
7,553
|
|
|
(1,971)
|
|
|
15
|
|
|
—
|
|
|
40,794
|
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,869
|
|
|
—
|
|
|
31,869
|
|
|
|
Interest expense
|
|
|
|
|
|
(196)
|
|
|
(1,985)
|
|
|
(5,778)
|
|
|
—
|
|
|
(113,470)
|
|
|
(121,429)
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(224,958)
|
|
|
(187,512)
|
|
|
(93,702)
|
|
|
—
|
|
|
—
|
|
|
(506,172)
|
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(72,260)
|
|
|
(72,260)
|
|
|
|
Transaction costs
|
|
|
|
|
|
(11)
|
|
|
(295)
|
|
|
(1,090)
|
|
|
(21)
|
|
|
—
|
|
|
(1,417)
|
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
(1,952)
|
|
|
—
|
|
|
(2,506)
|
|
|
—
|
|
|
(4,458)
|
|
|
|
Gain (loss) on sales of real estate, net
|
|
|
|
|
|
—
|
|
|
189,873
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,873
|
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(225,824)
|
|
|
(225,824)
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
54
|
|
|
(2,483)
|
|
|
2,456
|
|
|
482
|
|
|
5,095
|
|
|
5,604
|
|
|
|
Less: Government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,412)
|
|
|
—
|
|
|
—
|
|
|
(1,412)
|
|
|
|
Less: Healthpeak’s share of unconsolidated joint venture NOI
|
|
|
|
|
|
(2,954)
|
|
|
(1,247)
|
|
|
(118)
|
|
|
(12,916)
|
|
|
—
|
|
|
(17,235)
|
|
|
|
Plus: Noncontrolling interests’ share of consolidated joint venture NOI
|
|
|
|
|
|
156
|
|
|
18,990
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,146
|
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
181,455
|
|
|
328,426
|
|
|
(30,395)
|
|
|
29,837
|
|
|
(406,459)
|
|
|
102,864
|
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,404
|
|
|
1,404
|
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
648
|
|
|
549
|
|
|
1,484
|
|
|
1,836
|
|
|
—
|
|
|
4,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
182,103
|
|
|
328,975
|
|
|
(28,911)
|
|
|
31,673
|
|
|
(405,055)
|
|
|
108,785
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
384,569
|
|
|
384,569
|
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
182,103
|
|
|
$
|
328,975
|
|
|
$
|
(28,911)
|
|
|
$
|
31,673
|
|
|
$
|
(20,486)
|
|
|
$
|
493,354
|
|
|
______________________________________________________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(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 nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Science
|
|
Medical Office
|
|
CCRC
|
|
Other Non-reportable
|
|
Corporate Non-segment
|
|
Total
|
|
Total revenues
|
|
|
|
|
|
$
|
416,081
|
|
|
$
|
463,866
|
|
|
$
|
320,737
|
|
|
$
|
12,494
|
|
|
$
|
—
|
|
|
$
|
1,213,178
|
|
|
Government grant income(1)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
13,632
|
|
|
—
|
|
|
—
|
|
|
13,632
|
|
|
Less: Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,361)
|
|
|
—
|
|
|
(12,361)
|
|
|
Healthpeak’s share of unconsolidated joint venture total revenues
|
|
|
|
|
|
—
|
|
|
2,085
|
|
|
30,723
|
|
|
56,729
|
|
|
—
|
|
|
89,537
|
|
|
Healthpeak’s share of unconsolidated joint venture government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
780
|
|
|
319
|
|
|
—
|
|
|
1,099
|
|
|
Noncontrolling interests’ share of consolidated joint venture total revenues
|
|
|
|
|
