UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20192020
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-13445
Capital Senior Living Corporation
(Exact name of registrant as specified in its charter)
Delaware |
| 75-2678809 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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14160 Dallas Parkway, Suite 300 Dallas, Texas |
| 75254 |
(Address of principal executive offices) |
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Registrant’s telephone number, including area code:
(972) 770-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | CSU | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☑
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☑
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the 25,257,7642,090,169 shares, as adjusted for the fifteen-for-one reverse stock split, of the Registrant’s common stock, par value $0.01 per share (“Common Stock”), held by non-affiliates (defined to exclude all of the Registrant’s executive officers, directors, and certain significant stockholders) on June 28, 2019,30, 2020, the last day of the Registrant’s most recently completed second quarter, based upon the adjusted closing price of the Registrant’s Common Stock as reported by the New York Stock Exchange on such date was approximately $127.0$22.3 million. As of March 25, 2020,2021, the Registrant had 31,956,4392,081,332 shares of Common Stock outstanding.outstanding as adjusted for the reverse stock split.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement pertaining to its 20202021 Annual Meeting of Stockholders and filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A are incorporated herein by reference into Part III of this report.
CAPITAL SENIOR LIVING CORPORATION
TABLE OF CONTENTS
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Item 6. | 31 | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 15. |
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F-1 |
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PART I
Overview
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”"we," "us," "our," or "the Company"), is one of the largest operatorsleading owner-operators of senior housing communities in the United States in terms of resident capacity. The Company and its predecessors have provided senior housing since 1990. As of December 31, 2019, the Company2020, we operated 126101 senior housing communities in 2322 states with an aggregate capacity of approximately 16,00013,000 residents, including 8060 senior housing communities that we owned, 17 properties that were in the Company owned and 46process of transitioning legal ownership back to Fannie Mae, 12 senior housing communities that the Company leased.we leased, and 12 communities that we managed on behalf of third parties. During 2019,2020, we successfully exited all triple net leases and approximately 94.1%93.6% of total revenues for the senior housing communities that we operated by the Company were derived from private pay sources.
The Company’s operating strategy is toWe provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustainingin a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living servicesresidence setting to the 75+senior population, including independent living, assisted living, and memory care services. Many of the Company’sour communities offer a continuum of care to meet itsour residents’ needs as they change over time by integrating independent living, assisted living, and memory care, and iswhich may be bridged by home care through independent home care agencies, sustainingagencies. Our integrated approach sustains residents’ autonomy and independence based on their physical and neuro-cognitivecognitive abilities.
Recent DevelopmentsStrategy
After leadership changesOur strategic priorities are designed to strengthen the foundation of the organization, enhance our performance, and position our portfolio for near- and long-term growth. We strive to provide value to our senior living residents by providing quality senior living services in early 2019, wea home-like setting at reasonable prices, while also striving to (i) achieve and sustain a strong, competitive position within our geographically concentrated regions, and (ii) continue to enhance the performance of our operations.
We have supplemented our operating strategy with our S.I.N.G. strategy which stands for “Stabilize, Invest, Nurture and Grow.” These initiatives are intended to complement and enhance our core operational efforts and position us for future growth and success in light of recent trends in demographics, technology, and healthcare delivery methods.
Stabilize.A key component of our turnaround planstabilization has been the optimization of our portfolio of our senior housing communities, which includes disposing of certain owned and leased communities and restructuring our lease agreements with our three largest landlords.communities. We undertook this initiative to simplify and streamline our business, increase the quality and durability of our cash flows, improve our liquidity, reduce our shortshort-term and long-term debt and lease leverage, and increase our ownership in our consolidated community portfolio. During 2020, we successfully exited all triple net leases and closed on the sale of two senior housing communities, transitioning into a core continuing portfolio of owned communities.
Invest. Our resident-centric experience model includes investment in community upgrades and innovative and differentiated resident programming. Our focus on supportive transitions for new residents encourages opportunities and activities for residents to build their network of friends to foster new and continuing passions.
Nurture. We strive to create commercial distinction where our brand presence is synonymous with excellence. Our sales team is focused on customer engagement and performance-based media strategies. Our marketing activities focus on increasing the volume of leading indicators, including new resident inquiries and tours, so that potential residents and their families can effectively evaluate our portfolio of services.
Grow. Our strategy is focused on organic growth through existing community advancement. We continue to be positioned to provide competitive residential rates and flexible product offerings. Our portfolio is situated in markets where positive demographic trends exist with respect to population growth, income growth, and increased chronic medical conditions relative to the 75+ age group.
Recent activitiesDevelopments
COVID-19 Pandemic
The COVID-19 global pandemic was declared a public health emergency in furtherancethe United States in the first quarter of 2020 and, as of the date of this componentAnnual Report on Form 10-K, the United States continues to experience the substantial impacts of COVID-19, which has significantly disrupted the nation’s economy, the senior living industry, and our business.
In December 2020, we initiated the first round of COVID-19 vaccinations at all of our turnaround plan included:
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On October 22, 2019,communities and as of February 2021, subsequent to year-end, we executed an amendmentcompleted first-round vaccine clinics at 100% and second-round vaccine clinics at 68% of our communities. In communities that have completed second-round vaccine clinics, 75% of our residents and 34% of our staff have received both doses of the COVID-19 vaccine and are fully vaccinated. As of February 2021, subsequent to year-end, COVID-19 incidence rates have declined across our master lease agreementportfolio, and leading indicators, such as leads and tours, are at their highest levels since March 2020, indicating that demand for senior housing and services is beginning to rebound.
We are determined to achieve market differentiation through our response to the COVID-19 pandemic by utilizing our digital tools and social media to continue to foster leads, tours and family communications. Further, our senior leadership team has a deep experience in high-acuity settings, which provides us with Healthpeak Properties, Inc., formerly HCP, Inc.the key fundamentals to take quick and accurate actions in response to the COVID-19 pandemic, by promptly implementing appropriate infection controls in all of our properties, supporting our patients with care and helping to mitigate the negative impact of COVID-19.
During the COVID-19 pandemic, we were also successful in the early procurement of personal protective equipment (“Healthpeak”PPE”) and sterilization supplies, which enabled us to set up quick-access supply hubs to support our geographical regions. We responded with real-time operational adjustments to support a consistent resident service model, despite the rapidly changing and challenging senior living environment.
During 2020, we incurred significant additional operating costs and expenses in order to implement enhanced infection control protocols and enhanced care for our residents. For example, we incurred substantial costs for procurement of additional PPE, cleaning and disposable food service supplies, enhanced cleaning, infection control, environmental sanitation costs, and increased labor expenses for hazard pay at certain communities with COVID-19 positive residents. We have also incurred costs related to COVID-19 testing of our residents and our employees. In total, we incurred approximately $9.4 million in incremental COVID-19 costs in fiscal year 2020. We expect to continue to incur such incremental costs until the COVID-19 pandemic significantly subsides. To mitigate these new costs, we have reduced spending on non-essential supplies, travel, and other discretionary items.
In November 2020, we accepted $8.1 million of Phase 2 Provider Relief funds under the Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”), which was later amended,are intended to transition onereimburse the Company for COVID-19 related costs and lost revenue. The $8.1 million Phase 2 Provider Relief Funds have been recorded as a reduction to operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. We received an additional $8.7 million in the first quarter of 2021, subsequent to year-end, under the CARES Act Phase 3 and expect to fully recognize Phase 3 funds in 2021. The CARES Act Phase 2 and Phase 3 funds are grants that do not have to be repaid provided we satisfy the terms and conditions of the Healthpeak communitiesCARES Act. We are also utilizing the payroll tax deferral program under the CARES Act and delayed the employer portion of payroll taxes, totaling $7.4 million from, April 2020 through December 2020. One-half of the deferred payroll taxes, which amounted to a new operator on$3.7 million, will be due by December 2021, with the other half due by December 2022.
CARES Act Provider Relief Funds are subject to the terms and conditions of the program, including stringent restrictions that funds may only be used to reimburse COVID-19 related expenses or around January 15, 2020lost revenue that are attributable to COVID-19 and to sell the remaining eight communities as soon as possible to onehave not been reimbursed from other sources or more buyers. We werethat other sources are not obligated to pay a $250,000 termination fee on the transition of the one community to the new buyer. On March 1, 2020, we executed an agreement providing for the early termination of our master lease agreement with Healthpeak, previously scheduled to mature in April 2026. The master lease agreement was converted to a management agreement under a REIT Investment Diversification Act (“RIDEA”) structure pursuant to which we agreed to manage the six communities that were subject to such lease agreement until such communities are sold by Healthpeak. In conjunction with the agreement, we agreed to release approximately $1.9 million of security deposits held by Healthpeak.
Effective October 1, 2019, we sold two communities located in Springfield, Missouri and Peoria, Illinois that were operating at peak performance, which resulted in net proceeds to us of approximately $14.8 million and the retirement of outstanding mortgage debt of $44.4 million.
Effective May 1, 2019, we opportunistically disposed of one senior housing community located in Kokomo, Indiana, which resulted in net proceeds to us of approximately $1.4 million and the retirement of outstanding mortgage debt of $3.5 million.
During fiscal 2020,reimburse. While we intend to continue to increase our ownership percentagepursue additional funding that may become available, there can be no assurances that we will qualify for, or receive, any additional relief funds in our senior housing portfolio by exiting underperforming leases when possible,the future.
Going Concern and opportunistically selling certain communitiesRelated Strategic and Cash-Preservation Initiatives
As noted elsewhere in order to further strengthen our balance sheet and allow us to strategically invest in certain existing communities.
Website
The Company’s Internet website, www.capitalsenior.com, contains an Investor Relations section, which provides links to the Company’s annual reportsthis Annual Report on Form 10-K, quarterly reportsdue to the impact of COVID-19 on Form 10-Q, current reports on Form 8-K, proxyour financial position and our upcoming debt maturities, our management concluded as of December 31, 2020 that there is substantial doubt about our ability to continue as a going concern. We have implemented plans, which includes strategic and cash-preservation initiatives, which are designed to provide us with adequate liquidity to meet our obligations for at least the 12-month period following the date our fiscal year 2020 financial statements Section 16 filingsare issued. See “Note 2- Going Concern Uncertainty.”
We have taken, and any amendmentscontinue to take, actions to improve our liquidity position and to address the uncertainty about our ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, we may be unsuccessful in executing our business plans or achieving the projected results, which could adversely impact our financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be
successful or the cost savings, profitability or other results we achieve through those reportsplans will be consistent with our expectations. As a result, our results of operations, financial position and filings. These reportsliquidity could be negatively impacted. In particular, if we are unable to extend or refinance our indebtedness, including our maturing bridge loans, prior to scheduled maturity dates, our liquidity and filingsfinancial condition could be adversely impacted. Even if we are available throughable to extend or refinance such indebtedness, the terms of the new financing may not be as favorable to us as the terms of the existing financing. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.
Reverse Stock Split
On December 9, 2020, the Company’s Internet website freeBoard of charge as soon as reasonably practicable after such material is electronically filed with or furnishedDirectors approved and effected a reverse stock split (the “Reverse Stock Split”) of the Company’s common stock at a ratio of 1-for-15. The Reverse Stock Split reduced the number of issued and outstanding shares of common stock from approximately 31,268,943 shares to approximately 2,084,596 shares. The authorized number of shares of common stock was also proportionately reduced from 65,000,000 shares to 4,333,334 shares. All share amounts for the years ended December 31, 2019 and 2018 have been recast to give effect to the Securities and Exchange Commission (“SEC”).1-for 15 Reverse Stock Split.
Industry Background
The senior living industry encompasses a broad and diverse range of living accommodations and supportive services that are provided primarily to persons 75 years of age or older.
For seniors who require limited services, independent living residences, supplemented at times by home health care, offers a viable option. Most independent living communities typically offer community living packaged with basic services consisting of meals, housekeeping, laundry, 24-hour staffing, transportation, social and recreational activities and health care monitoring. Independent living residents typically are not reliant on assistance with activities of daily living (“ADLs”), although some residents may utilize outside vendors for those services.
As a senior’s need for assistance increases, care in an assisted living residence is often preferable and more cost-effective than home-based care or nursing home care. Typically, assisted living represents a combination of housing and support services designed to aid residents with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene and monitoring, or assistance with medications. Certain assisted living residencescommunities may also provide assistance to residents with low acuity medical needs. Others may offer higher levels of personal assistance for residents with chronic diseases and conditions or memory care services for residents with Alzheimer’s disease or other cognitive frailties. Generally, assisted living residents require higher levels of care than residents of independent living residences and retirement living centers, but require lower levels of care than patients in skilled nursing facilities. For seniors who need the constant attention of a skilled nurse or medical practitioner, a skilled nursing facility may be required.
According to the American Seniors Housing Association, Seniors Housing Construction Monitor – Winter 2020 Report, as of the fourth quarter of fiscal 2019, 22.3% of the age-restricted seniors housing supply in the United States were assisted living units, 22.5% were independent living units, 47.8% were nursing care units, and 7.6% were memory care units.
The senior living industry is highly fragmented and characterized by numerous small operators. Moreover, the scope of senior living services varies substantially from one operator to another. Many smaller senior living providers do not operate purpose-built residences, do not have extensive professional training for staff and provide only limited assistance with ADLs. The Company believesWe believe that, as one of the nation’s largest operators, it hasleading owner-operators, we have the scale and resources needed to provide the required comprehensive range of senior living services designed to permit residents to “age in place” within the community as residents develop further physical or cognitive frailties, whereas smaller providers do not.
The Company believesWe believe that a number of demographic, regulatory and other trends will contribute to the continued growth in the senior living market, including the following:
Consumer Preference
The Company believesWe believe that senior housing communities are increasingly becoming the setting preferred by many prospective residents and their families for the care of the 75+senior population. Senior living offers residents greater independence and allows them to “age in place” in a residential setting, which the Company believeswe believe results in a higher quality of life than that experienced in more institutional or clinical settings.
The likelihood of living alone increases with age. Most of this increase is due to an aging population in which women outlive men. Societal changes, such as high divorce rates and the growing numbers of persons choosing not to marry, have further increased the number of Americans living alone. This growth in the number of seniors living alone has resulted in an increased demand for services that historically have been provided by a spouse, other family members or live-in caregivers.
Demographics
The primary market for the Company’s senior living servicesOur portfolio is comprised of persons aged 75strategically positioned in (i) attractive, high-growth middle income demographic geographies and older. Due primarily to advancements in healthcare and an increased life expectancy, this age group is one of the fastest growing segments of the United States population. The older population itself is increasingly older. In 2011, the 75-84 age group in the United States (12.8 million persons) was 16 times larger than in 1900 and the 85 and over age group in the United States (5.7 million persons) was 40 times larger. The 85 and over population in the United States is projected to more than double from 5.7 million persons in 2011 to 14.1 million persons in 2040. As(ii) regions where the number of persons aged 75 and older continuesnew senior living units needed will continue to grow as a result of the Company believes that there will be corresponding increasesprojected increase in the number of persons who need assistance with ADLs.chronic conditions in the senior population.
Senior Affluence
The average net worth of senior citizens is typically higher than non-senior citizens, partially as a result of accumulated equity through home ownership. The Company believesWe believe that a substantial portion of the senior population has historically accumulated significant resources available for their retirement and long-term care needs. The Company’sOur target population is comprised of moderate to upper incomemiddle market seniors who have, either directly or indirectly through familial support, the financial resources to afford and pay for senior housing communities, including an assisted living alternative to traditional long-term care.
Reduced Reliance on Family Care
Historically, the family has been the primary provider of care for seniors. The Company believesWe believe that the increasea reduction in the percentageavailability of women in the work force,family care-givers, the reduction of average family size, and overall increased mobility in society is reducing the role of the family as the traditional and primary caregiver for aging parents. The Company believesWe believe that these factors will make it necessary for many seniors to look outside the family for assistance as they age.
Restricted Supply of Nursing Beds
Several states in the United States have adopted Certificate of Need (“CON”) or similar statutes generally requiring that, prior to the addition of new skilled nursing beds, the addition of new services, or the making of certain capital expenditures, a state agency must determine that a need exists for the new beds or the proposed activities. The Company believesWe believe that this CON process tends to restrict the supply and availability of licensed nursing facility beds. High construction costs, limitations on government reimbursement, and start-up expenses also act to constrain growth in the supply of such facilities. At the same time, nursing facility operators are continuing to focus on improving occupancy and expanding services to sub-acute patients generally of a younger age and requiring significantly higher levels of nursing care. As a result, the Company believeswe believe that there has been a decrease in the number of skilled nursing beds available to patients with lower acuity levels and that this trend should increase the demand for the Company’sour senior housing communities, including particularly, the Company’sour assisted living communities.
Cost-Containment Pressures
In response to rapidly rising health care costs, governmental and private pay sources have adopted cost containment measures that have reduced admissions and encouraged reduced lengths of stays in hospitals and other acute care settings. Private insurers have begun to limit reimbursement for medical services in general to predetermined charges, and managed care organizations (such as health maintenance organizations) are attempting to limit hospitalization costs by negotiating for discounted rates for hospital and acute care services and by monitoring and reducing hospital use. In response, hospitals are discharging patients earlier and referring aging patients, who may be too sick or frail to manage their lives without assistance, to nursing homes and assisted living residences where the cost of providing care is typically lower than hospital care. In addition, third-party payors are increasingly becoming involved in determining the appropriate health care settings for their insureds or clients, based primarily on cost and quality of care. Based on industry data, the typical day-rate in an assisted living facility is one-fourth of the cost for comparable care in a nursing home and two-thirds of the cost of living at home with a third-party home health care provider.
Senior Living Services
The Company providesWe provide senior living services to the residents aged 75 and greater, including independent living, assisted living, and memory care services. By offering a variety of services and encouraging the active participation of theeach resident and thesuch resident’s family and medical professionals, the Company iswe are able to customize itsour service plan to meet the specific needs and desires of each resident. As a result, the Company believeswe believe that it iswe are able to maximize customer satisfaction and avoid the cost of delivering unnecessary services to residents.
The Company’sOur operating philosophy is to provide quality senior housing communities and services to senior citizens and deliver a continuum of care for itsour residents as their needs change over time coordinatedin coordination with third party post-acute care providers. This continuum of care, which integrates independent living, assisted living, and memory care services,
and which is bridged by home care, sustains residents’each resident’s autonomy and independence based on their physical and mental abilities. AsIn many of our communities, as residents age, in many of the Company’s communities, they are able to obtain the additional services they need within the same community, avoiding the disruptive and often traumatic move to a different facility.
Our lease agreements with our independent living residents are generally for a term of one year and, under certain circumstances, are typically terminable by us or the resident upon providing 30 days’ notice, unless state law stipulates otherwise.
Independent Living Services
The Company providesWe provide independent living services to seniors who typically do not yet need assistance or support with ADLs, but who prefer the physical and psychological comfort of a residential community that offers health care and other services. As of December 31, 2019, the Company owned 37 communities and leased 15 communities that provide independent living services, which include communities that combine assisted living and other services, with an aggregate capacity for approximately 6,500 residents.
Independent living services provided by the Companyus include daily meals, transportation, social and recreational activities, laundry, housekeeping and 24-hour staffing. The CompanyWe also fostersfoster the wellness of itsour residents by offering access to health screenings (such as blood pressure checks), periodic special services (such as influenza inoculations), dietary and similar programs, as well asand ongoing exercise and fitness classes. Classes are given by health care professionals to keep residents informed about health and disease management. Subject to applicable government regulation,governmental regulations, personal care and medical services are available to independent living residents through either the community
staff or through the Company’s agency or other independent home care agencies. The Company’sOur independent living residents generally pay an average feemonthly rent of $2,700 per month, in general,approximately $2,500, depending on the specific community, program of services, size of the residential unit and amenities offered. The Company’s contracts with its independent living residents are generally for a termthe extent of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.included amenities.
Assisted Living Services
The Company offersWe offer a wide range of assisted living care and services, including personal care services, 24-hour staffing, support services, and other supplemental services, including memory care services at some communities as(as described below. As of December 31, 2019, the Company owned 66 communities and leased 40 communities that provide assisted living services, which include communities that combine independent living and other services, with an aggregate capacity for approximately 9,500 residents.below). The residents of the Company’sat our assisted living residences generally need help with some or all ADLs, but do not require the more acute medical care traditionally provided in nursing homes. Upon admission to the Company’sour assisted living communities, and in consultation with the resident, the resident’s family and medical consultants, each resident is assessed to determine his or her health status, including functional abilities and need for personal care services. The resident also completes a lifestyleslifestyle assessment to determine the resident’s preferences. From these assessments, a care plan is developed for each resident to ensureso that all staff members who render care can meet the specific needs and preferences of each resident, where possible. Each resident’s individual care plan is reviewed periodically to determine whether a change in the level of care is needed.
The Company hasWe have adopted a philosophy of assisted living care that allows a resident to maintain a dignified independent lifestyle. Residents and their families are encouraged to be partners in the residents’ care and to take as much responsibility for their well-being as possible. The basic types of assisted living services offered by the Company include the following:us include:
Personal Care Services. These services include assistance with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications.
Support Services. These services include meals, assistance with social and recreational activities, laundry services, general housekeeping, maintenance services and transportation services.
Supplemental Services. These services include extra transportation services, personal maintenance, extra laundry services, and special care services, such as services for residents with certain forms of dementia. Certain of these services require extra charges.
The Company’sOur assisted living residents generally pay an average feemonthly rent of $4,000 per month, in general,approximately $3,800, depending on the specific community, the level of personal care services, support service and supplemental services provided to the resident, size of the residential unit and amenities offered. The Company’s contracts with its assisted living residents are generally for a termthe extent of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.included amenities.
Memory Care Services
The Company maintainsWe maintain programs and special living accommodations at some of itsour communities for residents with certain forms of dementia, which provide the attention, care and services needed to help those residents maintain a higher quality of life. Specialized services include assistance with ADLs, behavior management and life skills-based activities programs, the goal of which is to provide a normalized environment that supports residents’the resident’s remaining functional abilities. Special living accommodations for residents with certain forms of dementia are located in a separate area of the community with its own dining facilities, resident lounge areas, and specially trained staff. The special care areas are
designed to allow residents the freedom to ambulate as they wish, while keeping them safely contained within a secure area with a minimum amount of disruption from other residents. Resident fees for these programs and special living accommodations are dependent on the level of services provided.
In January 2021, subsequent to year-end, we announced our new memory care program, Magnolia Trails, which was developed to meet the growing need for individualized programming for residents receiving memory care services. The Company’sprogram is designed to engage the five senses to create calming yet stimulating spaces and tailored care plans that seek to address our residents’ changing and evolving needs. Each resident’s preferences and current cognitive state influences his or her experience, including, the physical layout and design of the space, dining options, programs and activities. Aspects of the program include playing light background music that aligns with the generation living in the community, caregivers wearing business casual shirts and khakis rather than uniforms or scrubs, and our team members sharing items with residents in order to spark positive memories of family members or past experiences. The same responsive, sensory-focused approach is taken with dining. A dynamic menu of options is served throughout the day in a flexible but consistent manner. Our staff members provide warm, scented washcloths before each meal and incorporate inviting, calming aromas and soft music to enhance the ambiance.
Because Magnolia Trails is focused on the best way to engage each individual resident, employees learn about and incorporate each resident’s personal history and interests into their ongoing daily interactions. Comforting, hands-on activities are available, such as flower arranging, puzzles and matching games. Interactive experience stations, such as pet care, gardening and tool benches are also available. Another hallmark of the program is an emphasis on family connections, including ongoing educational opportunities specifically designed to help family members understand dementia and aspects of the disease and our progression. All communities with the Magnolia Trails program use a resident engagement mobile application where family members can receive real-time photos, videos and updates about their loved ones electronically.
Our memory care residents generally pay an average feemonthly rent of approximately $5,100, per month, in general, depending on the specific community, the level of personal care services, support serviceservices and supplemental services provided to the resident, the size of the residential unit and the extent of included amenities.
Respite Care and Temporary Care Programs
Our respite care and temporary care program provides a transitional apartment for seniors who are not entirely ready to return home after a hospital or rehabilitation stay. In addition to a fully furnished apartment, seniors enrolled in this program also have full access to our community’s amenities offered. The Company’s contracts with its memory care residents are generally
and services, including 24/7 staffing, delicious and nutritious dining and scheduled transportation. Our flexible agreement includes a minimum two-week stay, but allows our guests to remain for a termany extended period of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.time they so choose.
Home Care Services
As of December 31, 2019, the Company2020, we made home care services available through third-party providers to clientsresidents living at athe majority of itsour senior housing communities through third-party providers. The Company believescommunities. We believe that the provision of private pay, home care services is an attractive adjunct to itsour independent living services because it allows the Companyenables us to make available more services to itsour residents as they age in place and increases the length of stay in the Company’sour communities. In addition, the Company makeswe make certain customized physician, dentistry, podiatry and other health-related rehabilitation and therapy services available to itsour residents through third-party providers.
The table below sets forth certain information with respect to the senior housing communities we operated by the Company as of December 31, 2019.2020.
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| Commencement |
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| Resident Capacity1 |
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Community | Location |
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Owned: |
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Aspen Grove | Lamberville, MI |
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| 78 |
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|
| — |
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|
| 83 |
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| 83 |
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| 100 | % |
| 03/14 | Lambertville, MI |
|
| 78 |
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|
| — |
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|
| 83 |
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| 83 |
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| 100 | % |
| 03/14 |
Autumn Glen | Greencastle, IN |
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| 49 |
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| — |
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|
| 64 |
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| 64 |
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| 100 | % |
| 06/13 | Greencastle, IN |
|
| 49 |
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|
| — |
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|
| 64 |
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| 64 |
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| 100 | % |
| 06/13 |
Brookview Meadows | Green Bay, WI |
|
| 78 |
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|
| — |
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|
| 156 |
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| 156 |
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| 100 | % |
| 01/15 | Green Bay, WI |
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| 78 |
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| — |
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|
| 156 |
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| 156 |
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| 100 | % |
| 01/15 |
Canton Regency | Canton, OH |
|
| 239 |
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|
| 162 |
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|
| 145 |
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|
| 307 |
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| 100 | % |
| 03/91 | |||||||||||||||||||||||
Chateau of Batesville | Batesville, IN |
|
| 41 |
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| — |
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|
| 43 |
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| 43 |
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| 100 | % |
| 10/12 | Batesville, IN |
|
| 41 |
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| — |
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|
| 43 |
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|
| 43 |
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| 100 | % |
| 10/12 |
Cottonwood Village | Cottonwood, AZ |
|
| 163 |
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|
| 131 |
|
|
| 58 |
|
|
| 189 |
|
|
| 100 | % |
| 03/91 | Cottonwood, AZ |
|
| 163 |
|
|
| 131 |
|
|
| 58 |
|
|
| 189 |
|
|
| 100 | % |
| 03/91 |
Country Charm | Greenwood, IN |
|
| 89 |
|
|
| — |
|
|
| 166 |
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|
| 166 |
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| 100 | % |
| 10/12 | Greenwood, IN |
|
| 89 |
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|
| — |
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|
| 166 |
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| 166 |
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| 100 | % |
| 10/12 |
Courtyards at Lake Granbury | Granbury, TX |
|
| 81 |
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|
| — |
|
|
| 112 |
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|
| 112 |
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|
| 100 | % |
| 03/12 | Granbury, TX |
|
| 81 |
|
|
| — |
|
|
| 112 |
|
|
| 112 |
|
|
| 100 | % |
| 03/12 |
Georgetowne Place | Fort Wayne, IN |
|
| 159 |
|
|
| 242 |
|
|
| 0 |
|
|
| 242 |
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| 100 | % |
| 10/05 | Fort Wayne, IN |
|
| 159 |
|
|
| 242 |
|
|
| 0 |
|
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| 242 |
|
|
| 100 | % |
| 10/05 |
Good Tree Retirement and Memories | Stephenville, TX |
|
| 60 |
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|
| 20 |
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|
| 75 |
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| 95 |
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| 100 | % |
| 03/12 | Stephenville, TX |
|
| 60 |
|
|
| 20 |
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|
| 75 |
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|
| 95 |
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| 100 | % |
| 03/12 |
Gramercy Hill | Lincoln, NE |
|
| 143 |
|
|
| 34 |
|
|
| 113 |
|
|
| 147 |
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| 100 | % |
| 10/98 | |||||||||||||||||||||||
Gramercy Hill (3) | Lincoln, NE |
|
| 143 |
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|
| 34 |
|
|
| 113 |
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|
| 147 |
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|
| 100 | % |
| 10/98 | |||||||||||||||||||||||
Greenbriar Village | Indianapolis, IN |
|
| 124 |
|
|
| — |
|
|
| 134 |
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|
| 134 |
|
|
| 100 | % |
| 08/15 | Indianapolis, IN |
|
| 124 |
|
|
| — |
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|
| 134 |
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|
| 134 |
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|
| 100 | % |
| 08/15 |
Harbor Court | Rocky River, OH |
|
| 122 |
|
|
| — |
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|
| 144 |
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|
| 144 |
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|
| 100 | % |
| 12/12 | |||||||||||||||||||||||
Harbor Court (3) | Rocky River, OH |
|
| 122 |
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|
| — |
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|
| 144 |
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|
| 144 |
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|
| 100 | % |
| 12/12 | |||||||||||||||||||||||
Harrison at Eagle Valley | Indianapolis, IN |
|
| 104 |
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|
| 138 |
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|
| 0 |
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|
| 138 |
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| 100 | % |
| 03/91 | Indianapolis, IN |
|
| 104 |
|
|
| 138 |
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| 0 |
|
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| 138 |
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| 100 | % |
| 03/91 |
Heritage at the Plains at Parish Homestead | Oneonta, NY |
|
| 108 |
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|
| 97 |
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|
| 53 |
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|
| 150 |
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| 100 | % |
| 05/15 | Oneonta, NY |
|
| 108 |
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|
| 97 |
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|
| 53 |
|
|
| 150 |
|
|
| 100 | % |
| 05/15 |
Keystone Woods Assisted Living | Anderson, IN |
|
| 58 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
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|
| 100 | % |
| 07/11 | Anderson, IN |
|
| 58 |
|
|
| — |
|
|
| 70 |
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|
| 70 |
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|
| 100 | % |
| 07/11 |
Laurel Hurst Laurel Woods | Columbus, NC |
|
| 102 |
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|
| 70 |
|
|
| 60 |
|
|
| 130 |
|
|
| 100 | % |
| 10/11 | Columbus, NC |
|
| 102 |
|
|
| 70 |
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|
| 60 |
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|
| 130 |
|
|
| 100 | % |
| 10/11 |
Marquis Place of Elkhorn | Elkhorn, NE |
|
| 65 |
|
|
| — |
|
|
| 69 |
|
|
| 69 |
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|
| 100 | % |
| 03/13 | Elkhorn, NE |
|
| 65 |
|
|
| — |
|
|
| 69 |
|
|
| 69 |
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|
| 100 | % |
| 03/13 |
Middletown | Middletown, OH |
|
| 61 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
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|
| 100 | % |
| 09/13 | |||||||||||||||||||||||
Middletown (3) | Middletown, OH |
|
| 61 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
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|
| 100 | % |
| 09/13 | |||||||||||||||||||||||
North Pointe | Anderson, SC |
|
| 64 |
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|
| — |
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|
| 70 |
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|
| 70 |
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| 100 | % |
| 10/11 | Anderson, SC |
|
| 64 |
|
|
| — |
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|
| 70 |
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|
| 70 |
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| 100 | % |
| 10/11 |
Park-Oak Grove | Roanoke, VA |
|
| 93 |
|
|
| — |
|
|
| 164 |
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|
| 164 |
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|
| 100 | % |
| 08/14 | |||||||||||||||||||||||
River Crossing Assisted Living | Charlestown, IN |
|
| 100 |
|
|
| — |
|
|
| 106 |
|
|
| 106 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Park-Oak Grove (3) | Roanoke, VA |
|
| 93 |
|
|
| — |
|
|
| 164 |
|
|
| 164 |
|
|
| 100 | % |
| 08/14 | |||||||||||||||||||||||
River Crossing Assisted Living (3) | Charlestown, IN |
|
| 100 |
|
|
| — |
|
|
| 106 |
|
|
| 106 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Riverbend Independent and Assisted Living | Jeffersonville, IN |
|
| 97 |
|
|
| — |
|
|
| 114 |
|
|
| 114 |
|
|
| 100 | % |
| 03/12 | Jeffersonville, IN |
|
| 97 |
|
|
| — |
|
|
| 114 |
|
|
| 114 |
|
|
| 100 | % |
| 03/12 |
Remington at Valley Ranch | Irving, TX |
|
| 127 |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
|
| 100 | % |
| 04/12 | Irving, TX |
|
| 127 |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
|
| 100 | % |
| 04/12 |
Residence of Chardon | Chardon, OH |
|
| 42 |
|
|
| — |
|
|
| 52 |
|
|
| 52 |
|
|
| 100 | % |
| 10/12 | Chardon, OH |
|
| 42 |
|
|
| — |
|
|
| 52 |
|
|
| 52 |
|
|
| 100 | % |
| 10/12 |
Rose Arbor | Maple Grove, MN |
|
| 146 |
|
|
| 86 |
|
|
| 87 |
|
|
| 173 |
|
|
| 100 | % |
| 06/06 | Maple Grove, MN |
|
| 146 |
|
|
| 86 |
|
|
| 87 |
|
|
| 173 |
|
|
| 100 | % |
| 06/06 |
Rosemont Assisted Living and Memory Care | Humble, TX |
|
| 96 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/16 | Humble, TX |
|
| 96 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/16 |
Sugar Grove | Plainfield, IN |
|
| 164 |
|
|
| 48 |
|
|
| 116 |
|
|
| 164 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Sugar Grove (3) | Plainfield, IN |
|
| 164 |
|
|
| 48 |
|
|
| 116 |
|
|
| 164 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Summit Place | Anderson, SC |
|
| 80 |
|
|
| 19 |
|
|
| 89 |
|
|
| 108 |
|
|
| 100 | % |
| 10/11 | Anderson, SC |
|
| 80 |
|
|
| 19 |
|
|
| 89 |
|
|
| 108 |
|
|
| 100 | % |
| 10/11 |
Summit Point Living | Macedonia, OH |
|
| 163 |
|
|
| 126 |
|
|
| 98 |
|
|
| 224 |
|
|
| 100 | % |
| 08/11 | Macedonia, OH |
|
| 163 |
|
|
| 126 |
|
|
| 98 |
|
|
| 224 |
|
|
| 100 | % |
| 08/11 |
Towne Centre Retirement Community | Merrillville, IN |
|
| 213 |
|
|
| 0 |
|
|
| 238 |
|
|
| 238 |
|
|
| 100 | % |
| 03/91 | |||||||||||||||||||||||
Vintage Gardens | St. Joseph, MO |
|
| 95 |
|
|
| 44 |
|
|
| 92 |
|
|
| 136 |
|
|
| 100 | % |
| 05/13 | St. Joseph, MO |
|
| 95 |
|
|
| 44 |
|
|
| 92 |
|
|
| 136 |
|
|
| 100 | % |
| 05/13 |
Waterford at Baytown | Baytown, TX |
|
| 129 |
|
|
| 18 |
|
|
| 132 |
|
|
| 150 |
|
|
| 100 | % |
| 03/15 | Baytown, TX |
|
| 129 |
|
|
| 18 |
|
|
| 132 |
|
|
| 150 |
|
|
| 100 | % |
| 03/15 |
Waterford at Bridle Brook | Mahomet, IL |
|
| 78 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/15 | |||||||||||||||||||||||
Waterford at Bridle Brook (3) | Mahomet, IL |
|
| 78 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/15 | |||||||||||||||||||||||
Waterford at Carpenter’s Creek | Pensacola, FL |
|
| 94 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 02/16 | Pensacola, FL |
|
| 94 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 02/16 |
Waterford at Colby | Colby, TX |
|
| 44 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| 100 | % |
| 01/16 | Colby, TX |
|
| 44 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| 100 | % |
| 01/16 |
Waterford at College Station | College Station, TX |
|
| 53 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 03/12 | College Station, TX |
|
| 53 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 03/12 |
Waterford at Columbia | Columbia, SC |
|
| 117 |
|
|
| 141 |
|
|
| — |
|
|
| 141 |
|
|
| 100 | % |
| 11/00 | |||||||||||||||||||||||
Waterford at Columbia (3) | Columbia, SC |
|
| 117 |
|
|
| 141 |
|
|
| — |
|
|
| 141 |
|
|
| 100 | % |
| 11/00 | |||||||||||||||||||||||
Waterford at Corpus Christi | Corpus Christi, TX |
|
| 50 |
|
|
| — |
|
|
| 56 |
|
|
| 56 |
|
|
| 100 | % |
| 10/12 | Corpus Christi, TX |
|
| 50 |
|
|
| — |
|
|
| 56 |
|
|
| 56 |
|
|
| 100 | % |
| 10/12 |
Waterford at Creekside | Pensacola, FL |
|
| 84 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 02/16 | Pensacola, FL |
|
| 84 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 02/16 |
Waterford at Deer Park | Deer Park, TX |
|
| 119 |
|
|
| 144 |
|
|
| — |
|
|
| 144 |
|
|
| 100 | % |
| 11/00 | |||||||||||||||||||||||
Waterford at Dillon Pointe | Spartanburg, SC |
|
| 51 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Waterford at Edison Lakes | South Bend, IN |
|
| 116 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 12/00 | |||||||||||||||||||||||
Waterford at Dillon Pointe (3) | Spartanburg, SC |
|
| 51 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
|
| 100 | % |
| 12/13 | |||||||||||||||||||||||
Waterford at Edison Lakes (3) | South Bend, IN |
|
| 116 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 12/00 | |||||||||||||||||||||||
Waterford at Fairfield | Fairfield, OH |
|
| 120 |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| 100 | % |
| 11/00 | Fairfield, OH |
|
| 120 |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| 100 | % |
| 11/00 |
Waterford at Fitchburg | Fitchburg, WI |
|
| 82 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
|
| 100 | % |
| 10/13 | Fitchburg, WI |
|
| 82 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
|
| 100 | % |
| 10/13 |
Waterford at Fort Worth | Fort Worth, TX |
|
| 154 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
|
| 100 | % |
| 06/00 | Fort Worth, TX |
|
| 154 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
|
| 100 | % |
| 06/00 |
Waterford at Hartford | Hartford, WI |
|
| 39 |
|
|
| — |
|
|
| 53 |
|
|
| 53 |
|
|
| 100 | % |
| 05/15 | Hartford, WI |
|
| 39 |
|
|
| — |
|
|
| 53 |
|
|
| 53 |
|
|
| 100 | % |
| 05/15 |
Waterford at Hidden Lake | Canton, GA |
|
| 43 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 12/14 | |||||||||||||||||||||||
Waterford at Hidden Lake (3) | Canton, GA |
|
| 43 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 12/14 | |||||||||||||||||||||||
Waterford at Highland Colony | Jackson, MS |
|
| 119 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 11/00 | Jackson, MS |
|
| 119 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 11/00 |
Waterford at Ironbridge | Springfield, MO |
|
