UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
or
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number: 001-36499
| | |
| New Senior Investment Group Inc. |
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 80-0912734 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| or organization) | | |
| | | | | | | | | | | |
| 55 West 46th Street, Suite 2204 |
| New York | NYNew York | 10036 |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
| | |
N/A | | | | | |
(Former name, former address and former fiscal year, if changed since last report) | | |
| | | | | | | | | | | | | | |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class: | | Trading Symbol: | | Name of each exchange on which registered: |
Common Stock, $0.01 par value $0.01 per share | | SNR | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
ý Yes No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☒☐ | Accelerated filer | ☐☒ |
| Smaller reporting company | ☐ | Non-accelerated filer | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, par value $0.01 per share: 83,023,84684,063,182 shares outstanding as of OctoberJuly 23, 2020.2021.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of New Senior Investment Group Inc.’s (“New Senior,” the “Company,” “we,” “us” or “our”) investments, the stability of our earnings, and our financing needs. Forward-lookingneeds, the impact of COVID-19 on our business and the proposed Merger (as defined below). These forward-looking statements are generally identifiable by use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “endeavor,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” “should,” “potential,” “intend,” “expect,” “plan,” “endeavor,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue”“would” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-lookingforward looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
•risks and uncertainties associated with the ability of the Company and Ventas, Inc. (“Ventas”) to complete the Merger (as defined below) on the proposed terms or on the anticipated timeline, or at all;
•failure of the combined company to realize the expected benefits of the Merger;
•significant transaction costs and/or unknown or inestimable liabilities in connection with the Merger;
•existing and potential litigation in connection with the Merger, including resulting expense or delay;
•the risk that the Company’s business will not be integrated successfully in the combined company or that such integration may be more difficult, time-consuming or costly than expected;
•risks related to future opportunities and plans for the combined company, including the uncertainty of financial performance and results of the combined company following completion of the Merger;
•our ability and, following consummation of the Merger, the ability of the combined company, to qualify and maintain its qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any such failure to maintain such qualification would have on our or the combined company’s business;
•disruption to the Company’s business from the Merger, including diversions to the attention of management and the restrictive covenants in the Merger Agreement, which may make it more difficult to conduct business as usual or maintain relationships with property managers, tenants, employees or other third parties;
•effects relating to the announcement of the Merger or any further announcements related to the Merger or the consummation of the Merger on the market price of Company common stock or Ventas common stock;
•the severity, duration and scope of the novel coronavirus (“COVID-19”)COVID-19 global pandemic, the effects of the pandemic and measures intended to prevent its spread on our and our tenant’s business, results of operations, cash flows and financial condition, including declines in occupancy and rental revenues and increases in operating expenses; constraints in our ability to access capital and other sources of funding, including due to fluctuations in the trading price of our common stock; increased risk of claims, litigation and regulatory proceedings; and the ability of federal, state and local governments to effectively respond to and manage the pandemic on an ongoing basis to prevent its continued spread;
•our ability to comply with the terms of our financings, which depends in part on the performance of our property managers and triple net lease tenant;
•any increase in our borrowing costs as a result of rising interest rates, the expected discontinuation of the London Inter-bankInter-Bank Offered Rate (LIBOR) and the transition to any other interest rate benchmark, or other factors;
•our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due or as needed to comply with the terms of our covenants or to facilitate our ability to sell assets;
•our ability to manage our liquidity and sustain distributions to our stockholders, particularly in light of the cash shortfall described in our most recent Annual Report on Form 10-K under the heading “Risk Factors” and in this report under the captions “Risk Factors” andheading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”;
•our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, applicable law and the terms of our financings;financings and applicable law;
•factors affecting the performance of our properties, such as a decline in occupancy and increases in operating costs (including, but not limited to, the costs of labor, supplies, insurance and property taxes);
•concentration risk with respect to Holiday Retirement (“Holiday”), which, for the ninesix months ended SeptemberJune 30, 2020,2021, accounted for 94.6%82.4% of total net operating income (“NOI”) from continuing operations;;
•risks associated with a change of control in the ownership or senior management of Holiday;
•our ability and the ability of our property managers and tenant to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;
•changes of federal, state and local laws and regulations relating to employment, fraud and abuse practices, Medicaid reimbursement and licensure, etc., including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations of our property managers or tenant;
•the ability of our property managers and tenant to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties, particularly in light of the impacts of the COVID-19 pandemic on their businesses;
•the quality and size of our investment pipeline, our ability to execute investments at attractive risk-adjusted prices, our ability to finance our investments on favorable terms, and our ability to deploy investable cash in a timely manner;
•our ability to sell properties on favorable terms and to realize the anticipated benefits from any such dispositions, including as a result of a reduction of commercial real estate value related to the COVID-19 pandemic;
•changes in economic conditions generally and the real estate, senior housing, equity and bond markets specifically, including general economic uncertainty as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth;
•our stock price performance and any disruption or lack of access to the capital markets or other sources of financing, including as a result of factors influenced by the COVID-19 pandemic;
•the impact of any current or future legal proceedings and regulatory investigations and inquiries on us or our property managers; and
•our reliance on our property managers for timely delivery of accurate property-level financial results; and
•our ability to maintain our qualification as a Real Estate Investment Trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business.results.
Although we believe that the expectations reflected in any forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those indicated by any forward-looking statement.
Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this Quarterly Report on Form 10-Q, and to consider carefully the factors discussed in this report under the heading “Risk Factors” and under the heading “Risk Factors” in our 20192020 Annual Report on Form 10-K in evaluating these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.
SPECIAL NOTE REGARDING EXHIBITS
In reviewing the agreements and amendments included as exhibits to this Quarterly Report on Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | (Unaudited) | | (Note) | | (Unaudited) | | (Note) |
| Assets | Assets | | | | Assets | | | |
| Real estate investments: | Real estate investments: | | | | Real estate investments: | | | |
| Land | Land | $ | 134,643 | | | $ | 134,643 | | Land | $ | 134,643 | | | $ | 134,643 | |
| Buildings, improvements and other | Buildings, improvements and other | 1,976,544 | | | 1,970,036 | | Buildings, improvements and other | 1,990,324 | | | 1,983,363 | |
| Accumulated depreciation | Accumulated depreciation | (401,779) | | | (351,555) | | Accumulated depreciation | (448,739) | | | (417,455) | |
| Net real estate property | Net real estate property | 1,709,408 | | | 1,753,124 | | Net real estate property | 1,676,228 | | | 1,700,551 | |
| Acquired lease and other intangible assets | Acquired lease and other intangible assets | 7,642 | | | 7,642 | | Acquired lease and other intangible assets | 7,642 | | | 7,642 | |
| Accumulated amortization | Accumulated amortization | (2,505) | | | (2,238) | | Accumulated amortization | (2,773) | | | (2,595) | |
| Net real estate intangibles | Net real estate intangibles | 5,137 | | | 5,404 | | Net real estate intangibles | 4,869 | | | 5,047 | |
| Net real estate investments | Net real estate investments | 1,714,545 | | | 1,758,528 | | Net real estate investments | 1,681,097 | | | 1,705,598 | |
| Assets from discontinued operations | 0 | | | 363,489 | | |
| | Cash and cash equivalents | Cash and cash equivalents | 51,680 | | | 39,614 | | Cash and cash equivalents | 23,187 | | | 33,046 | |
| Receivables and other assets, net | Receivables and other assets, net | 36,460 | | | 33,078 | | Receivables and other assets, net | 39,294 | | | 34,892 | |
| Total Assets | Total Assets | $ | 1,802,685 | | | $ | 2,194,709 | | Total Assets | $ | 1,743,578 | | | $ | 1,773,536 | |
| | Liabilities, Redeemable Preferred Stock and Equity | Liabilities, Redeemable Preferred Stock and Equity | | | | Liabilities, Redeemable Preferred Stock and Equity | | | |
| Liabilities | Liabilities | | | | Liabilities | | | |
| Debt, net | Debt, net | $ | 1,487,407 | | | $ | 1,590,632 | | Debt, net | $ | 1,481,051 | | | $ | 1,486,164 | |
| Liabilities from discontinued operations | 0 | | | 267,856 | | |
| | Accrued expenses and other liabilities | Accrued expenses and other liabilities | 66,594 | | | 59,320 | | Accrued expenses and other liabilities | 59,924 | | | 63,886 | |
| Total Liabilities | Total Liabilities | 1,554,001 | | | 1,917,808 | | Total Liabilities | 1,540,975 | | | 1,550,050 | |
| Commitments and contingencies (Note 14) | | | | |
| Redeemable preferred stock, $0.01 par value with $100 liquidation preference, 400,000 shares authorized, issued and outstanding as of both September 30, 2020 and December 31, 2019 | 40,506 | | | 40,506 | | |
| Commitments and contingencies (Note 15) | | Commitments and contingencies (Note 15) | 0 | | 0 |
| Redeemable preferred stock, par value $0.01 per share with $100 liquidation preference, 200,000 shares authorized, issued and outstanding as of both June 30, 2021 and December 31, 2020 | | Redeemable preferred stock, par value $0.01 per share with $100 liquidation preference, 200,000 shares authorized, issued and outstanding as of both June 30, 2021 and December 31, 2020 | 20,250 | | | 20,253 | |
| Equity | Equity | | Equity | |
| Preferred stock, $0.01 par value, 99,600,000 shares (excluding 400,000 shares of redeemable preferred stock) authorized, NaN issued or outstanding as of both September 30, 2020 and December 31, 2019 | 0 | | | 0 | | |
| Common stock, $0.01 par value, 2,000,000,000 shares authorized, 83,023,846 and 82,964,438 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 830 | | | 830 | | |
| Preferred stock, par value $0.01 per share, 99,800,000 shares (excluding 200,000 shares of redeemable preferred stock) authorized, NaN issued or outstanding as of both June 30, 2021 and December 31, 2020 | | Preferred stock, par value $0.01 per share, 99,800,000 shares (excluding 200,000 shares of redeemable preferred stock) authorized, NaN issued or outstanding as of both June 30, 2021 and December 31, 2020 | 0 | | | 0 | |
| Common stock, $0.01 par value, 2,000,000,000 shares authorized, 84,063,182 and 83,023,970 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | | Common stock, $0.01 par value, 2,000,000,000 shares authorized, 84,063,182 and 83,023,970 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 841 | | | 830 | |
| Additional paid-in capital | Additional paid-in capital | 905,833 | | | 901,889 | | Additional paid-in capital | 911,171 | | | 907,577 | |
| Accumulated deficit | Accumulated deficit | (684,901) | | | (660,588) | | Accumulated deficit | (726,519) | | | (694,194) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (13,584) | | | (5,736) | | Accumulated other comprehensive loss | (3,140) | | | (10,980) | |
| Total Equity | Total Equity | 208,178 | | | 236,395 | | Total Equity | 182,353 | | | 203,233 | |
| Total Liabilities, Redeemable Preferred Stock and Equity | Total Liabilities, Redeemable Preferred Stock and Equity | $ | 1,802,685 | | | $ | 2,194,709 | | Total Liabilities, Redeemable Preferred Stock and Equity | $ | 1,743,578 | | | $ | 1,773,536 | |
Note: The consolidated balance sheet at December 31, 20192020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
See accompanying notes to consolidated financial statements (unaudited).
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Revenues | Revenues | | | | | | | | Revenues | | | | | | | |
| Resident fees and services | Resident fees and services | $ | 81,582 | | | $ | 84,373 | | | $ | 249,540 | | | $ | 254,943 | | Resident fees and services | $ | 77,507 | | | $ | 82,951 | | | $ | 155,620 | | | $ | 167,958 | |
| Rental revenue | Rental revenue | 1,583 | | | 1,583 | | | 4,748 | | | 4,748 | | Rental revenue | 1,582 | | | 1,582 | | | 3,165 | | | 3,165 | |
| Total revenues | Total revenues | 83,165 | | | 85,956 | | | 254,288 | | | 259,691 | | Total revenues | 79,089 | | | 84,533 | | | 158,785 | | | 171,123 | |
| Expenses | Expenses | | | | | Expenses | | | | |
| Property operating expense | Property operating expense | 49,957 | | | 50,576 | | | 149,782 | | | 154,208 | | Property operating expense | 49,698 | | | 48,760 | | | 99,146 | | | 99,825 | |
| Depreciation and amortization | | Depreciation and amortization | 15,586 | | | 16,782 | | | 31,475 | | | 34,318 | |
| Interest expense | Interest expense | 14,540 | | | 18,962 | | | 47,040 | | | 58,382 | | Interest expense | 14,350 | | | 15,281 | | | 28,703 | | | 32,500 | |
| Depreciation and amortization | 16,204 | | | 17,323 | | | 50,522 | | | 51,304 | | |
| General and administrative expense | General and administrative expense | 5,905 | | | 5,410 | | | 17,645 | | | 15,747 | | General and administrative expense | 6,579 | | | 5,894 | | | 12,854 | | | 11,740 | |
| Acquisition, transaction and integration expense | Acquisition, transaction and integration expense | 43 | | | 503 | | | 195 | | | 1,169 | | Acquisition, transaction and integration expense | 5,607 | | | 19 | | | 6,000 | | | 152 | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | 0 | | | 0 | | | 5,884 | | | 335 | | Loss on extinguishment of debt | 0 | | | 0 | | | 0 | | | 5,884 | |
| Other expense | Other expense | 192 | | | 16 | | | 520 | | | 1,393 | | Other expense | 205 | | | 433 | | | 820 | | | 328 | |
| Total expenses | Total expenses | 86,841 | | | 92,790 | | | 271,588 | | | 282,538 | | Total expenses | 92,025 | | | 87,169 | | | 178,998 | | | 184,747 | |
| Loss on sale of real estate | 0 | | | 0 | | | 0 | | | (122) | | |
| Litigation proceeds, net | 0 | | | 38,226 | | | 0 | | | 38,226 | | |
| Income (Loss) before income taxes | (3,676) | | | 31,392 | | | (17,300) | | | 15,257 | | |
| | Loss before income taxes | | Loss before income taxes | (12,936) | | | (2,636) | | | (20,213) | | | (13,624) | |
| Income tax expense | Income tax expense | 74 | | | 37 | | | 156 | | | 110 | | Income tax expense | 33 | | | 22 | | | 67 | | | 82 | |
| Income (Loss) from continuing operations | (3,750) | | | 31,355 | | | (17,456) | | | 15,147 | | |
| Loss from continuing operations | | Loss from continuing operations | (12,969) | | | (2,658) | | | (20,280) | | | (13,706) | |
| Discontinued Operations: | Discontinued Operations: | | Discontinued Operations: | |
| Gain on sale of real estate | Gain on sale of real estate | 0 | | | 0 | | | 19,992 | | | 0 | | Gain on sale of real estate | 0 | | | 0 | | | 0 | | | 19,992 | |
| Loss from discontinued operations | Loss from discontinued operations | 0 | | | (2,506) | | | (3,107) | | | (7,077) | | Loss from discontinued operations | 0 | | | 0 | | | 0 | | | (3,107) | |
| Discontinued operations, net | Discontinued operations, net | 0 | | | (2,506) | | | 16,885 | | | (7,077) | | Discontinued operations, net | 0 | | | 0 | | | 0 | | | 16,885 | |
| Net income (loss) | Net income (loss) | (3,750) | | | 28,849 | | | (571) | | | 8,070 | | Net income (loss) | (12,969) | | | (2,658) | | | (20,280) | | | 3,179 | |
| Deemed dividend on redeemable preferred stock | Deemed dividend on redeemable preferred stock | (605) | | | (605) | | | (1,802) | | | (1,802) | | Deemed dividend on redeemable preferred stock | (299) | | | (599) | | | (595) | | | (1,197) | |
| Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | $ | (4,355) | | | $ | 28,244 | | | $ | (2,373) | | | $ | 6,268 | | Net income (loss) attributable to common stockholders | $ | (13,268) | | | $ | (3,257) | | | $ | (20,875) | | | $ | 1,982 | |
| Basic earnings per common share: (A) | | | | | | | | |
| Income (Loss) from continuing operations attributable to common stockholders | $ | (0.05) | | | $ | 0.37 | | | $ | (0.23) | | | $ | 0.16 | | |
Basic and diluted earnings per common share: (A) | | Basic and diluted earnings per common share: (A) | | | | | | | |
| Loss from continuing operations attributable to common stockholders | | Loss from continuing operations attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | (0.18) | |
| Discontinued operations, net | Discontinued operations, net | 0 | | | (0.03) | | | 0.20 | | | (0.09) | | Discontinued operations, net | 0 | | | 0 | | | 0 | | | 0.20 | |
Net income (loss) attributable to common stockholders (B) | $ | (0.05) | | | $ | 0.34 | | | $ | (0.03) | | | $ | 0.08 | | |
Diluted earnings per common share: (A) | | | | | | | | |
| Income (Loss) from continuing operations attributable to common stockholders | $ | (0.05) | | | $ | 0.37 | | | $ | (0.23) | | | $ | 0.16 | | |
| Discontinued operations, net | 0 | | | (0.03) | | | 0.20 | | | (0.08) | | |
Net income (loss) attributable to common stockholders (B) | $ | (0.05) | | | $ | 0.34 | | | $ | (0.03) | | | $ | 0.07 | | |
| Net income (loss) attributable to common stockholders | | Net income (loss) attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | 0.02 | |
| | Weighted average number of shares of common stock outstanding | Weighted average number of shares of common stock outstanding | | | | | | | | Weighted average number of shares of common stock outstanding | | | | | | | |
| Basic | 82,568,919 | | | 82,209,844 | | | 82,472,115 | | | 82,207,610 | | |
Diluted (C) | 82,568,919 | | | 83,964,231 | | | 82,472,115 | | | 83,588,648 | | |
Basic and diluted (B) | | Basic and diluted (B) | 83,653,329 | | | 82,459,741 | | | 83,233,377 | | | 82,423,182 | |
| | | Dividends declared and paid per share of common stock | Dividends declared and paid per share of common stock | $ | 0.07 | | | $ | 0.13 | | | $ | 0.26 | | | $ | 0.39 | | Dividends declared and paid per share of common stock | $ | 0.07 | | | $ | 0.07 | | | $ | 0.13 | | | $ | 0.20 | |
(A)Basic earnings per common share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The outstanding shares used to calculate the weighted average basic shares outstanding exclude 454,921227,462 and 754,594454,921 restricted stock awards, net of forfeitures, as of SeptemberJune 30, 20202021 and 2019,2020, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic EPS share.EPS. Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.
(B)Amounts may not sum due to rounding.
(C)Dilutive share equivalents and options were excluded for the three and ninesix months ended SeptemberJune 30, 2021 and 2020 as their inclusion would have been anti-dilutive given our loss position.
See accompanying notes to consolidated financial statements (unaudited).
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) | Net income (loss) | $ | (3,750) | | | $ | 28,849 | | | $ | (571) | | | $ | 8,070 | | Net income (loss) | $ | (12,969) | | | $ | (2,658) | | | $ | (20,280) | | | $ | 3,179 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Unrealized gain (loss) on cash flow hedge | Unrealized gain (loss) on cash flow hedge | 108 | | | (1,003) | | | (7,848) | | | (7,267) | | Unrealized gain (loss) on cash flow hedge | 670 | | | 762 | | | 7,840 | | | (7,956) | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | 108 | | | (1,003) | | | (7,848) | | | (7,267) | | Total other comprehensive income (loss) | 670 | | | 762 | | | 7,840 | | | (7,956) | |
| Total comprehensive income (loss) | $ | (3,642) | | | $ | 27,846 | | | $ | (8,419) | | | $ | 803 | | |
| Total comprehensive loss | | Total comprehensive loss | $ | (12,299) | | | $ | (1,896) | | | $ | (12,440) | | | $ | (4,777) | |
See accompanying notes to consolidated financial statements (unaudited).
