Overview
As of June 30, 2020,March 31, 2021, we are the largest operator of senior living communities in the United States based on total capacity, with 737695 communities in 4442 states and the ability to serve approximately 65,00060,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. WeWe operate and manage independent living, assisted living, memory care, and continuingcontinuing care retirement communities ("CCRCs"). We also offer a range of home health, hospice, and outpatient therapy services to more than 17,00016,000 patients as of that date.
Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. With our range of community and service offerings, we believe that we are positioned to take advantage of favorable demographic trends over time. Our community and service offerings combine housing with hospitality and healthcare services. Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living such as eating, bathing, dressing, toileting, transferring/walking, and, in certain communities, licensed skilled nursing services. We also provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives.
COVID-19 Pandemic
The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, our nation’s economy, the senior living industry and our business. Although a significant portion of our corporate support associates began working from home in March 2020, we continue to serve and care for seniors through the pandemic. Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.
The health and wellbeing of our residents, patients, and associates is and has been our highest priority. We initiated our COVID-19 preparation efforts in January 2020 andpriority as we continue to actively monitor requirementsserve and guidancecare for seniors through the pandemic. In addition to the updates below, readers are directed to the "COVID-19 Pandemic" section of federal, state,Item 7. Management’s Discussion and local governmentsAnalysis of Financial Condition and agencies, includingResults of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 for more information about the impact of the pandemic and our response efforts on our business, results of operations, and financial condition.
Vaccine Clinics Completed. We elected to work with CVS Health Corporation ("CVS") to administer vaccinations on site to our residents and associates through the Pharmacy Partnership for Long-Term Care Program offered through the U.S. Centers for Disease Control and Prevention ("CDC"). We worked extensively to prepare for and U.S. Centers for Medicare & Medicaid Services ("CMS")host CVS clinics as quickly as possible among our approximately 700 communities, which included extensive planning, gathering insurance information, obtaining consents, scheduling appointments, holding educational sessions with residents, families, and associates, detailed coordination of traffic flow, and staffing observation areas. We hosted our first clinics on December 18, 2020 and had completed at least three vaccine clinics at all of our communities by April 9, 2021. Through April 30, 2021, our resident vaccine acceptance rate was 93%, and adapt our policiesCOVID-19 positive resident caseload had decreased by 97% since the peak in mid-December 2020. We continue to promote vaccine acceptance among our residents and procedures when applicable. Our response efforts center on infection preventionassociates and control protocols. We have enhancedto work with state and reinforced traininglocal resources, including local health departments and pharmacies, to ensure our residents and associates in such protocols.can access the vaccine.
Seeking to prevent the introduction ofCommunity Restrictions. To help protect our residents, patients, and associates from contracting COVID-19, intowe imposed significant restrictions at our communities and to help control further exposure to infections within communities,beginning in March 2020, we began restricting visitors at allincluding closing our communities to essential healthcare personnelvisitors and certain compassionate care situations, screening associatesprospective residents, and permitted visitors,in some cases restricting new resident move-ins, suspending group outings, modifying communal dining and programming to comply with social distancing and other regulatory guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, we follow government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across our portfolio for the three months ended June 30, 2020. More recently, in response to federal, state, and local efforts to reopen the economies surrounding our communities, weWe have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the community having nopresence of current confirmed COVID-19 positive COVID-19 cases. Beginning in JulyWe may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities. As of December 31, 2020, we began offering residents at some89% of our communities outdoorwere accepting new move-ins. With lower caseloads, restrictions on visits with families, reduced capacity communal dining,have been relaxed, and limited communal activities programming. Dueas of April 30, 2021, 100% of our communities have opened for visitors and new prospects.
Occupancy and Demand. According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), seniors housing occupancy again decreased to a record low for the first quarter of 2021. In our consolidated seniors housing portfolio, our monthly net move-ins and move-outs turned positive in March 2021 for the first time since the pandemic began. Move-ins increased sequentially each month during the first quarter of 2021 and increased 29% for the first quarter of 2021 compared to the vulnerable naturefourth quarter of 2020. Our consolidated senior housing portfolio’s weighted average occupancy
decreased 310 basis points for the first quarter of 2021 from the fourth quarter of 2020. Weighted average occupancy for March 2021 increased slightly sequentially and for April 2021 increased 50 basis points sequentially, after having declined sequentially each month from March 2020 through February 2021. The table below sets forth our residents, we expect many ofconsolidated occupancy trend during the foregoing restrictions will continue at our communities for some time, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed.pandemic.
In April 2020, we proactively commenced a resident and associate testing program for our communities. We conducted the testing program in conjunction with state and local testing requirements at several of our communities. We undertook the program to identify positive, but asymptomatic, individuals, to better understand how our infection protocols are working, and to help minimize the exposure to residents and associates of someone known to be COVID positive. We have completed baseline testing at all of our communities. To date, the program has accumulated over 100,000 test results. Less than 1% of our residents as of July 31, 2020 are currently confirmed positive for COVID-19. Based on results of our program and other testing, around 3% of our residents who have lived with us anytime during 2020 have tested positive. Further testing, whether undertaken proactively or as a result of regulatory requirements, may result in significant additional expense, additional temporary restrictions on move-ins at affected | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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2020 | Q2
2020 | Q3
2020 | Q4
2020 | Q1
2021 | January
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2021 | March
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| Weighted average occupancy | 83.2 | % | 78.7 | % | 75.3 | % | 72.7 | % | 69.6 | % | 70.0 | % | 69.4 | % | 69.4 | % | 69.9 | % |
| Month-end occupancy | 82.2 | % | 77.8 | % | 75.0 | % | 71.5 | % | 70.6 | % | 70.4 | % | 70.1 | % | 70.6 | % | 71.1 | % |
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communities, continued need for isolating positive residents, increased use of personal protection equipment by our associates, and increased labor costs.
The pandemic and related infection prevention and control protocols within senior living communities have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities. We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time. In response to these developments, we have redesigned our sales process to include virtual tours, video engagement, and outdoor prospective resident meetings, enhanced and adapted our marketing programs to address the social distancing environment, and sought to strengthen our relationships with referral partners. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents. We are accepting new residents
Lost Revenue. Compared to most of our communities, which as of July 31,pre-pandemic expectations for fiscal 2020, includes 85% of our communities.
The pandemic and our response efforts began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. During the three months ended June 30, 2020, the year-over-year decrease in monthly move-ins of our same-community portfolio ranged from approximately 65% in April 2020 to approximately 35% in June 2020, and was approximately 40% for July 2020. Lower move-in activity was partially offset by lower than normal controllable move-out activity. As a result, our same community weighted average monthly occupancy declined from 83.0% in March 2020 to 77.8% in June 2020, and was 76.8% in July 2020. Wewe estimate that the pandemic, andincluding the related restrictions at our response effortscommunities, resulted in $43.1$117.5 million of lost resident fee revenue in our same-community portfolio for the three months ended June 30, 2020. Further deteriorationfirst quarter of our2021. Estimated lost resident fee revenue will result from lower move-in activity andfor the resident attrition inherentfirst quarter of 2021 includes $94.2 million in our business, which may increase dueconsolidated senior housing portfolio and $23.3 million for our Health Care Services segment. On a cumulative basis, we estimate that the pandemic has resulted in approximately $400 million of lost resident fee revenue compared to the impactsour pre-pandemic expectations for fiscal 2020.
Pandemic-Related Expenses. We incurred $27.3 million of COVID-19. Lower controllable move-out activityfacility operating expense during the pandemic may continue to partially offset future adverse revenue impacts. Our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in an 18.7% year-over-year decline in home health average daily censusfirst quarter of 2021 for the three months ended June 30, 2020. We expect home health average daily census to begin to recover during the six months ended December 31, 2020 with gradual improvements to elective medical procedures, hospital discharges, and senior housing occupancy.
Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, includingpandemic. Such costs forinclude those for: acquisition of additional personal protective equipment ("PPE"),PPE, medical equipment, and cleaning and disposable food service supplies,supplies; enhanced cleaning and environmental sanitationsanitation; increased employee-related costs, increasedincluding labor, expense, increased workers compensation, and health plan expense; increased expense increased insurance premiumsfor general liability claims; and retentions, consulting and professional services costs, and costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are not able to reasonably predictOn a cumulative basis, we have incurred $152.9 million of pandemic-related facility operating expense since the total amountbeginning of costs we will incur related to the pandemic, and such costs are likely to be substantial. As described further below, wefiscal 2020. We also recorded non-cash impairment charges in our operating results of $76.7$9.0 million for the three months ended March 31, 20202021, for our operating lease right-of-use assets, and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities for which assets were impaired.with impaired assets.
We have taken, and continue to take, actions to enhance and preserveLiquidity. As of March 31, 2021, our total liquidity in response to the pandemic. We drew $166.4was $438.9 million, on our revolving credit facility, in March 2020, and we suspended repurchases under our existing share repurchase program. During the three months ended June 30, 2020, we accepted $33.5consisting of $304.0 million of unrestricted cash for grants under the Public Health and Social Services Emergency Fund (the “Emergency Fund”)cash equivalents and $85.0$134.9 million of accelerated/advanced Medicare payments,marketable securities. Our cash flows from operations, excluding management agreement termination fees and we deferred $26.5 millionthe impact of the employer portion of social security payroll taxes. Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below. funding, have been insufficient to cover our operating expenses, capital expenditures, and required interest and lease payments during the pandemic. However, we were able to satisfy our liquidity needs over such period utilizing a portion of our preexisting liquidity, together with CARES Act funding. We also have delayed or canceled a number of elective capital expenditure projects resulting in an approximate $50 million reduction tocurrently estimate that our pre-pandemic full-year 2020 capital expenditure plans. On July 26, 2020, we entered into definitive agreementscash flows from operations, together with Ventas, Inc. ("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements as further described below. Pursuant to the multi-part transaction, among other things, we paid a $119.2 million one-time cash payment to Ventas, reduced our initial annual minimum rent under the amended and restated master lease to $100 million effective July 1, 2020, and removed the prior requirements that we satisfy financial covenants and that we maintain a security deposit with Ventas. The annual minimum rent under the amended and restated master lease reflects a reduction of approximately $86 million over the next twelve months.
As of June 30, 2020, our total liquidity was $600.2 million, consisting of $452.4 million of unrestricted cash andbalances on hand, cash equivalents, $109.9 million of marketable securities, and $37.9 millionproceeds from the pending sale of additional availability on80% of the equity in our revolving credit facility. As of June 30, 2020, $166.4 million of borrowings were outstanding onHealth Care Services segment will be sufficient to fund our liquidity needs for at least the revolving credit facility.next 12 months. We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expensesmaintaining expense discipline and elective capital expenditures,increasing occupancy, continuing to evaluate
our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.
During March 2020, we completed our financing plans in the regular course of business, including closing three non-recourse mortgage debt financing transactions totaling $208.5 million with the proceeds used to refinance the majority of our 2020 maturities and to partially fund our acquisitions of 26 communities completed during the three months ended March 31, 2020. As of June 30, 2020, our remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities.
Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we would be required to repay the difference to restore the outstanding balance to the new borrowing base. During 2019, the parties entered into an amendment to the credit facility agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds, with a minimum required consolidated fixed charge coverage ratio of 1.00. For the twelve months ended June 30, 2020, the consolidated fixed charge coverage ratio was 1.28.
Due primarily to the impacts of the COVID-19 pandemic, and based upon our current estimate of cash flows, we have determined that it is probable that we will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on our part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and a requirement to repay the $166.4 million of borrowings outstanding on the revolving credit facility.
As a result, we have continued efforts on our plan to refinance the assets currently securing the credit facility. We currently anticipate that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on the revolving credit facility and terminate the facility without payment of a premium or penalty. However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to us, in which case we would expect to take other mitigating actions prior to the maturity dates.
Based upon our current liquidity and estimated cash flows, we have estimated that we would be unable to repay a portion of the 2021 maturities and the borrowings outstanding on the revolving credit facility as they become due without refinancing these maturities or obtaining additional financing proceeds. We have continued efforts on our plan to refinance the assets currently securing the credit facility and to refinance the substantial majority of the remaining 2020 and 2021 maturities with non-recourse mortgage debt. We currently anticipate that it is probable that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on the revolving credit facility and terminate the facility without payment of a premium or penalty and to pay our contractual obligations as they come due over the next twelve months. However, there There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in which caseseeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we would expect to take other mitigating actions prior to the maturity dates.anticipate.
In response to the pandemic,Financial Relief. The CARES Act, signed into law on March 27, 2020, the President signed the CARES Act into law, which was amended and expanded by the Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020. The legislation provides2020, provide liquidity and financial relief to certain businesses, among other things. TheCertain impacts to us of certain provisions of the CARES Actsuch programs are summarizedprovided below.
•During the three months ended June 30, 2020,first quarter of 2021, we accepted $33.5$0.8 million of cash forfrom grants from the Public Health and Social Services Emergency Fund which was expanded("Provider Relief Fund") administered by the CARES Act to provideU.S. Department of Health and Human Services ("HHS"), under which grants or other funding mechanismshave been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. Approximately $28.8 million of theThe grants wererepresented incentive payments made available pursuant to the Emergency Fund’s general distribution, with grant amounts based primarily on our relative share of aggregate 2019 Medicare fee-for-service reimbursements and generallyNursing Home Infection Control Distribution, which related to home health, hospice, outpatient therapy, andour skilled nursing care provided through our Health Care Services and CCRCs segments. Approximately $4.7 million of the grants were made available pursuant to the Emergency Fund’s targeted allocation for certified skilled nursing facilities, with amounts determined using a per-facility and per-bed model. During July 2020, we applied for additional grants pursuant to the Emergency Fund’s Medicaid and CHIP allocation. The amount of such grants are expected to be based on 2% of a portion of our 2018 gross revenues from patient care, and we expect to receive up to approximately $50 million of grants from this allocation.
The grants received 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. During the three months ended June 30, 2020, we recognized $26.4 million of the grants as
other operating income based upon our estimates of our satisfaction of the conditions of the grants during such period. As of June 30, 2020, $7.1 million of unrecognized grants were included in refundable fees and deferred revenue within our condensed consolidated balance sheets and are expected to be recognized in other operating income during the six months ended December 31, 2020.
CCRCs. HHS continues to evaluate future allocations under the Provider Relief Fund and provide allocations of, andthe regulation and guidance regarding grants made under the EmergencyProvider Relief Fund. We intend to pursue additional funding that may become available pursuant to the Emergency Fund. However, thereavailable. There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, that additional restrictions on the permissible
uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify.