| 118 |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
|
|
| 100 | % |
| 06/01 | Springfield, MO |
|
| 118 |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
|
|
| 100 | % |
| 06/01 |
Waterford at Levis Commons | Toledo, OH |
|
| 146 |
|
|
| 163 |
|
|
| 44 |
|
|
| 207 |
|
|
| 100 | % |
| 04/09 | Toledo, OH |
|
| 146 |
|
|
| 163 |
|
|
| 44 |
|
|
| 207 |
|
|
| 100 | % |
| 04/09 |
Waterford at Mansfield | Mansfield, OH |
|
| 118 |
|
|
| 97 |
|
|
| 45 |
|
|
| 142 |
|
|
| 100 | % |
| 10/00 | Mansfield, OH |
|
| 118 |
|
|
| 97 |
|
|
| 45 |
|
|
| 142 |
|
|
| 100 | % |
| 10/00 |
Waterford at Mesquite | Mesquite, TX |
|
| 153 |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
|
|
| 100 | % |
| 09/99 | Mesquite, TX |
|
| 153 |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
|
|
| 100 | % |
| 09/99 |
Waterford at Oakwood (3) | Oakwood, GA |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 09/13 | |||||||||||||||||||||||
Waterford at Oshkosh (3) | Oshkosh, WI |
|
| 91 |
|
|
| — |
|
|
| 109 |
|
|
| 109 |
|
|
| 100 | % |
| 08/14 | |||||||||||||||||||||||
Waterford at Pantego (3) | Pantego, TX |
|
| 118 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 12/00 |
Oakwood, GA |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 09/13 | |
Waterford at Oshkosh | Oshkosh, WI |
|
| 91 |
|
|
| — |
|
|
| 109 |
|
|
| 109 |
|
|
| 100 | % |
| 08/14 |
Waterford at Pantego | Pantego, TX |
|
| 118 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 12/00 |
Waterford at Park Falls | Park Falls, WI |
|
| 36 |
|
|
| — |
|
|
| 36 |
|
|
| 36 |
|
|
| 100 | % |
| 01/16 |
Waterford at Plano | Plano, TX |
|
| 135 |
|
|
| 109 |
|
|
| 57 |
|
|
| 166 |
|
|
| 100 | % |
| 12/00 |
Waterford at Plymouth | Plymouth, WI |
|
| 69 |
|
|
| — |
|
|
| 82 |
|
|
| 82 |
|
|
| 100 | % |
| 08/14 |
Waterford at Richmond Heights | Richmond Heights, OH |
|
| 148 |
|
|
| 117 |
|
|
| 110 |
|
|
| 227 |
|
|
| 100 | % |
| 04/09 |
Waterford at Thousand Oaks | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 05/00 |
Waterford at Virginia Beach | Virginia Beach, VA |
|
| 111 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 10/15 |
Waterford at West Bend | West Bend, WI |
|
| 40 |
|
|
| — |
|
|
| 41 |
|
|
| 41 |
|
|
| 100 | % |
| 05/15 |
Waterford at Wisconsin Rapids | Wisconsin Rapids, WI |
|
| 58 |
|
|
| — |
|
|
| 66 |
|
|
| 66 |
|
|
| 100 | % |
| 01/16 |
Waterford on Cooper | Arlington, TX |
|
| 105 |
|
|
| — |
|
|
| 151 |
|
|
| 151 |
|
|
| 100 | % |
| 03/12 |
Waterford on Huebner | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 04/99 |
Wellington at Arapaho | Richardson, TX |
|
| 140 |
|
|
| 113 |
|
|
| 57 |
|
|
| 170 |
|
|
| 100 | % |
| 05/02 |
Wellington at Conroe | Conroe, TX |
|
| 44 |
|
|
| 25 |
|
|
| 35 |
|
|
| 60 |
|
|
| 100 | % |
| 03/12 |
Wellington at Dayton | Dayton, OH |
|
| 149 |
|
|
| 146 |
|
|
| 94 |
|
|
| 240 |
|
|
| 100 | % |
| 08/08 |
Wellington at North Bend Crossing | Cincinnati, OH |
|
| 122 |
|
|
| 54 |
|
|
| 146 |
|
|
| 200 |
|
|
| 100 | % |
| 11/16 |
Wellington at North Richland Hills | North Richland Hills, TX |
|
| 118 |
|
|
| 139 |
|
|
| — |
|
|
| 139 |
|
|
| 100 | % |
| 01/02 |
Wellington at Southport | Indianapolis, IN |
|
| 64 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 10/12 |
Wellington at Springfield | Springfield, MA |
|
| 235 |
|
|
| 119 |
|
|
| 117 |
|
|
| 236 |
|
|
| 100 | % |
| 09/16 |
Whispering Pines Village | Columbiana, OH |
|
| 68 |
|
|
| 24 |
|
|
| 88 |
|
|
| 112 |
|
|
| 100 | % |
| 07/15 |
Whitcomb House | Milford, MA |
|
| 87 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 10/13 |
Woodlands of Columbus | Columbus, OH |
|
| 116 |
|
|
| — |
|
|
| 117 |
|
|
| 117 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Hamilton | Hamilton, OH |
|
| 77 |
|
|
| — |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Shaker Heights | Shaker Heights, OH |
|
| 66 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
|
| 100 | % |
| 10/12 |
Woodview Assisted Living | Fort Wayne, IN |
|
| 88 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
|
| 100 | % |
| 12/13 |
Wynnfield Crossing Assisted Living | Rochester, IN |
|
| 50 |
|
|
| — |
|
|
| 79 |
|
|
| 79 |
|
|
| 100 | % |
| 07/11 |
|
|
|
| 8,068 |
|
|
| 3,975 |
|
|
| 6,318 |
|
|
| 10,293 |
|
|
|
|
|
|
|
Leased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberleigh | Buffalo, NY |
|
| 267 |
|
|
| 387 |
|
|
| 66 |
|
|
| 453 |
|
| N/A |
|
| 01/92 | |
Crown Pointe | Omaha, NE |
|
| 136 |
|
|
| 85 |
|
|
| 80 |
|
|
| 165 |
|
| N/A |
|
| 08/00 | |
Independence Village of East Lansing | East Lansing, MI |
|
| 146 |
|
|
| 161 |
|
|
| — |
|
|
| 161 |
|
| N/A |
|
| 08/00 | |
Independence Village of Olde Raleigh | Raleigh, NC |
|
| 167 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
| N/A |
|
| 08/00 | |
Villa Santa Barbara | Santa Barbara, CA |
|
| 125 |
|
|
| 64 |
|
|
| 62 |
|
|
| 126 |
|
| N/A |
|
| 08/00 | |
West Shores | Hot Springs, AR |
|
| 137 |
|
|
| 131 |
|
|
| 42 |
|
|
| 173 |
|
| N/A |
|
| 08/00 | |
Whitley Place | Keller, TX |
|
| 47 |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
| N/A |
|
| 02/08 | |
Welltower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azalea Trails Assisted Living | Tyler, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Buffalo Creek Assisted Living | Waxahachie, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Dogwood Trails Assisted Living | Palestine, TX |
|
| 65 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
|
| N/A |
|
| 09/10 | |
Hawkins Creek Assisted Living | Longview, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Hearth at Prestwick | Avon, IN |
|
| 132 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | |
Hearth at Windermere | Fishers, IN |
|
| 128 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | |
Heritage Oaks Assisted Living | Conroe, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | |
Keepsake Village of Columbus | Columbus, IN |
|
| 42 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
| N/A |
|
| 08/06 | |
Magnolia Court Assisted Living | Nacogdoches, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Martin Crest Assisted Living | Weatherford, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | |
Pecan Point Assisted Living | Sherman, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Santa Fe Trails Assisted Living | Cleburne, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | |
Spring Lake Assisted Living | Paris, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Spring Meadows Libertyville | Libertyville, IL |
|
| 198 |
|
|
| 208 |
|
|
| 45 |
|
|
| 253 |
|
| N/A |
|
| 04/11 | |
Spring Meadows Naperville | Naperville, IL |
|
| 193 |
|
|
| 186 |
|
|
| 45 |
|
|
| 231 |
|
| N/A |
|
| 04/11 | |
Spring Meadows at Summit | Summit, NJ |
|
| 89 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
| N/A |
|
| 04/11 | |
Spring Meadows at Trumbull | Trumbull, CT |
|
| 152 |
|
|
| 182 |
|
|
| 56 |
|
|
| 238 |
|
| N/A |
|
| 04/11 | |
Stonefield Assisted Living | McKinney, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | |
Walnut Creek Assisted Living | Mansfield, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |
Waterford at Ames | Ames, IA |
|
| 49 |
|
|
| — |
|
|
| 122 |
|
|
| 122 |
|
| N/A |
|
| 02/06 | |
Waterford at Miracle Hills | Omaha, NE |
|
| 54 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 03/06 | |
Waterford at Roxbury Park | Omaha, NE |
|
| 55 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 02/06 | |
Waterford at Van Dorn | Lincoln, NE |
|
| 63 |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
| N/A |
|
| 02/06 |
Plattsmouth, NE |
|
| 40 |
|
|
| — |
|
|
| 45 |
|
|
| 45 |
|
| N/A |
|
| 02/06 | ||
HCP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atrium of Carmichael | Sacramento, CA |
|
| 151 |
|
|
| 155 |
|
|
| — |
|
|
| 155 |
|
| N/A |
|
| 01/92 | |
Charlotte Square | Charlotte, NC |
|
| 118 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 12/06 | |
Chesapeake Place | Chesapeake, VA |
|
| 103 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | |
Covenant Place of Abilene | Abilene, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | |
Covenant Place of Burleson | Burleson, TX |
|
| 74 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | |
Covenant Place of Waxahachie | Waxahachie, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | |
Crescent Place | Cedar Hill, TX |
|
| 80 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
| N/A |
|
| 11/05 | |
Crescent Point | Cedar Hill, TX |
|
| 111 |
|
|
| 134 |
|
|
| — |
|
|
| 134 |
|
| N/A |
|
| 08/04 | |
Crosswood Oaks | Sacramento, CA |
|
| 121 |
|
|
| 127 |
|
|
| — |
|
|
| 127 |
|
| N/A |
|
| 01/92 | |
Good Place | North Richland Hills, TX |
|
| 72 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | |
Greenville Place | Greenville, SC |
|
| 85 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | |
Meadow Lakes | North Richland Hills, TX |
|
| 118 |
|
|
| 145 |
|
|
| — |
|
|
| 145 |
|
| N/A |
|
| 08/04 | |
Myrtle Beach Estates | Myrtle Beach, SC |
|
| 101 |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
| N/A |
|
| 12/06 | |
Tesson Heights | St. Louis, MO |
|
| 182 |
|
|
| 134 |
|
|
| 72 |
|
|
| 206 |
|
| N/A |
|
| 10/98 | |
Veranda Club | Boca Raton, FL |
|
| 186 |
|
|
| 129 |
|
|
| 97 |
|
|
| 226 |
|
| N/A |
|
| 01/92 | |
|
|
|
| 4,541 |
|
|
| 2,405 |
|
|
| 3,351 |
|
|
| 5,756 |
|
|
|
|
|
|
|
Total |
|
|
| 12,609 |
|
|
| 6,380 |
|
|
| 9,669 |
|
|
| 16,049 |
|
|
|
|
|
|
|
Waterford at Park Falls | Park Falls, WI |
|
| 36 |
|
|
| — |
|
|
| 36 |
|
|
| 36 |
|
|
| 100 | % |
| 01/16 |
Waterford at Plano | Plano, TX |
|
| 135 |
|
|
| 109 |
|
|
| 57 |
|
|
| 166 |
|
|
| 100 | % |
| 12/00 |
Waterford at Plymouth | Plymouth, WI |
|
| 69 |
|
|
| — |
|
|
| 82 |
|
|
| 82 |
|
|
| 100 | % |
| 08/14 |
Waterford at Richmond Heights (3) | Richmond Heights, OH |
|
| 148 |
|
|
| 117 |
|
|
| 110 |
|
|
| 227 |
|
|
| 100 | % |
| 04/09 |
Waterford at Thousand Oaks | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 05/00 |
Waterford at Virginia Beach | Virginia Beach, VA |
|
| 111 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 10/15 |
Waterford at West Bend | West Bend, WI |
|
| 40 |
|
|
| — |
|
|
| 41 |
|
|
| 41 |
|
|
| 100 | % |
| 05/15 |
Waterford at Wisconsin Rapids | Wisconsin Rapids, WI |
|
| 58 |
|
|
| — |
|
|
| 66 |
|
|
| 66 |
|
|
| 100 | % |
| 01/16 |
Waterford on Cooper | Arlington, TX |
|
| 105 |
|
|
| — |
|
|
| 151 |
|
|
| 151 |
|
|
| 100 | % |
| 03/12 |
Waterford on Huebner | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 04/99 |
Wellington at Arapaho | Richardson, TX |
|
| 140 |
|
|
| 113 |
|
|
| 57 |
|
|
| 170 |
|
|
| 100 | % |
| 05/02 |
Wellington at Conroe | Conroe, TX |
|
| 44 |
|
|
| 25 |
|
|
| 35 |
|
|
| 60 |
|
|
| 100 | % |
| 03/12 |
Wellington at Dayton | Dayton, OH |
|
| 149 |
|
|
| 146 |
|
|
| 94 |
|
|
| 240 |
|
|
| 100 | % |
| 08/08 |
Wellington at North Bend Crossing | Cincinnati, OH |
|
| 122 |
|
|
| 54 |
|
|
| 146 |
|
|
| 200 |
|
|
| 100 | % |
| 11/16 |
Wellington at North Richland Hills | North Richland Hills, TX |
|
| 118 |
|
|
| 139 |
|
|
| — |
|
|
| 139 |
|
|
| 100 | % |
| 01/02 |
Wellington at Southport | Indianapolis, IN |
|
| 64 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 10/12 |
Wellington at Springfield | Springfield, MA |
|
| 235 |
|
|
| 119 |
|
|
| 117 |
|
|
| 236 |
|
|
| 100 | % |
| 09/16 |
Whispering Pines Village | Columbiana, OH |
|
| 68 |
|
|
| 24 |
|
|
| 88 |
|
|
| 112 |
|
|
| 100 | % |
| 07/15 |
Whitcomb House (3) | Milford, MA |
|
| 87 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 10/13 |
Woodlands of Columbus | Columbus, OH |
|
| 116 |
|
|
| — |
|
|
| 117 |
|
|
| 117 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Hamilton | Hamilton, OH |
|
| 77 |
|
|
| — |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Shaker Heights | Shaker Heights, OH |
|
| 66 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
|
| 100 | % |
| 10/12 |
Woodview Assisted Living (3) | Fort Wayne, IN |
|
| 88 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
|
| 100 | % |
| 12/13 |
Wynnfield Crossing Assisted Living | Rochester, IN |
|
| 50 |
|
|
| — |
|
|
| 79 |
|
|
| 79 |
|
|
| 100 | % |
| 07/11 |
|
|
|
| 7,497 |
|
|
| 3,669 |
|
|
| 5,935 |
|
|
| 9,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberleigh (4) | Buffalo, NY |
|
| 267 |
|
|
| 387 |
|
|
| 66 |
|
|
| 453 |
|
| N/A |
|
| 01/92 | |
Crown Pointe (4) | Omaha, NE |
|
| 136 |
|
|
| 85 |
|
|
| 80 |
|
|
| 165 |
|
| N/A |
|
| 08/00 | |
Independence Village of East Lansing (4) | East Lansing, MI |
|
| 146 |
|
|
| 161 |
|
|
| — |
|
|
| 161 |
|
| N/A |
|
| 08/00 | |
Independence Village of Olde Raleigh (4) | Raleigh, NC |
|
| 167 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
| N/A |
|
| 08/00 | |
Villa Santa Barbara (4) | Santa Barbara, CA |
|
| 125 |
|
|
| 64 |
|
|
| 62 |
|
|
| 126 |
|
| N/A |
|
| 08/00 | |
West Shores (4) | Hot Springs, AR |
|
| 137 |
|
|
| 131 |
|
|
| 42 |
|
|
| 173 |
|
| N/A |
|
| 08/00 | |
Whitley Place (4) | Keller, TX |
|
| 47 |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
| N/A |
|
| 02/08 | |
Welltower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spring Meadows at Trumbull (5) | Trumbull, CT |
|
| 152 |
|
|
| 182 |
|
|
| 56 |
|
|
| 238 |
|
| N/A |
|
| 04/11 | |
Waterford at Miracle Hills (5) | Omaha, NE |
|
| 54 |
|
|
| 0 |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 03/06 | |
Waterford at Roxbury Park (5) | Omaha, NE |
|
| 55 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 02/06 | |
Waterford at Van Dorn (5) | Lincoln, NE |
|
| 63 |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
| N/A |
|
| 02/06 | |
Waterford at Woodbridge (5) | Plattsmouth, NE |
|
| 40 |
|
|
| — |
|
|
| 45 |
|
|
| 45 |
|
| N/A |
|
| 02/06 | |
|
|
|
| 1,389 |
|
|
| 1,187 |
|
|
| 640 |
|
|
| 1,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canton Regency | Canton, OH |
|
| 239 |
|
|
| 162 |
|
|
| 145 |
|
|
| 307 |
|
| N/A |
|
| 03/91 | |
Healthpeak: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant Place of Abilene (6) | Abilene, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | |
Covenant Place of Burleson (6) | Burleson, TX |
|
| 74 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | |
Covenant Place of Waxahachie (6) | Waxahachie, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | |
Charlotte Square (7) | Charlotte, NC |
|
| 118 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 12/06 | |
Chesapeake Place (7) | Chesapeake, VA |
|
| 103 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | |
Crescent Place (7) | Cedar Hill, TX |
|
| 80 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
| N/A |
|
| 11/05 | |
Crescent Point (6) | Cedar Hill, TX |
|
| 111 |
|
|
| 134 |
|
|
| 0 |
|
|
| 134 |
|
| N/A |
|
| 08/04 | |
Good Place (6) | North Richland Hills, TX |
|
| 72 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | |
Greenville Place (7) | Greenville, SC |
|
| 85 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | |
Meadow Lakes (6) | North Richland Hills, TX |
|
| 118 |
|
|
| 145 |
|
|
| 0 |
|
|
| 145 |
|
| N/A |
|
| 08/04 | |
Myrtle Beach Estates (7) | Myrtle Beach, SC |
|
| 101 |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
| N/A |
|
| 12/06 | |
|
|
|
| 962 |
|
|
| 279 |
|
|
| 967 |
|
|
| 1,246 |
|
|
|
|
|
|
|
Total |
|
|
| 9,848 |
|
|
| 5,135 |
|
|
| 7,542 |
|
|
| 12,677 |
|
|
|
|
|
|
|
(1) | Independent living (IL) residences and assisted living (AL) residences based on community licensure. |
(2) | Indicates the date on which |
(3) | Properties for which we are in the process of transferring legal ownership to Fannie Mae. One such property transitioned to a successor operator in the fourth quarter of 2020, although the legal ownership has not yet transferred back to Fannie Mae for this community. See “Note 5- Dispositions and Other Significant Transactions.” |
(4) | Our master lease agreement (the “Master Lease Agreement”) with Ventas, Inc. (“Ventas”) terminated on December 31, 2020 and, subsequent to year-end, converted to a management agreement on January 1, 2021. See “Note 5- Dispositions and Other Significant Transactions.” |
(5) | Our master lease agreement with Welltower, Inc. (“Welltower”) terminated on December 31, 2020 and five of the properties converted to management agreements. See “Note 5- Dispositions and Other Significant Transactions.” |
(6) | On March 1, 2020, the Company entered into an agreement with Healthpeak Properties, Inc. (“Healthpeak”) (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement terminated and was converted into a Management Agreement under a Real Estate Investment Trust Investment Diversification and Empowerment Act structure (a “RIDEA structure”) pursuant to which the Company agreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. |
(7) | Our master lease agreement with Healthpeak terminated on October 31, 2020, and effective November 1, 2020, we entered into a short-term excess cash flow lease pursuant to which the Company agreed to manage the seven communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to such agreement, the Company began paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities. In December 2020, Healthpeak sold two of the properties and in January 2021, subsequent to year-end, Healthpeak sold one additional property and terminated all agreements related to those three properties. See “Note 18- Subsequent Events.” |
The Company believesWe believe that the fragmented nature of the senior living industry and the limited capital resources available to many small, private operators provide us with an attractive opportunity for competitive differentiation. The Company believesWe believe that itsour current operations with geographic concentrations throughout the United States and centralized support infrastructure serve as the foundation on which the Companywe can build senior living networks in targeted geographic markets and thereby provide a broad range of high-quality care in a cost-efficient manner.
The Our operating strategy includes the following are the principal elements of the Company’s clear and differentiated operating strategy:core principles:
Provide a Broad Range of Quality Personalized Care
Central to the Company’sour operating strategy is itsour focus on providing quality care and services that are personalized and tailored to meet the individual needs of each community resident. The Company’sOur residences and services are designed to provide a broad range of care that permits residents to thrive and “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seekswe seek to attract seniors at an earlier stage, before they need the higher level of care provided in a skilled nursing facility.
Portfolio Optimization
The Company intendsWe intend to continue to focus on itsour occupancy, rents and operating margins of itsour communities. The CompanyWe continually seeksseek to improve occupancy rates and increase average rents by: (i) retaining residents as they “age in place” by extending optional care and service programs, and converting existing units to higher levels of care; (ii) attracting new residents through the use of technology, including enhanced digital marketing through social media and other electronic means, and on-site marketing programs focused on residents and family members; (iii) seeking referrals from senior care referral services and professional community outreach sources, including arealocal religious organizations, senior social service programs, civic and business networks, as well as the medical community; (iv) strategically acquiring properties to expand our footprint in the core markets we serve; (v) disposing of properties or exiting leasesmanagement agreements of properties that do not meet our long-term goalsgoals; and (vi)(v) continually refurbishing and renovating itsour communities.
Offer Services Across a Range of Pricing Options
The Company’sOur range of products and services is continually expanding to meet the evolving needs of itsour residents. The Company hasWe have developed a menu of products and service programs that may be further customized to serve both the moderate and upper income marketsmiddle-income market of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, the Company believeswe believe that it can develop synergies, economies of scale and operating efficiencies in itsour efforts to serve a larger percentage of the senior population within a particular geographic market.
Management Services
As of December 31, 2020, we managed 12 communities on behalf of third parties and, under our existing management arrangements, we receive management fees that are determined by an agreed-upon percentage of gross revenues (as defined in the management arrangement), as well as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners.
Improve Operating Efficiencies
The Company seeksWe seek to improve operating efficiencies at itsour communities by actively monitoring and managing operating costs and by moving to a more centralized operating platform. By having an established portfolio of communities in geographically concentrated regions throughout the United States with regional management teams in place, the Company believes it haswe believe we have established a platform to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to provide more effective management supervision and financial controls.
Centralized Management
The Company centralizes itsWe centralized our corporate and other administrative functions so that the community-based management and staff can focus their efforts on resident care. The Company maintainsWe maintain centralized accounting, finance, legal, human resources, training and other operational functions at its Dallas Support Centerour support center located in Dallas, Texas. The Company’sTexas (“the Dallas Support Center”). Our Dallas Support Center is generally responsible for: (i) establishing Company-wide policies and procedures relating to, among other things, resident care and operations; (ii) performing accounting and finance and legal related functions; (iii) developing employee training programs and materials; (iv) coordinating human resources; (v) coordinating marketing functions; and (vi) providing strategic direction. In addition, financing, development, construction and acquisition activities, including feasibility and market studies, and community design, development, and construction management are conducted at the Company’s Dallas Support Center.
The Company seeksWe seek to control operational expenses for each of itsour communities through proprietary expense management systems, standardized management reporting and centralized controls of capital expenditures, asset replacement tracking, and purchasing for larger and more frequently used supplies and food inventories through group purchasing programs. Community expenditures are monitored by regional operational managersterritory directors and divisional vice presidents who are accountable for the resident satisfaction and financial performance of the communities in their region or division.territory.
RegionalTerritory Management
The Company providesWe provide oversight and support to each of itsour senior housing communities through experienced regional operational managersterritory directors and divisional vice presidents. A regional operational managerterritory director will generally cover a large geographic area consisting of eight to thirteenten communities. In most cases, regional operational managers office out of the Company’s senior housing communities. The Company’s divisional vice presidents oversee the Company’s Southwest, Mid-America, and Great Lakes regions.
The executive director at each community reports to a regional operations manager,territory director or vice president, who in turn reports to a vice president of operations. Vice presidents of operations report on the operations of each community directly to senior management at the Company’s Dallas Support Center. Regional operations managersour Chief Operating Officer. Territory directors and divisional vice presidents make regular site visits to each of their assigned communities. The siteSite visits involve a physical plant inspection, quality assurance review, staff training, financial and systems audits, regulatory compliance, and team building.building activities.
Community-Based Management and Retention
The Company devotesWe devote special attention to the hiring, screening, training, supervising and retention of itsour employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conductswe conduct national management meetings and encouragesencourage sharing of expertise among managers. The Company
hasWe have also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. The Company’sOur commitment to the total quality management concept is emphasized throughout itsour training programs. This commitment to the total quality management concept meansemphasizes the identification of the “best practices” in the senior living market and communication of those “best practices” to the Company’sour executive directors and their staff. The identification of best practices is realized by a number of means, including: (i) emphasis on regionalterritory and executive directors keeping up with professional trade publications; (ii) interaction with other professionals and consultants in the senior living industry
through seminars, conferences and consultations; (iii) visits to other properties; (iv) leadership and participation at national and local trade organization events; and (v) information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managersterritory directors and the executive directors and subsequently communicated to the Company’sour employees as part of their training.
An executive director manages the day-to-day operations at each senior housing community, includingwhich includes maintaining oversight of the quality of care, delivery of resident services, sales and marketing, and monitoring of the community’s financial performance. Depending on the size of the community, the executive director is typically supported by a community-based leadership team consisting of a sales director, wellness director, and business director. However, the executive director is ultimately responsible for all personnel, including food service, maintenance, activities, security, assisted living, housekeeping, and, where applicable, assisted living nursing or care services. In most cases, each community also has department managers who direct the environmental services, nursing or care services, business management functions, dining services, activities, transportation, housekeeping, and marketing functions.
The assisted living component of theour senior housing communities is managed by licensed professionals, such as a nurse and/or a licensed administrator. These licensed professionals have many of the same operational responsibilities as the Company’sour executive directors, but their primary responsibility is to oversee resident care. Many of the Company’sour senior housing communities are part of a campus setting, which may include independent living, assisted living and/or memory care. This campus arrangement allows for cross-utilization of certain support personnel and services, including administrative functions that result in greater operational efficiencies and lower costs than freestanding facilities.
The CompanyWe actively recruitsrecruit qualified personnel to maintain adequate staffing levels at its existing communities and hires new staff for new or acquired communities prior to opening. The Company hasour communities. We have adopted comprehensive recruiting and screening programs for management positions that utilize corporate office team interviews and thorough background and reference checks. The Company offersWe offer system-wide training and orientation for all of itsour employees at the community level through a combination of Company-sponsored seminars and conferences.
Quality Assurance
Quality assurance programs are coordinated and implemented by the Company’sour corporate and regional staff. The Company’sOur quality assurance is targeted to achieve maximum resident and resident family member satisfaction with the care and services delivered by the Company. The Company’sthat we deliver. Our primary focus in quality control monitoring is to create and maintain a safe and supportive environment for our residents and families, which includes routine in-service training and performance evaluations of caregivers and other support employees. The Company hasWe have established a Corporate Quality Assurance Committee, which consists of the Executive Vice President and Chief Operating Officer, and Vice Presidents of Operations, Vice President of Clinical Operations, Senior Vice President- Human Resources, Vice President- Finance, Quality and Clinical Directors, and Senior Vice President- General Counsel. The purpose of the committee is to monitor and evaluate the processes by which care is delivered to our residents and the appropriateness and quality of care provided within each of our communities. Additional quality assurance measures include:
Resident and Resident’s Family Input. On a routine basis, the Company provideswe provide residents and their family members with the opportunity to provide valuable input regarding the day-to-day delivery of services. On-site management at each community has fostered and encouraged active resident councils and resident committees who meet independently. These resident bodies meet with on-site management on a monthly basis to offer input and suggestions as to the quality and delivery of services.
Regular Community Inspections. Each community is inspected in person, on at least a quarterly basis, by a member of the regional and/or operational leadership team.team, which are also supplemented by virtual site visits. Included as part of this inspection is the monitoring of the overall appearance and maintenance of the community interiors and grounds. The inspection also includes monitoring staff professionalism and departmental reviews of maintenance, housekeeping, activities, transportation, marketing, administration and food and health care services, if applicable. The inspections also include observing residents in their daily activities and the community’s compliance with governmentgovernmental regulations.
Independent Service Evaluations. The Company engagesWe engage the services of outside professional independent consulting firms to evaluate various components of the communityour communities’ operations. These services include mystery shops, competing community analysis, pricing recommendations and product positioning. This providesThese services provide management with valuable and unbiased product and service information. A plan of action regarding any areas requiring improvement or change is implemented based on the information received. At communities where health care is delivered, these consulting service reviews include the on-site handling of medications, recordkeeping and general compliance with all applicable governmental regulations.
Peer Review Program. During the second quarter of 2019, the Company We implemented a peer review program.program in 2019. For each region, a committee consisting of the top performing executive directors, sales directors, wellness directors, maintenance directors, and dietary directors visit other communities within the region to evaluate the performance of their peers at the community and share best practices. Due to the COVID-19 pandemic, the peer review program was paused as of March 2020. In 2019, 54 communities were2021, this program will be reviewed, and an appropriate time to re-engage will be determined based on, among other factors, the Company plans to expand the program in 2020.rates of COVID-19 instances within each territory or community.
Sales and Marketing
Most communities are staffed with an on-site sales director and additional sales and marketing staffdirectors, depending on the community size and occupancy status. The primary focus of the on-site sales/marketing staffsales director is to createperpetuate occupancy and revenue growth by creating awareness ofabout the community and its services among prospective residents and their family members, professional referral sources and other key decision makers. These efforts incorporateare outlined in a strategic plan to includethat includes monthly, quarterly and annual goals for leasing, new lead generation, prospect follow up, community outreach, resident and family referrals and promotional events, and a market specificmarket-specific media program. On-site sales/marketing departments performThe community sales director performs a competing community assessment quarterly.on a quarterly basis.
Each community’s on-site sales and marketing department’sdirector’s effectiveness and productivity is monitored on a weekly basis. Corporate personnel assist in the development ofThe corporate sales and marketing team supports communities by developing marketing strategies and campaigns for each community to address the continuously changingcontinuously-changing resident profile, and maintain a focus on buildingbuild brand awareness and increasingincrease digital traffic and leads. The marketing strategies developed utilize the implementation of application program interface systems with certainfocus on driving traffic to our website, andnational referral partners, review sites and social media platformsplatforms. To support this, the corporate marketing team develops content, marketing collateral and the production of creative mediamessaging, manages digital ad buys and relatedprovides ongoing sales and marketing collateral. Ongoing sales training, of on-site staff is implemented by corporatesupport and regional personnel as well as third-party professionals.best practices.
GovernmentGovernmental Regulation
Changes in existing laws and regulations, adoption of new laws and regulations, and new interpretations of existing laws and regulations could have a material effect on the Company’sour operations. Failure by the Companyus to comply with any applicable regulatory requirementsrequirement could have a material adverse effect on the Company’sour business, financial condition, cash flows, and results of operations. Accordingly, the Company monitorswe regularly monitor legal and regulatory developments on local, state and national levels.
The health care industry is subject to extensive regulation and frequent regulatory change.changes. At this time, no federal laws or regulations specifically regulate assisted or independent living residences. While a number of states have not yet enacted specific assisted living regulations, certain of the Company’sour assisted living communities are subject to regulation, licensing, CON and permitting requirements by state and local health care and social service agencies and other governmental regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, training, physical design, patient privacy, required services and the quality thereof, and resident characteristics. The Company believesWe believe that such regulation will increase in the future. In addition, health care providers are receiving increasedexperiencing heightened scrutiny under anti-trust laws in the United States as integration and consolidation of health care delivery increases and affects competition. Moreover, robust state and federal enforcement of fraud and abuse laws continues. Because some of the Company’sour communities receive a portion of their funds from Medicaid, such communities are also subject to state and federal Medicaid standards, the noncompliance with which maycould result in the imposition of, among other things, penalties orand sanctions orand suspension orand exclusion from participation in the Medicaid program. The Company’sOur communities are also subject to various zoning restrictions, local building codes, and other ordinances, such as fire safety codes. Failure by the Companyus to comply with any applicable regulatory requirements could have a material adverse effect on the Company’sour business, financial condition, and results of operations. Regulation of the assisted living industry is evolving. The Company isalso continually evolving and we are unable to predict the scope, content or stringency of new
regulations and their ultimate effect on itsour business. There can be no assurance that the Company’sour operations will not be materially and adversely affected by regulatory developments in the future.
The Company believesWhile we believe that itsour communities are in substantial compliance with applicable regulatory requirements. However,requirements, unannounced surveys or inspections may occur annually or bi-annually, or following a regulator’s receipt of a complaint about a community.community, any of which could result in a citation of deficiency. In the ordinary course of business, one or more of the Company’sour communities could be cited for deficiencies resulting from such inspections or surveys. Mostsurveys from time to time. Although most inspection deficiencies are typically resolved through an agreed uponagreed-upon plan of corrective action relating to the community’s operations, but the reviewing agency typically has the authority to take further action against a licensed or certified community, which could result in the imposition of fines, repayment of amounts previously paid, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Loss, suspension or modification of a license may also cause us to default under our existing loan or lease agreements
and/or trigger cross-defaults. Sanctions may be taken against providers or facilities without regard to the providers’particular provider’s or facilities’facility’s history of compliance. We may also expend considerable resources to respond to federal and state investigations or other enforcement actionactions under applicable laws or regulations. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has had a material adverse effect on our revenues. However, any future substantial failure to comply with any applicable legal and regulatory requirements could result in a material adverse effect toon our business, financial condition, and results of operations as a whole. In addition, states’ Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living communities even if the community or any of itsour residents do not receive federal or state funds.
Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned properties to permit access to the properties by disabled persons. While the Company believeswe believe that itsour communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company.us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), in conjunction with the federal regulations promulgated thereunder by the U.S. Department of Health and Human Services, has established, among other requirements, standards governing the privacy and security of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. In addition, the Companywe may from time to time be subject to a corrective action plan, and the cost of compliance of whichassociated with complying with any such corrective action plan could be significant.
In addition, some states have begun enacting comprehensive privacy laws, including the California Consumer Privacy Act of 2018.
In addition, the Company iswe are subject to various federal, state and local environmental laws and regulations, which could require an owner or operator of real estate to investigate and clean up hazardous or toxic substances present at or migrating from properties they own, lease, or operate. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was actually responsible for, the presence of hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations. Liabilities could exceed the property’s value and the aggregate assets of the owner or operator. The presence of these substances or the failure to remediate such contamination properly may also adversely affect the owner’s ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In connection with the ownership or operation of itsour properties, the Companywe could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. The Company hasWe have completed Phase I environmental
audits of substantially all of the communities in which the Company ownswe own interests, typically at the time of acquisition, and such audits have not revealed as of the date of this Annual Report on Form 10-K any material environmental liabilities that exist with respect to these communities.
Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at or migrating from such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs. The Company isWe are not aware, as of the date of this Annual Report on Form 10-K, of any environmental liability with respect to any of itsour owned, leased or managed communities that the Company believeswe believe would have a material adverse effect on itsour business, financial condition, or results of operations. The Company believesWe believe that itsour communities are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company hasWe have not been notified by any governmental authority, and isare not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of the communities we currently operate.
We are subject to U.S. federal and state laws, regulations and executive orders relating to healthcare providers’ response to the Company currently operates.COVID-19 pandemic, which vary based on provider type and jurisdiction, but generally include mandatory requirements for testing of residents and staff, implementation of infection control standards and procedures, restrictions on new admissions or readmissions of residents, required screening of all persons entering a community, restrictions and/or limitations on who may visit residents and how residents may be visited, and mandatory notification requirements to residents, families, staff, and regulatory bodies related to positive COVID-19 cases. Enhanced or additional penalties may apply for violation of such requirements.
The Company believesWe believe that the structure and composition of government and, specifically, health care regulations will continue to change and, as a result, we regularly monitorsmonitor material developments and changes in the law. The Company expectslaw that impact our business. We expect to modify itsour agreements and operations from time to time as the business and regulatory environments change. While the Company believes itwe believe we will be able to structure all itsour agreements and operations in accordance with applicable law, there can be no assuranceassurances that itsour arrangements will not be successfully challenged. These requirements include additional penalties that may apply for violation of such requirements.
Competition
The senior living industry is highly competitive. Due to the relatively low barriers of entry into the senior living space, the Company expectswe expect that all segments of the industry will become increasingly competitive in the future. Although there are a number of substantial companies fairly active in the senior living industry and in the markets in which the Company operates,we operate, the industry continues to be very fragmented and characterized by numerous small operators. The CompanyWe primarily competescompete with national operators such as Brookdale Senior Living Inc. and Five Star Quality Care, Inc. and other regional and local independent operators. The Company believesWe believe that the primary competitive factors in the senior living industry are: (i) quality on-site staff; (ii) location; (iii) reputation forof, and commitment to, a high quality of service; (iv) support service offerings (such as food services); (v) fair pricepricing for services provided; and (vi) physical appearance and amenities associated with the communities. The Company competesWe compete with other companies providing independent living, assisted living, skilled nursing, home health care, and other similar service and care alternatives, some of whomwhich may have greater financial resources than the Company.us. Because prospective residents tend to choose senior housing communities nearin close proximity to their homes, the Company’sour principal competitors are other senior living and long-term care communities in the same geographic areas as the Company’sour communities. The CompanyWe also competescompete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers.managers that are critical to our business.
EmployeesHuman Capital Resources
We know that our people are at the center of everything we do. They work individually and collectively each day to provide safety, wellness, care, and service to our residents. As of December 31, 2019, the Company2020, we employed 6,6003,416 persons (105(89 of whom are employed at the Company’s corporate office)our Dallas Support Center), of which 4,2022,404 were full-time employees and 2,3981,012 were part-time employees. None of
Our Culture
Our culture is the Company’s employees are currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good.
Information about Our Executive Officers and Other Key Employees
The following table sets forth certain information concerning each of the Company’s executive officers and other key employees as of March 31, 2020:
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Kimberly S. Lody joined the Company as President and Chief Executive Officer in January 2019, having served as a director of the Company since May 2014. Her more than 25 years of experience in clinical and commercial health care settings includes leadership positions in medical devices, healthcare services, and complex regulatory and payor environments. Prior to joining the Company, Ms. Lody served as President of GN Hearing North America, where she led seven consecutive years of above-market growth and expansion across multiple channels and brands. Prior to GN Hearing, Ms. Lody served as VP Marketing and then President, US Chronic Caremost important connection between all people at Coloplast from 2009 to 2011. From 2004 to 2009, she served as an independent consultant, providing interim leadership to companies in healthcare, consumer products, and insurance services. Ms. Lody served as Chief Operating Officer of Senior Home Care from 2003 to 2004, as Chief Marketing Officer of Gentiva Health Services from 1997 to 2003, and as VP Managed Care Programs for Apria Healthcare from 1994 to 1997. Ms. Lody received a BS in Business from Hiram College and an MBA in Finance from Wake Forest University.
Carey P. Hendrickson joined the Company in May 2014 and is currently the Executive Vice President and Chief Financial Officer. From 2010 through 2014, he served as the Senior Vice President/Chief Financial Officer and Treasurer of Belo Corp., a television company that owned and operated network-affiliated television stations and their associated websites (“Belo”). Prior to serving in such capacity, Mr. Hendrickson served Belo in various roles including Senior Vice President/Chief Accounting Officer, Vice President/Human Resources, Vice President/Investor Relations and Corporate Communications, and Vice President/Strategic & Financial Planning. He began his career with KPMG LLP and was the director of financial planning for Republic Financial Services before joining Belo in 1992. Mr. Hendrickson received a BBA in Accounting from Baylor University and a Master of Business Administration in Finance from the University of Texas in Arlington.
Brandon M. Ribar joined the Company in September 2019 and is currently the Executive Vice President and Chief Operating Officer. Prior to joining the Company, Mr. Ribar served as an executive healthcare consultant primarily focused on improving existing operations and expanding continuing care retirement communities for multiple investment platforms and operators since 2018. From 2014 through 2018, he served as the Senior Vice President, Operations of Golden Living, a post-acute healthcare provider. Prior to serving in such capacity, Mr. Ribar served Golden Living in various roles including Senior Vice President, Operational Finance and Strategy and Senior Vice President, Corporate Strategy and Business Development. Prior to Golden Living, Mr. Ribar served as Vice President of Fillmore Capital Partners from 2004 through 2009. Mr. Ribar received a BCS in Operations and Management Information Systems from Santa Clara University.
David R. Brickman is currently the Senior Vice President, Secretary, and General Counsel of the Company. He served as Vice President and General Counsel of the Company and its predecessors since July 1992 and has served as Secretary of the Company since May 2007. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation that provided travel services to U.S. corporations. Mr. Brickman earned a Juris Doctor and Masters of Business Administration from the University of South Carolina and a Masters in Health Administration from Duke University. He currently serves on the Board of Advisors for the Southern Methodist
University Corporate Counsel Symposium. He is also a member of the National Center for Assisted Living In-house Counsel Roundtable Task Force, as well as the Long-Term Care Risk Legal Forum. Mr. Brickman has either practiced law or performed in-house counsel functions for 33 years.
Jeremy D. Falke joined the Company as Senior Vice President – Human Resources in February 2018. Mr. Falke held various positions within Tenet Healthcare Corporation (“Tenet”) from November 2004 to February 2018, serving most recently as the Vice President, Talent, Culture and Performance Systems in Dallas. In this role, he was responsible for all talent planning, development, and cultural programming and transformation for an organization with over 75 acute-care hospitals and 450 outpatient facilities, employing more than 125,000 people. Prior to this role, Mr. Falke served as the Senior Director, Strategic Operations, Analytics and Reporting in Dallas and as the Chief Human Resources Officer for Creighton University Medical Center, which was then owned by Tenet in Omaha, Nebraska. Mr. Falke received a Bachelor of Science in Business Management from University of Phoenix in Scottsdale, and a Masters of Business Administration with a concentration in Healthcare Management from the University of Nebraska in Omaha.
Michael C. Fryar joined the Company as Chief Revenue Officer in February 2019. His 20 years of experience focusing on brands in complex, multi-channel environments includes leadership positions in medical device and marketing agency settings, with the majority of his career focused in senior healthcare. Prior to joining the Company, Mr. Fryar served as Vice President of GN Hearing North America, where he was part of a leadership team responsible for seven consecutive years of above-market growth and expansion across multiple channels and brands. Prior to GN Hearing, Mr. Fryar served as Senior Director, Marketing at Starkey Hearing Technologies from 2006 to 2012. From 1998 to 2006, he served as an account director at marketing agency Colle McVoy, specializing in digital and traditional marketing, advertising and public relations. Mr. Fryar received a BA in Communications Studies with a minor in Economics Management from Gustavus Adolphus College.
Carole J. Burnell is currently the Vice President – Operations of the Company. She served as the Regional Operations Manager in the Dallas Region of the Company from January 2004 to March 2019. Ms. Burnell has over 22 years of senior living industry experience and has held a variety of leadership roles during that time. She started her career as an Executive Director with Assisted Living Concepts, and has since served in both large publicly traded and small privately held senior living companies with multi-community oversight responsibilities. She earned a BBA degree with a concentration in Accounting from West Texas A&M University.
