Looking to the Future
ANNUAL REPORT | 2021
brookdale.com
Our Mission
Enriching the lives of those we serve
with compassion, respect, excellence and integrity
Letter to Shareholders
As I reflect on Brookdale’s path during 2021, I can definitively
and proudly say that we are on the road to recovery.
I continue to be amazed by the incredible
accomplishments of our communities across
the country and our dedicated team members.
When I joined Brookdale, I knew our culture was
focused on advocating for and helping to take
care of seniors. During the pandemic, this was
demonstrated countless times over. For our
associates, work is more than a job; it is a
passion. They have been on the front lines of
the pandemic for more than two years, and
their relentless dedication to help support the
health and well-being of our residents has
been inspiring.
facilitate the administration of more than
125,000 shots in our communities by the end of
April 2021. By that date, our resident vaccine
acceptance rate was 93% and our number of
COVID-19 positive resident cases had decreased
97% since the mid-December 2020 peak. It is
rare to see such an immediate, sizeable impact,
and I am so proud of our team’s role in
delivering lifesaving results.
In 2021, we instituted one of the largest
employee vaccine requirements in the senior
living industry — ahead of any national
mandate.
Combating COVID-19
Thanks to the monumental efforts of our team
in 2020, we had a running start as we entered
2021 and utilized our learnings from the first
year of the pandemic to strengthen our path
forward.
Our first COVID-19 community vaccine clinic
was in late December 2020, and by April 2021
we had completed at least three vaccine clinics
for all of our nearly 700 communities across
42 states! Working closely with CVS Health,
government officials and local departments of
health, our clinical teams led the effort to
Even before news of the Omicron variant broke,
our team knew that time was of the essence in
setting up booster clinics to help further protect
our residents. We quickly identified more than
30 different pharmacies and healthcare
providers who could assist with this massive
effort. Our vaccine clinics provided our residents
and their loved ones with invaluable comfort
and peace of mind during a very challenging
time in our nation’s history.
As each series of vaccine clinics was completed,
the positive energy in our communities was
palpable.
1
In 2021, we launched BECOME, our
six-month-long new leader program.
This program equips new managers
with the skills they need to lead their
teams effectively. More than 1,400
leaders across different races,
genders, ages and backgrounds,
including veterans, enrolled during the
program’s inaugural year. We also began
planning for the first class of EXPAND, a
targeted development program for a diverse
cohort of current community leaders who
aspire to become Executive Directors, the top
position in our communities. Our goal is to
improve both career options and leadership
diversity by providing compelling career growth
opportunities. As a result of our robust learning
and development programs, Brookdale was a
2021 winner of Training magazine’s Training
Top 100.
At Brookdale, we know that diversity plays
a key role in fostering compassionate and
welcoming communities. To lead a truly
diverse and inclusive company, we need to
demonstrate our commitment at all levels
of the organization. It is important that
our workforce can see our efforts in action
at the highest level — with our Board of
Directors approaching gender parity
and having racial diversity and veteran
representation.
Investing in Our Associates
Brookdale’s business depends on people taking
care of people, and our greatest asset is our
associates. The labor market is tight, and we are
focused on continuing to attract the best
caregivers. We enhanced our recruiting plans
and expanded our development programs to
help attract and retain the industry’s top talent
at Brookdale. As a result of these efforts, by late
2021 we experienced net-positive hires. We
continue to offer comprehensive training for our
new associates, both for their own development
and to better serve our residents.
With the U.S. Department of Labor’s approval,
we offer a Certified Nursing Assistant
apprenticeship program. Through Brookdale
programs, we provide training and leadership
development across the organization.
2
Welcoming New Residents
Since the vast majority of our business is a
private-pay model, we are cognizant of many
seniors’ limited incomes and also understand
the importance of delivering high-quality and
highly valued services. While our community,
regional and corporate associates continued to
support and enrich the lives of residents, we
also began to welcome more seniors into our
communities. In March 2021, our sequential
occupancy turned positive for the first time
since the pandemic had started, just one year
prior. This inflection point led to 10 consecutive
months of weighted average occupancy growth
by year end. As the year closed, we also
celebrated the first December to deliver
sequential occupancy growth in nine years.
Strategically Managing the Business
Moreover, we strengthened our balance sheet in
2021. We completed a convertible senior notes
offering, which was significantly oversubscribed.
Aligned with our stated use of a portion of the
convertible notes’ proceeds, we paid off a small
but high interest rate loan, refinanced the first
quarter 2022 debt maturities, and prepaid a
substantial portion of the remaining 2022 debt
maturities. To further bolster our liquidity
position, we delivered a second year of
significant financial transactions, including
selling 80% of our Home Health and Hospice
businesses to HCA Healthcare while ensuring
these services would still be offered in our
communities. As a testament to our belief in the
long-term growth potential of this business, we
intentionally retained a 20% interest.
Our corporate team executed these financial
endeavors so we could remain focused on what
matters most — our residents. Our associates
delivered on that focus, remaining flexible and
adaptable as they overcame the challenges
posed by each new COVID-19 variant. Our
associates have my deepest gratitude, for their
extraordinary leadership as well as their
dedication to and compassion for our residents.
During this lengthy, unprecedented public
health crisis, our associates have remained
steadfast in delivering on our mission to enrich
the lives of those we serve with compassion,
respect, excellence and integrity.
3
Looking to the Future
Going forward, we expect to see the benefit of
both lower supply and higher demand. There is
a relative decline in new senior-housing units
under construction. Even before the pandemic
began, new supply was shrinking; and for the
past two years, supply has become a more
significant tailwind. Moreover, by 2030, the ratio
of unpaid caregivers to seniors is expected to
drop by 43%,1 which should serve as another
driver to increase the need for senior-housing
services.
Starting in 2022, we expect more than 1 million
new seniors will enter our target market every
year for the rest of this decade.2 This can fuel
powerful growth and provide a great
opportunity for Brookdale to serve even more
of our nation’s seniors. With longer life spans
and increasingly complex care, the need for
dedicated caregivers will increase. More than
65% of residents are diagnosed with at least two
chronic conditions,3 and 47% of seniors have a
dementia diagnosis listed on their medical
records within their last two years of life.4 There
is a rapidly growing senior population that
requires our high-quality, needs-based services.
With our clinical expertise, we have 12
specialized clinical programs focused on the
health and wellness of our residents, and we
have specialized memory care programs.
Our Board of Directors and management team
are confident we have the operational
capabilities and financial strength to deliver on
our profitable growth strategy. Guided by our
mission — to enrich the lives of those we serve —
we will continue to succeed and deliver value to
our residents, associates and shareholders.
Our residents are resilient and continue to find
joy in the face of unprecedented circumstances,
and I am thankful for the trust they and their
families have placed in Brookdale. They inspire
me every day to continue to push Brookdale
forward to be the best senior living company in
the industry. As we enter the third year of the
pandemic, we are armed with the knowledge
and experience needed to continue enriching
seniors’ lives.
We appreciate all of our partners who have
supported and encouraged us through the
darkest days of the pandemic. We look forward
to celebrating with you as we continue to drive
Brookdale’s leadership position and deliver
enhanced value for many years to come.
Sincerely,
Lucinda M. Baier
President and Chief Executive Officer
Forward-Looking Statements: Certain statements in this Letter to Shareholders may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and
uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or
expectations. See “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” on page 4 and “Risk Factors”
beginning on page 24 of the Annual Report on Form 10-K included in this 2021 Annual Report for important factors which could have a
material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from such
forward-looking statements. Readers are cautioned not to place undue reliance on any of such forward-looking statements, which
reflect management’s views as of the date of this 2021 Annual Report.
1. Donald Redfoot, Lynn Feinberg, Ari Houser, Public Policy Institute, “The Aging of the Baby Boom and the Growing Care Gap:
A Look at Future Declines in the Availability of Family Caregivers,” AARP, August 2013; in publication seniors defined as age 80+;
decline 2010 to 2030.
2. “Projected Population by Single Year of Age, Sex, Race, and Hispanic Origin for the United States: 2016 to 2060,” US Census
Bureau, Population Division, September 2018; target market age cohort defined as 75+.
3. Christine Caffrey, Manisha Sengupta, and Amanuel Melekin, “Residential Care Community Resident Characteristics: United States,
2018,” National Center for Health Statistics, CDC, NCHS Data Brief No. 404, September 2021.
4. Matthew A. Davis, Chiang-Hua Chang, Sharon Simonton, et al, “Trends in US Medicare Decedents’ Diagnosis of Dementia From 2004
to 2017,” JAMA Health Forum, April 1, 2022; study covers seniors age 67 or older who were Medicare fee-for-service enrollees.
4
Broad Continuum of Care
INDEPENDENT
LIVING
HOME
HEALTH
ASSISTED
LIVING
HOSPICE
MEMORY
CARE
OUTPATIENT
THERAPY
SKILLED
NURSING
FOR COMMUNITY RESIDENTS1
TELEHEALTH
RESPITE
CARE
HEALTHCARE
PROFESSIONAL
2
IN-HOME
SERVICES
RESIDENT
ENGAGEMENT
Brookdale Services
Third-Party Services
Venture Partner Services
1. Services vary by community; some services require physician referral.
2. Healthcare professionals rounding in our communities.
5
From Uncertainty to Looking Ahead
A Community View
Though the history books haven’t been written
yet, the last few years will encompass volumes.
In that short span of time, we moved from an
unknown pathogen spreading like wildfire
around the globe to safe and effective
treatments at a speed unprecedented in history.
Mass vaccination efforts rolled out in countries
around the world. The sheer effort to
accomplish this Herculean task can’t be
overstated. Globally, millions of people —
doctors and clinicians, researchers and
scientists, nurses and front-line care associates —
devoted countless hours, sleepless nights and
endless weekends working toward one goal:
overcoming the challenges created by the
COVID-19 pandemic.
The senior living industry wasn’t immune to the
tidal wave of change sweeping over the world.
Seniors, as the demographic most at risk from
this disease, spent a significant portion of 2020
enduring the most stringent of safety
precautions. In Brookdale communities,
previously bustling activity rooms were empty.
Meals were served via room service instead of
tableside. Many social activities went virtual-
only. Visits with family and friends took place by
looking through windows, phone/video calls
and car parades.
6
As the ball dropped in Times Square on
December 31, 2020, all Americans — perhaps
seniors most of all — clung to the hope that the
new year would bring better days. And, thanks
in large part to the effort and dedication of
Brookdale associates across the nation, 2021
wouldn’t let those seniors down.
Building on the knowledge gleaned from the
early days of the pandemic, and in partnership
with industry leaders and government
organizations, we continued to deliver health
and safety protocols to help protect residents.
Brookdale’s dining rooms once again hosted
pancake breakfasts, lunch with friends and
date-night dinners. Music lessons, art classes
and garden clubs once again met to make the
world a little more beautiful. Book clubs
gleefully debated opinions face-to-face.
Pickleball aces once again schooled their
opponents on the court!
Across America, we moved from shelter in place
to cautious reopenings to in-person get-
togethers. We moved from phone calls to video
calls to joyous, tearful reunions. We moved from
empty restaurants to outdoor dining to breaking
bread with family around holiday tables.
We moved from isolation to connection.
We moved from uncertainty to hope.
The last year has gifted us a taste of life before
the pandemic, and yet it’s so much more, and so
much better. As we were able to quickly adapt
our communities to the latest national, regional
and local health and safety guidance, our
residents were able to enjoy a return to
normalcy — and we gained a higher perspective
on what it means to partner with this most
vulnerable population. Everything we’ve learned
through the COVID-19 pandemic — all the
hard-won lessons from our role as the industry
leader — will now and forever inform the way we
serve seniors across the country. And that’s a
responsibility we take very, very seriously.
For the second year in a row, we ran a marathon
at a sprinter’s pace. And we’re not through with
the race. In many ways, we will never be
through. Because the evolution we went
through over the last two years is a never-
ending process of building on our already-
strong foundations to ensure that on every day
in any year — past, present and future — we
embody our company’s mission:
Enriching the lives of those we serve with
compassion, respect, excellence and integrity.
7
OUR PLACES
675+
COMMUNITIES
IN
41STATES
64%OF SENIORS LIVE WITHIN
20 MINUTES OF A
BROOKDALE COMMUNITY 1
OUR PEOPLE
60K+ 30K+
RESIDENTS
ASSOCIATES
WORKFORCE
BY
ETHNICITY/RACE2
White (45%)
Black (30%)
Hispanic (16%)
Asian (5%)
Two Races (2%)
Pacific Islander (1%)
American Indian (1%)
*ABILITY TO SERVE
#1
SENIOR HOUSING
PROVIDER 3
EXPERIENCED LEADER
UNAIDED
BRAND AWARENESS4
Brookdale
Competitor A
Competitor B
Competitor C
Competitor D
2X
more mentions
of Brookdale
than next-
closest operator
12SPECIALIZED
CLINICAL
PROGRAMS5
*Brookdale statistics as of December 31, 2021.
1. ESRI, Brookdale; senior population is defined as age 75-plus with an annual income of $50,000 or greater and within the United States.
2. Active full-time associates as of December 31, 2021.
3. National Investment Center for Senior Housing and Care (NIC) IL, AL, and MC units, NIC Supply Set 4Q 2021.
4. Online surveys sent to national survey panel participants in top 10 markets, including senior living prospects and their influencers;
survey November 2021.
5. Services vary by community.
8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 001-32641
BROOKDALE SENIOR LIVING INC.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
20-3068069
(I.R.S. Employer Identification No.)
111 Westwood Place, Suite 400, Brentwood, Tennessee
(Address of principal executive offices)
Registrant's telephone number including area code
37027
(Zip Code)
(615) 221-2250
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share
BKD
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒
No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨
No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
¨
Accelerated filer
☐
Smaller reporting company ☐
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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2021, the last business day of
the registrant's most recently completed second fiscal quarter was approximately $1.5 billion. The market value calculation was
determined using a per share price of $7.90, the price at which the registrant's common stock was last sold on the New York
Stock Exchange on such date.
As of February 11, 2022, 185,580,549 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding
restricted stock and restricted stock units).
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Definitive Proxy Statement relating to its 2022 Annual Meeting of Stockholders to be filed
with the SEC within 120 days of December 31, 2021, are incorporated by reference into Part III of this Annual Report on Form
10-K.