•During the three monthsyear ended June 30,December 31, 2020, we received $85.0$87.5 million under the Accelerated and Advance Payment Program administered by CMS, $75.2 million of which was temporarily expanded by the CARES Act.related to our Health Care Services segment and $12.3 million related to our CCRCs segment. Recoupment of accelerated/advanced payments are required towill begin 120 daysone year after theirpayments were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance through offsetsand at a rate of new50% of Medicare claims, and all accelerated/payments for the next six months. Any outstanding balance of advanced payments arewill be due 210 days following their issuance.such recoupment period. Pursuant to the Purchase Agreement providing for the sale of 80% of our equity in our Health Care Services segment (as described below), our net cash proceeds at closing will include a reduction for the then outstanding balance of such advanced payments related to our Health Care Services segment. We expect recoupment of approximately $6 million of advanced payments related to our CCRCs segment during 2021, beginning in the second quarter.
Under the CARES Act,•During fiscal 2020, we have elected to deferdeferred payment of $72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 tothrough December 31, 2020.2020 pursuant to the CARES Act. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. AsPursuant to the Purchase Agreement providing for the sale of June 30, 2020 we have80% of our equity in our Health Care Services segment, our net cash proceeds at closing will include a reduction for the $8.9 million of deferred $26.5 million under the program and intendpayroll tax payments related to defer an additionalour Health Care Services segment. We expect to pay approximately $40$32 million of the employer portion of payroll taxes estimated to be incurred for the six months endingdeferred payments in both December 31, 2020.2021 and 2022.
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• | The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefits our Health Care Services segment. This suspension had a favorable impact of $1.0 million on the segment’s resident fee revenue for the three months ended June 30, 2020, and we estimate that the suspension will have a $3.0 million favorable impact on the segment’s resident fee revenue for the six months ended December 31, 2020
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•We continue to evaluate our eligibilityare eligible to claim the employee retention tax credit under the CARES Act for certain of our associates.associates under the CARES Act. The refundable tax credit for 2020 is available to employers that fully or partially suspendsuspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. We estimate thatDuring the first quarter of 2021, we will be eligiblerecognized $9.0 million of employee retention credits on wages paid from March 12, 2020 to September 30, 2020 within other operating income. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our eligibility to claim tax credits of $10 million or more. However, theresuch credit. There can be no assurance that we will qualify for, or receive, tax credits in the amount or on the timing we expect.
In addition to the grants described above, during the three months ended March 31, 2021, we received and recognized $0.9 million of other operating income from grants from other government sources.
We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the development, availability, utilization, and availabilityefficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions (including dispositions)dispositions and the pending sale of 80% of the equity in our Health Care Services segment) or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19, including thoseCOVID-19; government action that may limit our collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
Transaction Activity and Impact of Dispositions on Results of Operations
During the period from January 1, 20192020 through June 30, 2020,March 31, 2021, we acquired 26terminated triple-net obligations on an aggregate of 32 communities (2,890 units), including through the acquisition of 27 formerly leased communities disposed of 15(2,453 units), we sold three owned communities (1,707(417 units), and we sold our ownership interest in our unconsolidated entry fee CCRC Ventureventure (the “CCRC Venture”"CCRC Venture") with Healthpeak Properties, Inc. (“Healthpeak”("Healthpeak"), and our triple-net lease obligations on 12 communities (789 units) were terminated.. On July 26, 2020, we entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements. In addition, we conveyed to Ventas five communities (471 units) and will manage the communities following the closing.
Summaries of the significant transactions impacting the periods presented, and the impacts of dispositions of owned and leased communities on our results of operations, are included below. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 25, 2021 for more details regarding the terms of suchsignificant transactions including transactionsthat occurred prior to 2021.
During the three months ended March 31, 2021, we entered into with Healthpeak during 2019.completed the sale of one owned community (42 units) for cash proceeds of $2.7 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $0.5 million.
During the next 12twelve months, we expect to sell 80% of our equity in our Health Care Services segment and to close on the dispositionsdisposition of two owned unencumbered communities (417(207 units) classified as held for sale as of June 30, 2020 and the termination of our lease obligation on two communities (148 units).March 31, 2021. We also anticipate terminations of certain of our management arrangements with third parties as we transition to new operators our management on certain former unconsolidated ventures in which we sold our interest and our interim management on formerly leased communities.
The closings of the various pending and expected transactions described herein are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
SummariesPending Sale of TransactionsHealth Care Services
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• | Healthpeak: On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of our interest in the CCRC Venture (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction include:
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• | CCRC Venture Transaction: Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units), for a purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). We recognized a $369.8 million gain on sale of assets for the six months ended June 30, 2020, and we derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator. We recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees generated approximately $579.0 million of taxable income in three months ended March 31, 2020. We will utilize any 2020 operating losses generated and tax loss carryforwards (including our capital loss carryforward that was generated in 2018) to offset the taxable gain on this transaction. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities expected to occur in 2021. Subsequent to these transactions, we will have exited substantially all of our entry fee CCRC operations.
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• | Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing master lease pursuant to which we continue to lease 25 communities (2,711 units) from Healthpeak, and we acquired 18 formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the amended and restated master lease. We funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak has agreed to terminate the lease for one leased community (159 units). With respect to the continuing 24 communities (2,552 units), our amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak has agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition
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transaction,On February 24, 2021, we recognizedentered into a $19.7Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc. ("HCA Healthcare"), providing for the sale of 80% of our equity in our Health Care Services segment for a purchase price of $400 million gain on debt extinguishmentin cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and derecognizeddeferred payroll tax payments related to the $105.1 million carrying amount of financing lease obligations for eight communitiesHealth Care Services segment, which were previously$75.2 million and $8.9 million, respectively, as of March 31, 2021. We expect our net cash proceeds at the closing will be approximately $300 million, subject to sale-leaseback transactions in which we were deemed to have continuing involvement. During the three months ended March 31, 2020, we obtained $30.0 milliontiming of additional non-recourse mortgage financing on the acquired communities.
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• | Acquisitions Pursuant to Purchase Options: On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc. pursuant to our exercise of a purchase option for a purchase price of $39.3 million. We funded the community acquisitions with cash on hand. During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily secured by the acquired communities.
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• | Dispositions of Owned Communities. During the six months ended June 30, 2020, we completed the sale of one owned community (78 units) for cash proceeds of $5.5 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $0.2 million for the six months ended June 30, 2020.
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• | Ventas Lease Portfolio Restructuring: On July 26, 2020 (the “Effective Date”), we entered into definitive agreements with Ventas in connection with the restructuring of our lease arrangements with Ventas, including a Master Transaction Letter Agreement (the “Master Agreement”). Pursuant to the Master Agreement:
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On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the “Master Lease”) and Amended and Restated Guaranty (the “Guaranty”), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual minimum rent of approximately $100 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to us. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by us. The Master Lease requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ending December 31, 2021. In addition, Ventas has agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.
Our subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the Guaranty, we may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600 million, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25 million to Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as we exercise our lease term extension optionclosing with respect to the Master Lease), Ventas shall haveadjustments set forth in the rightPurchase Agreement. The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser. The closing of the sale transaction is anticipated to terminateoccur in the Master Lease (with respectearly second half of 2021, subject to one or more communities), providedreceipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, we will retain a 20% equity interest in the business. Upon closing, we expect that the trailing twelve month coverage ratioresults and financial position of each such community is less than 0.9xour Health Care Services segment will be deconsolidated from our financial statements and provided furtherthat our interest in the joint venture will be accounted for under the equity method of accounting. We anticipate that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.
On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all orsale transaction will utilize a portion of our federal net operating loss carryforwards to offset the communities from the Master Lease to a management arrangement with us pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition community(ies) from the Master Lease to a management arrangement ifexpected taxable gain on such
transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition.
On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which we will manage the communities. We also paid to Ventas $115 million in cash, released all security deposits under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45 million unsecured interest-only promissory note to Ventas. The initial interest rate of the promissory note is 9.0% per annum and will increase by 0.50% on each anniversary of the date of issuance. We may prepay the outstanding principal amount in whole or in part at any time without premium or penalty. The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty).
On the Effective Date, we issued to Ventas a warrant (the “Warrant”) to purchase 16.3 million shares of our common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of capital stock (the “Ownership Cap”) (other than as a result of actions taken by Ventas), we would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights. Under the terms of the agreement, we are required to use reasonable best efforts to prepare and file a shelf registration statement with the SEC as promptly as practicable, but no later than the close of business on the fifth day following the date on which we file our Quarterly Report on Form 10-Q for the period ended June 30, 2020, with respect to the shares of common stock underlying the Warrant, and, if the registration statement is not automatically effective, to have the registration statement declared effective promptly thereafter. Ventas is entitled to customary underwritten offering, piggyback and additional demand registration rights with respect to the shares underlying the Warrant.
Summary of Financial Impact of Completed Dispositions
The following table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the 20 communities that we disposed through sales and lease terminations during the period from April 1, 2019 to June 30, 2020 through the respective disposition dates.
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| | Three Months Ended June 30, 2020 |
| (in thousands) | Actual Results | | Amounts Attributable to Completed Dispositions | | Actual Results Less Amounts Attributable to Completed Dispositions |
| Resident fees | | | | | |
| Independent Living | $ | 130,278 |
| | $ | — |
| | $ | 130,278 |
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| Assisted Living and Memory Care | 432,156 |
| | 103 |
| | 432,053 |
|
| CCRCs | 79,025 |
| | — |
| | 79,025 |
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| Senior housing resident fees | $ | 641,459 |
| | $ | 103 |
| | $ | 641,356 |
|
| Facility operating expense | | | | | |
| Independent Living | $ | 89,240 |
| | $ | — |
| | $ | 89,240 |
|
| Assisted Living and Memory Care | 344,600 |
| | 647 |
| | 343,953 |
|
| CCRCs | 74,721 |
| | — |
| | 74,721 |
|
| Senior housing facility operating expense | $ | 508,561 |
| | $ | 647 |
| | $ | 507,914 |
|
| Cash facility lease payments | $ | 87,169 |
| | $ | 366 |
| | $ | 86,803 |
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| | Three Months Ended June 30, 2019 |
| (in thousands) | Actual Results | | Amounts Attributable to Completed Dispositions | | Actual Results Less Amounts Attributable to Completed Dispositions |
| Resident fees | | | | | |
| Independent Living | $ | 135,951 |
| | $ | — |
| | $ | 135,951 |
|
| Assisted Living and Memory Care | 450,225 |
| | 5,809 |
| | 444,416 |
|
| CCRCs | 101,253 |
| | 9,476 |
| | 91,777 |
|
| Senior housing resident fees | $ | 687,429 |
| | $ | 15,285 |
| | $ | 672,144 |
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| Facility operating expense | | | | | |
| Independent Living | $ | 84,492 |
| | $ | — |
| | $ | 84,492 |
|
| Assisted Living and Memory Care | 317,081 |
| | 5,489 |
| | 311,592 |
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| CCRCs | 83,406 |
| | 9,508 |
| | 73,898 |
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| Senior housing facility operating expense | $ | 484,979 |
| | $ | 14,997 |
| | $ | 469,982 |
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| Cash facility lease payments | $ | 94,267 |
| | $ | 961 |
| | $ | 93,306 |
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The following table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the 27 communities that we disposed through sales and lease terminations during the period from January 1, 2019 to June 30, 2020 through the respective disposition dates.
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| | Six Months Ended June 30, 2020 |
| (in thousands) | Actual Results | | Amounts Attributable to Completed Dispositions | | Actual Results Less Amounts Attributable to Completed Dispositions |
| Resident fees | | | | | |
| Independent Living | $ | 266,140 |
| | $ | — |
| | $ | 266,140 |
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| Assisted Living and Memory Care | 889,635 |
| | 1,455 |
| | 888,180 |
|
| CCRCs | 173,572 |
| | — |
| | 173,572 |
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| Senior housing resident fees | $ | 1,329,347 |
| | $ | 1,455 |
| | $ | 1,327,892 |
|
| Facility operating expense | | | | | |
| Independent Living | $ | 173,688 |
| | $ | — |
| | $ | 173,688 |
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| Assisted Living and Memory Care | 670,078 |
| | 2,476 |
| | 667,602 |
|
| CCRCs | 149,337 |
| | — |
| | 149,337 |
|
| Senior housing facility operating expense | $ | 993,103 |
| | $ | 2,476 |
| | $ | 990,627 |
|
| Cash facility lease payments | $ | 176,752 |
| | $ | 964 |
| | $ | 175,788 |
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| | | | | | | | | | | |
| | Six Months Ended June 30, 2019 |
| (in thousands) | Actual Results | | Amounts Attributable to Completed Dispositions | | Actual Results Less Amounts Attributable to Completed Dispositions |
| Resident fees | | | | | |
| Independent Living | $ | 271,645 |
| | $ | — |
| | $ | 271,645 |
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| Assisted Living and Memory Care | 908,751 |
| | 19,501 |
| | 889,250 |
|
| CCRCs | 204,980 |
| | 19,354 |
| | 185,626 |
|
| Senior housing resident fees | $ | 1,385,376 |
| | $ | 38,855 |
| | $ | 1,346,521 |
|
| Facility operating expense | | | | | |
| Independent Living | $ | 167,310 |
| | $ | — |
| | $ | 167,310 |
|
| Assisted Living and Memory Care | 634,908 |
| | 17,668 |
| | 617,240 |
|
| CCRCs | 165,496 |
| | 19,010 |
| | 146,486 |
|
| Senior housing facility operating expense | $ | 967,714 |
| | $ | 36,678 |
| | $ | 931,036 |
|
| Cash facility lease payments | $ | 255,483 |
| | $ | 2,388 |
| | $ | 253,095 |
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The following table sets forth the number of communities and units in our senior housing segments disposed through sales and lease terminations during the six months ended June 30, 2020 and twelve months ended December 31, 2019:
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| | Six Months Ended
June 30, 2020 | | Twelve Months Ended December 31, 2019 |
| Number of communities | | | |
| Assisted Living and Memory Care | 3 |
| | 20 |
|
| CCRCs | — |
| | 4 |
|
| Total | 3 |
| | 24 |
|
| Total units | | | |
| Assisted Living and Memory Care | 208 |
| | 1,600 |
|
| CCRCs | — |
| | 827 |
|
| Total | 208 |
| | 2,427 |
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Other Recent Developments
Goodwill Impairment Estimates
As
Results of June 30, 2020, we had a goodwill balance of $154.1 million. Goodwill recorded in connection with business combinations is allocated to the respective reporting unit and included in our application of the provisions of ASC 350, Intangibles - Goodwill and Other.Operations
Goodwill allocated to our Independent Living and Health Care Services reporting units is $27.3 million and $126.8 million as of June 30, 2020, respectively. Our interim goodwill impairment analyses did not result in any impairment charges during the six months ended June 30, 2020. Based on the results of our interim quantitative goodwill impairment test as of March 31, 2020, we estimated that the fair values of both our Independent Living and Health Care Services reporting units exceeded their carrying amount by approximately 20%. Additionally, we estimated that there were no significant changes to the fair values of both our Independent Living and Health Care Services reporting units during the three months ended June 30, 2020.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that additional goodwill is impaired.
Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there has been a decline in the fair value of our reporting units, including estimating future cash flows, and if necessary, the fair value of our assets and liabilities. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the fair value of our reporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.