Jeffrey P. Cellucci joined the Company as Vice President – Operations in May 2018. Prior to joining the Company, Mr. Cellucci spent nine years with Kindred Healthcare where he most recently served as Division Vice President and was responsible for overseeing the operations and strategic planning of nine long-term acute care hospitals. He also led integration efforts for Kindred's post-acute care service lines in North Texas which included Home Health, Hospice and Rehab. Mr. Cellucci held a variety of other leadership roles with Kindred Hospitals including Hospital CEO and District Chief Operating Officer across the Midwest and Northeast. Mr. Cellucci received his Bachelor of Science in Economics from the Wharton School at the University of Pennsylvania and his Master of Business Administration from Northwestern University. He is currently the Board President for the American Lung Association in North Texas and previously served as a Board Trustee for the DFW Hospital Council. Mr. Cellucci was also selected to the 2018 class of the Texas Hospital Association Leadership Fellows Program.
Tiffany L. Dutton, a Certified Public Accountant, joined the Company as Vice President – Accounting and Financial Reporting in January 2020. Prior to joining the Company, Ms. Dutton served as an accounting consultant primarily focused on assisting healthcare and retail entities with improving financial reporting and accounting structures since 2017. Prior to such time, Ms. Dutton served as the Director- Accounting Policy in 2017 and Assistant Controller- Operations from 2014 to 2017 for Adeptus Health, Inc, Senior Manager- Financial Reporting for RealPage, Inc. from 2013 to 2014, as Manager, Accounting, Reporting and Compliance for Pier 1 Imports from 2010 to 2013, and as Senior Manager of Accounting Policy of Dollar Thrifty Automotive Group from 2008 to 2010. She began her career as a Manager in the assurance and advisory business services practice of Ernst & Young LLP. Ms. Dutton earned a BBA in Accounting and a BBA in Economics and Finance from the University of Oklahoma and is a member of the American Institute of Certified Public Accountants.
Gloria M. Holland has served as Vice President – Finance of the Company since June 2004. From 2001 to 2004, Ms. Holland served as Assistant Treasurer and a corporate officer for Aurum Technology, Inc., a privately held company that provided technology and outsourcing to community banks. From 1996 to 2001, Ms. Holland held positions in Corporate Finance and Treasury at Brinker International, an owner and operator of casual dining restaurants. From 1989
to 1996, Ms. Holland was a Vice President in the Corporate Banking division of NationsBank and predecessor banks. Ms. Holland received a BBA in Finance from the University of Mississippi.
Robert F. Hollister, a Certified Public Accountant, has served as Property Controller for the Company and its predecessors since April 1992. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a National Association of Securities Dealers broker dealer.
Linda M. Zimmerman, a Certified Public Accountant, has served as Corporate Controller for the Company since September 2019. She previously served as the Assistant Property Controller for the Company from 2014 to 2019. Prior to joining the Company, Ms. Zimmerman served as a Senior Associate for B&J Financial Services from 2013 to 2014. She served Belo as the Supervisor/ Accounting Operations from 2013 to 2017 and Corporate Accountant from 2005 to 2007. She began her career as an Auditor for The Exchange from 2002 to 2005. Ms. Zimmerman earned a Bachelors and Masters in Accounting from Baylor University.
Subsidiaries
Capital Senior Living Corporationand is rooted in inclusion, respect, accountability, service, and deep care for each other and for those we serve. To create this environment, we focus on attracting, engaging, developing, and retaining the parent companyvery best talent available in each of our markets by maintaining a compelling value proposition for each employee that includes a great work environment, excellent leadership, aligned pay and benefits, career development, and meaningful work. We have built a team with a deep sense of purpose for serving seniors and we believe that our engaged group enhances the resident experience each day.
Inclusion and Diversity
As we serve a diverse group of residents across several directstates and indirect subsidiaries. Although Capital Senior Living Corporationcommunities, we also strive to reflect the same diversity in our company. We are proud to be an equal opportunity employer. Our diversity is exhibited by the composition of our workforce with 84% female and its subsidiaries43% non-white employees. We will continue to strive each day to maintain our inclusive culture through our efforts in recruiting, education, development and talent progression.
Talent Acquisition, Development, and Retention
In our efforts to attract new members to our team, we believe that a local focus, supported by our central talent team, provides the best results. We continue to add new spaces to our recruiting landscape to ensure we are referredconnecting with the best and brightest individuals. For example, we utilize local Facebook pages to collectivelyidentify individuals for easethe
specific communities and geographic regions we serve. We also utilize employee referral programs to bring great new people into our organization who already know our mission through current employees. With a robust focus on talent acquisition, we have seen our average time to fill an open role shorten significantly in 2020.
We are proud of referenceour development programs that sponsor our current employees in achieving new levels of education, licensure and credentials. Through this Form 10-Kapproach, we support our employees’ growth while they continue to work with us in new roles, enhancing our service and care, and providing these employees with additional earning potential.
Total Rewards
We provide fair, competitive and aligned compensation to all of our people, which is reviewed at least annually for both merit and market-based adjustments. Along with competitive compensation, we offer benefits that are designed to fit a wide variety of needs. For example, our health plans allow participants to enter the plan at an affordable premium and participants automatically receive unlimited free telehealth and local retail clinic visits, along with all other benefits of the plan. This benefit provides our people quick and easy access to care at no cost to them when they need to access it. We provide paid time off to both full-time and part-time employees to ensure they have paid time away from work. We also offer a 401(k) plan for all eligible employees to participate in as they plan for their future. Our total rewards design includes many other benefits that can be included at the Company, these subsidiaries are separately incorporatedchoice of each employee based on their needs, which is our overall strategy in providing engaging and maintain their legal existence separate and apart from the parent, Capital Senior Living Corporation.flexible rewards to our people.
Our business involves various risks and uncertainties. When evaluating our business, the following information should be carefully considered in conjunction with the other information contained in our periodic filings with the SEC.Securities and Exchange Commission (the “SEC”). Additional risks and uncertainties not known to us currently or that currently we deem to be immaterial also may impair our business operations. Immediately below is a summary of the principal factors that might cause our future operating results to differ materially from those currently expected. The risk factors summarized below are not the only risks facing us. Additional discussion of the risks summarized in the “Risk Factor Summary,” as well as other risks that may affect our business and operating results, can be found below under the heading “Risk Factors,” and should be carefully considered and evaluated before making an investment decision regarding our business. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer. Negative events are likely to decrease our revenue, increase our costs, negatively impact our financial results and/or decrease our financial strength, and may cause our stock price to decline.
Risk Factors Summary
Risks Related to the COVID-19 Pandemic:
• | COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses and operating results at our communities. Because we are unable to predict the full nature and extent of the impact of COVID-19 at this time, COVID-19 may continue to have a significant adverse effect on our business, financial condition, liquidity and results of operations. |
Risks Related to Our Liquidity and Indebtedness:
• | If we are unable to successfully implement our business plans and strategies, our consolidated results of operations, financial position, liquidity and ability to continue as a going concern could be negatively affected. |
• | We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt. |
• | Our failure to comply with financial covenants and other restrictions contained in our debt instruments could result in the acceleration of the related debt or in the exercise of other remedies. |
• | We will require additional financing and/or refinancing actions in the future and may issue equity securities. |
• | Increases in market interest rates and/or the Consumer Price Index (“CPI”) could significantly increase the costs of our floating rate debt obligations, which could adversely affect our liquidity and earnings. |
• | The phasing out of London Inter-Bank Offer Rate (“LIBOR”) may increase the interest costs of our debt obligations, which could adversely affect our results of operations and cash flow. |
Risks Related to Our Business, Industry,Operations and OperationsStrategy:
• | We have incurred losses from operations in each of the last three fiscal years and may do so in the future. |
• | We largely rely on private pay residents and circumstances that adversely affect the ability of the seniors to pay for our services could have a material adverse effect on us. |
• | The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us. |
• | Termination of resident agreements and resident attrition could affect adversely our revenues and earnings. |
• | We have identified a material weakness in our internal control over financial reporting at December 31, 2020. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock. |
• | There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance. |
• | Damage from catastrophic weather and other natural events have resulted in losses and adversely affected certain of our residents. |
• | We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any of which could materially and adversely impact our revenues, results of operations, cash flow and liquidity. |
• | Because we do not presently have plans to pay dividends on our common stock, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. |
Risks Related to Human Capital:
• | We rely on the services of key executive officers and the transition of management or loss of these officers or their services could have a material adverse effect on us. |
• | A significant increase in our labor costs could have a material adverse effect on us. |
• | We are subject to risks related to the provision for employee health care benefits and ongoing health care reform legislation. |
Risks Related to Regulatory, Compliance and/or Legal Matters:
• | We are subject to government regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future. |
• | We may be subject to liability for environmental damages. |
Risks Related to Our Corporate Organization and Structure:
• | Anti-takeover provisions in our governing documents, governing law and material agreements may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management. |
• | We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations. |
Risks Related to Other Market Factors:
• | If we cannot regain compliance with the continued listing requirements of the New York Stock Exchange (“NYSE”), the NYSE will delist our common stock. |
• | Future offerings of equity securities by us may adversely affect the market price of our common stock. |
• | The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future. |
• | Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock. |
• | Various factors, including general economic conditions, could adversely affect our financial performance and other aspects of our business. |
Risks Related to the COVID-19 Pandemic
COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses and operating results at our communities. Because we are unable to predict the full nature and extent of the impact of COVID-19 at this time, COVID-19 may continue to have a significant adverse effect on our business, financial condition, liquidity and results of operations.
We face risks related to an epidemic, pandemic or other health crisis. COVID-19 was declared a public health emergency in the United States in response to the outbreak and the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to experience the pandemic caused by the COVID-19 pandemic, which has significantly disrupted the nation’s economy, the senior living industry, and our business.
In an effort to protect our residents and employees and slow the spread of COVID-19 and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, we restricted or limited access to our communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, the COVID-19 pandemic has caused a decline in the occupancy levels at our communities, which has negatively impacted our revenues and operating results, which depend significantly on such occupancy levels. During March 2020, new resident leads, visits, and move-in activity began to decline compared to historical levels. This trend continued through the end of 2020, and adversely impacted occupancy, resulting in a decrease in consolidated senior housing occupancy decreasing from 79.9% for the first quarter of 2020 to 73.3% for the fourth quarter of 2020. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fee revenue we are able to collect from our residents.
In addition, the COVID-19 outbreak has required us to incur significant additional operating costs and expenses in order to care for our residents. Further, residents at certain of our senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. During March 2020, we began to incur incremental direct costs to prepare for and respond to the COVID-19 pandemic. Operating expense for the year ended December 31, 2020 includes $9.4 million of incremental and direct costs as a result of the COVID-19 pandemic, including costs for acquisition of additional PPE, cleaning and disposable food service supplies, testing of our residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. We are unable to reasonably predict the total amount of costs we will ultimately incur related to the pandemic, but such costs are likely to be substantial.
As a result, COVID-19 had a significant adverse effect on our business, financial condition, liquidity, and results of operations and has contributed to management concluding that there is substantial doubt about our ability to continue as a going concern within 12 months after the date on which our fiscal year 2020 financial statements are issued.
Further, the grants received by us from the CARES Act Provider Relief Fund are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. The U.S. Department of Health and Human Services continues to evaluate and provide regulation and guidance regarding grants made under the CARES Act Provider Relief Fund. We cannot provide assurance that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by U.S. Department of Health and Human Services. The program requires us to report to U.S. Department of Health and Human Services on our use of the grants, and our reporting is subject to audit.
The COVID-19 pandemic has also caused substantial volatility in the market prices and trading volumes in the equity markets, including our stock. Our stock price and trading volume may continue to be subject to wide fluctuations as a result of the pandemic, and may decline in the future.
The ultimate impacts of COVID-19 on our business, results of operations, cash flow, liquidity, and stock price will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the development and availability of COVID-19 infection and antibody testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and
individuals; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our preparation and response efforts, including increased supplies, labor, litigation, and other expenses; the impact of COVID-19 on our ability to complete financings, re-financings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements and enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
Risks Related to Our Liquidity and Indebtedness
If we are unable to successfully implement our business plans and strategies, our consolidated results of operations, financial position, liquidity and ability to continue as a going concern could be negatively affected.
As noted elsewhere in this Annual Report on Form 10-K, due to the impact of the COVID-19 pandemic on our financial position and our upcoming debt maturities, management has concluded that there is substantial doubt about our ability to continue as a going concern. We have taken, and intend to take, actions to improve our liquidity position and to address the uncertainty about our ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, we may be unsuccessful in executing our business plans or achieving the projected results, which could adversely impact our financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability or other results we achieve through those plans will be consistent with our expectations. As a result, our results of operations, financial position and liquidity could be negatively impacted. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.
We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt.
As of December 31, 2019,2020, we had mortgage and other indebtedness, excluding deferred loan costs, totaling approximately $930.1 million.$915.2 million, of which, $72.5 million is maturing in 2021. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings,refinancing activities, other financings or the sales of assets sufficient to cover required interest and principal payments. Any payment or other default could cause the applicable lender to foreclose upon the communities securing the indebtedness with a consequent loss of income and asset value to us. Further, because some of our mortgages contain cross-default and cross-collateralization provisions, a payment or other default by us with respect to one community could affect a significant number of our other communities.
We have significant lease obligations and our failure to generate cash flows sufficient to cover these lease obligations could result in defaults under the lease agreements.
As of December 31, 2019, we leased 46 senior housing communities with future lease obligations totaling approximately $255.0 million, with minimum lease obligations of $63.5 million in fiscal 2020. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover these required operating lease obligations. Any payment or other default under any such lease could result in the termination of the lease and the acceleration of our obligations under such lease. Further, because our leases contain cross-default provisions, a payment or other default by us with respect to one leased community could affect all of our other leased communities with related lessors. Certain of our leases contain various financial and other restrictive covenants, which could limit our flexibility in operating our business. Failure to maintain compliance with the lease obligations as set forth in our lease agreements could have a material adverse impact on us. The termination of a significant portion of our facility lease agreements could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
With regard to our Master Lease Agreements with Ventas and Welltower, we were not in compliance with certain financial covenants as of December 31, 2019, and in February 2020, we began paying Ventas and Welltower monthly rental amounts based on the estimated monthly cash flows generated by the communities in Ventas’ and Welltower’s respective portfolios, which were less than the rental amounts due and payable under the terms of the Master Lease Agreements. Although we have entered into forbearance agreements with Ventas and Welltower with respect to such defaults, no assurances can be given that we will be able to comply with the terms and conditions of such forbearance agreements or the other terms and conditions of our Master Lease Agreements.
Our failure to comply with financial covenants and other restrictions contained in our debt instruments and lease agreements could result in the acceleration of the related debt or lease or in the exercise of other remedies.
Our outstanding indebtedness and leases areis secured by our communities, and, in certain cases, a guaranty by our Companyus or by one or more of our subsidiaries. Therefore, an event of default under the outstanding indebtedness, or leases, subject to cure provisions in certain instances, would give the respective lenders, or lessors, as applicable, the right to declare all amounts outstanding to be immediately due and payable, terminate the lease, or foreclose on collateral securing the outstanding indebtedness and leases.indebtedness.
There are various financial covenants and other restrictions in certain of our debt instruments, and lease agreements, including provisions which:
require us to meet specified financial tests at the subsidiary company level, which include, but are not limited to, tangible net worth requirements;
• | require us to meet specified financial tests at the subsidiary company level, which include, but are not limited to, tangible net worth requirements; |
require us to meet specified financial tests at the community level, which include, but are not limited to, lease coverage tests;
• | require us to meet specified financial tests at the community level; |
require us to maintain the physical condition of the community and meet certain minimum spending levels for capital and leasehold improvements; and
• | require us to maintain the physical condition of the community and meet certain minimum spending levels for capital and leasehold improvements; and |
• | require consent for changes in control of us. |
require consent for changes in control of us.
If we fail to comply with any of these requirements, then the related indebtedness or lease obligations could become due and payable prior to their stated dates. We cannot assure that we could pay these debt or lease obligations if they became due prior to their stated dates.
Please referPursuant to the immediately preceding risk factorforbearance agreements described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Transactions Involving Certain Fannie Mae Loans,” we withheld loan payments due under loan agreements with Fannie Mae covering certain of our communities for the months of April through December of 2020. In addition, we were not in compliance with certain financial covenants of our loan agreements with Fifth Third Bank covering two properties and our loan with BBVA, USA (“BBVA”) covering three properties as of December 31, 2020 and as a descriptionresult of certain recent defaults under our Master Lease Agreementsdefault, the debt has become callable. We are in active discussions with VentasFifth Third Bank and Welltower and the Forbearance agreementsBBVA to resolve these defaults. However, we recently entered into with both Ventas and Welltower with respect to such defaults.cannot give any assurance that a mutually agreeable resolution will be reached.
We will require additional financing and/or refinancingsrefinancing actions in the future and may issue equity securities.
Our ability to obtain such financing or refinancing on terms acceptable to us could have a material adverse effect on our business, financial condition, cash flows, and results of operations. Our ability to meet our long-term capital requirements, including the repayment of certain long-term debt obligations, will depend, in part, on our ability to obtain additional financing or refinancings on acceptable terms from available financing sources, including through the use of mortgage financing, joint venture arrangements, by accessing the debt and/or equity markets and possibly through operating leases or other types of financing, such as lines of credit. Turmoil in the financial markets can severely restrict the availability of funds for borrowing and may make it more difficult or costly for us to raise capital. There can be no assurance that financing or refinancings will be available or that, if available, will be on terms acceptable to us. Moreover, raising additional funds through the issuance of equity securities could cause existing stockholders to experience dilution and could adversely affect the market price of our common stock. Disruptions in the financial markets may have a significant adverse effect on the market value of our common stock and other adverse effects on us and our business. Our inability to obtain additional financing or refinancings on terms acceptable to us could delay or eliminate some or all of our growth plans, necessitate the sales of assets at unfavorable prices or both, and would have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We face risks related to an epidemic, pandemic or other health crisis, such as the recent outbreak of the novel coronavirus (COVID-19), which could cause a significant decrease in the occupancy levels at our communities and have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
We face risks related to an epidemic, pandemic or other health crisis. Since its discovery in December 2019, a new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from the coronavirus. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others.
Our revenue and operating results depend significantly on the occupancy levels at our communities. The occupancy at our communities could significantly decrease if the coronavirus or other public health outbreak results in early resident move-outs; directly impacts one of our communities; causes us to delay accepting new residents due to quarantines or otherwise; or results in potential new residents determining to postpone moving to a senior housing facility, which could have a material adverse effect on our ability to meet financial and other contractual obligations,
including the payment of rent, as well as on our business, financial condition, liquidity, results of operations and prospects.
A pandemic, epidemic or outbreak of a contagious illness, such as COVID-19, could cause our operating costs to increase and divert the time and attention of management and other personnel, which could adversely impact our business, operating results and financial condition.
A pandemic, epidemic, or other outbreak of an infectious illness or other public health crisis could cause a material increase in our operating costs, whether due to actions that we take to address outbreaks (including with respect to enhanced health and safety precautions), an inability to continue to obtain necessary goods and provide adequate staffing at our communities, or other factors. If the residents in any of our senior housing communities test positive for a contagious illness, it would result in increased costs of caring for the residents in that facility and, in all likelihood, a reduced occupancy at that facility. Further, a pandemic, epidemic or other outbreak might adversely impact our operations by causing staffing and supply shortages. In addition, outbreaks, such as the recent COVID-19 outbreak, cause our facilities and our management to spend considerable time planning for such events, which diverts their attention from other business concerns. We are continuing to evaluate and consider the potential impact of the COVID-19 outbreak, which could result in some or all of these negative outcomes and adversely impact our business, operating results and financial condition. There can be no assurances that a pandemic, epidemic or outbreak of a contagious illness, such as COVID-19, will not have a material and adverse impact on our business, operating results and financial condition in the future.
Increases in market interest rates and/or the Consumer Price Index (“CPI”)CPI could significantly increase the costs of our floating rate debt and lease obligations, which could adversely affect our liquidity and earnings.
Our floating rate debt and lease obligations and any future indebtedness, and lease obligations, if applicable, exposes us to interest rate and CPI risk. Therefore, any increase in prevailing interest rates or CPI could increase our future interest and/or lease payment obligations, which could in the future have a material adverse effect on our business, financial condition, cash flows, and results of operations.
TerminationThe phasing out of residentLIBOR may increase the interest costs of our debt obligations, which could adversely affect our results of operations and cash flow.
The interest rates for certain of our variable-rate debt obligations are calculated based on the LIBOR plus a spread. LIBOR is regulated by the United Kingdom's Financial Conduct Authority, which has announced that it plans to phase-out LIBOR by the end of 2021 and other LIBOR tenors by June 30, 2023. These debt obligations may be extended or we may enter into new variable interest rate debt obligations based on LIBOR. To the extent that LIBOR is discontinued, the terms of such variable-rate debt agreements and resident attrition could affect adversely our revenues and earnings.
State regulations governing assisted living facilities require written resident agreements with each resident. Most of these regulations also requiremay provide that each residentthe lender will have the right to terminatechoose an alternative index based on comparable information. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will evolve by the resident agreement forapplicable phase out dates, or whether alternative and comparable index rates will be established and adopted by our lenders and other financial institutions. To the extent LIBOR ceases to exist or if the methods of calculating LIBOR change, interest rates on any reason on reasonable notice. Consistent with these regulations, the resident agreements signed by us allow residentssuch variable-rate debt obligations may increase, which would adversely affect our results of operations and cash flow.
Risks Related to terminate their lease upon 0 to 30 days’ notice. Thus, we cannot contract with residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with specified leasing periods of up to a year or longer. Our resident agreements generally provide for termination of the lease upon death or allow a resident to terminate their lease upon the need for a higher level of care not provided at the community. In addition, the advanced age of our average resident means that the resident turnover rate in our senior living facilities may be difficult to predict. If a large number of residents elected to or otherwise terminate their resident agreements at or around the same time, then our revenuesBusiness, Operations and earnings could be adversely affected.Strategy
We have incurred losses from operations in each of the last three fiscal years and may do so in the future.
We have incurred a net loss in each of fiscal years 2020, 2019 2018 and 2017.2018. We currently have limited resources and substantial debt and lease obligations. Given our history of losses and the current industry conditions, it is not certain that we will be able to achieve and/or sustain profitability or positive cash flows from operations in the future, which could adversely affect the trading price of our common stock and our ability to fund our operations and fulfill our debt and lease obligations.
We largely rely on private pay residents and circumstances that adversely affect the ability of the seniors to pay for our services could have a material adverse effect on us.
Approximately 94.1%93.6% of our total revenues from communities that we operated were attributable to private pay sources and approximately 5.9%6.4% of our revenues from these communities were attributable to reimbursements from Medicaid, in each case, during fiscal 2019.year 2020. We expect to continue to rely primarily on the ability of residents to pay for
our services from their own or family financial resources. Unfavorable economic conditions in the housing, financial, and credit markets, inflation, or other circumstances that adversely affect the ability of seniors to pay for our services could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us.
The senior living services industry is highly competitive, and we expect that all segments of the industry will become increasingly competitive in the future. We compete with other companies providing independent living, assisted living, home health care and other similar services and care alternatives. We also compete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers. Although we believe there is a need for senior housing communities in the markets where we operate residences, we expect that competition will increase from existing competitors and new market entrants, some of whom may have substantially greater financial resources than us. In addition, some of our competitors operate on a not-for-profit basis or as charitable organizations and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us. Furthermore, if the development of new senior housing communities outpaces the demand for those communities in the markets in which we have senior housing communities, those markets may become saturated. Regulation in the independent and assisted living industry is not substantial. Consequently, development of new senior housing communities could outpace demand. An oversupply of those communities in our markets could cause us to experience decreased occupancy, reduced operating margins and lower profitability.
We rely on the servicesTermination of key executive officersresident agreements and the transition of management or lossresident attrition could affect adversely our revenues and earnings.
State regulations governing assisted living facilities require written resident agreements with each resident. Most of these officersregulations also require that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, the resident agreements signed by us allow residents to terminate their lease upon 0 to 30 days’ notice. Thus, we cannot contract with residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with specified leasing periods of up to a year or longer. Our resident agreements generally provide for termination of the lease upon death or allow a resident to terminate their services could havelease upon the need for a material adverse effect on us.
We depend onhigher level of care not provided at the servicescommunity. In addition, the advanced age of our executive officers for our management. We have recently undergone changesaverage resident means that the resident turnover rate in our senior managementliving facilities may be difficult to predict. If a large number of residents elected to or otherwise terminate their resident agreements at or around the same time, then our revenues and earnings could be adversely affected.
We have identified a material weakness in our internal control over financial reporting at December 31, 2020. If we are unable to remediate this material weakness, we may experience further changesnot be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
In connection with the preparation of our financial statements for the year ended December 31, 2020, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified a material weakness in our internal control over the financial reporting related to deficiencies in accounting for material non-recurring transactions. Specifically, our controls did not operate effectively to ensure certain account reconciliations and journal entries were reviewed at the appropriate level of precision. Control deficiencies could result in a misstatement of our accounts or disclosures that could result in a material misstatement of our financial results that would not be prevented or detected, and accordingly, we determined that these control deficiencies constitute a material weakness.We are working to remediate this material weakness through the development and implementation of processes and controls over the financial reporting process.
While new controls are being designed and implemented, they have not operated for a sufficient period of time to demonstrate the material weakness has been remediated. We cannot assure you that the measures we have taken to date will be sufficient to remediate the material weakness we identified or avoid the identification of additional material weaknesses in the future. The transition of management, loss of anyAlthough we plan to complete this remediation, if the steps we take do not remediate the material weakness in a timely manner, there could continue to be a reasonable possibility that this control deficiency or others could result in a material misstatement of our executive officersannual or our inability to attract and retain qualified management personnel in the future, could affect our ability to manage our business and could adversely affect our business,interim financial condition, cash flows, and results of operations.
A significant increase in our labor costs could havestatements that would not be prevented or detected on a material adverse effect on us.
We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled personnel responsible for providing resident care. We rely upon the quality of our staff as a means to differentiate our services from other providers. A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. No assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We are subject to risks related to the provision for employee health care benefits and ongoing health care reform legislation.
We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs and stop-loss premiums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
In March 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) was passed and signed into law. This legislation expands health care coverage to many uninsured individuals and expands health care coverage to those already insured under existing plans. The health care reform legislation includes, among other things, guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Provisions of the health care reform legislation become effective at various dates over the next several years. The United States Department of Health and Human Services, National Association of Insurance Commissioners, Department of Labor and Treasury Department continue to issue necessary enabling regulations and guidance with respect to the health care reform legislation. Due to the breadth and complexity of the health care reform legislation, the lack of implementing regulations and interpretative guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact this legislation will have over the coming years; however, this legislation could have a material adverse effect on our business, financial condition, cash flows, and results of operations.timely basis.
There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance.
The provision of personal and health care services in the long-term care industry entails an inherent risk of liability. In recent years, participants in the long-term care industry have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and result in the incurrence of significant defense costs. Moreover, senior housing communities offer residents a greater degree of independence in their daily living. This increased level of independence may subject the resident and, therefore, us to risks that would be reduced in more institutionalized settings. We currently maintain insurance in amounts we believe are comparable to those maintained by other senior living companies based on the nature of the risks, our historical experience and industry standards, and we believe that this insurance coverage is adequate. However, we may become subject to claims in excess of our insurance or claims not covered by our insurance, such as claims for punitive damages, terrorism and natural disasters. A claim against us not covered by, or in excess of, our insurance could have a material adverse effect upon our business, financial condition, cash flows, and results of operations.
In addition, our insurance policies must be renewed annually. Based upon poor loss experience and the impact of the COVID-19 pandemic, insurers for the long-term care industry have become increasingly wary of liability exposure. A number of insurance carriers have stopped writing coverage to this market or reduced the level of coverage offered, and those remaining have increased premiums and deductibles substantially. The COVID-19 pandemic may also adversely affect our ability to obtain insurance coverage or increase the costs of doing so. Therefore, we cannot assure that we will be able to obtain liability insurance in the future or that, if that insurance is available, it will be available on acceptable economic terms.
Damage from catastrophic weather and other natural events could result in losses and adversely affect certain of our residents.
A certain number of our properties are located in areas that have experienced and may experience in the future catastrophic weather and other natural events from time to time, including snow or ice storms, windstorm, tornados, hurricanes, fires, earthquakes, flooding or other severe weather. These events could result in some of our communities losing electricity, gas, water and other utilities for a period of time, and could also result in increased electricity and other utility expenses. Damage to facilities or loss of power or water could adversely impact our residents and result in a decline in occupancy at our communities. We maintain insurance policies, including coverage for business interruption, designed to mitigate financial losses resulting from such adverse weather and natural events; however, there can be no assurance that adverse weather or natural events will not cause substantial damages or losses to our communities that could exceed our insurance coverage. In the event of a loss in excess of insured limits, such loss could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
Damage to facilities or loss of power or water could adversely impact our residents and result in a decline in occupancy at our communities.
We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any of which could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
We rely upon the proper function and availability of our information technology and computer systems, including hardware, software, applications and electronic data storage, to communicate with our residents and patients, their doctors and other healthcare providers, and our employees and vendors and to store, process, safeguard and transmit our business information, including proprietary business information, private health information and personally identifiable information of our residents and employees. We have taken steps and expended significant resources to
protect the cybersecurity and physical security of our information technology and computer systems and have developed and implemented policies and procedures to comply with HIPAA and other applicable privacy laws, rules and regulations. However, there can be no assurance that our security measures, policies and procedures and disaster recovery plans will prevent damage to, or interruption or breach of, our information systems or other unauthorized access to private information.
The cybersecurity risks to our Company and our third-party vendors are heightened by, among other things, the frequently changing techniques used to illegally or fraudulently obtain unauthorized access to systems, advances in computing technology and cryptography, and the possibility that unauthorized access may be difficult to detect, which could lead to us or our vendors being unable to anticipate these techniques or implement adequate preventive measures. In addition, components of our information systems that we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security or functionality of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business or communicate, through computer viruses, hacking, fraud or other forms of deceiving our employees or contractors such as email phishing attacks. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our cybersecurity or to investigate and remediate any cybersecurity vulnerabilities, attacks or incidents.
In addition, we rely on software support of third parties to secure and maintain our information systems and data. Our inability, or the inability of these third parties, to continue to maintain and upgrade our information systems could disrupt or reduce the efficiency of our operations. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
Failure to maintain the security and functionality of our information systems, or to prevent a cybersecurity attack or other unauthorized access to our information systems, could expose us to a number of adverse consequences, including: (i) interruptions to our business and operations; (ii) the theft, destruction, loss, misappropriation, or release of sensitive information, including proprietary business information and personally identifiable information of our residents, patients and employees; (iii) significant remediation costs; (iv) negative publicity that could damage our reputation and our relationships with our residents, patients, employees and referral sources; (v) litigation and potential liability under privacy, security and consumer protection laws, including HIPAA, or other applicable laws, rules or regulations; and (vi) government inquiries that may result in sanctions and other criminal or civil fines or penalties. Any of the foregoing could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
Because we do not presently have plans to pay dividends on our common stock, stockholders must look solely to appreciation of our common stock to realize a gain on their investment.
It is the policy of our board of directors to retain any future earnings to finance the operation and expansion of our business. Accordingly, we have not and do not currently anticipate declaring or paying cash dividends on your common stock in the foreseeable future. The payment of cash dividends in thefuture will be at the sole discretion of our board of directors and will depend on, among other things, our earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements and other factors deemed relevant by our board of directors. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.
Risks Related to Human Capital
We rely on the services of key executive officers and the transition of management or loss of these officers or their services could have a material adverse effect on us.
We depend on the services of our executive officers for our management. We have recently undergone changes in our senior management and may experience further changes in the future. The transition of management, loss of any of our executive officers or our inability to attract and retain qualified management personnel in the future, could affect our ability to manage our business and could adversely affect our business, financial condition, cash flows, and results of operations.
A significant increase in our labor costs could have a material adverse effect on us.
We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled personnel
responsible for providing resident care. We rely upon the quality of our staff as a means to differentiate our services from other providers. A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. No assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We are subject to governmentrisks related to the provision for employee health care benefits and future health care reform legislation.
We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs and stop-loss premiums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
In addition, the Patient Protection and Affordable Care Act (the “Affordable Care Act”) expanded healthcare coverage to millions of previously uninsured people beginning in 2014 and has resulted in significant changes to the United States healthcare system. This comprehensive healthcare legislation has resulted and will continue to result in extensive rulemaking by regulatory authorities, and also may be altered, amended, repealed, or replaced. It is difficult to predict the full impact of the Affordable Care Act due to the complexity of the law and implementing regulations, as well our inability to foresee how participants in the healthcare industry will respond to the choices available to them under the law. The provisions of the legislation and other regulations implementing the provisions of the Affordable Care Act or any amended or replacement legislation may increase our costs, adversely affect our revenues, expose us to expanded liability, or require us to revise the ways in which we conduct our business.
In addition to its impact on the delivery and payment for healthcare, the Affordable Care Act and the implementing regulations have resulted and may continue to result in increases to our costs to provide healthcare benefits to our employees. We also may be required to make additional employee-related changes to our business as a result of provisions in the Affordable Care Act or any amended or replacement legislation impacting the provision of health insurance by employers, which could result in additional expense and adversely affect our results of operations and cash flow.
Risks Related to Regulatory, Compliance and/or Legal Matters
We are subject to governmental regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future.
Federal and state governments regulate various aspects of our business. The development and operation of senior housing communities and the provision of health care services are subject to federal, state and local licensure, certification and inspection laws that regulate, among other matters, the number of licensed beds, the provision of services, the distribution of pharmaceuticals, billing practices and policies, equipment, staffing (including professional licensing), operating policies and procedures, fire prevention measures, environmental matters, and compliance with building and safety codes. Failure to comply with these laws and regulations could result in the denial of reimbursement, the imposition of fines, temporary suspension of admission of new residents, suspension or decertification from the Medicaid program, restrictions on the ability to acquire new communities or expand existing communities and, in extreme cases, the revocation of a community’s license or closure of a community. We believe that such regulation will increase in the future and we are unable to predict the content of new regulations or their effect on our business, any of which could materially adversely affect our business, financial condition, cash flows, and results of operations.
Various states, including several of the states in which we currently operate, control the supply of licensed beds and assisted living communities through a CON requirement or other programs. In those states, approval is required for the addition of licensed beds and some capital expenditures at those communities. To the extent that a CON or other similar approval is required for the acquisition or construction of new communities, the expansion of the number of licensed beds, services, or existing communities, we could be adversely affected by our failure or inability to obtain that approval, changes in the standards applicable for that approval, and possible delays and expenses associated with
obtaining that approval. In addition, in most states, the reduction of the number of licensed beds or the closure of a community requires the approval of the appropriate state regulatory agency and, if we were to seek to reduce the number of licensed beds at, or to close, a community, we could be adversely affected by a failure to obtain or a delay in obtaining that approval.
Federal and state anti-remuneration laws, such as “anti-kickback” laws, govern some financial arrangements among health care providers and others who may be in a position to refer or recommend patients to those providers. These laws prohibit, among other things, some direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of healthcare items or services. Federal anti-kickback laws have been broadly interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary, are sometimes vague, and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicaid program. There can be no assurance that those laws will be interpreted in a manner consistent with our practices.
Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned communities to create access to the properties by disabled persons. Although we believe that our communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996,HIPAA, in conjunction with the federal regulations promulgated thereunder by the Department of Health and Human Services, has established, among other requirements, standards governing the privacy of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. HIPAA is a complex set of regulations and many unanswered questions remain with respect to the manner in which HIPAA applies to businesses such as those operated by us.
In addition, some states have begun to enact more comprehensive privacy laws and regulations addressing consumer rights to data protection or transparency. For example, the California Consumer Privacy Act became effective in 2020, and we expect additional federal and state legislative and regulatory efforts to regulate consumer privacy protection in the future. Compliance with such legislative and regulatory developments could be burdensome and costly, and the failure to comply could have a material adverse effect on our business, financial condition, cash flows and results of operations.
An increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or a state level. Among the proposals that have been introduced are price controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of government health insurance plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals or other proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition or results of operations.
We may be subject to liability for environmental damages.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by those parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of the substances may be substantial, and the presence of the substances, or the failure to properly remediate the
property, may adversely affect the owner’s ability to sell or lease the property or to borrow using the property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of the substances at the disposal or treatment facility, whether or not the facility is owned or operated by the person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. If we become subject to any of these claims the costs involved could be significant and could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
Various factors, including general economic conditions, could adversely affect our financial performance and other aspects of our business.
General economic conditions, such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits and insurance, interest rates, and tax rates, affect our facility operating, facility lease, general and administrative and other expenses, and we have no control or limited ability to control such factors. Current global economic conditions and uncertainties, the potential for failures or realignments of financial institutions, and the related impact on available credit may affect us and our business partners, landlords, counterparties, and residents or prospective residents in an adverse manner including, but not limited to, reducing access to liquid funds or credit, increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and other impacts which we are unable to fully anticipate.
Damage from catastrophic weather and other natural events could result in losses.
A certain number of our properties are located in areas that have experienced and may experience in the future catastrophic weather and other natural events from time to time, including snow or ice storms, windstorm, tornados, hurricanes, fires, earthquakes, flooding or other severe weather. The Company maintains insurance policies, including coverage for business interruption, designed to mitigate financial losses resulting from such adverse weather and natural events; however, there can be no assurance that adverse weather or natural events will not cause substantial damages or losses to our communities that could exceed our insurance coverage. In the event of a loss in excess of insured limits, such loss could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any of which could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
We rely upon the proper function and availability of our information technology and computer systems, including hardware, software, applications and electronic data storage, to communicate with our residents and patients, their doctors and other healthcare providers, and our employees and vendors and to store, process, safeguard and transmit our business information, including proprietary business information, private health information and personally identifiable information of our residents and employees. We have taken steps and expended significant resources to protect the cybersecurity and physical security of our information technology and computer systems and have developed and implemented policies and procedures to comply with HIPAA and other applicable privacy laws, rules and regulations. However, there can be no assurance that our security measures, policies and procedures and disaster recovery plans will prevent damage to, or interruption or breach of, our information systems or other unauthorized access to private information.
The cybersecurity risks to the Company and our third-party vendors are heightened by, among other things, the frequently changing techniques used to illegally or fraudulently obtain unauthorized access to systems, advances in computing technology and cryptography, and the possibility that unauthorized access may be difficult to detect, which could lead to us or our vendors being unable to anticipate these techniques or implement adequate preventive measures. In addition, components of our information systems that we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security or functionality of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business or communicate, through computer viruses, hacking, fraud or other forms of deceiving our employees or contractors such as email phishing attacks. As cyber threats continue to evolve, we may be
required to expend significant additional resources to continue to modify or enhance our cybersecurity or to investigate and remediate any cybersecurity vulnerabilities, attacks or incidents.
In addition, we rely on software support of third parties to secure and maintain our information systems and data. Our inability, or the inability of these third parties, to continue to maintain and upgrade our information systems could disrupt or reduce the efficiency of our operations. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
Failure to maintain the security and functionality of our information systems, or to prevent a cybersecurity attack or other unauthorized access to our information systems, could expose us to a number of adverse consequences, including: (i) interruptions to our business and operations; (ii) the theft, destruction, loss, misappropriation, or release of sensitive information, including proprietary business information and personally identifiable information of our residents, patients and employees; (iii) significant remediation costs; (iv) negative publicity that could damage our reputation and our relationships with our residents, patients, employees and referral sources; (v) litigation and potential liability under privacy, security and consumer protection laws, including HIPAA, or other applicable laws, rules or regulations; and (vi) government inquiries that may result in sanctions and other criminal or civil fines or penalties. Any of the foregoing could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock.
We value constructive input from our stockholders and engage in dialogue with our stockholders regarding our governance practices, strategy, and performance. However, activist stockholders may disagree with the composition of our board of directors or management, our strategy, or capital allocation decisions and may seek to effect change through various strategies that range from private engagement to public campaigns, proxy contests, efforts to force proposals, or transactions not supported by our board of directors and litigation. Responding to these actions may be costly and time-consuming, disrupt our operations, divert the attention of our board of directors, management, and our associates and interfere with our ability to pursue our strategy and to attract and retain qualified board and executive leadership. The perceived uncertainty as to our future direction that may result from actions of activist stockholders may also negatively impact our ability to attract and retain residents at our communities. We cannot provide assurance that constructive engagement with our stockholders will be successful. Any such stockholder activism may have an adverse effect on our business, results of operations, and cash flow and the market price of our common stock.
The potential phasing out of LIBOR may increase the interest costs of our debt obligations, which could adversely affect our results of operations and cash flow.
The interest rates for certain of our variable-rate debt obligations are calculated based on the London Interbank Offer Rate (LIBOR) plus a spread. LIBOR is regulated by the United Kingdom's Financial Conduct Authority, which has announced that it plans to phase-out LIBOR by the end of 2021. Although certain of such debt obligations are scheduled to mature prior to the end of 2021, such debt obligations may be extended or we may enter into new variable interest rate debt obligations based on LIBOR. If LIBOR were to be discontinued, the terms of such variable-rate debt agreements may provide that the lender will have the right to choose an alternative index based on comparable information. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will evolve by the end of 2021, or whether alternative and comparable index rates will be established and adopted by our lenders and other financial institutions. If LIBOR ceases to exist or if the methods of calculating LIBOR change, interest rates on any such variable-rate debt obligations may increase, which would adversely affect our results of operations and cash flow.