TABLE OF CONTENTS
BROOKDALE SENIOR LIVING INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2021
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
(Reserved)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PAGE
6
24
39
39
41
41
42
44
44
73
75
121
121
121
121
122
122
122
123
124
125
127
3
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and
uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or
expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may,"
"will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe,"
"project," "predict," "continue," "plan," "target," or other similar words or expressions. These forward-looking statements are
based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on
reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained and actual results and
performance could differ materially from those projected. Factors which could have a material adverse effect on our operations
and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but
are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local
government authorities, businesses, individuals, and us on our business, results of operations, cash flow, revenue, expenses,
liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which
cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease,
the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets, the
development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization
of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may
become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of
financial relief, perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand
for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, the impact of
COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment
rates, consumer confidence, housing markets, and equity markets caused by COVID-19, changes in the acuity levels of our new
residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration
and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health
plan, and other expenses, potentially greater use of contract labor and overtime due to COVID-19 and general labor market
conditions, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other
transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and
other covenants in our debt and lease documents, increased regulatory requirements, including the costs of unfunded,
mandatory testing of residents and associates and provision of test kits to our health plan participants, increased enforcement
actions resulting from COVID-19, government action that may limit our collection or discharge efforts for delinquent accounts,
and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts;
events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing
market, consumer confidence, or the equity markets and unemployment among resident family members; changes in
reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid
programs; the effects of senior housing construction and development, lower industry occupancy (including due to the
pandemic), and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of
climate change in geographic areas where we are concentrated; terminations of our resident agreements and vacancies in the
living spaces we lease, including due to the pandemic; failure to maintain the security and functionality of our information
systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws,
including HIPAA; our ability to complete our capital expenditures in accordance with our plans; our ability to identify and
pursue development, investment, and acquisition opportunities and our ability to successfully integrate acquisitions;
competition for the acquisition of assets; our ability to complete pending or expected disposition, acquisition, or other
transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory
approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our
ability to identify and pursue any such opportunities in the future; risks related to the implementation of our strategy, including
initiatives undertaken to execute on our strategic priorities and their effect on our results; limits on our ability to use net
operating loss carryovers to reduce future tax payments; delays in obtaining regulatory approvals; disruptions in the financial
markets or decreases in the appraised values or performance of our communities that affect our ability to obtain financing or
extend or refinance debt as it matures and our financing costs; our ability to generate sufficient cash flow to cover required
interest, principal, and long-term lease payments and to fund our planned capital projects; the effect of our non-compliance with
any of our debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors
declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property
securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of our indebtedness
and long-term leases on our liquidity and our ability to operate our business; increases in market interest rates that increase the
costs of our debt obligations; our ability to obtain additional capital on terms acceptable to us; departures of key officers and
potential disruption caused by changes in management; increased competition for, or a shortage of, associates (including due to
the pandemic or general labor market conditions), wage pressures resulting from increased competition, low unemployment
4
levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of our
communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed
against us, including class action and stockholder derivative complaints; the cost and difficulty of complying with increasing
and evolving regulation; costs to respond to, and adverse determinations resulting from, government reviews, audits and
investigations; changes in, or our failure to comply with, employment-related laws and regulations; unanticipated costs to
comply with legislative or regulatory developments; the risks associated with current global economic conditions and general
economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, competition in the
labor market, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious
illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate; actions of activist
stockholders, including a proxy contest; as well as other risks detailed from time to time in our filings with the Securities and
Exchange Commission, including those set forth under "Item 1A. Risk Factors" contained in this Annual Report on Form 10-K
and elsewhere in this Annual Report on Form 10-K. When considering forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of
these forward-looking statements, which reflect management's views as of the date of this Annual Report on Form 10-K. We
cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly
disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Annual
Report on Form 10-K to reflect any change in our expectations with regard thereto or change in events, conditions, or
circumstances on which any statement is based.
5
Item 1.
Business
PART I
Unless otherwise specified, references to "Brookdale," "we," "us," "our," or "the Company" in this Annual Report on Form 10-
K mean Brookdale Senior Living Inc. together with its consolidated subsidiaries.
Our Business
We are the nation's premier operator of senior living communities, operating and managing 679 communities in 41 states as of
December 31, 2021, with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of
services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted
living, memory care, and continuing care retirement communities ("CCRCs").
Our senior living communities and our comprehensive network help to provide seniors with care and services in an
environment that feels like home. Our expertise in healthcare, hospitality, and real estate provides residents with opportunities
to improve wellness, pursue passions, and stay connected with friends and loved ones. By providing residents with a range of
service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe
enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial
to residents' families who are concerned with care decisions for their elderly relatives.
Strategy
Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and
employer. Brookdale continues to be driven by its mission—to enrich the lives of those we serve with compassion, respect,
excellence, and integrity. During this pandemic recovery phase, we have continued to focus on the health and wellbeing of our
residents and associates and "Winning the Recovery, Faster" by providing high quality care and personalized service. We
believe successful execution on this strategy provides the best opportunity to create attractive long-term stockholder value.
During this recovery phase, we are focused on priorities that will position us for growth and take advantage of positive trends in
demographics, customer preferences, and lower new supply in the industry. Our key strategic priorities are as follows.
•
Attract, engage, develop, and retain the best associates. Brookdale’s culture is based on servant leadership. We believe
engaged associates lead to an enhanced resident experience, higher retention, and ultimately improved operations that
drives accelerated growth. Through this strategic priority, we intend to diversify and optimize our recruiting plans and
enhance our already compelling value proposition for our associates in the areas of compensation, leadership, career
growth, and meaningful work.
• Get every available room in service at the best profitable rate. We believe that we provide highly valuable services to
seniors, and we continue to strive to expand the number of seniors we serve through increasing our occupancy levels, while
remaining focused on driving rate and improving margin. With this strategic priority, we intend to ensure all communities
are appropriately priced within their market. Through our targeted sales and marketing efforts, we plan to drive increased
move-ins through enhanced outreach with impactful points of differentiation based on quality, a portfolio of choices, and
personalized service delivered by caring and engaged associates.
•
Earn resident and family trust and satisfaction by providing valued high quality care and personalized service. We
believe that earning the trust of our residents and their families will allow us to build relationships that create passionate
advocates and generate referrals. We intend to create a consistent high quality experience for residents, including through
the implementation and execution of our high quality clinical, operational, and resident engagement programs. We are a
learning organization that uses multiple tools to obtain feedback from residents, their families, and our associates to
improve our services to meet the changing needs of residents.
The above three priorities are intended to provide long-term returns to our stockholders by focusing on growing RevPAR,
Adjusted EBITDA, and cash flow.
Strategic innovation also continues to be an important factor for our long-term growth. We are piloting programs in several
areas and, in the future, plan to roll out initiatives to further accelerate our growth. We plan to explore additional products and
services that we may offer to our residents or to seniors living outside of our communities and, where opportunities arise,
pursue development, investment, and acquisition opportunities.
6
•
•
Enhance Healthcare and Wellness. Our vision is to enable those we serve to live well by offering our residents a high-
quality healthcare and wellness platform. We believe Brookdale is uniquely positioned to be a key participant and partner
in the value-based healthcare ecosystem. Our initiatives include piloting redesigned delivery of clinical care within assisted
living communities and embedding technology-enabled care management capabilities, in order to better align our
communities with payors, providers, and healthcare systems. We are also piloting the expansion of our private duty
services business to serve those living outside of our communities. We believe the successful execution of these initiatives
will improve resident health and wellbeing and drive incremental revenue by increasing move-ins and extending residents'
average length of stay resulting in increased occupancy.
Drive Innovation and Leverage Technology. We are engaged in a variety of innovation initiatives and over time plan to
pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience,
improve outcomes, and increase average length of stay and occupancy. With our technology platform, we also expect to
identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third
parties.
• Grow and Improve Our Senior Living Portfolio. As we emerge from the pandemic, we intend to (i) expand our footprint
and services in core markets where we have, or can achieve, a clear leadership position, (ii) execute an ongoing capital
recycling program through acquiring leased communities and exiting non-strategic or underperforming owned assets or
leases when possible, and (iii) pivot back to portfolio growth through targeted development, investment, and acquisition
opportunities. We will also continue to invest in our development capital expenditures program through which we expand,
renovate, reposition, and redevelop selected existing senior living communities where economically advantageous.
We believe that our successful execution on these strategic priorities and our longer-term growth plans will allow us to achieve
our goal to be the first choice in senior living by being the nation’s most trusted and effective senior living provider and
employer.
Recent Developments
COVID-19 Pandemic Update
The COVID-19 pandemic significantly disrupted the senior living industry and our business beginning in March 2020. We
expect the impact of this disruption to continue into 2023. The health and wellbeing of our residents and associates has been
and continues to be our highest priority. Due to the average age and prevalence of chronic medical conditions among our
residents, they generally are at disproportionately higher risk of becoming severely ill from COVID-19. By staying up to date
with COVID-19 vaccines, our residents can generally mitigate their risk of becoming severely ill from COVID-19 infection.
Since COVID-19 vaccines received emergency use authorization, we have worked diligently to ensure our residents have
access to vaccines, including completing at least three initial vaccine clinics and at least one booster vaccine clinic for all of our
communities. As of January 31, 2022, our resident vaccine acceptance rate was above 95%.
Community Response. Our COVID-19 response efforts center on infection prevention and control protocols, including
following requirements and guidance of federal, state, and local governments and agencies, including the U.S. Centers for
Disease Control and Prevention ("CDC") and U.S. Centers for Medicare & Medicaid Services ("CMS"). We have enhanced and
reinforced training our associates in such protocols and continue to actively monitor government requirements and guidance
and adapt our policies, procedures, and response efforts when applicable. Upon confirmation of positive COVID-19 exposure at
a community, we take actions intended to minimize further exposure, including enhanced personal protection protocols,
temporarily isolating residents or finding placement in an alternate care setting to best address their care needs, and in some
cases, restricting new resident admissions as directed by authorities having jurisdiction.
We may also restrict visitors at our communities, screen associates and permitted visitors, suspend group outings or
programming, and modify communal dining as necessary to comply with regulatory requirements or at the direction of
authorities having jurisdiction. At the onset of the pandemic, substantial restrictions at our communities were in place across
our portfolio. We began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements
and guidance allowed. As of December 31, 2020, 89% of our communities were open for new resident move-ins.
During 2021, various communities experienced restrictions on new resident move-ins, with a peak of such restrictions occurring
in September 2021. As of January 31, 2022, substantially all of our communities were open for new resident move-ins. We may
revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic
worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of
authorities having jurisdiction.
7
Vaccine Update. In December 2020, the U.S. Food and Drug Administration ("FDA") authorized COVID-19 vaccines for
emergency use, and we initiated our first vaccine clinic a week after such authorization. By April 9, 2021, we facilitated at least
three rounds of COVID-19 vaccine clinics at all of our communities through the Pharmacy Partnership for Long-Term Care
Program offered through the CDC. As of January 31, 2022, our resident vaccine acceptance rate was above 95%. By November
2021, the CDC recommended that all adults receive a vaccine booster dose. We have completed at least one booster vaccine
clinic for all of our communities. In the second half of 2021, we adopted a policy requiring our associates to be vaccinated
against COVID-19, subject to certain exceptions necessary to comply with applicable federal, state, and local laws.
Rebuilding Occupancy. We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic. From March
2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy. In 2021,
we achieved ten consecutive months of weighted average consolidated senior housing occupancy growth on a sequential basis.
During the latter half of 2021, we believe the nationwide spread of the COVID-19 Delta variant caused some moderation in our
sequential monthly occupancy growth rate as some potential residents and their families were more cautious, or temporarily
delayed their decision regarding moving into senior living communities in certain areas as the Delta variant spread. According
to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), senior housing occupancy
increased 220 basis points from the first quarter to the fourth quarter of 2021 for stabilized portfolios. Our weighted average
consolidated senior housing occupancy increased 390 basis points during such period. The table below sets forth our
consolidated occupancy trend during the pandemic.
Weighted average
Quarter end
Q1
2020
83.2%
82.2%
Q2
2020
78.7%
77.8%
Q3
2020
75.3%
75.0%
Q4
2020
72.7%
71.5%
Q1
2021
69.6%
70.6%
Q2
2021
70.5%
72.6%
Q3
2021
72.5%
74.2%
Q4
2021
73.5%
74.5%
Jan
2021
Jan
2022
Weighted average 70.0% 69.4% 69.4% 69.9% 70.5% 71.2% 72.0% 72.5% 73.0% 73.3% 73.5% 73.6% 73.4%
70.4% 70.1% 70.6% 71.1% 71.6% 72.6% 73.3% 73.7% 74.2% 74.5% 74.3% 74.5% 74.2%
Month end
Dec
2021
Jun
2021
Feb
2021
Mar
2021
May
2021
Aug
2021
Oct
2021
Jul
2021
Apr
2021
Sep
2021
Nov
2021
We began to experience our typical seasonality pattern in January 2022. We cannot predict with reasonable certainty when our
occupancy will return to pre-COVID-19 pandemic levels.
Revenue and Expense Impacts. In the aggregate, for the years ended December 31, 2021 and 2020, and compared to our pre-
pandemic expectations for 2020, we estimate the pandemic has resulted in $660.1 million of lost resident fee revenue, including
$556.5 million in our consolidated senior housing portfolio. Estimated lost resident fee revenue for 2021 includes $328.0
million in our consolidated senior housing portfolio and $51.0 million in our former Health Care Services segment.
In the aggregate, for the years ended December 31, 2021 and 2020, we have incurred $173.2 million of facility operating
expense for incremental direct costs to respond to the pandemic, including $47.7 million for the year ended December 31, 2021.
The direct costs include those for: acquisition of additional personal protective equipment ("PPE"), medical equipment, and
cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related
costs, including labor, workers compensation, and health plan expense; and COVID-19 testing of residents and associates
where not otherwise covered by government payor or third-party insurance sources. For the years ended December 31, 2021
and 2020, we recorded $23.0 million and $105.6 million, respectively, of non-cash impairment charges in our operating results
for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the
COVID-19 pandemic and lower than expected operating performance at certain communities.
Financial Relief. The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), signed into law on March
27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide
liquidity and financial relief to certain businesses, among other things. Certain impacts of such programs are provided below.
•
During the years ended December 31, 2021 and 2020, we accepted $0.8 million and $109.8 million, respectively, of cash
from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by U.S.
Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare
providers for healthcare related expenses or lost revenues attributable to COVID-19. During the three months ended
December 31, 2021, we applied for the Phase 4 general distribution from the Provider Relief Fund. We expect to receive
the Phase 4 general distribution during the first half of 2022. We intend to pursue any additional funding that may become
8
available. There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, that
additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that
future funding programs will be made available for which we qualify.
•
•
During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment
Program administered by CMS, $75.2 million of which related to our former Health Care Services segment and
$12.3 million of which related to our CCRCs segment. Recoupment of advanced payments began one year after payments
were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at
a rate of 50% of Medicare payments for the next six months. Any outstanding balance of advanced payments will be due
following such recoupment period. During the year ended December 31, 2021, $20.8 million of the advanced payments
were recouped. Pursuant to the sale of 80% of our equity in our Health Care Services segment, $63.6 million of such
obligations related to our former Health Care Services segment were retained by the unconsolidated HCS Venture (as
defined below). As of December 31, 2021, the outstanding balance of advanced payments related to our CCRCs segment
was $3.1 million, for which we expect recoupment during 2022.
During the year ended December 31, 2020, we deferred payment of $72.7 million of the employer portion of social security
payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act. Pursuant to the sale
of 80% of our equity in our Health Care Services segment, $9.6 million of such obligations related to our former Health
Care Services segment were retained by the unconsolidated HCS Venture. In December 2021, we paid $31.6 million of the
retained deferred amount and the remaining deferred amount of $31.6 million is due December 31, 2022.
• We were eligible to claim the employee retention credit for certain of our associates under the CARES Act. The credit for
2020 was available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to
orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and
was equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a
maximum credit of $5,000 per employee. During the year ended December 31, 2021, we recognized $9.9 million of
employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for
which we have received $3.4 million in cash as of December 31, 2021. The credit was modified and extended by
subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our
eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, credits in the amount or on
the timing we expect.
In addition to the grants described above, during the years ended December 31, 2021 and 2020, we received and recognized
$1.7 million and $5.9 million, respectively, of other operating income from grants from other government sources.
We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of
operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic
initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which
cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease;
the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the
development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization
of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may
become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of
financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in
demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact
of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment
rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new
residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration
and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health
plan, and other expenses; potentially greater use of contract labor and overtime due to COVID-19 and general labor market
conditions; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other
transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and
other covenants in our debt and lease documents; increased regulatory requirements, including the costs of unfunded,
mandatory testing of residents and associates and provision of test kits to our health plan participants; increased enforcement
actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts;
and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
9
Community Labor
We continue to experience pressures associated with the intensely competitive labor environment, which during 2021 included
increased associate turnover, difficulty in timely filling open positions, and increasing wages. Continued increased competition
for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low
levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits
package to compete effectively for such associates. We have increased our recruiting efforts to fill open positions, reviewed
wage rates in all of our markets, made appropriate adjustments, and will monitor to remain competitive. We seek to ensure that
our communities are staffed with full and part-time associates and our use of more expensive contract labor and overtime has
increased to cover open positions. Third-party staffing agencies from which we source contract labor have increased the rates
they charge which has resulted in increases in the cost of contract labor. Our labor expense in our same community portfolio
increased 2.6% in 2021 from 2020, and we expect that our same community labor expense will grow at a higher percentage in
2022 compared to 2021 as a result of an increase in our labor costs near the end of 2021, merit and market wage rate
adjustments, and an anticipated increase in hours worked as our occupancy levels grow. As we fill more full and part-time
positions, we expect to use less contract labor and overtime.
Resident Fee Rates
The rates charged at communities are highly dependent on local market conditions and the competitive environment in which
the communities operate. Substantially all of our private pay senior housing residency agreements allow for adjustments in the
monthly rate payable on 90 or fewer days’ notice which enables us to seek increases in monthly rates due to inflation or other
factors. Increases for level of care changes or additional services are typically allowed immediately upon notice of the change.
Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an
annual basis beginning January 1 each year. We have recently made the annual rate adjustment for our in-place private pay
residents, which was higher than our typical annual rate adjustment. Such adjustment reflects our increased costs associated
with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the
intensely competitive labor environment. The rate adjustment could result in a decrease in occupancy in our communities, and
any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR
results. In addition, the rate adjustment may not be sufficient to offset our increased costs.
Liquidity
During 2021, we received net cash proceeds of $347.6 million pursuant to the sale of 80% of our equity in our Health Care
Services segment and the resulting HCS Venture's subsequent sale of certain agencies to LHC Group Inc. On October 1, 2021,
we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026. We received net proceeds of
$224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million of the net proceeds to
pay the cost of capped call transactions entered into in connection with the issuance, which are expected generally to reduce or
offset potential dilution to holders of our common stock. During the three months ended December 31, 2021, we repaid a $45.0
million note payable and $284.4 million of mortgage debt, including $143.0 million of mortgage debt on 11 communities for
which we obtained $100.0 million of debt secured by non-recourse first mortgages. Such repayments represented substantially
all of our remaining 2022 maturities. See "Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations" for more information about the transactions.
As of December 31, 2021, our total liquidity was $536.8 million, consisting of $347.0 million of unrestricted cash and cash
equivalents, $182.4 million of marketable securities, and $7.4 million of availability on our secured credit facility. We continue
to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense
discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-strategic or
underperforming owned assets, and seeking further government-sponsored financial relief related to the pandemic. There is no
assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts
will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to
qualify for, any such relief.
Transaction Activity
Sale of Health Care Services
On July 1, 2021, we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA
Healthcare, Inc. ("HCA Healthcare") for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in
the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the
10
remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the
Health Care Services segment (the "HCS Sale"). We received net cash proceeds of $312.6 million, including $305.8 million at
closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021.
The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. At closing of the
transaction, we retained a 20% equity interest in the venture with HCA Healthcare ("HCS Venture").
The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial
statements as of July 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of
accounting subsequent to that date. As of July 1, 2021, we recognized a $100.0 million asset within investment in
unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling
interest in the HCS Venture. We recognized a $286.5 million gain on sale, net of transaction costs, within our consolidated
statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 21 to the consolidated financial
statements contained in "Item 8. Financial Statements and Supplementary Data" for selected financial data for the Health Care
Services segment through June 30, 2021.
On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served
by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, we received $35.0 million of cash distributions from
the HCS Venture from the net sale proceeds, which decreased our investment in unconsolidated ventures. We continue to own a
20% equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy
agencies in areas served by HCA Healthcare.
Community Transactions
During 2021, we continued execution on our ongoing capital recycling program through which we have exited non-strategic or
underperforming owned assets or leases. Such activities during 2021 included the sale of three owned communities and the
termination of triple-net lease obligations on two communities. Additionally, we have reduced our management of communities
on behalf of former unconsolidated ventures and third parties, representing a net reduction of 42 managed communities during
the year. See "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 4 to
the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information
about the transactions.
As of December 31, 2021, we owned 347 communities, representing a majority of our consolidated community portfolio,
leased 299 communities, and managed 33 communities.
During the year ended December 31, 2022, we expect to close on the disposition of two owned unencumbered communities
classified as held for sale as of December 31, 2021 and the termination of our lease obligations on two communities for which
we have provided notice of non-renewal. The closings of the various pending and expected transactions are subject to the
satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. There can be no
assurance that the transactions will close or, if they do, when the actual closings will occur.
The Senior Living Industry
The senior living industry has undergone dramatic growth in the past several decades, marked by the emergence of assisted
living communities in the mid-1990s, and it remains highly fragmented with numerous local and regional operators. According
to data from NIC, there were approximately 2,500 local and regional senior housing operators as of December 31, 2021, of
which more than 90% operated five or fewer communities. We are one of a limited number of large operators that provide a
broad range of community locations and service level offerings at varying price levels.
The industry has attracted additional investment in the last decade resulting in increased construction and development of new
senior housing supply. New community openings have subjected the senior housing industry to oversupply and increased
competitive pressures. Data from NIC shows that industry occupancy began to decrease starting in 2016 as a result of new
openings and oversupply. During and since 2016, we have experienced an elevated rate of competitive new openings, with
significant new competition opening in many markets, which has adversely affected our occupancy, revenues, results of
operations, and cash flow. In 2020 and 2021, competitive new openings remained elevated, but declined significantly from the
peak in 2017.
Beginning in early 2020, the COVID-19 pandemic resulted in additional occupancy pressure for our industry. NIC data shows
that senior housing occupancy decreased for four consecutive quarters between March 31, 2020 and March 31, 2021, with
nearly all markets falling to record low occupancy by the first quarter of 2021. We cannot predict with reasonable certainty
11
when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on
demand may adversely affect the amount of resident fees we are able to collect from our residents.
The primary market of the senior living industry is individuals age 80 and older. Due to demographic trends, and continuing
advances in science, nutrition, and healthcare, the senior population will continue to grow. US Census projections suggest that,
starting in 2022, there will be nearly one million new potential residents per year, and we believe that demand for senior care
will increase as a result.
As seniors are living longer and this segment of the population rapidly grows, so will the number living with Alzheimer's
disease and other dementias and the burden of chronic diseases and conditions. As a result of increased mobility in society, a
reduction of average family size, and increased number of two-wage earner couples, families struggle to provide care for
seniors and therefore look for alternatives outside of their family for care. There is a growing consumer awareness among
seniors and their families concerning the types of services provided by senior living operators, which has further contributed to
the demand for senior living services.
We continue to address new competition by focusing on operations with the objective to ensure high customer satisfaction,
retain key leadership, and actively engage district and regional management in community operations; enhancing our local and
national marketing and public relations efforts; and evaluating current community position relative to competition and
repositioning if necessary (e.g., services, amenities, programming, and price). Like other companies, our financial results may
be negatively impacted by increasing salaries, wages, and benefits costs for our associates, particularly if such costs cannot be
covered by implementing price increases. Higher costs of food, utilities, equipment and supplies, insurance, and real estate
taxes may also have a negative impact on our financial results.
The COVID-19 pandemic has presented significant challenges to our industry, as outlined above. Additional challenges in our
industry include increased state and local regulation of the assisted living, memory care, and skilled nursing sectors, which has
led to an increase in the cost of doing business. The regulatory environment continues to intensify in the number and types of
laws and regulations affecting us, accompanied by increased enforcement activity by state and local officials. In addition, there
continue to be various federal and state legislative and regulatory proposals to implement cost containment measures that would
limit payments to healthcare providers in the future.
Competition
The senior living industry is highly competitive. We compete with numerous organizations, including not-for-profit entities,
that offer similar communities and services, community-based service programs, retirement communities, convalescent centers,
and other senior living providers. In general, regulatory and other barriers to competitive entry in the independent living,
assisted living, and memory care sectors of the senior living industry are not substantial. Consequently, we may encounter
competition that could limit our ability to attract and retain residents and associates, raise or maintain resident fees, and expand
our business, which could have a material adverse effect on our occupancy, revenues, results of operations, and cash flows. Due
to the industry's low occupancy levels, certain competitors may price aggressively in order to capture market share. Our major
publicly-traded senior housing competitors are AlerisLife Inc. (f/k/a Five Star Senior Living, Inc.) and Sonida Senior Living
Corporation (f/k/a Capital Senior Living Corporation). Our major private senior housing competitors include Life Care
Services, LLC, Atria Senior Living Inc., Sunrise Senior Living, LLC, Erikson Senior Living, and Senior Lifestyle Corp., and
multiple regional providers with large localized market presence, as well as a large number of not-for-profit entities.
Over the long term we plan to evaluate and, where opportunities arise, pursue development, investment, and acquisition
opportunities. The market for acquiring and/or operating senior living communities is highly competitive, and some of our
present and potential senior living competitors have, or may obtain, greater financial resources than us and may have a lower
cost of capital. In addition, several publicly-traded and non-traded real estate investment trusts ("REITs") and private equity
firms have similar objectives as we do, along with greater financial resources and/or lower costs of capital than we are able to
obtain. Partially as a result of tax law changes enacted through REIT Investment Diversification and Empowerment Act
("RIDEA"), we now compete more directly with the various publicly-traded healthcare REITs for the acquisition of senior
housing properties, the largest of which are Ventas, Inc. ("Ventas") and Welltower Inc. ("Welltower").
Our History
Brookdale Senior Living Inc. was formed as a Delaware corporation in June 2005 for the purpose of combining two leading
senior living operating companies, Brookdale Living Communities, Inc. and Alterra Healthcare Corporation, which had been
operating independently since 1986 and 1981, respectively. On November 22, 2005, we completed our initial public offering of
common stock, and on July 25, 2006, we acquired American Retirement Corporation, another leading senior living provider
12
that had been operating independently since 1978. On September 1, 2011, we completed the acquisition of Horizon Bay, which
was the then-ninth largest operator of senior living communities in the United States. On July 31, 2014, we completed our
acquisition of Emeritus Corporation through a merger, which was the then-second largest operator of senior living communities
in the United States. Since our acquisition of Emeritus, we have disposed of over 350 communities through sales of owned
communities and terminations of triple-net lease obligations, and exited substantially all of our senior living unconsolidated
venture arrangements. On July 1, 2021, we completed the sale of 80% of our equity in our Health Care Services segment to
HCA Healthcare and retained a 20% equity interest in the HCS Venture.
Segments
As of December 31, 2021, we had three reportable segments: Independent Living; Assisted Living and Memory Care; and
CCRCs. These segments were determined based on the way that our chief operating decision maker organizes our business
activities for making operating decisions, assessing performance, developing strategy, and allocating capital resources. On July
1, 2021, we sold 80% of our equity in the Health Care Services segment. For periods beginning July 1, 2021, the results and
financial position of the Health Care Services segment were deconsolidated from our consolidated financial statements and our
20% equity interest in the Health Care Services venture is accounted for under the equity method of accounting. As of
December 31, 2021, our Management Services operating segment is no longer identified as a reportable segment as a result of
the reduction in the number of communities we manage. Management services operations are reported within the All Other
category.
Communities that we own or lease are included in the Independent Living, Assisted Living and Memory Care, or CCRCs
segment, as applicable. The home health, hospice, and outpatient therapy services provided to our residents and seniors living
outside of our communities were included in the Health Care Services segment prior to July 1, 2021, while skilled nursing and
inpatient healthcare services provided in our skilled nursing units are included in the CCRCs segment. Communities that we
manage on behalf of others are included in the All Other category. The table below shows the number of communities and units
within each of our senior housing segments and the All Other category as of December 31, 2021.