As of March 31, 2020 and June 30, 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 impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as described above. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.
Capital Expenditures
In response to the COVID-19 pandemic, we have delayed or canceled a number of elective capital expenditure projects. As a result, we expect our full-year 2020 non-development capital expenditures, net of anticipated lessor reimbursements, and development capital expenditures to be approximately $150 million and $20 million, which reflects a $40 million and $10 million reduction to our pre-pandemic plans for 2020, respectively. We anticipate that our 2020 capital expenditures will be funded from cash on hand, cash flows from operations, and reimbursements from lessors.
Results of Operations
As of June 30, 20202021, our total operations included 737695 communities with a capacity to serve approximately 65,00060,000 residents. As of that date we owned 355349 communities (32,481(31,819 units), leased 305301 communities (21,538(21,127 units), and managed 7745 communities (10,694(6,652 units). The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period of January 1, 20192020 to June 30, 2020March 31, 2021 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity and Impact of Dispositions on Results of Operations."operations.
We use the operating measures described below in connection with operating and managing our business and reporting our results of operations. Our adoption
•Senior housing operating results and applicationdata presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the
beginning of the new lease accounting standard impacted ourprior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the year ended December 31, 2019 duecomparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to our recognition of additionalrespond to the COVID-19 pandemic.
•RevPAR, or average monthly senior housing resident fee revenue and facility operating expense, which are non-cash and are non-recurring in years subsequentper available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to December 31, 2019. To aid in comparability between periods, presentationsseniors living outside of our results on a same community basis,communities, and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and RevPOR, excludeMemory Care, and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.
•RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the lease accounting standard.
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• | Operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude hurricane and natural disaster expense and related insurance recoveries, and for the 2019 periods, exclude the additional resident fee revenue and facility operating expense recognized as a result of the application of the lease accounting standard ASC 842. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, certain communities that have expansion, redevelopment, and repositioning projects that are anticipated to be under construction in the current year, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed, in-process, or planned development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to prepare for and respond to the COVID-19 pandemic. These costs had been excluded from same community results presented in our quarterly report on Form 10-Q for the three months ended March 31, 2020.
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• | RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.
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• | RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842)corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses
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RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.
•Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver toof our senior housing resident fee revenue.revenue performance.
This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures.
Comparison of Three Months Ended June 30,March 31, 2021 and 2020 and 2019
Summary Operating Results
The following table summarizes our overall operating results for the three months ended June 30, 2020March 31, 2021 and 2019.2020.
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| Three Months Ended
March 31, | | Increase (Decrease) |
| (in thousands) | 2021 | | 2020 | | Amount | | Percent |
| Total resident fees and management fees revenue | $ | 672,916 | | | $ | 891,422 | | | $ | (218,506) | | | (24.5) | % |
| Other operating income | 10,735 | | | — | | | 10,735 | | | NM |
| Facility operating expense | 556,312 | | | 588,482 | | | (32,170) | | | (5.5) | % |
| Net income (loss) | (108,303) | | | 369,497 | | | (477,800) | | | NM |
| Adjusted EBITDA | 34,981 | | | 185,069 | | | (150,088) | | | (81.1) | % |
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| | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Increase (Decrease) |
| (in thousands) | 2020 | | 2019 | | Amount | | Percent |
| Total revenue and other operating income | $ | 865,909 |
| | $ | 1,019,457 |
| | $ | (153,548 | ) | | (15.1 | )% |
| Facility operating expense | 606,034 |
| | 590,246 |
| | 15,788 |
| | 2.7 | % |
| Net income (loss) | (118,420 | ) | | (56,055 | ) | | 62,365 |
| | 111.3 | % |
| Adjusted EBITDA | 44,733 |
| | 104,036 |
| | (59,303 | ) | | (57.0 | )% |
The decrease in total revenueresident fees and other operating incomemanagement fees revenue was primarily attributable to a $110.0$118.4 million decrease in management services revenue, including managementresident fees, and reimbursed costs incurred on behalf of managed communities, primarily due to terminations of management agreements subsequent to the beginning of the prior year period. Resident fees decreased $70.2 million, including a 3.5%14.3% decrease in same community RevPAR, comprised of a 4801,390 basis pointspoint decrease in same
community weighted average occupancy and a 2.3%2.9% increase in same community RevPOR. We estimate that the COVID-19 pandemic and our response efforts resulted in $43.1 million of lost resident fee revenue on a same community basis for the three months ended June 30, 2020. Estimated lost resident fee revenue represents the difference between the actual revenue for the period and our expectations prior to estimating the effects of COVID-19. Revenue for home health services decreased $24.3$9.6 million, as our home health average daily census begandecreased 16.9% compared to decrease in March 2020the prior year period primarily due to the COVID-19 pandemic and lower occupancy in our communities. Additionally, the implementationdisposition of 13 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $15.3 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period. Management fee revenue decreased $100.1 million primarily due to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture.
During the three months ended March 31, 2021, we recognized $9.0 million of employee retention credits and $1.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the credits and grants during the period.
The decrease in facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, the disposition of 20 communities through sales of owned communities and lease terminations since the beginning of the prior year period resulted in $15.2$13.6 million less in resident feesfacility operating expense during the three months ended June 30, 2020March 31, 2021 compared to the prior year period. Our total revenueSame community facility operating expense decreased 1.0%, which was primarily due to decreases in food and othersupplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs. Facility operating incomeexpense for the three months ended June 30,March 31, 2021 and 2020 includes $26.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period.
The increase in facility operating expense was primarily attributable to an 11.3% increase in same community facility operating expense, which was primarily due to $52.9 million of incremental costs incurred during the three months ended June 30, 2020 to address the COVID-19 pandemic. Additionally, there was an increase in labor expense on a same community basis arising from wage rate increases. The increase in same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins and advertising costs during the period as we intentionally scaled back such activities. The increase in facility operating expense was partially offset by a decrease in labor costs for home health services as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of $5.3$27.3 million and $11.8 million, respectively, during the three months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense excludes $4.9 million and $10.9$10.0 million, respectively, of such additional revenue and expenses.incremental direct costs to respond to the COVID-19 pandemic.
The increasechange in net lossincome (loss) was primarily attributable to a $100.6$371.7 million decrease in reimbursed costs incurrednet gain on behalfsale of managed communities,assets, primarily resulting from the sale of our interest in the CCRC Venture, as well as the revenue and facility operating expense factors previously discussed.
The decrease in Adjusted EBITDA was primarily attributable tonet impact of the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a decrease in asset impairment expense compared to the prior year period.
The decrease in Adjusted EBITDA was primarily attributable to the net impact of the revenue (including the $100.0 million management agreement termination fee payment received from Healthpeak), other operating income, and facility operating expense factors previously discussed, partially offset by decreases in cash facility operating lease payments and general and administrative expense.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended June 30,March 31, 2021 and 2020, and 2019, including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.
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| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Resident fees | $ | 577,499 | | | $ | 687,888 | | | $ | (110,389) | | | (16.0) | % |
| Other operating income | $ | 8,152 | | | $ | — | | | $ | 8,152 | | | NM |
| Facility operating expense | $ | 469,281 | | | $ | 484,542 | | | $ | (15,261) | | | (3.1) | % |
| | | | | | | |
| Number of communities (period end) | 650 | | | 661 | | | (11) | | | (1.7) | % |
| Number of units (period end) | 52,946 | | | 54,037 | | | (1,091) | | | (2.0) | % |
| Total average units | 52,971 | | | 54,184 | | | (1,213) | | | (2.2) | % |
| RevPAR | $ | 3,631 | | | $ | 4,229 | | | $ | (598) | | | (14.1) | % |
| Occupancy rate (weighted average) | 69.6 | % | | 83.2 | % | | (1,360) | bps | | n/a |
| | | | | | | |
| RevPOR | $ | 5,219 | | | $ | 5,085 | | | $ | 134 | | | 2.6 | % |
| | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 551,467 | | | $ | 643,232 | | | $ | (91,765) | | | (14.3) | % |
| Other operating income | $ | 7,554 | | | $ | — | | | $ | 7,554 | | | NM |
| Facility operating expense | $ | 446,339 | | | $ | 450,680 | | | $ | (4,341) | | | (1.0) | % |
| | | | | | | |
| Number of communities | 637 | | | 637 | | | — | | | — | |
| Total average units | 50,455 | | | 50,458 | | | (3) | | | — | |
| RevPAR | $ | 3,643 | | | $ | 4,249 | | | $ | (606) | | | (14.3) | % |
| Occupancy rate (weighted average) | 69.5 | % | | 83.4 | % | | (1,390) | bps | | n/a |
| RevPOR | $ | 5,244 | | | $ | 5,097 | | | $ | 147 | | | 2.9 | % |
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 641,459 |
| | $ | 687,429 |
| | $ | (45,970 | ) | | (6.7 | )% |
| Other operating income | $ | 9,698 |
| | $ | — |
| | $ | 9,698 |
| | NM |
|
| Facility operating expense | $ | 508,561 |
| | $ | 484,979 |
| | $ | 23,582 |
| | 4.9 | % |
| | | | | | | | |
| Number of communities (period end) | 660 |
| | 671 |
| | (11 | ) | | (1.6 | )% |
| Number of units (period end) | 54,019 |
| | 55,209 |
| | (1,190 | ) | | (2.2 | )% |
| Total average units | 54,040 |
| | 55,465 |
| | (1,425 | ) | | (2.6 | )% |
| RevPAR | $ | 3,954 |
| | $ | 4,097 |
| | $ | (143 | ) | | (3.5 | )% |
| Occupancy rate (weighted average) | 78.7 | % | | 83.5 | % | | (480 | ) bps | | n/a |
|
| RevPOR | $ | 5,022 |
| | $ | 4,909 |
| | $ | 113 |
| | 2.3 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 597,511 |
| | $ | 619,285 |
| | $ | (21,774 | ) | | (3.5 | )% |
| Other operating income | $ | 6,445 |
| | $ | — |
| | $ | 6,445 |
| | NM |
|
| Facility operating expense | $ | 467,970 |
| | $ | 420,643 |
| | $ | 47,327 |
| | 11.3 | % |
| | | | | | | | |
| Number of communities | 638 |
| | 638 |
| | — |
| | — |
|
| Total average units | 50,107 |
| | 50,101 |
| | 6 |
| | — |
|
| RevPAR | $ | 3,975 |
| | $ | 4,120 |
| | $ | (145 | ) | | (3.5 | )% |
| Occupancy rate (weighted average) | 79.2 | % | | 84.0 | % | | (480 | ) bps | | n/a |
|
| RevPOR | $ | 5,020 |
| | $ | 4,905 |
| | $ | 115 |
| | 2.3 | % |
Independent Living Segment
The following table summarizes the operating results and data for our Independent Living segment for the three months ended June 30,March 31, 2021 and 2020, and 2019, including operating results and data on a same community basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Resident fees | $ | 118,782 | | | $ | 135,862 | | | $ | (17,080) | | | (12.6) | % |
| | | | | | | |
| Other operating income | $ | 1,364 | | | $ | — | | | $ | 1,364 | | | NM |
| Facility operating expense | $ | 82,817 | | | $ | 84,448 | | | $ | (1,631) | | | (1.9) | % |
| | | | | | | |
| Number of communities (period end) | 68 | | | 68 | | | — | | | — | |
| Number of units (period end) | 12,542 | | | 12,537 | | | 5 | | | — | |
| Total average units | 12,539 | | | 12,529 | | | 10 | | | 0.1 | % |
| RevPAR | $ | 3,158 | | | $ | 3,615 | | | $ | (457) | | | (12.6) | % |
| Occupancy rate (weighted average) | 73.6 | % | | 87.1 | % | | (1,350) | bps | | n/a |
| | | | | | | |
| RevPOR | $ | 4,290 | | | $ | 4,151 | | | $ | 139 | | | 3.3 | % |
| | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 115,625 | | | $ | 132,556 | | | $ | (16,931) | | | (12.8) | % |
| Other operating income | $ | 1,327 | | | $ | — | | | $ | 1,327 | | | NM |
| Facility operating expense | $ | 80,367 | | | $ | 82,172 | | | $ | (1,805) | | | (2.2) | % |
| | | | | | | |
| Number of communities | 66 | | | 66 | | | — | | | — | |
| Total average units | 12,161 | | | 12,159 | | | 2 | | | — | |
| RevPAR | $ | 3,169 | | | $ | 3,634 | | | $ | (465) | | | (12.8) | % |
| Occupancy rate (weighted average) | 73.6 | % | | 87.1 | % | | (1,350) | bps | | n/a |
| RevPOR | $ | 4,307 | | | $ | 4,174 | | | $ | 133 | | | 3.2 | % |
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 130,278 |
| | $ | 135,951 |
| | $ | (5,673 | ) | | (4.2 | )% |
| Facility operating expense | $ | 89,240 |
| | $ | 84,492 |
| | $ | 4,748 |
| | 5.6 | % |
| | | | | | | | |
| Number of communities (period end) | 68 |
| | 68 |
| | — |
| | — | % |
| Number of units (period end) | 12,534 |
| | 12,460 |
| | 74 |
| | 0.6 | % |
| Total average units | 12,534 |
| | 12,440 |
| | 94 |
| | 0.8 | % |
| RevPAR | $ | 3,465 |
| | $ | 3,592 |
| | $ | (127 | ) | | (3.5 | )% |
| Occupancy rate (weighted average) | 83.5 | % | | 89.1 | % | | (560 | ) bps | | n/a |
|
| RevPOR | $ | 4,147 |
| | $ | 4,033 |
| | $ | 114 |
| | 2.8 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 122,716 |
| | $ | 126,563 |
| | $ | (3,847 | ) | | (3.0 | )% |
| Facility operating expense | $ | 83,492 |
| | $ | 76,796 |
| | $ | 6,696 |
| | 8.7 | % |
| | | | | | | | |
| Number of communities | 64 |
| | 64 |
| | — |
| | — |
|
| Total average units | 11,703 |
| | 11,690 |
| | 13 |
| | 0.1 | % |
| RevPAR | $ | 3,495 |
| | $ | 3,609 |
| | $ | (114 | ) | | (3.2 | )% |
| Occupancy rate (weighted average) | 83.8 | % | | 88.8 | % | | (500 | ) bps | | n/a |
|
| RevPOR | $ | 4,169 |
| | $ | 4,063 |
| | $ | 106 |
| | 2.6 | % |
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 5001,350 basis pointspoint decrease in same community weighted average occupancy and a 2.6%3.2% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, andincluding the related restrictions at our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $6.4 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020.communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.
The increasedecrease in the segment's facility operating expense was primarily attributable to an increasea decrease in the segment's same community facility operating expense, as a result of $8.8including decreases in food and supplies costs due to reduced occupancy during the period. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $3.0 million and $1.2 million, respectively, of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in repairs and maintenance costs due to fewer move-ins and advertising costs during the period as we intentionally scaled back such activities.pandemic.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of $1.9 million and $3.1 million, respectively, during the three months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes $1.8 million and $2.9 million, respectively, of such additional revenue and expenses.