Risks Related to Our Common StockCorporate Organization and Structure:
Anti-takeover provisions in our governing documents, governing law and material agreements may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management.
Certain provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the
removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including: a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms; removal of directors only for cause, and only with the affirmative vote of at least a majority of the voting interest of stockholders entitled to vote; right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our common stock without the consent of our stockholders; provisions in our amended and restated certificate of incorporation and amended and restated by-laws limiting the right of our stockholders to call special meetings of stockholders; advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; requirement for two-thirds stockholder approval for amendment of our by-laws and certain provisions of our certificate of incorporation; and no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election. Our board of directors has approved amendments to our certificate of incorporation that will phase out the Company’s staggered board of directors over a three-year period and to eliminate the requirement that directors may only be removed for cause, but such amendments are subject to the approval of our stockholders and there are no reassurances as to when, if at all, such approval will be received.
Several of our leases, loan documents and other material agreements require approval in case ofthe event we undergo a change of control of our company. These provisions may have the effect of delaying or preventing a change of control of our companythe Company even if this change of control would benefit our stockholders.
In addition to the anti-takeover provisions described above, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a person beneficially owning, directly or indirectly, 15% or more of our outstanding common stock from engaging in a business combination with us for three years after the person acquired the stock. However, this prohibition does not apply if (A) our directors approve in advance the person’s ownership of 15% or more of the shares or the business combination or (B) the business combination is approved by our stockholders by a vote of at least two-thirds of the outstanding shares not owned by the acquiring person.
Because we do not presently have plans to pay dividendsWe are a holding company with no operations and rely on our common stock, stockholders must look solelyoperating subsidiaries to appreciation ofprovide us with funds necessary to meet our common stock to realizefinancial obligations.
We are a gainholding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries. As a result, we are dependent on their investment.
It is the policy of our board of directors to retain any future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company has not and does not currently anticipate declaring or paying cash dividends on your common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of our board of directors and will depend on, among other things, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreementsloans, distributions, and other factors deemed relevant bypayments from our board of directors. Accordingly, stockholders must look solelysubsidiaries to appreciation ofgenerate the funds necessary to meet our common stockfinancial obligations. Our subsidiaries are legally distinct from us and have no obligation to realize a gain on their investment. This appreciation may not occur.make funds available to us.
Risks Related to Other Market Factors
If we cannot meetregain compliance with the NYSE continued listing requirements of the New York Stock Exchange (“NYSE”), the NYSE maywill delist our common stock.
Our common stock is currently listed on the NYSE. In April 2020, we received notice (the “Notice”) from the future, ifNYSE that we are unable to meet thewere no longer in compliance with NYSE continued listing requirementsstandards set forth in Section 802.01B (the “Minimum Market Capitalization Standard”) and Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE, including, among other things:NYSE’s Listed Company Manual due to the fact that (i) the requirement of maintaining a minimumour average closing price of $1.00 per shareglobal market capitalization over a consecutive 30 trading-day period and (ii) the requirement to maintain an average market capitalization of notwas less than $50 million over a 30 trading-day period and, at the same time, our stockholders’ equity is alsowas less than $50 million, we would fall below compliance standards and risk having our common stock delisted. In addition, in(ii) the event of an abnormally low share price of our common stock and/or we fail to maintain an average market capitalization of at least $15 million over a 30-trading day period, we would be subject to immediate delisting under the NYSE’s rules without any opportunity to cure. On March 19, 2020, the NYSE filed a proposed rule change to suspend until June 30, 2020, the application of the NYSE continued listing requirement with respect to the $15 million average market capitalization rule as a result of COVID-19 market turbulence. On March 25, 2020, the closing price of our common stock was less than $1.00 over a consecutive 30 trading-day period.
In December 2020, we implemented a Reverse Stock Split in order to increase the market price per share of our common stock and regain compliance with the Minimum Stock Price Standard. However, if we are unable to regain compliance with the Minimum Market Capitalization Standard within the time periods prescribed by the NYSE’s rules, our common stock will be delisted. Due to recent market conditions, the NYSE temporarily extended the applicable cure periods for complying with the Minimum Market Capitalization Standard, through and including June 30, 2020, and as such, the NYSE previously informed us that it had until December 19, 2021 to regain compliance with the Minimum Market Capitalization Statement.
In accordance with the NYSE’s listing requirements, we submitted our plan to the NYSE advising the NYSE of definitive action we have taken, or are taking, to bring us into conformity with the Minimum Market Capitalization Standard within 18 months after our receipt of the Notice. The NYSE accepted our plan in July 2020, and as a result, our common stock will continue to be listed and traded on the NYSE was $0.57 per shareduring the cure period, subject to our compliance with the plan and our market capitalization was approximately $18.2 million.other continued listing standards. The NYSE will review us on a quarterly basis to confirm compliance with the plan. If we fail to comply with the plan or does not meet continued listing standards at the end of the 18-month cure period, we will be subject to the prompt initiation of NYSE suspension and delisting procedures.
A delisting of our common stock could negatively impact us by, among other things:
reducing the liquidity and market price of our common stock;
reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity;
• | reducing the liquidity and market price of our common stock; |
| • | reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity; |
• | decreasing the amount of news and analyst coverage relating to us; |
limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and
• | limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and |
impacting our reputation and, as a consequence, our ability to attract new business.
• | impacting our reputation and, as a consequence, our ability to attract new business. |
The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future.
Our stock price has been, and may continue to be, subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual Report on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expectations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result. This volatility may prevent you from being able to sell your common stock at or above the price you paid for your common stock.
In addition, the stock markets in general have experienced extreme volatility recently that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
Future offerings of equity securities by us may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by offering additional equity securities. Additional equity offerings may dilute the economic and voting rights of our existing stockholders and/or reduce the market price of our common stock. Our decision to issue equity securities in a future offering will depend on market conditions and other factors, some of which are beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their holdings in our Company.
The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future.
Our stock price has been, and may continue to be, subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual Report on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expectations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result. This volatility may prevent you from being able to sell your common stock at or above the price you paid for your common stock.
In addition, the stock markets in general have experienced extreme volatility recently that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock.
We value constructive input from our stockholders and engage in dialogue with our stockholders regarding our governance practices, strategy, and performance. However, activist stockholders may disagree with the composition of
our board of directors or management, our strategy, or capital allocation decisions and may seek to effect change through various strategies that range from private engagement to public campaigns, proxy contests, efforts to force proposals, or transactions not supported by our board of directors and litigation. Responding to these actions may be costly and time-consuming, disrupt our operations, divert the attention of our board of directors, management, and our associates and interfere with our ability to pursue our strategy and to attract and retain qualified board and executive leadership. The perceived uncertainty as to our future direction that may result from actions of activist stockholders may also negatively impact our ability to attract and retain residents at our communities. We cannot provide assurance that constructive engagement with our stockholders will be successful. Any such stockholder activism may have an adverse effect on our business, results of operations, and cash flow and the market price of our common stock.
Various factors, including general economic conditions, could adversely affect our financial performance and other aspects of our business.
General economic conditions, such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits and insurance, interest rates, and tax rates, affect our facility operating, facility lease, general and administrative and other expenses, and we have no control or limited ability to control such factors. Current global economic conditions and uncertainties, the potential for failures or realignments of financial institutions, and the related impact on available credit may affect us and our business partners, landlords, counterparties, and residents or prospective residents in an adverse manner including, but not limited to, reducing access to liquid funds or credit, increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and other impacts which we are unable to fully anticipate.
ITEM 1B.UNRESOLVED STAFF COMMENTS. |
None.
TheITEM 2.PROPERTIES.
Our executive and administrative offices of the Company are located at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254, and consist of approximately 26,0007,000 square feet. The lease on the premises currently extends through September 2020. The Company is currently negotiating an extension to the office lease. The Company believes30, 2021. We believe that itsour corporate office facilities are adequate to meet itsour requirements through at least fiscal 2020year 2021 and that suitable additional space will be available, as needed, to accommodate further physical expansion of corporate operations.
As of December 31, 2019, the Company2020, we owned, or leased andor managed the senior housing communities referred to in Part I, Item 1 above under the caption “Operating Communities.”
The Company hasITEM 3.LEGAL PROCEEDINGS.
We have claims incurred in the normal course of itsour business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, and based on advice of legal counsel, should not have a material effect on theour consolidated financial statements of the Company if determined adversely to the Company.us.
Not applicable.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
(a) Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Market Information and Holders
The Company’s shares of common stock are listed for trading on the New York Stock Exchange (“NYSE”)NYSE under the symbol “CSU”. At March 25, 2020,2021, there were 13898 stockholders of record of the Company’s common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information relating to the Company’s equity compensation plans as of December 31, 2019:2020, as adjusted for the Reverse Stock Split:
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted-Average Exercise Price of the Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) |
| |||
Equity compensation plans approved by security holders |
|
| — |
|
| $ | — |
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| — |
|
| $ | — |
|
|
|
|
|
(b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
Not applicable.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
The following information is provided pursuant to Item 703 of Regulation S-K. The information set forth in the table below reflects information regarding the aggregate shares repurchased by the Company pursuant to its share repurchase program (as described below) as of December 31, 2019.2020, as adjusted for the Reverse Stock Split.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
Total at September 30, 2019 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
October 1 – October 31, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
November 1 – November 30, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
December 1 – December 31, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
Total at December 31, 2019 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
Total at September 30, 2020 |
|
| 32,941 |
|
| $ | 199.45 |
|
|
| 32,941 |
|
| $ | 6,570,222 |
|
October 1 – October 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
November 1 – November 30, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
December 1 – December 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
Total at December 31, 2020 |
|
| 32,941 |
|
| $ | 199.45 |
|
|
| 32,941 |
|
| $ | 6,570,222 |
|
(1) | On January 22, 2009, the Company’s |
Not applicable.
Certain information contained in this reportAnnual Report on Form 10-K constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. Examples of forward-looking statements, include, without limitation, those relating to the Company’s future business prospects and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and contingent liabilities. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, including, but not limited to, the Company’s ability to generate sufficient cash flows from operations, additional proceeds from debt refinancings, and proceeds from the sale of assets to satisfy its short- and long-term debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants and the terms and conditions of its recent forbearance agreements, and the risk of cross-default in the event such non-compliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms or at all; the risks related to an epidemic, pandemic, or other health crisis, such as the recent outbreak of the novel coronavirus (COVID-19); the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks associated with a decline in economic conditions generally; the adequacy and continued availability of the Company’s insurance policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the SEC. On December 9, 2020, the Company’s Board of Directors approved a reverse stock split of the Company’s common stock at a ratio of 1-for-15, which became effective on December 11, 2020. Accordingly, all of the Company’s common share, equity award and per-share amounts have been adjusted to reflect such reverse stock split for all prior periods presented.
Overview
The following discussion and analysis addresses (i) the Company’s results of operations on a historical consolidated basis for the years ended December 31, 20192020 and 2018,2019, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s historical consolidated financial statements and the selected financial data contained elsewhere in this report.Annual Report on Form 10-K.
The Company is one of the largest operatorsleading owner-operators of senior housing communities in the United States. The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the 75+ population, including independent living, assisted living, and memory care services at reasonable prices. Many of the Company’s communities offer a continuum of care to meet each of its residents’resident’s needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care, and iswhich may be bridged by home care through independent home care agencies, sustains our residents’ autonomy and independence based on their physical and mental abilities.
As of December 31, 2019,2020, the Company operated 126101 senior housing communities in 2322 states with an aggregate capacity of approximately 16,00013,000 residents, including 8060 senior housing communities that the Company owned, and 4617 properties that were in the process of transitioning legal ownership back to Fannie Mae, 12 senior housing communities that the Company leased.leased, and 12 communities that the Company managed on behalf of third parties.
COVID-19 Pandemic
The COVID-19 global pandemic was declared a public health emergency in the United States in the first quarter of 2020 and as of the date of this Annual Report on Form 10-K, the United States continues to experience the impacts of COVID-19, which has significantly disrupted, the nation’s economy, the senior living industry, and the Company’s business.
In an effort to protect its residents and employees and slow the spread of COVID-19, and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, the COVID-19 pandemic has caused a decline in the occupancy levels at the Company’s communities, which has negatively impacted the Company’s revenues and operating results, which depend significantly on such occupancy levels. During March 2020, new resident leads, visits, and move-in activity began to decline compared to historical levels. This trend continued through the end of 2020 and adversely impacted occupancy, resulting in a decrease in consolidated senior housing occupancy from 79.9% for the first quarter of 2020 to 73.3% for the fourth quarter of 2020.
In December 2020, the Company initiated the first round of COVID-19 vaccinations at all of its communities and, as of February 2021, subsequent to year-end, the Company has completed first-round vaccine clinics at 100% and second-round vaccine clinics at 68% of its communities. In communities that have completed second-round vaccine clinics, 75% of its residents and 34% of its staff have received both doses of the COVID-19 vaccine and are fully vaccinated. As of February 2021, subsequent to year-end, COVID-19 incidence rates have declined across our portfolio, and leading indicators, such as leads and tours, are at their highest levels since March 2020, indicating that demand for senior housing and services is beginning to rebound.
During 2020, the Company incurred significant additional operating costs and expenses in order to implement enhanced infection control protocols and enhanced care for its residents. For example, the Company incurred substantial costs for procurement of additional PPE, cleaning and disposable food service supplies, enhanced cleaning, infection control, environmental sanitation costs, and increased labor expenses, including contract labor and for hazard pay at certain communities where residents tested positive for COVID-19. The Company has also incurred costs for COVID-19 testing of residents and employees. In total, the Company incurred approximately $9.4 million in incremental COVID-19 related costs in fiscal year 2020. To mitigate these new expenses, the Company reduced spending on non-essential supplies, travel, and other discretionary items.
In November 2020, the Company accepted $8.1 million of CARES Act Phase 2 Provider Relief funds, which are intended to reimburse the Company for COVID-19 related costs and lost revenue. The $8.1 million Phase 2 Provider Relief Funds have been recorded as a reduction to operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. The Company received an additional $8.7 million in the first quarter of 2021, subsequent to year-end, under the CARES Act Phase 3 and expects to fully recognize Phase 3 funds in 2021. The CARES Act Phase 2 and Phase 3 funds are grants that do not have to be repaid provided the Company satisfies the terms and conditions of the CARES Act. In addition, the Company had received approximately $1.9 million in relief from state agencies during the year ended December 31, 2020 under the CARES Act and has applied for additional federal and state funding. The Company is utilizing the payroll tax deferral program under the CARES Act and delayed the employer portion of payroll taxes totaling $7.4 million from April 2020 through December 2020. One-half of the deferred payroll taxes, which amounted to $3.7 million, will be due by December 2021, while the other half will be due by December 2022.
CARES Act Provider Relief Funds are subject to the terms and conditions of the program, including stringent restrictions that funds may only be used to reimburse COVID-19 related expenses or lost revenue that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. While we intend to pursue additional funding that may become available, there can be no assurances that we will qualify for, or receive, any additional relief funds in the future.
We cannot, at this time, predict with reasonable certainty the impacts that the COVID-19 pandemic ultimately will have on our business, results of operations, cash flow, and liquidity, and our preparation and response efforts may delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impact of the COVID-19 pandemic will depend on many factors, many of which cannot be foreseen, including: (i) the duration, severity and geographic concentrations of the COVID-19 pandemic and any resurgence, second waves or new strains of the disease; (ii) the impact of COVID-19 on the nation’s economy and debt and equity markets at large and the local economies in our markets; (iii) the development and availability of COVID-19 infection and antibody testing, therapeutic agents and vaccines, and the prioritization of such resources among businesses and demographic groups; (iv) governmental financial and regulatory relief efforts that may become available to businesses and individuals; (v) concerns over and the perceptions of the safety of senior living communities during and after the pandemic; (vi) changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; (vii) the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to
changes in unemployment rates, consumer confidence, and equity markets caused by the COVID-19 pandemic; (viii) changes in the acuity levels of our new residents; (ix) the disproportionate impact of the COVID-19 pandemic on seniors generally and those residing in our communities; (x) the duration and costs of our preparation and response efforts, including increased supplies, labor, litigation, and other expenses; (xi) the impact of the COVID-19 pandemic on our ability to (1) complete equity and debt financings, refinancing, or other transactions (including dispositions) or (2) generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; (xii) increased regulatory requirements and enforcement actions resulting from the COVID-19 pandemic, including those that may limit our collection efforts for delinquent accounts; and (xiii) the frequency and magnitude of legal actions and liability claims that may arise due to the COVID-19 pandemic or our associated response efforts.
Going Concern Uncertainty
Accounting Standards Codification (“ASC”) 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within 12 months after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including (1) uncertainty around the continued impact of the COVID-19 pandemic on the Company’s operations and financial results, (2) $72.5 million of debt maturing and $16.8 million of debt service payments due in the next 12 months, (3) recurring operating losses and projected operating losses for fiscal periods through March 31, 2022, (4) the Company’s working capital deficit and (5) noncompliance with certain financial covenants of the Company’s loan agreements with Fifth Third Bank covering two properties and BBVA covering three properties at December 31, 2020. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the 12-month period following the date the fiscal year 2020 financial statements are issued.
As discussed below, the Company has implemented plans which encompass strategic and cash-preservation initiatives, that are designed to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2020 financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) cash from operations that will be used in operations and (2) debt forbearance, refinancings and extensions to the extent available on acceptable terms.
Strategic and Cash Preservation Initiatives
The Company has taken or intends to take the following actions, among others, to improve its liquidity position and to address uncertainty about its ability to operate as a going concern:
• | In the first quarter of 2019, the Company implemented a three-year operational improvement plan which began to show improved operating results during 2020, prior to the onset of COVID-19, and is expected to continue to drive incremental profitability improvements. |
• | We are in active discussions with Fifth Third Bank and BBVA to resolve our noncompliance with financial covenants at December 31, 2020 for debt totaling $72.5 million, which is included in current portion of notes payable, net of deferred loan costs on the Company’s Consolidated Balance Sheets. As a result of default, the loans have become callable. |
• | The Company has implemented additional proactive spending reductions to improve liquidity, including reduced discretionary spending and monitoring capital spending. |
• | The Company has exited all master lease agreements in order to strengthen the Company’s balance sheet and allow the Company to strategically invest in certain existing communities (see “Note 5- Dispositions and Other Significant Transactions”). |
• | On November 24, 2020 the Company closed on the sale of one senior housing community located in Canton, Ohio, for a total purchase price of $18.0 million and received approximately $6.4 million in net proceeds after |
retiring outstanding mortgage debt of $10.8 million and paying customary transaction and closing costs. The Company recorded a $2.0 million gain on the sale of the property, which is included in gain (loss) on disposition of assets, net in the year ended December 31, 2020. In November 2020, the Company entered into a management agreement with the successor owner to manage the senior living community, subject to a management fee based on the gross revenues of the property. |
• | In May 2020, the Company entered into short-term debt forbearance agreements with a number of its lenders (see “Note 9- Notes Payable”). In October 2020, the Company entered into an additional short-term forbearance agreement with Protective Life Insurance Company. |
• | In November 2020, the Company accepted $8.1 million of CARES Act Phase 2 Provider Relief funds, which are intended to reimburse the Company for COVID-19 related costs and lost revenue. The $8.1 million Phase 2 Provider Relief Funds have been recorded as a reduction to operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. The Company received an additional $8.7 million in the first quarter of 2021, subsequent to year-end under the CARES Act Phase 3 and expects to fully recognize Phase 3 funds in 2021. The CARES Act Phase 2 and Phase 3 funds are grants that do not have to be repaid provided the Company satisfies the terms and conditions of the CARES Act. In addition, the Company had received approximately $1.9 million in relief from state agencies during the year ended December 31, 2020 under the CARES Act and has applied for additional federal and state funding. |
• | The Company elected to utilize the CARES Act payroll tax deferral program and delayed payment of a portion of payroll taxes incurred from April 2020 through December 2020. One-half of the deferral amount will become due on each of December 31, 2021 and December 31, 2022. At December 31, 2020, the Company had deferred $7.4 million in payroll taxes, of which, $3.7 million is included in accrued expenses and $3.7 million is included in other long-term liabilities in the Company’s Consolidated Balance Sheets. |
• | In July 2020, the Company initiated a process which is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. In conjunction with the agreement, the Company discontinued recognizing revenues and expenses on the properties as of August 1, 2020, but continues to manage the communities on behalf of Fannie Mae. The Company earns a management fee for providing such services. As a result of events of default and the appointment of a receiver to take possession of the communities, the Company concluded that, in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets” a $199.6 million loss should be taken due to the derecognition of the assets as a result of the loss of control of the assets, which occurred during the year ended December 31, 2020. See “Note 9- Notes Payable.” Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities is extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, “Debt.” At December 31, 2020, the Company included $218.4 million in outstanding debt in the current portion of notes payable, net of deferred loan costs, and $8.7 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties. |
• | The Company is evaluating possible debt and capital options. |
The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by the COVID-19 pandemic. Accordingly, management could not conclude that it was probable that the plans will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the 12-month period following the date the financial statements are issued.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.
Significant Financial and Operational Highlights
The Company primarily derives its revenue by providing senior living housing and healthcare services to seniors. In the 75+ population. When comparing fiscal 2019 to fiscal 2018,year ended December 31, 2020, the Company generated total revenuesresident revenue of approximately $357.1 million compared to resident revenue of approximately $447.1 million compared to total revenues of approximately $460.0 million, respectively,in the prior year representing a decrease of approximately $12.9 million, or 2.8%. Our resident$90.0 million. The decrease in revenue was positively impacted byis generated from significant property dispositions throughout 2020, including: (1) the lease-upsale of our two owned properties, one of which transitioned to a management agreement with the successor owner; (2) the transition of 22 leased communities impacted byto different operators in conjunction with exiting its master lease agreements; (3) the aftermathconversion of Hurricane Harvey. Thesesix previously-leased communities were closed beginningto management agreements; and (4) the process of transferring legal ownership of 18 communities to Fannie Mae, the holder of nonrecourse debt related to such communities. Together, these actions accounted for a decrease in the third quarter of 2017 for physical repairs. The Company began accepting residents during the third quarter of fiscal 2018, which resulted in an increaserevenue of approximately $3.2 million in our resident revenue during fiscal 2019 when compared to fiscal 2018. However, the increase in resident revenue from the two properties impacted by Hurricane Harvey was fully offset by a
$83.2 million. The remaining decrease in resident revenue at the Company’s other communities of approximately $16.1 million, which was primarily due to a 2.4% decrease in average financial occupancies.
Excludingtotal occupancies at the twoCompany’s remaining senior housing communities impacted by Hurricane Harvey and the three communities sold during 2019, the weighted average financial occupancy rate for fiscal 2019 and 2018 was 82.6% and 85.0%, respectively. Although our occupancies declined, we achieved a 0.2% increasesmall reductions in average monthly rental rates when comparing fiscal 2019 to fiscal 2018.rent. The increasedecrease in average monthly rental rates during fiscal 2019the total occupancy was primarily due to reduced move-in activity, which began in March 2020 and continued through the resultend of annual rent increases for our existing residents and the capital improvements we have invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care.
On December 23, 2019, the Company obtained $31.5 million of mortgage debt from Fifth Third Bank on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest-only and has a two-year term and an initial variable interest rate of LIBOR plus 3.25%. The Company incurred approximately $0.6 million in deferred financing costs2020, related to this loan,the COVID-19 pandemic and our response efforts. The decreases in resident revenue were partially offset by increases in management fees and community reimbursement revenue of $1.8 million and $24.9 million, respectively, which are being amortized over the term of the loan. On the same date, the Company amended and repaid $24.5 million in principal on its interest-only mortgage loan with BBVA USA, secured bywere due to the Company’s Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor communities. As a resultmanagement of the amendment, BBVA USA released the Cottonwood Village assets from collateral for the mortgage and extended the maturity date from July 11, 2020 to December 10, 2021. The Company had previously exercised its option to extend such mortgage loan from May 11, 2020 to July 11, 2020. The amended mortgage has an interest-only variable rate of LIBOR plus 4.5%.
As mentioned above, the Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. We maintain insurance coverage on these32 communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. We have incurred approximately $6.2 million in clean-up and physical repair costs, almost all of which have been recovered through insurance proceeds. At December 31, 2019, we expected to receive an additional $0.3 million in insurance proceeds from our carriers relating to such costs. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of such Hurricane. The Company received payments from our insurance underwriterscommenced during fiscal 2019 and 2018 totaling approximately $2.5 million and $5.1 million related to Business Interruption, respectively, which have been included as a reduction to operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss for each respective year. Business Interruption payments ceased in accordance with our insurance policy in July 2019.2020.
Facility LeasesLease Transactions
As of December 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for five-20 years attrusts. During 2020, the Company’s option. Under theseCompany exited all master lease agreements with its landlords (as further described below) and after giving effect to such transactions, as of December 31, 2020, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. No new facilityleased 12 senior living communities. All 12 remaining leases were entered into by the Company during fiscal 2019.subsequently converted to management agreements as of January 1, 2021. See “Note 18- Subsequent Events.”
As of December 31, 2019, the Company leased seven senior housing communities (collectively the “Ventas Lease Agreements”) from Ventas. Effective January 31, 2017, the Company acquired from Ventas the underlying real estate associated with fourThe term of its operating leases for a total acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interim, interest-only, bridge financing from Commercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with an option to extend six months, and the balance of the acquisition price paid was from the Company’s existing cash resources. Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas.
During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms untilagreement was previously scheduled to expire on September 30, 2025, with two five-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the funds budgeted for leasehold improvements (the “Special Project Funds”) from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During the second quarter of fiscal 2017, the Company executed amendments to the master lease agreements with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. During the second quarter of fiscal 2019, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from approximately $17.0 million to approximately $20.0 million and extend the date for completion of the leasehold improvements to December 31, 2020. The initial lease rates under each of the Ventas Lease Agreements ranged from 6.75% to 8% and are subject to contingent rent escalation clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the right-of-use “(ROU”) asset and lease liability.
2025. On March 10, 2020, the Company entered into an agreement with Ventas which was subsequently(as amended, on March 26, 2020,the “Ventas Agreement”), providing for the early termination of aits Master Lease Agreement between it andwith Ventas covering all seven communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020,the Ventas Agreement, the Company agreed to pay Ventas rent of approximately $1.0 million per month from February 1, 2020 through December 31, 2020 for such communities, as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreements. TheAgreement. In addition, the Ventas Agreement provided that the Company willwould not be required to comply with certain financial covenants of the Master Lease AgreementsAgreement during the forbearance period.period, which terminated on December 31, 2020. In conjunction with the agreement,Ventas Agreement, the Company agreedreleased to release $3.9Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas. Ventas, and Ventas reduced the amounts and term of the Company’s lease payments, and effectively eliminated the Company’s lease termination obligation, which was $11.4 million at December 31, 2019. Pursuant to the Ventas Agreement, the Master Lease Agreement terminated on December 31, 2020.
In addition,accordance with ASC Topic 842, the agreement withreduction in the monthly minimum rent payable to Ventas provides forand the conversionmodification of the lease agreements coveringterm pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement. As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities into propertytransitioned to a different operator or management agreements withagreement, at which time the lease would terminate. The modification resulted in a reduction to the lease termination obligation, lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $11.4 million, $51.6 million, and $47.8 million, respectively, during the first quarter of 2020. The Company recognized a net gain of approximately $8.4 million on the transaction, which is included in gain on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020, and
was primarily due to the impact of the change in lease term on certain of the right-of-use asset balances. As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long-Lived Assets.”
Under the terms of the Master Lease Agreement, Ventas elected on December 31, 2020 if Ventas has not transitioned such communities to enter into a successor operator.
Healthpeak
As of December 31, 2019,property management agreement with the Company leased 15 senior housing communities (collectivelyas manager that provides for a management fee based on gross revenues of the “Healthpeak Lease Agreements”) from Healthpeak Properties, Inc., formerly HCP, Inc. (“Healthpeak”). During the fourth quarter of fiscal 2013,applicable community payable to the Company executed an amendment to the master lease agreement with Healthpeak to facilitate up to $3.3 millionand other customary terms and conditions. As a result of leasehold improvements for one community within the Healthpeak lease portfolio and extend the initial lease terms for nine communities until October 31, 2020. During the second quarter of fiscal 2015,these transactions, the Company exercised its right to extend thehad no remaining lease termtransactions with Healthpeak for the remaining six communities in the Healthpeak lease portfolio until April 30, 2026. The initial lease rates under the Healthpeak Lease Agreements ranged from 7.25% to 8% and are subject to certain conditional escalation clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability.
On October 22, 2019, the Company executed an amendment to the master lease agreement with Healthpeak, which was later amended, to transition oneVentas as of the Healthpeak communities to a new operator on or around January 15, 2020, and to sell the remaining eight communities as soon as possible to one or more buyers. The Company was obligated to pay a $250,000 termination fee on the transition of the one community to a new operator. On March 1, 2020, the Company executed an agreement providing for the early termination of its master lease agreement with Healthpeak, previously scheduled to mature in April 2026. The master lease agreement was converted to a management agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that was subject to such lease agreement until the communities have been sold by Healthpeak. In conjunction with the agreement, the Company agreed to release approximately $1.9 million of security deposits held by Healthpeak. 2021. See “Note 18- Subsequent Events.”
Welltower
As of December 31, 2019, the Company leased 24 senior housing communities (collectively the “Welltower Lease Agreements”) from Welltower, formerly Health Care REIT, Inc. The Welltower Lease Agreements each have an initial term of 15 years. The initial lease rates under the Welltower Lease Agreements ranged from 7.25% to 8.5% and are subject to certain conditional escalation clauses. When a contingency is resolved and an escalation occurs, the amount is
included within lease payments and reflected in the ROU asset and lease liability. Welltower. The initial terms onof the Welltower Lease Agreementslease agreements were previously scheduled to expire on various dates through from April 2025 through April 2026.
On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between itthe Company and Welltower covering all 24 communities. Pursuant to such agreement,the Welltower Agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. TheIn addition, the Welltower Agreement provided that the Company willwas not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period.period, which terminated on December 31, 2020. In conjunction with the agreement,Welltower Agreement, the Company agreed to release $6.5 million in security deposits held by Welltower. In addition,letters of credit to Welltower, which were released during the second quarter of 2020. The Welltower Agreement provided that Welltower could terminate such agreement; with respect to any or all communities upon 30 days’ notice, but no later than December 31, 2020. Upon termination, Welltower could elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. The Welltower providesAgreement also provided that the Company was not obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and that Welltower would reimburse the Company for certain specified capital expenditures.
In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a modification of the Master Lease Agreements. As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that each of the leases continued to be classified as an operating lease until the applicable communities transitioned to a different operator or management agreement, at which time such lease would terminate. The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020. The Company recognized a gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the conversionyear ended December 31, 2020. As a result of the lease agreements coveringmodification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long-Lived Assets.”
During the third quarter of 2020, Welltower elected to terminate the Welltower Agreement with respect to five communities, into property management agreementsall of which transferred to a different operator on September 10, 2020. During the fourth quarter of 2020, Welltower elected to terminate the Welltower Agreement with respect to 14 communities. The Company recorded a loss of approximately $0.7 million, which is included in gain on facility lease modification and termination, net on the CompanyCompany’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020.
The Master Lease Agreements with respect to the remaining leased properties terminated on December 31, 2020, ifand Welltower elected to enter into a property management agreement with the transition of such communities have not been transitioned toCompany which (i) provides that the Company will serve as manager and receive a successor operator.
The following table summarizes eachmanagement fee based on gross revenues of the Company’s facilityapplicable community and (ii) contains other customary terms and conditions. As a result of these transactions, the Company had no remaining lease agreementstransactions with Welltower as of December 31, 2019 (dollars in millions):January 1, 2021. See “Note 18- Subsequent Events.”
Landlord |
| Initial Date of Lease |
| Number of Communities |
|
| Value of Transaction |
|
| Current Expiration and Renewal Term |
| Initial Lease Rate (1) |
|
| Lease Acquisition and Modification Costs (2) |
|
| Deferred Gains / Lease Concessions (3) |
| |||||
Ventas |
| September 30, 2005 |
|
| 4 |
|
| $ | 61.4 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 8 | % |
| $ | 7.7 |
|
| $ | 4.2 |
|
Ventas |
| January 31, 2008 |
|
| 1 |
|
|
| 5.0 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 7.75 | % |
|
| 0.2 |
|
|
| — |
|
Ventas |
| June 27, 2012 |
|
| 2 |
|
|
| 43.3 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 6.75 | % |
|
| 0.8 |
|
|
| — |
|
Healthpeak |
| May 1, 2006 |
|
| 3 |
|
|
| 54.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.3 |
|
|
| 12.8 |
|
Healthpeak |
| May 31, 2006 |
|
| 6 |
|
|
| 43.0 |
|
| April 30, 2026 (6) (One 10-year renewal) |
|
| 8 | % |
|
| 0.2 |
|
|
| 0.6 |
|
Healthpeak |
| December 1, 2006 |
|
| 4 |
|
|
| 51.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.7 |
|
|
| — |
|
Healthpeak |
| December 14, 2006 |
|
| 1 |
|
|
| 18.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.75 | % |
|
| 0.3 |
|
|
| — |
|
Healthpeak |
| April 11, 2007 |
|
| 1 |
|
|
| 8.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.25 | % |
|
| 0.1 |
|
|
| — |
|
Welltower |
| April 16, 2010 |
|
| 5 |
|
|
| 48.5 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.6 |
|
|
| 0.8 |
|
Welltower |
| May 1, 2010 |
|
| 3 |
|
|
| 36.0 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.2 |
|
|
| 0.4 |
|
Welltower |
| September 10, 2010 |
|
| 12 |
|
|
| 104.6 |
|
| September 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.50 | % |
|
| 0.4 |
|
|
| 2.0 |
|
Welltower |
| April 8, 2011 |
|
| 4 |
|
|
| 141.0 |
|
| April 30, 2026 (15 years) (One 15-year renewal) |
|
| 7.25 | % |
|
| 0.9 |
|
|
| 16.3 |
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12.4 |
|
|
| 37.1 |
|
Accumulated amortization through December 31, 2018 |
|
|
|
|
|
| (7.9 | ) |
|
| — |
| ||||||||||||
Accumulated deferred gains / lease concessions recognized through December 31, 2018 |
|
|
| — |
|
|
| (26.2 | ) | |||||||||||||||
Adoption of ASC 842 |
|
|
|
|
|
| (4.5 | ) |
|
| (10.9 | ) | ||||||||||||
Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2019 |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
There are various financial covenants and other restrictions in the Company’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 2018. With regard to its Master Lease Agreements with VentasHealthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement terminated and Welltower,was converted into a Management Agreement under a Real Estate Investment Trust Investment Diversification and Empowerment Act structure (a “RIDEA structure”) pursuant to which the Company was notagreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to the Management Agreement, the Company will receive a management fee based on gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities. In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak. The Company remeasured the lease liability and operating lease right-of-use asset recorded in compliance with certain financial covenants as ofthe Company's Consolidated Balance Sheets at December 31, 2019. In February2019 to zero, resulting in a net loss of $7.0 million on the transaction, which is included in gain on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for year ended December 31, 2020.
On May 20, 2020, the Company entered into an additional agreement with Healthpeak (the “Healthpeak Agreement”) effective from April 1, 2020 until the end of the lease term. Pursuant to the Healthpeak Agreement, the Company began paying Ventas and WelltowerHealthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rental amounts based on the estimated monthly cash flows generated by the communities in Ventas’ and Welltower’s respective portfolios, which were less than the rental amountsrent due and payable under the Master Lease Agreement covering such communities. The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment including accrued interest from November 1, 2021, to be made on or before November 1, 2023. At December 31, 2020, the Company had deferred $2.1 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets. Given that the total minimum lease payments and the lease term remain unchanged, the Company has elected not to evaluate the deferral as a rent concession and did not account for the deferral as a modification to the existing lease agreement. The Company concluded the concessions provided to the Company were not contemplated by the existing lease. The Company accounted for the concession in the form of a deferral as if the lease terms were unchanged. Accordingly, accrued interest on the deferral amount is recorded in interest expense and accrued interest payable on the portion of the deferral amount that has yet to be paid on a monthly basis until such interest payments become due.
Effective November 1, 2020, upon the expiration of the Master Lease Agreements. Althoughagreement, the Company hasentered into a short-term excess cash flow lease pursuant to which the Company agreed to manage the seven communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to such agreement, the Company began paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities. In December 2020, Healthpeak sold two of the properties and in January 2021, subsequent to year-end, Healthpeak sold one additional property and terminated all agreements for those three properties. See “Note 18- Subsequent Events.”
Dispositions and Other Significant Transactions
Disposition of Boca Raton, Florida Community
Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator. In conjunction with the transition, the Company paid the lessor, Healthpeak, a one-time $0.3 million termination payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to such property and the lease was terminated as to the property. The Company recorded a gain on the transaction of $1.8 million, which is included in gain on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for year ended December 31, 2020.
Disposition of Merrillville, Indiana Community
Effective March 31, 2020, the Company sold one community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in cash proceeds after paying customary closing costs. The community was unencumbered by any mortgage debt. The Company recognized a loss of $7.4 million on the disposition, which is included in gain (loss) on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020.
Disposition of Canton, Ohio Community
On November 24, 2020, the Company closed on the sale of one senior housing community located in Canton, Ohio, for a total purchase price of $18.0 million and received approximately $6.4 million in net proceeds after retiring outstanding mortgage debt of $10.8 million and paying customary transaction and closing costs. The Company recorded a $2.0 million gain on the sale of the property, which is included in gain (loss) on disposition of assets, net in the year ended December 31, 2020. In November 2020, the Company entered into a management agreement with the successor owner to manage the senior living community, pursuant to which the Company receives a management fee based on the gross revenues of the property.
Transactions Involving Certain Fannie Mae Loans
Among other provisions, the CARES Act permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with VentasBerkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer of one Fannie Mae loan covering one property. On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and WelltowerJune 2020 ("Deferred Payments") and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.
On July 8, 2020, the Company entered into forbearance extension agreements with respectFannie Mae, which provided for a one-month extension of the forbearance agreements between the Company and Fannie Mae covering 23 properties. The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such defaults, no assurances can be givenperiod. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.
On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five properties with forbearance agreements. The Company elected not to pay $3.8 million on the loans for the remaining 18 properties as of that we will be abledate as the Company initiated a process that is intended to comply withtransfer the termsoperations and conditionsownership of such forbearance agreements or the other terms and conditions of the Master Lease Agreements.
On December 23, 2019,properties to Fannie Mae. Therefore, the Company obtained $31.5 million of mortgage debt from Fifth Third Bankwas in default on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest-only and has a two-year term and an initial variable interest rate of LIBOR plus 3.25%. The Company incurred approximately $0.5 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On the same date, the Company amended and repaid $24.5 million in principal on its interest-only mortgage loan with BBVA USA for the Company’s Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor communities. such loans.
As a result of the amendment, BBVA USA releaseddefault, Fannie Mae filed a motion with the Cottonwood VillageUnited States District Court (the “District Court”) requesting that a receiver be appointed over the 18 properties, which was approved by the District Court. The Company agreed to continue to manage the 18 communities, in exchange for a management fee, until legal ownership of the properties is transferred to Fannie Mae or another party. In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for any payments made on behalf of any of the 18 communities under the receivership order. As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. Management fees earned from the properties are recognized as revenue when earned. In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance with ASC 610-20. As such, the Company derecognized the assets from collateraland recorded a loss of $199.6 million on the transaction for the mortgageyear ended December 31, 2020. Once legal ownership of the properties transfers to Fannie Mae and extended the maturity date fromliabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, which is expected to occur in 2021. For the year ended December 31, 2020, the Company included $218.4 million in outstanding debt and $8.7 million of accrued interest on the Company’s Consolidated Balance Sheets related to these properties. In the fourth quarter of 2020, one community was transitioned to a successor operator, although the legal ownership has not yet transferred back to Fannie Mae for this community. At December 31, 2020, the Company continued to manage 17 communities on behalf of Fannie Mae. In the first quarter of 2021, subsequent to year-end, the legal ownership of four properties was transferred to Fannie Mae. See “Note- 18 Subsequent Events.”
Debt Forbearance Agreement on BBVA Loan
The Company also entered into a loan amendment with another lender, BBVA related to a loan covering three properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to and due in June 2021.
Debt Forbearance Agreement on HUD Loan
The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering one property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period.
Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements
On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering ten properties. These amendments allowed the Company to defer principal and interest payments for April, May and June 2020, and to defer principal payments for July 11, 2020 to December 10,through March 2021. The Company had previously exercisedmade all required debt service payments in July, August, and September 2020. On October 1, 2020, the Company entered into further amendments to its optionloan agreements with Protective Life Insurance Company. These amendments allow the Company to defer interest payments for October, November, and December 2020, and to extend the deferral period of principal payments through September 1, 2021, with all such mortgage loan from May 11, 2020deferral amounts being added to July 11, 2020. The amended mortgage has an interest-only variable rate of LIBOR plus 4.5%.