Independent Living
Assisted Living and Memory Care
CCRCs
All Other
Total
Communities
Units
% of Total
Units
Average
Number of
Units per
Community
68
559
19
33
679
12,567
34,816
5,202
4,824
57,409
21.9 %
60.6 %
9.1 %
8.4 %
100.0 %
185
62
274
146
85
For the year ended December 31, 2021, we generated 86.8% of our resident fee revenue from private pay customers, 10.3%
from government reimbursement programs (primarily Medicare) and 2.9% from other payor sources. Our sale of 80% of our
equity in our Health Care Services segment to HCA Healthcare on July 1, 2021 reduced our reliance on government
reimbursement programs. Reimbursements from Medicare and Medicaid represented 5.4% of our consolidated senior housing
segments' resident fee revenue for the year ended December 31, 2021. Approximately 93.2% of resident fee revenue was
derived from our senior housing segments, of which 54.4% of our resident fee revenue was generated from owned communities
and 38.8% was generated from leased communities. Our former Health Care Services segment generated 6.8% of resident fee
revenue. The table below shows the percentage of our resident fee and management fee revenue attributable to each of our
segments for the year ended December 31, 2021.
(in thousands)
Independent Living
Assisted Living and Memory Care
CCRCs
Health Care Services
All Other
Total resident fee and management fee revenue
Resident Fee and
Management Fee Revenue
% of Total
475,538
1,589,721
304,425
174,164
20,598
2,564,446
18.5 %
62.0 %
11.9 %
6.8 %
0.8 %
100.0 %
$
$
13
Further operating results and financial metrics from our three reportable segments are discussed further in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 21 to our consolidated
financial statements contained in "Item 8. Financial Statements and Supplementary Data."
Our Community Offerings
We offer a variety of senior living communities in locations across the United States. We operate and manage independent
living, assisted living, and memory care communities, and CCRCs. The majority of our units are organized in campus-like
settings or stand-alone communities offering multiple service levels.
Independent Living Communities
Our independent living communities are primarily designed for middle to upper income seniors who desire to live in a
residential setting that feels like home, without the efforts of ownership. Some of our independent living residents choose to
relocate to a community in a metropolitan area that is closer to their adult children. The majority of our independent living
communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place
by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing
needs. While the number varies depending upon the particular community, as of December 31, 2021 approximately 80% of all
of the units at our independent living communities were independent living units, with the balance of the units operating as
licensed assisted living and memory care units.
Our independent living communities are generally large multi-story buildings with extensive common areas and amenities to
support the lifestyle preferences of more independent seniors. Residents may choose from studio, one-bedroom, and two-
bedroom units, depending upon the specific community. Each independent living community provides residents with basic
services such as dining service options, 24-hour emergency response, housekeeping, education and wellness programs, and
recreational activities. Most of these communities also offer custom tailored concierge and personal assistance/private duty
services at an additional charge, which may include medication reminders, daily check-in, transportation, shopping, escort, and
companion services.
In addition to the basic services, our independent living communities that include assisted living also provide residents with
personal care and convenience service options to provide assistance with activities of daily living ("ADLs"). The levels of care
provided to residents vary from community to community depending, among other things, upon the licensing requirements and
healthcare regulations of the state in which the community is located.
Residents in our independent living communities are able to maintain their residency for an extended period of time due to the
range of service options available (not including skilled nursing). Residents with cognitive or physical frailties and higher level
service needs can often be accommodated with supplemental services in their own units or, in certain communities, are cared
for in a more structured and supervised environment on a separate wing or floor. These communities also generally have
dedicated assisted living associates and separate assisted living dining rooms and activity areas.
Assisted Living and Memory Care Communities
Our assisted living and memory care communities offer housing and 24-hour assistance with ADLs for our residents. Residents
typically enter an assisted living or memory care community due to a relatively immediate need for services that may have been
triggered by a medical event. Our assisted living and memory care communities include both freestanding, multi-story
communities with more than 50 units, as well as smaller, freestanding, single story communities. Although building layouts will
vary depending on specific location, the community may include (i) private studio, one-bedroom, and one-bedroom deluxe
apartments, or (ii) individual rooms for one or two residents in wings or "neighborhoods" scaled to a single-family home, that
would include a living room, dining room, patio or enclosed porch, laundry room, and personal care area, as well as a caregiver
work station.
We also provide memory care services at freestanding memory care communities that are specifically designed for residents
with dementia, including Alzheimer's disease and other forms of cognitive impairment. Our freestanding memory care
communities average 39 units and some are part of a campus-like setting which includes a freestanding assisted living
community. As of December 31, 2021, we provide memory care services at 341 of our communities, aggregating 9,065
memory care units across our segments. These communities include 109 freestanding memory care communities with 4,249
units included in our Assisted Living and Memory Care segment.
14
All residents at our assisted living and memory care communities are eligible to receive the basic care level, which includes
ongoing health assessments, three meals per day and snacks, coordination of special diets planned by a registered dietitian, 24-
hour staff assistance, assistance with medical care coordination, education and wellness programs, social and recreational
activities providing socialization and engagement, housekeeping, and personal laundry services. In some locations, we offer our
residents exercise programs and programs designed to address needs associated with early stages of Alzheimer's disease and
other dementias. For an additional cost at these communities, we offer higher levels of personal care services to residents who
are more physically frail or require more frequent or intensive physical assistance or increased personal care and supervision
due to cognitive impairments.
As a result of their progressive cognitive decline, residents at our memory care units typically require higher levels of personal
care and services than in assisted living and therefore pay higher monthly service fees. Specialized services include assistance
with ADLs, behavior management, and an activities program, the goal of which is to provide a normalized environment that
supports residents' decreased functional abilities.
CCRCs
Our CCRCs are large communities that offer a variety of living arrangements and services to accommodate a broad spectrum of
physical ability and healthcare needs. Most of our CCRCs have independent living, assisted living, memory care, and skilled
nursing available on one campus or within the immediate area. Our CCRC residents are generally seniors seeking a community
offering a broad continuum of care enabling them to age-in-place. Generally, these residents will initially enter the community
as independent living residents and may, at a later time, advance into an assisted living, memory care, or skilled nursing area as
their needs change. Residents can also enter the CCRC communities directly into assisted living, memory care, or skilled
nursing and, in some cases, may enter via the skilled nursing product line following an acute event and subsequently transfer
from the skilled nursing unit to one of the other on-campus service lines.
Management Services
As of December 31, 2021, we managed a total of 33 communities (4,824 units) on behalf of others, which represented
approximately 8% of our senior housing capacity. Under our management arrangements, we receive management fees, which
are generally determined by an agreed upon percentage of gross revenues (as defined in the management arrangement), as well
as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners. Generally
either party to our management arrangements may terminate upon the occurrence of an event of default caused by the other
party, generally subject to cure rights. Several long-term agreements also provide for early termination rights of the owner
which may in some cases require an early termination fee.
Competitive Strengths
We believe our nationwide network of senior living communities is well positioned to benefit from the growth and increasing
demand in the industry. Some of our most significant competitive strengths are:
•
•
•
•
Skilled management team with extensive experience. Our senior management team has extensive experience in the senior
living industry, including operating and managing a broad range of senior living assets, and related healthcare, hospitality,
and real estate experience.
Geographically diverse, high-quality, purpose-built communities. As of December 31, 2021, we operated a nationwide
base of 679 communities in 41 states.
Ability to provide a broad spectrum of care. Given our diverse mix of independent living, assisted living, memory care, and
CCRCs communities, we are able to meet a wide range of our customers' needs. Through our comprehensive network of
services, we help to provide seniors with care and services to support their lifestyle in an environment that feels like home.
We believe that we are one of the few companies in the senior living industry with this capability and the ability to do so at
scale on a national basis. We believe that our multiple product offerings create marketing synergies and cross-selling
opportunities.
The size of our business allows us to realize cost and operating efficiencies. We are the largest operator of senior living
communities in the United States based on total capacity. The size of our business allows us to realize cost savings and
economies of scale in the procurement of goods and services. Our scale also allows us to achieve increased efficiencies
with respect to various corporate functions. We intend to continue utilizing our expertise and size to capitalize on
economies of scale resulting from our national platform to enhance our residents' experiences. Our geographic footprint
15
and centralized infrastructure provide us with an operational advantage. We negotiate contracts for food, insurance, and
other goods and services with the advantages that scale provides. In addition, we have and will continue to leverage our
centralized corporate functions such as finance, human resources, legal, information technology, and marketing.
Seasonality
Our senior housing business has typically experienced some seasonality, which we experience in certain regions more than
others, due to weather patterns, geography, and higher incidence and severity of flu and other illnesses during winter months.
Although our seasonal pattern varies from year to year and occupancy patterns have been affected by the COVID-19 pandemic,
historically our average monthly occupancy has generally begun to decline sequentially toward the end of the fourth quarter of
the year, and we have generally expected average monthly occupancy to begin to increase towards the end of the second quarter
each year with the third quarter historically being the highest occupancy growth period of the year. Utility expenses trend
seasonally high in the first quarter and third quarter of each year. Facility operating expenses, such as labor, food, and supplies
also trend higher in the second half of the year compared with the first half due to an increased number of working days.
Operations
Operations Overview
We have implemented intensive standards, policies and procedures, and systems, including detailed associate resources and
training, which we believe have contributed to high levels of customer service. Further, we believe our centralized support
infrastructure allows our community-based leaders and personnel to focus on resident care and family connections.
Consolidated Corporate Operations Support
We have developed a centralized support infrastructure and services platform, which we believe provides us with a significant
operational advantage over local and regional operators of senior living communities. The size of our business also allows us to
achieve increased efficiencies with respect to various corporate functions such as procurement, human resources, finance,
accounting, legal, information technology, and marketing. We are also able to realize cost efficiencies in the purchasing of food,
supplies, insurance, benefits, and other goods and services. In addition, we have established centralized operations groups to
support all of our product lines and communities in areas such as training, regulatory affairs, asset management, dining, clinical
services, sales, customer engagement, marketing, and procurement. We have also established company-wide policies and
procedures relating to, among other things: resident care; community design and community operations; billing and collections;
accounts payable; finance and accounting; risk management; development of associate training materials and programs;
advertising and marketing activities; the hiring and training of management and other community-based personnel; compliance
with applicable local and state regulatory requirements; and implementation of our acquisition, development, and leasing plans.
Community Staffing and Training
Each community has an Executive Director responsible for the overall day-to-day operations of the community, including
quality of care and service, social services, and financial performance. Each Executive Director receives specialized training
from our learning and development associates. In addition, a portion of each Executive Director's compensation is directly tied
to the operating performance of the community. We continue to take actions intended to simplify the role of our Executive
Director to allow them to focus on our residents and their families and our associates. We believe that the quality of our
communities, coupled with support provided by the regional support infrastructure and our ability to provide industry-leading
systems and training, has enabled us to attract high-quality, professional community Executive Directors.
Depending upon the size and type of the community, each Executive Director is supported by key leaders, a Health and
Wellness Director (or nursing director), and/or a Sales Director. The Health and Wellness Director or nursing director is
directly responsible for day-to-day care of residents. The Sales Director oversees the community's sales, marketing, and
community outreach programs. Other key positions supporting each community may include individuals responsible for food
service, healthcare services, activities, housekeeping, and maintenance.
We believe that quality of care and operating efficiency can be maximized by direct resident and associate contact. Associates
involved in resident care, including administrative associates, are trained in support and care protocols, including emergency
response techniques. We have adopted formal training and evaluation procedures to help ensure quality care for our residents.
We have extensive policy and procedure manuals and hold regular training sessions for management and non-management
associates at each community.
16
Quality Assurance
We maintain quality assurance programs at each of our communities through our corporate and regional associates. Our quality
assurance programs are designed to achieve a high degree of resident and family member satisfaction through the care and
services that we provide and we have continued to transform our efforts throughout the pandemic through collaboration with
our vendors and a combination of remote and in-person visits. Our quality control measures include, among other things,
community inspections conducted by corporate associates on a regular basis. These inspections cover the appearance of the
exterior and grounds; the appearance and cleanliness of the interior; the professionalism and friendliness of associates; quality
of resident care (including assisted living services and nursing care); the quality of activities and the dining program;
observance of residents in their daily living activities; and compliance with government regulations. Our quality control
measures also include the survey of residents and family members on a regular basis to monitor their perception of the quality
of services we provide to residents.
In order to foster a sense of belonging and engagement, as well as to respond to residents' needs and desires, at many of our
communities, we have established a resident council or other resident advisory committees that meet at least monthly with the
Executive Director of the community. Separate resident committees also exist at many of these communities for food service,
activities, marketing, and hospitality. These committees promote resident involvement and satisfaction and enable community
management to be more responsive to their residents' needs and desires.
Marketing and Sales
Our marketing efforts are intended to create awareness of our brand and services to educate prospects and referral sources about
the Brookdale difference. We meet prospects where they are in their journey, whether they are learning about senior living for
the first time or need to schedule a visit at one of our communities. We target a variety of audiences who have a role in the
decision-making process for senior housing and our healthcare services, including potential residents, their family members and
referral sources, including the medical community (hospital discharge planners, physicians, skilled nursing facilities, home
health agencies, and social workers), professional organizations, employer groups, clergy, area agencies for the elderly, and
paid referral organizations. Our marketing associates develop strategies to promote our communities at the local market and
national level. We execute an integrated marketing campaign approach, including local media and outreach programs, digital
advertising, social media, print advertising, e-mail, direct mail, and special events, such as health fairs and community
receptions. All online forms and many calls are handled by trained senior living advisors in our Brookdale Connection Center,
who schedule visits directly to our communities. Certain resident referral programs have been established and promoted at
many communities within the limitations of federal and state laws.
We will continue to leverage and grow our Brookdale brand to win locally in the markets we serve. In many markets where we
offer more choices for senior living based on budget, lifestyle, and care needs, we use a network selling methodology to educate
prospects on all of the options available. With our selling model, sales associates are organized to support individual and
multiple communities directly. To meet the needs of local demand and supply, we create differentiated value through the
segmentation of our communities based on price, service offerings, amenities, and programs offered.
Human Capital Resources
Our Associates
We are dedicated to enriching the lives of those we serve with compassion, respect, excellence, and integrity. We know that our
success is dependent on attracting, engaging, developing, and retaining the best associates. As of December 31, 2021, we
employed approximately 33,000 associates, 73% of whom were full-time. Approximately 700 associates work in or for our
Brentwood, Tennessee headquarters and Milwaukee, Wisconsin office, supporting our community-based associates. As of
December 31, 2021, approximately 80% of our associates are women, who comprise approximately 70% of the leadership roles
at our communities and corporate offices. Approximately 55% of our associates and 15% of individuals in our leadership roles
are people of color.