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended June 30,March 31, 2021 and 2020, and 2019, including operating results and data on a same community basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Resident fees | $ | 386,938 | | | $ | 457,479 | | | $ | (70,541) | | | (15.4) | % |
| Other operating income | $ | 5,104 | | | $ | — | | | $ | 5,104 | | | NM |
| Facility operating expense | $ | 320,609 | | | $ | 325,478 | | | $ | (4,869) | | | (1.5) | % |
| | | | | | | |
| Number of communities (period end) | 562 | | | 571 | | | (9) | | | (1.6) | % |
| Number of units (period end) | 35,082 | | | 35,789 | | | (707) | | | (2.0) | % |
| Total average units | 35,110 | | | 35,944 | | | (834) | | | (2.3) | % |
| RevPAR | $ | 3,673 | | | $ | 4,242 | | | $ | (569) | | | (13.4) | % |
| Occupancy rate (weighted average) | 68.3 | % | | 81.9 | % | | (1,360) | bps | | n/a |
| | | | | | | |
| RevPOR | $ | 5,376 | | | $ | 5,178 | | | $ | 198 | | | 3.8 | % |
| | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 381,448 | | | $ | 444,269 | | | $ | (62,821) | | | (14.1) | % |
| Other operating income | $ | 4,967 | | | $ | — | | | $ | 4,967 | | | NM |
| Facility operating expense | $ | 315,009 | | | $ | 316,338 | | | $ | (1,329) | | | (0.4) | % |
| | | | | | | |
| Number of communities | 556 | | | 556 | | | — | | | — | |
| Total average units | 34,508 | | | 34,513 | | | (5) | | | — | |
| RevPAR | $ | 3,685 | | | $ | 4,291 | | | $ | (606) | | | (14.1) | % |
| Occupancy rate (weighted average) | 68.3 | % | | 82.2 | % | | (1,390) | bps | | n/a |
| RevPOR | $ | 5,396 | | | $ | 5,221 | | | $ | 175 | | | 3.4 | % |
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 432,156 |
| | $ | 450,225 |
| | $ | (18,069 | ) | | (4.0 | )% |
| Other operating income | $ | 152 |
| | $ | — |
| | $ | 152 |
| | NM |
|
| Facility operating expense | $ | 344,600 |
| | $ | 317,081 |
| | $ | 27,519 |
| | 8.7 | % |
| | | | | | | | |
| Number of communities (period end) | 570 |
| | 577 |
| | (7 | ) | | (1.2 | )% |
| Number of units (period end) | 35,744 |
| | 36,175 |
| | (431 | ) | | (1.2 | )% |
| Total average units | 35,785 |
| | 36,451 |
| | (666 | ) | | (1.8 | )% |
| RevPAR | $ | 4,025 |
| | $ | 4,092 |
| | $ | (67 | ) | | (1.6 | )% |
| Occupancy rate (weighted average) | 77.8 | % | | 82.1 | % | | (430 | ) bps | | n/a |
|
| RevPOR | $ | 5,172 |
| | $ | 4,987 |
| | $ | 185 |
| | 3.7 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 424,021 |
| | $ | 433,211 |
| | $ | (9,190 | ) | | (2.1 | )% |
| Other operating income | $ | 151 |
| | $ | — |
| | $ | 151 |
| | NM |
|
| Facility operating expense | $ | 336,342 |
| | $ | 297,421 |
| | $ | 38,921 |
| | 13.1 | % |
| | | | | | | | |
| Number of communities | 560 |
| | 560 |
| | — |
| | — |
|
| Total average units | 34,792 |
| | 34,799 |
| | (7 | ) | | — |
|
| RevPAR | $ | 4,062 |
| | $ | 4,150 |
| | $ | (88 | ) | | (2.1 | )% |
| Occupancy rate (weighted average) | 78.2 | % | | 82.6 | % | | (440 | ) bps | | n/a |
|
| RevPOR | $ | 5,191 |
| | $ | 5,024 |
| | $ | 167 |
| | 3.3 | % |
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 4401,390 basis pointspoint decrease in same community weighted average occupancy and a 3.3%3.4% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, andincluding the related restrictions at our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $26.0 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020.communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 1611 communities (869 units) since the beginning of the prior year period resulted in $5.7$7.3 million less in resident fees during the three months ended June 30, 2020March 31, 2021 compared to the prior year period.
The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $38.0 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from wage rate increases. The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins and advertising costs during the period as we intentionally scaled back such activities. Additionally, the disposition of communities since the beginning of the prior year period resulted in $4.8 million less in facility operating expense during the three months ended June 30, 2020 compared to the prior year period.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of $2.7 million and $7.4 million, respectively, during the three months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes $2.6 million and $7.1 million, respectively, of such additional revenue and expenses.
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the three months ended June 30, 2020 and 2019, including operating results and data on a same community basis.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 79,025 |
| | $ | 101,253 |
| | $ | (22,228 | ) | | (22.0 | )% |
| Other operating income | $ | 9,546 |
| | $ | — |
| | $ | 9,546 |
| | NM |
|
| Facility operating expense | $ | 74,721 |
| | $ | 83,406 |
| | $ | (8,685 | ) | | (10.4 | )% |
| | | | | | | | |
| Number of communities (period end) | 22 |
| | 26 |
| | (4 | ) | | (15.4 | )% |
| Number of units (period end) | 5,741 |
| | 6,574 |
| | (833 | ) | | (12.7 | )% |
| Total average units | 5,721 |
| | 6,574 |
| | (853 | ) | | (13.0 | )% |
| RevPAR | $ | 4,572 |
| | $ | 5,081 |
| | $ | (509 | ) | | (10.0 | )% |
| Occupancy rate (weighted average) | 74.0 | % | | 80.6 | % | | (660 | ) bps | | n/a |
|
| RevPOR | $ | 6,181 |
| | $ | 6,305 |
| | $ | (124 | ) | | (2.0 | )% |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 50,774 |
| | $ | 59,511 |
| | $ | (8,737 | ) | | (14.7 | )% |
| Other operating income | $ | 6,294 |
| | $ | — |
| | $ | 6,294 |
| | NM |
|
| Facility operating expense | $ | 48,136 |
| | $ | 46,426 |
| | $ | 1,710 |
| | 3.7 | % |
| | | | | | | | |
| Number of communities | 14 |
| | 14 |
| | — |
| | — |
|
| Total average units | 3,612 |
| | 3,612 |
| | — |
| | — |
|
| RevPAR | $ | 4,686 |
| | $ | 5,492 |
| | $ | (806 | ) | | (14.7 | )% |
| Occupancy rate (weighted average) | 72.9 | % | | 82.0 | % | | (910 | ) bps | | n/a |
|
| RevPOR | $ | 6,430 |
| | $ | 6,701 |
| | $ | (271 | ) | | (4.0 | )% |
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 910 basis points decrease in same community weighted average occupancy and a 4.0% decrease in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $10.7 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020. The decrease in the segment's same community RevPOR was primarily the result of a mix shift away from skilled nursing within the segment, partially offset by in-place rent increases. Additionally, the disposition of four communities since the beginning of the prior year period resulted in $9.5 million less in resident fees during the three months ended June 30, 2020 compared to the prior year period.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period which resulted in $9.5$7.0 million less in facility operating expense during the three months ended June 30, 2020March 31, 2021 compared to the prior year period. The decrease in the segment's same community facility operating expense was primarily attributable to decreases in food and supplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $18.9 million and $7.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Resident fees | $ | 71,779 | | | $ | 94,547 | | | $ | (22,768) | | | (24.1) | % |
| Other operating income | $ | 1,684 | | | $ | — | | | $ | 1,684 | | | NM |
| Facility operating expense | $ | 65,855 | | | $ | 74,616 | | | $ | (8,761) | | | (11.7) | % |
| | | | | | | |
| Number of communities (period end) | 20 | | | 22 | | | (2) | | | (9.1) | % |
| Number of units (period end) | 5,322 | | | 5,711 | | | (389) | | | (6.8) | % |
| Total average units | 5,322 | | | 5,711 | | | (389) | | | (6.8) | % |
| RevPAR | $ | 4,473 | | | $ | 5,496 | | | $ | (1,023) | | | (18.6) | % |
| Occupancy rate (weighted average) | 68.5 | % | | 82.4 | % | | (1,390) | bps | | n/a |
| | | | | | | |
| RevPOR | $ | 6,534 | | | $ | 6,669 | | | $ | (135) | | | (2.0) | % |
| | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 54,394 | | | $ | 66,407 | | | $ | (12,013) | | | (18.1) | % |
| Other operating income | $ | 1,260 | | | $ | — | | | $ | 1,260 | | | NM |
| Facility operating expense | $ | 50,963 | | | $ | 52,170 | | | $ | (1,207) | | | (2.3) | % |
| | | | | | | |
| Number of communities | 15 | | | 15 | | | — | | | — | |
| Total average units | 3,786 | | | 3,786 | | | — | | | — | |
| RevPAR | $ | 4,789 | | | $ | 5,847 | | | $ | (1,058) | | | (18.1) | % |
| Occupancy rate (weighted average) | 67.1 | % | | 82.4 | % | | (1,530) | bps | | n/a |
| RevPOR | $ | 7,133 | | | $ | 7,093 | | | $ | 40 | | | 0.6 | % |
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,530 basis point decrease in same community weighted average occupancy and a 0.6% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases, partially offset by a mix shift from less skilled nursing services within the segment. Additionally, the disposition of two communities (456 units) since the beginning of the prior year period resulted in $8.0 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $6.6 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period and a decrease in the segment's same community facility operating expense. The decrease in the segment's same community facility operating expense as a result of $6.1 million of incremental directwas primarily attributable to decreases in healthcare supplies and food costs to prepare for and responddue to the COVID-19 pandemic, partially offset byreduced occupancy during the period and decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy.
In addition to the foregoing factors, we recognized additional resident fee revenue and additionalworked. The segment's facility operating expense for this segment of $0.7 million and $1.3 million, respectively, during the three months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenueMarch 31, 2021 and facility operating expense for this segment excludes $0.52020 includes $4.0 million and $0.9$0.7 million, respectively, of such additional revenue and expenses.incremental direct costs to respond to the COVID-19 pandemic.
Operating Results - Health Care Services Segment
The following table summarizes the operating results and data for our Health Care Services segment for the three months ended June 30, 2020March 31, 2021 and 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except census) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Resident fees | $ | 86,851 | | | $ | 94,819 | | | $ | (7,968) | | | (8.4) | % |
| Other operating income | $ | 2,583 | | | $ | — | | | $ | 2,583 | | | NM |
| Facility operating expense | $ | 87,031 | | | $ | 103,940 | | | $ | (16,909) | | | (16.3) | % |
| | | | | | | |
| Home health average daily census | 11,647 | | | 14,020 | | | (2,373) | | | (16.9) | % |
| Hospice average daily census | 1,509 | | | 1,698 | | | (189) | | | (11.1) | % |
|
| | | | | | | | | | | | | | |
| (in thousands, except census and treatment codes) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 90,170 |
| | $ | 114,434 |
| | $ | (24,264 | ) | | (21.2 | )% |
| Other operating income | $ | 16,995 |
| | $ | — |
| | $ | 16,995 |
| | NM |
|
| Facility operating expense | $ | 97,473 |
| | $ | 105,267 |
| | $ | (7,794 | ) | | (7.4 | )% |
| | | | | | | | |
| Home health average daily census | 12,980 |
| | 15,966 |
| | (2,986 | ) | | (18.7 | )% |
| Hospice average daily census | 1,646 |
| | 1,540 |
| | 106 |
| | 6.9 | % |
The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, as our home health average daily census begandecreased compared to decrease in March 2020the prior year period primarily due to the COVID-19 pandemic as referrals declined significantly due to suspension of elective medical procedures and hospital discharges increased due to stay-at-home orders and recommendations. Additionally, the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020, resultedlower occupancy in a decrease in revenue for home health services. The decrease in resident fees was partially offset by an increase in volume and related revenues for hospice services. We estimate that the COVID-19 pandemic and our response efforts resulted in $14.8 million of lost resident fee revenue for the three months ended June 30, 2020.communities.
The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new payment model. The decrease in the segment's facility operating expense was partially offset by $3.1a $1.0 million increase in incremental direct costs to respond to the COVID-19 pandemic. The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $1.4 million and $0.4 million, respectively, of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansionpandemic.
As described above, we expect to sell 80% of our hospice services throughout 2019.equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the early second half of 2021. Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements.
Operating Results - Management Services Segment
The following table summarizes the operating results and data for our Management Services segment for the three months ended June 30, 2020March 31, 2021 and 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except communities and units) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| Management fees | $ | 8,566 | | | $ | 108,715 | | | $ | (100,149) | | | (92.1) | % |
| Reimbursed costs incurred on behalf of managed communities | $ | 65,794 | | | $ | 122,717 | | | $ | (56,923) | | | (46.4) | % |
| Costs incurred on behalf of managed communities | $ | 65,794 | | | $ | 122,717 | | | $ | (56,923) | | | (46.4) | % |
| | | | | | | |
| Number of communities (period end) | 45 | | | 80 | | | (35) | | | (43.8) | % |
| Number of units (period end) | 6,652 | | | 11,033 | | | (4,381) | | | (39.7) | % |
| Total average units | 8,258 | | | 13,325 | | | (5,067) | | | (38.0) | % |
| | | | | | | |
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, and occupancy) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Management fees | $ | 6,076 |
| | $ | 15,449 |
| | $ | (9,373 | ) | | (60.7 | )% |
| Reimbursed costs incurred on behalf of managed communities | $ | 101,511 |
| | $ | 202,145 |
| | $ | (100,634 | ) | | (49.8 | )% |
| | | | | | | | |
| Number of communities (period end) | 77 |
| | 138 |
| | (61 | ) | | (44.2 | )% |
| Number of units (period end) | 10,694 |
| | 21,451 |
| | (10,757 | ) | | (50.1 | )% |
| Total average units | 10,905 |
| | 22,464 |
| | (11,559 | ) | | (51.5 | )% |
The decrease in management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture. As of March 31, 2021, we have completed the transition of management arrangements on 8755 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities. Management fees of $6.1$8.6 million for the three months ended June 30, 2020March 31, 2021 include $1.8$4.6 million of management agreement termination fees and $2.0 million of other management fees
attributable to communities for which our management agreements were terminated during such period, or we expect the terminations of our management agreements to occur in the next approximately 12 months, including management arrangements on certain former unconsolidated ventures in which we sold our interest, management agreements on communities owned by unconsolidated ventures, and interim management arrangements on formerly leased communities.months.