|
(175)
|
|
|
(25,775)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,950)
|
|
|
Operating expenses
|
|
|
|
|
|
(101,120)
|
|
|
(151,484)
|
|
|
(345,722)
|
|
|
—
|
|
|
—
|
|
|
(598,326)
|
|
|
Healthpeak’s share of unconsolidated joint venture operating expenses
|
|
|
|
|
|
—
|
|
|
(846)
|
|
|
(27,660)
|
|
|
(40,444)
|
|
|
—
|
|
|
(68,950)
|
|
|
Noncontrolling interests’ share of consolidated joint venture operating expenses
|
|
|
|
|
|
53
|
|
|
7,737
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to NOI(2)
|
|
|
|
|
|
(15,389)
|
|
|
(3,188)
|
|
|
93,263
|
|
|
114
|
|
|
—
|
|
|
74,800
|
|
|
Adjusted NOI
|
|
|
|
|
|
299,450
|
|
|
292,395
|
|
|
85,753
|
|
|
16,851
|
|
|
—
|
|
|
694,449
|
|
|
Plus: Adjustments to NOI(2)
|
|
|
|
|
|
15,389
|
|
|
3,188
|
|
|
(93,263)
|
|
|
(114)
|
|
|
—
|
|
|
(74,800)
|
|
|
Interest income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,361
|
|
|
—
|
|
|
12,361
|
|
|
Interest expense
|
|
|
|
|
|
(180)
|
|
|
(302)
|
|
|
(5,256)
|
|
|
—
|
|
|
(158,510)
|
|
|
(164,248)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
(159,737)
|
|
|
(165,265)
|
|
|
(81,760)
|
|
|
(12)
|
|
|
—
|
|
|
(406,774)
|
|
|
General and administrative
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(67,730)
|
|
|
(67,730)
|
|
|
Transaction costs
|
|
|
|
|
|
(80)
|
|
|
—
|
|
|
(16,739)
|
|
|
(101)
|
|
|
—
|
|
|
(16,920)
|
|
|
Impairments and loan loss reserves
|
|
|
|
|
|
—
|
|
|
(6,033)
|
|
|
—
|
|
|
(10,134)
|
|
|
—
|
|
|
(16,167)
|
|
|
Gain (loss) on sales of real estate, net
|
|
|
|
|
|
—
|
|
|
85,676
|
|
|
—
|
|
|
(40)
|
|
|
—
|
|
|
85,636
|
|
|
Gain (loss) on debt extinguishments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,912)
|
|
|
(42,912)
|
|
|
Other income (expense), net
|
|
|
|
|
|
—
|
|
|
—
|
|
|
188,377
|
|
|
41,707
|
|
|
4,728
|
|
|
234,812
|
|
|
Less: Government grant income
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(13,632)
|
|
|
—
|
|
|
—
|
|
|
(13,632)
|
|
|
Less: Healthpeak’s share of unconsolidated joint venture NOI
|
|
|
|
|
|
—
|
|
|
(1,239)
|
|
|
(3,843)
|
|
|
(16,604)
|
|
|
—
|
|
|
(21,686)
|
|
|
Plus: Noncontrolling interests’ share of consolidated joint venture NOI
|
|
|
|
|
|
122
|
|
|
18,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,160
|
|
|
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
154,964
|
|
|
226,458
|
|
|
59,637
|
|
|
43,914
|
|
|
(264,424)
|
|
|
220,549
|
|
|
Income tax benefit (expense)(3)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,792
|
|
|
6,792
|
|
|
Equity income (loss) from unconsolidated joint ventures
|
|
|
|
|
|
—
|
|
|
604
|
|
|
(1,801)
|
|
|
(46,433)
|
|
|
—
|
|
|
(47,630)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
154,964
|
|
|
227,062
|
|
|
57,836
|
|
|
(2,519)
|
|
|
(257,632)
|
|
|
179,711
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98,297
|
|
|
98,297
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
154,964
|
|
|
$
|
227,062
|
|
|
$
|
57,836
|
|
|
$
|
(2,519)
|
|
|
$
|
(159,335)
|
|
|
$
|
278,008
|
|
______________________________________________________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(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.