During 2021, approximately 4,000 associates who worked directly for, or provided corporate support to, our former Health
Care Services segment were transitioned to HCA Healthcare in connection with the HCS Sale. We also experienced pressures
associated with the intensely competitive labor environment. We seek to ensure that our communities are staffed with full and
part-time associates, though our use of more expensive contract labor and overtime has increased to cover open positions. We
have increased our recruiting efforts to fill open positions, reviewed wage rates in all of our markets, made appropriate
adjustments, and will monitor to remain competitive.
17
Inclusion and Diversity
To attract and retain associates, we are committed to maintaining a welcoming and inclusive environment where people have an
equal chance to grow and succeed. We support our associates by providing an open door policy, offering training to help our
people grow and to understand our commitment to providing a workplace free from discrimination and harassment, consistently
enforcing our policies, and maintaining the expectation that all our associates will be treated with dignity and respect.
Brookdale is committed to inclusion and diversity – built on a foundation of trust, partnership, courage, and passion. We define
diversity as the representation of associates from different groups, ideas, perspectives, and values. We define inclusion as a
culture of policies and practices that actively engages and provides each of our associates with the opportunity to be successful
at Brookdale.
We believe an inclusive and diverse culture can help achieve our mission by:
•
•
Attracting and retaining the best talent by recruiting from a broad array of backgrounds for all levels of the organization
and investing in our talent;
Increasing growth, productivity, and engagement by fostering a workplace where all associates feel valued and contribute
to their fullest potential;
• Making Brookdale the place for top talent, driving outstanding service for our residents, and increasing stockholder value;
and
Equipping our associates with resources to serve the changing demographics and needs of residents.
•
Talent Acquisition, Development, and Retention
We want to attract people who want to do challenging yet rewarding work and who want to make a difference in the lives of
others. We want our associates to feel valued and to know they make an impact that stretches beyond the walls of the
communities and offices. In order to attract high quality talent, we offer competitive wages and benefits as well as opportunities
to grow a career at Brookdale through education, training, and on-the-job development experiences.
Recruitment strategies
In order to attract people who want to do challenging yet rewarding work, we use a variety of strategies to attract and hire
diverse talent to our organization. For example, in 2021, we implemented an assessment solution for our sales manager and
director positions. This assessment provides additional insight to hiring managers to use during the interview and selection
process. To support hiring managers in our communities, we published unique toolkits and resources and made systems
improvements to simplify and enhance local sourcing and recruiting processes. We also deployed additional market-based
recruiters and launched a range of recruiting campaigns to support our communities’ hiring needs such as rehire campaigns to
encourage former associates to come back to Brookdale. Additionally, we continue to post to and source from job sites created
for under-represented groups to expand our pipeline of candidates.
Development
We offer learning opportunities for our associates when they join Brookdale and throughout their careers to better serve our
residents and to grow their career. Within the first year of implementing our new iLearn platform, which provides associates
access to continuing education courses, leadership and professional skill courses, and regulatory training, our associates
completed over 1.9 million courses. Our Brookdale University provides training and leadership development for leaders across
the organization. Our learning and development programs were recognized in 2021 when Brookdale was named, for the second
year in a row, one of the elite Training APEX Awards winners by Training magazine. Additionally, in 2021, we launched a 6-
month long new leader program. This program helps equip new leaders with the skills they need to lead their teams effectively.
Over 1,400 leaders across different races, ages, and backgrounds were enrolled in 2021. Of those enrolled, 926 were women,
498 were people of color, and 20 identified as veterans; over half of the associates were over the age of 40.
In 2021, we welcomed our first Certified Nursing Assistant apprentices in New Jersey as part of our ongoing efforts to provide
career opportunities for front-line associates. We intend to further pursue this and other apprenticeship opportunities in the
future. We also offer a tuition reimbursement program for associates to continue to grow their careers.
18
Retention
We believe the performance of our individual communities and of our company as a whole, are correlated to retention of our
key community leaders and our corporate associates. Our 2021 annual incentive plan included the strategic objectives of
retaining key community leadership (Executive Directors, Health and Wellness Directors, and Sales Directors) at our same
community portfolio and retaining our corporate associates. For the year ended December 31, 2021, our retention of key
community leaders in our same community portfolio was 65%, and our retention of corporate associates was 81% excluding in
both cases departures directly related to enforcement of our associate vaccination requirement.
Total Rewards
To attract and retain the best associates, we offer a competitive total rewards program, which we believe is an important aspect
of our overall compensation. Both full-time and part-time associates are offered benefits, including a 401(k) retirement savings
plan with the opportunity for matching contributions, as well as medical, dental, and other types of insurance. In 2021,
approximately half of our eligible full-time associates participated in our medical plans.
We also know maintaining overall well-being is important, which is why we offer benefits to cover a spectrum of needs.
Associates enrolled in a Brookdale medical plan, for example, are eligible to participate in a free coach-led digital program for
chronic back, knee, or hip pain. They also are able to use a mobile phone application to help individuals process and cope with
life’s challenges, for free. Brookdale also recognizes the importance of financial wellbeing, which is why we offer access to a
financial wellness program for all associates.
Industry Regulation
The regulatory environment surrounding the senior living industry continues to intensify in the number and type of laws and
regulations affecting it. Federal, state, and local officials are increasingly focusing their efforts on enforcement of these laws
and regulations. This is particularly true for large for-profit, multi-community providers like us. Some of the laws and
regulations that impact our industry include: state and local laws impacting licensure, protecting consumers against deceptive
practices, and generally affecting the communities' management of property and equipment and how we otherwise conduct our
operations, such as fire, health, safety, and privacy laws and regulations; federal and state laws governing Medicare and
Medicaid, which regulate allowable costs, pricing, quality of services, quality of care, food service, resident rights (including
abuse and neglect) and fraud; federal and state residents' rights statutes and regulations; anti-kickback and physician self-
referral ("Stark") laws; safety and health standards set by the Occupational Safety and Health Administration; and federal, state,
and local employment-related laws and regulations. We are unable to predict the future course of federal, state, and local
legislation or regulation. Changes in the regulatory framework could have a material adverse effect on our business.
Many senior living communities are also subject to regulation and licensing by state and local health and social service agencies
and other regulatory authorities. Although requirements vary from state to state, these requirements may address, among others,
the following: personnel education, training, and records; community services; staffing; physical plant specifications; furnishing
of resident units; food and housekeeping services; emergency evacuation plans; emergency power generator requirements;
professional licensing and certification of staff; and resident rights and responsibilities. In several of the states in which we
operate there are different levels of care that may be provided based on the level of licensure. In several of the states in which
we operate, or intend to operate, assisted living and memory care communities or skilled nursing facilities require a certificate
of need before a community may be opened or the services at an existing community may be expanded. Senior living
communities may also be subject to state and/or local building, zoning, fire, and food service codes and must be in compliance
with these local codes before licensing or certification may be granted. These laws and regulatory requirements could affect our
ability to expand into new markets and to expand our services and communities in existing markets.
Unannounced surveys or inspections may occur annually, bi-or tri-annually, following a regulator's receipt of a complaint about
a provider. From time to time in the ordinary course of business, we receive survey reports from state or federal regulatory
bodies citing deficiencies resulting from such inspections or surveys. Most inspection deficiencies are resolved through a plan
of corrective action relating to the community's operations, but the reviewing agency may have the authority to take further
action against a licensed or certified community, which could result in the imposition of fines, imposition of a provisional or
conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider
under federal and/or state reimbursement programs, or imposition of other sanctions, including criminal penalties. Loss,
suspension, or modification of a license may also cause us to default under our debt and lease documents and/or trigger cross-
defaults. Sanctions may be taken against providers or facilities without regard to the providers' or facilities' history of
compliance. We may also expend considerable resources to respond to federal and state investigations or other enforcement
19
action under applicable laws or regulations. To date, none of the deficiency reports received by us has resulted in a suspension,
fine, or other disposition that has had a material adverse effect on our revenues, results of operations, or cash flows. However,
any future substantial failure to comply with any applicable legal and regulatory requirements could result in a material adverse
effect to our business as a whole. In addition, states' Attorneys General vigorously enforce consumer protection laws as those
laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living and memory
care communities even if the community or any of its residents do not receive federal or state funds.
Regulation of the senior living industry is evolving at least partly because of the growing interests of a variety of advocacy
organizations and political movements attempting to standardize regulations for certain segments of the industry, particularly
assisted living and memory care. Our operations could suffer from future regulatory developments, such as federal assisted
living and memory care laws and regulations, as well as mandatory increases in the scope and severity of deficiencies
determined by survey or inspection officials or an increase in the number of citations that can result in civil or criminal
penalties. Certain current state laws and regulations allow enforcement officials to make determinations on whether the care
provided by one or more of our communities exceeds the level of care for which the community is licensed. Furthermore,
certain states may allow citations in one community to impact other communities in the state. Revocation or suspension of a
license, or a citation, at a given community could therefore impact our ability to obtain new licenses or to renew existing
licenses at other communities, which may also cause us to be in default under our loan or lease agreements and trigger cross-
defaults or may also trigger defaults under certain of our credit agreements, or adversely affect our ability to operate and/or
obtain financing in the future. If a state were to find that one community's citation will impact another of our communities, this
will also increase costs and result in increased surveillance by the state survey agency. If regulatory requirements increase,
whether through enactment of new laws or regulations or changes in the enforcement of existing rules, including increased
enforcement brought about by advocacy groups, in addition to federal and state regulators, our operations could be adversely
affected. Any adverse finding by survey and inspection officials may serve as the basis for false claims lawsuits by private
plaintiffs and may lead to investigations under federal and state laws, which may result in civil and/or criminal penalties against
the community or individual.
There are various extremely complex federal and state laws governing a wide array of referrals, relationships, and arrangements
and prohibiting fraud by healthcare providers, including those in the senior living industry, and governmental agencies are
devoting increasing attention and resources to such anti-fraud initiatives. The Health Insurance Portability and Accountability
Act of 1996, or HIPAA, and the Balanced Budget Act of 1997 expanded the penalties for healthcare fraud. With respect to our
participation in federal healthcare reimbursement programs, the government or private individuals acting on behalf of the
government may bring an action under the False Claims Act alleging that a healthcare provider has defrauded the government
and seek treble damages for false claims and the payment of additional monetary civil penalties. The False Claims Act allows a
private individual with knowledge of fraud to bring a claim on behalf of the federal government and earn a percentage of the
federal government's recovery. Because of these incentives, so-called "whistleblower" suits have become more frequent.
Additionally, since we operate communities that participate in federal and/or state healthcare reimbursement programs, we are
subject to federal and state laws that prohibit anyone from presenting, or causing to be presented, claims for reimbursement
which are false, fraudulent, or are for items or services that were not provided as claimed. Similar state laws vary from state to
state. Violation of any of these laws can result in loss of licensure, citations, sanctions, and other criminal or civil fines and
penalties, the refund of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid
programs, which may also cause us to default under our debt and lease documents and/or trigger cross-defaults.
We are subject to certain federal and state laws that regulate financial arrangements by healthcare providers, such as the federal
Anti-Kickback Statute, the Stark laws, and certain state referral laws. The federal Anti-Kickback Statute makes it unlawful for
any person to offer or pay (or to solicit or receive) "any remuneration ... directly or indirectly, overtly or covertly, in cash or in
kind" for referring or recommending for purchase any item or service which is eligible for payment under the Medicare and/or
Medicaid programs. Authorities have interpreted this statute very broadly to apply to many practices and relationships between
healthcare providers and sources of patient referral. If we were to violate the federal Anti-Kickback Statute, we may face
criminal penalties and civil sanctions, including fines and possible exclusion from government reimbursement programs, which
may also cause us to default under our debt and lease documents and/or trigger cross-defaults. Adverse consequences may also
result if we violate federal Stark laws related to certain Medicare and Medicaid physician referrals. While we endeavor to
comply with all laws that regulate the licensure and operation of our business, it is difficult to predict how our revenues could
be affected if we were subject to an action alleging such violations.
We are subject to federal and state laws designed to protect the confidentiality of patient health information. The United States
Department of Health and Human Services has issued rules pursuant to HIPAA relating to the privacy of such information.
Rules that became effective in 2003 govern our use and disclosure of health information at certain HIPAA covered
communities. We established procedures to comply with HIPAA privacy requirements at these communities. We were required
20
to be in compliance with the HIPAA rule establishing administrative, physical, and technical security standards for health
information by 2005. To the best of our knowledge, we are in compliance with these rules. In addition, states have begun to
enact more comprehensive privacy laws and regulations addressing consumer rights to data protection or transparency. For
example, the California Consumer Privacy Act became effective in 2020 and the California Privacy Rights Act, Colorado
Privacy Act, and Virginia Consumer Data Protection Act will become effective in 2023. We expect additional federal and state
legislative and regulatory efforts to regulate consumer privacy protection in the future. These legislative and regulatory
developments will impact the design and operation of our business and our privacy and security efforts.
We are subject to federal and state laws, regulations and executive orders relating to healthcare providers’ response to the
COVID-19 pandemic. These requirements vary based on provider type and jurisdiction but generally may include mandatory
requirements for vacation of staff, testing of residents and/or staff, providing COVID-19 related paid leave, implementation of
infection control standards and procedures, imposition of restrictions on new admissions or readmissions of residents, required
screening of all persons entering a community, imposition of restrictions or limitations on who and how residents may be
visited, and imposition of mandatory notification requirements to residents, families, staff, and regulatory bodies related to
positive COVID-19 cases. Enhanced or additional penalties may apply for violation of such requirements. For more information
regarding the impacts of such regulation on our senior housing portfolio, see the COVID-19 pandemic update in Recent
Developments above.
We are also subject to a wide variety of federal, state, and local employment-related laws and regulations which govern matters
including, but not limited to, wage and hour requirements, equal employment opportunity obligations, leaves of absence and
reasonable accommodations, employee benefits, the right of employees to engage in protected concerted activity (including
union organizing), and occupational health and safety requirements. Because labor represents such a large portion of our
operating expenses, changes in federal, state, and local employment-related laws and regulations could increase our cost of
doing business. Furthermore, any failure to comply with these laws can result in significant protracted litigation, government
investigation, penalties, or other damages which could harm our reputation and have a material adverse effect on our business.