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(dollars in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at June 30, 2020 | | 83,023,396 | | | $ | 830 | | | $ | (674,626) | | | $ | 904,135 | | | $ | (13,692) | | | $ | 216,647 | |
| Equity awards vested | | 450 | | | 0 | | | — | | | — | | | — | | | 0 | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | 0 | | | 0 | | | — | | | (1) | | | — | | | (1) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 1,699 | | | — | | | 1,699 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Dividends declared - common stock ($0.065 per share) | | — | | | — | | | (5,369) | | | — | | | — | | | (5,369) | |
| Dividends declared - equity awards ($0.065 per share) | | — | | | — | | | (551) | | | — | | | — | | | (551) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (506) | | | — | | | — | | | (506) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (99) | | | — | | | — | | | (99) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 108 | | | 108 | |
| Net loss | | — | | | — | | | (3,750) | | | — | | | — | | | (3,750) | |
| Equity at September 30, 2020 | | 83,023,846 | | | $ | 830 | | | $ | (684,901) | | | $ | 905,833 | | | $ | (13,584) | | | $ | 208,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Total Equity |
| | Shares | | Amount | |
| Equity at March 31, 2021 | | 83,819,799 | | | $ | 838 | | | $ | (707,371) | | | $ | 908,976 | | | $ | (3,810) | | | $ | 198,633 | |
| Equity awards vested | | 257,267 | | | 3 | | | — | | | (3) | | | — | | | 0 | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | (13,884) | | | 0 | | | — | | | (107) | | | — | | | (107) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 2,305 | | | — | | | 2,305 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Dividends declared - common stock ($0.065 per share) | | — | | | — | | | (5,449) | | | — | | | — | | | (5,449) | |
| Dividends declared - equity awards ($0.065 per share) | | — | | | — | | | (431) | | | — | | | — | | | (431) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (250) | | | — | | | — | | | (250) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (49) | | | — | | | — | | | (49) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 670 | | | 670 | |
| Net loss | | — | | | — | | | (12,969) | | | — | | | — | | | (12,969) | |
| Equity at June 30, 2021 | | 84,063,182 | | | $ | 841 | | | $ | (726,519) | | | $ | 911,171 | | | $ | (3,140) | | | $ | 182,353 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at December 31, 2019 | | 82,964,438 | | | $ | 830 | | | $ | (660,588) | | | $ | 901,889 | | | $ | (5,736) | | | $ | 236,395 | |
| Equity awards vested | | 120,246 | | | 1 | | | — | | | — | | | — | | | 1 | |
| | | | | | | | | | | | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | (121,240) | | | (1) | | | — | | | (1,051) | | | — | | | (1,052) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 4,815 | | | — | | | 4,815 | |
| Directors shares issued | | 60,402 | | | 0 | | | — | | | 180 | | | — | | | 180 | |
| | | | | | | | | | | | |
| Dividends declared - common stock ($0.26 per share) | | — | | | — | | | (21,444) | | | — | | | — | | | (21,444) | |
| Dividends declared - equity awards ($0.13 - $0.26 per share) | | — | | | — | | | (496) | | | — | | | — | | | (496) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (506) | | | — | | | — | | | (506) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (1,296) | | | — | | | — | | | (1,296) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (7,848) | | | (7,848) | |
| Net income | | — | | | — | | | (571) | | | — | | | — | | | (571) | |
| Equity at September 30, 2020 | | 83,023,846 | | | $ | 830 | | | $ | (684,901) | | | $ | 905,833 | | | $ | (13,584) | | | $ | 208,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Total Equity |
| | Shares | | Amount | |
| Equity at December 31, 2020 | | 83,023,970 | | | $ | 830 | | | $ | (694,194) | | | $ | 907,577 | | | $ | (10,980) | | | $ | 203,233 | |
| Equity awards vested | | 336,043 | | | 3 | | | — | | | (3) | | | — | | | 0 | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | (80,954) | | | 0 | | | — | | | (751) | | | — | | | (751) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 4,356 | | | — | | | 4,356 | |
| Option exercise | | 784,123 | | | 8 | | | — | | | (8) | | | — | | | 0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Dividends declared - common stock ($0.13 per share) | | — | | | — | | | (10,829) | | | — | | | — | | | (10,829) | |
| Dividends declared - equity awards ($0.13 per share) | | — | | | — | | | (621) | | | — | | | — | | | (621) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (250) | | | — | | | — | | | (250) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (345) | | | — | | | — | | | (345) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 7,840 | | | 7,840 | |
| Net loss | | — | | | — | | | (20,280) | | | — | | | — | | | (20,280) | |
| Equity at June 30, 2021 | | 84,063,182 | | | $ | 841 | | | $ | (726,519) | | | $ | 911,171 | | | $ | (3,140) | | | $ | 182,353 | |
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(dollars in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at June 30, 2019 | | 83,126,259 | | | $ | 831 | | | $ | (660,078) | | | $ | 899,386 | | | $ | (6,264) | | | $ | 233,875 | |
| | | | | | | | | | | | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 1,045 | | | — | | | 1,045 | |
| Restricted stock awards forfeited | | (161.821) | | | (1) | | | — | | | 1 | | | — | | | 0 | |
| Dividends declared - common stock ($0.13 per share) | | — | | | — | | | (10,687) | | | — | | | — | | | (10,687) | |
| Dividends declared - equity awards ($0.13 per share) | | — | | | — | | | (469) | | | — | | | — | | | (469) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (506) | | | — | | | — | | | (506) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (99) | | | — | | | — | | | (99) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (1,003) | | | (1,003) | |
| Net income | | — | | | — | | | 28,849 | | | — | | | — | | | 28,849 | |
| Equity at September 30, 2019 | | 82,964,438 | | | $ | 830 | | | $ | (642,990) | | | $ | 900,432 | | | $ | (7,267) | | | $ | 251,005 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at March 31, 2020 | | 82,880,222 | | | $ | 829 | | | $ | (666,424) | | | $ | 902,288 | | | $ | (14,454) | | | $ | 222,239 | |
| Equity awards vested | | 96,659 | | | 1 | | | — | | | 0 | | | — | | | 1 | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | (13,887) | | | 0 | | | — | | | (52) | | | — | | | (52) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 1,719 | | | — | | | 1,719 | |
| Director shares issued | | 60,402 | | | 0 | | | — | | | 180 | | | — | | | 180 | |
| Dividends declared - common stock ($0.065 per share) | | — | | | — | | | (5,369) | | | — | | | — | | | (5,369) | |
| Dividends declared - equity awards ($0.065 per share) | | — | | | — | | | 424 | | | — | | | — | | | 424 | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (500) | | | — | | | — | | | (500) | |
| Dividends declared on redeemable preferred stock | | — | | | — | | | (99) | | | — | | | — | | | (99) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 762 | | | 762 | |
| Net loss | | — | | | — | | | (2,658) | | | — | | | — | | | (2,658) | |
| Equity at June 30, 2020 | | 83,023,396 | | | $ | 830 | | | $ | (674,626) | | | $ | 904,135 | | | $ | (13,692) | | | $ | 216,647 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at December 31, 2018 | | 82,148,869 | | | $ | 821 | | | $ | (616,504) | | | $ | 898,135 | | | $ | 0 | | | $ | 282,452 | |
| Restricted stock awards issued | | 916,415 | | | 9 | | | | | (9) | | | — | | | 0 | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 2,031 | | | — | | | 2,031 | |
| Directors shares issued | | 60,975 | | | 1 | | | — | | | 274 | | | — | | | 275 | |
| Restricted stock awards forfeited | | (161,821) | | | (1) | | | — | | | 1 | | | — | | | 0 | |
| Dividends declared - common stock ($0.39 per share) | | — | | | — | | | (32,062) | | | — | | | — | | | (32,062) | |
| Dividends declared - equity awards (0.13 - $0.39 per share) | | — | | | — | | | (692) | | | — | | | — | | | (692) | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (506) | | | — | | | — | | | (506) | |
| Dividends declared on redeemable preferred stock | | — | | | | | (1,296) | | | | | | | (1,296) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (7,267) | | | (7,267) | |
| Net income | | — | | | — | | | 8,070 | | | — | | | — | | | 8,070 | |
| Equity at September 30, 2019 | | 82,964,438 | | | $ | 830 | | | $ | (642,990) | | | $ | 900,432 | | | $ | (7,267) | | | $ | 251,005 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 |
| | Common Stock | | Accumulated Deficit | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Total Equity |
| | Shares | | Amount | |
| Equity at December 31, 2019 | | 82,964,438 | | | $ | 830 | | | $ | (660,588) | | | $ | 901,889 | | | $ | (5,736) | | | $ | 236,395 | |
| Equity awards vested | | 119,796 | | | 1 | | | | | 0 | | 0 | — | | | 1 | |
| Shares repurchased and retired to satisfy tax withholding upon vesting | | (121,240) | | | (1) | | | | | (1,050) | | | | | (1,051) | |
| Amortization of equity-based compensation | | — | | | — | | | — | | | 3,116 | | | — | | | 3,116 | |
| Director shares issued | | 60,402 | | | 0 | | | — | | | 180 | | | — | | | 180 | |
| Dividends declared - common stock ($0.195 per share) | | — | | | — | | | (16,077) | | | — | | | — | | | (16,077) | |
| Dividends declared - equity awards ($0.195 per share) | | — | | | — | | | 57 | | | — | | | — | | | 57 | |
| Deemed dividend on redeemable preferred stock | | — | | | — | | | (500) | | | — | | | — | | | (500) | |
| Dividends declared on redeemable preferred stock | | — | | | | | (697) | | | | | | | (697) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (7,956) | | | (7,956) | |
| Net income | | — | | | — | | | 3,179 | | | — | | | — | | | 3,179 | |
| Equity at June 30, 2020 | | 83,023,396 | | | $ | 830 | | | $ | (674,626) | | | $ | 904,135 | | | $ | (13,692) | | | $ | 216,647 | |
See accompanying notes to consolidated financial statements (unaudited).
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
| | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash Flows From Operating Activities | Cash Flows From Operating Activities | | | | Cash Flows From Operating Activities | | | |
| Net income (loss) | Net income (loss) | $ | (571) | | | $ | 8,070 | | Net income (loss) | $ | (20,280) | | | $ | 3,179 | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation of tangible assets and amortization of intangible assets | Depreciation of tangible assets and amortization of intangible assets | 50,522 | | | 51,304 | | Depreciation of tangible assets and amortization of intangible assets | 31,475 | | | 34,318 | |
| Amortization of deferred financing costs | Amortization of deferred financing costs | 2,417 | | | 2,043 | | Amortization of deferred financing costs | 1,851 | | | 1,614 | |
| Amortization of deferred revenue, net | Amortization of deferred revenue, net | (634) | | | 1,633 | | Amortization of deferred revenue, net | (209) | | | (416) | |
| Non-cash straight-line rental revenue | Non-cash straight-line rental revenue | (337) | | | (455) | | Non-cash straight-line rental revenue | (162) | | | (242) | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | 5,884 | | | 335 | | Loss on extinguishment of debt | 0 | | | 5,884 | |
| Amortization of equity-based compensation | Amortization of equity-based compensation | 4,815 | | | 2,031 | | Amortization of equity-based compensation | 4,356 | | | 3,116 | |
| (Gain) Loss on sale of real estate | (19,992) | | | 122 | | |
| Gain on sale of real estate | | Gain on sale of real estate | 0 | | | (19,992) | |
| Other non-cash expense | Other non-cash expense | 849 | | | 1,045 | | Other non-cash expense | 555 | | | 776 | |
| Changes in: | Changes in: | | | | Changes in: | | | |
| Receivables and other assets, net | Receivables and other assets, net | (2,351) | | | (1,563) | | Receivables and other assets, net | (2,995) | | | 1,637 | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | (3,705) | | | (13,592) | | Accrued expenses and other liabilities | 679 | | | (12,136) | |
| Net cash provided by (used in) operating activities - continuing operations | 36,897 | | | 50,973 | | |
| Net cash provided by (used in) operating activities - discontinued operations | (3,105) | | | 11,381 | | |
| Net cash provided by operating activities - continuing operations | | Net cash provided by operating activities - continuing operations | 15,270 | | | 17,738 | |
| Net cash used in operating activities - discontinued operations | | Net cash used in operating activities - discontinued operations | 0 | | | (3,105) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 33,792 | | | 62,354 | | Net cash provided by operating activities | 15,270 | | | 14,633 | |
| Cash Flows From Investing Activities | Cash Flows From Investing Activities | | | | Cash Flows From Investing Activities | | | |
| Proceeds from sale of real estate | 0 | | | 13,086 | | |
| Capital expenditures | (6,693) | | | (15,644) | | |
| Insurance proceeds, net | 60 | | | 1,192 | | |
| Net cash provided by (used in) investing activities - continuing operations | (6,633) | | | (1,366) | | |
Net cash provided by (used in) investing activities - discontinued operations (A) | 373,805 | | | (6,232) | | |
| | Capital expenditures, net of insurance proceeds | | Capital expenditures, net of insurance proceeds | (7,650) | | | (3,926) | |
| | Net cash used in investing activities - continuing operations | | Net cash used in investing activities - continuing operations | (7,650) | | | (3,926) | |
Net cash provided by investing activities - discontinued operations (A) | | Net cash provided by investing activities - discontinued operations (A) | 0 | | | 373,805 | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | 367,172 | | | (7,598) | | Net cash provided by (used in) investing activities | (7,650) | | | 369,879 | |
| Cash Flows From Financing Activities | Cash Flows From Financing Activities | | | | Cash Flows From Financing Activities | | | |
| Principal payments of mortgage notes payable and capital lease obligations | Principal payments of mortgage notes payable and capital lease obligations | (1,549) | | | (4,969) | | Principal payments of mortgage notes payable and capital lease obligations | (4,402) | | | (1,344) | |
| Proceeds from mortgage notes payable | Proceeds from mortgage notes payable | 270,015 | | | 0 | | Proceeds from mortgage notes payable | 0 | | | 270,015 | |
| Proceeds from borrowings on the revolving credit facility | Proceeds from borrowings on the revolving credit facility | 100,000 | | | 0 | | Proceeds from borrowings on the revolving credit facility | 3,500 | | | 100,000 | |
| Repayments of borrowings on the revolving credit facility | Repayments of borrowings on the revolving credit facility | (100,000) | | | 0 | | Repayments of borrowings on the revolving credit facility | 0 | | | (40,000) | |
| Repayments of mortgage notes payable and capital lease obligations | Repayments of mortgage notes payable and capital lease obligations | (369,000) | | | (12,922) | | Repayments of mortgage notes payable and capital lease obligations | (6,200) | | | (369,000) | |
| Payment of exit fee on extinguishment of debt | Payment of exit fee on extinguishment of debt | (4,504) | | | (206) | | Payment of exit fee on extinguishment of debt | 0 | | | (4,504) | |
| Payment of deferred financing costs | Payment of deferred financing costs | (4,704) | | | (776) | | Payment of deferred financing costs | 0 | | | (4,704) | |
| Purchase of interest rate caps | Purchase of interest rate caps | (81) | | | (35) | | Purchase of interest rate caps | 0 | | | (81) | |
| Taxes paid for net settlement of equity-based compensation awards | Taxes paid for net settlement of equity-based compensation awards | (1,051) | | | 0 | | Taxes paid for net settlement of equity-based compensation awards | (751) | | | (1,050) | |
| Payment of common stock dividend | Payment of common stock dividend | (21,444) | | | (32,062) | | Payment of common stock dividend | (10,829) | | | (16,077) | |
| Payment of redeemable preferred stock dividend | Payment of redeemable preferred stock dividend | (1,802) | | | (1,296) | | Payment of redeemable preferred stock dividend | (598) | | | (1,203) | |
| Payment of restricted stock dividend | Payment of restricted stock dividend | (307) | | | 0 | | Payment of restricted stock dividend | (309) | | | (279) | |
| Net cash used in financing activities - continuing operations | Net cash used in financing activities - continuing operations | (134,427) | | | (52,266) | | Net cash used in financing activities - continuing operations | (19,589) | | | (68,227) | |
Net cash provided by (used in) financing activities - discontinued operations (B) | (260,996) | | | (33,987) | | |
Net cash used in financing activities - discontinued operations (B) | | Net cash used in financing activities - discontinued operations (B) | 0 | | | (260,996) | |
| Net cash used in financing activities | Net cash used in financing activities | (395,423) | | | (86,253) | | Net cash used in financing activities | (19,589) | | | (329,223) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | Net increase (decrease) in cash, cash equivalents and restricted cash | 5,541 | | | (31,497) | | Net increase (decrease) in cash, cash equivalents and restricted cash | (11,969) | | | 55,289 | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 63,829 | | | 92,656 | | Cash, cash equivalents and restricted cash, beginning of period | 53,795 | | | 63,829 | |
| Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 69,370 | | | $ | 61,159 | | Cash, cash equivalents and restricted cash, end of period | $ | 41,826 | | | $ | 119,118 | |
(A) For the ninesix months ended SeptemberJune 30, 2020, amount primarily consists of net proceeds from the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
(B) For the ninesix months ended SeptemberJune 30, 2020, amount primarily consists of repayments of debt in conjunction with the AL/MC Portfolio Disposition. Refer to “Note 4 - Dispositions” for details.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | | | | Supplemental Disclosure of Cash Flow Information | | | |
| Cash paid during the period for interest expense | Cash paid during the period for interest expense | $ | 47,947 | | | $ | 67,151 | | Cash paid during the period for interest expense | $ | 27,121 | | | $ | 34,236 | |
| Cash paid during the period for income taxes | Cash paid during the period for income taxes | 263 | | | 349 | | Cash paid during the period for income taxes | 160 | | | 263 | |
| | Supplemental Disclosure of Non-Cash Investing and Financing Activities | Supplemental Disclosure of Non-Cash Investing and Financing Activities | | Supplemental Disclosure of Non-Cash Investing and Financing Activities | |
| Issuance of common stock | Issuance of common stock | $ | 180 | | | $ | 275 | | Issuance of common stock | $ | 0 | | | $ | 180 | |
| Capital lease obligations | Capital lease obligations | 807 | | | 468 | | Capital lease obligations | 258 | | | 474 | |
| | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Reconciliation of Cash, Cash Equivalents and Restricted Cash | Reconciliation of Cash, Cash Equivalents and Restricted Cash | | | | Reconciliation of Cash, Cash Equivalents and Restricted Cash | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 39,614 | | | $ | 72,422 | | Cash and cash equivalents | $ | 33,046 | | | $ | 39,614 | |
Restricted cash (A) | Restricted cash (A) | 24,215 | | | 20,234 | | Restricted cash (A) | 20,749 | | | 24,215 | |
| Total, beginning of period | Total, beginning of period | $ | 63,829 | | | $ | 92,656 | | Total, beginning of period | $ | 53,795 | | | $ | 63,829 | |
| | Cash and cash equivalents | Cash and cash equivalents | $ | 51,680 | | | $ | 35,399 | | Cash and cash equivalents | $ | 23,187 | | | $ | 102,325 | |
Restricted cash (A) | Restricted cash (A) | 17,690 | | | 25,760 | | Restricted cash (A) | 18,639 | | | 16,793 | |
| Total, end of period | Total, end of period | $ | 69,370 | | | $ | 61,159 | | Total, end of period | $ | 41,826 | | | $ | 119,118 | |
(A)Restricted cash consists of (i) amounts held by lender in tax, insurance, replacement reserve and other escrow accounts and (ii) security deposits; amounts relating to continuing operations are included in “Receivables and other assets, net” in our Consolidated Balance Sheets.
See accompanying notes to consolidated financial statements (unaudited).
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
1.ORGANIZATION
New Senior Investment Group Inc. (“New Senior,” “we,” “us” or “our”) is a REITReal Estate Investment Trust (“REIT”) primarily focused on investing in private pay senior housing properties. As of SeptemberJune 30, 2020,2021, we owned a geographically diversified portfolio of 103 primarily private pay senior housing properties consisting of 102 independent living (“IL”) properties and 1 continuing care retirement community (“CCRC”), located across 36 states. We are listed on the New York Stock Exchange (“NYSE”) under the symbol “SNR” and are headquartered in New York, New York.
We operate in 21 reportable segments: (1) Managed Independent Living (“IL”) Properties, and (2) Othersegment: Senior Housing Properties.
ManagedOur 102 IL Properties – We own 102 properties are managed by Holiday FHC Property ManagementRetirement (“Holiday”), a company that is majority owned by private equity funds managed by an affiliate of FIG LLC (together with its(the “Former Manager”), a subsidiary of Fortress Investment Group LLC (“Fortress”), subsidiaries “Merrillof Merrill Gardens LLC (“Merrill Gardens”), anda former affiliate of our Former Manager, Grace Management, Inc. (“Grace”) (collectively, the “Property Managers”, and Atria Senior Living, Inc. (“Atria”), under property management agreementsProperty Management Agreements (collectively, the “Property Management Agreements”). Under the Property Management Agreements, the Property Managersour property managers are responsible for the day-to-day operations of our senior housing properties and are entitled to a management fee in accordance with the terms of the Property Management Agreements. Our Property Management Agreements have initial five-year or ten-year terms of up to twenty years, with successive, automatic one-yearcertain renewal periods.options. We generally pay property management fees equal to a percentage of 4.5% to 5%gross revenues, and in some cases, a portion of effective gross incomethe management fee is derived from a measure of operating performance pursuant to our Property Management Agreements and,Agreements. Additionally, in some cases, the Property Managersproperty managers are eligible to earn an incentive fee based on operating performance.
Other Properties – We own 1 continuing care retirement community (“CCRC”) and lease this propertyOur CCRC is leased to Watermark Retirement Communities, Inc. (“Watermark”), a healthcare operating company, under a triple net lease agreement. In a triple net lease arrangement, the lessee agrees to operate and maintain the property at its own expense, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Our triple net lease agreement has an initial term of 15 years and includes a renewal option and annual rent increases ranging from 2.75% to 3.25%. It also includes the operations of 2 managed AL/MC properties that we previously owned and sold during the nine months ended September 30, 2019.
We were formed as a Delaware limited liability company on May 17, 2012 as a wholly owned subsidiary of Drive Shack Inc., formerly Newcastle Investment Corp. (“Drive Shack”). On November 6, 2014, we were spun-off from Drive Shack and our shares of common stock were publicly listed on the NYSE.
On June 28, 2021, the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ventas and Cadence Merger Sub LLC, a wholly owned subsidiary of Ventas (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company, with the Company surviving the merger as a subsidiary of Ventas (the “Merger”). Under the Merger Agreement, the consideration to be paid by Ventas in the Merger consists of 0.1561 of a newly issued share of Ventas common stock, par value $0.25 per share, for each share of Company common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger (other than shares of our common stock owned directly by Ventas, Merger Sub or the Company), with holders of record of Company common stock receiving cash in lieu of fractional shares of Ventas common stock.. The Merger is expected to close during the second half of 2021, subject to customary closing conditions, including approval by the Company’s stockholders. We cannot assure you that the Merger will be completed on the terms or timeline anticipated or at all. For the three and six months ended June 30, 2021, we incurred costs of $4.0 million in connection with the Merger, which consist of services provided by our financial and legal advisors and other professional fees.
Coronavirus (COVID-19) global pandemic
The novel coronavirus (COVID-19)COVID-19 global pandemic is causinghas caused significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. DuringOur business and operating results for 2021 continue to be significantly impacted by the COVID-19 pandemic. However, after several quarters of decreasing occupancy, ending occupancy in the second quarter of 2021 increased for the first time since the outset of the pandemic, growing 90 basis points compared to the first quarter of 2021. In addition, during the three and nine months ended SeptemberJune 30, 2021 and 2020, we incurred $0.8$0.1 million and $2.7and$1.4 million of COVID-19 related costs, respectively, whichand during the six months ended June 30, 2021 and 2020, we incurred $0.4 million and $1.9 million of COVID-19 related costs, respectively. These amounts were recorded in “Property operating expense” in our Consolidated Statements of Operations. These costs mainly consist of personal protective equipment (“PPE”) and other supplies such as packaging necessary for in-room meal deliveries to our residents and to a lesser extent testing kits for
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(dollars in tables in thousands, except share data)
residents and staff, temperature screening machines, additional cleaning equipment, or protocols related to the properties. DuringAs of June 30, 2021, all of our properties have provided access to the nine months ended September 30, 2020,COVID-19 vaccine to residents and employees. Although we saw these costs continue, but they have been largely offset by variable expense savings associated with lower occupancyseen improvement in certain recent operating trends, the ultimate extent and strong expense management fromduration of its impact on the U.S. economy and our operators. Depending upon how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear. However, thebusiness remains unclear. The full extent to which the COVID-19 global pandemic will continue to directly or indirectly impact our business including revenues, expenses, value of our real estate, collectability of receivables and operating cash flowsresults is highly uncertain and difficult to predict. Ifpredict at this time. We have evaluated the economic downturn resulting fromimpacts of COVID-19 and measures taken to contain it persists over a long period of time, it could have a prolonged negative impactglobal pandemic on our financial conditionbusiness operations thus far and results of operations. As the extent and duration of the increasingly broad effects of COVID-19 on the U.S. economy remains unclear, it is difficult for uswill continue to assess and estimate its impact onupdate our results of operations at thisassessment over time.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP’’) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)
required by GAAP for annual financial statements. The consolidated financial statements include the accounts of New Senior and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. We consolidate those entities in which we have control over significant operating, financial and investing decisions of the entity. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as filed with the SEC.
Certain prior period amounts have been reclassified to conform to the current period’s presentation, primarily related to the classification of certain properties as discontinued operations.presentation.
Significant Accounting Policies
Earnings per Common Share
The two-class method determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated) and their respective participation rights in undistributed earnings. Non-vested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore are included in the computation of basic EPS pursuant to the two-class method. During the nine months ended September 30, 2020, we issued 433,393 restricted stock units, net of forfeitures, to officers, employees and non-employee directors with certain participating rights (“Participating RSUs”).
Diluted earnings per share of common stock is calculated by including the effect of dilutive securities. Participating RSUs are included in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. Any anti-dilutive securities are excluded from the calculation. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund losses.
Refer to our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 20192020 for other significant accounting policies.