(3)Income tax benefit (expense) for the nine months ended September 30, 2020 includes: (i) a $51 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), (ii) a $31 million income tax expense related to the valuation allowance on deferred tax assets that are no longer expected to be realized (see Note 5), and (iii) a $3.6 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
Segment
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life science
|
|
$
|
184,213
|
|
|
$
|
148,702
|
|
|
$
|
531,674
|
|
|
$
|
416,081
|
|
|
Medical office
|
|
171,482
|
|
|
155,381
|
|
|
496,978
|
|
|
463,866
|
|
|
CCRC
|
|
119,022
|
|
|
115,031
|
|
|
352,458
|
|
|
320,737
|
|
|
Other non-reportable
|
|
6,748
|
|
|
4,451
|
|
|
31,869
|
|
|
12,494
|
|
|
Total revenues
|
|
$
|
481,465
|
|
|
$
|
423,565
|
|
|
$
|
1,412,979
|
|
|
$
|
1,213,178
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Supplemental cash flow information:
|
|
|
|
|
Interest paid, net of capitalized interest
|
$
|
167,062
|
|
|
$
|
187,569
|
|
|
Income taxes paid (refunded)
|
4,258
|
|
|
261
|
|
|
Capitalized interest
|
17,022
|
|
|
20,570
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
Accrued construction costs
|
150,204
|
|
|
114,979
|
|
|
Vesting of restricted stock units and conversion of non-managing member units into common stock
|
907
|
|
|
4,729
|
|
|
Net noncash impact from the consolidation of previously unconsolidated joint ventures
|
—
|
|
|
323,138
|
|
|
Mortgages assumed with real estate acquisitions
|
—
|
|
|
215,335
|
|
|
Carrying value of mortgages assumed by buyer in real estate dispositions
|
143,676
|
|
|
—
|
|
|
Refundable entrance fees assumed with real estate acquisitions
|
—
|
|
|
307,954
|
|
|
Seller financing provided on disposition of real estate asset
|
559,745
|
|
|
12,480
|
|
|
Increase in ROU asset in exchange for new lease liability related to operating leases
|
15,329
|
|
|
24,984
|
|
|
Decrease in ROU asset with corresponding change in lease liability related to operating leases
|
8,410
|
|
|
—
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Depreciation and amortization of real estate, in-place lease, and other intangibles
|
$
|
—
|
|
|
$
|
134,620
|
|
|
Development, redevelopment, and other major improvements of real estate
|
5,361
|
|
|
26,879
|
|
|
Leasing costs, tenant improvements, and recurring capital expenditures
|
2,609
|
|
|
9,137
|
|
The following table summarizes cash, cash equivalents and restricted cash (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
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
|
|
$
|
201,099
|
|
|
$
|
139,797
|
|
|
$
|
14,005
|
|
|
$
|
57,322
|
|
|
$
|
215,104
|
|
|
$
|
197,119
|
|
|
Restricted cash
|
|
53,699
|
|
|
83,156
|
|
|
3
|
|
|
19,263
|
|
|
53,702
|
|
|
102,419
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
254,798
|
|
|
$
|
222,953
|
|
|
$
|
14,008
|
|
|
$
|
76,585
|
|
|
$
|
268,806
|
|
|
$
|
299,538
|
|
NOTE 16. Variable Interest Entities
Unconsolidated Variable Interest Entities
At September 30, 2021, the Company had investments in: (i) one unconsolidated VIE joint venture and (ii) marketable debt securities of one VIE. At December 31, 2020, 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 (the LLC investment discussed below), it has no formal involvement in these VIEs beyond its investments.
VIE Tenant. As of December 31, 2020, the Company leased two properties to one tenant that was identified as a VIE (the “VIE tenant”). The VIE tenant was a “thinly capitalized” entity that relied on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under its leases. In June 2021, the Company sold these two properties as part of the Sunrise Senior Housing Portfolio (see Note 5).
CCRC OpCo. As of December 31, 2020, the Company held a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operated senior housing properties and had been identified as a VIE. The equity members of CCRC OpCo “lacked power” because they shared certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consisted of the CCRCs that it owned and leased, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consisted 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. In May 2021, the CCRC JV sold the two remaining CCRCs.
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. As of December 31, 2020, the Company held investments (consisting of mezzanine debt and/or preferred equity) in two senior housing development joint ventures. The joint ventures were also capitalized by senior loans from a third party and equity from the third party managing-member, but were considered to be “thinly capitalized” as there was insufficient equity investment at risk. In April 2021, the Company sold two mezzanine loans and two preferred equity investments as part of the Discovery SHOP Portfolio disposition (see Note 5).
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.
Loan Receivable. 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. In September 2021, the Company sold this loan receivable (see Note 7).