The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating results for the three months ended June 30, 2020March 31, 2021 and 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended
March 31, | | Increase (Decrease) |
| 2021 | | 2020 | | Amount | | Percent |
| General and administrative expense | $ | 49,943 | | | $ | 54,595 | | | $ | (4,652) | | | (8.5) | % |
| Facility operating lease expense | 44,418 | | | 64,481 | | | (20,063) | | | (31.1) | % |
| Depreciation and amortization | 83,891 | | | 90,738 | | | (6,847) | | | (7.5) | % |
| Asset impairment | 10,677 | | | 78,226 | | | (67,549) | | | (86.4) | % |
| | | | | | | |
| Interest income | 421 | | | 1,455 | | | (1,034) | | | (71.1) | % |
| Interest expense | (48,607) | | | (56,360) | | | (7,753) | | | (13.8) | % |
| Gain (loss) on debt modification and extinguishment, net | — | | | 19,181 | | | (19,181) | | | NM |
| Equity in earnings (loss) of unconsolidated ventures | (531) | | | (1,008) | | | 477 | | | 47.3 | % |
| Gain (loss) on sale of assets, net | 1,112 | | | 372,839 | | | (371,727) | | | (99.7) | % |
| Other non-operating income (loss) | 1,644 | | | 2,662 | | | (1,018) | | | (38.2) | % |
| Benefit (provision) for income taxes | (752) | | | 15,828 | | | (16,580) | | | NM |
|
| | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| General and administrative expense | $ | 52,518 |
| | $ | 57,576 |
| | $ | (5,058 | ) | | (8.8 | )% |
| Facility operating lease expense | 62,379 |
| | 67,689 |
| | (5,310 | ) | | (7.8 | )% |
| Depreciation and amortization | 93,154 |
| | 94,024 |
| | (870 | ) | | (0.9 | )% |
| Asset impairment | 10,290 |
| | 3,769 |
| | 6,521 |
| | 173.0 | % |
| Loss (gain) on facility lease termination and modification, net | — |
| | 1,797 |
| | (1,797 | ) | | (100.0 | )% |
| Costs incurred on behalf of managed communities | 101,511 |
| | 202,145 |
| | (100,634 | ) | | (49.8 | )% |
| Interest income | 2,243 |
| | 2,813 |
| | (570 | ) | | (20.3 | )% |
| Interest expense | (52,422 | ) | | (62,828 | ) | | (10,406 | ) | | (16.6 | )% |
| Gain (loss) on debt modification and extinguishment, net | (157 | ) | | (2,672 | ) | | (2,515 | ) | | (94.1 | )% |
| Equity in earnings (loss) of unconsolidated ventures | 438 |
| | (991 | ) | | 1,429 |
| | NM |
|
| Gain (loss) on sale of assets, net | (1,029 | ) | | 2,846 |
| | (3,875 | ) | | NM |
|
| Other non-operating income (loss) | 988 |
| | 3,199 |
| | (2,211 | ) | | (69.1 | )% |
| Benefit (provision) for income taxes | (8,504 | ) | | (633 | ) | | 7,871 |
| | NM |
|
General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to a reduction in our travel costs as we intentionally scaled back such activities, a reduction in our incentive compensation costs, and a reduction in our corporate headcount as we scaled our general and administrative costs in connection with community dispositions. The decrease was partially offset bydispositions and a $2.7 million increasereduction in transactionalour travel costs as we intentionally scaled back such activities. General and administrative expense includes transaction and organizational restructuring costs compared to the prior period, to $3.4of $1.9 million and $2.0 million for the three months ended June 30, 2020.March 31, 2021 and 2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. We expect transaction and organizational restructuring costs will be higher in the three months ending September 30, 2020 including such costs incurred with respect to the transaction with Ventas announced on July 27, 2020.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the acquisition of formerly leased communitiesVentas lease portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year period.
Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year period and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period.
Asset Impairment. During the current year period, we recorded $10.3$10.7 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.pandemic and for natural disaster related property damage sustained at certain communities during the period. During the prior year period, we recorded $3.8$78.2 million of non-cash impairment charges. See Note 6 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Qcharges, primarily for more information about the impairment charges.
Costs Incurred on Behalf of Managed Communities. The decrease in costs incurred on behalf of managedright-of-use assets for certain leased communities was primarily due to terminations of management agreements subsequent to the beginningwith decreased future cash flow estimates as a result of the prior year period.COVID-19 pandemic.
Interest Expense. The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the three months ended June 30, 2020 and 2019 was primarily due to the annualized effective rate for 2020.
We recorded an aggregate deferred federal, state, and local tax benefit of $26.7 million as a result of the operating loss for the three months ended June 30, 2020, which was offset by an increase in the valuation allowance of $33.2 million. The change in the valuation allowance for the three months ended June 30, 2020 resulted from the anticipated reversal of future tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax benefit of $13.0 million as a result of the operating loss for the three months ended June 30, 2019. The tax benefit was offset by an increase in the valuation allowance of $13.3 million.
Comparison of Six Months Ended June 30, 2020 and 2019
Summary Operating Results
The following table summarizes our overall operating results for the six months ended June 30, 2020 and 2019.
|
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, | | Increase (Decrease) |
| (in thousands) | 2020 | | 2019 | | Amount | | Percent |
| Total revenue and other operating income | $ | 1,880,048 |
| | $ | 2,061,501 |
| | $ | (181,453 | ) | | (8.8 | )% |
| Facility operating expense | 1,194,516 |
| | 1,176,340 |
| | 18,176 |
| | 1.5 | % |
| Net income (loss) | 251,077 |
| | (98,661 | ) | | 349,738 |
| | NM |
|
| Adjusted EBITDA | 229,802 |
| | 220,619 |
| | 9,183 |
| | 4.2 | % |
The decrease in total revenue and other operating income was primarily attributable to an $111.1 million decrease in management services revenue, including management fees and reimbursed costs incurred on behalf of managed communities, primarily due to terminations of management agreements subsequent to the beginning of the prior year period, partially offset by $100.0 million of management fee revenue during the three months ended March 31, 2020 for the management termination fee payment from Healthpeak. Resident fees decreased $97.0 million, including a $42.5 million decrease for home health services, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, the disposition of 27 communities through sales of owned communities and lease terminations since the beginning of the prior year period resulted in $37.4 million less in resident fees during the six months ended June 30, 2020 compared to the prior year period. Same community RevPAR decreased 0.7%, comprised of a 280 basis points decrease in same community weighted average occupancy and a 2.7% increase in same community RevPOR. We estimate that the COVID-19 pandemic and our response efforts resulted in $45.5 million of lost resident fee revenue on a same community basis for the six months ended June 30, 2020. Our total revenue and other operating income for the six months ended June 30, 2020 includes $26.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period.
The increase in facility operating expense was primarily attributable to a 9.2% increase in same community facility operating expense, which was primarily due to $62.0 million of incremental costs incurred during the six months ended June 30, 2020 to address the COVID-19 pandemic. Additionally, there was an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an extra day of expense due to the leap year. The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $34.2 million less in facility operating expense during the six months ended June 30, 2020 compared to the prior year period.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of $8.1 million and $21.0 million, respectively, during the six months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense excludes $7.4 million and $19.3 million, respectively, of such additional revenue and expenses.
The increase in net income was primarily attributable to a $369.8 million increase in net gain on sale of assets, resulting from our sale of our interest in the CCRC Venture, offset by the net revenue and facility operating expense factors previously discussed.
The increase in Adjusted EBITDA was primarily attributable to the management termination fee, offset by the other revenue and facility operating expense factors previously discussed.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the six months ended June 30, 2020 and 2019 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 1,329,347 |
| | $ | 1,385,376 |
| | $ | (56,029 | ) | | (4.0 | )% |
| Other operating income | $ | 9,698 |
| | $ | — |
| | $ | 9,698 |
| | NM |
|
| Facility operating expense | $ | 993,103 |
| | $ | 967,714 |
| | $ | 25,389 |
| | 2.6 | % |
| | | | | | | | |
| Number of communities (period end) | 660 |
| | 671 |
| | (11 | ) | | (1.6 | )% |
| Number of units (period end) | 54,019 |
| | 55,209 |
| | (1,190 | ) | | (2.2 | )% |
| Total average units | 54,112 |
| | 55,963 |
| | (1,851 | ) | | (3.3 | )% |
| RevPAR | $ | 4,092 |
| | $ | 4,100 |
| | $ | (8 | ) | | (0.2 | )% |
| Occupancy rate (weighted average) | 81.0 | % | | 83.5 | % | | (250 | ) bps | | n/a |
|
| RevPOR | $ | 5,054 |
| | $ | 4,909 |
| | $ | 145 |
| | 3.0 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 1,234,565 |
| | $ | 1,243,404 |
| | $ | (8,839 | ) | | (0.7 | )% |
| Other operating income | $ | 6,445 |
| | $ | — |
| | $ | 6,445 |
| | NM |
|
| Facility operating expense | $ | 913,589 |
| | $ | 836,479 |
| | $ | 77,110 |
| | 9.2 | % |
| | | | | | | | |
| Number of communities | 638 |
| | 638 |
| | — |
| | — |
|
| Total average units | 50,111 |
| | 50,097 |
| | 14 |
| | — |
|
| RevPAR | $ | 4,106 |
| | $ | 4,137 |
| | $ | (31 | ) | | (0.7 | )% |
| Occupancy rate (weighted average) | 81.4 | % | | 84.2 | % | | (280 | ) bps | | n/a |
|
| RevPOR | $ | 5,047 |
| | $ | 4,914 |
| | $ | 133 |
| | 2.7 | % |
Independent Living Segment
The following table summarizes the operating results and data for our Independent Living segment for the six months ended June 30, 2020 and 2019, including operating results and data on a same community basis.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 266,140 |
| | $ | 271,645 |
| | $ | (5,505 | ) | | (2.0 | )% |
| Other operating income | $ | — |
| | $ | — |
| | $ | — |
| | NM |
|
| Facility operating expense | $ | 173,688 |
| | $ | 167,310 |
| | $ | 6,378 |
| | 3.8 | % |
| | | | | | | | |
| Number of communities (period end) | 68 |
| | 68 |
| | — |
| | — | % |
| Number of units (period end) | 12,534 |
| | 12,460 |
| | 74 |
| | 0.6 | % |
| Total average units | 12,532 |
| | 12,435 |
| | 97 |
| | 0.8 | % |
| RevPAR | $ | 3,540 |
| | $ | 3,597 |
| | $ | (57 | ) | | (1.6 | )% |
| Occupancy rate (weighted average) | 85.3 | % | | 89.4 | % | | (410 | ) bps | | n/a |
|
| RevPOR | $ | 4,149 |
| | $ | 4,023 |
| | $ | 126 |
| | 3.1 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 250,659 |
| | $ | 253,385 |
| | $ | (2,726 | ) | | (1.1 | )% |
| Other operating income | $ | — |
| | $ | — |
| | $ | — |
| | NM |
|
| Facility operating expense | $ | 162,656 |
| | $ | 152,121 |
| | $ | 10,535 |
| | 6.9 | % |
| | | | | | | | |
| Number of communities | 64 |
| | 64 |
| | — |
| | — |
|
| Total average units | 11,705 |
| | 11,685 |
| | 20 |
| | 0.2 | % |
| RevPAR | $ | 3,569 |
| | $ | 3,614 |
| | $ | (45 | ) | | (1.2 | )% |
| Occupancy rate (weighted average) | 85.6 | % | | 89.2 | % | | (360 | ) bps | | n/a |
|
| RevPOR | $ | 4,172 |
| | $ | 4,053 |
| | $ | 119 |
| | 2.9 | % |
The decrease in the segment's resident fees was primarily attributable to the additional resident fee revenue for this segment of $3.3 million during the six months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019 and a decrease in the segment's same community RevPAR, comprised of a 360 basis points decrease in same community weighted average occupancy and a 2.9% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $6.9 million of lost resident fee revenue on a same community basis for this segment for the six months ended June 30, 2020. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.
The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $9.9 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an extra day of expense due to the leap year. These increases in the segment's same community facility operating expense were partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the period as we intentionally scaled back such activities.
We recognized additional resident fee revenue and additional facility operating expense for this segment of $3.3 million and $5.7 million, respectively, during the six months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $3.1 million and $5.4 million, respectively, of such additional revenue and expenses.
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the six months ended June 30, 2020 and 2019, including operating results and data on a same community basis.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 889,635 |
| | $ | 908,751 |
| | $ | (19,116 | ) | | (2.1 | )% |
| Other operating income | $ | 152 |
| | $ | — |
| | $ | 152 |
| | NM |
|
| Facility operating expense | $ | 670,078 |
| | $ | 634,908 |
| | $ | 35,170 |
| | 5.5 | % |
| | | | | | | | |
| Number of communities (period end) | 570 |
| | 577 |
| | (7 | ) | | (1.2 | )% |
| Number of units (period end) | 35,744 |
| | 36,175 |
| | (431 | ) | | (1.2 | )% |
| Total average units | 35,864 |
| | 36,964 |
| | (1,100 | ) | | (3.0 | )% |
| RevPAR | $ | 4,134 |
| | $ | 4,081 |
| | $ | 53 |
| | 1.3 | % |
| Occupancy rate (weighted average) | 79.9 | % | | 81.8 | % | | (190 | ) bps | | n/a |
|
| RevPOR | $ | 5,175 |
| | $ | 4,987 |
| | $ | 188 |
| | 3.8 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 871,629 |
| | $ | 868,798 |
| | $ | 2,831 |
| | 0.3 | % |
| Other operating income | $ | 151 |
| | $ | — |
| | $ | 151 |
| | NM |
|
| Facility operating expense | $ | 654,941 |
| | $ | 591,394 |
| | $ | 63,547 |
| | 10.7 | % |
| | | | | | | | |
| Number of communities | 560 |
| | 560 |
| | — |
| | — |
|
| Total average units | 34,794 |
| | 34,800 |
| | (6 | ) | | — |
|
| RevPAR | $ | 4,175 |
| | $ | 4,161 |
| | $ | 14 |
| | 0.3 | % |
| Occupancy rate (weighted average) | 80.3 | % | | 82.7 | % | | (240 | ) bps | | n/a |
|
| RevPOR | $ | 5,197 |
| | $ | 5,036 |
| | $ | 161 |
| | 3.2 | % |
The decrease in the segment's resident fees was primarily attributable to the disposition of 22 communities since the beginning of the prior year period, which resulted in $18.0 million less in resident fees during the six months ended June 30, 2020 compared to the prior year period. The decrease in resident fees was partially offset by the increase in the segment's same community RevPAR, comprised of a 3.2% increase in same community RevPOR and a 240 basis points decrease in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $27.6 million of lost resident fee revenue on a same community basis for this segment for the six months ended June 30, 2020.
The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $45.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from wage rate increases, increased contract labor costs, an increase in employee benefit expense, and an extra day of expense due to the leap year. The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the period as we intentionally scaled back such activities. The increase in facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $15.2 million less in facility operating expense during the six months ended June 30, 2020 compared to the prior year period.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $3.6 million and $12.8 million, respectively, during the six months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $3.5 million and $12.2 million, respectively, of such additional revenue and expenses.