Medicare and Medicaid Programs
Our sale of 80% of our equity in our Health Care Services segment to HCA Healthcare on July 1, 2021 reduced our reliance on
government reimbursement programs. We continue to rely on reimbursement from the Medicare and Medicaid programs for a
portion of our revenues in our senior housing segments. Reimbursements from Medicare and Medicaid represented 1.9% and
3.5%, respectively, of our consolidated senior housing segments' resident fee revenue for the year ended December 31, 2021.
Medicare and Medicaid reimbursements represented 18.8% of our CCRCs segment's resident fee revenue during such period.
Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over and
certain disabled persons. We receive revenue for our skilled nursing services from Medicare. Medicaid is a medical assistance
program administered by each state, funded with federal and state funds pursuant to which healthcare benefits are available to
certain indigent or disabled patients. We receive reimbursements under Medicaid (including state Medicaid waiver programs)
for many of our assisted living and memory care communities.
Reimbursement levels under the Medicare and Medicaid programs may not remain at levels comparable to present levels or
may not be sufficient to cover the costs allocable to patients eligible for reimbursement. Medicare reimbursement for skilled
nursing services is subject to fixed payments under the Medicare prospective payment systems. In accordance with Medicare
laws, CMS makes annual adjustments to Medicare payment rates in many prospective payment systems under what is
commonly known as a "market basket update." The Improving Medicare Post-Acute Care Transformation Act of 2014 (the
"IMPACT Act") requires standardized assessment data for quality improvement, payment, and discharge planning purposes
across the spectrum of post-acute care, including skilled nursing. The IMPACT Act will require skilled nursing facilities to
begin reporting standardized patient assessment data, new quality measures, and resource use measures. Failure to report such
data when required would subject a facility to a 2% reduction in market basket prices then in effect. The IMPACT Act further
requires HHS and the Medicare Payment Advisory Commission to study and report to Congress by 2022 regarding alternative
post-acute care payment models, including payment based upon individual patient characteristics and not care setting.
Medicaid reimbursement rates for many of our assisted living and memory care communities also are based upon fixed
payment systems. Generally, these rates are adjusted annually for inflation. However, those adjustments may not reflect actual
increases of the cost of providing healthcare services. In addition, Medicaid reimbursement can be impacted negatively by state
budgetary pressures, which may lead to reduced reimbursement or delays in receiving payments.
The Medicare and Medicaid reimbursement programs are highly regulated, involve significant administrative discretion, and
are subject to frequent and substantial legislative, administrative, and interpretive changes, which may significantly affect
21
reimbursement rates and the methods and timing of payments made under these programs. As a result of our participation in
such programs, we are subject to government reviews, audits, and investigations to verify compliance with these programs and
applicable laws and regulations. CMS has engaged third-party firms to review claims data to evaluate appropriateness of
billings. In addition to identifying overpayments, audit contractors can refer suspected violations to government authorities. An
adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil fines and penalties, the refund
of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid programs.
Environmental Matters
Under various federal, state, and local environmental laws, a current or previous owner or operator of real property, such as us,
may be held liable in certain circumstances for the costs of investigation, removal, or remediation of certain hazardous or toxic
substances, including, among others, petroleum and materials containing asbestos, that could be located on, in, at, or under a
property, regardless of how such materials came to be located there. Additionally, such an owner or operator of real property
may incur costs relating to the release of hazardous or toxic substances, including government fines and payments for personal
injuries or damage to adjacent property. The cost of any required investigation, remediation, removal, mitigation, compliance,
fines, or personal or property damages and our liability therefore could exceed the property's value and/or our assets' value. The
presence of such substances, or the failure to properly dispose of or remediate the damage caused by such substances, may
adversely affect our ability to sell such property, to attract additional residents, retain existing residents, to borrow using such
property as collateral, or to develop or redevelop such property. Such laws impose liability for investigation, remediation,
removal, and mitigation costs on persons who disposed of or arranged for the disposal of hazardous substances at third-party
sites. Such laws and regulations often impose liability without regard to whether the owner or operator knew of, or was
responsible for, the presence, release, or disposal of such substances as well as without regard to whether such release or
disposal was in compliance with law at the time it occurred. Moreover, the imposition of such liability upon us could be joint
and several, which means we could be required to pay for the cost of cleaning up contamination caused by others who have
become insolvent or otherwise judgment proof. We do not believe that we have incurred such liabilities that would have a
material adverse effect on our business, financial condition, results of operations, and cash flow.
Our operations are subject to regulation under various federal, state, and local environmental laws, including those relating to:
the handling, storage, transportation, treatment, and disposal of medical waste products generated at our communities;
identification and warning of the presence of asbestos-containing materials in buildings, as well as removal of such materials;
the presence of other substances in the indoor environment; and protection of the environment and natural resources in
connection with development or construction of our properties.
Some of our communities generate infectious or other hazardous medical waste due to the illness or physical condition of the
residents, including, for example, blood-contaminated bandages, swabs and other medical waste products, and incontinence
products of those residents diagnosed with an infectious disease. The management of infectious medical waste, including its
handling, storage, transportation, treatment, and disposal, is subject to regulation under various federal, state, and local
environmental laws. These environmental laws set forth the management requirements for such waste, as well as related permit,
record-keeping, notice, and reporting obligations. Our communities' engagement of waste management companies for the
proper disposal of all infectious medical waste does not immunize us from alleged violations of such medical waste laws for
operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us
from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed. Any finding that we are
not in compliance with environmental laws could adversely affect our business, financial condition, results of operations, and
cash flow.
Federal regulations require building owners and those exercising control over a building's management to identify and warn, via
signs and labels, their employees and certain other employers operating in the building of potential hazards posed by workplace
exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. The
regulations also set forth employee training, record-keeping requirements, and sampling protocols pertaining to asbestos-
containing materials and potential asbestos-containing materials. Significant fines can be assessed for violation of these
regulations. Building owners and those exercising control over a building's management may be subject to an increased risk of
personal injury lawsuits by workers and others exposed to asbestos-containing materials and potential asbestos-containing
materials. The regulations may affect the value of a building containing asbestos-containing materials and potential asbestos-
containing materials in which we have invested. Federal, state, and local laws and regulations also govern the removal,
encapsulation, disturbance, handling, and/or disposal of asbestos-containing materials and potential asbestos-containing
materials when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a
building. Such laws may impose liability for improper handling or a release to the environment of asbestos-containing materials
and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or
22
operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and
potential asbestos-containing materials.
The presence of mold, lead-based paint, contaminants in drinking water, radon, and/or other substances at any of the
communities we own or may acquire may lead to the incurrence of costs for remediation, mitigation, or the implementation of
an operations and maintenance plan. Furthermore, the presence of mold, lead-based paint, contaminants in drinking water,
radon, and/or other substances at any of the communities we own or may acquire may present a risk that third parties will seek
recovery from the owners, operators, or tenants of such properties for personal injury or property damage. In some
circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after successful remediation,
the known prior presence of extensive mold could adversely affect the ability of a community to retain or attract residents and
could adversely affect a community's market value.
We believe that we are in material compliance with applicable environmental laws. We are unable to predict the future course
of federal, state, and local environmental regulation and legislation. Changes in the environmental regulatory framework
(including legislative or regulatory efforts designed to address climate change) could have a material adverse effect on our
business. Because environmental laws vary from state to state, expansion of our operations to states where we do not currently
operate may subject us to additional restrictions on the manner in which we operate our communities.
Available Information
Information regarding our community and service offerings can be found at our website, www.brookdale.com. Our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports are
available free of charge through our website as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC, at the following address: www.brookdale.com/investor. The information within, or that can be accessed
through, our website addresses is not part of this report.
23
Item 1A. Risk Factors
Our business faces significant risks and uncertainties. The discussion below addresses the most material factors, of which we
are currently aware, that could affect our business, financial condition, results of operations, cash flow, liquidity, stock price,
and future prospects. However, other factors not currently known to us or that we currently deem immaterial could also
adversely affect our business, financial condition, results of operations, cash flow, liquidity, stock price, and future prospects.
Therefore, the risk factors below should not be considered a complete list of potential risks that we may face. If any of these
risks actually occurs, our business, financial condition, results of operations, cash flow, liquidity, stock price, and future
prospects could be materially and adversely affected.
COVID-19 Pandemic
The COVID-19 pandemic has adversely impacted, and likely will continue to adversely impact, our business, results of
operations, cash flow, liquidity, and stock price, and such impacts may be material.
The pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and us,
has adversely impacted our business, results of operations, cash flow, and liquidity. We expect this adverse impact to continue
into 2023. We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results
of operations, cash flow, liquidity, and stock price, and such impacts may be material and persist for some time. Further, our
response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth.
Due to the average age and prevalence of chronic medical conditions among our residents, they generally are at
disproportionately higher risk of becoming severely ill from COVID-19. Upon confirmation of positive COVID-19 exposure at
a community, we take actions intended to minimize further exposure, including enhanced personal protection protocols,
temporarily isolating residents or finding placement in an alternate care setting to best address their care needs, and in some
cases, restricting new resident admissions as directed by authorities having jurisdiction. We may also restrict visitors at our
communities, screen associates and permitted visitors, suspend group outings or programming, and modify communal dining as
necessary to comply with regulatory requirements or at the direction of authorities having jurisdiction. At the onset of the
pandemic, substantial restrictions at our communities were in place across our portfolio. We began easing restrictions on a
community-by-community basis in July 2020 where regulatory requirements and guidance allowed. As of December 31, 2020,
89% of our communities were open for new resident move-ins. During 2021, various communities experienced restrictions on
new resident move-ins, with a peak of such restrictions occurring in September 2021. As of January 31, 2022, substantially all
of our communities were open for new resident move-ins. We may revert to more restrictive measures at our communities,
including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary
to comply with regulatory requirements, or at the direction of authorities having jurisdiction.
We believe potential residents and their families have been more cautious, or temporarily delayed their decision, regarding
moving into senior living communities during the pandemic, and such caution may persist for some time. From March 2020
through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy. We continue to
execute on key initiatives to rebuild occupancy lost due to the pandemic. In 2021, we achieved ten consecutive months of
weighted average consolidated senior housing occupancy growth on a sequential basis. During the latter half of 2021, we
believe the nationwide spread of the Delta variant caused some moderation in our sequential monthly occupancy growth rate as
some potential residents and their families were more cautious, or temporarily delayed their decision regarding moving into
senior living communities in certain areas as the Delta variant spread. We cannot predict with reasonable certainty when our
occupancy will return to pre-COVID-19 pandemic levels or the extent to which the pandemic’s effect on occupancy may
adversely affect the amount of resident fees we are able to collect from our residents. Our efforts to adapt our sales and
marketing efforts to meet demand may not be successful. In addition, expanded use of telemedicine and home healthcare by
seniors, for which regulatory barriers have been relaxed during the pandemic, may result in less demand for our services.
In the aggregate, for the years ended December 31, 2021 and 2020, and compared to our pre-pandemic expectations for 2020,
we estimate the pandemic has resulted in $660.1 million of lost resident fee revenue, including $556.5 million in our
consolidated senior housing portfolio. In the aggregate, for the years ended December 31, 2021 and 2020, we have incurred
$173.2 million of facility operating expense for incremental direct costs to respond to the pandemic, including $47.7 million for
the year ended December 31, 2021. The direct costs include those for: acquisition of additional personal protective equipment
("PPE"), medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental
sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; and COVID-19
testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are
not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs may continue to be
substantial. We have taken, and may take in future periods, significant impairment charges related to COVID-19 due to lower
24
than expected operating performance at communities. For the years ended December 31, 2021 and 2020, we recorded $23.0
million and $105.6 million, respectively, of non-cash impairment charges in our operating results for our operating lease right-
of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower
than expected operating performance at certain communities.
We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR,
maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-
strategic or underperforming owned assets, and seeking further government-sponsored financial relief related to the COVID-19
pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at
all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or
conditions required to qualify for, any such relief. Grants received from the Provider Relief Fund are subject to the terms and
conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and
will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19 and have not been
reimbursed from other sources or that other sources are not obligated to reimburse. We cannot provide assurance that additional
restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS. The program requires us
to report to HHS on our use of the grants, and our reporting is subject to audit. Additionally, there can be no assurance that we
will qualify for, or receive, future grants in the amounts we expect or at all or the timing of any such grants.
The pandemic has also caused substantial volatility in the market prices and trading volumes in the equity markets, including
our stock. Our stock price and trading volume may continue to be subject to wide fluctuations as a result of the pandemic and
may decline in the future.
The ultimate impacts of COVID-19 on our business, results of operations, cash flow, liquidity, and stock price will depend on
many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any
resurgence or variants of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the
local economies in our markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic
agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial
and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and
satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and
after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to
meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including
due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19;
changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those
residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor,
litigation, testing, vaccination clinic, health plan, and other expenses; potentially greater use of contract labor and overtime due
to COVID-19 and general labor market conditions; the impact of COVID-19 on our ability to complete financings and
refinancings of various assets or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease
payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements,
including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan
participants; increased enforcement actions resulting from COVID-19; government action that may limit our collection or
discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise
due to COVID-19 or our response efforts.
Business, Operations, and Strategy
Due to the dependency of our revenues on private pay sources, events which adversely affect the ability of seniors to
afford our resident fees (including downturns in the economy, housing market, consumer confidence, or the equity
markets and unemployment among resident family members) could cause our occupancy, revenues, results of
operations, and cash flow to decline.
Costs to seniors associated with independent living, assisted living, and memory care communities are not generally
reimbursable under government reimbursement programs such as Medicare and Medicaid. For the year ended December 31,
2021, we generated 93.2% of our consolidated senior housing segments’ resident fee revenue from private pay customers. Only
seniors with income or assets meeting or exceeding the comparable median in the regions where our communities are located
typically can afford to pay our monthly resident fees. Economic downturns, softness in the housing market, higher levels of
unemployment among resident family members, lower levels of consumer confidence, stock market volatility, and changes in
demographics could adversely affect the ability of seniors to afford our resident fees. If we are unable to retain and attract
seniors with sufficient income, assets, or other resources required to pay the fees associated with independent and assisted
living services and other service offerings, our occupancy, revenues, results of operations, and cash flow could decline.
25
Changes in the reimbursement rates, methods, or timing of payment from government reimbursement programs could
adversely affect our revenues, results of operations, and cash flow.