On May 31, 2019,principal due at maturity in either 2025, 2026 or 2031, depending upon the Company renewed certain insurance policies and entered into two finance agreements totaling approximately $2.6 million and $2.7 million, respectively. The finance agreements each have a fixed interest rate of 4.4%, with the principal being repaid over a 11-month and 18-month term, respectively.
The Company issued standby letters of credit with Wells Fargo Bank, totaling approximately $3.4 million, for the benefit of Hartford Financial Services associated with the administration of workers compensation, which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with JPMorgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower on certain leases between Welltower and the Company, which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak on certain leases between Healthpeak and the Company, which remain outstanding as of December 31, 2019.loan.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes the following are our most critical accounting policies and/or typically require management’s most difficult, subjective and complex judgments.
Revenue Recognition
Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided. Residency agreements are generally short-term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking, which are generally billed monthly in arrears.
The Company's senior housing communities have residency agreements that generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. The deferred amounts are amortized over the respective residents’ initial lease term, which is consistent with the contractual obligation associated with the estimated stay of the resident.
Revenues from the Medicaid program accounted for approximately 5.9% of the Company’s revenue in fiscal 2019 and 5.4% of the Company’s revenue in fiscal 2018. During fiscal 2019 and 2018, 41 and 40, respectively, of the Company’s communities were providers of services under Medicaid programs. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fiscal 2019 or 2018.
Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program.
Credit Risk and Allowance for Doubtful Accounts
The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $8.6 million and $6.8 million at December 31, 2019 and 2018, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements at December 31, 2019 or 2018.
Lease Accounting
Effective January 1, 2019, the Company adopted the new lease standard provisions of ASC 842. Due to the adoption of ASC 842, the unamortized balances of lease acquisition costs and lease incentives were reclassified as a component of the respective operating lease right-of-use asset. Additionally, the unamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained deficit.
Management determines if a contract is or contains a lease at the inception or modification of such contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.
Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
Self-Insurance Liability Accruals
The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the Company’s corporate office and theits senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees, network provider fees, communication costs and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2019;2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.
The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pending claims, known incidents that result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.
Long-Lived Assets and Impairment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances indicate the carrying amount of an asset group may not be recoverable, or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information to determine whether impairment indicators exist.
If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. Recoverabilityrecoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The Company determines theestimate fair value of the asset group and record an impairment loss when the carrying amount exceeds fair value.
During the first quarter of 2020, the Company determined that the modifications of certain of its Master Lease Agreements (see “Note 5- Dispositions and Other Significant Transactions”) and adverse impacts on the Company’s operating results resulting from the COVID-19 pandemic were indicators of potential impairment of its long-lived assets.
Due to the modification of the lease ROUterm and the expected impacts of the COVID-19 pandemic, the Company evaluated certain owned communities and all leased communities for impairment and tested the recoverability of these assets by comparing the contractual rent paymentsprojected undiscounted cash flows associated with these assets to estimated market rental rates. Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the periodtheir respective historical carrying values. For communities in which the impairment occurred.
For property and equipment where indicators of impairment were identified, tests of recoverability were performed at December 31, 2019 and 2018. Thehistorical carrying value was not recoverable, the Company recorded impairment charges of $1.6 million and $1.4 million related to fixed assets and lease ROU assets, respectively, related tocompared the Company’s property located in Boca Raton, Florida, which transferred to a new operator subsequent to (see Note 18, Subsequent Events, for discussionestimated fair value of the property’s transition) December 31, 2019. The Company has concluded its property and equipment was recoverable and did not warrant adjustment to the carrying value or remaining useful lives as of December 31, 2018.
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable. Deferred income taxes are recorded based on the estimated future tax effects of loss
carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to thetheir carrying amount that is more likely than not to be realized. However, inand recorded an impairment charge for the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations. The effective tax rates for fiscal 2019 and 2018 differ from the statutorytax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The effective tax rate for fiscal 2017 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, tax reform impact on deferred income taxes, adoption of ASU 2016-09, and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of fiscal 2019, 2018, and 2017, the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes.
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state income tax audits for years prior to 2016.
Recently Issued Accounting Guidance
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose thecarrying amount of and reason for transfers between Level 1 and Level 2 of theover fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (“GAAP”) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates.value. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new lease standard requires lessees to recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which provided entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in the period of adoption. The Company adopted the new lease standard on January 1, 2019, forgoing comparative reporting using the modified retrospective adoption method, the simplified transition method available pursuant to the standard. This allowed the Company to continue to apply the legacy
accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company elected to utilize certain practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the lease standards by the Company initially resulted in the recording of operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s Consolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets, fair value was estimated utilizing a discounted cash flow approach based on historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The fair values of the property and equipment, net of these communities, were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. During the first quarter of 2020, the Company recorded non-cash impairment charges of $6.2 million and $29.8 million to operating lease liabilities isright-of-use assets, net and property and equipment, net, respectively.
During the third quarter of 2020, the Company recorded non-cash impairment charges of $1.3 million and $1.1 million to operating lease right-of-use assets, net and property and equipment, net, respectively, due to net reductions fora change in the reclassificationuseful life of certain deferred lease costs15 of its communities, all of which transferred to new operators during the fourth quarter of 2020. Due to the changes in useful lives, the Company concluded the assets related to those properties had indicators of impairment and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. the carrying values were not fully recoverable. The fair valuevalues of the right-of-use assets waswere estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. In addition, during the third quarter of 2020 the Company recorded a non-cash impairment charge of $0.8 million to property and equipment, net of one owned community. The estimated futurefair value of the property and equipment, net of this community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities. This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value.
At December 31, 2020, the Company reviewed the carrying value of its property and equipment and determined that impairment indicators existed for one of its properties due to the challenged occupancy at the property driven by the impact of the COVID-19 pandemic. The Company compared the carrying value of the community’s assets to the anticipated undiscounted cash flows were discounted at a rateand determined that is consistent with a weighted average cost of capital from a market participant perspective.the carrying value was not recoverable. The adoptionCompany determined the fair value of the lease standard did not have a material impact onfixed assets using inputs classified as Level 3 in the consolidated cash flows of the Company and had no impactfair value hierarchy, which are unobservable inputs based on the Company’s covenant compliance under its current debtassumptions, and lease agreements. See additional discussion at “Note 16 – Leases.”
The adoption of ASC 842 resultedrecorded a $2.6 million impairment in the following adjustmentsfourth quarter of 2020.
In total, the Company recognized non-cash impairment charges of property and equipment, net and operating lease right of use assets of $34.3 million and $7.5 million, respectively for the year ended December 31, 2020. During the year ended December 31, 2019, the Company recorded impairment charges of property and equipment, net and operating lease right of use assets of $1.6 million and $1.4 million, respectively.
During the years ended December 31, 2020 and 2019, for property and equipment and operating lease right of use assets where indicators of impairment were identified, tests of recoverability were performed and the Company has concluded its property and equipment is recoverable and does not warrant adjustment to the Company’s Consolidated Balance Sheet at January 1, 2019:carrying value or remaining useful lives, except for the property noted above.
New Accounting Pronouncements
Assets |
|
|
|
Prepaid expenses and other |
| $ | (2,050) |
Property and equipment, net |
|
| (15,569) |
Operating lease right-of-use assets, net |
|
| 255,386 |
Other assets, net |
|
| (4,715) |
Total assets |
| $ | 233,052 |
Liabilities and Shareholders’ Equity |
|
|
|
Deferred income |
| $ | (17,498) |
Financing obligations |
|
| (35,956) |
Operating lease liabilities |
|
| 289,513 |
Other long-term liabilities |
|
| (15,643) |
Total liabilities |
| $ | 220,416 |
Total shareholders’ equity |
| $ | 12,636 |
See “Note 3- Summary of Significant Accounting Policies” for a discussion of new accounting pronouncements.
Results of Operations
The following tables set forth, for the periods indicated, selected historical Consolidated Statements of Operations and Comprehensive Loss data in thousands of dollars and expressed as a percentage of total revenues.
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| Year Ended December 31, |
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| Year Ended December 31, |
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| 2019 |
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| 2018 |
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| 2020 |
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| 2019 |
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| $ |
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| % |
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| $ |
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| % |
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| $ |
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Revenues: |
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Resident revenue |
| $ | 447,100 |
|
|
| 100.0 | % |
| $ | 460,018 |
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| 100.0 | % | ||||||||||||||||
Total Revenues |
| $ | 383,864 |
|
|
| 100.0 | % |
| $ | 447,100 |
|
|
| 100.0 | % | ||||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below) |
|
| 306,786 |
|
|
| 68.6 |
|
|
| 294,661 |
|
|
| 64.1 |
|
|
| 254,630 |
|
|
| 66.3 |
|
|
| 310,551 |
|
|
| 69.5 |
|
General and administrative expenses |
|
| 27,518 |
|
|
| 6.2 |
|
|
| 26,961 |
|
|
| 5.9 |
|
|
| 27,904 |
|
|
| 7.3 |
|
|
| 27,518 |
|
|
| 6.2 |
|
Facility lease expense |
|
| 57,021 |
|
|
| 12.8 |
|
|
| 56,551 |
|
|
| 12.3 |
|
|
| 28,109 |
|
|
| 7.3 |
|
|
| 57,021 |
|
|
| 12.8 |
|
Provision for bad debts |
|
| 3,765 |
|
|
| 0.8 |
|
|
| 2,990 |
|
|
| 0.7 |
| ||||||||||||||||
Stock-based compensation expense |
|
| 2,509 |
|
|
| 0.6 |
|
|
| 8,428 |
|
|
| 1.6 |
|
|
| 1,724 |
|
|
| 0.4 |
|
|
| 2,509 |
|
|
| 0.6 |
|
Depreciation and amortization expense |
|
| 64,190 |
|
|
| 14.4 |
|
|
| 62,824 |
|
|
| 13.7 |
|
|
| 60,302 |
|
|
| 15.7 |
|
|
| 64,190 |
|
|
| 14.4 |
|
Long-lived asset impairment |
|
| 41,843 |
|
|
| 10.9 |
|
|
| 3,004 |
|
|
| 0.8 |
| ||||||||||||||||
Community reimbursement expense |
|
| 24,942 |
|
|
| 6.5 |
|
|
| — |
|
|
| 0.1 |
| ||||||||||||||||
Total expenses |
|
| 461,789 |
|
|
| 103.3 |
|
|
| 452,415 |
|
|
| 98.3 |
|
|
| 439,454 |
|
|
| 114.5 |
|
|
| 464,793 |
|
|
| 104.2 |
|
Income (Loss) from operations |
|
| (14,689 | ) |
|
| (3.3 | ) |
|
| 7,603 |
|
|
| 1.7 |
| ||||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 221 |
|
|
| — |
|
|
| 165 |
|
|
| — |
|
|
| 193 |
|
|
| — |
|
|
| 221 |
|
|
| — |
|
Interest expense |
|
| (49,802 | ) |
|
| (11.1 | ) |
|
| (50,543 | ) |
|
| (11.0 | ) |
|
| (44,564 | ) |
|
| (11.6 | ) |
|
| (49,802 | ) |
|
| (11.1 | ) |
Write-off of deferred loan costs and prepayment premiums |
|
| (4,843 | ) |
|
| (1.1 | ) |
|
| (12,623 | ) |
|
| (2.7 | ) |
| — |
|
|
| 0.0 |
|
|
| (4,843 | ) |
|
| (1.1 | ) | |
Long-lived asset impairment |
|
| (3,004 | ) |
|
| (0.7 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||
Gain (Loss) on disposition of assets, net |
|
| 36,528 |
|
|
| 8.2 |
|
|
| 28 |
|
|
| — |
| ||||||||||||||||
Gain on facility lease modification and termination, net |
|
| 10,659 |
|
|
| 2.8 |
|
|
| 0 |
|
|
| — |
| ||||||||||||||||
Gain (loss) on disposition of assets, net |
|
| (205,476 | ) |
|
| (53.5 | ) |
|
| 36,528 |
|
|
| 8.2 |
| ||||||||||||||||
Other income |
|
| 7 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| (201 | ) |
|
| (0 | ) |
|
| 7 |
|
|
| — |
|
Loss before benefit (provision) for income taxes |
|
| (35,582 | ) |
|
| (8.0 | ) |
|
| (55,367 | ) |
|
| (12.0 | ) |
|
| (294,979 | ) |
|
| (76.8 | ) |
|
| (35,582 | ) |
|
| (8.0 | ) |
Benefit (Provision) for income taxes |
|
| (448 | ) |
|
| (0.1 | ) |
|
| 1,771 |
|
|
| 0.4 |
| ||||||||||||||||
Benefit (provision) for income taxes |
|
| (389 | ) |
|
| (0.1 | ) |
|
| (448 | ) |
|
| (0.1 | ) | ||||||||||||||||
Net loss and comprehensive loss |
| $ | (36,030 | ) |
|
| (8.1 | )% |
| $ | (53,596 | ) |
|
| (11.6 | )% |
| $ | (295,368 | ) |
|
| (76.9 | )% |
| $ | (36,030 | ) |
|
| (8.1 | )% |
Year Ended December 31, 20192020 Compared to the Year Ended December 31, 2018
2019
Revenues
Resident revenue was $447.1 million forIn the year ended December 31, 2019,2020, the Company generated total revenues of $383.9 million, which included approximately $357.1 million of resident revenue compared to $460.0 million for the year ended December 31, 2018, representing a decrease of $12.9 million, or 2.8%. Our resident revenue was positively impacted by the lease-up of our two communities impacted by the aftermath of Hurricane Harvey. These communities were closed beginningapproximately $447.1 million in the third quarter of 2017 for repairs.prior year. The Company began accepting residents once repairs were completed during the third quarter of 2018, which resulted in an increase of approximately $3.2 million in our resident revenue during fiscal 2019 when compared to fiscal 2018. However, the increase in resident revenue from the two properties impacted by Hurricane Harvey was fully offset by a net decrease in resident revenue atis generated from significant property dispositions in fiscal year 2020, including (1) the sale of two owned properties, one of which transitioned to a management agreement with the successor owner, (2) the transition of 22 of the Company’s otherleased communities to different operators in conjunction with exiting the Company’s master lease agreements, (3) the conversion of 12 previously-leased communities to management agreements, and (4) the process of transferring legal ownership of 18 communities to Fannie Mae, the holder of
nonrecourse debt. Together, these actions accounted for a decrease in revenue of approximately $16.1 million, which$83.2 million. The remaining decrease of was primarily due to a 240 basis points decrease in total occupancies at the Company’s remaining senior housing communities and small reductions in average financial occupancies.monthly rent. The decrease in the total occupancy was primarily due to reduced move-in activity, which began in March 2020 and continued through the end of 2020, related primarily to the COVID-19 pandemic and our associated response efforts. The decreases in resident revenue were partially offset by increases in management fees and community reimbursement revenue of $1.8 million and $24.9 million, respectively, which were due to the Company’s management of 32 properties which commenced in 2020.
Expenses
Total expenses were $461.8$439.5 million during fiscal 2019year 2020 compared to $452.4$464.8 million during fiscal 2018,year 2019, representing an increasea decrease of $9.4 million, or 2.1%.$25.3 million. This increase isdecrease was primarily the result of the 2020 property dispositions, as described above, which reduced operating expense and facility lease expense, a $12.1$0.8 million increasedecrease in operating expenses,stock-based compensation expense, coupled with reductions in depreciation and amortization expense of $3.9 million. These decreases were offset by increases of $38.8 million long-lived asset impairment charges, a $0.6$0.4 million increase in general and administrative expense and increases of $24.9 million in community reimbursement expense in 2020 as compared to 2019.
During the year ended December 31, 2020, operating expenses were lower than the prior year by $56.0 million. The decrease in operating expenses primarily results from the disposition of communities during the year ended December 31, 2020 as described above which drove reductions of $24.6 million in labor and employee-related expenses, $4.2 million decrease in food expenses, a $0.8$3.2 million increasedecrease in bad debtpromotion expenses, a $4.2 million decrease in property tax expense, due to an increase in the Medicaid-related bad debt reserve, a $0.5 million increase in facility lease costs due to lease escalations, and a $1.4 million increase in depreciation and amortization expense, partially offset by a $5.9 million decrease in stock-based compensation expense.
|
The $0.6utilities and repairs and maintenance, and a $10.1 million increasedecrease in generalall other operating expenses, all of which were primarily due the property disposals described above and reduced occupancy levels at our continuing communities.
General and administrative expenses primarily results from a $1.1 million increaseremained relatively flat year over year as increases in labor-relatedtransaction and conversion costs primarily attributable to employee incentive compensation and wages for annual merit increases an increase of $0.7 million in travel-related expenses, a $0.1 million net increase in other expenses, including consulting and contract labor due to the needand consulting expenses incurred to supplement and maintain current staffing levels in an increasinglya competitive labor market partiallywere mostly offset by a decrease of $1.3 milliondecreases in separation, placement, and retention costs. Travel expenditure increases werecosts primarily due to the new membersreplacement of the Company’s corporate operations and marketing leadership team providing hands-on leadership directly to our communities,CEO and the creationseparation of peer review teams in the secondCompany’s COO during the first quarter of 2019 that provide constructive feedback2019.
During the year ended December 31, 2020, the Company recorded non-cash impairment charges of $41.8 million. These impairment charges included $3.4 million of non-cash impairment charges related to property and best practice recommendations across our communities.
The $1.4 million increase in depreciation and amortization expense primarily results from an increase in depreciable assetsequipment for two owned communities as a result of lower than expected operating performance at the Company’s communities resulting from ongoing capital improvementsdriven by the COVID-19 pandemic, a $30.9 million non-cash impairment charge related to property and refurbishments.equipment for certain leased communities as a result of lease transactions, and a $7.5 million non-cash impairment charge related to operating lease right-of-use assets.
The $5.9 million decrease in stock-based compensationfacility lease expense is primarily attributable to the retirementCompany transitioning six communities to property management agreements, effective March 1, 2020, and the re-negotiation of lease agreements with two of the Company’s former CEO and separation of the Company’s former COO,landlords, which resulted in the cancellationreduced rent obligations and impairments of their unvested restricted stock awards in the first quarter of 2019. Additionally,operating lease right-of-use assets. During 2020, the Company concluded performance metrics associated with certain performance-based restricted stock awards weretransitioned 22 lease agreements to successor operators.
Community reimbursement expense includes reimbursements due from the owners of communities for which the Company began providing management services during 2020, and as such, there are no longer probable of achievement, which resultedcomparable amounts in remeasurement adjustments.2019.
Other income and expense.
Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements.
The $3.0$10.7 million increase in impairment expensegain on facility lease modification and termination, net, is due to the Company recognizing an $8.4 million gain on the Ventas Agreement, an $8.0 million gain on the Welltower Agreement, and a $1.8 million gain on the transition of a property to a different operator, partially offset by a $6.8 million loss on the
Healthpeak Agreement, and a $0.7 million loss on the transition of properties to a different operator during the third quarter of 2020.
The $205.5 million gain (loss) on disposition of assets, net was due to the Company recording $1.6recognizing a $7.4 million loss on the sale of a senior housing community located in Merrillville, Indiana during the first quarter of 2020, a $2.0 million gain on the sale of one of the Company’s communities located in Canton, Ohio in the fourth quarter of 2020 and $1.4a $199.6 million loss on the disposition of 18 communities during the fiscal year 2020, which occurred in impairment expense relatedconjunction with the Company’s planned transition of the legal ownership of such communities to Fannie Mae. The Company wrote off all fixed assets, accounts receivable, and amounts held in escrow with respect to the ROU lease asset, respectively,communities, and will extinguish the debt and certain liabilities once legal ownership of a leased property located in Boca Raton, Florida, that transferredthe properties transfers to a new operator subsequent to year-end.Fannie Mae.
Benefit (Provision)(provision) for income taxes
The provision for income taxes was $0.4 million for fiscal 2019 was $(0.4) million, or (0.1%)each of revenues, compared to a benefit for income taxes of $1.8 million, or 0.4% of revenues, for fiscal 2018.the years ended December 31, 2020 and 2019. The effective tax rates for fiscal 2019years 2020 and 20182019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the TMT,Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of fiscal 2019years 2020 and 2018,2019 the Company consolidated 16 and 38, respectively, Texas communities and the TMT increased the overall provision for income taxes. The variation in benefit (provision) for income taxes from fiscal 2019 to fiscal 2018 was attributable to the Company electing real property trade or business under Section 163(j)(7)(B) of the Internal Revenue code to opt out of the interest expense limitation
Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, adjustments to the deferred tax asset valuation allowance of $4.4$69.1 million and $9.5$4.4 million were recorded during fiscal 2019years 2020 and 2018,2019, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. Of the $4.4 million adjustment to the valuation allowance during fiscal 2019, a $3.0 million decrease in the valuation allowance was the result of the retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase to the valuation allowance was due to current year activity.
Net loss and comprehensive loss
As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $295.4 million for the fiscal year ended December 31, 2020, compared to net loss and comprehensive loss of $36.0 million for the fiscal year ended December 31, 2019 and net loss and comprehensive loss of $53.6 million for the fiscal year ended December 31, 2018.
Quarterly Results
The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2019 and 2018. This information has been prepared on the same basis as the audited consolidated financial statements of the Company appearing elsewhere in this report and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto.
|
| 2019 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,176 |
|
| $ | 113,126 |
|
| $ | 111,110 |
|
| $ | 108,688 |
|
Income (loss) from operations |
|
| 1,970 |
|
|
| 203 |
|
|
| (8,105 | ) |
|
| (8,757 | ) |
Net income (loss) and comprehensive income (loss) |
|
| (12,984 | ) |
|
| (12,534 | ) |
|
| (20,731 | ) |
|
| 10,219 |
|
Net income (loss) per share, basic |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Net income (loss) per share, diluted |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Weighted average shares outstanding, basic |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,342 |
|
Weighted average shares outstanding, fully diluted |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,412 |
|
|
|
| 2018 Calendar Quarters |
| ||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,643 |
|
| $ | 114,627 |
|
| $ | 115,650 |
|
| $ | 115,098 |
|
Income (loss) from operations |
|
| 5,386 |
|
|
| 3,643 |
|
|
| 1,696 |
|
|
| (3,122 | ) |
Net loss and comprehensive loss |
|
| (7,156 | ) |
|
| (9,060 | ) |
|
| (11,089 | ) |
|
| (26,291 | ) |
Net loss per share, basic |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Net loss per share, diluted |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Weighted average shares outstanding, basic |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
|
|
Liquidity and Capital Resources
In addition to approximately $24.0$17.9 million of unrestricted cash balances on hand as of December 31, 2019,2020, the Company’s principal sources of liquidity are expected to be cash flows from operations, additional proceeds from debt refinancings,refinancing activities, COVID-19 relief funding (including $8.1 million and $8.7 million of cash the Company accepted pursuant to the Provider Relief Fund’s Phase 2 and Phase 3 General Distribution in November 2020 and January 2021, respectively), equity issuances, and/or proceeds from the sale of owned assets.
As of December 31, 2020, the Company was in active discussions with existing and potential lending sources to refinance its two bridge loans totaling $72.5 million, that are scheduled to mature in December 2021. The Company expectshas implemented plans, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2020 financial statements are issued. See “Going Concern Uncertainty.” If we are unable to extend or refinance our indebtedness prior to scheduled maturity dates, our liquidity and financial condition could be adversely impacted. Even if we are able to extend or refinance our maturing bridge loans, the terms of the new financing may not be as favorable to us as the terms of the existing financing. In addition, the amount of mortgage financing available cashfor our communities is generally dependent on their respective appraised values and cash flows from operations, additionalperformance. Decreases in the appraised values of our communities, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities' maturing indebtedness. Our inability to obtain refinancing proceeds from debt refinancings, and proceeds from the sale of assets to be sufficient to fund its short-term working capital requirements. The Company’s long-term capital requirements, primarily for acquisitionscover maturing indebtedness could adversely impact our liquidity, and other corporate initiatives, couldmay cause us to seek alternative sources of financing, which may be dependent on its ability to access additional funds through joint ventures and the debt and/less attractive or equity markets. unavailable.
The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio including debt re-financings, equity issuances, purchases and sales of assets, and reorganizations and other transactions. There can be no assurance thatIf capital were obtained through the issuance of Company will continueequity, the issuance of Company securities would dilute the ownership of the Company’s existing stockholders and any newly issued securities may have rights, preferences, and/or privileges senior to generate cash flows at or above current levels or thatthose of the Company will be ableCompany’s common stock.
Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our capital expenditures for community investment, and general economic conditions, as well as other factors described in "Item 1A. Risk Factors". General disruptions to the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain the capital necessary to meet the Company’s short and long-term capital requirements.financing or refinancing.
Recent changes in the current economic environment, and other future changes, could result in decreases in the fair value of assets, slowing of transactions, and tightening liquidity and credit markets. These impacts could make securing debt for acquisitions or refinancings for the Company its joint ventures, or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. Additionally, the Company may be more susceptible to being negatively impacted by operating or performance deficits based on the exposure associated with certain lease coverage requirements.any of its counterparties.
In summary, the Company’s cash flows were as follows (in thousands):
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net cash provided by operating activities |
| $ | 5,229 |
|
| $ | 36,870 |
|
Net cash provided by (used in) investing activities |
|
| 47,778 |
|
|
| (21,908 | ) |
Net cash used in financing activities |
|
| (60,264 | ) |
|
| (1,666 | ) |
Increase (decrease) in cash and cash equivalents |
| $ | (7,257 | ) |
| $ | 13,296 |
|
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net cash (used in) provided by operating activities |
| $ | (6,793 | ) |
| $ | 5,229 |
|
Net cash provided by investing activities |
|
| 8,514 |
|
|
| 47,778 |
|
Net cash used in financing activities |
|
| (15,917 | ) |
|
| (60,264 | ) |
Decrease in cash and cash equivalents |
| $ | (14,196 | ) |
| $ | (7,257 | ) |
Operating Activities
The Company had net cash provided byused in operating activities for the year ended December 31, 2020 primarily results from a net loss of $5.2$295.4 million, decreases in cash flows from current assets of $2.9 million, offset by increases from current liabilities of $13.0 million, and $36.9 million in fiscal 2019 and 2018, respectively.net non-cash charges of $278.4 million. The net cash provided by operating activities for fiscal year 2019 primarily results from net non-cash charges of $39.4 million, an increase in accrued expenses of $4.3 million, an increase in deferred resident revenue of $0.6 million, and a decrease in tax and insurance deposits of $0.5 million, partially offset by a net loss of $36.0 million, a decrease in accounts payable of $0.7 million, and increases in prepaid expenses, accounts receivable, and other assets of $1.0 million, $1.3 million, and $0.5 million, respectively.
Investing Activities
The net cash provided by operatinginvesting activities for fiscal 2018
the year ended December 31, 2020 primarily results from net non-cash chargesongoing capital improvements and refurbishments at the Company’s senior housing communities of $87.1$15.6 million, a decrease in other assets of $1.4 million, an increase in accounts payable of $1.3 million, a decrease in tax and insurance deposits of $1.2 million, a decrease in prepaid expenses of $1.1 million, an increase in accrued expenses of $1.1 million, and an increase in deferred resident revenue of $0.6 million, partially offset by net loss$24.1 million in proceeds from the disposition of $53.6 million and an increase in accounts receivable of $3.2 million.
Investing Activities
The Company had net cash provided by (used in) investing activities of $47.8 million and $(21.9 million) in fiscal 2019 and 2018, respectively.assets. The net cash provided by investing activities for fiscal year 2019 primarily results from the Company’s receipt of $68.1 million in proceeds from the disposition of assets, partially offset by capital expenditures associated with ongoing capital renovations and refurbishments of the Company’s senior housing communities of $20.3 million.
Financing Activities
The net cash used in investingfinancing activities for fiscal 2018the year ended December 31, 2020 primarily results from capital expenditures associated with ongoing capital renovations and refurbishments at the Company’s senior housing communities.
Financing Activities
The Company had net cash flows used in financing activitiesproceeds from notes payable of $60.3$7.6 million, repayments of notes payable of $23.1 million, and $1.7 million in fiscal 2019 and 2018, respectively.payments on financing obligations of $0.4 million. The net cash used in financing activities for fiscal year 2019 primarily results from notes payable proceeds of $37.5 million, of which approximately $31.5 million resulted from mortgage debt refinancings and supplemental mortgage debt financings and the remaining $6.0 million related to insurance premium financing, which was offset by repayments of notes payable of $95.1 million, inclusive of $4.4 million in debt prepayment penalties, and deferred financing charges paid of $1.2 million and payments on financing leases and financing obligations of $1.5 million.
Debt Covenants
Certain of our debt agreements contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum debt service coverage ratios, in each case on a multi-community basis. The net cash useddebt service coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee, divided by the debt (principal and interest). Furthermore, our debt is secured by our communities and if an event of default has occurred under any of our debt, subject to cure provisions in financing activities for fiscal 2018 primarily results from notescertain instances, the respective lender would have the right to declare all the related outstanding amounts of indebtedness immediately due and payable, proceedsto foreclose on our mortgaged communities, and/or pursue other remedies available to such lender. We cannot provide assurance that we would be able to pay the debts if they became due upon acceleration following an event of $208.8 million,default.
At December 31, 2020, we were not in compliance with certain financial covenants of our loan agreements with Fifth Third Bank covering two properties and BBVA covering three properties, which approximately $206.3 million resulted from mortgage debt refinancingsconstitutes a default. As a result of default, these loans are callable. We are in active discussions with Fifth Third Bank and supplemental mortgage debt financings andBBVA to resolve these defaults. However, we cannot give any assurance that a mutually agreeable resolution will be reached.
Except as noted above, the remaining $2.5 million related to insurance premium financing, offset by repaymentsCompany was in compliance with all aspects of notes payable of $204.1 million, inclusive of $11.1 million in debt repayment penalties, deferred financing charges paid of $3.3 million, and payments on capital lease and financing obligations of $3.2 million.its outstanding indebtedness at December 31, 2020.
Impact of Inflation
To date, inflation has not had a significant impact on the Company. However, inflation could affect the Company’s future revenues and results of operations because of, among other things, the Company’s dependence on senior residents, many of whom rely primarily on fixed incomes to pay for the Company’s services. As a result, during inflationary periods, the Company may not be able to increase resident service fees to account fully for increased operating expenses. In structuring its fees, the Company attempts to anticipate inflation levels, but there can be no assuranceassurances that the Company will be able to anticipate fully or otherwise respond to any future inflationary pressures.
Not applicable.
The consolidated financial statements of the Company are included under Item 15 of this Annual Report on Form 10-K.
The Company had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 9.
EffectivenessEvaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and ChiefPrincipal Financial Officer, (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEOChief Executive Officer and CFO,Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based upon the controls evaluation and the material weakness described below, the Company’s CEOChief Executive Officer and CFOPrincipal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.ineffective.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fiscal quarter ended December 31, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Internal Controls Over Financial Reporting
Management’s Report Onon Internal Control Over Financial Reporting
Management of the Company, including the Chief Executive Officer and the ChiefPrincipal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013 framework). Based on our assessment and the material weakness described below, we believe that, as of December 31, 2019,2020, the Company’s internal control over financial reporting is effectiveineffective based on those criteria.
The effectivenessA material weakness is a deficiency, or a combination of ourdeficiencies, in internal control over financial reporting, assuch that there is a reasonable possibility that a material misstatement of December 31, 2019, has been audited by Ernst & Young LLP,a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified a material weakness in our internal control over the financial reporting related to deficiencies in accounting for material non-recurring transactions. Specifically, our controls did not operate effectively to ensure certain account reconciliations and journal entries were
reviewed at the appropriate level of precision. This control deficiency could result in a misstatement of our accounts or disclosures that could result in a material misstatement of our financial results that would not be prevented or detected, and accordingly, we determined that these control deficiencies constitute a material weakness.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm because, as a non-accelerated filer, our independent registered public accounting firm is not required to issue such an attestation report.
Remediation Plan
We have developed a plan for remediation of the material weakness, including developing and maintaining appropriate management review and process level controls. Control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that auditedthese controls are operating effectively. We will continue to monitor the effectiveness of our consolidatedremediation measures in connection with our future assessments of the effectiveness of internal control over financial statements included in this Annual Report on Form 10-K, as stated in their report which is included as partreporting and disclosure controls and procedures, and we will make any changes to the design of this Annual Report on Form 10-K. The Ernst & Young LLP report is on page F-37our plan and take such other actions that we deem appropriate given the circumstances. We expect to complete the remediation process by the end of this report.the fourth quarter of 2021.
None.Fiscal 2021 Incentive and Retention Plan
On March 29, 2021, the Company’s Board of Directors approved an incentive and retention plan for fiscal year 2021 pursuant to which the Company’s named executive officers and certain other executive officers (each, a “Participant” and, collectively, the “Participants”) will have the opportunity to earn cash performance bonuses (the “Performance Bonuses”) and retention awards (the “Retention Awards”) for fiscal year 2021.
The targeted Performance Bonus for the Participants is equal to a percentage of their respective annual base salary for fiscal year 2021 as set forth in such Participant’s employment agreement with the Company. One-third of the targeted Performance Bonus is payable for each of the second, third and fourth quarters of fiscal year 2021 in the event the Company satisfies certain revenue and net operating income performance targets with respect to such quarter. Achievement of the threshold level of performance for each quarterly performance target (95% of the targeted level of performance) will result in 50% of the portion of the Performance Bonus subject to such performance target being earned by the Participant and achievement of the maximum level of performance for each quarterly performance target (105% of the targeted level of performance) will result in 150% of the portion of the Performance Bonus subject to such performance target being earned by the Participant. Payouts for performance between threshold, target and maximum levels will be interpolated.
With respect to the Retention Awards, each Participant will receive cash payments equal to 25%, 18.8% and 12.5% of their annual base salary for the first, second and third quarters of fiscal year 2021, respectively, subject to the Participant’s continued employment with the Company through the applicable payment dates for the Retention Awards (August 15, 2021 with respect to the first and second quarters of fiscal year 2021 and November 15, 2021 with respect to the third quarter of fiscal year 2021). If the Participant does not remain continuously employed with the Company through such dates, then the portion of the Retention Award subject to continuous employment as of such date will be forfeited, except that, if any Participant’s employment is terminated (i) by the Company without “Cause” (and other than due to the Participant’s death or “Disability”), or (ii) upon or following a “Change in Control” (each such term as defined in the Company’s equity incentive plan), in each case, prior to November 15, 2021, then the aggregate amount of the Retention Awards will be paid to such Participant.
Employment Agreement
The Company and David R. Brickman entered into an employment agreement, dated as of March 26, 2021 (the “Employment Agreement”), which terminates and replaces the previous employment agreement between the Company and Mr. Brickman. The Employment Agreement provides that the Company will continue to employ Mr. Brickman on an at-will basis as the Company’s Senior Vice President, General Counsel and Secretary. Mr. Brickman will receive an annual base salary of not less than $335,000 and will be eligible to receive an annual performance bonus targeted at not less than 50% of his base salary. Mr. Brickman will also be eligible to participate in all employee benefit programs that the Company makes available to its senior executives and to receive equity awards under the Company’s annual equity
incentive award program in effect for the Company’s other senior executives, as determined by the Compensation Committee.
The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by the reference to the full text of the Employment Agreement, which is filed as Exhibit 10.28 to this Annual Report on Form 10-K and incorporated herein by reference.
PART III
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.* |
* | Information required by Items 10, 11, 12, 13 and 14 will be set forth |
The following documents are filed as part of this Report:Annual Report on Form 10-K:
|
| Financial Statements: |
The response to this portion of Item 15 is submitted as a separate section of this Report.Annual Report on Form 10-K. See “Index to Financial Statements” at page F-1.
| (2) | Financial Statement Schedules: |
All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
| (3) | Exhibits: |
The following documents are filed as a part of this report.Annual Report on Form 10-K. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this reportAnnual Report on Form 10-K have been omitted.
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3.1 |
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3.2 |
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4.1 |
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4.4 |
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*4.5 |
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10.1 |
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10.3 |
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10.4 |
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10.5 |
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10.5.1 |
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10.6 |
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10.7 |
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10.11 |
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10.12 |
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10.13 |
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10.14 |
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10.16 |
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10.18 |
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10.19 |
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10.25 |
Exhibit Number | Description | ||
10.26 | |||
10.27 | |||
*10.28 | |||
*10.29 | |||
*10.30 | |||
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*21.1 |
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*23.1 |
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*31.1 |
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| Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) |
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*31.2 |
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| Certification of |
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*32.1 |
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| Certification of Kimberly S. Lody pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*32.2 |
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*101.INS |
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| Inline XBRL Instance Document |
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*101.SCH |
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| Inline XBRL Taxonomy Extension Schema Document |
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*101.CAL |
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| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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*101.LAB |
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| Inline XBRL Taxonomy Extension Label Linkbase Document |
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*101.PRE |
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| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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*101.DEF |
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| Inline XBRL Taxonomy Extension Definition Linkbase Document |
*104 | Cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL (included in Exhibit 101). |
* | Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SENIOR LIVING CORPORATION | |
|
|
By: | /s/ KIMBERLY S. LODY |
| Kimberly S. Lody |
| President, Chief Executive Officer and Director |
|
|
Date: March 31, |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report appears below hereby appoints Kimberly S. Lody and Carey P. HendricksonTiffany L Dutton and each of them, any one of whom may act without the joinder of the other, as his or her attorney-in-fact to sign on his or her behalf, individually and in each capacity stated below, and to file all amendments to this report, which amendment or amendments may make such changes in and additions to the report as any such attorney-in-fact may deem necessary or appropriate.
Signature |
| Title |
| Date | ||
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/s/ KIMBERLY S. LODY |
| President, |
| March 31, | ||
Kimberly S. Lody |
| Chief Executive Officer (Principal |
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| Executive Officer) and Director |
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/s/ |
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| March 31, | ||
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| (Principal Financial Officer and Authorized Officer) |
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/s/ MICHAEL W. REID |
| Chairman of the Board |
| March 31, | ||
Michael W. Reid |
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/s/ PHILIP A. BROOKS |
| Director |
| March 31, | ||
Philip A. Brooks |
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/s/ ED A. GRIER |
| Director |
| March 31, | ||
Ed A. Grier |
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/s/ E. RODNEY HORNBAKE |
| Director |
| March 31, | ||
E. Rodney Hornbake |
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/s/ JILL M. KRUEGER |
| Director |
| March 31, | ||
Jill M. Krueger |
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/s/ ROSS B. LEVIN |
| Director |
| March 31, | ||
Ross B. Levin |
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/s/ STEVEN T. PLOCHOCKI |
| Director |
| March 31, | ||
Steven T. Plochocki |
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INDEX TO FINANCIAL STATEMENTS
| Page |
Consolidated Financial Statements of Capital Senior Living Corporation |
|
Report of Independent Registered Public Accounting Firm, Ernst & Young LLP | F-2 |
Consolidated Balance Sheets — December 31, |
|
| |
| |
Consolidated Statements of Cash Flows — For the years ended December 31, 2020, 2019 |
|
F-7 | |
F-8 | |
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, Ernst & Young LLP
F-37
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Capital Senior Living Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capital Senior Living Corporation (the Company) as of December 31, 20192020 and 2018,2019, the related consolidated statements of operations and comprehensive loss, shareholders' shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with U.S. generally accepted accounting principles.
We alsoThe Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have audited,been prepared assuming that the Company will continue as a going concern. As discussed in accordanceNote 2 to the financial statements, the Company has suffered recurring operating losses, has a working capital deficiency and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. In addition, the Company has not complied with the standardscertain covenants of loan agreements with banks. Management’s evaluation of the Public Company Accounting Oversight Board (United States) (PCAOB),events and conditions and management’s plans regarding these matters also are described in Note 2. The 2020 consolidated financial statements do not include any adjustments to reflect the Company's internal control over financial reporting aspossible future effects on the recoverability and classification of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued byassets or the Committeeamounts and classification of Sponsoring Organizationsliabilities that may result from the outcome of the Treadway Commission (2013 framework) and our report dated March 31, 2020 expressed an unqualified opinion thereon.this uncertainty.