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 September 30, 2021 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE Type
|
|
Asset Type
|
|
Maximum Loss
Exposure
and Carrying
Amount(1)
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS and LLC investment
|
|
Other assets, net
|
|
$
|
36,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
(1)The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).
As of September 30, 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, 7, 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 September 30, 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). Refer to Note 12 for a discussion of certain put options associated with the Life Science JVs.
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. As of December 31, 2020, the Company leased seven senior housing properties to lessee entities under cash flow leases through which the Company received monthly rent equal to the residual cash flows of the properties. The lessee entities were classified as VIEs as they were "thinly capitalized" entities. The Company consolidated the lessee entities as it had the ability to control the activities that most significantly impacted the economic performance of the lessee entities. The lessee entities’ assets primarily consisted of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consisted 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) could only be used to settle contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facility and debt costs). During the nine months ended September 30, 2021, the Company sold these seven senior housing properties.
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 seven MOBs, one hospital, and three life science facilities (the “acquired properties”) using reverse like-kind exchange structures pursuant to Section 1031 of the Code (a “reverse 1031 exchange”). As of December 31, 2020, the Company had not completed the reverse 1031 exchanges and as such, the acquired properties remained in the possession of Exchange Accommodation Titleholders (“EATs”). The EATs were classified as VIEs as they were “thinly capitalized” entities. The Company consolidated the EATs because it had the ability to control the activities that most significantly impacted the economic performance of the EATs and was, therefore, the primary beneficiary of the EATs. The properties held by the EATs were reflected as real estate with a carrying value of $813 million as of December 31, 2020. The assets of the EATs primarily consisted of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consisted of capital expenditures for the properties. Assets generated by the EATs may only be used to settle its contractual obligations (primarily from capital expenditures). The reverse 1031 exchanges described above were completed during the three months ended June 30, 2021. Therefore, as of September 30, 2021, no properties remained in possession of an EAT.
In October 2021, the Company acquired two MOBs in reverse 1031 exchange structures. As of November 1, 2021, the Company had not completed the reverse 1031 exchanges and as such, the acquired properties remain in the possession of EATs and are classified as VIEs.
Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
Assets
|
|
|
|
|
|
Buildings and improvements
|
$
|
2,419,928
|
|
|
$
|
2,988,599
|
|
|
|
Development costs and construction in progress
|
62,400
|
|
|
85,595
|
|
|
|
Land
|
459,425
|
|
|
433,574
|
|
|
|
Accumulated depreciation and amortization
|
(541,890)
|
|
|
(602,491)
|
|
|
|
Net real estate
|
2,399,863
|
|
|
2,905,277
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
7,950
|
|
|
12,009
|
|
|
|
Cash and cash equivalents
|
31,670
|
|
|
16,550
|
|
|
|
Restricted cash
|
86
|
|
|
7,977
|
|
|
|
Intangible assets, net
|
117,073
|
|
|
179,027
|
|
|
|
Assets held for sale and discontinued operations, net
|
3,480
|
|
|
704,966
|
|
|
|
Right-of-use asset, net
|
107,492
|
|
|
95,407
|
|
|
|
Other assets, net
|
67,268
|
|
|
59,063
|
|
|
|
Total assets
|
$
|
2,734,882
|
|
|
$
|
3,980,276
|
|
|
|
Liabilities
|
|
|
|
|
|
Mortgage debt
|
$
|
144,333
|
|
|
$
|
39,085
|
|
|
|
|
|
|
|
|
|
Intangible liabilities, net
|
24,863
|
|
|
56,467
|
|
|
|
Liabilities related to assets held for sale and discontinued operations, net
|
3,032
|
|
|