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the six months ended June 30, 2020 and 2019, including operating results and data on a same community basis.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 173,572 |
| | $ | 204,980 |
| | $ | (31,408 | ) | | (15.3 | )% |
| Other operating income | $ | 9,546 |
| | $ | — |
| | $ | 9,546 |
| | NM |
|
| Facility operating expense | $ | 149,337 |
| | $ | 165,496 |
| | $ | (16,159 | ) | | (9.8 | )% |
| | | | | | | | |
| Number of communities (period end) | 22 |
| | 26 |
| | (4 | ) | | (15.4 | )% |
| Number of units (period end) | 5,741 |
| | 6,574 |
| | (833 | ) | | (12.7 | )% |
| Total average units | 5,716 |
| | 6,564 |
| | (848 | ) | | (12.9 | )% |
| RevPAR | $ | 5,034 |
| | $ | 5,156 |
| | $ | (122 | ) | | (2.4 | )% |
| Occupancy rate (weighted average) | 78.2 | % | | 81.7 | % | | (350 | ) bps | | n/a |
|
| RevPOR | $ | 6,438 |
| | $ | 6,308 |
| | $ | 130 |
| | 2.1 | % |
| | | | | | | | |
| Same Community Operating Results and Data | | | | | | | |
| Resident fees | $ | 112,277 |
| | $ | 121,221 |
| | $ | (8,944 | ) | | (7.4 | )% |
| Other operating income | $ | 6,294 |
| | $ | — |
| | $ | 6,294 |
| | NM |
|
| Facility operating expense | $ | 95,992 |
| | $ | 92,964 |
| | $ | 3,028 |
| | 3.3 | % |
| | | | | | | | |
| Number of communities | 14 |
| | 14 |
| | — |
| | — |
|
| Total average units | 3,612 |
| | 3,612 |
| | — |
| | — |
|
| RevPAR | $ | 5,181 |
| | $ | 5,594 |
| | $ | (413 | ) | | (7.4 | )% |
| Occupancy rate (weighted average) | 77.5 | % | | 83.2 | % | | (570 | ) bps | | n/a |
|
| RevPOR | $ | 6,672 |
| | $ | 6,725 |
| | $ | (53 | ) | | (0.8 | )% |
The decrease in the segment's resident fees was primarily attributable to the disposition of five communities since the beginning of the prior year period, which resulted in $19.4 million less in resident fees during the six months ended June 30, 2020 compared to the prior year period. Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 570 basis points decrease in same community weighted average occupancy and a 0.8% decrease in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $11.0 million of lost resident fee revenue on a same community basis for this segment for the six months ended June 30, 2020. The decrease in the segment's same community RevPOR was primarily the result of a mix shift away from skilled nursing within the segment, partially offset by in-place rent increases.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $19.0 million less in facility operating expense during the six months ended June 30, 2020 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense, including $6.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy.
In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $1.1 million and $2.5 million, respectively, during the six months ended June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $0.8 million and $1.7 million, respectively, of such additional revenue and expenses.
Operating Results - Health Care Services Segment
The following table summarizes the operating results and data for our Health Care Services segment for the six months ended June 30, 2020 and 2019.
|
| | | | | | | | | | | | | | |
| (in thousands, except census and treatment codes) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Resident fees | $ | 184,989 |
| | $ | 225,966 |
| | $ | (40,977 | ) | | (18.1 | )% |
| Other operating income | $ | 16,995 |
| | $ | — |
| | $ | 16,995 |
| | NM |
|
| Facility operating expense | $ | 201,413 |
| | $ | 208,626 |
| | $ | (7,213 | ) | | (3.5 | )% |
| | | | | | | | |
| Home health average daily census | 13,500 |
| | 15,935 |
| | (2,435 | ) | | (15.3 | )% |
| Hospice average daily census | 1,672 |
| | 1,485 |
| | 187 |
| | 12.6 | % |
The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, which reflects the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, our home health average daily census also began to decrease in March 2020 due to the COVID-19 pandemic, as referrals declined significantly due to suspension of elective medical procedures and hospital discharges increased due to stay-at-home orders and recommendations. The decrease in resident fees was partially offset by an increase in volume for hospice services. We estimate that the COVID-19 pandemic and our response efforts resulted in $17.9 million of lost resident fee revenue for the six months ended June 30, 2020.
The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model. The decrease in the segment's facility operating expense was partially offset by $3.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansion of our hospice services throughout 2019.
Operating Results - Management Services Segment
The following table summarizes the operating results and data for our Management Services segment for the six months ended June 30, 2020 and 2019.
|
| | | | | | | | | | | | | | |
| (in thousands, except communities, units, and occupancy) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| Management fees | $ | 114,791 |
| | $ | 31,192 |
| | $ | 83,599 |
| | NM |
|
| Reimbursed costs incurred on behalf of managed communities | $ | 224,228 |
| | $ | 418,967 |
| | $(194,739) | | (46.5 | )% |
| | | | | | | | |
| Number of communities (period end) | 77 |
| | 138 |
| | (61 | ) | | (44.2 | )% |
| Number of units (period end) | 10,694 |
| | 21,451 |
| | (10,757 | ) | | (50.1 | )% |
| Total average units | 12,115 |
| | 23,755 |
| | (11,640 | ) | | (49.0 | )% |
The increase in management fees was primarily attributable to the $100.0 million management termination fee payment received from Healthpeak during the three months ended March 31, 2020. We have completed the transition of management arrangements on 128 net communities since the beginning of the prior year period, generally for interim management arrangements on former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased or owned communities. Management fees of $114.8 million for the six months ended June 30, 2020 include $102.2 million of management fees attributable to communities for which our management agreements were terminated during such period and approximately $3.3 million of management fees attributable to communities that we expect the terminations of our management agreements to occur in the next approximately 12 months, including management agreements on certain former unconsolidated ventures in which
we sold our interest, management agreements on communities owned by unconsolidated ventures, and interim management arrangements on formerly leased communities.
The decrease in reimbursed costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating results for the six months ended June 30, 2020 and 2019.
|
| | | | | | | | | | | | | | |
| (in thousands) | Six Months Ended
June 30, | | Increase (Decrease) |
| | 2020 | | 2019 | | Amount | | Percent |
| General and administrative expense | $ | 107,113 |
| | $ | 113,887 |
| | $ | (6,774 | ) | | (5.9 | )% |
| Facility operating lease expense | 126,860 |
| | 136,357 |
| | (9,497 | ) | | (7.0 | )% |
| Depreciation and amortization | 183,892 |
| | 190,912 |
| | (7,020 | ) | | (3.7 | )% |
| Asset impairment | 88,516 |
| | 4,160 |
| | 84,356 |
| | NM |
|
| Loss (gain) on facility lease termination and modification, net | — |
| | 2,006 |
| | (2,006 | ) | | (100.0 | )% |
| Costs incurred on behalf of managed communities | 224,228 |
| | 418,967 |
| | (194,739 | ) | | (46.5 | )% |
| Interest income | 3,698 |
| | 5,897 |
| | (2,199 | ) | | (37.3 | )% |
| Interest expense | (108,782 | ) | | (126,193 | ) | | (17,411 | ) | | (13.8 | )% |
| Gain (loss) on debt modification and extinguishment, net | 19,024 |
| | (2,739 | ) | | 21,763 |
| | NM |
|
| Equity in earnings (loss) of unconsolidated ventures | (570 | ) | | (1,517 | ) | | (947 | ) | | (62.4 | )% |
| Gain (loss) on sale of assets, net | 371,810 |
| | 2,144 |
| | 369,666 |
| | NM |
|
| Other non-operating income (loss) | 3,650 |
| | 6,187 |
| | (2,537 | ) | | (41.0 | )% |
| Benefit (provision) for income taxes | 7,324 |
| | (1,312 | ) | | 8,636 |
| | NM |
|
General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to a reduction in our corporate headcount, as we scaled our general and administrative costs in connection with community dispositions, a reduction in our travel costs as we intentionally scaled back such activities, and a reduction in our incentive compensation costs. The decrease was partially offset by a $4.3 million increase in transactional and organizational restructuring costs compared to the prior period, to $5.3 million for the six months ended June 30, 2020. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. We expect transaction and organizational restructuring costs will be higher in the three months ending September 30, 2020 including such costs incurred with respect to the transaction with Ventas announced on July 27, 2020.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the acquisition of formerly leased communities and lease termination activity since the beginning of the prior year.
Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity through sales and lease terminations since the beginning of the prior year.
Asset Impairment. During the current year period, we recorded $88.5 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic. During the prior year period, we recorded $4.2 million of non-cash impairment charges. See Note 6 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the impairment charges.
Costs Incurred on Behalf of Managed Communities. The decrease in costs incurred on behalf of managed communities was primarily due to terminations of management agreements subsequent to the beginning of the prior year period.
Interest Expense. The decrease in interest expense was primarily due to interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.
Gain (Loss) on Debt Modification and Extinguishment, Net. The increase in gain on debt modification and extinguishment was primarily due to a $19.7 million gain on debt extinguishment recognized during the three months ended March 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement.
Gain (Loss) on Sale of Assets, Net.The increasedecrease in gain on sale of assets, net was primarily due to a $369.8$370.7 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the six months ended June 30, 2020.prior year period.
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020. The impact represented the tax expense recorded on the gain of the sale of our interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak. This
We recorded an aggregate deferred federal, state, and local tax benefit of $25.2 million as a result of the operating loss for the three months ended March 31, 2021, which was partially offset by the adjustment for stock-based compensation, which was greateran increase in the six months ended June 30, 2019 compared to the six months ended June 30, 2020.
valuation allowance of $25.5 million. We recorded an aggregate deferred federal, state, and local tax expense of $64.2$90.9 million, of which, $28.9$2.2 million was recorded as a result of the benefit on our operating loss for the sixthree months ended June 30,March 31, 2020. The benefit was offset by $93.1 million of tax expense that was recorded on the sale of our interest in the CCRC Venture. The tax expense was offset by a decrease in the valuation allowance of $79.5$112.6 million. The change in the
We evaluate our deferred tax assets each quarter to determine if a valuation allowance for the six months ended June 30, 2020 resulted from the tax impactis required based on whether it is more likely than not that some portion of the Healthpeak transaction and the anticipated reversal of futuredeferred tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax benefit of $21.2 million as a result of the operating loss for the six months ended June 30, 2019, which was offset by an increase in theasset would not be realized. Our valuation allowance as of $21.7 million.March 31, 2021 and December 31, 2020 was $406.5 million and $381.0 million, respectively.
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures.measure.
Liquidity and Indebtedness
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Increase (Decrease) |
| (in thousands) | 2021 | | 2020 | | Amount | | Percent |
| Net cash provided by (used in) operating activities | $ | (23,857) | | | $ | 57,479 | | | $ | (81,336) | | | NM |
| Net cash provided by (used in) investing activities | (3,806) | | | (247,927) | | | (244,121) | | | (98.5) | % |
| Net cash provided by (used in) financing activities | (35,562) | | | 347,250 | | | (382,812) | | | NM |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (63,225) | | | 156,802 | | | (220,027) | | | NM |
| Cash, cash equivalents, and restricted cash at beginning of period | 465,148 | | | 301,697 | | | 163,451 | | | 54.2 | % |
| Cash, cash equivalents, and restricted cash at end of period | $ | 401,923 | | | $ | 458,499 | | | $ | (56,576) | | | (12.3) | % |
| Adjusted Free Cash Flow | $ | (50,674) | | | $ | 5,182 | | | $ | (55,856) | | | NM |
|
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, | | Increase (Decrease) |
| (in thousands) | 2020 | | 2019 | | Amount | | Percent |
| Net cash provided by (used in) operating activities | $ | 209,319 |
| | $ | 59,119 |
| | $ | 150,200 |
| | NM |
|
| Net cash provided by (used in) investing activities | (295,410 | ) | | (80,299 | ) | | 215,111 |
| | NM |
|
| Net cash provided by (used in) financing activities | 306,524 |
| | (104,079 | ) | | 410,603 |
| | NM |
|
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 220,433 |
| | (125,259 | ) | | 345,692 |
| | NM |
|
| Cash, cash equivalents, and restricted cash at beginning of period | 301,697 |
| | 450,218 |
| | (148,521 | ) | | (33.0 | )% |
| Cash, cash equivalents, and restricted cash at end of period | $ | 522,130 |
| | $ | 324,959 |
| | $ | 197,171 |
| | 60.7 | % |
| | | | | | | | |
| Adjusted Free Cash Flow | $ | 118,633 |
| | $ | (63,340 | ) | | $ | 181,973 |
| | NM |
|
The increasechange in net cash provided by (used in) operating activities was attributable primarily to the $100.0 million management agreement termination fee payment received from Healthpeak $85.0 millionin connection with the sale of cash received underour ownership interest in the Medicare acceleratedCCRC Venture in the prior year period and advance payment program, $33.5 million of government grants accepted, and $26.5 million of social security payroll taxes deferred duringa decrease in same community revenue compared to the currentprior year period. These changes were partially offset by an increase in same community facility operating expense, a decrease in same community revenue,cash payments for accounts payable and a decrease in revenue for home health servicesaccrued expenses compared to the prior year period.
The increasedecrease in net cash used in investing activities was primarily attributable to $446.7 million of cash paid for the acquisition of communities during the currentprior year period, a $51.2$68.0 million increase in proceeds from sales and maturities of marketable securities, a $29.0 million decrease in cash paid for capital expenditures, and a $9.5 million decrease in purchases of marketable securities compared to the prior year period, and a $30.5 million decrease in cash proceeds from notes receivable compared to the prior year period. These changes were partially offset by a $248.1$300.9 million increasedecrease in net proceeds from the sale of assets a $53.8 million increase in proceeds from sales and maturities of marketable securities, and a $9.4 million decrease in cash paid for capital expenditures compared to the prior year period.
The change in net cash provided by (used in) financing activities was primarily attributable to a $315.2$453.2 million increasedecrease in debt proceeds compared to the prior year period and $166.4 million of draws on our former secured credit facility during the currentprior year period. These changes were partially offset by a $65.9$213.3 million increasedecrease in repayment of debt and financing lease
obligations, an $18.1 million decrease in cash paid for share repurchases, and a $5.7 million decrease in cash paid for financing costs compared to the prior year period and a $4.1 million increase in cash paid during the current year period for financing costs.period.
The increasedecrease in Adjusted Free Cash Flow was primarily attributable to the increasechange in net cash provided by (used in) operating activities, andpartially offset by a $39.0$33.1 million decrease in non-development capital expenditures, net compared to the prior year period.
Our principal sources of liquidity have historically been from:
•cash balances on hand, cash equivalents, and marketable securities;
•cash flows from operations;
•proceeds from our credit facilities;
•funds generated through unconsolidated venture arrangements;
•proceeds from mortgage financing or refinancing of various assets, or sale-leaseback transactions;assets;
•funds raised in the debt or equity markets; and
•proceeds from the disposition of assets.
Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. During the three months ended June 30, 2020, we also have received cash grants and advanced/acceleratedadvanced Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above. We continueAs described above, we expect to seek further government-sponsored financial relief relatedsell 80% of our equity in our Health Care Services segment pursuant to the COVID-19 pandemic, although we cannot provide assurance that such efforts will be successful or regardingPurchase Agreement with HCA Healthcare, which transaction is expected to occur in the amountearly second half of or conditions required2021, for expected net cash proceeds of approximately $300 million, subject to qualify for, any government-sponsored relief.the timing of closing with respect to the adjustments set forth in the Purchase Agreement described above. We are evaluating the use of the net proceeds from the pending Health Care Services transaction.
Our liquidity requirements have historically arisen from:
•working capital;
•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs;
•debt, serviceinterest, and lease payments;
•acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;
•capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our current communities and the development of new communities;
•cash collateral required to be posted in connection with our financial instruments and insurance programs;
•purchases of common stock under our share repurchase authorizations;
•other corporate initiatives (including integration, information systems, branding, and other strategic projects); and
•prior to 2009, dividend payments.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
•working capital;
•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic;
•debt, serviceinterest, and lease payments;
•payment of deferred payroll taxes under the CARES Act;
•recoupment of payments received under the Accelerated and Advance Payment Program;
•acquisition consideration;
•transaction costs and expansion of our healthcare services;
•capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities;
•cash collateral required to be posted in connection with our financial instruments and insurance programs; and
•other corporate initiatives (including information systems and other strategic projects).
We are highly leveraged and have significant debt and lease obligations. As of June 30, 2020, we had two principal corporate-level debt obligations: our secured credit facility providing commitments of $250.0 million and our separate unsecured facility providing for up to $50.0 million of letters of credit.
As of June 30, 2020,March 31, 2021, we had $3.9 billion of debt outstanding, including $166.4 million drawn on our secured credit facility and excluding lease obligations, at a weighted average interest rate of 3.8%3.6%. As of such date, 92.7%97.9%, or $3.6$3.8 billion of our total debt obligations represented non-recourse property-level mortgage financings, $93.7 million of letters of credit had been issued under our secured credit facility and separate unsecured letter of credit facility, and $166.4 million was drawn on our secured credit facility.financings. As of June 30, 2020, $1.3March 31, 2021, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining $131.0$128.0 million of our long-term variable rate debt and $166.4 million drawn on our secured credit facility areis not subject to any interest rate cap agreements. As of March 31, 2021, $69.9 million of letters of credit and no cash borrowings
were outstanding under our $80.0 million secured credit facility. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.
As of June 30, 2020,March 31, 2021, we had $2.0$1.5 billion of operating and financing lease obligations. For the twelve months ending June 30, 2021,March 31, 2022, we will be required to make approximately $392.6$268.2 million of cash lease payments in connection with our existing operating and financing leases including a $119.2(excluding minimum lease payments related to $9.7 million one-time cash payment to Ventas on July 27, 2020 (after giving effect to the multi-part transaction with Ventas on July 26, 2020)of operating lease obligations included within liabilities held for sale).
Total liquidity of $600.2$438.9 million as of June 30, 2020March 31, 2021 included $452.4$304.0 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $115.5$100.7 million in the aggregate), $109.9 and $134.9 million of marketable securities, and $37.9 million of availability on our secured credit facility.securities. Total liquidity as of June 30, 2020 increased $118.9March 31, 2021 decreased $136.6 million from total liquidity of $481.3$575.5 million as of December 31, 2019.2020. The increasedecrease was primarily attributable to temporary liquidity relief under the CARES Actnegative $50.7 million of Adjusted Free Cash Flow and the transactions with Healthpeak completed$38.3 million of payments of mortgage debt during the three months ended March 31, 2020, including the impact2021.
As of March 31, 2021, our current liabilities exceeded current assets by $42.4 million. Included in our current liabilities is $224.9 million of the relatedcurrent portion of long term debt which we have historically refinanced in the normal course. Our current liabilities also include $160.4 million of the current portion of operating and financing transactions.lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.
We currently estimate that our cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of our equity in our Health Care Services segment will be sufficient to fund our liquidity needs for at least the next 12 months.
We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expensesmaintaining expense discipline and elective capital expenditures,increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic. As of June 30, 2020, our remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities. We have continued efforts on our plan to refinance those and other maturities, including our line of credit, with non-recourse mortgage debt. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the terms andamount of, or conditions ofrequired to qualify for, any such relief. Additionally, 49 communities (3,925 units) were unencumbered by mortgage debt asrelief, or that the closing of June 30, 2020.
We currently estimate that our existing cash flows from operations, together with cash on hand, amounts available under our secured credit facility, expected grants to be received from the Emergency Fund, proceeds from anticipated dispositions of owned communities, and financings and refinancings of various assets,pending transaction will be sufficientcompleted in accordance with our expectations, or at all, or generate cash proceeds to fund our liquidity needs for at least the next 12 months, assuming continued access to credit markets and the impacts of the pandemic on the economy and our industry begin to moderateus in the near term.amount we anticipate.
Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital. Volatilitycapital, as well as other factors described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the credit andyear ended December 31, 2020 filed with the SEC on February 25, 2021. Disruptions in the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing.refinancing of various assets. Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness. If we are unable to obtain refinancing proceeds sufficient to cover maturing indebtedness, our liquidity could be adversely impacted and we may seek alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.
Capital Expenditures
Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence includingand for unit turnovers (subject to aover $500 floor))per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.
With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or
from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications.
The following table summarizes our capital expenditures for the sixthree months ended June 30, 2020March 31, 2021 for our consolidated business:
|
| | | |
| (in millions) | Six Months Ended June 30, 2020 |
Community-level capital expenditures, net (1) | $ | 68.9 |
|
Corporate capital expenditures, net(2) | 13.2 |
|
Non-development capital expenditures, net (3) | 82.1 |
|
| Development capital expenditures, net | 6.8 |
|
| Total capital expenditures, net | $ | 88.9 |
|
| | | | | |
(1) | Reflects the amount invested, net of lessor reimbursements of $13.9 million. |
| (in millions) | |
(2)Community-level capital expenditures, net(1) | Includes $1.3 million of remediation costs at our communities resulting from hurricanes and other natural disasters and for the acquisition of emergency power generators at our impacted Florida communities.$ |
| 21.9 | |
(3)Corporate capital expenditures, net(2) | Amount is included in Adjusted Free Cash Flow.5.6 | |
Non-development capital expenditures, net(3) | 27.5 | |
| Development capital expenditures, net | 1.5 | |
| Total capital expenditures, net | $ | 29.0 | |
(1)Reflects the amount invested, net of lessor reimbursements of $9.0 million.
(2)Includes $2.7 million of remediation costs at our communities resulting from natural disasters.
(3)Amount is included in Adjusted Free Cash Flow.
In response to the COVID-19 pandemic, we have delayed or canceled a number of elective capital expenditure projects. As a result,aggregate, we expect our full-year 20202021 non-development capital expenditures, net of anticipated lessor reimbursements, andto be approximately $140 million. In addition, we expect our full-year 2021 development capital expenditures to be approximately $150 million and $20 million, which reflects a $40 million and $10 million, reduction to our pre-pandemic plansnet of anticipated lessor reimbursements, and such projects include those for 2020, respectively.expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 20202021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors.
Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Credit Facilities
Our Fifth Amended and Restated Credit AgreementOn December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent lender, and swingline lender and the other lenders from time to time parties thereto (the "Credit Agreement")thereto. The agreement provides commitments for a $250commitment amount of $80 million revolving credit facility with a $60 million sublimit forwhich can be drawn in cash or as letters of credit and a $50 million swingline feature. We have a one-time right under the Credit Agreement to increase commitments on the revolving credit facility by an additional $100 million, subject to obtaining commitments for the amount of such increase from acceptable lenders.credit. The Credit Agreement provides us a one-time right to reduce the amount of the revolving credit commitments, and we may terminate the revolving credit facility at any time, in each case without payment of a premium or penalty. The Credit Agreementagreement matures on January 3,15, 2024. Amounts drawn under the facility will bear interest at 90-day30-day LIBOR plus an applicable margin. The applicable margin varies based on the percentagewhich was 2.75% as of the total commitment drawn, withMarch 31, 2021. Additionally, a 2.25% margin at utilization equal to or lower than 35%, a 2.75% margin at utilization greater than 35% but less than or equal to 50%, and a 3.25% margin at utilization greater than 50%. A quarterly commitment fee is payableof 0.25% per annum was applicable on the unused portion of the facility at 0.25% per annum when the outstanding amountas of obligations (includingMarch 31, 2021. The revolving credit and swingline loans and letter of credit obligations)facility is greater than or equal to 50% of the revolving credit commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the revolving credit commitment amount.
The credit facility iscurrently secured by first priority mortgages and negative pledges on certain of our communities. In addition, the Credit Agreement permits us to pledge the equity interests in subsidiaries that own other communities and grant negative pledges in connection therewith
(rather than mortgaging such communities), provided that not more than 10% of the borrowing base may result from communities subject to negative pledges. Availabilityrestricted cash deposits. Available capacity under the revolving credit facility will vary from time to time based onupon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we would be required to repay the difference to restore the outstanding balance to the new borrowing base. During 2019, the parties entered into an amendment to the Credit Agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds.facility.
The Credit Agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth. Amounts drawn on the credit facility may be used for general corporate purposes.
As of June 30, 2020, $166.4 million of borrowings were outstanding on the revolving credit facility, $45.5March 31, 2021, $69.9 million of letters of credit and no cash borrowings were outstanding and the revolvingunder our $80.0 million secured credit facility had $37.9 million of availability.facility. We also had a separate unsecuredsecured letter of credit facility providing for up to $50.0$15.0 million of letters of credit as of June 30, 2020March 31, 2021 under which $48.2$13.6 million of had been issued as of that date.
Long-Term Leases
As of June 30, 2020,March 31, 2021, we operated 305301 communities under long-term leases (237(235 operating leases and 6866 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our
leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.
The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options.
The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, as further described below.ratios. In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.
In addition, certain of our master leases and management agreements contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.
For the three and six months ended June 30, 2020,March 31, 2021, our cash lease payments for our operating leases were $75.5 million and $151.6 million, respectively, and for our financing leases were $16.6$53.9 million and $34.9$16.2 million, respectively. For the twelve months ending June 30, 2021,March 31, 2022, we will be required to make $392.6$268.2 million of cash lease payments in connection with our existing operating and financing leases including a $119.2(excluding minimum lease payments related to $9.7 million one-time cash payment to Ventas on July 27, 2020 (after giving effect to the multi-part transaction with Ventas on July 26, 2020)of operating lease obligations included within liabilities held for sale). Our capital expenditure plans for 20202021 include required minimum spend of approximately $17$18 million for capital expenditures under certain of our community leases. Additionally, we are required to spend an average of approximately $25$26 million per year for each of the following four years and approximately $41$17 million thereafter under the initial lease terms of such leases.
Debt and Lease Covenants
Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain
circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payments.payment. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.requirements and maintain insurance coverage.
Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).
Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.
As of June 30, 2020,March 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.
Contractual Commitments
Significant ongoing commitments consist primarily of leases, debt, purchase commitments, and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 19, 2020. Except as discussed therein, there were25, 2021. There have been no other material changes outside the ordinary course of business in our contractual commitments during the sixthree months ended June 30, 2020.March 31, 2021.
As a result of the multi-part transaction with Ventas on July 26, 2020, our cash lease payments were increased by $77.7 million for the year ending December 31, 2020 and we eliminated future cash lease payments of $89.3 million, $90.6 million, $92.0 million, $93.4 million, and $94.8 million for each of the years ending December 31, 2021, 2022, 2023, 2024, and 2025, respectively. Additionally, our long-term debt obligations (excluding related interest payments) decreased by $78.4 million for year ending December 31, 2021, and increased by $45.0 million for the year ending December 31, 2025 as a result of the multi-part transaction with Ventas. See Note 17 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the multi-part transaction with Ventas.
Off-Balance Sheet Arrangements
As of June 30, 2020,March 31, 2021, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP.U.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance.
We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry.
Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.
The table below reconciles our Adjusted EBITDA from our net income (loss).
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in thousands) | 2021 | | 2020 | | | | |
| Net income (loss) | $ | (108,303) | | | $ | 369,497 | | | | | |
| Provision (benefit) for income taxes | 752 | | | (15,828) | | | | | |
| Equity in (earnings) loss of unconsolidated ventures | 531 | | | 1,008 | | | | | |
| Loss (gain) on debt modification and extinguishment, net | — | | | (19,181) | | | | | |
| Loss (gain) on sale of assets, net | (1,112) | | | (372,839) | | | | | |
| Other non-operating (income) loss | (1,644) | | | (2,662) | | | | | |
| Interest expense | 48,607 | | | 56,360 | | | | | |
| Interest income | (421) | | | (1,455) | | | | | |
| Income (loss) from operations | (61,590) | | | 14,900 | | | | | |
| Depreciation and amortization | 83,891 | | | 90,738 | | | | | |
| Asset impairment | 10,677 | | | 78,226 | | | | | |
| | | | | | | |
| Operating lease expense adjustment | (4,664) | | | (6,733) | | | | | |
| Non-cash stock-based compensation expense | 4,783 | | | 5,957 | | | | | |
| Transaction and organizational restructuring costs | 1,884 | | | 1,981 | | | | | |
Adjusted EBITDA(1) | $ | 34,981 | | | $ | 185,069 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
| Net income (loss) | $ | (118,420 | ) | | $ | (56,055 | ) | | $ | 251,077 |
| | $ | (98,661 | ) |
| Provision (benefit) for income taxes | 8,504 |
| | 633 |
| | (7,324 | ) | | 1,312 |
|
| Equity in (earnings) loss of unconsolidated ventures | (438 | ) | | 991 |
| | 570 |
| | 1,517 |
|
| Loss (gain) on debt modification and extinguishment, net | 157 |
| | 2,672 |
| | (19,024 | ) | | 2,739 |
|
| Loss (gain) on sale of assets, net | 1,029 |
| | (2,846 | ) | | (371,810 | ) | | (2,144 | ) |
| Other non-operating (income) loss | (988 | ) | | (3,199 | ) | | (3,650 | ) | | (6,187 | ) |
| Interest expense | 52,422 |
| | 62,828 |
| | 108,782 |
| | 126,193 |
|
| Interest income | (2,243 | ) | | (2,813 | ) | | (3,698 | ) | | (5,897 | ) |
| Income (loss) from operations | (59,977 | ) | | 2,211 |
| | (45,077 | ) | | 18,872 |
|
| Depreciation and amortization | 93,154 |
| | 94,024 |
| | 183,892 |
| | 190,912 |
|
| Asset impairment | 10,290 |
| | 3,769 |
| | 88,516 |
| | 4,160 |
|
| Loss (gain) on facility lease termination and modification, net | — |
| | 1,797 |
| | — |
| | 2,006 |
|
| Operating lease expense adjustment | (8,221 | ) | | (4,429 | ) | | (14,954 | ) | | (8,812 | ) |
| Non-cash stock-based compensation expense | 6,119 |
| | 6,030 |
| | 12,076 |
| | 12,386 |
|
| Transaction and organizational restructuring costs | 3,368 |
| | 634 |
| | 5,349 |
| | 1,095 |
|
Adjusted EBITDA (1) | $ | 44,733 |
| | $ | 104,036 |
| | $ | 229,802 |
| | $ | 220,619 |
|
| |
(1) | (1) Adjusted EBITDA includes: •$10.7 million benefit for the three months ended March 31, 2021 of government grants and credits recognized in other operating income •$100.0 million benefit for the three months ended March 31, 2020 for the three and six months ended June 30, 2019 includes a negative non-recurring net impact of $6.5 million and $13.0 million, respectively, from the application of the lease accounting standard effective January 1, 2019, for |
the six months ended June 30, 2020 includes the $100.0 million management agreement termination fee payment received from Healthpeak and forin connection with the three months ended June 30, 2020 includes $26.7 millionsale of government grants recognizedour ownership interest in other operating income during the period.CCRC Venture
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, and modification, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures forfor: community expansions, and major community redevelopment and repositioning projects, and the development of new communities.