We rely on reimbursement from government programs for a portion of our revenues, primarily in our CCRCs segment. For the
year ended December 31, 2021, Medicare and Medicaid reimbursements represented 18.8% of our CCRCs segment’s resident
fee revenue and 5.4% of our consolidated senior housing segments’ resident fee revenue. We cannot provide assurance that
reimbursement levels will not decrease in the future, which could adversely affect our revenues, results of operations, and cash
flow. Government efforts to reduce medical spending, along with broader healthcare reform, could result in major changes in
the healthcare delivery and reimbursement systems on both the national and state levels, including a reduction in funds
available for our services or increases in our operating costs. Such reimbursement levels may not remain at levels comparable to
present levels or may not be sufficient to cover the costs allocable to patients eligible for reimbursement.
Senior housing construction and development, lower industry occupancy, and increased competition, may have an
adverse effect on our occupancy, revenues, results of operations, and cash flow.
The senior living industry is highly competitive. We compete with numerous organizations, including not-for-profit entities,
that offer similar communities and services, community-based service programs, retirement communities, convalescent centers,
and other senior living providers. In general, regulatory and other barriers to competitive entry in the independent living,
assisted living, and memory care sectors of the senior living industry are not substantial. The industry has attracted additional
investment resulting in increased construction and development of new senior housing supply. In addition, the COVID-19
pandemic has resulted in additional occupancy pressure for our industry, and industry data shows that nearly all markets had
fallen to record low occupancy by the first quarter of 2021. While the industry recovers occupancy, certain competitors may
price aggressively in order to capture market share. Consequently, we may encounter competition that could limit our ability to
attract and retain residents and associates, raise or maintain resident fees, and expand our business, which could have a material
adverse effect on our occupancy, revenues, results of operations, and cash flow.
The geographic concentration of our communities could leave us vulnerable to an economic downturn, regulatory
changes, acts of nature, or the effects of climate change in those areas, which could negatively impact our financial
condition, revenues, results of operations, and cash flow.
We have a high concentration of communities in various geographic areas, including the states of California, Florida, and
Texas. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental
regulations, acts of nature, and other factors that may result in a decrease in demand for senior living services in these areas
could have an adverse effect on our financial condition, revenues, results of operations, and cash flow. Given the location of our
communities, we are particularly susceptible to revenue loss, cost increase, or damage caused by severe weather conditions or
natural disasters such as hurricanes, wildfires, earthquakes, or tornados. Any significant loss due to a natural disaster may not
be covered by insurance and may lead to an increase in the cost of insurance or unavailability on acceptable terms. Climate
change may also have effects on our business by increasing the cost of property insurance or making coverage unavailable on
acceptable terms. To the extent that significant changes in the climate occur in areas where our communities are located, we
may experience increased frequency of severe weather conditions or natural disasters or other changes to weather patterns, all
of which may result in physical damage to or a decrease in demand for properties affected by these conditions. Should the
impact of climate change be material in nature or occur for lengthy periods of time, our financial condition, revenues, results of
operations, or cash flow may be adversely affected. In addition, government regulation intended to mitigate the impact of
climate change, severe weather patterns, or natural disasters could result in additional required capital expenditures to comply
with such regulation without a corresponding increase in our revenues.
Termination of our resident agreements and vacancies in the living spaces we lease could adversely affect our
occupancy, revenues, results of operations, and cash flow.
State regulations governing assisted living and memory care communities require written resident agreements with each
resident. Several of these regulations also require that each resident have the right to terminate the resident agreement for any
reason on reasonable notice. Consistent with these regulations, many of our assisted living and memory care resident
agreements allow residents to terminate their agreements upon 30 days' or less notice. Our independent living resident
agreements generally provide for termination of the lease upon death or allow a resident to terminate his or her lease upon the
need for a higher level of care not provided at the community. If multiple residents terminate their resident agreements at or
around the same time, including as a result of the COVID-19 pandemic, our occupancy, revenues, results of operations, and
cash flow could be adversely affected. In addition, because of the demographics of our typical residents, including age and
health, resident turnover rates in our communities are difficult to predict. As a result, the living spaces we lease may be
unoccupied for a period of time, which could adversely affect our occupancy, revenues, results of operations, and cash flow.
26
Failure to maintain the security and functionality of our information systems and data, to prevent a cybersecurity attack
or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA, could adversely affect
our business, reputation, and relationships with our residents, employees, and referral sources and subject us to
remediation costs, government inquiries, and liabilities, any of which could materially and adversely impact our
revenues, results of operations, cash flow, and liquidity.
We are dependent on the proper function and availability of our information systems, including hardware, software,
applications, and electronic data storage, to store, process, and transmit our business information, including proprietary business
information and personally identifiable information of our residents and employees. Though we have taken steps to protect the
cybersecurity and physical security of our information systems and have implemented policies and procedures to comply with
HIPAA and other privacy laws, rules, and regulations, there can be no assurance that our security measures and disaster
recovery plan will prevent damage to, or interruption or breach of, our information systems or other unauthorized access to
proprietary or private information.
Because the techniques used to obtain unauthorized access to systems change frequently and may be difficult to detect for long
periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. Components of
our information systems that we develop or procure from third parties may contain defects in design or manufacture or other
problems that could unexpectedly compromise the security or functionality of our information systems. Unauthorized parties
may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud
or other forms of deceiving our employees or contractors such as email phishing attacks. As cyber threats continue to evolve,
we may be required to expend significant additional resources to continue to modify or enhance our cybersecurity or to
investigate and remediate any cybersecurity vulnerabilities, attacks, or incidents.
In addition, we rely on software support of third parties to secure and maintain our information systems. Our inability, or the
inability of these third parties, to continue to maintain and upgrade our information systems could disrupt or reduce the
efficiency of our operations. Costs and potential problems and interruptions associated with the implementation of new or
upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the
efficiency of our operations.
Failure to maintain the security and functionality of our information systems, to prevent a cybersecurity attack or other
unauthorized access to our information systems, or to comply with applicable privacy and consumer protection laws, including
HIPAA, could expose us to a number of adverse consequences, many of which are not insurable, including: (i) interruptions to
our business, (ii) the theft, destruction, loss, misappropriation, or release of sensitive information, including proprietary
business information and personally identifiable information of our residents and employees, (iii) significant remediation costs;
(iv) negative publicity which could damage our reputation and our relationships with our residents, employees, and referral
sources, (v) litigation and potential liability under privacy, security, and consumer protection laws, including HIPAA, or other
applicable laws, rules, or regulations, and (vi) government inquiries which may result in sanctions and other criminal or civil
fines or penalties. Any of the foregoing could materially and adversely impact our revenues, results of operations, cash flow,
and liquidity.
Failure to complete our capital expenditures in accordance with our plans may adversely affect our anticipated
revenues, results of operations, and cash flow.
Our planned full-year 2022 non-development capital expenditures include maintenance, renovations, upgrades, and other major
building infrastructure projects for our communities. Such projects may be needed to ensure that our communities are in
appropriate physical condition to support our strategy and to protect the value of our community portfolio. In addition, our
planned full-year 2022 development capital expenditure projects include those for expansion, repositioning, redeveloping, and
major renovation of selected existing senior living communities.
Our capital projects are in various stages of planning and development and are subject to a number of factors over which we
may have little or no control. These factors include work restrictions at our communities due to COVID-19, the necessity of
arranging separate leases, mortgage loans, or other financings to provide the capital required to complete these projects;
difficulties or delays in obtaining zoning, land use, building, occupancy, licensing, certificate of need, and other required
governmental permits and approvals; failure to complete construction of the projects on budget and on schedule; failure of
third-party contractors and subcontractors to perform under their contracts; shortages of labor or materials that could delay
projects or make them more expensive; adverse weather conditions that could delay completion of projects; increased costs
resulting from general economic conditions or increases in the cost of materials; and increased costs as a result of changes in
laws and regulations.
27
We cannot provide assurance that we will undertake or complete all of our planned capital expenditures, or that we will not
experience delays in completing those projects. In addition, we may incur substantial costs prior to achieving stabilized
occupancy for certain capital projects and cannot assure that these costs will not be greater than we have anticipated. We also
cannot provide assurance that any of our capital projects will be economically successful or provide a return on investment in
accordance with our plans or at all. Furthermore, our failure to complete, or delays in completing, our planned community-level
capital expenditures could harm the value of our communities and our revenues, results of operations, and cash flow.
To the extent we identify and pursue any future development, investment, or acquisition opportunities, we may
encounter difficulties in identifying opportunities at attractive prices or integrating acquisitions with our operations,
which may adversely affect our financial condition, results of operations, and cash flow.
We may not be able to identify development, investment, and acquisition opportunities on attractive terms and that are
compatible with our strategy. To the extent we identify any such opportunities and enter into definitive agreements in
connection therewith, we cannot provide assurance that the transactions will be completed. Failure to complete transactions
after we have entered into definitive agreements may result in significant expenses to us. To the extent we identify and close on
any such opportunities, the integration of acquired communities or companies into our existing business may result in
unforeseen difficulties, divert managerial attention, or require significant financial or other resources. Any such closings may
require us to incur additional indebtedness and contingent liabilities and may result in unforeseen expenses or compliance
issues. Any future development, investment, or acquisition transactions may not generate any additional income for us or
provide any benefit to our business.
Competition for the acquisition of strategic assets from buyers with greater financial resources or lower costs of capital
than us or that have lower return expectations than we do could limit our ability to compete for strategic acquisitions
and therefore to grow our business effectively.
There is significant competition among potential acquirers in the senior living industry, and there can be no assurance that we
will be able to successfully complete acquisitions, which could limit our ability to grow our business. Several publicly-traded
and non-traded real estate investment trusts, or REITs, and private equity firms have similar asset acquisition objectives as we
do, along with greater financial resources and/or lower costs of capital than we are able to obtain. Partially as a result of tax law
changes enacted through RIDEA, we now compete more directly with the various publicly-traded healthcare REITs for the
acquisition of senior housing properties.
Pending disposition transactions are, and any future disposition transactions will be, subject to various closing
conditions, including the receipt of regulatory approvals where applicable, likely will result in reductions to our
revenue, and may negatively impact our results of operations and cash flow.
During 2022, we expect to close on the disposition of two owned unencumbered communities classified as held for sale as of
December 31, 2021 and the termination of our lease obligations on two communities for which we have provided notice of non-
renewal. Over the longer term, we may dispose of owned or leased communities through asset sales and lease terminations and
expirations. The closings of any such transactions, or those that we identify in the future, generally are or will be subject to
closing conditions, which may include the receipt of regulatory approvals, and we cannot provide assurance that any such
transactions will close or, if they do, when the actual closings will occur. The sales price for pending or future dispositions may
not meet our expectations due to the underlying performance of such communities or conditions beyond our control, and we
may be required to take impairment charges in connection with such sales if the carrying amounts of such assets exceed the
proposed sales prices, which could adversely affect our financial condition and results of operations. Further, we cannot provide
assurance that we will be successful in identifying and pursuing disposition opportunities on terms that are acceptable to us, or
at all. We may be required to pay significant amounts to restructure or terminate leases and we may be required to take charges
in connection with such activity, which could adversely affect our financial condition and results of operations.
Completion of the dispositions of communities through sales or lease terminations, or the termination of our management
arrangements, including pending transactions and those we enter into in the future, likely will result in reductions to our
revenue and may negatively impact our results of operations and cash flow. Further, if we are unable to reduce our general and
administrative expense with respect to completed dispositions or management arrangement terminations in accordance with our
expectations, we may not realize the expected benefits of such transactions, which could negatively impact our anticipated
results of operations and cash flow.
28
Our execution of our strategy may not be successful, and initiatives undertaken to execute on our strategic priorities
may adversely affect our business, financial condition, results of operations, cash flow, and the price of our common
stock.
The success of our strategy depends on our ability to successfully identify and implement initiatives to execute on our strategic
priorities, as well as factors outside of our control. Such initiatives may not be successful in achieving our expectations or may
require more time and resources than expected to implement. There can be no assurance that our strategy or initiatives
undertaken to execute on our strategic priorities will be successful and, as a result, such initiatives may adversely affect our
business, financial condition, results of operations, cash flow, and the price of our common stock.
Our ability to use net operating loss carryovers to reduce future tax payments may be limited.
Section 382 of the Internal Revenue code contains rules that limit the ability of a company that undergoes an ownership change,
which is generally any change in ownership of 50% of its stock over a three-year period, to utilize its net operating loss
carryforward and certain built-in losses recognized in years after the ownership change. These rules generally operate by
focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and
any change in ownership arising from a new issuance of stock by a company. Any such annual limitations may result in our
being unable to utilize all of our net operating loss carryforwards generated in tax years prior to 2018 before their expiration.
Liquidity and Indebtedness
Disruptions in the financial markets or decreases in the appraised values or performances of our communities could
affect our ability to obtain financing or to extend or refinance debt as it matures, which could negatively impact our
liquidity, financial condition, and the market price of our common stock.
As of December 31, 2021, we had outstanding $3.8 billion principal amount of mortgage financing, $230.0 million of 2.00%
convertible senior notes due 2026, and $86.2 million letters of credit. If we are unable to extend or refinance our indebtedness
prior to scheduled maturity dates, our liquidity and financial condition could be adversely impacted. Even if we are able to
extend or refinance our maturing debt or credit or letter of credit facilities, the terms of the new financing may not be as
favorable to us as the terms of the existing financing.
We are heavily dependent on mortgage financing provided by Federal National Mortgage Association (Fannie Mae) and
Federal Home Loan Mortgage Corporation (Freddie Mac), which are currently operating under a conservatorship begun in 2008
and conducting business under the direction of the Federal Housing Finance Agency. Reform efforts related to Fannie Mae and
Freddie Mac may make such financing sources less available or unavailable in the future and may cause us to seek alternative
sources of financing, which may be less attractive or unavailable.
The amount of mortgage financing available for our communities is generally dependent on their appraised values and
performance. Decreases in the appraised values of our communities, including due to adverse changes in real estate market
conditions, or their performance, has resulted, and could continue to result, in available mortgage refinancing amounts that are
less than the communities' maturing indebtedness. In addition, our inability to satisfy underwriting criteria for individual
communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie
Mac. Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021
we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae
indebtedness. Until our communities’ performance recovers, we plan to refinance maturities using non-agency financing, and
we expect our loan proceeds from such financing generally will be insufficient to fully cover maturing mortgage indebtedness.
We cannot provide assurance that such non-agency mortgage financing will continue to be available as an alternative to Fannie
Mae and Freddie Mac financing. We have pre-paid substantially all of our 2022 maturities. Our inability to obtain refinancing
proceeds sufficient to cover 2023 and later maturing indebtedness could adversely impact our liquidity, and may cause us to
seek additional alternative sources of financing, which may be less attractive or unavailable.