Recently Adopted Accounting Pronouncements
OnIn December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The ASU simplifies accounting for income taxes by eliminating certain exceptions to the general approach in ASC 740, Income Taxes, and clarifies certain aspects of the guidance for more consistent application. The simplifications relate to intraperiod tax allocations when there is a loss in continuing operations and a gain outside of continuing operations, accounting for tax law or tax rate changes and year-to-date losses in interim periods, recognition of deferred tax liability for outside basis difference when investment ownership changes, and accounting for franchise taxes that are partially based on income. Transition is generally prospective, other than the provision related to outside basis difference which is on a modified retrospective basis with the cumulative effect adjusted to retained earnings at the beginning of the period adopted, and franchise tax provision which is either full or modified retrospective. We adopted ASU 2019-12 on January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a company to recognize an impairment allowance equal to its current estimate of all contractual cash flows that it does not expect to collect from financial assets measured at amortized cost. The2021, and the adoption of this standard did not have a material impact on our consolidated financial statements as our entire balance of receivables relates to lease agreements with our residents and tenant, which are specifically excluded from this standard.statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Rate (“LIBOR”) or another rate that is expected to be discontinued. Companies can adopt ASU 2020-04 anytime during the effective period of March 12, 2020 through December 31, 2022. We are currently assessing the provisions of ASU 2020-04 and have not made any hedge accounting elections as of SeptemberJune 30, 2020.2021. If an election is made at a later date, we will apply the provisions of this guidance.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of LIBOR as a benchmark interest rate due to reference rate reform. We are currently evaluating the impact of this guidance.
3.DISCONTINUED OPERATIONS
On October 31, 2019,February 10, 2020, we entered into a Purchase and Sale Agreement (the “Sale Agreement”) to sellsold a portfolio of 28 assisted living/memory care (“AL/MC”) properties for a gross sale price of $385.0 million (the “AL/MC Portfolio Disposition”). to affiliates of ReNew REIT LLC. The portfolio represented a separate reportable segment at the time and the sale represented a strategic shift that would have a major effect on our operations and financial results. As a result, we classified the assets and liabilities associated with the operations of the 28 AL/MC properties as discontinued operations in our consolidated financial statements. The salestatements for the six months ended June 30, 2020. There was completed on February 10,no activity related to discontinued operations for the three months ended June 30, 2020. Refer to “Note 4 - Dispositions” for details.
As of December 31, 2019, the assets and liabilities associated with discontinued operations were as follows:
| | | | | |
| December 31, 2019 |
Assets | |
Real estate investments: | |
Land | $ | 43,313 | |
Buildings, improvements and other | 397,808 | |
Accumulated depreciation | (87,719) | |
Net real estate property | 353,402 | |
Acquired lease and other intangible assets | 996 | |
Accumulated amortization | (996) | |
Net real estate intangibles | 0 | |
Net real estate investments | 353,402 | |
| |
Receivables and other assets, net | 10,087 | |
Assets from discontinued operations | $ | 363,489 | |
Liabilities | |
Debt, net | $ | 255,096 | |
Accrued expenses and other liabilities | 12,760 | |
Liabilities from discontinued operations | $ | 267,856 | |
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)
For the three and ninesix months ended SeptemberJune 30, 2020, and 2019, the results of operations associated with discontinued operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | | | | | | |
| Resident fees and services | $ | 0 | | | $ | 29,630 | | | $ | 14,024 | | | $ | 89,534 | |
| Total revenues | 0 | | | 29,630 | | | 14,024 | | | 89,534 | |
| Expenses | | | | | | | |
| Property operating expenses | 0 | | | 24,610 | | | 11,328 | | | 73,281 | |
| Interest expense | 0 | | | 3,700 | | | 1,361 | | | 11,482 | |
| Depreciation and amortization | 0 | | | 3,718 | | | 0 | | | 11,279 | |
| Acquisition, transaction, and integration expense | 0 | | | 112 | | | 1,037 | | | 508 | |
| General and administrative expense | 0 | | | 8 | | | 8 | | | 26 | |
| Loss on extinguishment of debt | 0 | | | 0 | | | 3,602 | | | 0 | |
| Other income | 0 | | | (19) | | | (204) | | | (43) | |
| Total expenses | 0 | | | 32,129 | | | 17,132 | | | 96,533 | |
| Loss before income taxes | 0 | | | (2,499) | | | (3,108) | | | (6,999) | |
| Income tax (benefit) expense | 0 | | | 7 | | | (1) | | | 78 | |
| Loss from discontinued operations | $ | 0 | | | $ | (2,506) | | | $ | (3,107) | | | $ | (7,077) | |
| | | | | | | | | |
| | | | Six Months Ended June 30, 2020 |
| |
| Revenues | | | | | |
| Resident fees and services | | | | | $ | 14,024 | |
| Total revenues | | | | | 14,024 | |
| Expenses | | | | | |
| Property operating expenses | | | | | 11,328 | |
| Interest expense | | | | | 1,361 | |
| | | | | |
| Acquisition, transaction, and integration expense | | | | | 1,037 | |
| General and administrative expense | | | | | 8 | |
| Loss on extinguishment of debt | | | | | 3,602 | |
| Other income | | | | | (204) | |
| Total expenses | | | | | 17,132 | |
| Loss before income taxes | | | | | (3,108) | |
| Income tax benefit | | | | | (1) | |
| Loss from discontinued operations | | | | | $ | (3,107) | |
4. DISPOSITIONS
2021 Activity
We did not have any dispositions during the six months ended June 30, 2021.
2020 Activity
On February 10, 2020, we completed the AL/MC Portfolio Disposition for a gross sale price of $385.0 million and recognized a gain on sale of $20.0 million, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations for the ninesix months ended SeptemberJune 30, 2020. In conjunction with the sale, we repaid $260.2 million of debt specifically attributable to the properties included in the AL/MC Portfolio Disposition and recognized a loss on extinguishment of debt of $3.6 million, comprisingcomprised of $2.5 million in prepayment penalties and $1.1 million in the write-off of unamortized deferred financing costs, which is included in “Loss from discontinued operations” in our Consolidated Statements of Operations for the ninesix months ended SeptemberJune 30, 2020.
During the nine months ended September 30, 2019, we sold 2 AL/MC assets that were previously included in the Managed AL/MC Properties segment for a combined sale price of $13.8 million, and recognized a loss on sale of $0.1 million, which is included in “Loss on sale of real estate” in our Consolidated Statements of Operations for the nine months ended September 30, 2019. In connection with these dispositions, we repaid $13.7 million of debt. Prior to the sale, both assets were classified as “Assets held for sale” and included in “Receivables and other assets, net” in the Consolidated Balance Sheets.
5. SEGMENT REPORTING
We operate in 2 reportable business segments, Managed IL Properties and Other Properties. Our Managed IL Properties segment includes 102 IL properties throughout the United States managed by Holiday, Merrill Gardens and Grace under Property Management Agreements. Our Other Properties segment includes one CCRC, which is currently leased to Watermark under a triple net lease agreement that obligates the tenant to pay all property-related expenses, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. It also includes the operations of 2 managed AL/MC properties we previously owned and sold during the nine months ended September 30, 2019.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
We evaluate performance of the combined properties in each reportable business segment based on segment NOI. We define NOI as total revenues less property-level operating expenses, which include property management fees and travel cost reimbursements. We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment NOI serves as a useful supplement to net income because it allows investors, analysts and management to measure unlevered property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. Segment NOI should not be considered as an alternative to net income as determined in accordance with GAAP.
Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing segment performance. There are no intersegment sales.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 |
| | Managed IL Properties | | Other Properties | | Consolidated | | Managed IL Properties | | Other Properties | | Consolidated |
| Revenues | | | | | | | | | | | | |
| Resident fees and services | | $ | 81,582 | | | $ | 0 | | | $ | 81,582 | | | $ | 84,475 | | | $ | (102) | | | $ | 84,373 | |
| Rental revenue | | 0 | | | 1,583 | | | 1,583 | | | 0 | | | 1,583 | | | 1,583 | |
| Less: Property operating expense | | 49,957 | | | 0 | | | 49,957 | | | 50,678 | | | (102) | | | 50,576 | |
| Segment NOI | | $ | 31,625 | | | $ | 1,583 | | | 33,208 | | | $ | 33,797 | | | $ | 1,583 | | | 35,380 | |
| | | | | | | | | | | | |
| Interest expense | | | | | | 14,540 | | | | | | | 18,962 | |
| Depreciation and amortization | | | | | | 16,204 | | | | | | | 17,323 | |
| General and administrative expense | | | | | | 5,905 | | | | | | | 5,410 | |
| Acquisition, transaction and integration expense | | | | | | 43 | | | | | | | 503 | |
| | | | | | | | | | | | |
| Other expense | | | | | | 192 | | | | | | | 16 | |
| Total expenses | | | | | | 36,884 | | | | | | | 42,214 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Litigation proceeds, net | | | | | | 0 | | | | | | | 38,226 | |
| Income (Loss) before income taxes | | | | | | (3,676) | | | | | | | 31,392 | |
| Income tax expense | | | | | | 74 | | | | | | | 37 | |
| Income (Loss) from continuing operations | | | | | | (3,750) | | | | | | | 31,355 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Loss from discontinued operations | | | | | | 0 | | | | | | | (2,506) | |
| | | | | | | | | | | | |
| Net income (loss) | | | | | | $ | (3,750) | | | | | | | $ | 28,849 | |
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
| | Managed IL Properties | | Other Properties | | Consolidated | | Managed IL Properties | | Other Properties | | Consolidated |
| Revenues | | | | | | | | | | | | |
| Resident fees and services | | $ | 249,540 | | | $ | 0 | | | $ | 249,540 | | | $ | 251,736 | | | $ | 3,207 | | | $ | 254,943 | |
| Rental revenue | | 0 | | | 4,748 | | | 4,748 | | | 0 | | | 4,748 | | | 4,748 | |
| Less: Property operating expense | | 149,782 | | | 0 | | | 149,782 | | | 150,450 | | | 3,758 | | | 154,208 | |
| Segment NOI | | $ | 99,758 | | | $ | 4,748 | | | 104,506 | | | $ | 101,286 | | | $ | 4,197 | | | 105,483 | |
| | | | | | | | | | | | |
| Interest expense | | | | | | 47,040 | | | | | | | 58,382 | |
| Depreciation and amortization | | | | | | 50,522 | | | | | | | 51,304 | |
| General and administrative expense | | | | | | 17,645 | | | | | | | 15,747 | |
| Acquisition, transaction and integration expense | | | | | | 195 | | | | | | | 1,169 | |
| Loss on extinguishment of debt | | | | | | 5,884 | | | | | | | 335 | |
| Other expense | | | | | | 520 | | | | | | | 1,393 | |
| Total expenses | | | | | | 121,806 | | | | | | | 128,330 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Loss on sale of real estate | | | | | | 0 | | | | | | | (122) | |
| | | | | | | | | | | | |
| Litigation proceeds, net | | | | | | 0 | | | | | | | 38,226 | |
| Income (Loss) before income taxes | | | | | | (17,300) | | | | | | | 15,257 | |
| Income tax expense | | | | | | 156 | | | | | | | 110 | |
| Income (Loss) from continuing operations | | | | | | (17,456) | | | | | | | 15,147 | |
| Discontinued Operations: | | | | | | | | | | | | |
| Gain on sale of real estate | | | | | | 19,992 | | | | | | | 0 | |
| Loss from discontinued operations | | | | | | (3,107) | | | | | | | (7,077) | |
| Discontinued operations, net | | | | | | 16,885 | | | | | | | (7,077) | |
| Net income (loss) | | | | | | $ | (571) | | | | | | | $ | 8,070 | |
Assets by reportable business segment are reconciled to total assets as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Amount | | Percentage | | Amount | | Percentage |
| Managed IL Properties | $ | 1,710,666 | | | 94.9 | % | | $ | 1,748,787 | | | 79.7 | % |
| Other Properties | 63,208 | | | 3.5 | % | | 63,616 | | | 2.9 | % |
All other assets (A) | 28,811 | | | 1.6 | % | | 382,306 | | | 17.4 | % |
| Total assets | $ | 1,802,685 | | | 100.0 | % | | $ | 2,194,709 | | | 100.0 | % |
(A)5.Includes $363.5 million of assets classified as discontinued operations for the year ended December 31, 2019. The remaining balance primarily consists of corporate cash which is not directly attributable to our reportable business segments.SEGMENT REPORTING
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30,Our primary business is investing in senior housing properties. We currently operate and report results in 1 reportable segment, Senior Housing Properties. Prior to the fourth quarter of 2020,
(dollars we had 2 reportable segments (Managed IL Properties and Other Properties). Due to the AL/MC Portfolio Disposition which resulted in tablesthe sale of all but one of the assets in thousands, except share data)
The following table presents the percentageOther Properties segment, we changed the composition of total revenuesour reportable segments to be in line with the financial information reviewed and used by geographic location:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of and for the nine months ended
September 30, 2020 | | As of and for the nine months ended
September 30, 2019 |
| Number of Communities | | % of Total Revenue | | Number of Communities | | % of Total Revenue |
| Florida | 9 | | | 9.0 | % | | 9 | | | 9.2 | % |
| California | 9 | | | 10.2 | % | | 9 | | | 10.8 | % |
| Texas | 9 | | | 8.0 | % | | 9 | | | 8.0 | % |
| North Carolina | 8 | | | 8.5 | % | | 8 | | | 8.5 | % |
| Pennsylvania | 5 | | | 5.7 | % | | 5 | | | 5.5 | % |
| Oregon | 8 | | | 7.1 | % | | 8 | | | 7.2 | % |
| Other | 55 | | | 51.5 | % | | 55 | | | 50.8 | % |
| Total | 103 | | | 100.0 | % | | 103 | | | 100.0 | % |
6.REAL ESTATE INVESTMENTS
The following table summarizes our real estate investments:
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | Gross Carrying Amount | | Accumulated Depreciation | | Net Carrying Value | | Gross Carrying Amount | | Accumulated Depreciation | | Net Carrying Value | | Gross Carrying Amount | | Accumulated Depreciation | | Net Carrying Value | | Gross Carrying Amount | | Accumulated Depreciation | | Net Carrying Value |
| Land | Land | $ | 134,643 | | | $ | 0 | | | $ | 134,643 | | | $ | 134,643 | | | $ | 0 | | | $ | 134,643 | | Land | $ | 134,643 | | | $ | 0 | | | $ | 134,643 | | | $ | 134,643 | | | $ | 0 | | | $ | 134,643 | |
| Building and improvements | Building and improvements | 1,869,245 | | | (307,304) | | | 1,561,941 | | | 1,863,866 | | | (266,420) | | | 1,597,446 | | Building and improvements | 1,877,400 | | | (348,712) | | | 1,528,688 | | | 1,873,132 | | | (321,025) | | | 1,552,107 | |
| Furniture, fixtures and equipment | Furniture, fixtures and equipment | 107,299 | | | (94,475) | | | 12,824 | | | 106,170 | | | (85,135) | | | 21,035 | | Furniture, fixtures and equipment | 112,924 | | | (100,027) | | | 12,897 | | | 110,231 | | | (96,430) | | | 13,801 | |
| Total real estate investments | Total real estate investments | $ | 2,111,187 | | | $ | (401,779) | | | $ | 1,709,408 | | | $ | 2,104,679 | | | $ | (351,555) | | | $ | 1,753,124 | | Total real estate investments | $ | 2,124,967 | | | $ | (448,739) | | | $ | 1,676,228 | | | $ | 2,118,006 | | | $ | (417,455) | | | $ | 1,700,551 | |
Depreciation expense was $16.1$15.5 million and $17.2$16.7 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively and $50.2$31.3 million and $51.0$34.1 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
The following table summarizes our real estate intangibles:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Remaining Amortization Period |
| Intangible lease assets | $ | 7,642 | | | $ | (2,505) | | | $ | 5,137 | | | 43.8 years | | $ | 7,642 | | | $ | (2,238) | | | $ | 5,404 | | | 43.0 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Remaining Amortization Period |
| Intangible lease assets | $ | 7,642 | | | $ | (2,773) | | | $ | 4,869 | | | 44.8 years | | $ | 7,642 | | | $ | (2,595) | | | $ | 5,047 | | | 44.1 years |
Amortization expense was $0.1 million for both the three months ended SeptemberJune 30, 2021 and 2020, and 2019, and $0.3$0.2 million for both the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019.respectively.
We evaluate long-lived assets, primarily consisting of our real estate investments, for impairment indicators. In performing this evaluation, market conditions and our current intentions with respect to holding or disposing of the asset are considered. Where indicators of impairment are present, we evaluate whether the sum of the expected future undiscounted cash flows is less than book value. Based on our assessment, no charges were necessary for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
Impact of Texas Winter Storm
During the six months ended June 30, 2021, we recognized $0.3 million related to damage remediation and other incremental costs for 21 properties impacted by a significant winter storm in Texas in February 2021, which are included in “Other expense” in our Consolidated Statements of Operations. No additional costs were recognized during the three months ended June 30, 2021.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
7.RECEIVABLES AND OTHER ASSETS, NET
| | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Escrows held by lenders (A) | $ | 14,645 | | | $ | 15,895 | |
| Straight-line rent receivable | 4,420 | | | 4,084 | |
| Prepaid expenses | 7,188 | | | 3,534 | |
| Security deposits | 3,027 | | | 2,763 | |
| Resident receivables, net | 1,465 | | | 1,345 | |
| Income tax receivable | 771 | | | 821 | |
| Other assets and receivables | 4,944 | | | 4,636 | |
| Total receivables and other assets | $ | 36,460 | | | $ | 33,078 | |
The following table summarizes our receivables and other assets, net:
| | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Escrows held by lenders (A) | $ | 15,584 | | | $ | 17,694 | |
| Prepaid expenses | 4,900 | | | 3,923 | |
| Straight-line rent receivable | 4,677 | | | 4,515 | |
| | | |
| Derivative asset | 3,085 | | | 0 | |
| Other assets and receivables | 11,048 | | | 8,760 | |
| Total receivables and other assets | $ | 39,294 | | | $ | 34,892 | |
(A)Represents amounts held by lenders in tax, insurance, replacement reserve and other escrow accounts that are related to mortgage notes collateralized by our properties.
Straight-line Rent Receivable
Rental revenue from our triple net lease property is recognized on a straight-line basis over the applicable term of the lease when collectability of substantially all rents is probable. Recognizing rental revenue on a straight-line basis typically results in recognizing revenue in excess of cash amounts contractually due from our tenant during the first half of the lease term, creating a straight-line rent receivable.
We assess the collectability of straight-line rent receivables on an ongoing basis. This assessment is based on several qualitative and quantitative factors, including and as appropriate, the payment history of the triple net lease tenant, the tenant’s ability to satisfy its lease obligations, the value of the underlying collateral or deposit, if any, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will collect substantially all rents, any lease income is limited to the lesser of the lease income reflected on a straight-line basis or cash collected.
The following table sets forth future contracted minimum lease paymentsrents from the tenant within the Other Properties segment,of our triple net lease property, excluding contingent payment escalations, as of SeptemberJune 30, 2020:2021:
| | 2020 (three months) | $ | 1,489 | | |
| 2021 | 6,066 | | |
| 2021 (six months) | | 2021 (six months) | $ | 3,060 | |
| 2022 | 2022 | 6,233 | | 2022 | 6,233 | |
| 2023 | 2023 | 6,405 | | 2023 | 6,405 | |
| 2024 | 2024 | 6,581 | | 2024 | 6,581 | |
| 2025 | | 2025 | 6,762 | |
| Thereafter | Thereafter | 38,888 | | Thereafter | 32,127 | |
| Total future minimum lease payments | $ | 65,662 | | |
| Total future minimum rents | | Total future minimum rents | $ | 61,168 | |
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
8.DEBT, NET
| | | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | | Outstanding Face Amount | | Carrying Value (A) | | Maturity Date | | Stated Interest Rate | | Weighted Average Maturity (Years) | | Outstanding Face Amount | | Carrying Value (A) | | Outstanding Face Amount | | Carrying Value (A) | | Maturity Date | | Stated Interest Rate | | Weighted Average Maturity (Years) | | Outstanding Face Amount | | Carrying Value (A) |
Floating Rate (B)(C) | Floating Rate (B)(C) | $ | 1,039,485 | | | $ | 1,024,579 | | | Mar 2022- Mar 2030 | | 1M LIBOR + 2.00% to 1M LIBOR + 2.75% | | 6.0 | | $ | 1,139,036 | | | $ | 1,128,100 | | Floating Rate (B)(C) | $ | 1,036,269 | | | $ | 1,023,721 | | | Mar 2022- Mar 2030 | | 1M LIBOR + 2.00% to 1M LIBOR + 2.75% | | 5.1 | | $ | 1,039,316 | | | $ | 1,025,110 | |
| Fixed Rate | Fixed Rate | 464,680 | | | 462,828 | | | Sep 2025 | | 4.25% | | 4.8 | | 464,680 | | | 462,532 | | Fixed Rate | 458,890 | | | 457,330 | | | Sep 2025 | | 4.25% | | 4.1 | | 462,808 | | | 461,054 | |
| Total | Total | $ | 1,504,165 | | | $ | 1,487,407 | | | | | | | 5.6 | | $ | 1,603,716 | | | $ | 1,590,632 | | Total | $ | 1,495,159 | | | $ | 1,481,051 | | | | | | | 4.8 | | $ | 1,502,124 | | | $ | 1,486,164 | |
(A)The totals are reported net of deferred financing costs of $16.8$14.1 million and $13.1$16.0 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
(B)Substantially all of these loans have LIBOR caps that range between 3.38% and 3.75% as of SeptemberJune 30, 2020.2021.
(C)As of SeptemberJune 30, 2020,2021, $620.0 million of total floating rate debt has been hedged using interest rate swaps, which isare carried at fair value. See “Note 9 - Derivative Instruments” for more information.
The carrying value of the collateral relating to the floating rate and fixed rate debt was $1.2 billion and $0.5 billion, respectively, as of both SeptemberJune 30, 2020,2021, and December 31, 2019.2020.
Our debt agreements contain various customary financial and other covenants, in some cases including a debt service coverage ratio and project yield, as defined in the agreements. We are in compliance with the covenants in our debt agreements as of September 30, 2020.Mortgage Debt
In February 2020, in conjunction with the AL/MC Portfolio Disposition, we obtained mortgage financing in the aggregate amount of $270.0 million from KeyBank and assigned to Federal Home Loan Mortgage Corporation (the “2020 Freddie Financing”). The 2020 Freddie Financing is secured by 14 of our managed ILsenior housing properties, matures on March 1, 2030, and bears interest at an adjustable rate, adjusted monthly, equal to the sum of the one month LIBOR index rate plus 2.12%. Concurrently on the same date, we used the funds from the 2020 Freddie Financing and proceeds from the AL/MC Portfolio Disposition to prepay an aggregate of $368.1 million of secured loans. We recognized a loss on extinguishment of debt of $5.9 million, comprisingcomprised of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs, andwhich is recordedincluded in “Loss on extinguishment of debt” on our Consolidated Statements of Operations.Operations for the six months ended June 30, 2020. We incurred a total of $3.3 million in deferred financing costs, which have been capitalized and are being amortized over the life of the loan and the related amortization is included in “Interest expense” in our Consolidated Statements of Operations.Operations for the six months ended June 30, 2020.
Revolving Credit Facility
In addition,February 2020, in February 2020,connection with the AL/MC Portfolio Disposition, we also amended and restated our secured revolving credit facility in the amount of $125.0 million (the “Revolver”), and extended its maturity from December 2021 to February 9, 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of $500.0 million, of which (i) up to 10% may be used for the issuance of letters of credit, and (ii) up to 10% may be drawn by us in the form of swing loans. The Revolver bears an interest rate of, at our option, (i) the sum of LIBOR plus 2.0% or, in the case of a swing line loan, (ii) the greater of (a) the fluctuating annual rate of interest announced from time to time by KeyBank as its “prime rate,” plus 1.0% (b) 1.5% above the effective federal funds rate and (c) the sum of LIBOR for a one-month interest period plus 2.0%. The Revolver is secured by nine9 of our managed ILsenior housing properties and the pledge of the equity interests of certain of our wholly owned subsidiaries. As of June 30, 2021, there were $3.5 million borrowings outstanding under the Revolver. We continue to pay a fee for unused amounts of the Revolver under certain circumstances, which were $0.1 million and 0t material for the three months ended SeptemberJune 30, 2021 and 2020, respectively and $0.2 million and $0.1 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, whichrespectively. These fees were recordedincluded in “Interest expense” in our Consolidated Statements of Operations.