We believe that presentation of Adjusted Free Cash flowFlow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; (ii) it is used as a metric in our performance-based compensation programs; and (iii)(ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.
Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination and modification generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.
The table below reconciles our Adjusted Free Cash Flow from our net cash provided by (used in) operating activities.
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in thousands) | 2021 | | 2020 | | | | |
| Net cash provided by (used in) operating activities | $ | (23,857) | | | $ | 57,479 | | | | | |
| Net cash provided by (used in) investing activities | (3,806) | | | (247,927) | | | | | |
| Net cash provided by (used in) financing activities | (35,562) | | | 347,250 | | | | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (63,225) | | | $ | 156,802 | | | | | |
| | | | | | | |
| Net cash provided by (used in) operating activities | $ | (23,857) | | | $ | 57,479 | | | | | |
| | | | | | | |
| Changes in prepaid insurance premiums financed with notes payable | 12,985 | | | 17,434 | | | | | |
| | | | | | | |
| | | | | | | |
| Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases | (7,563) | | | (4,088) | | | | | |
| Non-development capital expenditures, net | (27,450) | | | (60,556) | | | | | |
| Payment of financing lease obligations | (4,789) | | | (5,087) | | | | | |
Adjusted Free Cash Flow(1) | $ | (50,674) | | | $ | 5,182 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
| Net cash provided by (used in) operating activities | $ | 151,840 |
| | $ | 64,128 |
| | $ | 209,319 |
| | $ | 59,119 |
|
| Net cash provided by (used in) investing activities | (47,483 | ) | | 19,774 |
| | (295,410 | ) | | (80,299 | ) |
| Net cash provided by (used in) financing activities | (40,726 | ) | | (87,443 | ) | | 306,524 |
| | (104,079 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 63,631 |
| | $ | (3,541 | ) | | $ | 220,433 |
| | $ | (125,259 | ) |
| | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 151,840 |
| | $ | 64,128 |
| | $ | 209,319 |
| | $ | 59,119 |
|
| Distributions from unconsolidated ventures from cumulative share of net earnings | — |
| | (781 | ) | | — |
| | (1,530 | ) |
| Changes in prepaid insurance premiums financed with notes payable | (5,770 | ) | | (6,752 | ) | | 11,664 |
| | 12,090 |
|
| Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases | (6,421 | ) | | (1,000 | ) | | (10,509 | ) | | (1,000 | ) |
| Non-development capital expenditures, net | (21,521 | ) | | (66,464 | ) | | (82,077 | ) | | (121,066 | ) |
| Payment of financing lease obligations | (4,677 | ) | | (5,500 | ) | | (9,764 | ) | | (10,953 | ) |
Adjusted Free Cash Flow (1) | $ | 113,451 |
| | $ | (16,369 | ) | | $ | 118,633 |
| | $ | (63,340 | ) |
| |
(1) | Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $3.4 million and $0.6(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $1.9 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and $5.3 million and $1.1 million for the six months ended June 30, 2020 and 2019, respectively; includes the $100.0 million management agreement termination fee payment received from |
Healthpeak for the six months ended June 30, 2020; and includes $85.0 million of accelerated/advanced Medicare payments, $33.5 million of Emergency Fund government grants accepted, and $26.5 million of payroll taxes deferred during the three months ended June 30, 2020.March 31, 2021 and 2020, respectively. Additionally, Adjusted Free Cash Flow includes:
•$100.0 million benefit for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks from changes in interest rates charged on our credit facilities and other variable-rate indebtedness. The impact on earnings and the value of our long-term debt are subject to change as a result of movements in market rates and prices. As of June 30, 2020,March 31, 2021, we had $2.3$2.4 billion of long-term fixed rate debt $1.4and $1.5 billion of long-term variable rate debt, and $166.4 million drawn on our variable rate secured credit facility. For the six months ended June 30, 2020,debt. As of March 31, 2021, our total fixed-rate debt and variable-rate debt outstanding including our secured credit facility had a weighted average interest rate of 4.09%3.6%.
In the normal course of business, we enter into certain interest rate cap agreements with major financial institutions to effectively manage our risk above certain interest rates on variable rate debt. As of June 30, 2020, $1.3March 31, 2021, $1.4 billion, or 34.2%35.6%, of our long-term debt is variable rate debt subject to interest rate cap agreements and $131.0$128.0 million, or 3.5%3.3%, of our long-term debt is variable rate debt not subject to any interest rate cap agreements. The $166.4 million drawn on our secured credit facility is variable rate debt not subject to any interest rate cap agreements. Our outstanding variable rate debt is indexed to LIBOR, and accordingly our annual interest expense related to variable rate debt is directly affected by movements in LIBOR. After consideration of hedging instruments currently in place, and including the impact of our variable rate secured credit facility, increases in LIBOR of 100, 200, and 500 basis points would have resulted in additional annual interest expense of $15.9$15.5 million, $31.8$30.9 million, and $71.0$66.3 million, respectively. Certain of our variable debt instruments include springing provisions that obligate us to acquire additional interest rate caps in the event that LIBOR increases above certain levels, and the implementation of those provisions would result in additional mitigation of interest costs.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of June 30, 2020,March 31, 2021, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has not been any change in our 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 quarter ended June 30, 2020March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note 1211 to the Condensed Consolidated Financial Statementscondensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by this reference.
Item 1A. Risk Factors
The following risk factors add and modifyThere have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 19, 2020.
The COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals and us, is adversely impacting, and likely will continue to adversely impact our business, results of operations, cash flow, liquidity, and stock price, and such impacts may be material.
The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, our nation’s economy, the senior living industry, and our business. We expect that the pandemic, and the response efforts of federal, state, and local government authorities, businesses, individuals and us, likely
will continue to adversely impact our business, results of operations, cash flow, and liquidity through 2021. We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, liquidity, and stock price, and such impacts may be material and persist for some time. Further, our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth.
Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, we follow government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across our portfolio for the three months ended June 30, 2020. Due to the vulnerable nature of our residents, we expect many of the foregoing restrictions will continue at our communities for some time, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed. We have completed baseline COVID-19 testing at all of our communities. Further testing, whether undertaken proactively or as a result of regulatory requirements, may result in significant additional expense, additional temporary restrictions on move-ins at affected communities, continued need for isolating positive residents, increased use of personal protection equipment by our associates, and increased labor costs.
The pandemic and related infection prevention and control protocols within senior living communities have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities. We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time. Our efforts to adapt our sales and marketing efforts to meet demand may not be successful. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents.
The pandemic and our response efforts began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. During the three months ended June 30, 2020, the year-over-year decrease in monthly move-ins of our same-community portfolio ranged from approximately 65% in April 2020 to approximately 35% in June 2020, and was approximately 40% for July 2020. Furthermore, our same community weighted average monthly occupancy declined from 83.0% in March 2020 to 77.8% in June 2020, and was 78.6% in July 2020. We estimate that the pandemic and our response efforts resulted in $43.1 million of lost resident fee revenue in our same-community portfolio for the three months ended June 30, 2020. Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19. In addition, our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in an 18.7% year-over-year decline in home health average daily census for the three months ended June 30, 2020.
Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment, medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, and consulting and professional services costs, as well as costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs are likely to be substantial. We have taken, and may take in future periods, significant impairment charges related to COVID-19 due to lower than expected operating performance at communities.
We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic. As of June 30, 2020, our remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities. As of June 30, 2020, $166.4 million of borrowings are outstanding under our revolving credit facility. Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated
fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we would be required to repay the difference to restore the outstanding balance to the new borrowing base. Due primarily to the impacts of the COVID-19 pandemic, and based upon our current estimate of cash flows, we have determined that it is probable that we will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on our part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and a requirement to repay the $166.4 million of borrowings outstanding on the revolving credit facility. As a result, we have continued efforts on our plan to refinance the assets currently securing the credit facility. We currently anticipate that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on the revolving credit facility and terminate the facility without payment of a premium or penalty. However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to us, in which case we would expect to take other mitigating actions prior to financing maturity dates.
The 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 breadth of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the development and availability of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, 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 response efforts, including increased equipment, supplies, labor, litigation, testing, and other expenses; the impact of COVID-19 on our ability to complete financings, refinancings, 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, including unfunded mandatory testing; increased 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.
Significant legal actions and liability claims against us could subject us to increased operating costs and substantial uninsured liabilities, which may adversely affect our financial condition and results of operations.
We have been and are currently involved in litigation and claims incidental to the conduct of our business, which we believe are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at our communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, we maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. Accordingly, we are, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. If we experience a greater number of losses than we anticipate, or if certain claims are not covered by insurance, our results of operations and financial condition could be adversely affected.
The senior living and healthcare services businesses entail an inherent risk of liability, particularly given the demographics of our residents and patients, including age and health, and the services we provide. In recent years, we, as well as other participants in our industry, have been subject to an increasing number of claims and lawsuits alleging that our services have resulted in resident injury or other adverse effects. Many of these lawsuits involve large damage claims and significant legal costs. The frequency and magnitude of such alleged claims and legal costs may increase due to the COVID-19 pandemic or our response efforts. Many states continue to consider tort reform and how it will apply to the senior living industry. We may continue to be faced with the threat of large jury verdicts in jurisdictions that do not find favor with large senior living or healthcare providers. There can be no guarantee that we will not have any claims that exceed our policy limits in the future, which could subject us to substantial uninsured liabilities.
If a successful claim is made against us and it is not covered by our insurance or exceeds the policy limits, our financial condition and results of operations could be materially and adversely affected. In some states, state law may prohibit or limit insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of our insurance policy limits. Also, our insurance policies' deductibles, or self-insured retention, are accrued based on an actuarial projection of future liabilities. If these projections are inaccurate and if there is an unexpectedly large number of successful claims that result in liabilities in excess of our accrued reserves, our operating results could be negatively affected. Claims against us, regardless of their merit or eventual outcome, also could have a material adverse effect on our ability to attract residents or expand our business and could require our management to devote time to matters unrelated to the day-to-day operation of our business. We also have to renew our policies every year and negotiate terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases and changes in coverage and other terms. There can be no assurance that we will be able to obtain liability insurance in the future or, if available, that such coverage will be available on acceptable terms.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| |
(c) | The following table contains information regarding purchases of our common stock made during the quarter ended June 30, 2020 by or on behalf of the Company or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act: |
(a)Not applicable.
(b)Not applicable.
(c)The following table contains information regarding purchases of our common stock made during the quarter ended March 31, 2021 by or on behalf of the Company or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act:
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total
Number of
Shares
Purchased (1) | | 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 ($ in thousands) (2) |
| 1/1/2021 - 1/31/2021 | 2,442 | | | $ | 5.29 | | | — | | | $ | 44,026 | |
| 2/1/2021 - 2/28/2021 | 741,479 | | | 5.82 | | | — | | | 44,026 | |
| 3/1/2021 - 3/31/2021 | — | | | — | | | — | | | 44,026 | |
| Total | 743,921 | | | $ | 5.82 | | | — | | | |
(1)Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock and restricted stock units. The average price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock and restricted stock units or, if such date is not a trading day, the trading day immediately prior to such vesting date.
(2)On November 1, 2016, we announced that our Board of Directors had approved a share repurchase program that authorizes us to purchase up to $100.0 million in the aggregate of our common stock. The share repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of 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, and capital availability. The repurchase program does not obligate us to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at our discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. As of March 31, 2021, $44.0 million remained available under the repurchase program.
|
| | | | | | | | | | | | | |
| Period | Total
Number of
Shares
Purchased (1) | | Average
Price Paid
per Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs | | Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs ($ in thousands) (2) |
| 4/1/2020 - 4/30/2020 | — |
| | $ | — |
| | — |
| | $ | 44,026 |
|
| 5/1/2020 - 5/31/2020 | 17,061 |
| | 3.46 |
| | — |
| | 44,026 |
|
| 6/1/2020 - 6/30/2020 | — |
| | — |
| | — |
| | 44,026 |
|
| Total | 17,061 |
| | $ | 3.46 |
| | — |
| | |
| |
(1) | Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock. The average price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock or, if such date is not a trading day, the trading day immediately prior to such vesting date. |
| |
(2) | On November 1, 2016, the Company announced that its Board of Directors had approved a share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of its common stock. The share repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of 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, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. As of June 30, 2020, $44.0 million remained available under the repurchase program. |
Item 6. Exhibits
| | | | | | | | |
| Exhibit No. | | Description |
| | |
| 2.1 | | | | Description 001-32641)).* |
| 3.1 | | |
3.1 | | |
| 3.2 | | |
| 4.1 | | |
| 4.2 | | |
10.1 | | |
10.2 | | |
| | |
| | |
| | |
| 10.1 | | |
10.310.2 | | |
| 10.3 | | |
| 10.4 | | |
10.4 | | |
| 10.5 | | |
| 31.1 | | |
| 31.2 | | |
| 32 | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,March 31, 2021, formatted in Inline XBRL (included in Exhibit 101). |
| * | | Portions of this exhibitSchedules and exhibits have been omitted pursuant to Item 601(b)(10)(iv)601 of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
SIGNATURES
Pursuant to the requirements 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.
|
| | | | | | | | | | |
| BROOKDALE SENIOR LIVING INC. | |
| (Registrant) | |
| | |
| By: | /s/ Steven E. Swain | |
| Name: | Steven E. Swain | |
| Title: | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
| |
| Date: | August 10, 2020May 7, 2021 | |