190,919
|
|
|
|
Lease liability
|
98,042
|
|
|
97,605
|
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
58,025
|
|
|
102,391
|
|
|
|
Deferred revenue
|
33,474
|
|
|
90,183
|
|
|
|
Total liabilities
|
$
|
361,769
|
|
|
$
|
576,650
|
|
|
Total assets and liabilities related to assets held for sale and discontinued operations include VIE assets and liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
Buildings and improvements
|
|
$
|
—
|
|
|
$
|
639,759
|
|
|
Development costs and construction in progress
|
|
—
|
|
|
68
|
|
|
Land
|
|
—
|
|
|
106,209
|
|
|
Accumulated depreciation and amortization
|
|
—
|
|
|
(57,235)
|
|
|
Net real estate
|
|
—
|
|
|
688,801
|
|
|
Accounts receivable, net
|
|
1,298
|
|
|
1,700
|
|
|
Cash and cash equivalents
|
|
1,419
|
|
|
6,306
|
|
|
Restricted cash
|
|
—
|
|
|
3,124
|
|
|
|
|
|
|
|
|
Right-of-use asset, net
|
|
—
|
|
|
1,391
|
|
|
Other assets, net
|
|
763
|
|
|
3,644
|
|
|
Total assets
|
|
$
|
3,480
|
|
|
$
|
704,966
|
|
|
Liabilities
|
|
|
|
|
|
Mortgage debt
|
|
$
|
—
|
|
|
$
|
176,702
|
|
|
|
|
|
|
|
|
Lease liability
|
|
—
|
|
|
1,392
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
3,032
|
|
|
11,003
|
|
|
Deferred revenue
|
|
—
|
|
|
1,822
|
|
|
Total liabilities
|
|
$
|
3,032
|
|
|
$
|
190,919
|
|
NOTE 17. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis in the Consolidated Balance Sheets were immaterial at September 30, 2021 and December 31, 2020.
The table below summarizes the carrying amounts and fair values of the Company’s financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021(3)
|
|
December 31, 2020(3)
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Loans receivable, net(2)
|
$
|
411,062
|
|
|
$
|
411,082
|
|
|
$
|
195,375
|
|
|
$
|
201,228
|
|
|
Marketable debt securities(2)
|
20,836
|
|
|
20,836
|
|
|
20,355
|
|
|
20,355
|
|
|
Interest rate cap assets(2)
|
196
|
|
|
196
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit and commercial paper(2)
|
1,024,000
|
|
|
1,024,000
|
|
|
129,590
|
|
|
129,590
|
|
|
Term loan(2)
|
—
|
|
|
—
|
|
|
249,182
|
|
|
249,182
|
|
|
Senior unsecured notes(1)
|
4,157,834
|
|
|
4,606,692
|
|
|
5,697,586
|
|
|
6,517,650
|
|
|
Mortgage debt(2)(4)
|
356,570
|
|
|
359,274
|
|
|
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, swaps, and caps, 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 nine months ended September 30, 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 year ended December 31, 2020, excludes mortgage debt on assets held for sale and discontinued operations of $319 million.
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 and terminated the two remaining related interest rate swap contracts. Therefore, at September 30, 2021, the Company had no remaining interest rate swap contracts.
In April 2021, the Company executed two interest rate cap agreements on its mortgage debt issued in conjunction with the acquisition of the MOB Portfolio (see Note 4). The following table summarizes the Company’s outstanding interest rate cap agreements as of September 30, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Entered
|
|
Maturity Date
|
|
Hedge Designation
|
|
Notional
|
|
Strike Rate
|
|
Index
|
|
Fair Value(1)
|
|
Interest rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2021(2)
|
|
May 2024
|
|
Non-designated
|
|
$
|
142,100
|
|
|
2.00 %
|
|
1 mo. USD-LIBOR-BBA
|
|
$
|
196
|
|
_____________________________
(1)Derivative assets are recorded in other assets, net in the Consolidated Balance Sheets.
(2)Represents two interest rate cap agreements that manage the Company’s exposure to variable cash flows on certain mortgage debt borrowings by limiting interest rates.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Refundable entrance fees(1)
|
$
|
296,278
|
|
|
$
|
317,444
|
|
|
Accrued construction costs
|
150,204
|
|
|
95,293
|
|
|
Accrued interest
|
31,313
|
|
|
78,735
|
|
|
Other accounts payable and accrued liabilities
|
252,144
|
|
|
269,145
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
$
|
729,939
|
|
|
$
|
760,617
|
|
_______________________________________
(1)At September 30, 2021 and December 31, 2020, unamortized nonrefundable entrance fee liabilities were $491 million and $484 million, respectively, which are recorded within deferred revenue on the Consolidated Balance Sheets.