Our debt agreements contain various customary financial and other covenants, in some cases including, but not limited to, debt service coverage ratios, lease coverage ratio, and project yield, as defined in the agreements. We are in compliance with the covenants in our debt agreements as of June 30, 2021.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
9.DERIVATIVE INSTRUMENTS
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.
Derivatives Designated as Hedging Instruments
Interest rate swap
In August 2020, we entered into a $270.0 million notional interest rate swap with a maturity inof September 2025 that2025. In May 2019, we entered into a $350.0 million notional interest rate swap with a maturity of May 2022. Both swaps effectively convertsconvert LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. TheThese interest rate swap wasswaps were designated and qualified as a cash flow hedgehedges with the change in fair value included in the assessment of hedge effectiveness deferred as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
In May 2019, we entered into a $350.0 million notional interest rate swap with a maturity in May 2022 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. The interest rate swap was designated and qualified as a cash flow hedge with the change in fair value included in the assessment of hedge effectiveness deferred as a component of OCI, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, our interest rate swap liability of $14.3$6.9 million and $5.9$11.7 million, respectively, was recorded in “Accrued expenses and other liabilities” in our Consolidated Balance Sheets. ForAs of June 30, 2021, our interest rate swap asset of $3.1 million was recorded in “Receivables and other assets, net” in our Consolidated Balance Sheets.
We reclassified net losses of $2.2 million and $1.5 million for the three and nine months ended SeptemberJune 30, 2021 and 2020, $1.9respectively, and $4.2 million and $4.0$2.0 million of loss was reclassifiedfor the six months ended June 30, 2021, and 2020 from accumulated other comprehensive income (loss) into earnings and was recordedincluded in “Interest expense” in our Consolidated Statements of Operations, respectively. As of SeptemberJune 30, 2020,2021, approximately $7.9 million of our interest rate swap liability and asset, which is included in accumulated other comprehensive income (loss), is expected to be reclassified into earnings in the next 12 months.
Derivatives Not Designated as Hedging Instruments
Interest rate caps
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, our interest rate cap assets were recorded in “Receivables and other assets, net” in our Consolidated Balance Sheets. Fair value losses recognized for both the three and six months ended SeptemberJune 30, 20202021 and 20192020 were not material. Fair value losses for the nine months ended September 30, 2020 and 2019 were $0.1 million and $0.6 million, respectively. These amounts are included in “Other expense” in our Consolidated Statements of Operations and “Other non-cash expense” in our Consolidated Statements of Cash Flows.
10.ACCRUED EXPENSES AND OTHER LIABILITIES
| | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| Accounts payable | $ | 13,233 | | | $ | 17,554 | |
| Security deposits payable | 2,353 | | | 2,486 | |
| Due to property managers | 9,363 | | | 6,752 | |
| Mortgage interest payable | 3,731 | | | 5,665 | |
| Deferred community fees, net | 5,406 | | | 5,865 | |
| Rent collected in advance | 1,877 | | | 2,099 | |
| Property tax payable | 8,328 | | | 5,627 | |
| Operating lease liability | 1,880 | | | 1,942 | |
| Derivative liability | 14,266 | | | 5,896 | |
| Other liabilities | 6,157 | | | 5,434 | |
| Total accrued expenses and other liabilities | $ | 66,594 | | | $ | 59,320 | |
The following table summarizes our accrued expenses and other liabilities:
| | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| Accounts payable | $ | 9,247 | | | $ | 9,202 | |
| | | |
| Due to property managers | 8,421 | | | 9,782 | |
| Derivative liability | 6,944 | | | 11,687 | |
| Property tax payable | 6,057 | | | 5,754 | |
| Deferred community fees, net | 5,107 | | | 5,201 | |
| Professional fees | 4,370 | | | 251 | |
| Other liabilities | 19,778 | | | 22,009 | |
| Total accrued expenses and other liabilities | $ | 59,924 | | | $ | 63,886 | |
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
11. FAIR VALUE MEASUREMENTS
The carrying amounts and fair values of our financial instruments were as follows:
| | | Fair Value Hierarchy | | September 30, 2020 | | December 31, 2019 | | Fair Value Hierarchy | | June 30, 2021 | | December 31, 2020 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Financial Assets: | Financial Assets: | | | | | | | | | | Financial Assets: | | | | | | | | | |
Cash and cash equivalents (A) | Cash and cash equivalents (A) | 1 | | $ | 51,680 | | | $ | 51,680 | | | $ | 39,614 | | | $ | 39,614 | | Cash and cash equivalents (A) | 1 | | $ | 23,187 | | | $ | 23,187 | | | $ | 33,046 | | | $ | 33,046 | |
Restricted cash (A) | Restricted cash (A) | 1 | | 17,672 | | | 17,672 | | | 18,658 | | | 18,658 | | Restricted cash (A) | 1 | | 18,639 | | | 18,639 | | | 20,749 | | | 20,749 | |
Interest rate caps (B)(D) | 2 | | 23 | | | 23 | | | IMM | | IMM | |
Interest rate swap (B) | | Interest rate swap (B) | 2 | | 3,085 | | | 3,085 | | | 0 | | | 0 | |
Interest rate caps (B) | | Interest rate caps (B) | 2 | | 16 | | | 16 | | | 10 | | | 10 | |
| Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
Mortgage debt (C) | Mortgage debt (C) | 3 | | $ | 1,487,407 | | | $ | 1,538,155 | | | $ | 1,590,632 | | | $ | 1,592,855 | | Mortgage debt (C) | 3 | | $ | 1,480,282 | | | $ | 1,533,855 | | | $ | 1,486,164 | | | $ | 1,524,210 | |
| Revolving credit facility (C) | | Revolving credit facility (C) | 3 | | 769 | | | 3,482 | | | 0 | | | 0 | |
Interest rate swap (B) | Interest rate swap (B) | 2 | | 14,266 | | | 14,266 | | | 5,736 | | | 5,736 | | Interest rate swap (B) | 2 | | 6,225 | | | 6,225 | | | 10,980 | | | 10,980 | |
(A)The carrying amount approximates fair value.
(B)Fair value based on pricing models that consider inputs including forward yield curves, cap strike rates, cap volatility and discount rates.
(C)Fair value based on a discounted cash flow valuation model. Significant inputs in the model include amounts and timing of expected future cash flows and market yields which are constructed based on inputs implied from similar debt offerings. Our mortgage debt is not measured at fair value in our Consolidated Balance Sheets.
(D)As of December 31, 2019, the carrying value and the fair value of our interest rate caps were immaterial.
12.INCOME TAXES
New Senior is organized and conducts its operations to qualify as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the “Code”). However, certain of our activities are conducted through our taxable REIT subsidiary (“TRS”) and therefore are subject to federal and state income taxes at regular corporate tax rates.
The following table presents the provision (benefit) for income taxes (excluding discontinued operations):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Current | Current | | | | | | | | Current | | | | | | | |
| Federal | Federal | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Federal | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| State and local | State and local | 74 | | | 37 | | | 156 | | | 110 | | State and local | 33 | | | 22 | | | 67 | | | 82 | |
| Total current provision | Total current provision | 74 | | | 37 | | | 156 | | | 110 | | Total current provision | 33 | | | 22 | | | 67 | | | 82 | |
| Deferred | Deferred | | | | | | | | Deferred | | | | | | | |
| Federal | Federal | 0 | | | 0 | | | 0 | | | 0 | | Federal | 0 | | | 0 | | | 0 | | | 0 | |
| State and local | State and local | 0 | | | 0 | | | 0 | | | 0 | | State and local | 0 | | | 0 | | | 0 | | | 0 | |
| Total deferred provision | Total deferred provision | 0 | | | 0 | | | 0 | | | 0 | | Total deferred provision | 0 | | | 0 | | | 0 | | | 0 | |
| Total provision for income taxes | Total provision for income taxes | $ | 74 | | | $ | 37 | | | $ | 156 | | | $ | 110 | | Total provision for income taxes | $ | 33 | | | $ | 22 | | | $ | 67 | | | $ | 82 | |
In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by the TRS during the periods in which temporary differences become deductible before the net operating loss carryforward expires. Management believes that it is more likely than not that our net deferred tax assets will not be realized. As a result, we recorded valuation allowances against our deferred tax asset of $7.6$9.3 million and $7.9$7.6 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeptemberJune 30, 20202021
(dollars in tables in thousands, except share data)
As of SeptemberJune 30, 2020,2021, our TRS had a loss carryforward of approximately $28.1$30.6 million for federal income tax purposes and $32.6$37.2 million for state income tax purposes. These NOLs include activity from discontinued operations that remained with the Company. The federal net operating losses will begin to expire at the end of 2034. The net operating loss carryforward can generally be used to offset future taxable income, if and when it arises.
13.STOCK-BASED COMPENSATION
Amended and Restated Stock Options and Incentive Award Plans
On January 1, 2019, our board of directors adopted an Amended and Restated Nonqualified Stock Option and Incentive Award Plan (the “Plan”) providing for the grant of equity-based awards, including restricted stock awards (RSAs), restricted stock units (RSUs), stock options, stock appreciation rights, performance awards and other equity-based and non-equity based awards, in each case to our directors, officers, employees, service providers, consultants and advisors. Vesting periods for these awards generally range from one to three years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $2.3 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and $4.4 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively.
In March 2021, the Former Manager exercised an aggregate of 1,422,248 options and were issued an aggregate of 784,123 shares of New Senior’s common stock in a cashless exercise.
14.REDEEMABLE PREFERRED STOCK, EQUITY AND EARNINGS PER COMMON SHARE
Redeemable Preferred Stock
On December 31, 2018, we issued 400,000 shares of our Series A Redeemable Preferred Stock, of which 200,000 shares are outstanding as of June 30, 2021, to the private equity firm that formerly externally managed us (the “Former Manager”). The Redeemable Preferred Stock are non-voting and have a $100 liquidation preference. Holders of the Redeemable Preferred Stock are entitled to cumulative cash dividends at a rate per annum of 6.00% on the liquidation preference amount plus all accumulated and unpaid dividends. The Redeemable Preferred Stock is subject to certain terms and conditions.
We may redeem, at any time, all but not less than all of the shares of Redeemable Preferred Stock for cash at a price equal to the liquidation preference amount of the Redeemable Preferred Stock plus all accumulated and unpaid dividends thereon (the “Redemption Price”). On or after December 31, 2020, the holders of a majority of the then outstanding shares of Redeemable Preferred Stock will have the right to require us to redeem up to 50% of the outstanding shares of Redeemable Preferred Stock, and on or after December 31, 2021, the holders of a majority of the then outstanding shares of Redeemable Preferred Stock will have the right to require us to redeem all or any portion of the outstanding shares of Redeemable Preferred Stock, in each case, for cash at the Redemption Price. Due to the ability of the holders to require us to redeem the outstanding shares, the Redeemable Preferred Stock, which was initially recorded at a fair value of $40 million, is excluded from Equity and reflected inpresented separately on the face of our Consolidated Balance Sheets at its initial fair value of $40.0 million.Sheets. The carrying value of the Redeemable Preferred Stock is increased by the accumulated and unpaid dividends, in the period with a corresponding increase in accumulated deficit.and reduced by redemptions and dividend payments. Accrued dividends are treated as deductions in the calculation of net income (loss) applicable to common stockholders.
The following table is a rollforward of our Redeemable Preferred Stock for the ninesix months ended SeptemberJune 30, 2020:2021:
| | | | | |
Balance as of December 31, 20192020 | $ | 40,50620,253 | |
Accrued dividend on Redeemable Preferred Stock | 1,802595 | |
Paid dividend on Redeemable Preferred Stock | (1,802)(598) | |
Balance as of SeptemberJune 30, 20202021 | $ | 40,50620,250 | |
Amended and Restated Stock Option and Incentive Award Plan
On January 1, 2019, our board of directors adopted an Amended and Restated Nonqualified Stock Option and Incentive Award Plan (the “Plan”) providing for the grant of equity-based awards, including restricted stock awards (RSAs), restricted stock units (RSUs), stock options, stock appreciation rights, performance awards and other equity-based and non-equity based awards, in each case to our directors, officers, employees, service providers, consultants and advisors. We have reserved 27,922,570 shares of our common stock for issuance under the Plan. Vesting periods for these awards generally range from one to three years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $1.7 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $4.8 million and $2.0 million for the nine months ended September 30, 2020 and 2019, respectively.
Equity and Dividends
Return of Capital Adjustment
In January 2020,2021, strike prices for outstanding options as of December 31, 20192020 were reduced by $0.52$0.33 (the “2019“2020 ROC Adjustment”), reflecting the portion of our 20192020 dividends which were deemed return of capital pursuant to the terms of the
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(dollars in tables in thousands, except share data)
Plan. In addition, 20,09820,289 additional options were issued to the Former Manager, in order to maintain the intrinsic value of an option grant with a strike price below the 20192020 ROC Adjustment.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)At-the-Market Equity Program
On February 26, 2021, we established an at-the-market equity offering program through which we may issue and sell, from time to time, up to an aggregate of $100 million of our common stock. Sales of our common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as sales agents.
During the six months ended June 30, 2021, we did not issue any shares under the Distribution Agreement. Pursuant to the Merger Agreement, we agreed that we would not issue equity securities, including under the ATM Program, subject to certain limited exceptions described in the Merger Agreement.
Earnings per Common Share
Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. Our common stock equivalents are our outstanding stock options and equity-based compensation awards.
We have certain equity-based compensationequity awards that contain non-forfeitable rights to dividends, which are considered participating securities for the purposes of computing EPS pursuant to the two-class method, and therefore we apply the two-class method in our computation of EPS. The two-class method is an earnings allocation methodology that determines EPS for common shares and participating securities according to dividends declared or accumulated and participating rights in undistributed earnings. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund losses.
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, basic and diluted net income (loss) per share was computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(dollars in tables in thousands, except share data)
The following table sets forth the computation of basic and diluted income (loss) per share of common stock for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator | Numerator | | | | | | | | Numerator | | | | | | | |
| Income (Loss) from continuing operations attributable to common stockholders | $ | (4,355) | | | $ | 30,750 | | | $ | (19,258) | | | $ | 13,345 | | |
| Loss from continuing operations attributable to common stockholders | | Loss from continuing operations attributable to common stockholders | $ | (13,268) | | | $ | (3,257) | | | $ | (20,875) | | | $ | (14,903) | |
| Discontinued operations, net | Discontinued operations, net | 0 | | | (2,506) | | | 16,885 | | | (7,077) | | Discontinued operations, net | 0 | | | 0 | | | 0 | | | 16,885 | |
| Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | (4,355) | | | 28,244 | | | (2,373) | | | 6,268 | | Net income (loss) attributable to common stockholders | (13,268) | | | (3,257) | | | (20,875) | | | 1,982 | |
| Less: Non-forfeitable dividends allocated to participating RSUs | Less: Non-forfeitable dividends allocated to participating RSUs | (28) | | | 0 | | | (59) | | | 0 | | Less: Non-forfeitable dividends allocated to participating RSUs | (32) | | | (28) | | | (75) | | | (59) | |
| Net income (loss) available to common shares outstanding | Net income (loss) available to common shares outstanding | $ | (4,383) | | | $ | 28,244 | | | $ | (2,432) | | | $ | 6,268 | | Net income (loss) available to common shares outstanding | $ | (13,300) | | | $ | (3,285) | | | $ | (20,950) | | | $ | 1,923 | |
| | Denominator | Denominator | | | | | | Denominator | | | | | |
Basic weighted average common shares outstanding (A) | Basic weighted average common shares outstanding (A) | 82,568,919 | | | 82,209,844 | | | 82,472,115 | | | 82,207,610 | | Basic weighted average common shares outstanding (A) | 83,653,329 | | | 82,459,741 | | | 83,233,377 | | | 82,423,182 | |
Dilutive common shares - equity awards and options (B) | Dilutive common shares - equity awards and options (B) | 0 | | | 1,754,387 | | | 0 | | | 1,381,038 | | Dilutive common shares - equity awards and options (B) | 0 | | | 0 | | | 0 | | | 0 | |
| Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 82,568,919 | | | 83,964,231 | | | 82,472,115 | | | 83,588,648 | | Diluted weighted average common shares outstanding | 83,653,329 | | | 82,459,741 | | | 83,233,377 | | | 82,423,182 | |
| | Basic earnings per common share: | Basic earnings per common share: | | Basic earnings per common share: | |
| Income (Loss) from continuing operations attributable to common stockholders | $ | (0.05) | | | $ | 0.37 | | | $ | (0.23) | | | $ | 0.16 | | |
| Loss from continuing operations attributable to common stockholders | | Loss from continuing operations attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | (0.18) | |
| Discontinued operations, net | Discontinued operations, net | 0 | | | (0.03) | | | 0.20 | | | (0.09) | | Discontinued operations, net | 0 | | | 0 | | | 0 | | | 0.20 | |
Net income (loss) attributable to common stockholders (C) | $ | (0.05) | | | $ | 0.34 | | | $ | (0.03) | | | $ | 0.08 | | |
| Net income (loss) attributable to common stockholders | | Net income (loss) attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | 0.02 | |
| | Diluted earnings per common share: | Diluted earnings per common share: | | | | | | | | Diluted earnings per common share: | | | | | | | |
| Income (Loss) from continuing operations attributable to common stockholders | $ | (0.05) | | | $ | 0.37 | | | $ | (0.23) | | | $ | 0.16 | | |
| Loss from continuing operations attributable to common stockholders | | Loss from continuing operations attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | (0.18) | |
| Discontinued operations, net | Discontinued operations, net | 0 | | | (0.03) | | | 0.20 | | | (0.08) | | Discontinued operations, net | 0 | | | 0 | | | 0 | | | 0.20 | |
Net income (loss) attributable to common stockholders (C) | $ | (0.05) | | | $ | 0.34 | | | $ | (0.03) | | | $ | 0.07 | | |
| Net income (loss) attributable to common stockholders | | Net income (loss) attributable to common stockholders | $ | (0.16) | | | $ | (0.04) | | | $ | (0.25) | | | $ | 0.02 | |
(A)The outstanding shares used to calculate the weighted average basic shares outstanding exclude 454,921227,462 and 754,594454,921 restricted stock awards as of SeptemberJune 30, 20202021 and 20192020 net of forfeitures, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) per common share for the three and ninesix months ended SeptemberJune 30, 2020.2021.
(B)During the three and nine months ended SeptemberJune 30, 2021 and 2020, 651,1883,107,805 and 826,408292,483 dilutive share equivalents and options, respectively, were excluded as their inclusion would have been anti-dilutive given our loss position.
(C)Amounts may not sum due to rounding. During the six months ended June 30, 2021 and 2020, 2,841,736 and 947,465 dilutive share equivalents and options, respectively, were also excluded as their inclusion would have been anti-dilutive given our loss position.
14.15. COMMITMENTS AND CONTINGENCIES
As of SeptemberJune 30, 2020,2021, management believes there are no material contingencies that would affect our results of operations, cash flows or financial position.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)
Certain Obligations, Liabilities and Litigation
We are and may become subject to various obligations, liabilities, investigations, inquiries regulatory proceedings,and litigation and claims assumed in connection with or arising from our on-going business, (some of which may not be fully insured and some of which may allege significant monetary damages), as well as acquisitions, sales, leasing and other activities. These claims may include, among other things, professional liability and general liability claims, unfair business practices claims, employment claims and regulatory proceedings. The risks of some of these types of claims has increased as a result of the ongoing COVID-19 pandemic. These obligations and liabilities (including the costs associated with investigations, inquiries and litigation) may be greater than expected or may not be known in advance. Any such obligations or liabilities could have a material adverse effect on our financial position, cash flows and results of operations, particularly if we are not entitled to indemnification, or if a responsible third party fails to indemnify us.
Litigation Relating to the Merger – On July 28, 2021, a purported stockholder of the Company filed a lawsuit against the Company and the members of its board of directors in the United States District Court for the Southern District of New York, captioned Wang v. New Senior Investment Group, Inc., et al. (Case No. 1:21-cv-6426). The plaintiff alleges that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, including by disclosing materially incomplete and misleading information concerning the Merger and related matters to the Company’s stockholders.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(dollars in tables in thousands, except share data)
The plaintiff seeks injunctive relief, rescissory and compensatory damages and an award of attorneys’ fees and expenses. We believe the claims asserted in the lawsuit are without merit.
Certain Tax-Related Covenants
If we are treated as a successor to Drive Shack under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2015, we could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement entered into to effectregarding our spin-off from Drive Shack, (“Separation and Distribution Agreement”), Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Senior as necessary to enable us to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to us and our tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders and its operation as a REIT, and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2015 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that Drive Shack’s failure to maintain its REIT status will not cause us to fail to qualify as a REIT under the successor REIT rule referred to above). To date, Drive Shack has not informed us of any challenge to its REIT status for the applicable time period.
Proceedings Indemnified and Defended by Third Parties
From time to time, we are party to certain legal actions, regulatory investigations and claims for which third parties are contractually obligated to indemnify, defend and hold us harmless. While we are presently not being defended by any tenant and other obligated third parties in these types of matters, there is no assurance that our tenant, itstheir affiliates or other obligated third parties wouldwill continue to defend us in these matters, or that such parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to us.
In addition, although we and our property managers maintain insurance programs against certain risks, including commercial general liability, property, casualty and directors’ and officers’ liability, we cannot provide assurance that such policies will be sufficient to mitigate the financial impact of any individual or group of legal actions, regulatory investigations or claims.
Environmental Costs
As a commercial real estate owner, we are subject to potential environmental costs. As of SeptemberJune 30, 2020,2021, management is not aware of any environmental concerns that would have a material adverse effect on our financial position or results of operations.
Capital Improvement and Repair Commitments
We have agreed to make $1.0 million available for capital improvements during the 15 year lease period, which ends in 2030, to theour triple net lease property under Watermark, none of which has been funded as of SeptemberJune 30, 2020.2021. Upon funding these capital improvements, we will be entitled to a rent increase.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
(dollars in tables in thousands, except share data)
Leases
As the lessee, weWe currently lease our corporate office space located in New York, New York under an operating lease agreement. The lease requires fixed monthly rent payments, expires on June 30, 2024 and does not have any renewal option. We also currently lease equipment (e.g., dishwashers, copy machines and buses) used at certain of our managed IL Propertiesproperties under operating lease agreements. Our leases have remaining lease terms ranging from one month to 3.866.0 years. We do not include any renewal options in our lease terms for calculating our lease liability because as of SeptemberJune 30, 2020,2021, because we were not reasonably certain if we will exercise these renewal options at this time.
NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2021
(dollars in tables in thousands, except share data)
As of SeptemberJune 30, 2020,2021, our future minimum lease payments under our operating leases are as follows:
| | | | | |
| Year | Operating Leases |
| 2020 (three months) | $ | 163 | |
| 2021 | 649 | |
| 2022 | 509 | |
| 2023 | 466 | |
| 2024 | 235 | |
| Thereafter | 310 | |
| Total future minimum lease payments | 2,332 | |
| Less imputed interest | (452) | |
| Total operating lease liability | $ | 1,880 | |
Litigation Settlement
As previously described in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, a derivative lawsuit, captioned Cumming v. Edens, et al., C.A. No. 13007-VCS, was brought on behalf of the Company against certain current and former members of the Company’s board of directors, Fortress Investment Group LLC and certain affiliates and Holiday Acquisition Holdings LLC. On April 23, 2019, the parties reached an agreement to settle the derivative lawsuit. The settlement provided for the payment of $53.0 million to the Company and the recommendation of certain corporate governance changes in exchange for customary releases. The settlement was approved by the Delaware Court of Chancery on July 31, 2019 and a judgment issued the same day. Cash proceeds of approximately $38.5 million were distributed to the Company, which reflected a court-approved fee and expense award to plaintiff’s counsel of $14.5 million. The Company also paid $0.3 million in unreimbursed legal fees. These proceeds were recorded in “Litigation proceeds, net” in our Consolidated Statements of Operations. The Company previously submitted and recommended the agreed-upon governance changes to its stockholders at the Company’s 2019 annual meeting of shareholders, which was held in June 2019, and 2020 annual meeting of shareholders, which was held in June 2020, although such changes were not approved by the Company’s shareholders by the required vote for such changes. | | | | | |
| Year | Operating Leases |
| 2021 (six months) | $ | 322 | |
| 2022 | 515 | |
| 2023 | 472 | |
| 2024 | 240 | |
| 2025 | 8 | |
| Thereafter | 305 | |
| Total future minimum lease payments | 1,862 | |
| Less imputed interest | (377) | |
| Total operating lease liability | $ | 1,485 | |
15.16.SUBSEQUENT EVENTS
On October 28, 2020,July 13, 2021, we redeemed all 200,000 shares of our boardoutstanding Series A Preferred Stock at the liquidation preference of directors declared a cash dividend$100 per share plus all accrued and unpaid dividends up to, but excluding, the redemption date. In total, we paid $20.3 million for the redemption of the Series A Preferred Stock using proceeds from drawing down on our common stock of $0.065 per share for the quarter ended September 30, 2020. The dividend is payable on December 18, 2020 to stockholders of record on December 4, 2020.Revolver.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated financial statements and notes thereto included within this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included under the heading “Cautionary Note Regarding Forward-Looking Statements” and under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
OVERVIEW
Our Business
We are a REIT with a portfolio of 103 senior housing properties located across the United States. We believe that we are the only pure playREIT focused solely on senior housing REIT and we are one of the largest owners of senior housing properties.properties in the United States. We are listed on the NYSE under the symbol “SNR” and are headquartered in New York, New York.
We conductare organized and operate as a single reportable segment, Senior Housing Properties. We changed our business throughstructure in the fourth quarter of 2020 and no longer operate in two reportable segments: Managed Independent Living (“IL”) Properties, and Other Properties. See our consolidated financial statements and the related notes included hereinin Item 1 “Financial Statements” for additional information regarding our segments.
On June 28, 2021, the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ventas and Cadence Merger Sub LLC, a wholly owned subsidiary of Ventas (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company, with the Company surviving the merger as a subsidiary of Ventas (the “Merger”). Under the Merger Agreement, the consideration to be paid by Ventas in the Merger consists of 0.1561 of a newly issued share of Ventas common stock, par value $0.25 per share, for each share of Company common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger (other than shares of our common stock owned directly by Ventas, Merger Sub or the Company), with holders of record of Company common stock receiving cash in lieu of fractional shares of Ventas common stock. The Merger is expected to close during the second half of 2021, subject to customary closing conditions, including approval by the Company’s stockholders. We cannot assure you that the Merger will be completed on the terms or timeline anticipated or at all.
COVID-19 & Considerations Related to Our Business
The novel coronavirus (COVID-19)COVID-19 global pandemic is causinghas caused significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Although some of these restrictions have been lifted or scaled back at this time, ongoing resurgences of COVID-19 infections may result in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented to reduce the spread of COVID-19.
As an owner of senior living properties, with a portfolio of 102 IL properties and one continuing care retirement community (“CCRC”), COVID-19 impactshas impacted our business in various ways. Our threefour property managers and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities across the U.S. Some of the measures taken at the onset of the pandemic included restrictions on all non-essential visitors (including family), closure of group dining facilities and other common areas, restrictions on resident movements and group activities, as well as enhanced protocols which have required increased labor, property cleaning expenses and costs related to procuring necessary supplies such as meal containers and personal protective equipment (“PPE”). Over the last several months,In mid-2020, our properties have lifted certainstarted to lift restrictions in a phased approach, based on both the status of state and local regulations that affect the property as well as the status of any COVID-19 cases at the property. Lifting restrictions at our properties, particularly restrictions related to onsite visitors, while being done in a measured approach in compliance with all state and local regulations, may contribute to an increase in COVID-19 cases.
COVID-19 is having and will likely continue to have an impact on three metrics that are fundamental to our business: occupancy, rental rates and operating expenses.
Occupancy:
Following the COVID-19 outbreak, occupancy at our properties began to decrease materially as move-ins at those properties slowed due to the voluntary restrictions our operators haveproperty managers imposed on move-ins at our properties as discussed above. At the same time, the pandemic raises the risk of an elevated level of resident illnesses and therefore higher move-out levels at our properties.While move-out levels were slightly below historical levels at the onset of the pandemic, they have increased in recent months, likely due to pent-up demand to move-out that has been hampered by the pandemic. We do not know the extent of the ultimate impactsimpact that COVID-19 will have on our business, and whether it will fundamentally alter the demand for senior housing in general or in our properties in particular. DuringEnding occupancy in the thirdsecond quarter of 2020, ending occupancy decreased 1602021 increased for the first time since the outset of the pandemic, growing 90 basis points compared to the second quarter. Occupancy may continue to decline as a resultfirst quarter of the pandemic.2021. The timingshape and length of athe recovery in occupancy is difficult to predict and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur. The impact of COVID-19 may be mitigated by the distribution of COVID-19 vaccines, but it remains unclear how vaccines will ultimately impact demand and occupancy over the longer term. As of the date of this filing, all of our properties have made COVID-19 vaccines available to residents and employees. However, although we have seen recent improvements, it is too early to determine how vaccination levels will ultimately influence demand and occupancy at our properties.
The senior housing industry offers a full continuum of care to seniors with product types that range from “mostly housing” (i.e., senior apartments) to “mostly healthcare” (i.e., skilled nursing, hospitals, etc.). We primarily focus on product types at the center of this continuum, namely IL properties. We believe that our focused portfolio of primarily IL properties will allow investors to participate in the positive fundamentals of the senior housing sector. However, according to the U.S. Centers for Disease Control and Prevention (the “CDC”), older adults and people of any age who have serious underlying medical conditions might be at higher risk for severe illness from COVID-19. The CDC guidance also states that people age 65 and older and those living in nursing homes or long-term care facilities are at high-risk for severe illness from COVID-19. While we do not own nursing facilities, the age and other demographics of our residents fall within the CDC guidance. We do not know if or how this will affect seniors’ views on different types of senior living and whether it will alter demand for our types of senior living properties in the future.
Rental Rates:
Our cash flows from operating activities are primarily driven by rental revenues and fees received from residents of our managed properties, and we typically increase rental fees annually. Seniors, like much of the U.S. population, may be experiencing deteriorating financial conditions as a result of the COVID-19 pandemic, which may make it difficult for them to pay rent. It is unclear at this time how COVID-19 will impact our ability to increase rental rates, or our residents’ abilities to pay rent to us. In addition, there may be pressure for us to reduce rental rates or offer other concessions in light of the pandemic and its effects on our residents and our business.
Operating Expenses:
DuringThroughout the first quarter of 2020, operating expenses were in line with expectations through the middle of March. We saw a slight increase inpandemic, our property managers have incurred certain additional property level expenses associated with the COVID-19 pandemic, towards the end of March, driven by expenditures related toincluding the procurement of PPE and other supplies such as packaging necessary for in-room meal deliveries to residents. In the second and third quarters of 2020, we have seen these costs continue, but theyThese expenses have been largely offset by variable expense savings associated with lower occupancy and strong expense management from our operators.property managers. In the second quarter of 2021, these costs have continued but declined for the fourth consecutive quarter. Depending on how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear or need to continue to bear, such as costs for testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or new protocols related to the properties.
Given the rapidly evolving nature of the COVID-19 pandemic, all of the observations and forward-looking statements above represent our current good faith views based upon the information that we have available to us at this time. We believe that the extent of the pandemic’s effect on our business, operational and financial performance and liquidity will depend upon many factors and future developments, including the duration, spread, intensity and recurrence of the pandemic, health and safety actions taken to contain its spread, the timingavailability, continuing efficacy and availabilitypublic usage and acceptance of a vaccine if any,vaccines, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which is highly uncertain and very difficult to predict at this time. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its global economic impact, including any economic downturn or recession that may occur in the future. See also Item 1A. “Risk Factors” and below “Liquidity and Capital Resources,” for additional discussions regarding COVID-19 and its impact on our business.
Other Recent Developments
Completion of AL/MC Portfolio Disposition & Related Refinancing Activity
On February 10, 2020, we completed the sale of all 28 of our managed assisted living/memory careProperty Transition to Atria Senior Living (“AL/MC”Atria”) properties pursuant to a Purchase and Sale Agreement, dated as of October 31, 2019 (the “Sale Agreement”), with affiliates of ReNew REIT for a gross sale price of $385.0 million (“AL/MC Portfolio Disposition”). We recognized a gain on sale of $20.0 million from the AL/MC Portfolio Disposition, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations. The sale of these properties represents a strategic shift that had a major effect on our operations and financial results. Accordingly, the operations of these properties were classified as discontinued operations in our consolidated financial statements included in this Form 10-Q. All prior period information has been reclassified to conform to current period presentation. Refer to “Note 3 – Discontinued Operations” to our consolidated financial statements for additional details.
In February 2020, in conjunction withApril 2021, we transitioned the AL/MC Portfolio Disposition, we repaid $368.1 millionmanagement of debt and recognized a loss of extinguishment of debt of $5.9 million, comprising of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs on the loans, which is included in “Loss on extinguishment of debt” in our Consolidated Statements of Operations. We also entered into a new financing for $270.0 million, which is secured by 14 managed IL properties. In addition, we amended and restated our secured revolving credit facility in the amount of $125.0 million (the “Revolver”), which is currently secured by nine managed IL21 properties and the pledge of the equity interests offrom Holiday to Atria.
certain of our wholly owned subsidiaries. The amendment extended the maturity of the Revolver from December 2021Property Transitions to February 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of borrowing capacity of $500.0 million. Refer to “Note 8 – Debt, Net” to our consolidated financial statements for additional details.Hawthorn Senior Living (“Hawthorn”) and Grace Management, Inc. (“Grace”)
AsIn July 2021, we transitioned the management of 10 properties from Holiday to Hawthorn, and two properties from Holiday to Grace.
During transition periods, we expect to incur integration costs and may experience a resulttemporary disruption in operations, which can adversely impact our results of these refinancing initiatives,operations.
At-The-Market Common Stock Offering Program
On February 26, 2021, we established an at-the-market equity offering program (the “ATM Program”) through which we may issue and sell, from time to time, up to an aggregate of $100 million of our weighted average debt maturity increased from 4.8 yearscommon stock. Sales of common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as of December 31, 2019 to 5.6 years as of September 30, 2020. We have no significant debt maturities until 2025.sales agents.
During the third quarter of 2020,six months ended June 30, 2021, we entered into a $270.0 million notional interest rate swap with a maturitydid not issue any shares under the Distribution Agreement. Pursuant to the Merger Agreement, we agreed that we would not issue equity securities, including under the ATM Program, subject to certain limited exceptions described in September 2025 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense.Merger Agreement.
MARKET CONSIDERATIONS
Senior housing is a $300 billion market, and ownership of senior housing assets is highly fragmented. Given these industry fundamentals and compelling demographics that are expected to drive increased demand for senior housing, we believe the senior housing industry presents an attractive investment opportunity. However, increased competition from other buyers of senior housing assets, the impact of COVID-19 on the senior housing industry, increasing construction costs, as well as liquidity constraints and other factors, could impair our ability to source attractive investment opportunities within the senior housing industry and thus to seek investments in the broader healthcare industry.
According to data from the National Investment Center for Seniors Housing and Care (“NIC”) on the 99 Primary and Secondary Markets, occupancy was down 530in the second quarter of 2021 declined 550 basis points year-over-year, inand increased 30 basis points quarter-over-quarter – the third quarter of 2020, the second full quarter impacted byfirst sequential increase since before the COVID-19 pandemic. New Senior’s occupancy results outperformedperformed in line with the industry in the thirdsecond quarter, with same store managed occupancy down 480550 basis points year-over-year. Industry occupancy for majority IL facilities was down 500 basis points year-over-year, while industry occupancy for majority assisted living (“AL”)AL facilities was down 580620 basis points year-over-year.
Industry-wide, new supply remains elevated comparedlevels have continued to pre-2015 levels, but continues to decrease.trend lower for the past several years. Units under construction represent 5.2%4.7% of inventory, but theand that ratio has decreased 210270 basis points from the recent high in the third quarter of 2018. The ratio of ALIL construction to inventory (5.5%(4.8%) remainsis slightly higher than thatthe ratio for IL (5.0%AL (4.7%).
While supply trends have improved recently, rate growth has deceleratedcontinued to decelerate over the past several quarters. Industry rate growth was 1.7%1.4% in the thirdsecond quarter of 2020,2021, down 200 bps from the recent high of 3.3%3.4% in the secondfirst quarter of 2019. Rate growth for IL facilities (1.8%(1.4%) was slightly higher thanin line with rate growth for AL facilities (1.7%).facilities.
The value of our existing portfolio could be impacted by new construction, as well as increased availability and popularity of home health care or other alternatives to senior housing, by hampering occupancy and rate growth, along with increasinggrowth. In addition, operating expenses.expenses could be driven higher by supply and labor shortages, as well as other factors.
Additionally, as discussed in more detail above, the COVID-19 pandemic is having anhas continued to impact on our business in 2020 and will likely continue to have an impact beyond 2020.2021. The timing of a recovery is difficult to predict, and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur. In recent months, we have seen fewer active cases, and increased inquiry and tour volume across our communities, which may be due to the prevalence of vaccination clinics at our communities and high levels of uptake by residents and associates, or may be the result of declining positivity rates in the particular communities in which we operate, or may be due to other factors.
RESULTS OF OPERATIONS
Segment Overview
Our primary business is investing in senior housing properties. We currently operate and report results in one reportable segment, Senior Housing Properties. Prior to the fourth quarter of 2020, we had two reportable business segments Managed(Managed IL Properties and Other Properties. Our Managed IL Properties segment includes 102 IL properties throughoutProperties). Due to the United States managed by Holiday, Merrill Gardens and Grace under Property Management Agreements. OurAL/MC Portfolio Disposition which resulted in the sale of all but one of the assets in the Other Properties segment, includes one CCRC, which is currently leasedwe changed the composition of our reportable segments to Watermark under a triple net lease agreement that obligatesbe in line with the tenantfinancial information reviewed and used by the chief operating decision maker to paymake operating decisions, assess performance, develop strategy and allocate capital resources. Accordingly, all property-related expenses, including maintenance, utilities, taxes, insurance, repairs, capital improvements andprior period segment information has been reclassified to conform to the payroll expense of property-level employees. It also includes the operations of two managed AL/MC properties we previously owned and sold during the nine months ended September 30, 2019.current period presentation.
Net Operating Income
WeNet operating income (“NOI”) and Cash NOI are financial measures not determined under U.S. generally accepted accounting principles (“GAAP”) that we use to evaluate the performance of these reportable business segments based on segment NOI.our properties. We consider NOI anand Cash NOI important supplemental measuremeasures used to evaluate the operating performance of our segmentsproperties because it allowsthey allow investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. We define NOI as total revenues less property level operating expenses, which include property management fees and travel cost reimbursements. We define Cash NOI as NOI excluding the effects of straight-line rental revenue, amortization of above/ below market lease intangibles and the amortization of deferred community fees and other, which includes the net change in deferred community fees and other rent discounts or incentives.
Our Managed ILSenior Housing Properties segment is primarily comprised of independent living senior housing properties that are operated by property managers to which we pay a management fee. Our Other Properties segment is comprised of a senior housing propertyWe also own one CCRC leased on a long-term basis, and our tenant is typically responsible for bearing property-related expenses including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing segmentproperty performance. Because of such differences in our exposure to property operating results, each segment requires a different type of management focus. As such, these segments are managed separately. In deciding how to allocate resources and assess performance, our chief operating decision maker regularly evaluates the performance of our reportable segmentssegment on the basis of NOI and Cash NOI.
Same Store
Same store information is intended to enable management to evaluate the performance of a consistent portfolio of real estate in a manner that eliminates variances attributable to changes in the composition of our portfolio over time, due to sales and various other factors. Properties acquired, sold, transitioned to other property managers, or between segments, or classified as held for sale or discontinued operations during the comparable periods are excluded from the same store amounts.
Three months ended SeptemberJune 30, 20202021 compared to three months ended SeptemberJune 30, 20192020
The following table providespresents the total portfolio results as of and for the three months ended June 30, 2021 and 2020, and a reconciliation of our segment NOI to net income (loss), and compares the results of operations for the respective periods::
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) |
| (dollars in thousands) | 2020 | | 2019 | | Amount | | Percentage |
| Segment NOI for Managed IL Properties | $ | 31,625 | | | $ | 33,797 | | | $ | (2,172) | | | (6.4) | % |
| Segment NOI for Other Properties | 1,583 | | | 1,583 | | | — | | | — | % |
| Total segment NOI | 33,208 | | | 35,380 | | | (2,172) | | | (6.1) | % |
| Expenses | | | | | | | |
| Interest expense | 14,540 | | | 18,962 | | | (4,422) | | | (23.3) | % |
| Depreciation and amortization | 16,204 | | | 17,323 | | | (1,119) | | | (6.5) | % |
| General and administrative expense | 5,905 | | | 5,410 | | | 495 | | | 9.1 | % |
| Acquisition, transaction and integration expense | 43 | | | 503 | | | (460) | | | (91.5) | % |
| | | | | | | |
| Other expense | 192 | | | 16 | | | 176 | | | NM |
| Total expenses | 36,884 | | | 42,214 | | | (5,330) | | | (12.6) | % |
| Litigation proceeds, net | — | | | 38,226 | | | (38,226) | | | NM |
| | | | | | | |
| Income (Loss) before income taxes | (3,676) | | | 31,392 | | | (35,068) | | | 111.7 | % |
| Income tax expense | 74 | | | 37 | | | 37 | | | 100.0 | % |
| Income (Loss) from continuing operations | (3,750) | | | 31,355 | | | (35,105) | | | 112.0 | % |
| Discontinued Operations: | | | | | | | |
| | | | | | | |
| Loss from discontinued operations | — | | | (2,506) | | | 2,506 | | | NM |
| Discontinued operations, net | — | | | (2,506) | | | 2,506 | | | NM |
| Net income (loss) | (3,750) | | | 28,849 | | | (32,599) | | | 113.0 | % |
| Deemed dividend on redeemable preferred stock | (605) | | | (605) | | | — | | | — | % |
| Net income (loss) attributable to common stockholders | $ | (4,355) | | | $ | 28,244 | | | $ | (32,599) | | | 115.4 | % |
_______________ | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Increase (Decrease) |
| (dollars in thousands) | 2021 | | 2020 | | Amount | | Percentage |
| Resident fees and services | $ | 77,507 | | | $ | 82,951 | | | $ | (5,444) | | | (6.6) | % |
| Rental revenue | 1,582 | | | 1,582 | | | — | | | — | % |
| Less: Property operating expense | 49,698 | | | 48,760 | | | 938 | | | 1.9 | % |
| Total NOI | 29,391 | | | 35,773 | | | (6,382) | | | (17.8) | % |
| Straight-line rental revenue | (67) | | | (108) | | | 41 | | | (38.0) | % |
| Amortization of deferred community fees and other | 4 | | | (432) | | | 436 | | | (100.9) | % |
| Cash NOI | 29,328 | | | 35,233 | | | (5,905) | | | (16.8) | % |
Addback adjustments (A) | 63 | | | 540 | | | (477) | | | (88.3) | % |
| Expenses | | | | | | | |
| Depreciation and amortization | 15,586 | | | 16,782 | | | (1,196) | | | (7.1) | % |
| Interest expense | 14,350 | | | 15,281 | | | (931) | | | (6.1) | % |
| General and administrative expense | 6,579 | | | 5,894 | | | 685 | | | 11.6 | % |
| Acquisition, transaction and integration expense | 5,607 | | | 19 | | | 5,588 | | | NM |
| | | | | | | |
| Other expense (income) | 205 | | | 433 | | | (228) | | | (52.7) | % |
| Total expenses | 42,327 | | | 38,409 | | | 3,918 | | | 10.2 | % |
| | | | | | | |
| | | | | | | |
| Loss before income taxes | (12,936) | | | (2,636) | | | (10,300) | | | NM |
| Income tax expense | 33 | | | 22 | | | 11 | | | 50.0 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) | (12,969) | | | (2,658) | | | (10,311) | | | NM |
| Deemed dividend on redeemable preferred stock | (299) | | | (599) | | | 300 | | | (50.1) | % |
| Net income (loss) attributable to common stockholders | $ | (13,268) | | | $ | (3,257) | | | $ | (10,011) | | | NM |
| | | | | | | |
| Total properties as of the period ended | 103 | | 103 | | | | |
| Average available beds | 12,438 | | 12,439 | | | | |
NM – Not meaningful
Managed IL Properties(A) Represents straight-line rental revenue and amortization of deferred community fees and other adjustments to Cash NOI.