Adoption of ASU No. 2016-02
As discussed in Note 23 to the consolidated financial statements, the Company changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Evaluation of Property and Equipment, Net for Impairment
Description of the Matter | As of December 31, 2020, the Company’s consolidated balance sheet included property and equipment, net of $656 million. As more fully described in Note 3 to the consolidated financial statements, property and equipment, net are routinely evaluated for indicators of impairment. For property and equipment, net with indicators of impairment, the Company performs a recoverability test by comparing the estimated undiscounted future cash flows of each long-lived asset group to its carrying amount. If the long-lived asset group’s carrying amount exceeds its estimated undiscounted future cash flows, the fair value of the long-lived asset group is then estimated by management and compared to its carrying amount. An impairment charge is recognized on these long-lived assets when carrying amount exceeds fair value. |
How We Addressed the Matter in Our Audit | Our testing of the Company’s evaluation of long-lived asset groups for impairment included, among other procedures, assessing the methodologies used to estimate future cash flows and fair values, testing the significant assumptions used to develop the estimates of future cash flows and fair values, and testing the completeness and accuracy of the underlying data used by the Company in its analyses. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the company’s business and other relevant factors would affect the significant assumptions. The evaluation of the Company’s methodology and key assumptions was performed with the assistance of our valuation specialists. We assessed the historical accuracy of the Company’s estimates and performed a sensitivity analysis of the significant assumptions to evaluate the changes in the undiscounted future cash flows and fair values of the long-lived asset groups that would result from changes in the key assumptions. We also assessed information and events subsequent to the balance sheet date to corroborate certain of the key assumptions used by management. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Dallas, Texas
March 31, 2020
2021
CAPITAL SENIOR LIVING CORPORATION
(in thousands)
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS | ASSETS |
| ASSETS |
| ||||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 23,975 |
|
| $ | 31,309 |
|
| $ | 17,885 |
|
| $ | 23,975 |
|
Restricted cash |
|
| 13,088 |
|
|
| 13,011 |
|
|
| 4,982 |
|
|
| 13,088 |
|
Accounts receivable, net |
|
| 8,143 |
|
|
| 10,581 |
|
|
| 5,820 |
|
|
| 8,143 |
|
Federal and state income taxes receivable |
|
| 72 |
|
|
| 152 |
|
|
| 76 |
|
|
| 72 |
|
Property tax and insurance deposits |
|
| 12,627 |
|
|
| 13,173 |
|
|
| 7,637 |
|
|
| 12,627 |
|
Prepaid expenses and other |
|
| 5,308 |
|
|
| 5,232 |
|
|
| 7,028 |
|
|
| 5,308 |
|
Total current assets |
|
| 63,213 |
|
|
| 73,458 |
|
|
| 43,428 |
|
|
| 63,213 |
|
Property and equipment, net |
|
| 969,211 |
|
|
| 1,059,049 |
|
|
| 655,731 |
|
|
| 969,211 |
|
Operating lease right-of-use assets, net |
|
| 224,523 |
|
|
| — |
|
|
| 536 |
|
|
| 224,523 |
|
Deferred taxes, net |
|
| 76 |
|
|
| 152 |
|
|
| — |
|
|
| 76 |
|
Other assets, net |
|
| 10,673 |
|
|
| 16,485 |
|
|
| 3,138 |
|
|
| 10,673 |
|
Total assets |
| $ | 1,267,696 |
|
| $ | 1,149,144 |
|
| $ | 702,833 |
|
| $ | 1,267,696 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
| ||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 10,382 |
|
| $ | 9,095 |
|
| $ | 14,967 |
|
| $ | 10,382 |
|
Accrued expenses |
|
| 46,227 |
|
|
| 41,880 |
|
|
| 48,515 |
|
|
| 46,227 |
|
Current portion of notes payable, net of deferred loan costs |
|
| 15,819 |
|
|
| 14,342 |
|
|
| 304,164 |
|
|
| 15,819 |
|
Current portion of deferred income |
|
| 7,201 |
|
|
| 14,892 |
|
|
| 3,984 |
|
|
| 7,201 |
|
Current portion of financing obligations |
|
| 1,741 |
|
|
| 3,113 |
|
| — |
|
|
| 1,741 |
| |
Current portion of lease liabilities |
|
| 45,988 |
|
|
| — |
|
|
| 421 |
|
|
| 45,988 |
|
Federal and state income taxes payable |
|
| 420 |
|
|
| 406 |
|
|
| 249 |
|
|
| 420 |
|
Customer deposits |
|
| 1,247 |
|
|
| 1,302 |
|
|
| 822 |
|
|
| 1,247 |
|
Total current liabilities |
|
| 129,025 |
|
|
| 85,030 |
|
|
| 373,122 |
|
|
| 129,025 |
|
Deferred income, net of current portion |
|
| — |
|
|
| 8,151 |
| ||||||||
Financing obligations, net of current portion |
|
| 9,688 |
|
|
| 45,647 |
|
|
| — |
|
|
| 9,688 |
|
Lease liabilities, net of current portion |
|
| 208,967 |
|
|
| — |
|
|
| 533 |
|
|
| 208,967 |
|
Other long-term liabilities |
|
| — |
|
|
| 15,643 |
|
|
| 3,714 |
|
|
| — |
|
Notes payable, net of deferred loan costs and current portion |
|
| 905,637 |
|
|
| 959,408 |
|
|
| 604,729 |
|
|
| 905,637 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
| ||||||||
Shareholders’ equity (deficit): |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $.01 par value: |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Authorized shares — 15,000; no shares issued or outstanding |
|
|
|
|
|
|
|
| ||||||||
Authorized shares — 1,000; 0 shares issued or outstanding |
|
|
|
|
|
|
|
| ||||||||
Common stock, $.01 par value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized shares — 65,000; issued and outstanding shares 31,441 and 31,273 in 2019 and 2018, respectively |
|
| 319 |
|
|
| 318 |
| ||||||||
Authorized shares — 4,333; issued and outstanding shares 2,084 and 2,096 in 2020 and 2019, respectively (1) |
|
| 21 |
|
|
| 319 |
| ||||||||
Additional paid-in capital |
|
| 190,386 |
|
|
| 187,879 |
|
|
| 188,978 |
|
|
| 190,386 |
|
Retained deficit |
|
| (172,896 | ) |
|
| (149,502 | ) |
|
| (468,264 | ) |
|
| (172,896 | ) |
Treasury stock, at cost — 494 shares in 2019 and 2018 |
|
| (3,430 | ) |
|
| (3,430 | ) | ||||||||
Total shareholders’ equity |
|
| 14,379 |
|
|
| 35,265 |
| ||||||||
Total liabilities and shareholders’ equity |
| $ | 1,267,696 |
|
| $ | 1,149,144 |
| ||||||||
Treasury stock, at cost — 0 and 33 shares in 2020 and 2019, respectively (1) |
|
| — |
|
|
| (3,430 | ) | ||||||||
Total shareholders’ equity (deficit) |
|
| (279,265 | ) |
|
| 14,379 |
| ||||||||
Total liabilities and shareholders’ equity (deficit) |
| $ | 702,833 |
|
| $ | 1,267,696 |
|
(1) | Prior period share amounts have been adjusted to reflect the fifteen-for-one Reverse Stock Split. See Note 3- Summary of Significant Accounting Policies. |
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
|
| (In thousands, except per share data) |
|
| (In thousands, except per share data) |
| ||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident revenue |
| $ | 447,100 |
|
| $ | 460,018 |
|
| $ | 466,997 |
|
| $ | 357,122 |
|
| $ | 447,100 |
|
| $ | 460,018 |
|
Management fees |
|
| 1,800 |
|
| — |
|
| — |
| ||||||||||||||
Community reimbursement revenue |
|
| 24,942 |
|
| — |
|
| — |
| ||||||||||||||
Total revenues |
| $ | 383,864 |
|
| $ | 447,100 |
|
| $ | 460,018 |
| ||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below) |
|
| 306,786 |
|
|
| 294,661 |
|
|
| 290,662 |
|
|
| 254,630 |
|
|
| 310,551 |
|
|
| 297,651 |
|
General and administrative expenses |
|
| 27,518 |
|
|
| 26,961 |
|
|
| 23,574 |
|
|
| 27,904 |
|
|
| 27,518 |
|
|
| 26,961 |
|
Facility lease expense |
|
| 57,021 |
|
|
| 56,551 |
|
|
| 56,432 |
|
|
| 28,109 |
|
|
| 57,021 |
|
|
| 56,551 |
|
Loss on facility lease termination |
|
| — |
|
|
| — |
|
|
| 12,858 |
| ||||||||||||
Provision for bad debts |
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
| ||||||||||||
Stock-based compensation expense |
|
| 2,509 |
|
|
| 8,428 |
|
|
| 7,682 |
|
|
| 1,724 |
|
|
| 2,509 |
|
|
| 8,428 |
|
Depreciation and amortization expense |
|
| 64,190 |
|
|
| 62,824 |
|
|
| 66,199 |
|
|
| 60,302 |
|
|
| 64,190 |
|
|
| 62,824 |
|
Long-lived asset impairment |
|
| 41,843 |
|
|
| 3,004 |
|
| — |
| |||||||||||||
Community reimbursement expense |
|
| 24,942 |
|
| — |
|
| — |
| ||||||||||||||
Total expenses |
|
| 461,789 |
|
|
| 452,415 |
|
|
| 459,155 |
|
|
| 439,454 |
|
|
| 464,793 |
|
|
| 452,415 |
|
Income (Loss) from operations |
|
| (14,689 | ) |
|
| 7,603 |
|
|
| 7,842 |
| ||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 221 |
|
|
| 165 |
|
|
| 73 |
|
|
| 193 |
|
|
| 221 |
|
|
| 165 |
|
Interest expense |
|
| (49,802 | ) |
|
| (50,543 | ) |
|
| (49,471 | ) |
|
| (44,564 | ) |
|
| (49,802 | ) |
|
| (50,543 | ) |
Write-off of deferred loan costs and prepayment premiums |
|
| (4,843 | ) |
|
| (12,623 | ) |
|
| — |
|
| — |
|
|
| (4,843 | ) |
|
| (12,623 | ) | |
Long-lived asset impairment |
|
| (3,004 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Gain (Loss) on disposition of assets, net |
|
| 36,528 |
|
|
| 28 |
|
|
| (123 | ) | ||||||||||||
Other income |
|
| 7 |
|
|
| 3 |
|
|
| 7 |
| ||||||||||||
Gain on facility lease modification and termination, net |
|
| 10,659 |
|
| — |
|
| — |
| ||||||||||||||
Gain (loss) on disposition of assets, net |
|
| (205,476 | ) |
|
| 36,528 |
|
|
| 28 |
| ||||||||||||
Other income (expense) |
|
| (201 | ) |
|
| 7 |
|
|
| 3 |
| ||||||||||||
Loss before benefit (provision) for income taxes |
|
| (35,582 | ) |
|
| (55,367 | ) |
|
| (41,672 | ) |
|
| (294,979 | ) |
|
| (35,582 | ) |
|
| (55,367 | ) |
Benefit (Provision) for income taxes |
|
| (448 | ) |
|
| 1,771 |
|
|
| (2,496 | ) | ||||||||||||
Benefit (provision) for income taxes |
|
| (389 | ) |
|
| (448 | ) |
|
| 1,771 |
| ||||||||||||
Net loss |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
| $ | (295,368 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) | ||||||||||||
Diluted net loss per share |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) | ||||||||||||
Weighted average shares outstanding — basic |
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
| ||||||||||||
Weighted average shares outstanding — diluted |
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
| ||||||||||||
Basic net loss per share (1) |
| $ | (144.08 | ) |
| $ | (17.87 | ) |
| $ | (26.97 | ) | ||||||||||||
Diluted net loss per share (1) |
| $ | (144.08 | ) |
| $ | (17.87 | ) |
| $ | (26.97 | ) | ||||||||||||
Weighted average shares outstanding — basic (1) |
|
| 2,050 |
|
|
| 2,016 |
|
|
| 1,987 |
| ||||||||||||
Weighted average shares outstanding — diluted (1) |
|
| 2,050 |
|
|
| 2,016 |
|
|
| 1,987 |
| ||||||||||||
Comprehensive loss |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
| $ | (295,368 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
(1) | Prior period results have been adjusted to reflect the fifteen-for-one Reverse Stock Split. See Note 3- Summary of Significant Accounting Policies. |
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Treasury |
|
|
|
|
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Treasury |
|
|
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stock |
|
| Total |
|
| Shares (1) |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stock |
|
| Total |
| ||||||||||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2017 |
|
| 30,012 |
|
|
| 305 |
|
|
| 171,599 |
|
|
| (51,556 | ) |
|
| (3,430 | ) |
|
| 116,918 |
| ||||||||||||||||||||||||
Restricted stock unit conversions |
|
| 3 |
|
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| — |
|
|
| 0 |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| 490 |
|
|
| 5 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 7,864 |
|
|
| (182 | ) |
|
| — |
|
|
| 7,682 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,168 | ) |
|
| — |
|
|
| (44,168 | ) | ||||||||||||||||||||||||
Balance at December 31, 2017 |
|
| 30,505 |
|
|
| 310 |
|
|
| 179,459 |
|
|
| (95,906 | ) |
|
| (3,430 | ) |
|
| 80,433 |
| ||||||||||||||||||||||||
Balance at January 1, 2018 |
|
| 2,034 |
|
|
| 310 |
|
|
| 179,459 |
|
|
| (95,906 | ) |
|
| (3,430 | ) |
|
| 80,433 |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| 768 |
|
|
| 8 |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| 8 |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,428 |
|
|
| — |
|
|
| — |
|
|
| 8,428 |
|
|
| — |
|
|
| — |
|
|
| 8,428 |
|
|
| — |
|
|
| — |
|
|
| 8,428 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,596 | ) |
|
| — |
|
|
| (53,596 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,596 | ) |
|
| — |
|
|
| (53,596 | ) |
Balance at December 31, 2018 |
|
| 31,273 |
|
|
| 318 |
|
|
| 187,879 |
|
|
| (149,502 | ) |
|
| (3,430 | ) |
|
| 35,265 |
|
|
| 2,085 |
|
|
| 318 |
|
|
| 187,879 |
|
|
| (149,502 | ) |
|
| (3,430 | ) |
|
| 35,265 |
|
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,636 |
|
|
| — |
|
|
| 12,636 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,636 |
|
|
| — |
|
|
| 12,636 |
|
Restricted stock awards |
|
| 168 |
|
|
| 1 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 11 |
|
|
| 1 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,509 |
|
|
| — |
|
|
| — |
|
|
| 2,509 |
|
|
| — |
|
|
| — |
|
|
| 2,509 |
|
|
| — |
|
|
| — |
|
|
| 2,509 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,030 | ) |
|
| — |
|
|
| (36,030 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,030 | ) |
|
| — |
|
|
| (36,030 | ) |
Balance at December 31, 2019 |
|
| 31,441 |
|
| $ | 319 |
|
| $ | 190,386 |
|
| $ | (172,896 | ) |
| $ | (3,430 | ) |
| $ | 14,379 |
|
|
| 2,096 |
|
|
| 319 |
|
|
| 190,386 |
|
|
| (172,896 | ) |
|
| (3,430 | ) |
|
| 14,379 |
|
Reverse stock split |
|
| — |
|
|
| (298 | ) |
|
| 298 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Retirement of treasury stock |
|
| — |
|
|
| — |
|
|
| (3,430 | ) |
|
| — |
|
|
| 3,430 |
|
|
| — |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,724 |
|
|
| — |
|
|
| — |
|
|
| 1,724 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (295,368 | ) |
|
| — |
|
|
| (295,368 | ) | ||||||||||||||||||||||||
Balance at December 31, 2020 |
|
| 2,084 |
|
| $ | 21 |
|
| $ | 188,978 |
|
| $ | (468,264 | ) |
| $ | — |
|
| $ | (279,265 | ) |
(1) | Prior period results have been adjusted to reflect the fifteen-for-one Reverse Stock Split. See Note 3- Summary of Significant Accounting Policies. |
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
| $ | (295,368 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 64,190 |
|
|
| 62,824 |
|
|
| 66,199 |
|
|
| 60,302 |
|
|
| 64,190 |
|
|
| 62,824 |
|
Amortization of deferred financing charges |
|
| 1,612 |
|
|
| 1,709 |
|
|
| 1,626 |
|
|
| 1,720 |
|
|
| 1,612 |
|
|
| 1,709 |
|
Amortization of deferred lease costs and lease intangibles, net |
|
| — |
|
|
| 849 |
|
|
| 859 |
|
|
| — |
|
|
| — |
|
|
| 849 |
|
Amortization of lease incentives |
|
| — |
|
|
| (2,074 | ) |
|
| (1,336 | ) |
|
| — |
|
|
| — |
|
|
| (2,074 | ) |
Deferred income |
|
| 1,078 |
|
|
| (1,391 | ) |
|
| (1,397 | ) |
|
| (1,450 | ) |
|
| 1,078 |
|
|
| (1,391 | ) |
Deferred taxes |
|
| 157 |
|
|
| (2,245 | ) |
|
| 1,941 |
|
|
| 76 |
|
|
| 157 |
|
|
| (2,245 | ) |
Operating lease expense adjustment |
|
| (5,243 | ) |
|
| — |
|
|
| — |
|
|
| (23,899 | ) |
|
| (5,243 | ) |
|
| — |
|
Lease incentives |
|
| — |
|
|
| 3,376 |
|
|
| 5,673 |
|
|
| — |
|
|
| — |
|
|
| 3,376 |
|
Loss on facility lease termination |
|
| — |
|
|
| — |
|
|
| 12,858 |
| ||||||||||||
Gain on facility lease modification and termination, net |
|
| (10,659 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Write-off of deferred loan costs and prepayment premiums |
|
| 4,843 |
|
|
| 12,623 |
|
|
| — |
|
|
| — |
|
|
| 4,843 |
|
|
| 12,623 |
|
(Gain) Loss on disposition of assets, net |
|
| (36,528 | ) |
|
| (28 | ) |
|
| 123 |
| ||||||||||||
Loss (gain) on disposition of assets, net |
|
| 205,477 |
|
|
| (36,528 | ) |
|
| (28 | ) | ||||||||||||
Long-lived asset impairment |
|
| 3,004 |
|
|
| — |
|
|
| — |
|
|
| 41,843 |
|
|
| 3,004 |
|
|
| — |
|
Provision for bad debts |
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
|
|
| 2,883 |
|
|
| 3,765 |
|
|
| 2,990 |
|
Stock-based compensation expense |
|
| 2,509 |
|
|
| 8,428 |
|
|
| 7,682 |
|
|
| 1,724 |
|
|
| 2,509 |
|
|
| 8,428 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (1,326 | ) |
|
| (3,173 | ) |
|
| (8,159 | ) |
|
| (1,021 | ) |
|
| (1,326 | ) |
|
| (3,173 | ) |
Property tax and insurance deposits |
|
| 545 |
|
|
| 1,213 |
|
|
| 279 |
|
|
| 2,316 |
|
|
| 545 |
|
|
| 1,213 |
|
Prepaid expenses and other |
|
| (1,013 | ) |
|
| 1,100 |
|
|
| 33 |
|
|
| (1,887 | ) |
|
| (1,013 | ) |
|
| 1,100 |
|
Other assets |
|
| (500 | ) |
|
| 1,350 |
|
|
| 4,061 |
|
|
| (2,358 | ) |
|
| (500 | ) |
|
| 1,350 |
|
Accounts payable |
|
| (715 | ) |
|
| 1,294 |
|
|
| 2,750 |
|
|
| 6,124 |
|
|
| (715 | ) |
|
| 1,294 |
|
Accrued expenses |
|
| 4,343 |
|
|
| 1,129 |
|
|
| 1,689 |
|
|
| 7,279 |
|
|
| 4,343 |
|
|
| 1,129 |
|
Other liabilities |
|
| — |
|
|
| — |
|
|
| 5,017 |
| ||||||||||||
Federal and state income taxes receivable/payable |
|
| 14 |
|
|
| 23 |
|
|
| 165 |
|
|
| (175 | ) |
|
| 14 |
|
|
| 23 |
|
Deferred resident revenue |
|
| 579 |
|
|
| 561 |
|
|
| (1,898 | ) |
|
| 443 |
|
|
| 579 |
|
|
| 561 |
|
Customer deposits |
|
| (55 | ) |
|
| (92 | ) |
|
| (151 | ) |
|
| (163 | ) |
|
| (55 | ) |
|
| (92 | ) |
Net cash provided by operating activities |
|
| 5,229 |
|
|
| 36,870 |
|
|
| 55,594 |
| ||||||||||||
Net cash provided by (used in) operating activities |
|
| (6,793 | ) |
|
| 5,229 |
|
|
| 36,870 |
| ||||||||||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (20,306 | ) |
|
| (21,965 | ) |
|
| (39,959 | ) |
|
| (15,634 | ) |
|
| (20,306 | ) |
|
| (21,965 | ) |
Cash paid for acquisitions |
|
| — |
|
|
| — |
|
|
| (85,000 | ) | ||||||||||||
Proceeds from disposition of assets |
|
| 68,084 |
|
|
| 57 |
|
|
| 19 |
|
|
| 24,148 |
|
|
| 68,084 |
|
|
| 57 |
|
Net cash provided by (used in) investing activities |
|
| 47,778 |
|
|
| (21,908 | ) |
|
| (124,940 | ) |
|
| 8,514 |
|
|
| 47,778 |
|
|
| (21,908 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
| 37,499 |
|
|
| 208,841 |
|
|
| 77,197 |
|
|
| 7,640 |
|
|
| 37,499 |
|
|
| 208,841 |
|
Repayments of notes payable |
|
| (95,077 | ) |
|
| (204,093 | ) |
|
| (20,099 | ) |
|
| (23,137 | ) |
|
| (95,077 | ) |
|
| (204,093 | ) |
Cash payments for financing lease and financing obligations |
|
| (1,516 | ) |
|
| (3,151 | ) |
|
| (2,869 | ) |
|
| (375 | ) |
|
| (1,516 | ) |
|
| (3,151 | ) |
Deferred financing charges paid |
|
| (1,170 | ) |
|
| (3,263 | ) |
|
| (1,182 | ) |
|
| (45 | ) |
|
| (1,170 | ) |
|
| (3,263 | ) |
Net cash provided by (used in) financing activities |
|
| (60,264 | ) |
|
| (1,666 | ) |
|
| 53,047 |
|
|
| (15,917 | ) |
|
| (60,264 | ) |
|
| (1,666 | ) |
Increase (Decrease) in cash and cash equivalents |
|
| (7,257 | ) |
|
| 13,296 |
|
|
| (16,299 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents |
|
| (14,196 | ) |
|
| (7,257 | ) |
|
| 13,296 |
| ||||||||||||
Cash and cash equivalents and restricted cash at beginning of year |
|
| 44,320 |
|
|
| 31,024 |
|
|
| 47,323 |
|
|
| 37,063 |
|
|
| 44,320 |
|
|
| 31,024 |
|
Cash and cash equivalents and restricted cash at end of year |
| $ | 37,063 |
|
| $ | 44,320 |
|
| $ | 31,024 |
|
| $ | 22,867 |
|
| $ | 37,063 |
|
| $ | 44,320 |
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 47,448 |
|
| $ | 49,225 |
|
| $ | 47,022 |
|
| $ | 33,029 |
|
| $ | 47,614 |
|
| $ | 49,225 |
|
Lease modification and termination |
| $ | 6,791 |
|
|
| - |
|
|
| - |
| ||||||||||||
Income taxes |
| $ | 505 |
|
| $ | 555 |
|
| $ | 543 |
|
| $ | 513 |
|
| $ | 505 |
|
| $ | 555 |
|
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20192020
1. | Organization |
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operatorsleading owner-operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, develops and manages senior housing communities throughout the United States. As of December 31, 2019,2020, the Company operated 126101 senior housing communities in 2322 states with an aggregate capacity of approximately 16,00013,000 residents, including 8060 senior housing communities which the Company owned, and 4617 properties that were in the process of transitioning legal ownership back to Fannie Mae, 12 senior housing communities that the Company leased.leased and 12 communities that the Company managed on behalf of third parties. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
2. Going Concern Uncertainty
The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.
In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, the COVID-19 pandemic caused a decline in the occupancy levels at the Company’s communities, which negatively impacted the Company’s revenues and operating results, which depend significantly on such occupancy levels. Reduced controllable move-out activity during the COVID-19 pandemic may partially offset future adverse revenue impacts.
In addition, the outbreak of COVID-19 has required the Company to incur significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents, including increased costs and expenses relating to supplies and personal protective equipment, testing of the Company’s residents and employees, labor and specialized disinfecting and cleaning services. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents and resulted in reduced occupancies at such communities. During the year ended December 31, 2020, the Company had incurred $9.4 million in COVID-19 related costs since the onset of the pandemic.
Accounting Standards Codification (“ASC”) 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including (1) uncertainty around the continued impact of the COVID-19 pandemic on the Company’s operations and financial results, (2) $72.5 million of debt maturing and $16.8 million debt service payments due in the next 12 months, (3) recurring operating losses and projected operating losses for fiscal periods through March 31, 2022, (4) the Company’s working capital deficiency and (5) noncompliance with certain financial covenants of its loan agreements with Fifth Third Bank covering 2 properties and BBVA, USA (“BBVA”) covering 3 properties at December 31, 2020. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the 12-month period following the date the fiscal year 2020 financial statements are issued.
The Company has implemented plans as discussed below, which includes strategic and cash-preservation initiatives, designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-
month period following the date its fiscal year 2020 financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are (1) expected to be cash from operations that will be used in operations and debt forbearance, and (2) refinancings and extensions to the extent available on acceptable terms.
Strategic and Cash Preservation Initiatives
The Company has taken or intends to take the following actions, among others, to improve its liquidity position and to address uncertainty about its ability to operate as a going concern:
|
| In the first quarter of |
• | The Company is in active discussions with Fifth Third Bank and BBVA to resolve its noncompliance with financial covenants at December 31, 2020 for debt totaling $72.5 million, included in current portion of notes payable, net of deferred loan costs on the Consolidated Balance Sheets. As a result of the default, these loans are callable. |
• | The Company has implemented additional proactive spending reductions to improve liquidity, including reduced discretionary spending and monitoring capital spending. |
• | The Company has exited all master lease agreements in order to strengthen the Company’s balance sheet and allow the Company to strategically invest in certain existing communities (see “Note 5- Dispositions and Other Significant Transactions”). |
• | In November 2020, the Company closed on the sale of 1 senior housing community located in Canton, Ohio, for a total purchase price of $18.0 million and received approximately $6.4 million in net proceeds after retiring outstanding mortgage debt of $10.8 million and paying customary transaction and closing costs. The Company recorded a $2.0 million gain on the sale of the property, which is included in gain (loss) on disposition of assets, net in the year ended December 31, 2020. In November 2020, the Company entered into a management agreement with the successor owner to manage the senior living community, subject to a management fee based on the gross revenues of the property. |
• | In May 2020, the Company entered into short-term debt forbearance agreements with a number of its lenders (see “Note 9- Notes Payable”). In October 2020, the Company entered into an additional short-term forbearance agreement with Protective Life Insurance Company. |
• | In November 2020, the Company accepted $8.1 million of Phase 2 Provider Relief funds under the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”), which are intended to reimburse the Company for COVID-19 related costs and lost revenue. The $8.1 million Phase 2 Provider Relief Funds have been recorded as a reduction to operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. The Company received an additional $8.7 million in the first quarter of 2021, subsequent to year-end under the CARES Act Phase 3 and expects to fully recognize Phase 3 funds in 2021. The CARES Act Phase 2 and Phase 3 funds are grants that do not have to be repaid provided the Company satisfies the terms and conditions of the CARES Act. In addition, the Company received approximately $1.9 million in relief from state agencies during the year ended December 31, 2020 under the CARES Act and has applied for additional federal and state funding. |
• | The Company has elected to utilize the CARES Act payroll tax deferral program and delayed payment of a portion of payroll taxes incurred from April 2020 through December 2020. One-half of the deferral amount will become due on each of December 31, 2021 and December 31, 2022. At December 31, 2020, the Company had deferred $7.4 million in payroll taxes, of which, $3.7 million is included in accrued expenses and $3.7 million is included in other long-term liabilities in the Company’s Consolidated Balance Sheets. |
• |
In July 2020, the Company initiated a process that is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. In conjunction with the agreement, the Company discontinued recognizing revenues and expenses on the properties as of August 1, 2020, but continues to manage the communities on behalf of Fannie Mae. The Company earns a management fee for providing such services. As a result of events of default and the appointment of a receiver to take possession of the communities, the Company concluded that, in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets” a $199.6 million loss should be taken due to the derecognition of the assets as a result of the loss of control of the assets, which occurred during the year ended December 31, 2020. See “Note 9- Notes Payable.” Once legal ownership of the properties transfer to Fannie Mae and the liabilities relating to such communities are extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, “Debt.” At December 31, 2020, the Company included $218.4 million in outstanding debt in the current portion of notes payable, net of deferred loan costs, and $8.7 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties. |
• | The Company is evaluating possible debt and capital options. |
The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2020 financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, if at all, many of which have been made worse or more unpredictable by the COVID-19 pandemic. Accordingly, management could not conclude that it was probable that the plans will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the 12-month period following the date the Company’s fiscal year 2020 financial statements are issued.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date the Company’s fiscal year 2020 financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.
3.Summary of Significant Accounting Policies
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenderscounterparties as collateral pursuant to letters of credit. The deposit must remain so long as the letter of credit is outstanding which is subject to renewal annually.
The following table sets forth our cash and cash equivalents and restricted cash (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash and cash equivalents |
| $ | 23,975 |
|
| $ | 31,309 |
|
| $ | 17,885 |
|
| $ | 23,975 |
|
Restricted cash |
|
| 13,088 |
|
|
| 13,011 |
|
|
| 4,982 |
|
|
| 13,088 |
|
|
| $ | 37,063 |
|
| $ | 44,320 |
|
| $ | 22,867 |
|
| $ | 37,063 |
|
Long-Lived Assets and Impairment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors, such as net operating losses, along with external factors relating to each asset, including contract changes, local market developments and other publicly available information to determine whether impairment indicators exist.
If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. Recoverabilityrecoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison
indicates that the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The Company determines theestimate fair value of operating lease ROU assets by comparing the contractual rent payments to estimated market rental rates. Long-lived ROUasset group and fixed assets are valued atrecord an impairment loss when the carrying amount exceeds fair value using inputs classified as Level 3 in the fair value hierarchy,
which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.value.
Assets Held for Sale
Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.
During the year ended December 31, 2019, the Company determined a remeasurement write down of approximately $2.3 million was required to adjust the carrying value of a community classified as held for sale to its fair value, net of cost of disposal, which is included in gain (loss) on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The community was sold prior to December 31, 2019. The Company did not0t recognize any expense related to assets held for sale during the year ended December 31, 2018. 2020. The fair values are generally determined based on market rates, industry trends, and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates. There were no0 senior housing communities classified as held for sale by the Company at December 31, 20192020 or 2018.2019.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was approximately $1.9 million, $3.9 million, and $3.3 million and $2.8 million for the years ended December 31, 20192020, 20182019 and 20172018, respectively.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements at December 31, 20192020 or 2018.2019.
Income Taxes
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income.
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES Act) was enacted which contained beneficial provisions to the Company, including the deferral of certain employer payroll taxes and the acceleration of the alternative minimum tax credit refunds. Additionally, on December 27, 2020, the Consolidated Appropriations Act was enacted providing that electing real property trades or business electing out of Section 163(j)(7)(B) will apply a 30 year ADS life to residential real property place in service before January 1, 2018. This property had historically been assigned a 40 year ADS life under the TCJA. The effects were reflected in the tax provision for the year ended December 31, 2020 through an adjustment to deferred temporary differences.
Revenue Recognition
Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided which totaled approximately $440.1$350.6 million and $452.5$440.1 million, respectively, for the fiscal years ended December 31, 20192020 and 2018. 2019. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. The Company had contract liabilities for deferred fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.3$3.3 million and $4.5$4.3 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at December 31, 20192020 and 2018.2019. Deferred fees paid by our residents recognized into revenue during fiscal 2019years 2020 and 20182019 totaled approximately $4.3 million and $4.5 million, and $3.9 million, respectively, and were recognized as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears.
The Company'sThe Company’s senior housing communities have residency agreements whichthat generally require the resident to pay a community fee prior to moving into the community, which covers the cost of application processing, transition assistance provided to residents and their families, move-in preparations and new resident services. Community fees are recorded initially by the Company as deferred revenue. At each of December 31, 2019 and 2018, the Company had contract liabilities for deferred community fees totaling approximately $2.2 million and $1.1 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets. The Company recognized community fees as a component of resident revenue withinover the Company’s Consolidated Statementstwelve-month life of Operations and Comprehensive Loss of approximately $2.9 million and $2.8 million, respectively, during the fiscal years ended December 31, 2019 and 2018.resident contract.
Revenues from the Medicaid program accounted for approximately 6.4% of the Company’s revenue in fiscal year 2020, 5.9% of the Company’s revenue in fiscal year 2019, and 5.4% of the Company’s revenue in fiscal 2018, and 5.6% of the Company’s revenue in fiscal 2017.year 2018. During fiscal years 2020, 2019, and 2018, 41 , 41, and 2017, 41, 40, and 41, respectively, of the Company’s communities were providers of services under the Medicaid program. Accordingly, these communities were entitled to reimbursement under the foregoingMedicaid program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. NoneNaN of the Company’s communities were providers of services under the Medicare program during fiscal years 2020, 2019, 2018, or 2017.2018.
Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing.wrongdoing that would have a material effect on our Consolidated Financial Statements. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program.
Purchase Accounting
In determiningDuring the allocationyear ended December 31, 2020, the Company entered into management agreements whereby it manages certain communities on behalf of one of its former landlords under a contract that provides for periodic management fee payments to the Company and reimbursement for costs and expenses related to such communities. The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company’s estimate of the purchasetransaction price for management services also includes the amount of senior housingreimbursement due from the owners of the communities acquired to net tangiblefor services provided and identified intangible assets acquiredrelated costs incurred. Such revenue is included in “community reimbursement revenue” on the Company’s Consolidated Statements of Operations and liabilities assumed, if any,Comprehensive Loss. The related costs are included in “community reimbursement expense” on the Company makes estimatesCompany’s Consolidated Statements of fair value using information obtained as a result of pre-acquisition due diligence, leasing activities and/or independent appraisals.Operations and Comprehensive Loss. The Company assignsrecognized revenue from management fees of $1.8 million during the purchase price for senior living communities to assets acquired and liabilities assumed based on their estimated fair values. The determination of fair value involves the use of significant judgments and estimates which is generally assessed as follows:
year ended December 31, 2020, with 0 comparable amount in 2019. The Company allocatesrecognized revenue from reimbursed costs incurred on behalf of managed communities of $24.9 million during the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining lives of the buildings, not to exceed 40 years. The Companydetermines the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets’ estimated remaining useful lives as determined at the acquisition date. The Company determines the value of land by considering the sales prices of similar propertiesyear ended December 31, 2020, with 0 comparable amount in recent transactions.
The fair value of acquired lease-related intangibles reflects the estimated fair value of existing resident in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the property acquired was vacant. The Company amortizes any acquired resident in-place lease intangibles to depreciation and amortization expense over the estimated remaining useful life of the respective resident operating leases.2019.
Credit Risk and Allowance for Doubtful Accounts
The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $8.6$6.1 million and $6.8$8.6 million at December 31, 20192020 and 2018,2019, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on
resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.
Lease Accounting
Effective January 1, 2019, the Company adopted the new lease standard provisions of ASC 842. Due to the adoption of ASC 842, the unamortized balances of lease acquisition costs and lease incentives were reclassified as a component of the respective operating lease right-of-use asset. Additionally, the unamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained deficit.deficit on that date of adoption.
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Certain ofFinancing lease right-of-use assets are recognized within property and equipment, net on the Company’s lease arrangements have lease and non-lease components.Consolidated Balance Sheets. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recordedrecognizes interest expense on the balance sheetfinancing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and the related leaseamortization expense is recognized on a straight-line basis over the expected lease term.
Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.
Self-Insurance Liability Accruals
The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. ManagementThe Company’s management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2019;2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.
The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pending claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and
shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.
On December 9, 2020, the Company’s Board of Directors approved and effected a reverse stock split (the “Reverse Stock Split”) of the Company’s common stock at a ratio of 1-for-15. The Reverse Stock Split reduced the number of issued and outstanding shares of common stock from approximately 31,268,943 shares to approximately 2,084,596 shares. The authorized number of shares of common stock was also proportionately reduced from 65,000,000 shares to 4,333,334 shares. All share amounts for the years ended December 31, 2019 and 2018 have been recast to give effect to the 1-for-15 Reverse Stock Split.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for per share amounts):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Net loss |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
| $ | (295,368 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
Net loss allocated to unvested restricted shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Undistributed net loss allocated to common shares |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
| $ | (295,368 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
Weighted average shares outstanding — basic |
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
|
| 2,050 |
|
|
| 2,016 |
|
|
| 1,987 |
|
Effects of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity compensation plans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Weighted average shares outstanding — diluted |
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
|
| 2,050 |
|
|
| 2,016 |
|
|
| 1,987 |
|
Basic net loss per share |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
| $ | (144.08 | ) |
| $ | (17.87 | ) |
| $ | (26.97 | ) |
Diluted net loss per share |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
| $ | (144.08 | ) |
| $ | (17.87 | ) |
| $ | (26.97 | ) |
Awards of unvested restricted stock representing approximately 1.1 million, 1.3 million,33.5 thousand, 73.3 thousand, and 0.9 million86.7 thousand shares were outstanding for the fiscal years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively, and are antidilutive.antidilutive as adjusted for the Reverse Stock Split.
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity until it is canceled. There were no0 repurchases of the Company’s common stock during fiscal 2019years 2020 or 2018.2019. In conjunction with the Reverse Stock Split in December 2020, the Company retired all of the Treasury stock to available for issuance and recorded a reduction to additional paid in capital of $3.4 million.
Stock-Based Compensation
The Company recognizes compensation expense for share-based payment awards to certain employees and directors, including grants of stock options and awards of restricted stock, in the Consolidated Statements of Operations and Comprehensive Loss based on their fair values.
On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”) which provided for, among other things, the grant of restricted stock awards and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorized the Company to issue up to 4.6 million shares of common stock, and the Company had reserved shares of common stock for future issuance pursuant to awards under the 2007 Plan.
On May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Plan.previous plan. The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000150,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan,previous plan, as adjusted for the Reverse Stock Split, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no0 additional awards will be granted under the 2007 Plan.that plan.
Segment Information
The Company evaluates the performance and allocates resources of its senior living facilities based on current operations and market assessments on a property-by-property basis. The Company does not have a concentration of operations geographically or by product or service as its management functions are integrated at the property level. The Company has determined that all of its operating units meet the criteria in Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, to be aggregated into one1 reporting segment. As such, the Company operates in one1 segment.
Recently IssuedAdopted Accounting GuidancePronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company does not expectadopted ASU 2018-13 on January 1, 2020, the adoption of ASU 2018-13 towhich did not have a material impact on its consolidated financial statements.statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13,Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (GAAP) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller
reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.
In February 2016,March 2020, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends2020-04, Facilitation of the existing accounting standardsEffects of Reference Rate Reform on Financial Reporting, which provides optional guidance for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new lease standard requires lessees to recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which provided entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in thelimited period of adoption.time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”). The provisions of this standard are available for election through December 31, 2022. The Company adoptedis currently evaluating its contracts and the new lease standard on January 1, 2019, on a prospective basis, forgoing comparative reporting using the modified retrospective adoption method, utilizing the simplified transition method available pursuant to the standard, which allowed the Company to continue to apply the legacy accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company elected to utilize certain practicaloptional expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the lease standardsprovided by the Company initially resulted in the recording of operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s Consolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets and operating lease liabilities is due to net reductions for the reclassification of certain deferred lease costs and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. The fair value of the right-of-use assets was estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The adoption of the lease standard did not have a material impact on the consolidated cash flows of the Company and had no impact on the Company’s covenant compliance under its current debt and lease agreements. See additional discussion at “Note 16 – Leases.”
The adoption of ASC 842 resulted in the following adjustments to the Company’s Consolidated Balance Sheet at January 1, 2019:
Assets |
|
|
|
Prepaid expenses and other |
| $ | (2,050) |
Property and equipment, net |
|
| (15,569) |
Operating lease right-of-use assets, net |
|
| 255,386 |
Other assets, net |
|
| (4,715) |
Total assets |
| $ | 233,052 |
Liabilities and Shareholder’s Equity |
|
|
|
Deferred income |
| $ | (17,498) |
Financing obligations |
|
| (35,956) |
Operating lease liabilities |
|
| 289,513 |
Other long-term liabilities |
|
| (15,643) |
Total liabilities |
| $ | 220,416 |
Total shareholder’s equity |
| $ | 12,636 |
this update.
Use of Estimates and Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying
financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes revenue recognition, long-lived asset impairment, and self-insurance liability accruals are its most critical accounting policies and/or require management’s most subjective judgments.
3.Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period presentation.
4. Impairment of Long-Lived Assets
During the first quarter of 2020, the Company determined that the modifications of certain of its Master Lease Agreements (see “Note 5- Dispositions and Other Significant Transactions”) and adverse impacts on the Company’s operating results resulting from the COVID-19 pandemic were indicators of potential impairment of its long-lived assets. As such, the Company evaluated its long-lived asset groups for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets.
In March 2020, the Company entered into forbearance agreements with Ventas and Welltower, which, among other things, provide that the lease agreements covering the communities will be converted into property management agreements with the Company as manager on December 31, 2020 if the properties have not transitioned to a successor operator on or prior to such date (see “Note 5- Dispositions and Other Significant Transactions”). The Company’s leases with Ventas and Welltower were originally scheduled to mature during 2025 and 2026. Due to the modification of the lease term and the expected impacts of the COVID-19 pandemic, the Company evaluated certain owned communities and all leased communities for impairment and tested the recoverability of these assets by comparing projected undiscounted cash flows associated with these assets to their respective historical carrying values. For communities in which the historical carrying value was not recoverable, the Company compared the estimated fair value of the assets to their carrying amount and recorded an impairment
charge for the excess of carrying amount over fair value. For the operating lease right-of-use assets, fair value was estimated utilizing a discounted cash flow approach based on historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The fair values of the property and equipment, net of these communities, were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. During the first quarter of 2020, the Company recorded non-cash impairment charges of $6.2 million and $29.8 million to operating lease right-of-use assets, net and property and equipment, net, respectively.