The following table presents same store and total portfolio results as of and for the three months ended SeptemberJune 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Same Store & Total Portfolio |
| (dollars in thousands, except per bed data) | 2020 | | 2019 | | Change | | % |
| Resident fees and services | $ | 81,582 | | | $ | 84,475 | | | $ | (2,893) | | | (3.4) | % |
| Less: Property operating expense | 49,957 | | | 50,678 | | | (721) | | | (1.4) | % |
| NOI | $ | 31,625 | | | $ | 33,797 | | | $ | (2,172) | | | (6.4) | % |
| | | | | | | |
| Total properties as of the period ended | 102 | | | 102 | | | | | |
| Average available beds | 11,976 | | | 11,975 | | | | | |
| Average occupancy (%) | 82.5 | | | 87.3 | | | | | |
| Average monthly revenue per occupied bed | $ | 2,752 | | | $ | 2,693 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | Total Portfolio |
| (dollars in thousands) | 2021 | | 2020 | | Change | | % | | 2021 | | 2020 | | Change | | % |
| Resident fees and services | $ | 59,520 | | | $ | 63,163 | | | $ | (3,643) | | | (5.8) | % | | $ | 77,507 | | | $ | 82,951 | | | $ | (5,444) | | | (6.6) | % |
| Rental revenue | 1,582 | | | 1,582 | | | — | | | — | % | | 1,582 | | | 1,582 | | | — | | | — | % |
| Less: Property operating expense | 38,758 | | | 37,739 | | | 1,019 | | | 2.7 | % | | 49,698 | | | 48,760 | | | 938 | | | 1.9 | % |
| NOI | 22,344 | | | 27,006 | | | (4,662) | | | (17.3) | % | | 29,391 | | | 35,773 | | | (6,382) | | | (17.8) | % |
| Straight-line rental revenue | (67) | | | (108) | | | 41 | | | (38.0) | % | | (67) | | | (108) | | | 41 | | | (38.0) | % |
| Amortization of deferred community fees and other | 166 | | | (284) | | | 450 | | | (158.5) | % | | 4 | | | (432) | | | 436 | | | (100.9) | % |
| Cash NOI | $ | 22,443 | | | $ | 26,614 | | | $ | (4,171) | | | (15.7) | % | | 29,328 | | | 35,233 | | | (5,905) | | | (16.8) | % |
Less: non-SS Cash NOI (A) | | | | | | | | | (6,885) | | | (8,619) | | | 1,734 | | | (20.1) | % |
| SS Cash NOI | | | | | | | | | $ | 22,443 | | | $ | 26,614 | | | $ | (4,171) | | | (15.7) | % |
| | | | | | | | | | | | | | | |
| Total properties as of the period ended | 82 | | 82 | | | | | | 103 | | 103 | | | | |
| Average available beds | 9,867 | | 9,868 | | | | | | 12,438 | | 12,439 | | | | |
(A) Relates to the Cash NOI of 21 assets that were managed under Holiday and transitioned to Atria in April 2021.
Resident fees and services
Same store and totalTotal portfolio resident fees and services decreased $2.9$5.4 million. This decrease is primarily attributable to a decrease in occupancy, partially offset by an increase in average rental rates.occupancy.
Property operating expense
Same store portfolio resident fees and total property operating expenseservices decreased $0.7$3.6 million. This decrease is primarily dueattributable to variable expense savings associated with lower occupancy and strong expense management from our operators, partially offset by costs incurreda decrease in response to the COVID-19 pandemic.
Segment NOI
Same store NOI and total portfolio NOI decreased $2.2 million. See above for the variance explanations.
Other Properties
The following table presents same store and total portfolio results as of and for the three months ended September 30, 2020 and 2019 but excluding properties whose operations were classified as discontinued operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | Total Portfolio |
| (dollars in thousands, except per bed data) | 2020 | | 2019 | | Change | | % | | 2020 | | 2019 | | Change | | % |
| | | | | | | | | | | | | | | |
| Rental revenue | $ | 1,583 | | | $ | 1,583 | | | $ | — | | | — | % | | $ | 1,583 | | | $ | 1,583 | | | $ | — | | | — | % |
| | | | | | | | | | | | | | | |
| NOI | $ | 1,583 | | | $ | 1,583 | | | $ | — | | | — | % | | $ | 1,583 | | | $ | 1,583 | | | $ | — | | | — | % |
| | | | | | | | | | | | | | | |
| Total properties as of the period ended | 1 | | | 1 | | | | | | | 1 | | | 1 | | | | | |
| Average available beds | 463 | | | 463 | | | | | | | 463 | | | 463 | | | | | |
Rental revenue
Rental revenue relates to rents from our triple net lease property. Same store and total portfolio rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees.
Property operating expense
Total portfolio property operating expense increased $0.9 million. This increase is primarily due to higher marketing and labor-related costs, which were partially offset by lower costs incurred in response to the COVID-19 pandemic.
Same store portfolio property operating expense increased $1.0 million. This increase is primarily due to higher marketing and labor-related costs, which were partially offset by lower costs incurred in response to the COVID-19 pandemic.
NOI
Total portfolio NOI decreased $6.4 million. See above for the variance explanations.
Same store portfolio NOI decreased $4.7 million. See above for the variance explanations.
Cash NOI
Total portfolio Cash NOI decreased $5.9 million. This is primarily due to lower NOI and more rent incentives given to residents. See above for the NOI variance explanations.
Same store portfolio Cash NOI decreased $4.2 million. This is primarily due to lower NOI and more rent incentives given to residents. See above for the NOI variance explanations.
Expenses
Depreciation and amortization
Depreciation and amortization decreased $1.2 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of June 30, 2020.
Interest expense
Interest expense decreased $0.9 million primarily due to a lower average debt balance as a result of debt repayments and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the three months ended June 30, 2021 and 2020 were 3.79% and 3.81%, respectively.
General and administrative expense
General and administrative expense increased $0.7 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees after June 30, 2020.
Acquisition, transaction and integration expense
Acquisition, transaction and integration expense increased $5.6 million primarily due to $4.0 million of costs associated with the Merger with Ventas during the three months ended June 30, 2021. See “Part I, Item 1. Note 1 - Organization” of our consolidated financial statements for more information.
Other expense
Other expense decreased by $0.2 million. This is primarily due to lower casualty related charges in the second quarter of 2021.
Income tax expense
We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. Income tax expense was relatively unchanged during the comparative periods.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
The following table presents the total portfolio results as of and for the six months ended June 30, 2021 and 2020, and a reconciliation of our NOI to net income (loss):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (dollars in thousands) | 2021 | | 2020 | | Amount | | Percentage |
| Resident fees and services | $ | 155,620 | | | $ | 167,958 | | | $ | (12,338) | | | (7.3) | % |
| Rental revenue | 3,165 | | | 3,165 | | | — | | | — | % |
| Less: Property operating expense | 99,146 | | | 99,825 | | | (679) | | | (0.7) | % |
| Total NOI | 59,639 | | | 71,298 | | | (11,659) | | | (16.4) | % |
| Straight-line rental revenue | (162) | | | (242) | | | 80 | | | (33.1) | % |
| Amortization of deferred community fees and other | (693) | | | (735) | | | 42 | | | (5.7) | % |
| Cash NOI | 58,784 | | | 70,321 | | | (11,537) | | | (16.4) | % |
Addback adjustments (A) | 855 | | | 977 | | | (122) | | | (12.5) | % |
| Expenses | | | | | | | |
| Depreciation and amortization | 31,475 | | | 34,318 | | | (2,843) | | | (8.3) | % |
| Interest expense | 28,703 | | | 32,500 | | | (3,797) | | | (11.7) | % |
| General and administrative expense | 12,854 | | | 11,740 | | | 1,114 | | | 9.5 | % |
| Acquisition, transaction and integration expense | 6,000 | | | 152 | | | 5,848 | | | NM |
| Loss on extinguishment of debt | — | | | 5,884 | | | (5,884) | | | NM |
| Other expense (income) | 820 | | | 328 | | | 492 | | | 150.0 | % |
| Total expenses | 79,852 | | | 84,922 | | | (5,070) | | | (6.0) | % |
| | | | | | | |
| | | | | | | |
| Loss before income taxes | (20,213) | | | (13,624) | | | (6,589) | | | 48.4 | % |
| Income tax expense | 67 | | | 82 | | | (15) | | | (18.3) | % |
| Loss from continuing operations | (20,280) | | | (13,706) | | | (6,574) | | | 48.0 | % |
| Discontinued Operations: | | | | | | | |
| Gain on sale of real estate | — | | | 19,992 | | | (19,992) | | | NM |
| Loss from discontinued operations | — | | | (3,107) | | | 3,107 | | | NM |
| Discontinued operations, net | — | | | 16,885 | | | (16,885) | | | NM |
| Net income (loss) | (20,280) | | | 3,179 | | | (23,459) | | | NM |
| Deemed dividend on redeemable preferred stock | (595) | | | (1,197) | | | 602 | | | (50.3) | % |
| Net income (loss) attributable to common stockholders | $ | (20,875) | | | $ | 1,982 | | | $ | (22,857) | | | NM |
| | | | | | | |
| Total properties as of the period ended | 103 | | 103 | | | | |
| Average available beds | 12,438 | | 12,439 | | | | |
NM – Not meaningful
(A) Represents straight-line rental revenue and amortization of deferred community fees and other adjustments to Cash NOI.
The following table presents same store segmentand total portfolio results for six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | Total Portfolio |
| (dollars in thousands) | 2021 | | 2020 | | Change | | % | | 2021 | | 2020 | | Change | | % |
| Resident fees and services | $ | 119,169 | | | $ | 127,792 | | | $ | (8,623) | | | (6.7) | % | | $ | 155,620 | | | $ | 167,958 | | | $ | (12,338) | | | (7.3) | % |
| Rental revenue | 3,165 | | | 3,165 | | | — | | | — | % | | 3,165 | | | 3,165 | | | — | | | — | % |
| Less: Property operating expense | 76,832 | | | 76,730 | | | 102 | | | 0.1 | % | | 99,146 | | | 99,825 | | | (679) | | | (0.7) | % |
| NOI | 45,502 | | | 54,227 | | | (8,725) | | | (16.1) | % | | 59,639 | | | 71,298 | | | (11,659) | | | (16.4) | % |
| Straight-line rental revenue | (162) | | | (242) | | | 80 | | | (33.1) | % | | (162) | | | (242) | | | 80 | | | (33.1) | % |
| Amortization of deferred community fees and other | (350) | | | (499) | | | 149 | | | (29.9) | % | | (693) | | | (735) | | | 42 | | | (5.7) | % |
| Cash NOI | $ | 44,990 | | | $ | 53,486 | | | $ | (8,496) | | | (15.9) | % | | 58,784 | | | 70,321 | | | (11,537) | | | (16.4) | % |
Less: non-SS Cash NOI (A) | | | | | | | | | (13,794) | | | (16,835) | | | 3,041 | | | (18.1) | % |
| SS Cash NOI | | | | | | | | | $ | 44,990 | | | $ | 53,486 | | | $ | (8,496) | | | (15.9) | % |
| Total properties as of the period ended | 82 | | | 82 | | | | | | | 103 | | 103 | | | | |
| Average available beds | 9,867 | | | 9,868 | | | | | | | 12,438 | | | 12,439 | | | | | |
(A) Relates to the Cash NOI of 21 assets that were managed under Holiday and transitioned to Atria in April 2021.
Resident fees and services
Total portfolio resident fees and services decreased $12.3 million. This decrease is primarily attributable to a decrease in occupancy, partially offset by an increase in average rental rates.
Same store portfolio resident fees and services decreased $8.6 million. This decrease is primarily attributable to a decrease in occupancy, partially offset by an increase in average rental rates.
Rental revenue
Rental revenue relates to rents from our triple net lease property. Same store and total rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees.
Segment NOIProperty operating expense
Total portfolio property operating expense decreased $0.7 million. This decrease is primarily due to lower management fees and samecosts incurred in response to the COVID-19 pandemic, offset by higher marketing fees, insurance premiums and uninsured casualty losses.
Same store segment NOI remained unchangedportfolio property operating expense was relatively flat for the comparative periods. This is primarily due to lower management fees and costs incurred in response to the COVID-19 pandemic, offset by higher marketing fees, insurance premiums and uninsured casualty losses.
NOI
Total portfolio NOI decreased $11.7 million. See above for the variance explanation.
Same store portfolio NOI decreased $8.7 million. See above for the variance explanations.
Cash NOI
Total portfolio Cash NOI decreased $11.5 million. This is primarily due to lower NOI. See above for the NOI variance explanation.
Same store portfolio Cash NOI decreased $8.5 million. This is primarily due to lower NOI. See above for the NOI variance explanation.
Expenses
Depreciation and amortization
Depreciation and amortization decreased $2.8 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of June 30, 2020.
Interest expense
Interest expense decreased $4.4$3.8 million primarily due to a lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the threesix months ended SeptemberJune 30, 2021 and 2020 were 3.79% and 2019 were 3.70% and 4.65%4.12%, respectively.
Depreciation and amortization
Depreciation and amortization decreased $1.1 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of September 30, 2019.
General and administrative expense
General and administrative expense increased $0.5$1.1 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees after the three months ended SeptemberJune 30, 2019.
Acquisition, transaction and integration expense
Acquisition, transaction and integration expense decreased $0.5increased $5.8 million primarily due to $4.0 million of costs associated with the sale of two managed AL/MC propertiesMerger with Ventas during the threesix months ended SeptemberJune 30, 20192021. See “Part I, Item 1. Note 1 - Organization” of our consolidated financial statements for more information.
Loss on extinguishment of debt
Loss on extinguishment of debt decreased $5.9 million primarily due to $4.5 million of prepayment penalties and no sales duringa $1.4 million write-off of unamortized deferred financing fees related to debt paid off in conjunction with the three months ended September 30,AL/MC Portfolio Disposition in February 2020.
Other expense
Other expense increased by $0.2$0.5 million. This is primarily due to damage remediation costs relating to a significant winter storm in Texas in February 2021 and higher casualty related charges incurred on one IL property.
Litigation proceeds, net
As described in “Note 14 – Commitments and Contingencies” to our consolidated financial statements, on July 31, 2019, the derivative lawsuit, captioned Cummings v. Edens, et al., C.A. No. 13007-VCS was settled and approved by the relevant court. During the three months ended September 30, 2019, we recorded $38.2 million in litigation proceeds net of a court-approved fee and expense award to plaintiff’s counsel of $14.5 million, as well as $0.3 million in unreimbursed legal fees.charges.
Income tax expense
We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. Income tax expense was relatively flatunchanged during the comparative periods.
Discontinued operations, net
For the three months ended September 30, 2019, discontinued operations, net reflect the operations of the 28 AL/MC properties that were sold inIn February 2020.
Nine months ended September 30, 2020, compared to nine months ended September 30, 2019
The following table provides a reconciliation of our segment NOI to net income (loss), and compares the results of operations for the respective periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Increase (Decrease) |
| (dollars in thousands) | 2020 | | 2019 | | Amount | | Percentage |
| Segment NOI for Managed IL Properties | $ | 99,758 | | | $ | 101,286 | | | $ | (1,528) | | | (1.5) | % |
| Segment NOI for Other Properties | 4,748 | | | 4,197 | | | 551 | | | 13.1 | % |
| Total segment NOI | 104,506 | | | 105,483 | | | (977) | | | (0.9) | % |
| Expenses | | | | | | | |
| Interest expense | 47,040 | | | 58,382 | | | (11,342) | | | (19.4) | % |
| Depreciation and amortization | 50,522 | | | 51,304 | | | (782) | | | (1.5) | % |
| General and administrative expense | 17,645 | | | 15,747 | | | 1,898 | | | 12.1 | % |
| Acquisition, transaction and integration expense | 195 | | | 1,169 | | | (974) | | | (83.3) | % |
| Loss on extinguishment of debt | 5,884 | | | 335 | | | 5,549 | | | NM |
| Other expense | 520 | | | 1,393 | | | (873) | | | (62.7) | % |
| Total expenses | 121,806 | | | 128,330 | | | (6,524) | | | (5.1) | % |
| Loss on sale of real estate | — | | | (122) | | | 122 | | | NM |
| Litigation proceeds, net | — | | | 38,226 | | | (38,226) | | | NM |
| Income (Loss) before income taxes | (17,300) | | | 15,257 | | | (32,557) | | | NM |
| Income tax expense | 156 | | | 110 | | | 46 | | | 41.8 | % |
| Income (Loss) from continuing operations | (17,456) | | | 15,147 | | | (32,603) | | | NM |
| Discontinued Operations: | | | | | | | |
| Gain on sale of real estate | 19,992 | | | — | | | 19,992 | | | NM |
| Loss from discontinued operations | (3,107) | | | (7,077) | | | 3,970 | | | 56.1 | % |
| Discontinued operations, net | 16,885 | | | (7,077) | | | 23,962 | | | NM |
| Net income (loss) | (571) | | | 8,070 | | | (8,641) | | | 107.1 | % |
| Deemed dividend on redeemable preferred stock | (1,802) | | | (1,802) | | | — | | | — | % |
| Net income (loss) attributable to common stockholders | $ | (2,373) | | | $ | 6,268 | | | $ | (8,641) | | | 137.9 | % |
Managed IL Properties
The following table presents same store and total portfolio results as of and for the nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Same Store & Total Portfolio |
| (dollars in thousands, except per bed data) | 2020 | | 2019 | | Change | | % |
| Resident fees and services | $ | 249,540 | | | $ | 251,736 | | | $ | (2,196) | | | (0.9) | % |
| Less: Property operating expense | 149,782 | | | 150,450 | | | (668) | | | (0.4) | % |
| NOI | $ | 99,758 | | | $ | 101,286 | | | $ | (1,528) | | | (1.5) | % |
| | | | | | | |
| Total properties as of the period ended | 102 | | | 102 | | | | | |
| Average available beds | 11,976 | | | 11,974 | | | | | |
| Average occupancy (%) | 84.8 | | | 87.1 | | | | | |
| Average monthly revenue per occupied bed | $ | 2,729 | | | $ | 2,680 | | | | | |
Resident fees and services
Same store and total resident fees and services decreased $2.2 million. This decrease is primarily attributable to a decrease in average occupancy rates, partially offset by an increase in average rental rates.
Property operating expense
Same store and total property operating expense decreased $0.7 million. This decrease is primarily due to variable expense savings associated with lower occupancy and strong expense management from our operators, partially offset by costs incurred in response to the COVID-19 pandemic.
Segment NOI
Same store NOI and total segment NOI decreased $1.5 million. See above for the variance explanations.
Other Properties
The following table presents same store and total portfolio results as of and for the nine months ended September 30, 2020 and 2019 but excluding properties whose operations were classified as discontinued operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | Total Portfolio |
| (dollars in thousands, except per bed data) | 2020 | | 2019 | | Change | | % | | 2020 | | 2019 | | Change | | % |
| Resident fees and services | $ | — | | | $ | — | | | $ | — | | | NM | | $ | — | | | $ | 3,207 | | | $ | (3,207) | | | NM |
| Rental revenue | 4,748 | | | 4,748 | | | — | | | — | % | | 4,748 | | | 4,748 | | | — | | | — | % |
| Less: Property operating expense | — | | | — | | | — | | | NM | | — | | | 3,758 | | | (3,758) | | | NM |
| NOI | $ | 4,748 | | | $ | 4,748 | | | $ | — | | | — | % | | $ | 4,748 | | | $ | 4,197 | | | $ | 551 | | | 13.1 | % |
| | | | | | | | | | | | | | | |
| Total properties as of the period ended | 1 | | | 1 | | | | | | | 1 | | | 1 | | | | | |
| Average available beds | 463 | | | 463 | | | | | | | 463 | | | 742 | | | | | |
_______________
NM – Not meaningful
Resident fees and services
Resident fees and services represent residents’ monthly rental and care fees from two managed AL/MC properties. Total resident fees and services decreased $3.2 million due towe completed the sale of these AL/MC assets during the second quarter of 2019.
Rental revenue
Rental revenue relates to rents from our triple net lease property. Same store and total portfolio rental revenue remained unchanged for the comparative periods. As a percentage of rental revenue, same store segment NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees.
Property operating expense
Property operating expense relates to costs incurred at two managed AL/MC properties. Total property operating expense decreased $3.8 million due to the sale of these AL/MC assets during the second quarter of 2019.
Segment NOI
Total segment NOI increased $0.6 million. See above for the variance explanations.
Same store segment NOI remained relatively unchanged for the comparative periods.
Expenses
Interest expense
Interest expense decreased $11.3 million primarily due to a lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the AL/MC Portfolio Disposition lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods. The weighted average effective interest rates for the nine months ended September 30, 2020 and 2019 were 4.01% and 4.77%, respectively.
Depreciation and amortization
Depreciation and amortization decreased $0.8 million primarily due to certain furniture, fixtures, and equipment becoming fully depreciated as of September 30, 2019.
General and administrative expense
General and administrative expense increased $1.9 million primarily due to additional compensation expense, including the amortization of equity-based compensation granted to officers and employees during the nine months ended September 30, 2020.
Acquisition, transaction and integration expense
Acquisition, transaction and integration expense decreased $1.0 million primarily due to costs associated with the strategic review during the nine months ended September 30, 2019.
Loss on extinguishment of debt
Loss on extinguishment of debt increased $5.5 million. During the nine months ended September 30, 2020, we incurred $5.9 million of loss on extinguishment of debt consisting of $4.5 million of prepayment penalties and a $1.4 million write-off of unamortized deferred financing fees related to debt paid off in conjunction with the AL/MC Portfolio Disposition.
Other expense
Other expense decreased by $0.9 million. This is primarily due to a lower fair value loss on our interest rate caps.
Loss on sale of real estate
During the nine months ended September 30, 2019, we sold two managed AL/MC properties and recognized a loss on sale of $0.1 million.
Litigation proceeds, net
As described in “Note 14 – Commitments and Contingencies” to our consolidated financial statements, on July 31, 2019, the derivative lawsuit, captioned Cummings v. Edens, et al., C.A. No. 13007-VCS was settled and approved by the relevant court. During the nine months ended September 30, 2019, we recorded $38.2 million in litigation proceeds net of a court-approved fee and expense award to plaintiff’s counsel of $14.5 million, as well as $0.3 million in unreimbursed legal fees.
Income tax expense
We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. Income tax expense was relatively flat during the comparative periods.
Discontinued operations, net
Discontinued operations, net increased $24.0 millionprimarily due to the sale of 28 AL/MC properties in February 2020 which resulted in a gain on sale of real estate of $20.0 million. This gain was partially offset by a loss from discontinued operations of $16.9 million which reflects the operations of the properties sold.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity needs are to (i) fund operating expenses, (ii) meet debt service requirements, (iii) fund recurring capital expenditures and investment activities, if applicable, and (iv) make distributions to stockholders. As of SeptemberJune 30, 2020,2021, we had approximately $51.7$23.2 million in liquidity, consisting of unrestricted cash and cash equivalents. A portion of this amount is held in operating accounts used to fund expenses at our managed properties and, therefore, may not be available for distribution to stockholders.
On February 26, 2021, we established an at-the-market equity offering program (the “ATM Program”) through which we may issue and sell, from time to time, up to an aggregate of $100 million of our common stock. Sales of the common stock, if any, may be offered and sold in accordance with the Company’s instructions pursuant to a Distribution Agreement, dated February 26, 2021, between New Senior and a consortium of banks acting as sales agents.
During the six months ended June 30, 2021, we did not issue any shares under the Distribution Agreement. Pursuant to the Merger Agreement, we agreed that we would not issue equity securities, including under the ATM Program, subject to certain limited exceptions described in the Merger Agreement.
On July 13, 2021, we redeemed all 200,000 shares of our outstanding Series A Preferred Stock at the liquidation preference of $100 per share plus all accrued and unpaid dividends up to, but excluding, the redemption date. In total, we paid $20.3 million for the redemption of the Series A Preferred Stock using proceeds from drawing down on our Revolver.
Our principal sources of liquidity are (i) cash flows from operating activities, (ii) proceeds from financing in the form of debt, and, from time to time, (iii) proceeds from dispositions of assets and (iv) proceeds from the issuance of equity securities.assets. Our cash flows from operating activities are primarily driven by (i) rental revenuesresident fees and feesservices received from residents of our managed properties and (ii) rental revenues from the tenant of our triple net lease property, less (iii) operating expenses (primarily property operating expense of our managed properties, general and administrative expenses, professional fees, insurance and taxes) and (iv) interest payments on our debt. Our principal uses of liquidity are the expenses included in cash flows from operating activities, plus capital expenditures, principal payments on debt, and distributions to our stockholders.
We anticipate that our cash on hand, our cash flows provided by operating activities, and cash available to be drawn down from the Revolver will be sufficient to fund our business operations, recurring capital expenditures, principal payments, and the distributions we are required to make to comply with REIT requirements over the next 12 months. Our actual distributions to stockholders have historically been higher than the REIT distribution requirement. The Revolver is an important source of liquidity for us. Our balance drawn under the Revolver fluctuates over time. Shortly after the onsettime and was $3.5 million as of the pandemic in March 2020 and as a precaution, we borrowed $100.0 million under the Revolver. We paid down $40.0 million of the outstanding balance in May 2020 and the remainder in August 2020 due to the lack of a present need for funds, however, we continue to have access to the Revolver if our needs change in the future. The material terms of the Revolver are discussed in more detail in “Note 8 - Debt, Net” to our consolidated financial statements.June 30, 2021.
Our cash flows from operating activities, less capital expenditures and principal payments, have historically been less than the amount of distributions to our stockholders. We have in the past funded the shortfall using cash on hand. In light of the impacts of COVID-19, the board of directors reduced our quarterly cash dividend on itsshares of our common sharesstock for the first quarter of 2020 by 50% to $0.065 per share. The board of directors maintained the same dividend level infor the second quarterremainder of 2020 and subsequently on October 28, 2020 also approved a cash dividend on its common shares for the third quarterfirst half of 2020 of $0.065 per share.2021. The board of directors believesbelieved that the dividend reduction in 2020 is the most prudent course of action and it continues to monitor our financial performance and liquidity. The board of directors will continue to re-evaluate the level of future dividends.dividends; however, pursuant to the Merger Agreement the board may not declare or pay a quarterly dividend in excess of $0.065 per share without the consent of Ventas. As required by the Merger Agreement relating to the pending Merger with Ventas, the Company and Ventas agreed to synchronize the record and payment dates for their dividends to October 1, 2021 and October 14, 2021, respectively, which are the dates typically used by Ventas. The Company’s dividend for the second quarter of 2021 is expected to remain at $0.065 per share, subject to the approval of our board of directors. There can be no assurance that we will pay cash dividends in an amount consistent with prior quarters. Any difference between the amount of any future dividend and the amount of dividends in prior quarters could be material, and there can be no assurance that our board of directors will declare any dividend at all.
The impacts of the COVID-19 pandemic willhas also affectaffected our liquidity in other ways. As discussed above in “Overview - COVID-19 & Considerations Related to Our Business,” if further decreases in occupancy in our properties occur, it will result in a reduction in our revenues and our cash flows. Over time, if financial results at the properties which secure the Revolver underperform, our availability to borrow funds under the Revolver could be limited. In addition, if rental revenues and fees received from residents of our managed properties decline as a result of financial or other difficulties in residents making rent payments to us, it would have a significant effect on our cash flows from operating activities.
The expectations set forth above are forward-looking and subject to a number of uncertainties and assumptions, which are described in more detail in our Annual Report on Form 10-K filed with the SEC under “Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations” and “Risk Factors,” as well as below in “Risk Factors.” If our expectations about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and this shortfall may occur rapidly and with little or no notice, which would limit our ability to address the shortfall on a timely basis.
Other Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations
The following factors could also impact our liquidity, capital resources and capital obligations:
•Access to Financing: Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with covenant terms, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto and the relative attractiveness of alternative investment or lending opportunities.
•Impact of Expected Additional Borrowings or Sales of Assets on Cash Flows: The availability and timing of and proceeds from additional borrowings or refinancing of existing debt may be different than expected or may not occur as expected. The timing of any sale of assets, and the proceeds from any such sales, are unpredictable and may vary materially from an asset’s estimated fair value and carrying value.
•Compliance with Debt Obligations: Our financings subject us and our property managers to a number of obligations, and a failure to satisfy certain obligations, including (without limitation) a failure by the guarantors of our leases to satisfy certain financial covenants that depend in part on the performance of our leased assets, which is outside of our control, could give rise to a requirement to prepay outstanding debt or result in an event of default and the acceleration of the maturity date for repayment. We may also seek amendments to these debt covenants, and there can be no assurance that we will be able to obtain any such amendment on commercially reasonable terms, if at all.
As noted elsewhere in this Quarterly Report on Form 10-Q, the impacts of the COVID-19 pandemic will affect the Company’s liquidity in various ways, including among other things, by further impairing our ability to access the capital markets, by reducing our revenues due to decreased occupancy at our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver.
Debt Obligations
Our debt containsagreements contain various customary financial and other covenants, in some cases including, but not limited to, debt service coverage ratios, lease coverage ratio, and in certain cases include a Debt Service Coverage Ratio, Project Yield or Minimum Net Worth, Minimum Consolidated Tangible Net Worth, Adjusted Consolidated EBITDA to Fixed Charges and Liquid Assets provision,project yield, as defined in the agreements. As of September 30, 2020, we wereWe are in compliance with all such covenants.the covenants in our debt agreements as of June 30, 2021.
Capital Expenditures
For our Managed IL Properties and Other Properties segments, weWe anticipate that capital expenditures will be funded through operating cash flows from the Managed IL Properties.our senior housing properties. Capital expenditures, net of insurance proceeds for the Managed IL Properties segmentmanaged properties were $6.6$7.7 million for the ninesix months ended SeptemberJune 30, 2020. There were no2021. As landlord, we did not incur any capital expenditures for the Other Properties segmentCCRC leased to the tenant for the ninesix months ended SeptemberJune 30, 2020.2021. After the onset of the pandemic in March 2020, we temporarily halted all elective capital expenditure projects and limited projects to those deemed essential.We are currently re-evaluating all In summer 2020, we resumed elective capital expenditures and have resumed certainexpenditure projects that are capable of beingcould be completed safely.
With respect to our CCRC under a triple net lease arrangement, in the Other Properties segment, the terms of this arrangement require the tenant to fund all necessary capital expenditures in order to maintain and improve the applicable property. To the extent that our tenant is unwilling or unable to fund these capital expenditure obligations under the existing lease arrangement, we may fund capital expenditures with additional borrowings or cash flow from the operations of the senior housing properties. We may also provide corresponding loans or advances to our tenant which would increase the rent payable to us. For further information regarding capital expenditures related to our triple net lease property, see “Contractual Obligations” below and “Note 1415 – Commitments and Contingencies” to our consolidated financial statements.
Cash Flows
The following table provides a summary of our cash flows:
| | | Nine Months Ended September 30, | | Increase (Decrease) | | Six Months Ended June 30, | | Increase (Decrease) |
| (dollars in thousands) | (dollars in thousands) | 2020 | | 2019 | | Amount | (dollars in thousands) | 2021 | | 2020 | | Amount |
| Net cash provided by (used in) | Net cash provided by (used in) | | | | | | Net cash provided by (used in) | | | | | |
| Operating activities | Operating activities | $ | 33,792 | | | $ | 62,354 | | | $ | (28,562) | | Operating activities | $ | 15,270 | | | $ | 14,633 | | | $ | 637 | |
| Investing activities | Investing activities | 367,172 | | | (7,598) | | | 374,770 | | Investing activities | (7,650) | | | 369,879 | | | (377,529) | |
| Financing activities | Financing activities | (395,423) | | | (86,253) | | | (309,170) | | Financing activities | (19,589) | | | (329,223) | | | 309,634 | |
| Net decrease in cash, cash equivalents and restricted cash | 5,541 | | | (31,497) | | | 37,038 | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | Net increase (decrease) in cash, cash equivalents and restricted cash | (11,969) | | | 55,289 | | | (67,258) | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 63,829 | | | 92,656 | | | (28,827) | | Cash, cash equivalents and restricted cash, beginning of period | 53,795 | | | 63,829 | | | (10,034) | |
| Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 69,370 | | | $ | 61,159 | | | $ | 8,211 | | Cash, cash equivalents and restricted cash, end of period | $ | 41,826 | | | $ | 119,118 | | | $ | (77,292) | |
Operating activities
Net cash provided by operating activities was $33.8$15.3 million and $62.4$14.6 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The period-over-period decreaseincrease of $28.6$0.6 million was primarily due to litigation proceeds of $38.2 million receiveda decrease in 2019 offset by a one-time termination fee of $10.0 million paid in 2019 to the Former Managerinterest expense as a result of lower average debt balance in conjunction with lower effective interest rates as a result of debt repayments in conjunction with the Internalization.AL/MC Portfolio Disposition, lower interest rate on the newly refinanced debt and a decrease in LIBOR for the comparative periods.
Investing activities
Net cash used in investing activities was $7.7 million and net cash provided by investing activities was $367.2 million and net cash used in investing activities was $7.6$369.9 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The period-over-period increasedecrease of $374.8$377.5 million was due to net proceeds received in February 2020 from the AL/MC Portfolio Disposition of $375.0 million.
Financing activities
Net cash used in financing activities was $395.4$19.6 million and $86.3$329.2 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The period-over-period increase of $309.2$309.6 million was primarily due theto repayments of debt in conjunction with the AL/MC Portfolio Disposition, and debt refinancings of $576.1 million offset by proceeds from the 2020 Freddie Financing of $270.0 million.
REIT Compliance Requirements
We are organized and conduct our operations to qualify as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains. We intend to pay dividends greater than all of our REIT taxable income to holders of our common stock in 2020,2021, if, and to the extent, authorized by our board of directors. We note that a portion of this requirement may be able to be met in future years with partial stock dividends, rather than cash distributions, subject to limitations. We expect that our operating cash flows will exceed REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income. However, before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our obligations. If we do not have sufficient liquid assets to enable us to satisfy the 90% distribution requirement, or if we decide to retain cash, we may sell assets, issue equity securities or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
Income Tax
We are organized and conduct our operations to qualify as a REIT under the requirements of the Code. Currently, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes at regular corporate tax rates.
OFF-BALANCE SHEET ARRANGEMENTS
As of SeptemberJune 30, 2020,2021, we do not have any off-balance sheet arrangements. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose or variable interest entities established to facilitate off-balance sheet arrangements. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.
CONTRACTUAL OBLIGATIONS
As of SeptemberJune 30, 2020,2021, we had the following material contractual obligations, including estimates of interest payments on our floating rate debt (dollars in thousands):
| | | Period from
October 1, 2020 to December 31, 2020 | | 2021 | | 2022 (D) | | 2023 | | 2024 | | Thereafter | | Total | | Period from
July 1, 2021 to December 31, 2021 | | 2022 (D) | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
Principal payments | Principal payments | $ | 2,037 | | | $ | 9,241 | | | $ | 19,103 | | | $ | 19,817 | | | $ | 24,160 | | | $ | 44,276 | | | $ | 118,634 | | Principal payments | $ | 5,443 | | | $ | 24,542 | | | $ | 25,116 | | | $ | 30,530 | | | $ | 27,159 | | | $ | 28,497 | | | $ | 141,287 | |
Balloon payments | Balloon payments | — | | | — | | | 48,419 | | | — | | | — | | | 1,337,112 | | | 1,385,531 | | Balloon payments | — | | | 42,206 | | | — | | | 3,500 | | | 1,077,820 | | | 230,346 | | | 1,353,872 | |
| Subtotal | Subtotal | 2,037 | | | 9,241 | | | 67,522 | | | 19,817 | | | 24,160 | | | 1,381,388 | | | 1,504,165 | | Subtotal | 5,443 | | | 66,748 | | | 25,116 | | | 34,030 | | | 1,104,979 | | | 258,843 | | | 1,495,159 | |
| Redeemable preferred stock | Redeemable preferred stock | 20,000 | | | 20,000 | | | — | | | — | | | — | | | — | | | 40,000 | | Redeemable preferred stock | 20,000 | | | — | | | — | | | — | | | — | | | — | | | 20,000 | |
Interest & redeemable preferred stock dividend (A)(B) | Interest & redeemable preferred stock dividend (A)(B) | 12,010 | | | 46,749 | | | 44,080 | | | 42,991 | | | 42,423 | | | 60,144 | | | 248,397 | | Interest & redeemable preferred stock dividend (A)(B) | 22,413 | | | 43,328 | | | 42,161 | | | 41,397 | | | 34,484 | | | 23,266 | | | 207,049 | |
| Leases | Leases | 163 | | | 649 | | | 509 | | | 466 | | | 235 | | | 310 | | | 2,332 | | Leases | 322 | | | 515 | | | 472 | | | 240 | | | 8 | | | 305 | | | 1,862 | |
Total obligations (C) | Total obligations (C) | $ | 34,210 | | | $ | 76,639 | | | $ | 112,111 | | | $ | 63,274 | | | $ | 66,818 | | | $ | 1,441,842 | | | $ | 1,794,894 | | Total obligations (C) | $ | 48,178 | | | $ | 110,591 | | | $ | 67,749 | | | $ | 75,667 | | | $ | 1,139,471 | | | $ | 282,414 | | | $ | 1,724,070 | |
(A)Estimated principal, balloon, and interest payments on floating rate debt are calculated using LIBOR rates in effect at SeptemberJune 30, 20202021 and may not be indicative of actual payments. Actual payments may vary significantly due to LIBOR fluctuations. See “Note 8 – Debt, Net” to the consolidated financial statements for further information about interest rates.
(B)Includes obligations$0.3 million paid in July 2021 for dividends accrued up to, pay dividends of $0.6 million in 2020, and $1.2 million in 2021but excluding, the redemption date on the Series A redeemable preferred stock.
(C)Total obligations include an estimate of interest payments on floating rate debt, see Note A above.
(D)The Company has two 1-year extension options to defer the balloon payment; the second extension requires the payment of a nominal extension fee.
In addition to our contractual obligations, we are a party to property management agreements with property managers. See “Note 1415 – Commitments and Contingencies” to the consolidated financial statements for information related to our capital improvement and repair commitments.
NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not excluded from or included in the most directly comparable GAAP measure. We consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance for management and investors. GAAP accounting for real estate assets assumes that the value of real estate assets diminishes predictably over time, even though real estate values historically have risen or fallen with market conditions. As a result, many industry investors look to non-GAAP financial measures for supplemental information about real estate companies.
You should not consider non-GAAP measures as alternatives to GAAP net (loss) income, which is an indicator of our financial performance, or as alternatives to GAAP cash flow from operating activities, which is a liquidity measure. Additionally, non-GAAP measures are not intended to be a measure of our ability to satisfy our debt and other cash requirements. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP measures in conjunction with GAAP net (loss) income, cash flow from operating activities, investing activities and financing activities, as presented in our consolidated financial statements, and other financial data included elsewhere in this report. Moreover, the comparability of non-GAAP financial measures across companies may be limited as a result of differences in the manner in which real estate companies calculate such measures.
Below is a description of the non-GAAP financial measures used by our management and reconciliations of these measures to the most directly comparable GAAP measures.
Funds From Operations, Normalized Funds From Operations and Adjusted Funds from Operations
We use Funds From Operations (“FFO”) and Normalized FFO as supplemental measures of our operating performance. We use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as GAAP net income (loss) attributable to common stockholders, which includes loss from discontinued operations, excluding gains (losses) from sales of depreciable real estate assets and impairment charges of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and joint ventures to reflect FFO on the same basis. FFO does not account for debt principal payments and is not intended as a measure of a REIT’s ability to satisfy such payments or any other cash requirements.
Normalized FFO, as defined below, measures the financial performance of our portfolio of assets excluding items that, although incidental to, are not reflective of the day-to-day operating performance of our portfolio of assets. We believe that Normalized FFO is useful because it facilitates the evaluation of our portfolio’s operating performance (i) between periods on a consistent
basis and (ii) to the operating performance of other real estate companies. However, comparability may be limited because our calculation of Normalized FFO may differ significantly from that of other companies or because of features of our business that are not present in other companies.
We define Normalized FFO as FFO excluding the following income and expense items, as applicable: (a) acquisition, transaction and integration related expenses; (b) the write off of unamortized discounts, premiums, deferred financing costs, or additional costs, make whole payments and penalties or premiums incurred as the result of early repayment of debt (collectively “Gain (Loss)(loss) on extinguishment of debt”); (c) incentive compensation to affiliate recognized as a result of sales of real estate; (d) the remeasurement of deferred tax assets; (e) valuation allowance on deferred tax assets, net; (f) termination fee to affiliate; (g) gain on lease termination; (h) compensation expense related to transition awards; (i) litigation proceeds; and (j) other items that we believe are not indicative of operating performance, generally reported as “Other expense (income)” in our Consolidated Statements of Operations.
We also use Adjusted FFO (“AFFO”) as a supplemental measure of our operating performance. We believe AFFO is useful because it facilitates the evaluation of (i) the current economic return on our portfolio of assets between periods on a consistent basis and (ii) our portfolio versus those of other real estate companies that report AFFO. However, comparability may be limited because our calculation of AFFO may differ significantly from that of other companies, or because of features of our business that are not present in other companies.
We define AFFO as Normalized FFO excluding the impact of the following: (a) straight-line rents;rental revenue; (b) amortization of above / below market lease intangibles; (c) amortization of deferred financing costs; (d) amortization of premium or discount on mortgage notes payable; (e) amortization of deferred community fees and other, which includes the net change in deferred community fees and other rent discounts or incentives; and (f) amortization of equity-based compensation expense.
The following table sets forth a reconciliation of net income (loss) attributable to common stockholders to FFO, Normalized FFO and Adjusted FFO; adjustments below include amounts related to properties classified as discontinued operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | (dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | $ | (4,355) | | | $ | 28,244 | | | $ | (2,373) | | | $ | 6,268 | | Net income (loss) attributable to common stockholders | $ | (13,268) | | | $ | (3,257) | | | $ | (20,875) | | | $ | 1,982 | |
| | Depreciation and amortization | Depreciation and amortization | 16,204 | | | 21,041 | | | 50,522 | | | 62,583 | | Depreciation and amortization | 15,586 | | | 16,782 | | | 31,475 | | | 34,318 | |
| (Gain) Loss on sale of real estate | — | | | — | | | (19,992) | | | 122 | | |
| Gain on sale of real estate | | Gain on sale of real estate | — | | | — | | | — | | | (19,992) | |
| FFO | FFO | 11,849 | | | 49,285 | | | 28,157 | | | 68,973 | | FFO | 2,318 | | | 13,525 | | | 10,600 | | | 16,308 | |
| Acquisition, transaction and integration expense | Acquisition, transaction and integration expense | 43 | | | 616 | | | 1,232 | | | 1,677 | | Acquisition, transaction and integration expense | 5,607 | | | 19 | | | 6,000 | | | 1,189 | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | — | | | — | | | 9,486 | | | 335 | | Loss on extinguishment of debt | — | | | — | | | — | | | 9,486 | |
| Compensation expense related to transition awards | Compensation expense related to transition awards | 296 | | | 291 | | | 981 | | | 1,432 | | Compensation expense related to transition awards | 301 | | | 295 | | | 626 | | | 685 | |
| | Litigation proceeds, net | — | | | (38,226) | | | — | | | (38,226) | | |
Other expense (A) | 220 | | | 23 | | | 387 | | | 1,468 | | |
| Other expense (income) (A) | | Other expense (income) (A) | 205 | | | 461 | | | 820 | | | 167 | |
| Normalized FFO | Normalized FFO | 12,408 | | | 11,989 | | | 40,243 | | | 35,659 | | Normalized FFO | 8,431 | | | 14,300 | | | 18,046 | | | 27,835 | |
| Straight line rental revenue | Straight line rental revenue | (95) | | | (134) | | | (337) | | | (455) | | Straight line rental revenue | (67) | | | (108) | | | (162) | | | (242) | |
| Amortization of equity-based compensation expense | Amortization of equity-based compensation expense | 1,408 | | | 844 | | | 3,941 | | | 932 | | Amortization of equity-based compensation expense | 2,013 | | | 1,428 | | | 3,773 | | | 2,533 | |
| Amortization of deferred financing costs | Amortization of deferred financing costs | 803 | | | 923 | | | 2,581 | | | 3,228 | | Amortization of deferred financing costs | 894 | | | 872 | | | 1,851 | | | 1,778 | |
| Amortization of deferred community fees and other | Amortization of deferred community fees and other | (158) | | | 396 | | | (1,904) | | | 1,363 | | Amortization of deferred community fees and other | 4 | | | (432) | | | (693) | | | (1,745) | |
| Adjusted FFO | Adjusted FFO | $ | 14,366 | | | $ | 14,018 | | | $ | 44,524 | | | $ | 40,727 | | Adjusted FFO | $ | 11,275 | | | $ | 16,060 | | | $ | 22,815 | | | $ | 30,159 | |
(A) Primarily includes changes in the fair value of financial instruments, insurance recoveries and casualty related charges.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) facilitates an assessment of the operating performance of our existing portfolio of assets on an unleveraged basis by eliminating the impact of our capital structure and tax position. We define Adjusted EBITDA as net income (loss) attributable to common stockholders, which includes loss from discontinued operations, before interest, taxes, depreciation and amortization (including non-cash equity-based compensation expense), excluding deemed dividends on redeemable preferred stock, gain or loss on sale of real estate, impairment of real estate held for sale, acquisition, transaction and integration expense, loss on extinguishment of debt, compensation expense related to transition awards, incentive compensation on sale of real estate, termination fee to affiliate, gain on lease termination, litigation proceeds, and other expense.
The following table sets forth a reconciliation of net income (loss) attributable to common stockholders to Adjusted EBITDA; adjustments below include amounts related to properties classified as discontinued operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | (dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | $ | (4,355) | | | $ | 28,244 | | | $ | (2,373) | | | $ | 6,268 | | Net income (loss) attributable to common stockholders | $ | (13,268) | | | $ | (3,257) | | | $ | (20,875) | | | $ | 1,982 | |
| Depreciation and amortization | Depreciation and amortization | 16,204 | | | 21,041 | | | 50,522 | | | 62,583 | | Depreciation and amortization | 15,586 | | | 16,782 | | | 31,475 | | | 34,318 | |
| Deemed dividend on redeemable preferred stock | Deemed dividend on redeemable preferred stock | 605 | | | 605 | | | 1,802 | | | 1,802 | | Deemed dividend on redeemable preferred stock | 299 | | | 599 | | | 595 | | | 1,197 | |
| (Gain) Loss on sale of real estate | — | | | — | | | (19,992) | | | 122 | | |
| Gain on sale of real estate | | Gain on sale of real estate | — | | | — | | | — | | | (19,992) | |
| Acquisition, transaction and integration expense | Acquisition, transaction and integration expense | 43 | | | 616 | | | 1,232 | | | 1,677 | | Acquisition, transaction and integration expense | 5,607 | | | 19 | | | 6,000 | | | 1,189 | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | — | | | — | | | 9,486 | | | 335 | | Loss on extinguishment of debt | — | | | — | | | — | | | 9,486 | |
| Compensation expense related to transition awards | Compensation expense related to transition awards | 296 | | | 291 | | | 981 | | | 1,432 | | Compensation expense related to transition awards | 301 | | | 295 | | | 626 | | | 685 | |
| | Litigation proceeds, net | — | | | (38,226) | | | — | | | (38,226) | | |
Other expense (A) | 220 | | | 23 | | | 387 | | | 1,468 | | |
| Other expense (income) (A) | | Other expense (income) (A) | 205 | | | 461 | | | 820 | | | 167 | |
| Amortization of equity-based compensation expense | Amortization of equity-based compensation expense | 1,408 | | | 844 | | | 3,941 | | | 932 | | Amortization of equity-based compensation expense | 2,013 | | | 1,428 | | | 3,773 | | | 2,533 | |
| Interest expense | Interest expense | 14,540 | | | 22,662 | | | 48,401 | | | 69,864 | | Interest expense | 14,350 | | | 15,281 | | | 28,703 | | | 33,861 | |
| Income tax expense | Income tax expense | 74 | | | 44 | | | 156 | | | 188 | | Income tax expense | 33 | | | 23 | | | 67 | | | 82 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 29,035 | | | $ | 36,144 | | | $ | 94,543 | | | $ | 108,445 | | Adjusted EBITDA | $ | 25,126 | | | $ | 31,631 | | | $ | 51,184 | | | $ | 65,508 | |
(A) Primarily includes changes in the fair value of financial instruments, insurance recoveries and casualty related charges.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our historical financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Our estimates are based on information available to management at the time of preparation of the financial statements, including the result of historical analysis, our understanding and experience of our operations, our knowledge of the industry and market-participant data available to us.