During the third quarter of 2020, the Company recorded non-cash impairment charges of $1.3 million and $1.1 million to operating lease right-of-use assets, net and property and equipment, net, respectively, due to a change in the useful life of 15 of its communities, all of which transferred to new operators during the fourth quarter of 2020. Due to the changes in useful lives, the Company concluded the assets related to those properties had indicators of impairment and the carrying values were not fully recoverable. The fair values of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. In addition, during the third quarter of 2020, the Company recorded a non-cash impairment charge of $0.8 million to property and equipment, net of one owned community. The fair value of the property and equipment, net of this community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities. This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value.
At December 31, 2020, the Company reviewed the carrying value of its property and equipment and determined that impairment indicators existed for 1 of its properties due to the challenged occupancy at the property driven by the impact of COVID-19. The fair value of the property and equipment, net of this community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities. The Company compared the carrying value of the community’s assets to the anticipated undiscounted cash flows and determined that the carrying value was not recoverable. The Company determined the fair value of the fixed assets using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions, and recorded a $2.6 million impairment to property and equipment, net in the fourth quarter of 2020.
In total, the Company recognized non-cash impairment charges of property and equipment, net and operating lease right of use assets of $34.3 million and $7.5 million, respectively, for the year ended December 31, 2020.
During the year ended December 31, 2019. theThe Company recorded impairment charges of $1.6 million and $1.4 million related to fixed assets and operating lease ROUright of use assets, respectively, due to a change in the useful life of its community located in Boca Raton, Florida, which transferred to a new operator subsequent to year-end (see Note 18, Subsequent Events, for discussionin the first quarter of the property’s transition).2020. Due to the change in useful life, the Company concluded the assets related to that property were not recoverable. For propertyDuring the year ended December 31, 2020 and equipment2019, for long-lived assets where indicators of impairment were identified, tests of recoverability were performed and the Company has concluded its property and equipment is recoverable and does not warrant adjustment to the carrying value or remaining useful lives, except for the propertylong-lived assets noted above, as of December 31, 2019 and 2018.above.
4.Dispositions5.Dispositions and Other Significant Transactions
On October 22, 2019, the Company entered into a lease amendment with Healthpeak, as lessorsDisposition of certain ofBoca Raton, Florida Community
Effective January 15, 2020, the Company’s leased properties, which was later amended, to transition one Healthpeak property to new operators on or around January 15, 2020, and to sell the remaining eight as soon as possible, with expected sale datessenior living community located in or around the second quarter of 2020,Boca Raton, Florida transitioned to a buyer or buyers. Undernew operator. In conjunction with the terms of the agreement,transition, the Company will makepaid the lessor, Healthpeak, a one-time $0.3 million termination payment of $250,000 for the transitioned property as a prepayment against the remaining lease payments. Forpayments and was relieved of any additional obligation to Healthpeak with regard to that property and the eight propertieslease was terminated as to bethis property. The Company recorded an approximate $1.8 million gain on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020.
Disposition of Merrillville, Indiana Community
Effective March 31, 2020, the Company sold Healthpeak1 community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in cash proceeds after paying customary closing costs. The community was unencumbered by any mortgage debt. The Company recognized a loss of $7.4 million on the disposition, which is required to arrange, negotiate,included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and closeComprehensive Loss for the year ended December 31, 2020. The community was comprised of 171 assisted living units and 42 memory care units.
Disposition of Canton, Ohio Community
On November 24, 2020 the Company closed on the sale of these properties.one senior housing community located in Canton, Ohio, for a total purchase price of $18.0 million and received approximately $6.4 million in net proceeds after retiring outstanding mortgage debt of $10.8 million and paying customary transaction and closing costs. The Company is entitled to 50%recorded a $2.0 million gain on the sale of the proceedsproperty, which is included in excessgain (loss) on disposition of assets, net in the year ended December 31, 2020. In November 2020, the Company entered into a specified selling price for onemanagement agreement with the successor owner to manage the senior living community, pursuant to which the Company receives a management fee based on the gross revenues of the properties, up to $350,000. Atproperty.
Early Termination of Master Lease Agreements
As of December 31, 2019, nonethe Company leased 46 senior housing communities from certain real estate investment trusts. During 2020, the Company exited all master lease agreements with its landlords (as further described below) and after giving effect to such transactions, as of December 31, 2020, the Company leased 12 senior living communities. All 12 remaining leases were subsequently converted to management agreements as of January 1, 2021. See “Note 18- Subsequent Events.”
Ventas
As of December 31, 2019, the Company leased 7 senior housing communities from Ventas. The term of the properties hadVentas lease agreement was previously scheduled to expire on September 30, 2025. On March 10, 2020, the Company entered into an agreement with Ventas (as amended, the “Ventas Agreement”), providing for the early termination of its Master Lease Agreement with Ventas covering all seven communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreement. In addition, the Ventas Agreement provided that the Company would not be required to comply with certain financial covenants of the Master Lease Agreement during the forbearance period, which terminated on December 31, 2020. In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas, and Ventas reduced the amounts and term of the Company’s lease payments, and effectively eliminated the Company’s lease termination obligation, which was $11.4 million at December 31, 2019. The Master Lease Agreement terminated on December 31, 2020.
In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease term pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement. As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a newdifferent operator or sold.management agreement, at which time the lease would terminate. The modification resulted in a reduction to the lease termination obligation, lease liability and operating lease right-of-use asset recorded in the Company’s Consolidated Balance Sheets by approximately $11.4 million, $51.6 million, and $47.8 million, respectively, during the first quarter of 2020. The Company recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020 and was primarily due to the impact of the change in lease term on certain of the right-of-use asset balances. As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long-Lived Assets.”
Under the terms of the Master Lease Agreement, on December 31, 2020, Ventas elected to enter into a property management agreement with the Company as manager for a management fee based on gross revenues of the applicable community payable to the Company and other customary terms and conditions. As a result of these transactions, the Company had no remaining lease transactions with Ventas on January 1, 2021. See “Note 18- Subsequent Events.”
Welltower
As of December 31, 2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were previously scheduled to year-end,expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities. Pursuant to the Welltower Agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. In addition, the Welltower Agreement provided that the Company was not required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminated on December 31, 2020. In conjunction with the Welltower Agreement, the Company agreed to release $6.5 million in letters of credit to Welltower, which were released during the second quarter of 2020. The Welltower Agreement provided that Welltower could terminate the agreement, with respect to any or all communities upon 30 days’ notice, but no later than December 31, 2020. Upon termination, Welltower could elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. The Welltower Agreement also provided that the Company was not obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and that Welltower would reimburse the Company for certain specified capital expenditures.
In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then- existing Master Lease Agreements with Welltower and modification to the lease terms pursuant to the Welltower Agreement was determined to be a modification of the Master Lease Agreements. As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the each of the leases continued to be classified as an operating lease until the applicable communities transitioned to a different operator or management agreement, at which time such lease would terminate. The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in the Company’s Consolidated Balance Sheets by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020. The Company recognized a gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long-Lived Assets.”
During the third quarter of 2020, Welltower elected to terminate the Welltower Agreement with respect to 5 communities, all of which transferred to a different operator on September 10, 2020. During the fourth quarter 2020, Welltower elected to terminate the Welltower Agreement with respect to 14 communities. The Company recorded a loss on the transaction of $0.7 million, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020.
The Master Lease Agreements with respect to the remaining leased properties terminated on December 31, 2020, and Welltower elected to enter into a property management agreement with the Company as manager for a management fee based on gross revenues of the applicable community payable to the Company and other customary terms and conditions. As a result of these transactions, the Company had no remaining lease transactions with Welltower on January 1, 2021. See “Note 18- Subsequent Events.”
Healthpeak
On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its otherMaster Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement betweenterminated and was converted into a Management Agreement under a Real Estate Investment Trust Investment Diversification and Empowerment Act structure (a “RIDEA structure”) pursuant to which the Company agreed to
manage the 6 communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to the Management Agreement, the Company will receive a management fee based on the gross revenues at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities. In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak. The Company remeasured the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at December 31, 2019 to zero, resulting in a net loss of $7.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for year ended December 31, 2020.
On May 20, 2020, the Company entered into an additional agreement with Healthpeak, effective April 1, 2020 until the end of the lease term. Pursuant to such agreement, the Company began paying Healthpeak rent of approximately $0.7 million per month for 8 senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities. The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment including accrued interest from November 1, 2021, to be made on or before November 1, 2023. At December 31, 2020, the Company had deferred $2.1 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets. Given that the total minimum lease payments and the lease term remain unchanged, the Company has elected not to evaluate the deferral as a rent concession and did not account for the deferral as a modification to the existing lease agreement. The Company concluded the concessions provided to the Company were not contemplated by the existing lease. The Company accounted for the concession in the form of a deferral as if the lease terms were unchanged. Accordingly, once interest begins to accrue on the deferral amount, the Company will record interest expense and accrued interest payable on the portion of the deferral amount that has yet to be paid on a monthly basis until such interest payments become due.
Effective November 1, 2020, upon the expiration of the Master Lease agreement, the Company entered into a short-term excess cash flow lease pursuant to which the Company agreed to manage the 7 communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to such agreement, the Company began paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities. In December 2020, Healthpeak sold 2 of the properties and in January 2021, subsequent to year-end, Healthpeak sold 1 additional property and terminated all agreements related to those three properties. See “Note 18- Subsequent Events.”
Transactions Involving Certain Fannie Mae Loans
As further described in “Note 9- Notes Payable,” As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. Management fees earned from the properties are recognized as revenue when earned. In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and Healthpeak.that the Company no longer has control of the properties in accordance ASC 610-20. As such, the Company derecognized the assets and recorded a loss of $199.6 million on the transaction for the year ended December 31, 2020. Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, which is expected to occur in 2021. For the year ended December 31, 2020, the Company included $218.4 million in outstanding debt and $8.7 million of accrued interest on the Company’s Consolidated Balance Sheets related to these properties, including in current portion of notes payable, net of deferred loan costs and accrued expenses, respectively. In the fourth quarter 2020, 1 property completed the transition to a successor operator, although the legal ownership has not yet transferred back to Fannie Mae for this community. At December 31, 2020, the Company continued to manage 17 communities on behalf of Fannie Mae. In the first quarter 2021, subsequent to year-end, management of multiple properties transitioned to a successor operator, and the legal ownership of 4 properties was transferred to Fannie Mae. See discussion at Note 18- “Note 18 Subsequent Events.Events.”
Disposition of Springfield, Missouri and Peoria, Illinois Communities
Effective October 1, 2019, the Company sold two2 communities located in Springfield, Missouri and Peoria, Illinois, for $64.8 million. The properties were sold in order to monetize assets deemed at peak performance and
resulted in net proceeds to the Company of approximately $14.8 million. The Company recognized a gain of $38.8 million on the disposition of the two communities, which is included in gain (loss) on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss. At September 30, 2019, these properties were deemed as assets heldLoss for sale resulting in $24.4 million being reclassified to assets held for sale and $44.4 millionthe year ended December 31, 2019.
Disposition of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. These communities comprised of 156 and 158 independent living units, respectively.
Kokomo, Indiana Community
Effective May 1, 2019, the Company closed on the sale of one senior housing community located in Kokomo, Indiana, for a total purchase price of $5.0 million and received approximately $1.4 million in net proceeds after retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs (the “Kokomo Sale Transaction”). The community was comprised of 96 assisted living units. The Company had reported these assets as held for sale at March 31, 2019 and recorded a remeasurement write-down of approximately $2.3 million to adjust the carrying values of these assets to the sales price, less costs to sell, which was included in Gain (loss) on disposition of assets, net, on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2019.
As of December 31, 20192020 and 2018, net2019, property and equipment, net and leasehold improvements, which include assets under financing leases, consists of the following (in thousands):
|
|
|
| December 31, |
|
|
|
| December 31, |
| ||||||||||
|
| Asset Lives |
| 2019 |
|
| 2018 |
|
| Asset Lives |
| 2020 |
|
| 2019 |
| ||||
Land |
|
|
| $ | 66,764 |
|
| $ | 69,842 |
|
|
|
| $ | 46,896 |
|
| $ | 66,764 |
|
Land improvements |
| 5 to 20 years |
|
| 25,718 |
|
|
| 25,373 |
|
| 5 to 20 years |
|
| 19,345 |
|
|
| 25,718 |
|
Buildings and building improvements |
| 10 to 40 years |
|
| 1,096,386 |
|
|
| 1,158,577 |
|
| 10 to 40 years |
|
| 803,434 |
|
|
| 1,096,386 |
|
Furniture and equipment |
| 5 to 10 years |
|
| 65,828 |
|
|
| 66,202 |
|
| 5 to 10 years |
|
| 48,694 |
|
|
| 65,828 |
|
Automobiles |
| 5 to 7 years |
|
| 5,947 |
|
|
| 6,344 |
|
| 5 to 7 years |
|
| 2,824 |
|
|
| 5,947 |
|
Assets under financing leases and leasehold improvements |
| (1) |
|
| 95,281 |
|
|
| 98,396 |
|
| (1) |
|
| 10,576 |
|
|
| 95,281 |
|
Construction in progress |
| NA |
|
| 1,491 |
|
|
| 421 |
|
| NA |
|
| 581 |
|
|
| 1,491 |
|
|
|
|
|
| 1,357,415 |
|
|
| 1,425,155 |
|
|
|
|
| 932,350 |
|
|
| 1,357,415 |
|
Less accumulated depreciation and amortization |
|
|
|
| (388,204 | ) |
|
| (366,106 | ) |
|
|
|
| (276,619 | ) |
|
| (388,204 | ) |
Property and equipment, net |
|
|
| $ | 969,211 |
|
| $ | 1,059,049 |
|
|
|
| $ | 655,731 |
|
| $ | 969,211 |
|
(1) | Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term. Assets under financing leases and leasehold improvements include |
At December 31, 20192020 and 2018,2019, furniture and equipment included $4.1$4.2 million and $3.8$4.1 million of capitalized computer software development costs of which $3.3$3.4 million and $3.1$3.3 million, respectively, has been amortized and is included as a component of accumulated depreciation and amortization. At December 31, 20192020 and 2018,2019, property and equipment, net included $2.0$0.5 million and $0.8$2.0 million, respectively, of capital expenditures which had been incurred but not yet paid.
During the year ended December 31, 2020 and 2019, the Company recognized non-cash impairment of property and equipment charges of $34.3 million and $3.0 million. See “Note 4- Impairment of Long-Lived assets.”
In July 2020, the Company initiated a process which is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. As a result of events of default and the appointment of a receiver to take possession of the communities, the Company disposed of all long-lived assets for those respective properties. See “Note 9- Notes Payable.”
| Other Assets |
Other assets consist of the following (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Deferred lease costs, net |
| $ | - |
|
| $ | 4,715 |
| ||||||||
Security and other deposits |
|
| 9,915 |
|
|
| 9,889 |
|
|
| 2,525 |
|
|
| 9,915 |
|
Other |
|
| 758 |
|
|
| 1,881 |
|
|
| 613 |
|
|
| 758 |
|
|
| $ | 10,673 |
|
| $ | 16,485 |
|
| $ | 3,138 |
|
| $ | 10,673 |
|
Prior to the adoption of ASC 842, lease acquisition and modification costs were classified as other assets and amortized over their respective lease terms. The unamortized portion of lease acquisition and modification costs were reclassified into operating right-of-use assets inIn conjunction with the Company’s adoption of ASC 842 on January 1, 2019. See Note 2, Summary of Significant Accounting Policies, for further information onHealthpeak Agreement and the Company’s adoption of ASC 842. Ventas Agreement, the Company released $2.6 million and $4.1 million in security and other deposits to Healthpeak and Ventas, respectively.
Accrued expenses consist of the following (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Accrued salaries, bonuses and related expenses |
| $ | 14,733 |
|
| $ | 11,996 |
|
| $ | 11,170 |
|
| $ | 14,733 |
|
Accrued property taxes |
|
| 15,186 |
|
|
| 14,079 |
|
|
| 9,122 |
|
|
| 15,186 |
|
Accrued interest |
|
| 3,617 |
|
|
| 3,066 |
|
|
| 13,594 |
|
|
| 3,617 |
|
Accrued health claims and workers compensation |
|
| 5,281 |
|
|
| 4,845 |
|
|
| 4,728 |
|
|
| 5,281 |
|
Accrued professional fees |
|
| 1,265 |
|
|
| 1,012 |
|
|
| 2,599 |
|
|
| 1,265 |
|
Other |
|
| 6,145 |
|
|
| 6,882 |
|
|
| 7,302 |
|
|
| 6,145 |
|
|
| $ | 46,227 |
|
| $ | 41,880 |
|
| $ | 48,515 |
|
| $ | 46,227 |
|
Notes payable consists of the following (in thousands):
|
| Average Monthly |
|
| Net Book Value |
|
|
|
|
|
|
|
| Notes Payable December 31, |
| |||||||
Lender |
| Payment |
|
| Of Collateral (1) |
|
| Interest Rate |
|
| Maturity Date |
| 2019 |
|
| 2018 |
| |||||
Fannie Mae |
| $ | 135 |
|
| $ | 24,980 |
|
|
| 4.69 |
|
| April 2022 |
| $ | 22,592 |
|
| $ | 23,127 |
|
Fannie Mae |
|
| 11 |
|
|
| 3,992 |
|
|
| 4.97 |
|
| April 2022 |
|
| 1,958 |
|
|
| 1,991 |
|
Fannie Mae |
|
| 60 |
|
|
| 14,170 |
|
|
| 4.48 |
|
| May 2022 |
|
| 10,214 |
|
|
| 10,462 |
|
Fannie Mae |
|
| 20 |
|
|
| 14,170 |
|
|
| 4.85 |
|
| May 2022 |
|
| 3,579 |
|
|
| 3,640 |
|
Fannie Mae |
|
| — |
|
|
| — |
|
|
| 4.32 |
|
| January 2023 |
|
| — |
|
|
| 15,194 |
|
Fannie Mae |
|
| — |
|
|
| — |
|
|
| 5.39 |
|
| January 2023 |
|
| — |
|
|
| 8,327 |
|
Fannie Mae |
|
| 39 |
|
|
| 7,756 |
|
|
| 4.58 |
|
| January 2023 |
|
| 6,656 |
|
|
| 6,808 |
|
Fannie Mae |
|
| 17 |
|
|
| 7,756 |
|
|
| 5.49 |
|
| January 2023 |
|
| 2,950 |
|
|
| 2,990 |
|
Fannie Mae |
|
| 45 |
|
|
| 7,810 |
|
|
| 5.93 |
|
| October 2023 |
|
| 6,972 |
|
|
| 7,092 |
|
Fannie Mae |
|
| 67 |
|
|
| 12,408 |
|
|
| 5.50 |
|
| November 2023 |
|
| 10,792 |
|
|
| 10,992 |
|
Fannie Mae |
|
| 67 |
|
|
| 11,598 |
|
|
| 5.38 |
|
| November 2023 |
|
| 10,837 |
|
|
| 11,042 |
|
Fannie Mae |
|
| 282 |
|
|
| 49,090 |
|
|
| 5.56 |
|
| January 2024 |
|
| 45,077 |
|
|
| 45,892 |
|
Fannie Mae |
|
| 632 |
|
|
| 103,848 |
|
|
| 4.24 |
|
| July 2024 |
|
| 116,183 |
|
|
| 118,715 |
|
Fannie Mae |
|
| 120 |
|
|
| 24,074 |
|
|
| 4.48 |
|
| July 2024 |
|
| 21,513 |
|
|
| 21,963 |
|
Fannie Mae |
|
| 81 |
|
|
| 19,081 |
|
|
| 4.30 |
|
| July 2024 |
|
| 14,836 |
|
|
| 15,156 |
|
Fannie Mae |
|
| 91 |
|
|
| 61,630 |
|
|
| 4.98 |
|
| July 2024 |
|
| 16,053 |
|
|
| 16,322 |
|
Fannie Mae |
|
| 11 |
|
|
| 8,817 |
|
|
| 6.30 |
|
| July 2024 |
|
| 1,777 |
|
|
| 1,796 |
|
Fannie Mae |
|
| 134 |
|
|
| 25,548 |
|
|
| 4.59 |
|
| September 2024 |
|
| 23,856 |
|
|
| 24,342 |
|
Fannie Mae |
|
| 22 |
|
|
| 12,916 |
|
|
| 5.72 |
|
| September 2024 |
|
| 3,584 |
|
|
| 3,634 |
|
Fannie Mae |
|
| 54 |
|
|
| 9,810 |
|
|
| 4.70 |
|
| September 2024 |
|
| 9,494 |
|
|
| 9,683 |
|
Fannie Mae |
|
| 53 |
|
|
| 11,293 |
|
|
| 4.50 |
|
| January 2025 |
|
| 9,538 |
|
|
| 9,731 |
|
Fannie Mae |
|
| 95 |
|
|
| 6,552 |
|
|
| 4.46 |
|
| January 2025 |
|
| 17,333 |
|
|
| 17,686 |
|
Fannie Mae |
|
| 70 |
|
|
| 14,605 |
|
|
| 4.35 |
|
| February 2025 |
|
| 12,912 |
|
|
| 13,179 |
|
Fannie Mae |
|
| — |
|
|
| — |
|
|
| 3.85 |
|
| March 2025 |
|
| — |
|
|
| 21,633 |
|
Fannie Mae |
|
| 102 |
|
|
| 22,879 |
|
|
| 3.84 |
|
| April 2025 |
|
| 19,883 |
|
|
| 20,324 |
|
Fannie Mae |
|
| 31 |
|
|
| 22,879 |
|
|
| 5.53 |
|
| April 2025 |
|
| 5,223 |
|
|
| 5,300 |
|
Fannie Mae |
|
| 81 |
|
|
| 14,732 |
|
|
| 5.30 |
|
| June 2025 |
|
| 13,077 |
|
|
| 13,335 |
|
Fannie Mae |
|
| 58 |
|
|
| 12,021 |
|
|
| 4.69 |
|
| October 2025 |
|
| 10,402 |
|
|
| 10,595 |
|
Fannie Mae |
|
| 44 |
|
|
| 8,878 |
|
|
| 4.70 |
|
| October 2025 |
|
| 7,862 |
|
|
| 8,008 |
|
Fannie Mae |
|
| 273 |
|
|
| 37,074 |
|
|
| 4.68 |
|
| December 2025 |
|
| 49,385 |
|
|
| 50,295 |
|
Fannie Mae |
|
| 9 |
|
|
| 8,787 |
|
|
| 5.81 |
|
| December 2025 |
|
| 1,407 |
|
|
| 1,426 |
|
Fannie Mae |
|
| 98 |
|
|
| 22,990 |
|
|
| 4.10 |
|
| October 2026 |
|
| 19,127 |
|
|
| 19,498 |
|
Fannie Mae |
|
| 108 |
|
|
| 23,515 |
|
|
| 4.24 |
|
| December 2026 |
|
| 20,853 |
|
|
| 21,243 |
|
Fannie Mae |
|
| 655 |
|
|
| 148,134 |
|
|
| 5.13 |
|
| January 2029 |
|
| 150,782 |
|
|
| 150,782 |
|
Fannie Mae |
|
| 163 |
|
|
| 148,134 |
|
|
| (3 | ) |
| January 2029 |
|
| 50,261 |
|
|
| 50,261 |
|
Protective Life |
|
| 96 |
|
|
| 23,558 |
|
|
| 3.55 |
|
| April 2025 |
|
| 19,325 |
|
|
| 19,787 |
|
Protective Life |
|
| 49 |
|
|
| 10,566 |
|
|
| 4.25 |
|
| August 2025 |
|
| 9,157 |
|
|
| 9,350 |
|
Protective Life |
|
| 78 |
|
|
| 16,938 |
|
|
| 4.25 |
|
| September 2025 |
|
| 14,565 |
|
|
| 14,871 |
|
Protective Life |
|
| 138 |
|
|
| 30,917 |
|
|
| 4.25 |
|
| November 2025 |
|
| 25,940 |
|
|
| 26,478 |
|
Protective Life |
|
| 57 |
|
|
| 12,901 |
|
|
| 4.50 |
|
| February 2026 |
|
| 10,554 |
|
|
| 10,761 |
|
Protective Life |
|
| 187 |
|
|
| 39,862 |
|
|
| 4.38 |
|
| March 2026 |
|
| 32,099 |
|
|
| 32,920 |
|
Protective Life |
|
| 70 |
|
|
| 14,620 |
|
|
| 4.13 |
|
| October 2031 |
|
| 11,995 |
|
|
| 12,326 |
|
Berkadia |
|
| 230 |
|
|
| 60,462 |
|
|
| (4 | ) |
| December 2021(4) |
|
| 40,500 |
|
|
| 65,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| July 2020 |
|
| — |
|
|
| 3,500 |
| |
Berkadia |
|
| 96 |
|
|
| 16,953 |
|
|
| (5 | ) |
| October 2021 |
|
| 10,992 |
|
|
| 11,255 |
|
Fifth Third |
|
| 125 |
|
|
| 33,852 |
|
|
| (6 | ) |
| December 2021 |
|
| 31,500 |
|
|
| — |
|
HUD |
|
| 16 |
|
|
| 4,572 |
|
|
| 4.48 |
|
| September 2045 |
|
| 2,875 |
|
|
| 2,933 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 3.64 |
|
| May 2019 |
|
| — |
|
|
| 799 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 4.40 |
|
| November 2019 |
|
| — |
|
|
| 763 |
|
Insurance Financing |
|
| 240 |
|
|
| — |
|
|
| 4.40 |
|
| May 2020 |
|
| 1,187 |
|
|
| — |
|
Insurance Financing |
|
| 74 |
|
|
| — |
|
|
| 4.04 |
|
| November 2020 |
|
| 730 |
|
|
| — |
|
Insurance Financing |
|
| 173 |
|
|
| — |
|
|
| 4.40 |
|
| October 2020 |
|
| 1,698 |
|
|
| — |
|
|
| $ | 5,357 |
|
|
|
|
|
| 4.65% (2) |
|
|
|
| $ | 930,085 |
|
| $ | 983,207 |
| |
Less deferred loan costs, net |
|
|
|
|
|
|
|
|
|
|
|
|
| 8,629 |
|
|
| 9,457 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 921,456 |
|
| $ | 973,750 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
| 15,819 |
|
|
| 14,342 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 905,637 |
|
| $ | 959,408 |
|
|
|
|
| Weighted average |
|
|
|
| Notes Payable December 31, |
| ||||||
Lender |
|
|
| interest rate |
|
| Maturity Date |
| 2020 |
|
| 2019 |
| |||
Fixed mortgage notes payable |
|
|
|
| 4.67 |
|
| 2021 to 2031 |
| $ | 787,029 |
|
| $ | 804,210 |
|
Variable mortgage notes |
|
|
|
| 3.36 |
|
| 2021 to 2029 |
|
| 122,742 |
|
|
| 122,260 |
|
Notes payable - insurance |
|
|
|
| 4.60 |
|
| 2021 |
|
| 3,887 |
|
|
| 3,615 |
|
Notes payable - other |
|
|
|
| 4.85 |
|
| 2021 to 2023 |
|
| 2,121 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| $ | 915,779 |
|
| $ | 930,085 |
|
Deferred financing costs, net |
|
|
|
|
|
|
|
|
|
| 6,886 |
|
|
| 8,629 |
|
Total long-term debt |
|
|
|
|
|
|
|
|
| $ | 908,893 |
|
| $ | 921,456 |
|
Less current portion |
|
|
|
|
|
|
|
|
| 304,164 |
|
|
| 15,819 |
| |
Total long-term debt, less current portion |
|
|
|
|
|
|
|
|
| $ | 604,729 |
|
| $ | 905,637 |
|
77 of the facilities owned by the Company are encumbered by mortgage debt and are provided as collateral under their respective loan agreements.
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate scheduled maturities of notes payable at December 31, 20192020 are as follows (in thousands):
2020 |
| $ | 17,793 |
| ||||
2021 |
|
| 97,144 |
| ||||
2021 (1) |
| $ | 304,164 |
| ||||
2022 |
|
| 53,293 |
|
|
| 48,499 |
|
2023 |
|
| 52,741 |
|
|
| 24,863 |
|
2024 |
|
| 240,493 |
|
|
| 152,363 |
|
2025 |
|
| 108,185 |
| ||||
Thereafter |
|
| 468,621 |
|
|
| 277,705 |
|
|
| $ | 930,085 |
|
| $ | 915,779 |
|
(1) | At December 31, 2020, the Company included $218.4 million in outstanding debt in the current portion of notes payable, net of deferred loan costs for Fannie Mae as a result of the events of default as discussed below. |
Notes Payable
The senior housing communities owned by the Company and encumbered by mortgage debt are provided as collateral under their respective loan agreements. At December 31, 2020 and 2019, these communities carried a total net book value of approximately $878.9 million and $898.0 million, respectively, with total mortgage loans outstanding, excluding deferred loan costs, of approximately $909.8 million and $926.5 million, respectively.
Transactions Involving Certain Fannie Mae Loans
The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer of 1 Fannie Mae loan covering 1 property. On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of 3 Fannie Mae loans covering 2 properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.
On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one-month extension of the forbearance agreements between it and Fannie Mae covering 23 properties. The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.
On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for 5 properties with forbearance agreements. The Company elected not to pay $3.9 million on the loans for the remaining 18 properties as of that date as the Company initiated a process that is intended to transfer the operations and ownership of such properties to Fannie Mae. Therefore, the Company was in default on such loans.
As a result of the default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court. The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae. Management fees earned from the properties are recognized as revenue when earned. In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for reasonable operating expenses incurred on behalf of any of the 18 communities under the receivership order. As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20. As such, the Company derecognized the assets and recorded a loss of $199.6 million on the transaction, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss during the year ended December 31, 2020. Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470. At December 31, 2020, the Company included $218.4 million in outstanding debt in current portion of notes payable, net of deferred loan costs, and $8.7 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.
BBVA Loan and Respective Debt Forbearance Agreement
The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering 3 properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to principal and due in June 2021. At December 31, 2020, the Company had deferred payments of $0.9 million related to the BBVA loan, which were included in the current portion of notes payable, net of deferred loan costs on the Company’s Consolidated Balance Sheets.
Debt Forbearance Agreement on HUD Loan
The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering 1 property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period. At December 31, 2020, the Company had deferred payments of $0.1 million related to the ORIX loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.
Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements
On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans covering 10 properties. These amendments allow the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021. In the fourth quarter of 2020, the Company entered into amendments to its loan agreements with Protective Life Insurance Company, which allow the Company to defer principal and interest payments for October, November, and December 2020, and to continue to defer principal payments through September 30, 2021. All deferred amounts are being added to principal due at maturity in either 2025, 2026 or 2031, depending upon the loan. At December 31, 2020, the Company had deferred payments of $4.4 million related to the Protective Life loans, of which $2.2 million was included in accrued expenses in the Company’s Consolidated Balance Sheets. The remaining $2.2 million of which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.
Fifth Third Bank Loan
On December 23, 2019, the Company obtained $31.5 million of mortgage debt from Fifth Third Bank on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest only and has a two-year term and an initial variable interest rate of LIBOR plus 3.25%. The Company incurred approximately $0.6 million in deferred financing costs related to this loan, which are being amortized over the term of the loan. On the same date, the Company amended and repaid $24.5 million in principal of the interest-only mortgage loan with BBVA USA on its Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor.as discussed above. As a result of the amendment, BBVA released the Cottonwood Village assets from collateral of the mortgage and extended the maturity date from July 11, 2020 to December 10, 2021. The amended mortgage has an interest-only variable rate of LIBOR plus 4.5%.
Other Debt Related Transactions
On October 1, 2019, in conjunction with the sale of two2 of its senior housing communities, the Company repaid $44.4 million of associated mortgage debt and $4.4 million of prepayment penalties.
Effective June 28, 2019, the Company exercised its option to extend its interest-only variable interest rate mortgage loan with BBVA USA (formerly Compass Bank) on four of its senior housing communities (Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor). The maturity date was extended from May 11, 2020 to July 11, 2020.
On May 31, 2019, the Company renewed certain insurance policies and entered into two finance agreements totaling approximately $2.6 million and $2.7 million. The finance agreements each have a fixed interest rate of 4.4%, with the principal being repaid over an 11-month and 18-month term, respectively.
The Company issued standby letters of credit with Wells Fargo Bank (“Wells Fargo”), totaling approximately $3.4 million, for the benefit of Hartford Financial Services (“Hartford”) associated with the administration of workers compensation which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with JPMorgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower, Inc. (“Welltower”), formerly Healthcare REIT, Inc. on certain leases between Welltower and the Company which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak Properties, Inc. (“Healthpeak”) on certain leases between Healthpeak and the Company which remain outstanding as of December 31, 2019.
On December 18, 2018, the Company repaid certain mortgage loans associated with 21 of its senior living communities totaling approximately $170.6 million from Fannie Mae which were scheduled to mature on various dates beginning August 2021 through April 2026. The repayment of these mortgage loans facilitated the establishment of a Master Credit Facility (“MCF”) with Berkadia whereby the Company obtained approximately $201.0 million of new mortgage financing. The MCF will allow the Company to make future advances, should the Company decide to do so, assuming certain borrowing conditions are satisfied. The MCF consists of two separate loans which are cross-defaulted and cross-collateralized. Approximately $150.8 million of the new financing is long-term fixed interest rate debt at a fixed interest rate of 5.13% with a 10-year term and interest only for the first 36 months and the principal amortized over a 30-year term thereafter. Approximately $50.3 million of the new financing is long-term variable interest rate debt at a variable interest rate of LIBOR plus 2.14% with a 10-year term and interest only for the first 36 months and a fixed monthly principal component of $67,000 thereafter. The Company incurred approximately $3.0 million in deferred financing costs related to the MCF, which are being amortized over 10 years. As a result of the early repayment of the Fannie Mae mortgage debt, the Company accelerated the amortization of approximately $1.5 million in unamortized deferred financing costs and incurred prepayment premiums of approximately $11.1 million. The MCF was subsequently assigned to Fannie Mae on December 28, 2018, and is reported as such in preceding notes payable summary table.
On December 18, 2018, the Company completed mortgage financing of $3.5 million from Berkadia at a variable interest rate of LIBOR plus 3.75% on one community located in Kokomo, Indiana. The mortgage loan is
interest-only and has an 18-month term maturing in July 2020. The Company incurred approximately $91,000 in deferred financing costs related to this loan, which are being amortized over 18 months.
On December 1, 2018,June 15, 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $0.8$2.2 million. The finance agreement has a fixed interest rate of 4.40%4.60% with the principal being repaid over an 11-montha 10-month term.
On November 30, 2018, the Company completed supplemental mortgage financing of approximately $1.8 million from Fannie Mae at a fixed interest rate of 6.30% on one community located in Mesquite, Texas. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in July 2024. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
Effective June 29, 2018, the Company extended its mortgage loan with Berkadia on one of its senior living communities located in Canton, Ohio. The maturity date was extended to October 10, 2021 with an initial variable interest rate of LIBOR plus 5.0% with principal amortized over 25 years.
Effective May 31, 2018,In December 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.7$3.8 million. The finance agreement has a fixed interest rate of 3.64%4.60% with the principal being repaid over a 10-month term.
On May 20, 2020, the Company entered into an 11-month term.agreement with Healthpeak (the “Healthpeak Forbearance”), effective from April 1, 2020 through the lease term ending October 31, 2020, to defer a percentage of rent payments. At December 31, 2020, the Company had deferred $2.1 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets. See “Note 5- Dispositions and Other Significant Transactions.”
Deferred Financing Charges
In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the lifeterms of the respective notes. At December 31, 20192020 and 2018,2019, the Company had gross deferred loan costs of $14.3approximately $14.0 million and $14.1$14.3 million, respectively. Accumulated amortization was $5.7approximately $7.1 million and $4.7$5.7 million at December 31, 2020 and 2019, respectively.
Debt Covenant Compliance
Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through December 2020. Additionally, the Company was not in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and 2018, respectively. Amortization expenseCottonwood Village properties, as of December 31, 2020, in which a minimum debt service coverage ratio must be maintained, which constitutes a default. As a result of default, the loan has become callable. The Company is expectedin active discussions with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be approximately $1.6reached. The Company included $31.5 million in eachoutstanding debt related to those properties in current portion of notes payable, net of deferred loan costs, on the next five fiscal years. Company’s Consolidated Balance Sheets at December 31, 2020.
The Company was not in compliance with a certain financial covenant of its loan agreement with BBVA covering three properties as of December 31, 2020, in which a minimum debt service coverage ratio must be maintained, which constitutes a default. As a result of default, the loan has become callable. The Company is in active discussions with BBVA to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. The Company included $41.0 million in outstanding debt related to those properties in current portion of notes payable, net of deferred loan costs, on the Company’s Consolidated Balance Sheets at December 31, 2020.
Except as noted above, the Company was in compliance with all aspects of its outstanding indebtedness at December 31, 20192020.
Letters of Credit
The Company previously issued standby letters of credit with Wells Fargo, totaling approximately $3.4 million, for the benefit of Hartford Financial Services (“Hartford”) in connection with the administration of workers’ compensation. On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which remained outstanding as of December 31, 2020.
The Company issued standby letters of credit with Wells Fargo, totaling approximately $1.0 million, for the benefit of Calpine Corporation in connection with certain of its energy provider agreements which remained outstanding at December 31, 2020.
The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower, in connection with certain leases between Welltower and 2018.the Company. The letters of credit were surrendered and paid to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, 2020.
The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak in connection with certain leases between Healthpeak and the Company. The letters of credit were released to the Company during the first quarter of 2020 and were included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.
| Equity |
Preferred Stock
The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Company’s Board of Directors without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. NoNaN preferred stock was outstanding as of December 31, 2020 and 2019.
Reverse Stock Split
On December 9, 2020, the Company’s Board of Directors approved and effected a Reverse Stock Split of the Company’s common stock at a ratio of 1-for-15. The Reverse Stock Split reduced the number of issued and outstanding shares of common stock from approximately 31,268,943 shares to approximately 2,084,596 shares. The authorized number of shares of common stock was also proportionately reduced from 65,000,000 shares to 4,333,334 shares. All share amounts for the years ended December 31, 2019 and 2018.2018 have been recast to give effect to the 1-for15 Reverse Stock Split.
Share Repurchases
On January 22, 2009, the Company’s boardBoard of directorsDirectors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock.stock, as adjusted for the Reverse Stock Split. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal year 2009, the Company purchased 349,80023,320 shares, as adjusted for the Reverse Stock Split, at an average cost of $2.67$40.05 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during fiscal year 2016, the Company purchased 144,3159,621 shares, as adjusted for the Reverse Stock Split, of its common stock at an average cost of $17.29$259.35 per share for a total cost to the Company of approximately $2.5 million.
All such purchases were made in open market transactions. There were no0 repurchases of the Company’s common stock during fiscal 2019years 2020 or 2018.2019.
In conjunction with the Reverse Stock Split in December 2020, the Company retired all of the Treasury shares outstanding and recorded an entry to reduce additional paid in capital for $3.4 million.
| Stock-Based Compensation |
The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.
The Company’s Amended 2007 Omnibus Stock and Incentive Plan (the “2007 Plan”) provided for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorized the Company to issue up to 4,600,000 million shares of common stock and the Company had reserved shares of common stock for future issuance pursuant to awards under the 2007 Plan.
On May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Plan.previous plan. The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000150,000 shares of common stock, as adjusted for the Reverse Stock Split, plus reserved shares not issued or subject to outstanding awards under the 2007 Plan,previous plan, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no0 additional awards will be granted under the 2007 Plan.that plan.
Stock Options
The Company’s stock option program is a long-term retention program that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder and employee interests. The Company’s stock options generally vest over one to five years and the related expense is amortized on a straight-line basis over the vesting period.
There were 0 stock options granted during the year ended December 31, 2020.
The fair value of the 2019 stock options was estimated using the Black-Scholes option pricing model. The Black-Scholes model requires the input of certain assumptions including expected volatility, expected dividend yield, expected life of the option and the risk-free interest rate. The expected volatility used by the Company is based primarily on an analysis of historical prices of the Company’s common stock. The expected term of options granted is based primarily on historical exercise patterns on the Company’s outstanding stock options. The risk-free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected option life. The Company does not expect to pay dividends on its common stock and therefore has used a dividend yield of zero in determining the fair value of its awards. The option forfeiture rate assumption used by the Company is based primarily on the Company’s historical option forfeiture patterns. The fair value of stock options was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:
| Year ended December 31, 2019 |
| |
Expected volatility | 37.0% |
| |
Expected dividend yield | 0.0% |
| |
Expected term in years |
| 6.0 |
|
Risk free rate | 2.55% |
| |
Expected forfeiture rate | 0.0% |
|
The options outstanding at December 31, 2020 and 2019 had no0 intrinsic value, a weighted-average remaining contractual life of 9.08.0 years, and a weighted-average exercise price of $7.46. None$111.90, as adjusted for the Reverse Stock Split. NaN of the options outstanding at December 31, 2019 were exercisable. NoNaN stock options were outstanding at December 31, 2018 and 2017, as all outstanding options had fully vested and have been exercised or forfeited.