Actual results have historically been in line with management’s estimates and judgments used in applying each of ourthe accounting policies described below, and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our consolidated financial statements. However, we do not expect our assessments and assumptions below to materially change in the future.
Other than critical accounting policies mentioned in “Note 2 – Summary of Significant Accounting Policies” of our consolidated financial statements, there were no material changes to our critical accounting policies disclosed in our Form 10-K for the year ended December 31, 2019.2020.
RECENT ACCOUNTING PRONOUNCEMENTS
See “Note 2 – Summary of Significant Accounting Policies” of our consolidated financial statements for information about recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate risk and credit risk. These risks are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets and liabilities are for non-trading purposes only. In addition, we are exposed to liquidity risk.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates on borrowings under our mortgage loans that are floating rate obligations. These market risks result primarily from changes in LIBOR or prime rates. We continuously monitor our level of floating rate debt with respect to our total debt and other factors, including our assessment of current and future economic conditions.
For fixed rate debt, interest rate fluctuations generally affect the fair value, but do not impact our earnings or cash flows. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until such obligations mature or until we elect to prepay and refinance such obligations. If interest rates have risen at the time our fixed rate debt matures or is refinanced, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of maturity or refinancing may lower our overall borrowing costs.
For floating rate debt, interest rate fluctuations can affect the fair value, as well as earnings and cash flows. Generally, if market interest rates rise, our earnings and cash flows could be adversely affected by an increase in interest expense, and lower interest rates may reduce our borrowing costs and improve our operational results. We continuously monitor our interest rate exposure and may elect to use derivative instruments to manage interest rate risk associated with floating rate debt.
In August 2020, we entered into an interest rate swap with a notional amount of $270.0 million that matures in September 2025 and in May 2019, we entered into an interest rate swap with a notional amount of $350.0 million that matures in May 2022. These swaps effectively convert LIBOR-based floating-rate debt to fixed-rate debt, thus reducing the impact of interest-rate changes on future interest expense. After considering the effect of the interest rate swap, $419.5$416.3 million of our floating rate debt with an average coupon rate of 2.53%2.46% would be subject to interest rate fluctuations. As a result, a 100 basis point increase in interest rates would increase annual interest expense by $4.2$4.1 million. However, a 100 basis point decrease in interest rates would also increase annual interest expense by $1.9$2.8 million due to the impact of LIBOR floors included in certain debt agreements.
The table below sets forth the outstanding face amount of our debt subject to LIBOR fluctuations after incorporating the impact of the interest rate swapswaps discussed above, excluding debt associated with assets classified as discontinued operations:above:
| | | Outstanding Face Amount | | | Outstanding Face Amount | |
| | September 30, 2020 | | December 31, 2019 | | |
| (dollars in thousands) | | (dollars in thousands) | June 30, 2021 | | December 31, 2020 | |
| Floating Rate | Floating Rate | $ | 419,485 | | | | $ | 789,036 | | | Floating Rate | $ | 416,269 | | | | $ | 419,316 | | |
| Fixed Rate | Fixed Rate | 1,084,680 | | | | 814,680 | | | Fixed Rate | 1,078,890 | | | | 1,082,808 | | |
| Total | Total | $ | 1,504,165 | | | | $ | 1,603,716 | | | Total | $ | 1,495,159 | | | | $ | 1,502,124 | | |
LIBOR is currentlywas initially expected to be phased out at the end of calendar year 2021. However, regulators have announced they intend to cease the publication of U.S. dollar LIBOR rates for the most common tenors (overnight and one, three, six, and 12 months) in June 2023. Despite any continued publication of U.S. dollar LIBOR through June 2023, these same regulators emphasized that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. A portion of our debt, which includes certain mortgage loans and our revolving credit facility, is required to pay interest at floating rates based on LIBOR. We also hold derivatives (interest rate swaps) indexed to LIBOR as hedging instruments, as described above. In the event that LIBOR is phased out, the interest rate for our floating rate debt and the swap rate for our interest rate swaps will be based on an alternative floating rate as specified in the applicable debt instrument or agreement, or as otherwise agreed upon between us and our lenders. Certain of our newer loans and financial instruments have alternative LIBOR provisions, which generally give our lenders substantial flexibility in setting alternative rates if and when LIBOR is discontinued. We expect that the provisions of our other debt agreements relating to the calculation of interest will likely be amended, and over the past year we have been working with our lenders in the ordinary course to manage transition efforts to be prepared for this phase-out. We do not know what standard, if any, will replace LIBOR if it is phased out. Currently we cannot estimate the overall impact of the phase-out of LIBOR on our current debt agreements, although it is possible that an alternative variable rate could be higher or more volatile, which could raise our borrowing costs.
Liquidity Risk
As described further in “Risk Factors,” the following factors could affect our liquidity, access to capital resources and our capital obligations.
• Our stock price performance could impair our ability to access the capital markets, and any disruption to the capital markets or other sources of financing generally could also negatively affect our liquidity.
• Our failure to comply with the terms of our financings or a default by our lease counterparty (including a failure by the lease guarantor to satisfy certain financial covenants that depend on the performance of our leased assets, which are outside of our control) could result in the acceleration of the requirement to repay our indebtedness or require us to seek amendments to such agreements, which we may not be able to obtain on commercially reasonable terms, if at all.
• Our ability to obtain financing or refinancing on favorable terms, if at all.
•Real estate investments are relatively illiquid, and our ability to quickly sell or exchange our properties in response to changes in economic or other conditions is limited. In the event we desire or need to sell any of our properties, the value of those properties and our ability to sell at a price or on terms acceptable to us could be adversely affected by a downturn in the real estate industry generally, weakness in the senior housing and healthcare industries or other factors.
• Because we derive substantially all of our revenues from operations conducted by third parties, any inability or unwillingness by these property managers to satisfy their respective obligations to us or to renew their leases with us upon expiration of the terms thereof could have a material adverse effect on our liquidity, financial condition, our ability to service our indebtedness and to make distributions to our stockholders.
• To comply with the 90% distribution requirement applicable to REITs and to avoid income and excise taxes, we must make distributions to our stockholders. Our actual distributions to stockholders have historically been higher than the REIT distribution requirement. Distributions will limit our ability to finance investments and may limit our ability to engage in transactions that are otherwise in the best interests of our stockholders. Although we do not anticipate any inability to satisfy the REIT distribution requirement, from time to time, we may not have sufficient cash or other liquid assets to do so. For example, timing differences between the receipt of income and payment of deductible expenses, on the one hand, and the inclusion of that income and deduction of those expenses in arriving at our taxable income, on the other hand, or non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement. In the event that timing differences occur or we decide to retain cash or to distribute such greater amount as may be necessary to avoid income and excise taxation, we may seek to borrow funds, issue additional equity securities, pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements. Any of these actions may require us to raise additional capital to meet our obligations; however, limitations on our ability to access capital, as described above, could have an adverse effect on our ability to make required payments on our debt obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. The terms of the instruments governing our existing indebtedness restrict our ability to engage in certain types of these transactions.
•As discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources,” the impacts of the COVID-19 pandemic will affect the Company’s liquidity in various ways, including among other things by further impairing our ability to access the capital markets, by reducing our revenues due to decreased occupancy at our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver.
ITEM 4. CONTROLS AND PROCEDURES
(a)Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures arewere effective.
(b)Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are and may from time to time become involved in legal proceedings, including regulatory investigations and inquiries, in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, we do not expect our current and any threatened legal proceedings to have a material adverse effect on our financial position or results of operations. In addition, as described in “Note 15 – Commitments and Contingencies” to our consolidated financial statements, we are party to one lawsuit relating to the Merger. Given the inherent unpredictability of these types of proceedings, however, it is possible that futurean adverse outcomesoutcome in one or more of these proceedings could have a material adverse effect on our financial results.
ITEM 1A. RISK FACTORS
We are supplementing the risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 (“Form 10-K”) with the additional risk factorfactors set forth below. ThisThese additional risk factor supplements,factors supplement, and to the extent inconsistent, supersedessupersede such risk factors. The matters discussed below should be read in conjunction with the risk factors set forth in the Form 10-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, results of operations and financial condition.
TheRISKS RELATED TO THE MERGER
There are material uncertainties and risks associated with the Merger Agreement and the Merger.
On June 28, 2021, we entered into the Merger Agreement with Ventas and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Ventas, subject to the satisfaction or waiver of conditions described therein.
There are material uncertainties and risks associated with the Merger Agreement and the Merger. If any of these uncertainties and risks develop into actual events, then the Company’s business, financial condition, results and ongoing COVID-19 global pandemicoperations, share price or prospects could be materially adversely affected. These uncertainties and measures intendedrisks include, but are not limited to, preventthe following:
•the announcement or pendency of the Merger may impede our ability to retain and hire key personnel and our ability to maintain relationships with property managers, tenants, employees or other third parties or its spread have had,operating results and business generally;
•matters relating to the Merger, including integration planning, may require substantial commitments of time and resources by our management and employees and may continueotherwise divert the attention of management and employees, which may affect the Company’s business operations;
•the Merger Agreement restricts the Company from engaging in certain actions without the approval of Ventas, which could prevent the Company from pursuing certain business opportunities that arise prior to the closing of the Merger or making appropriate changes to the Company’s business outside the ordinary course of business;
•our directors and executive officers have financial interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally, which could have influenced their decisions to support or approve the Merger; and
•existing or potential stockholder litigation in connection with the Merger may result in significant costs of defense, indemnification and liability.
The pending Merger may not be completed on the currently contemplated timeline or terms, or at all.
The completion of the Merger is subject to certain conditions, including: (1) adoption by our stockholders of the Merger Agreement; (2) approval for listing on the NYSE of Ventas common stock to be issued in connection with the Merger; (3) the SEC having declared effective the registration statement on Form S-4 filed by Ventas in connection with the Merger, and the registration statement on Form S-4 not being the subject of any stop order or proceeding seeking a stop order; (4) the absence of any law or order prohibiting the closing of the Merger; (5) accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; (6) the absence of any material adverse effect with respect to Ventas or the Company; (7) compliance with each party’s covenants in all material respects; (8) receipt by the Company of an opinion from its counsel to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; (9) receipt by Ventas of an opinion from the Company’s REIT counsel to the effect that we will qualify as a REIT under the Code;
and receipt by the Company of an opinion from Ventas’s REIT counsel to the effect that Ventas will qualify as a REIT under the Code.
We cannot provide assurance that the conditions to completing the Merger will be satisfied or waived, and accordingly, that the Merger will be completed on the terms or timeline that the parties anticipate or at all. If any condition to the Merger is not satisfied, it could delay or prevent the Merger from occurring, which could negatively impact the price of our common stock or Ventas common stock and the parties’ business, financial condition, results of operations and growth prospects. In addition, either Ventas or the Company may terminate the Merger Agreement under specified circumstances, including, among other reasons, if the Merger is not completed by 5:00 p.m., New York time, on January 20, 2022.
In addition to the above risks, if the Merger Agreement is terminated and the Company seeks an alternative transaction, our stockholders cannot be certain that we will be able to find a party willing to engage in a transaction on more attractive terms than the Merger. In addition, if the Merger Agreement is terminated under certain circumstances specified therein, we may be required to pay Ventas a termination fee of $20.2 million.
Failure to complete the pending Merger could have a material adverse effect on ourthe Company.
Either the Company or Ventas may terminate the Merger Agreement in specified circumstances. If the Merger is not completed, the parties’ business, financial condition, results of operations and growth prospects may be adversely affected and, without realizing any of the benefits of having completed the Merger, the Company will be subject to a number of risks, including the following:
•the market price of our common stock could decline;
•We will have incurred substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration costs that have already been incurred or will continue to be incurred until the closing of the Merger and a significant portion of these fees and costs are payable by us regardless of whether the Merger will be consummated, which could adversely affect the Company’s business, financial condition, results of operations and liquidity,growth prospects;
•if the Merger Agreement is terminated and our board of directors seeks another transaction, our stockholders cannot be certain that we will be able to find another party willing to enter into a transaction as wellattractive as the Merger;
•We could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against such party to perform its obligations under the Merger Agreement;
•We will not realize the benefit of the time and resources, financial and otherwise, committed by management to matters relating to the Merger that could have been devoted to pursuing other beneficial opportunities;
•We may experience reputational harm due to the adverse perception of any failure to successfully complete the Merger or negative reactions from the financial markets or from our tenants, managers, vendors, employees and other commercial relationships; and
•We may be required, under specified circumstances, to pay Ventas a termination fee of $20.2 million.
Any of these risks could adversely affect the Company’s business, financial condition, results of operations and growth prospects. Similarly, delays in the completion of the Merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty about completion of the Merger and could adversely affect the Company’s business, financial condition, results of operations and growth prospects, after the Merger.
The exchange ratio is fixed and will not be adjusted in the event of any change in the stock prices of the Company.
In connection with the Merger, upon the terms and subject to the conditions of the Merger Agreement, each share of our common stock (other than shares of our common stock owned directly by Ventas, Merger Sub or us) outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive 0.1561 of a newly issued share of Ventas common stock, with holders of record of Company common stock receiving cash in lieu of fractional shares of Ventas common stock. The exchange ratio is fixed and will not be adjusted to reflect stock price changes of either our common stock or Ventas common stock prior to the closing of the Merger, although it will be equitably adjusted in specified circumstances.
Changes in the price of Ventas common stock prior to the Merger will affect the market value of the consideration that our stockholders will receive on the closing of the Merger. Stock price changes may result from a variety of factors (many of which are beyond the control of the Company and Ventas), including the following factors:
•the trajectory and future impact of the COVID-19 pandemic, including the impact of the Delta variant, or any other variant, and the ultimate recovery of the senior housing industry from the COVID-19 pandemic;
•changes in the respective businesses, operations, assets, liabilities and prospects of either company;
•changes in market assessments of the business, operations, financial position and prospects of either company;
•market assessments of the likelihood that the Merger will be completed;
•the expected timing of the Merger;
•interest rates, general market and economic conditions and other factors affecting the price of our common stock.stock or Ventas common stock;
•federal, state and local legislation, governmental regulation and legal developments in the businesses in which the Company and Ventas operate; and
•other factors beyond the control of the Company or Ventas, including those described under this “Risk Factors — Risks Related to the Merger” heading.
The COVID-19 pandemic is causing significant disruptionsprice of Ventas common stock at the closing of the Merger may vary from its price on the date the Merger Agreement was executed and on the date of the special meeting of our stockholders to consider and vote upon the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedomadoption of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.the Merger Agreement. As a result, the market value of the merger consideration represented by the exchange ratio will also vary.
Our portfolio consistsTherefore, since the number of independent senior living properties. Accordingly, factors that affect real estate and the senior housing industry will have a more pronounced effect on our portfolio relative to a portfolioshares of more diversified investments. In particular, because COVID-19 has had disproportionately severe impacts on the health of seniors, we expectVentas common stock to be more significantly affected by COVID-19 than other REITs that focus on different sectors. Although our operators have taken, and are continuing to take, various measures to reduce the risk of transmission of COVID-19 in our properties, including limiting visitor access to our properties and access to common areas within our properties, and we are working proactively with our property managers to monitor their protocols andissued per share best practices for reducing the spread of COVID-19, we can provide no assurance that these measures will be effective in preventing cases of COVID-19 within our properties. Residents and associates at some of our properties have already contracted COVID-19, and we expect to continue to see casescommon stock is generally fixed, our stockholders cannot be sure of COVID-19 for the foreseeable future.market value of the merger consideration they will receive upon completion of the Merger.
COVID-19 and the measuresThe Merger Agreement contains provisions that we have taken in response to combat the virus have already resulted in reduced occupancy rates of our properties, resulting in reduced rental revenue, and we expect occupancy rates will continue to decline for at least the durationcould discourage a potential competing acquirer of the COVID-19 pandemic due toCompany or could result in any competing proposal being at a reduction in, or in some cases prohibitions on, new tenant move-ins, stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our communities or the perception that outbreaks may occur. These outbreaks, which directly affect the lifestyle of our residents as well as the staff at our communities, have and could continue to materially and adversely disrupt operations, even in communities where there is only one or a few confirmed cases of COVID-19. Outbreaks could cause significant reputational harm to us and our operators and could adversely affect demand for senior housing both during and after the pandemic subsides.price than it might otherwise be.
RespondingThe Company is subject to the COVID-19 pandemic has also causedcertain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide information to third parties, to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, to enter into any commitment with respect to any alternative acquisition proposal, to recommend or approve any alternative acquisition proposal or change in recommendation by our operatorsboard of directors, subject to face material cost increases as a result of the need for the procurement of PPE and other supplies such as packaging necessary for in-room meal deliveries to residents. While to date these costs have largely been offset by variable expense savings associated with lower occupancy and strong expense management from our operators, there is no assurance that this will continue and depending on how the pandemic evolves, there may be other future operating expenses thatcustomary exceptions. In addition, we may be required to bear,pay Ventas a termination fee of $20.2 million in specified circumstances, including if the Merger Agreement is terminated in specified circumstances following the Company’s receipt of an alternative acquisition proposal. We do not have the right to terminate the Merger Agreement to accept an alternative acquisition proposal. Accordingly, notwithstanding a change in recommendation by our board of directors, unless Ventas terminates the Merger Agreement following such aschange in recommendation or the Merger Agreement is otherwise validly terminated, the Company will still be required to convene a special meeting of our stockholders and submit the Merger Proposal to such stockholders for approval.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Merger Agreement.
The pendency of the Merger could adversely affect the Company’s business and operations.
In connection with the pending Merger, some tenants, managers, vendors or other parties with commercial relationships with the Company may delay or defer decisions, which could adversely affect the Company’s business, financial condition, results of operations and growth prospects, regardless of whether the Merger is completed. Similarly, current and prospective employees of the Company may experience uncertainty about their future roles with the combined company following the Merger, which may adversely affect our ability to attract and retain key personnel during the pendency of the Merger. In addition, due to covenants in the Merger Agreement, we may be unable (without Ventas’s prior written consent), during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
Litigation relating to the Merger could result in significant costs, for testing kits for residentsand/or a delay of or injunction against the merger.
As disclosed in “Note 15 – Commitments and staff, temperature screening machines, additional cleaning equipment, or new protocolsContingencies” to our consolidated financial statements, one complaint related to the properties.Merger has been filed in federal court. The COVID-19 pandemic has also causedCompany believes that the complaint is without merit, but the outcome of this action is uncertain and is likelycould result in significant costs to continuethe Company. There can be no assurances that additional complaints or demands will not be filed or made with respect to cause regulatory changesthe Merger. The defense or settlement of any lawsuits or claims relating to the Merger may have an adverse effect on the business, financial condition and as a result, our industry may face increased regulatory scrutiny. Any changes inresults of operation of the regulatory frameworkCompany, including by diverting management time and attention or preventing the intensityMerger from being completed, or extent of government or private enforcement actions could materially increase operating costs incurred by us or our property managers or tenant for monitoring and reporting compliance.from being completed within the expected timeframe.
The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide, including a significant decline and volatility in equity markets and in asset values more generally. These factors have significantly affected the price of our common stock, which traded as high as $8.35 per share and as low as $1.72 per share since the beginning of 2020. We cannot assure you that conditions in the credit, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our ability to obtain financing, including through refinancing our existing indebtedness at the times of maturity, will not become constrained, which could adversely affect the availability and terms of our ability to access equity and debt capital markets, or make future borrowings, renewals or refinancings. In addition, our liquidity may be adversely affected by these factors, reductions in our revenues due to decreased occupancy in our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver. Our residents and tenant are also likely experiencing deteriorating financial conditions as a result of the COVID-19 pandemic and may be unwilling or unable to satisfy their obligations to us on a timely basis, or at all, which may further reduce our revenues and cash flows.
The impact of the COVID-19 pandemic on our managed IL portfolio of communities is direct, because we receive cash flow from the operations of the property (as compared to receiving contractual rent from our third party tenant-operator under our single triple-net lease structure), and we also bear all operational risks and liabilities associated with the operation of these managed properties, other than those arising out of certain actions by our property managers, such as their gross negligence or willful misconduct. Accordingly, we may be directly adversely impacted by increased exposure to our business caused by the pandemic to lawsuits or other legal or regulatory proceedings filed at the same time across multiple jurisdictions, such as professional liability litigation alleging wrongful death or negligence claims related to COVID-19 outbreaks that have occurred or may occur at our properties. These claims may result in significant damage awards and not be indemnified or subject to sufficient insurance coverage. Federal, state, local and industry-initiated efforts may limit us, our property managers’ and our tenant’s liabilities from COVID-19 related quality of care litigation, but the extent of such limitations are uncertain and such liabilities could still be significant. These same factors may also affect our triple net lease tenant and may limit its ability to pay the contractual rent to us when due.
The extent of the COVID-19 pandemic’s effect on our business, operational, financial performance and liquidity will depend on future developments, including the duration, spread, intensity and recurrence of the pandemic, health and safety actions taken to contain its spread, the timing and availability of a vaccine if any, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which is highly uncertain and very difficult to predict at this time. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its global economic impact, including any economic downturn or recession that may occur in the future. The adverse impact of the COVID-19 pandemic on our business, results of operations, financial condition, cash flows and stock price could be material.
In addition, to the extent COVID-19 adversely affects our business, financial condition, and results of operations and economic conditions more generally, it may also have the effect of heightening or increasing the magnitude of many of the other risk factors described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. For example, as a result of the COVID-19 pandemic, our cost of insurance related to our properties has increased and may continue to increase, and such insurance may contain exclusions and not cover certain claims related to COVID-19.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibits filed with this Form 10-Q: |
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101.INS | Interactive Data File formatted in Inline XBRL |
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 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
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| Exhibits filed with this Form 10-Q: | | Incorporated by Reference | | Filed Herewith |
| Exhibit No. | Exhibit Descriptions | | Form | File No. | Exhibit | Filing Date | | |
| | | 8-K | 001-36499 | 2.1 | 6/29/2021 | | |
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| | | | | | | | X |
| | | | | | | | X |
| | | | | | | | X |
| 101.INS | Interactive Data File formatted in Inline XBRL | | | | | | | X |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | X |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | X |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | X |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | X |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | X |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). | | | | | | | X |
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:
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| | NEW SENIOR INVESTMENT GROUP INC. |
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| | By: | /s/ Bhairav Patel |
| | Bhairav Patel |
| | Executive Vice President of Finance and Accounting and Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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| | OctoberJuly 30, 20202021 |