A summary of the Company’s stock option transactions for the years ended December 31, 2020, 2019, 2018, and 20172018 is as follows:follows, as adjusted for the Reverse Stock Split:
|
| Outstanding Beginning of Year |
|
| Granted |
|
| Exercised |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Options Exercisable |
|
| Outstanding Beginning of Year |
|
| Granted |
|
| Exercised |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Options Exercisable |
| ||||||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Shares |
|
| 9,816 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,816 |
|
|
| 3,272 |
| ||||||||||||||||||||||||
Weighted average price |
| $ | 111.90 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 111.90 |
|
| $ | 111.90 |
| ||||||||||||||||||||||||
December 31, 2019 |
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Shares |
|
| — |
|
|
| 147,239 |
|
|
| — |
|
|
| — |
|
|
| 147,239 |
|
|
| — |
| ||||||||||||||||||||||||
Shares |
|
| 0 |
|
|
| 9,816 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,816 |
|
|
| 0 |
| ||||||||||||||||||||||||
Weighted average price |
| $ | — |
|
| $ | 7.46 |
|
| $ | — |
|
|
| — |
|
| $ | 7.46 |
|
| $ | — |
|
| $ | 0 |
|
| $ | 111.90 |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 111.90 |
|
| $ | — |
|
December 31, 2018 |
|
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Shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Weighted average price |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
| $ | — |
|
December 31, 2017 |
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| ||||||||||||||||||||||||
Shares |
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| — |
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| — |
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| — |
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| — |
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| — |
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| — |
| ||||||||||||||||||||||||
Weighted average price |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
(1) | Prior period share amounts have been adjusted to reflect the fifteen-for-one Reverse Stock Split. See Note 3- Summary of Significant Accounting Policies. |
At December 31, 2019,2020, there was approximately $0.3$0.1 million of total unrecognized compensation expense related to unvested stock option awards, which is expected to be recognized over a weighted average period of 2.01.0 years. The fair value of the stock options is amortized as compensation expense over the vesting periods of the options. The Company recorded stock-based compensation expense related to stock options of approximately $0.1 million and $0.1 million in 2019. Nothe year ended December 31, 2020 and 2019, respectively. NaN expense was recorded related to stock options in 2018 or 2017.2018.
Restricted Stock
The Company may grant restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period once the performance target is deemed probable of achievement. Performance goals are evaluated periodically and if such goals are not ultimately met or it is not probable the goals will be achieved, no0 compensation expense is recognized and any previously recognized compensation expense is reversed. If the achievement of a market condition varies from initial estimates on the date of grant, compensation expense will not be adjusted to reflect the difference since the grant date fair value of the performance award gave consideration to the probability of market condition achievement.
The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted common stock awards activity and related information for the years ended December 31, 2020, 2019, and 2018, and 2017as adjusted for the Reverse Stock Split, is presented below:
|
| Outstanding Beginning of Year |
|
| Issued |
|
| Vested |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Outstanding Beginning of Year |
|
| Issued |
|
| Vested |
|
| Forfeited |
|
| Outstanding End of Year |
| ||||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 72,623 |
|
|
| — |
|
|
| (20,388 | ) |
|
| (18,731 | ) |
|
| 33,504 |
| ||||||||||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| 1,345,159 |
|
|
| 662,154 |
|
|
| (424,556 | ) |
|
| (493,411 | ) |
|
| 1,089,346 |
| ||||||||||||||||||||
Shares (1) |
|
| 89,677 |
|
|
| 44,144 |
|
|
| (28,304 | ) |
|
| (32,894 | ) |
|
| 72,623 |
| ||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| 964,484 |
|
|
| 830,794 |
|
|
| (386,900 | ) |
|
| (63,219 | ) |
|
| 1,345,159 |
| ||||||||||||||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 829,766 |
|
|
| 565,745 |
|
|
| (355,400 | ) |
|
| (75,627 | ) |
|
| 964,484 |
| ||||||||||||||||||||
Shares (1) |
|
| 64,299 |
|
|
| 55,386 |
|
|
| (25,793 | ) |
|
| (4,215 | ) |
|
| 89,677 |
|
(1) | Prior period share amounts have been adjusted to reflect the fifteen-for-one Reverse Stock Split. See Note 3- Summary of Significant Accounting Policies. |
The restricted stock outstanding at December 31, 2020, 2019, 2018, and 2017,2018, had an aggregate intrinsic value of $0.4 million, $3.4 million, $9.1 million, and $13.0$9.1 million, respectively.
During fiscal year 2020, the Company did 0t award any shares of restricted common stock.
During fiscal year 2019, the Company awarded 662,15444,144 shares of restricted common stock, as adjusted for the Reverse Stock Split, to certain employees and directors of the Company, of which 325,41521,694 shares, as adjusted for the Reverse Stock Split, were subject to performance and market-based vesting conditions. The average market value of the common stock on the date of grant was $4.50.$67.50, as adjusted for the Reverse Stock Split. These awards of restricted shares vest over a one to four-year period, unless the award is subject to certain accelerated vesting requirements, and had an intrinsic value of $3.0 million on the date of grant. Additionally, during fiscal year 2019, the Company awarded 59,8413,990 restricted stock units, as adjusted for the Reverse Stock Split, to certain directors of the Company with average market value of $3.76$56.40 on the date of grant.grant, as adjusted for the Reverse Stock Split. These awards of restricted units vest over a one-year period and had an intrinsic value of approximately $0.2 million on the date of grant.
Stock Based Compensation
The Company uses the Monte-Carlo simulation model to determine the fair value of performance awards which include market-based vesting conditions. The Monte-Carlo simulation model uses the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination the possibility that the market condition may not be satisfied. Compensation costs related to awards with a market-based condition are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. During fiscal 2019, inIn accordance with the Company’s long-term incentive compensation plan, the Company granted 325,4150 and 21,694 shares of restricted common stock, as adjusted for the Reverse Stock Split, with performance and market-based vesting conditions to certain employees of the Company.Company during the year ended December 31, 2020 and 2019, respectively. These performance awards are subject to a market-based condition that may increase or decrease the number of shares vested if the Company’s 2021 Total Stockholder Return (“TSR”) exceeds or falls below certain achievement level parameters when ranked against the Company’s designated Peer Group. These restricted performance shares vest over a three-year period based on the Company’s Earnings before Interest, Taxes, Depreciation, Amortization, and Rent (“EBITDAR”) financial performance target set by the Company’s compensation committee for the fiscal year ending December 31, 2021. The number of shares of restricted common stock ultimately issued will be prorated between performance level targets achieved.
The Company recognized $1.7 million, $2.5 million, $8.4 million, and $7.7$8.4 million in stock-based compensation expense during fiscal years 2020, 2019, 2018, and 2017,2018, respectively, which primarily is associated with employees whose corresponding salaries and wages are included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Unrecognized stock-based compensation expense is $3.7$0.9 million at December 31, 2019.2020. The Company expects stock-based compensation expense to be recognized over a one to three-year period for performance restricted stock awards and a one to four-year period for nonperformance-based restricted stock awards and units.
| Income Taxes |
The (benefit) provision for income taxes consists of the following (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | (71 | ) |
| $ | (152 | ) |
| $ | 6 |
|
| $ | 3 |
|
| $ | (71 | ) |
| $ | (152 | ) |
State |
|
| 443 |
|
|
| 474 |
|
|
| 550 |
|
|
| 386 |
|
|
| 443 |
|
|
| 474 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 76 |
|
|
| (2,093 | ) |
|
| 1,940 |
|
|
| 0 |
|
|
| 76 |
|
|
| (2,093 | ) |
State |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
(Benefit) Provision for income taxes |
| $ | 448 |
|
| $ | (1,771 | ) |
| $ | 2,496 |
|
| $ | 389 |
|
| $ | 448 |
|
| $ | (1,771 | ) |
The provision (benefit) provision for income taxes differed from the amounts of income tax provision (benefit) provision determined by applying the U.S. federal statutory income tax rate to income before (benefit) provision for income taxes as a result of the following (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Tax benefit at federal statutory rates |
| $ | (7,472 | ) |
| $ | (11,627 | ) |
| $ | (14,168 | ) |
| $ | (61,946 | ) |
| $ | (7,472 | ) |
| $ | (11,627 | ) |
State income tax benefit, net of federal effects |
|
| (548 | ) |
|
| (665 | ) |
|
| (648 | ) |
|
| (7,592 | ) |
|
| (548 | ) |
|
| (665 | ) |
Change in deferred tax asset valuation allowance |
|
| 7,478 |
|
|
| 9,543 |
|
|
| 7,857 |
|
|
| 69,139 |
|
|
| 7,478 |
|
|
| 9,543 |
|
Tax reform impact on deferred income taxes |
|
| — |
|
|
| — |
|
|
| 13,959 |
| ||||||||||||
Share based compensation ASU 2016-09 adoption |
|
| — |
|
|
| — |
|
|
| (5,326 | ) | ||||||||||||
Other |
|
| 990 |
|
|
| 978 |
|
|
| 822 |
|
|
| 788 |
|
|
| 990 |
|
|
| 978 |
|
(Benefit) Provision for income taxes |
| $ | 448 |
|
| $ | (1,771 | ) |
| $ | 2,496 |
|
| $ | 389 |
|
| $ | 448 |
|
| $ | (1,771 | ) |
The effective tax rate for fiscal year 2020 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. The fiscal year 2020 other permanent tax differences include $0.4 million of stock compensation shortfalls and $0.3 million of Section 162(m) compensation limitation. The valuation allowance recorded as of fiscal year 2020 was $119.8 million, which had increased from the prior year by $69.1 million due to current year activity.
The effective tax rate for fiscal year 2019 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. The fiscal year 2019 other permanent tax differences include $0.7 million of stock compensation shortfalls and $0.4 million of Section 162(m) compensation limitation. The valuation allowance recorded as of FiscalDecember 31, 2019 was $50.7 million, which had increasedwas an increase from the prior year byof $4.4 million. Of the $4.4 million adjustment to the valuation allowance during fiscal year 2019, a $3.0 million decrease in the valuation allowance was the result of retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase to the valuation allowance was current year activity. The fiscal 2019 other permanent tax differences include $0.7 million of stock compensation shortfalls and $0.4 million of Section 162(m) compensation limitation.
The effective tax rate for fiscal year 2018 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, and other permanent tax differences. The fiscal year 2018 other permanent tax differences include $0.5 million of stock compensation shortfalls and $0.3 million of Section 162(m) compensation limitation.
The effective tax rate for fiscal 2017 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, tax reform impact on deferred income taxes, adoption of ASU 2016-09, and other permanent tax differences. The fiscal 2017 other permanent tax differences include $0.7 million of stock compensation shortfalls and $0.2 million of Section 162(m) compensation limitation.
A summary of the Company’s deferred tax assets and liabilities, are as follows (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gains on sale/leaseback transactions |
| $ | — |
|
| $ | 2,440 |
| ||||||||
Lease liabilities |
|
| 62,166 |
|
|
| — |
|
| $ | 200 |
|
| $ | 62,166 |
|
Net operating loss carryforward |
|
| 34,284 |
|
|
| 33,252 |
|
|
| 66,369 |
|
|
| 34,284 |
|
Compensation costs |
|
| 2,134 |
|
|
| 3,087 |
|
|
| 2,888 |
|
|
| 2,134 |
|
Depreciation and amortization |
|
| 3,525 |
|
|
| 5,323 |
|
|
| 42,999 |
|
|
| 3,525 |
|
Other |
|
| 2,991 |
|
|
| 2,330 |
|
|
| 8,338 |
|
|
| 2,991 |
|
Total deferred tax assets |
|
| 105,100 |
|
|
| 46,432 |
|
|
| 120,794 |
|
|
| 105,100 |
|
Deferred tax asset valuation allowance |
|
| (50,699 | ) |
|
| (46,280 | ) |
|
| (119,838 | ) |
|
| (50,699 | ) |
Total deferred tax assets, net |
|
| 54,401 |
|
|
| 152 |
|
|
| 956 |
|
|
| 54,401 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| — |
|
|
| — |
| ||||||||
Operating lease right-of-use assets |
|
| (54,325 | ) |
|
| — |
|
|
| (956 | ) |
|
| (54,325 | ) |
Total deferred tax liabilities |
| $ | (54,325 | ) |
| $ | — |
|
|
| (956 | ) |
|
| (54,325 | ) |
Deferred taxes, net |
| $ | 76 |
|
| $ | 152 |
|
| $ | — |
|
| $ | 76 |
|
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. A significant component of objective evidence evaluated was the cumulative losses before income taxes incurred by the Company over the past several fiscal years. Such objective evidence severely limits the ability to consider other subjective evidence such as the Company’s ability to generate sufficient taxable income in future periods to fully recover the deferred tax assets. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.
The valuation allowance recorded as of Fiscal 2019 was $50.7 million, which had increased from the prior year by $4.4 million. Of the $4.4 million adjustmentCARES Act contains beneficial provisions to the valuation allowance during fiscal 2019, a $3.0 million decrease inCompany, including the valuation allowance wasdeferral of certain employer payroll taxes and the resultacceleration of retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase toalternative minimum tax credit refunds. Additionally, on December 27, 2020, the valuation allowance was current year activity.
At December 31, 2017, the Company completed an analysis determining its best estimate for provisional tax adjustments based on the revised tax legislation associated with the Tax Cuts and JobsConsolidated Appropriations Act (“TCJA”), which was enacted on December 22, 2017. Additionally, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”), to address the accounting and reporting of the Act. SAB 118 allowed companies to take a reasonable period, which should not extent beyond one year from enactment of the TCJA, to measure and recognize the effects of the new tax law. Based upon the Company’s analysis of the TCJA and consideration of SAB 118, the Company remeasured its deferred income taxes on a provisional basis as of December 31, 2017, which resulted in a net $14.0 million reduction in the Company’s deferred tax assets and liabilities. The remeasurement consisted of a $15.9 million reduction to the Company’s deferred tax assets for the change in the corporate statutory tax rate from 34% to 21% and a $0.3 million reduction to the Company’s deferred tax asset valuation allowance for the repeal of
the corporate Alternative Minimum Tax (“AMT”), partially offset by a $2.2 million increase to the Company’s deferred tax asset valuation allowance for maximum deduction limits for future net operating loss (“NOL”) carryforwards to 80% of taxable income for losses arising in tax years beginning after December 31, 2017.
The Company completed its assessment of the TCJA under SAB 118 as of December 31, 2018, resulting in a net $2.2 million reduction to the Company’s deferred tax asset valuation allowance. The $2.2 million reduction was primarily related to guidance released in December 2018 for companiesproviding that electing real property tradetrades or business underelecting out of Section 163(j)(7)(B) of the Internal Revenue Codewill apply a 30 year ADS life to opt out of the interest expense limitation.residential real property place in service before January 1, 2018. This guidance requires residential rental property to be depreciatedhad historically been assigned a 40 year ADS life under the Alternative Depreciation System (“ADS”), including assets placedTCJA. The effects were reflected in service priorthe tax provision for the year ended December 31, 2020 through an adjustment to 2018. deferred temporary differences.
As of December 31, 2019,2020, the Company has federal and state NOL carryforwards of $160.5$288.3 million and $135.0$227.0 million and related deferred tax assets of $33.7$60.5 million and $7.2$11.2 million, respectively, and a federal AMT credit carryforward of $0.1 million.respectively. The federal and state NOL carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those NOLs are presented net of the unrecognized benefits. If not used, the federal NOL generated prior to fiscal year 2018 will expire during fiscal years 2033 to 2037 and non-conforming state NOL’sNOLs will expire during fiscal years 2020 to 2039.2040. Federal NOL’sNOLs generated in fiscal 2018 and beyond currently have no expiration
due to changes to tax laws enacted with the TCJA. Some state jurisdictions conform to the unlimited net operating loss carryforward provisions as modified by the TCJA. However, some jurisdictions do not conform to the above-mentioned provisions.
Utilization of the net operating loss carryforwards might be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.
Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. As no utilization of the NOL carryforwards are being or are projected to be utilized in the near future, the Company has not currently completed a study to assess whether an ownership change has occurred. As the Company maintains a valuation allowance in all jurisdictions where the NOL carryovers are present, any potential Section 382 limitation would also be impacted by the valuation allowance. Any carryforwards that will expire prior to utilization as a result of a Section 382 limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowanceallowance.
A summary of the Company’s unrecognized tax benefits activity and related information for the years ended December 31, 2020, 2019, 2018, and 20172018 is presented below (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Beginning balance, January 1 |
| $ | 4,644 |
|
| $ | 3,416 |
|
| $ | 3,786 |
|
| $ | 6,789 |
|
| $ | 4,644 |
|
| $ | 3,416 |
|
Gross increases – tax positions in prior period |
|
| 2,468 |
|
|
| 1,228 |
|
|
| — |
|
|
| 388 |
|
|
| 2,468 |
|
|
| 1,228 |
|
Gross decreases – tax positions in prior period |
|
| — |
|
|
| — |
|
|
| (370 | ) |
|
| (1,744 | ) |
|
| — |
|
|
| — |
|
Gross increases – tax positions in current period |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Settlements |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Lapse of statute of limitations |
|
| (323 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (323 | ) |
|
| — |
|
Ending balance, December 31 |
| $ | 6,789 |
|
| $ | 4,644 |
|
| $ | 3,416 |
|
| $ | 5,433 |
|
| $ | 6,789 |
|
| $ | 4,644 |
|
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its consolidated financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. As of December 31, 2019,2020, the Company has unrecognized tax benefits of $6.8$5.4 million for an uncertain tax position associated with a change in accounting method. The unrecognized tax benefits as of December 31, 20192020 are timing-related uncertainties that if recognized would not impact the effective tax rate of the Company. Unrecognized tax benefit changes in the next 12 months will be a reduction of $1.7 million. The Company files income tax returns in the U.S. federal jurisdiction and U.S. state jurisdictions. As of December 31, 2019,2020, the Company is generally no longer subject to U.S. federal and state income tax examinations for tax years prior to 2016.2017 with limited exceptions for net operating losses from 2013 forward.
| Employee Benefit Plans |
The Company has a 401(k) salary deferral plan (the “Plan”) in which certain employees of the Company meeting minimum service and age requirements are eligible to participate. Contributions to the Plan are in the form of employee salary deferrals, which are subject to employer matching contributions of 50% of up to 4% of the employee’s annual salary. The Company’s contributions are funded semi-monthly to the Plan administrator. During the year ended December 31, 2020, in response to the impact of COVID-19, the Company suspended all 401(k) employer matching contributions. Matching contributions ofwere $0.1 million for the year ended December 31, 2020 and $0.5 million were contributed to the Plan in each of fiscal years 2019 2018 and 2017. The Company incurred administrative expenses related to the Plan of $24,000, $25,000, and $21,300 in fiscal 2019, 2018, and 2017, respectively.2018.
| Contingencies |
The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company.
The Company had two2 of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal year 2017. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. We have incurred approximately $6.2 million in clean-up and physical repair costs, almost all of which have been recovered through insurance proceeds. At December 31, 2019, and 2018, the Company expected to receive an additional $0.3 million, and $2.4 million, respectively, in insurance proceeds from our respective carrier, which was included in prepaid expenses and other on the Company’s Consolidated Balance Sheets. NaN amount was receivable at December 31, 2020. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. The Company received payments from our insurance underwriters during fiscal years 2020, 2019 and 2018 totaling approximately $0.3 million, $2.5 million and $5.1 million, related to Business Interruption, respectively, which have been included as a reduction to operating expenses in the Company’s Consolidated StatementStatements of Operations and Comprehensive Loss for each respective year. Business interruption payments ceased in accordance with our insurance policy in July 2019.
In July 2018, the Company received notifications from the Internal Revenue Service (“IRS”) pursuant to the Affordable Care Act (“ACA”) that the Company may be liable for an Employer Shared Responsibility Payment (“ESRP”) in the amount of approximately $2.1 million for the year ended December 31, 2015. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential
coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents which did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit (“PTC”). The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Based upon the Company’s review of the notifications provided by the IRS, the Company initially concluded it would be liable for approximately $0.2 million of the ESRP assessments which was accrued within certain employee benefit reserves. The Company formally responded to the notifications from the IRS and received favorable decisions revising the ESRP to $83,200 during the fourth quarter of fiscal 2018. The Company believes it has appropriate reserves as of December 31, 2019 and 2018.
14.Fair15.Fair Value of Financial Instruments
The carrying amounts and fair values of financial instruments at December 31, 20192020 and 20182019 are as follows (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||||||
Cash and cash equivalents |
| $ | 23,975 |
|
| $ | 23,975 |
|
| $ | 31,309 |
|
| $ | 31,309 |
|
| $ | 17,885 |
|
| $ | 17,885 |
|
| $ | 23,975 |
|
| $ | 23,975 |
|
Restricted cash |
|
| 13,088 |
|
|
| 13,088 |
|
|
| 13,011 |
|
|
| 13,011 |
|
|
| 4,982 |
|
|
| 4,982 |
|
|
| 13,088 |
|
|
| 13,088 |
|
Notes payable, excluding deferred loan costs |
|
| 930,085 |
|
|
| 899,326 |
|
|
| 983,207 |
|
|
| 945,318 |
|
|
| 915,779 |
|
|
| 846,134 |
|
|
| 930,085 |
|
|
| 899,326 |
|
The following methods and assumptions were used in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and Restricted cash: The carrying amounts reported in the balance sheetCompany’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash equalapproximate fair value, which represent Levellevel 1 inputs as defined in the accounting standards codification.
Notes payable:payable, excluding deferred loan costs: The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent Levellevel 2 inputs as defined in the accounting standards codification.
Assets Held for Sale
Sale: During the first quarter of fiscal year 2019, the Company classified one1 senior living community as held for sale and determined a remeasurement write-down of approximately $2.3 million was required to adjust the carrying value to its fair value, net of cost of disposal. The senior living community was sold during the second quarter of fiscal year 2019 for its carrying value. During the third quarter of fiscal year 2019, the Company classified two2 senior living communities as held for sale which required no0 remeasurement to adjust the carrying value to its fair value.
The Company determines, using Levellevel 2 inputs as defined in the accounting standards codification, the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.
Operating Lease Right-Of-Use Assets
: The Company’s adoption of ASC 842 on January 1, 2019, resulted in the recognition ofCompany recorded non-cash impairment charges to operating lease right-of-use assets, which were determined not fully recoverable and required impairment write-down adjustmentsnet of approximately $17.8$7.5 million recorded directly to retained deficit.for the year ended December 31, 2020. The fair valuevalues of the right-of-use assets waswere estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow
approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio.ratio of 1.1. The estimated future cash flowsrange of discount rates utilized was 7.7% to 10.3%, depending upon the property type and geographical location of the respective community. See “Note 4- Impairment of Long-Lived Assets.”
Property and Equipment, Net: During the year ended December 31, 2020, the Company recorded non-cash impairment charges of $34.3 million to property and equipment, net. The fair value of the impaired assets was $10.5 million, $12.5 million and $2.8 million at March 31, 2020, September 30, 2020, and December 31, 2020 respectively. At March 31, 2020, the fair values of the property and equipment, net of these communities were discounted at a rate that is consistent with a weighted averageprimarily determined utilizing the cost approach, which determines the current replacement cost of capital fromthe property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. At September 30, 2020 and December 31, 2020, the fair value of the property and equipment, net were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market participant perspective.capitalization rates of 7.25% and 8.5%. All of the aforementioned fair value measurements are considered Level 3 measurements within the valuation hierarchy.
The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.
As of December 31, 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impact. Management’s estimates of the impact of the pandemic are highly dependent on variables that are difficult to predict, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease, the duration and degree to which visitors are restricted from the Company's communities, the effect of the pandemic on the demand for senior living communities, the degree to which the Company may receive government financial relief and the timing thereof, and the duration and costs of the Company’s response efforts. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.
| Allowance for Doubtful Accounts |
The components of the allowance for doubtful accounts are as follows (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Balance at beginning of year |
| $ | 6,793 |
|
| $ | 4,881 |
|
| $ | 4,253 |
|
| $ | 8,643 |
|
| $ | 6,793 |
|
| $ | 4,881 |
|
Provision for bad debts, net of recoveries |
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
|
|
| 2,883 |
|
|
| 3,765 |
|
|
| 2,990 |
|
Write-offs and other |
|
| (1,915 | ) |
|
| (1,078 | ) |
|
| (1,120 | ) |
|
| (5,413 | ) |
|
| (1,915 | ) |
|
| (1,078 | ) |
Balance at end of year |
| $ | 8,643 |
|
| $ | 6,793 |
|
| $ | 4,881 |
|
| $ | 6,113 |
|
| $ | 8,643 |
|
| $ | 6,793 |
|
(1) | Write-offs and other includes $1.7 million for the 18 properties in the process of transitioning legal ownership back to Fannie Mae for the year ended December 31, 2020, $0.1 million for the termination of the Welltower Master Lease Agreement and $0.5 million for the termination of the Healthpeak Master Lease Agreement. |
Accounts receivable are reported net of an allowance for doubtful accounts to represent the Company’s estimate of inherent losses at the balance sheet date. The increase in the allowance for doubtful accounts is primarily due to an increase in Medicaid receivables, which is due to an increase in the number of residents for which Medicaid is the payor. The Company’s bad debt expense for Medicaid is higher than that for private pay residents.
| Leases |
The Company has operating leases for various real estate (primarily senior housing communities) and equipment as well as financing leases for certain vehicles. As of December 31, 2019,2020, the Company leased 4612 senior housing communities from certain real estate investment trusts (“REITs”). all of which the applicable master lease agreements terminated on that date. Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. Additionally, facility leases may include contingent rent increases when certain operational performance thresholds are surpassed, at which time the right-of-use assets and lease liability will be remeasured. In the first quarter of 2021, subsequent to year-end, the Company exited all of the Company’s lease agreements for senior housing communities. See “Note 5- Dispositions and Other Significant Transactions.”
Ventas
As of December 31, 2019,2020, the Company leased seven7 senior housing communities (collectively the “Ventas Lease Agreements”) from Ventas. Effective JanuaryUpon termination of the agreement on December 31, 2017,2020, under the terms of the Master Lease Agreement, Ventas elected to enter into a property management agreement with the Company acquired from Ventas the underlying real estate associated with four of its operating leases for a total acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interim, interest-only, bridge financing from Commercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with an option to extend six months, and the balance of the acquisition price paid was from the Company’s existing cash resources. Additionally, the Company agreed to continue paying $2.3 million of the annual rents associated with the four communities acquired over the remaining lease term of the remaining seven leased communities. At December 31, 2019 and 2018, the lease termination obligation was $11.4 million and $12.9 million, respectively. Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas.
During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the funds budgeted for leasehold improvements (the “Special Project Funds”) from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During the second quarter of fiscal 2017, the Company executed amendments to the master lease agreements
with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. During the second quarter of fiscal 2019, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from approximately $17.0 million to approximately $20.0 million and extend the date for completion of the leasehold improvements to June 30, 2021. The initial lease rates under each of the Ventas Lease Agreements ranged from 6.75% to 8% and areas manager, subject to contingent rent escalation clauses. When a contingency is resolvedmanagement fee and an escalation occurs, the amount is included within lease paymentsother customary terms and reflected in the ROU asset and lease liability. Subsequent to year-end,conditions. On January 1, 2021, the Company entered into an operations transfer agreement withfor 7 of the Company’s senior living communities leased from Ventas providing for the early termination of its Master Lease Agreement between it and Ventas covering seven communities.simultaneously entered into a management agreement. See discussion at Note 18- Subsequent Events.“Note 5- Dispositions and Other Significant Transactions.”
Healthpeak
As of December 31, 2019, the Company leased 15 senior housing communities (collectively the “Healthpeak Lease Agreements”) from Healthpeak Properties, Inc., formerly HCP, Inc. (“Healthpeak”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with Healthpeak to facilitate up to $3.3 million of leasehold improvements for one community within the Healthpeak lease portfolio and extend the initial lease terms for nine communities until October 31, 2020. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with Healthpeak for the remaining six communities in the Healthpeak lease portfolio until April 30, 2026. The initial lease rates under the Healthpeak Lease Agreements ranged from 7.25% to 8% and are subject to certain conditional escalation clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability. On October 22, 2019, the Company executed an amendment to the master lease agreement with Healthpeak, which was later amended, to transition one of the Healthpeak communities to a new operator on or around January 15,March 1, 2020, and to sell the remaining eight as soon as possible to one or more buyers. The Company was obligated to pay a $0.3 million termination fee on the transition of the one community to a new operator. Subsequent to year-end, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the masterCompany agreed to manage the 6 communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak.
Effective November 1, 2020, upon the expiration of the Master Lease agreement, the Company entered into a short-term excess cash flow lease pursuant to which the Company agreed to manage the 7 communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to such agreement, with Healthpeak.the Company began paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities. In December 2020, Healthpeak sold 2 properties and in January 2021, subsequent to year-end, Healthpeak sold 1 additional property and terminated all agreements related to those three properties. See discussion Note 18- Subsequent Events.“Note 5- Dispositions and Other Significant Transactions.”
Welltower
As of December 31, 2019,2020, the Company leased 245 senior housing communities (collectively the “Welltower Lease Agreements”) from Welltower. TheAt December 31, 2020, the Master lease agreement terminated and Welltower Lease Agreements each have an initial term of 15 years. The initial lease rates under the Welltower Lease Agreements ranged from 7.25%elected to 8.5% and are subject to certain conditional escalation clauses. Whenenter into a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability. The initial terms on the Welltower Lease Agreements expire on various dates through from April 2025 through April 2026. Subsequent to year-end,property management agreement with the Company entered into an agreement with Welltower, providingas manager that provides for a management fee based on gross revenues of the early termination of three Master Lease Agreement between itapplicable community. See “Note 5- Dispositions and Welltower covering 24 communities. See discussion at Note 18- Subsequent Events.Other Significant Transactions.”
Accounting for leases
The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. The Company, as lessee, makes a determinationdetermines with respect to each of its community and equipment leases as to whether each should be accounted for as an operating lease or financing lease. The classification criteria is based on estimates regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, economic life of the asset, and certain other terms in each lease agreement.
Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, the Company’s incremental borrowing rate based on the information available at the lease
commencement date is used in determining the present value of future minimum lease payments. As of
December 31, 2020, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 6.2% and 2.4 years, respectively. As of December 31, 2019, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 7.8%7.8% and 5.6 years, respectively. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's consolidated balance sheets.Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. As of December 31, 2020 the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.0% and 3.0 years, respectively. As of December 31, 2019, the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.1% and 3.9 years, respectively. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.
Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
Most of the Company’s lease agreements include one or more options to renew, with renewal terms that can extend the lease term for an additional one to 20 years at the Company’s option. The recoverability of assets and depreciable life of leasehold improvements are limited by expected lease terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. The Company was in compliance with all of its lease covenants at December 31, 2018 and lease covenants with regard to its Healthpeak leases at December 31, 2019. With regard to its Master Lease Agreements with Ventas and Welltower, the Company was not in compliance with certain financial covenants as of December 31, 2019. Subsequent to year-end, the Company entered into forbearance agreements with Ventas and Welltower with respect to such defaults. See footnote 18, “Subsequent Events.”
A summary of operating and financing lease expense (including the respective presentation on the consolidated statementConsolidated Statements of operations)Operations and Comprehensive Loss) and cash flows from leasing transactions for the year ended December 31, 2020 and 2019 is as follows:
Operating Leases (in thousands) |
| Year Ended December 31, 2019 |
| ||||||||
| Year ended December 31, |
| |||||||||
Operating Leases | 2020 |
|
| 2019 |
| ||||||
| $ | 57,022 |
| $ | 28,109 |
|
| $ | 57,022 |
| |
General and administrative expenses |
|
| 812 |
|
| 541 |
|
|
| 812 |
|
Operating expenses, including variable lease expense of $6,142 |
|
| 6,466 |
| |||||||
Operating expenses, including variable lease expense of $5,992 and $6,142, respectively |
| 7,097 |
|
|
| 6,466 |
| ||||
Total operating lease costs |
| $ | 64,300 |
|
| 35,747 |
|
|
| 64,300 |
|
Operating lease expense adjustment |
|
| 5,243 |
|
| 23,899 |
|
|
| 5,243 |
|
Operating cash flows from operating leases |
| $ | 69,543 |
| $ | 59,646 |
|
| $ | 69,543 |
|
| Year Ended December 31, |
| |||||
Financing Leases | 2020 |
|
| 2019 |
| ||
Depreciation and amortization | $ | 134 |
|
| $ | 11 |
|
Interest expense: financing lease obligations |
| 32 |
|
|
| 3 |
|
Total financing lease costs |
| 166 |
|
|
| 14 |
|
Operating cash flows from financing leases |
| 134 |
|
|
| 11 |
|
Financing cash flows from financing leases |
| 32 |
|
|
| 3 |
|
Total cash flows from financing leases | $ | 166 |
|
| $ | 14 |
|
| Year Ended December 31, 2019 |
| ||
Depreciation and amortization |
| $ | 11 |
|
Interest expense: financing lease obligations |
|
| 3 |
|
Total financing lease costs |
| $ | 14 |
|
Operating cash flows from financing leases |
|
| 11 |
|
Financing cash flows from financing leases |
|
| 3 |
|
Total cash flows from financing leases |
| $ | 14 |
|
The aggregate amounts of future minimum lease payments recognized on the consolidated balance sheetConsolidated Balance Sheet as of December 31, 20192020 are as follows (in thousands):
Year Ending December 31, |
| Operating Leases |
| Financing Leases |
|
| Operating Leases |
| Financing Leases |
| ||||
2020 |
| $ | 63,549 |
| $ | 148 |
| |||||||
2021 |
|
| 51,401 |
| 148 |
|
| $ | 292 |
| $ | 131 |
| |
2022 |
|
| 51,321 |
| 148 |
|
|
| 148 |
| 179 |
| ||
2023 |
|
| 51,274 |
| 138 |
|
|
| 85 |
| 145 |
| ||
2024 |
|
| 51,245 |
| — |
|
|
| 47 |
| 7 |
| ||
2025 |
|
| 3 |
| 2 |
| ||||||||
Thereafter |
|
| 44,762 |
|
| — |
|
|
| — |
|
| — |
|
Total |
| $ | 313,552 |
| $ | 582 |
|
| $ | 575 |
| $ | 464 |
|
Less: Amount representing interest (present value discount) |
|
| (59,107 | ) |
| (72 | ) |
|
| (40 | ) |
| (43 | ) |
Present value of lease liabilities |
| $ | 254,445 |
| $ | 510 |
|
| $ | 535 |
| $ | 421 |
|
Less: Current portion of lease liabilities |
|
| (45,871 | ) |
| (117 | ) |
|
| (292 | ) |
| (131 | ) |
Lease liabilities, net of current portion |
| $ | 208,574 |
| $ | 393 |
|
| $ | 243 |
| $ | 290 |
|
The aggregate amounts of future minimum operating lease payments not recognized
18.Subsequent Events
Ventas
As discussed in “Note 5- Dispositions and Other Significant Transactions,” on the consolidated balance sheet under ASC 840 as of December 31, 2018 are as follows (in thousands):
Year Ending December 31, |
| Operating Leases |
| |
2019 |
| $ | 66,455 |
|
2020 |
|
| 63,929 |
|
2021 |
|
| 52,093 |
|
2022 |
|
| 52,062 |
|
2023 |
|
| 52,026 |
|
Thereafter |
|
| 97,165 |
|
Total lease payments |
| $ | 383,730 |
|
The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2019 and 2018. This information has been prepared on the same basis as the audited consolidated financial statements of the Company and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company.
|
| 2019 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,176 |
|
| $ | 113,126 |
|
| $ | 111,110 |
|
|
| 108,688 |
|
Income (Loss) from operations |
|
| 1,970 |
|
|
| 203 |
|
|
| (8,105 | ) |
|
| (8,757 | ) |
Net income (loss) and comprehensive income (loss) |
|
| (12,984 | ) |
|
| (12,534 | ) |
|
| (20,731 | ) |
|
| 10,219 |
|
Net income (loss) per share, basic |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Net income (loss) per share, diluted |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Weighted average shares outstanding, basic |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,342 |
|
Weighted average shares outstanding, fully diluted |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,412 |
|
|
|
| 2018 Calendar Quarters |
| ||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,643 |
|
| $ | 114,627 |
|
| $ | 115,650 |
|
| $ | 115,098 |
|
Income (Loss) from operations |
|
| 5,386 |
|
|
| 3,643 |
|
|
| 1,696 |
|
|
| (3,122 | ) |
Net loss and comprehensive loss |
|
| (7,156 | ) |
|
| (9,060 | ) |
|
| (11,089 | ) |
|
| (26,291 | ) |
Net loss per share, basic |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Net loss per share, diluted |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Weighted average shares outstanding, basic |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
|
|
Disposition of Boca Raton, Florida Community
Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator. In conjunction with the transition, the Company paid Healthpeak a one-time $0.3 million payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to that property. The transition was the first transaction under the Company’s October 22, 2019Master Lease agreement with Healthpeak.
Early Termination of Master Lease Agreements
Welltower
Ventas was terminated. On March 15, 2020,January 1, 2021, the Company entered into an operations transfer agreement for 7 of the Company’s senior living communities leased from Ventas and simultaneously entered into a management agreement whereby it will continue to manage the communities subject to a management fee in accordance with Welltower, providing for the early termination of threeagreement.
Healthpeak
As discussed in “Note 5- Dispositions and Other Significant Transactions,” in January 2021, subsequent to year end, Healthpeak sold 8 properties and terminated the related management agreements.
Welltower
The Master Lease Agreements between it and Welltower covering 24 communities. Pursuantwith respect to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $6.5 million in security deposits held by Welltower. In addition, the agreement with Welltower provides for the conversion of the lease agreements covering the communities into property management agreements with the Companyremaining leased properties terminated on December 31, 2020, if such communities have not been transitionedand Welltower elected to enter into a successor operator. property management agreement with the Company as manager for a management fee based on gross revenues of the applicable community payable to the Company and other customary terms and conditions. As a result of these transactions, the Company had no remaining lease transactions with Welltower on January 1, 2021.
VentasAcceptance of Provider Relief Fund Grant
On March 10, 2020,January 27, 2021, the Company entered into an agreement with Ventas, providingaccepted $8.7 million of cash for grants from the early terminationProvider Relief Fund’s Phase 3 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. The CARES Act Phase 3 funds are grants that do not have to be repaid provided the Company satisfies the terms and conditions of a Master Lease Agreement between it and Ventas covering seven communities. Pursuant to such agreement, among other things, from February 1, 2020 throughthe CARES Act.
Transactions Involving Certain Fannie Mae Loans
In the first quarter of 2021, Fannie Mae completed the transfer of ownership on 4 properties. As discussed in the “Note 4- Impairment of Long-Lived Assets,” transfer or legal ownership of these properties was probable at December 31, 2020 and accordingly, the Company agreedhad already disposed of all assets related to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $3.9 million in security deposits held by Ventas. In addition, the agreement with Ventas provides for the conversion of the lease agreements covering the communities into property management agreements with the Company on December 31, 2020 if Ventas has not transitioned such communities to a successor operator.
Healthpeak
On March 1, 2020, the Company entered into an agreement with Healthpeak, effective February 1, 2020, providing for the early termination of a Master Lease Agreement between it and Healthpeak, previously scheduled to mature in April 2026. The Master Lease Agreement was converted into a management agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to such lease agreement until such communities are sold by Healthpeak. In conjunction with the agreement, the Company agreed to release approximately $1.9 million of security deposits held by Healthpeak.
The Company expects that these agreements will result in lease modifications under ASC 842, which will significantly reduce the Company’s operating lease right-of-use assets, net and its operating lease liabilities. Additionally, the Company expects the lease modifications to advance the timing of recognition within the Company’s Consolidated Statements of Operations and Comprehensive Loss for certain assets and liabilities including $43.7 million of leasehold improvements and $11.4 million of lease related financing obligations as of December 31, 2019 as the modified leases are now expected to terminate by December 31, 2020.
Coronavirus
Since its discovery in December 2019, a new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from the coronavirus.this property. As a result of the outbreak, which effectively began impacting the United Stateschange in early March,legal ownership, the Company has taken necessary precautions to prevent and/or minimize spreadwill de-recognize all of the virus at its communities. After the COVID-19 outbreak, the Company began experiencing a decreasedebt for these properties in the number of in-person potential resident tours; however. the Company has created virtual tours, and prospective residents are able to see pictures of the community and resident rooms online. While leads and in-person tours have slowed, new residents do continue to move in, although at a lower rate than in recent months. Move outs have also slowed as compared to recent months. The Company expects to recognize increases in labor costs due to the need for premium labor to supplement staffing, and increases in medical supplies. In response, the Company has reduced spending on non-essential supplies, travel costs and all other discretionary items, and has ceased all non-essential capital expenditure projects. The Company is monitoring the potential impact on its revenues and expenses. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others.
Disposition of Merrillville, Indiana Community
Effective March 31, 2020, the Company sold one community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in net proceeds after paying customary closing costs. The community was unencumbered. The community was comprised of 171 assisted living units and 42 memory care units.
Report of Independent Registered Public Accounting Firm2021.
To the Shareholders and the Board of Directors of Capital Senior Living CorporationF-36
Opinion on Internal Control Over Financial Reporting
We have audited Capital Senior Living Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Capital Senior Living Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated March 31, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
March 31, 2020
F-37