Disruptions or prolonged downturns in the financial markets may cause us to seek alternative sources of potentially less
attractive financing and may require us to further adjust our business plan accordingly. These events also may make it more
difficult or costly for us to raise capital, including through the issuance of common stock. Disruptions in the financial markets
could have an adverse effect on our business. If we are not able to obtain additional financing on favorable terms, we also may
have to forgo, delay, or abandon some or all of our planned capital expenditures or any development, investment, or acquisition
opportunities that we identify, which could adversely affect our revenues, results of operations, and cash flow.
29
If we are unable to generate sufficient cash flow to cover required interest, principal, and lease payments, this could
result in defaults of the related debt or leases and cross-defaults under our other debt or lease documents, which would
adversely affect our capital structure, financial condition, results of operations, and cash flow.
We have significant indebtedness and lease obligations, and we intend to continue financing our communities through mortgage
financing, long-term leases, and other types of financing. Our required lease payments are generally subject to an escalator that
is either fixed or tied to changes in the consumer price index or leased property revenue. We cannot give any assurance that we
will generate sufficient cash flow from operations to cover required interest, principal, and lease payments. Any non-payment
or other default under our financing arrangements could, subject to cure provisions, cause the lender to foreclose upon the
community or communities securing such indebtedness or, in the case of a lease, cause the lessor to terminate the lease, each
with a consequent loss of revenue and asset value to us. In some cases, indebtedness is secured by both a mortgage on a
community (or communities) and a guaranty by us and/or one or more of our subsidiaries. In the event of a default under one of
these scenarios, the lender could avoid judicial procedures required to foreclose on real property by declaring all amounts
outstanding under the guaranty immediately due and payable, and requiring the respective guarantor to fulfill its obligations to
make such payments. The realization of any of these scenarios would have an adverse effect on our financial condition and
capital structure. Because many of our outstanding debt and lease documents contain cross-default and cross-collateralization
provisions, a default by us related to one community could affect a significant number of our other communities and their
corresponding financing arrangements and leases (including documents with other lenders or lessors). In the event of such a
default, we may not be able to obtain a waiver from the lender or lessor on terms acceptable or favorable to us, or at all, which
would have a negative impact on our capital structure and financial condition.
Our indebtedness and long-term leases could adversely affect our liquidity and our ability to operate our business.
Our level of indebtedness and our long-term leases could adversely affect our future operations and/or impact our stockholders
for several reasons, including, without limitation:
• We may have little or no cash flow apart from cash flow that is dedicated to required interest, principal, and lease
payments;
Increases in our outstanding indebtedness, leverage, and long-term lease obligations will increase our vulnerability to
adverse changes in general economic and industry conditions, as well as to competitive pressure;
Increases in our outstanding indebtedness may limit our ability to obtain additional financing for working capital, capital
expenditures, acquisition and development, general corporate, and other purposes; and
Our ability to pay dividends to our stockholders (should we initiate dividend payments in the future) may be limited.
•
•
•
If we are unable to generate sufficient cash flow from operations in the future to service our debt or to make lease payments on
our leases, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or
restructure all or a portion of our indebtedness or leases, sell selected assets, reduce or delay planned capital expenditures, or
delay or abandon desirable acquisitions. These measures might not be sufficient to enable us to make required payments on our
debt or leases, which could result in an adverse effect on our future ability to generate revenues and our results of operations
and cash flow. Any contemplated financing, refinancing, restructuring, or sale of assets might not be available on economically
favorable terms to us.
Our debt and lease documents contain financial and other covenants, and any default under such documents could
result in the acceleration of our indebtedness and lease obligations, the foreclosure of our mortgaged communities, the
termination of our leasehold interests, and/or cross-defaults under our other debt or lease documents, any of which
could materially and adversely impact our capital structure, financial condition, results of operations, cash flow, and
liquidity and interfere with our ability to pursue our strategy.
Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain
prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and
requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-
community, and/or entity basis. Net worth is generally calculated as stockholders' equity, as calculated in accordance with
accounting principles generally accepted in the United States, or GAAP, and in certain circumstances, reduced by intangible
assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt
service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied
management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In
addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with
Medicare or Medicaid provider requirements and maintain insurance coverage. Our failure to comply with applicable covenants
could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents
30
contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease
documents (including documents with other lenders and lessors).
These restrictions and covenants may interfere with our ability to obtain financing or to engage in other business activities,
which may inhibit our ability to pursue our strategy. Certain of our outstanding indebtedness and leases limit or restrict, among
other things, our ability and our subsidiaries' ability to borrow additional funds, engage in a change in control transaction,
dispose of all or substantially all of our or their assets, or engage in mergers or other business combinations without consent of
the applicable lender or lessor. In certain circumstances, the consent of the applicable lender or, if certain objective conditions
are not satisfied, lessor may be based on the lender's or lessor's sole discretion. Our inability to obtain the consent of applicable
lenders and landlords in connection with our pursuit of any such transactions may forestall our ability to consummate such
transactions. Furthermore, the costs of obtaining such consents may reduce the value that our stockholders may realize in any
such transactions.
The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities
are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary
lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our
leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default
related to an individual property or limited number of properties within a master lease portfolio could result in a default on the
entire master lease portfolio.
Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of
our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure
provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding
amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to
terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our
operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default
could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or
lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon
acceleration following an event of default.
In addition, certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new
communities within a specified distance from certain existing communities covered by such agreements. These radius
restrictions could negatively affect our ability to expand or develop or acquire senior housing communities and operating
companies.
Lease obligations and mortgage debt expose us to increased risk of loss of property, which could harm our ability to
generate future revenues and could have an adverse tax effect.
Lease obligations and mortgage debt increase our risk of loss because defaults on leases or indebtedness secured by properties
may result in lease terminations by lessors and foreclosure actions by lenders. For tax purposes, a foreclosure of any of our
properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by
the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would
recognize taxable income on foreclosure, but would not receive any cash proceeds, which could negatively impact our results of
operations and cash flow. Further, because many of our outstanding debt and lease documents contain cross-default and cross-
collateralization provisions, a default by us related to one community could affect a significant number of our other
communities and their corresponding financing arrangements and leases.
Our leases generally provide for renewal or extension options and, in certain cases, purchase options. We expect to renew,
extend, or exercise purchase options with respect to our leases in the normal course of business; however, there can be no
assurance that these rights will be exercised in the future or that we will be able to satisfy the conditions precedent to exercising
any such rights. The terms of any such purchase options that are based on fair market value are inherently uncertain and could
be unacceptable or unfavorable to us depending on the circumstances at the time of exercise. If we are not able to renew or
extend our existing leases, or purchase the communities subject to such leases, at or prior to the end of the existing lease terms,
or if the terms of such options are unfavorable or unacceptable to us, our business, results of operations, and cash flow could be
adversely affected.
31
Increases in market interest rates could significantly increase the costs of our debt obligations, which could adversely
affect our results of operations and cash flow.
Our variable-rate debt obligations expose us to interest rate risk. In the normal course of business, we enter into interest rate
agreements with major financial institutions to manage our risk above certain interest rates on variable rate debt. These
agreements only limit our exposure to increases in interest rates above certain levels and generally must be renewed every two
to three years. Increases in prevailing interest rates will increase our payment obligations on our existing variable-rate
obligations to the extent they are unhedged and may increase our future borrowing and hedging costs, which would negatively
impact our results of operations and cash flow.
The interest rates for a significant majority of our variable-rate debt obligations are calculated based on the London Interbank
Offer Rate ("LIBOR") plus a spread, and our interest rate cap agreements generally are indexed to LIBOR. The Intercontinental
Exchange ("ICE") ICE Benchmark Administration intends to phase out the LIBOR tenors by June 30, 2023. Substantially all of
our variable-rate debt agreements indexed to LIBOR provide that the lender may choose an alternative index based on
comparable information, and our interest rate cap agreements provide that the calculation agent may choose an alternative
index. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will evolve by the applicable
phase-out dates, or whether alternative and comparable index rates will be established and adopted by our lenders and other
financial institutions. While we believe the transition away from LIBOR will be substantially rate neutral, uncertainties or
volatility regarding the calculation of interest rates on our variable-rate debt obligations while LIBOR is being phased out could
adversely affect our results of operations and cash flow.
We may need additional capital to fund our operations, capital expenditure plans, and strategic priorities, and we may
not be able to obtain it on terms acceptable to us, or at all.
Funding our capital expenditure plans, pursuing any acquisition, investment, development, or potential lease restructuring
opportunities that we identify, or funding investments to support our strategy may require additional capital. Financing may not
be available to us or may be available to us only on terms that are not favorable. In addition, certain of our outstanding
indebtedness and long-term leases restrict, among other things, our ability to incur additional debt. If we are unable to raise
additional funds or obtain them on terms acceptable to us, we may have to delay or abandon some or all of our plans or
opportunities. Further, if additional funds are raised through the issuance of additional equity securities, the percentage
ownership of our stockholders would be diluted. Any newly issued equity securities may have rights, preferences, or privileges
senior to those of our common stock.
Human Capital
The transition of management or unexpected departure of our key officers could harm our business.
We are dependent on the efforts of our senior management. The transition of management, the unforeseen loss or limited
availability of the services of any of our executive leaders, or our inability to recruit and retain qualified personnel in the future,
could, at least temporarily, have an adverse effect on our business, results of operations, and financial condition and be
negatively perceived in the capital markets.
Increased competition for, or a shortage of, associates, wage pressures resulting from increased competition, low
unemployment levels, minimum wage increases, changes in overtime laws, and union activity may have an adverse effect
on our business, results of operations, and cash flow.
Our success depends on our ability to attract and retain qualified management and other associates who are responsible for the
day-to-day operations of each of our communities. We compete with various healthcare service providers, other senior living
providers, and hospitality and food services companies in attracting and retaining qualified associates. If we fail to attract and
retain qualified associates, our ability to conduct our business operations effectively, our overall operating results, and cash
flow could be harmed. During 2021, we experienced pressures associated with the intensely competitive labor environment,
including increased associate turnover and difficulty in timely filling open positions. Continued increased competition for, or a
shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low levels
of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits
package to compete effectively for such associates. In addition, we have experienced and may continue to experience wage
pressures due to minimum wage and minimum salary threshold increases mandated by state and local laws. Due to the
intensively competitive labor market, our use of more expensive contract labor and overtime to cover open positions increased
during 2021. Third-party staffing agencies from which we source contract labor have increased the rates they charge which has
resulted in, and may further result in, increases in the cost of contract labor. If we are unable to timely fill open positions, our
32
reliance on more expensive contract labor and overtime may continue or increase. Increases in wages and our increased use of
contract labor and overtime would result in higher operating costs, and we may not be able to offset the added costs by
increasing the rates we charge to our residents or our service charges, which would negatively impact our results of operations
and cash flow.
In addition, efforts by labor unions to organize any of our community personnel could divert management attention, lead to
increased costs, and/or reduce our flexibility with respect to certain workplace rules. If we experience an increase in organizing
activity, if onerous collective bargaining agreement terms are imposed upon us, or if we otherwise experience an increase in our
staffing and labor costs, our results of operations and cash flow would be negatively affected.
Regulatory, Compliance, and Legal
Environmental contamination at any of our communities could result in substantial liabilities to us, which may exceed
the value of the underlying assets and which could materially and adversely affect our financial condition, results of
operations, and cash flow.
Under various federal, state, and local environmental laws, a current or previous owner or operator of real property, such as us,
may be held liable in certain circumstances for the costs of investigation, removal, or remediation of, or related to the release of,
certain hazardous or toxic substances, that could be located on, in, at, or under a property, regardless of how such materials
came to be located there. The cost of any required investigation, remediation, removal, mitigation, compliance, fines, or
personal or property damages and our liability therefore could exceed the property's value and/or our assets' value. In addition,
the presence of such substances, or the failure to properly dispose of or remediate the damage caused by such substances, may
adversely affect our ability to sell such property, to attract additional residents and retain existing residents, to borrow using
such property as collateral, or to develop or redevelop such property. Such laws impose liability, which may be joint and
several, for investigation, remediation, removal, and mitigation costs on persons who disposed of or arranged for the disposal of
hazardous substances at third-party sites. Such laws and regulations often impose liability without regard to whether the owner
or operator knew of, or was responsible for, the presence, release, or disposal of such substances as well as without regard to
whether such release or disposal was in compliance with law at the time it occurred. Although we do not believe that we have
incurred such liabilities as would have a material adverse effect on our business, financial condition, and results of operations,
we could be subject to substantial future liability for environmental contamination that we have no knowledge about as of the
date of this report and/or for which we may not be at fault.
Failure to comply with existing environmental laws could result in increased expenditures, litigation, and potential loss
to our business and in our asset value, which would have an adverse effect on our financial condition, results of
operations, and cash flow.
Our operations are subject to regulation under various federal, state, and local environmental laws, including those relating to:
the handling, storage, transportation, treatment, and disposal of medical waste products generated at our communities;
identification and warning of the presence of asbestos-containing materials in buildings, as well as removal of such materials;
the presence of other substances in the indoor environment; and protection of the environment and natural resources in
connection with development or construction of our properties.
Some of our communities generate infectious or other hazardous medical waste due to the illness or physical condition of the
residents. Our communities’ engagement of waste management companies for the proper disposal of all infectious medical
waste does not immunize us from alleged violations of such laws for operations for which we are responsible even if carried out
by such waste management companies, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at
which such wastes have been disposed.
Federal regulations require building owners and those exercising control over a building's management to identify and warn
their employees and certain other employers operating in the building of potential hazards posed by workplace exposure to
installed asbestos-containing materials and potential asbestos-containing materials in their buildings. Significant fines can be
assessed for violation of these regulations. Building owners and those exercising control over a building's management may be
subject to an increased risk of personal injury lawsuits. Federal, state, and local laws and regulations also govern the removal,
encapsulation, disturbance, handling, and/or disposal of asbestos-containing materials and potential asbestos-containing
materials when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a
building. Such laws may impose liability for improper handling or a release to the environment of asbestos-containing materials
and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or
operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and
potential asbestos-containing materials.
33
The presence of mold, lead-based paint, contaminants in drinking water, radon, and/or other substances at any of the
communities we own or may acquire may lead to the incurrence of costs for remediation, mitigation, or the implementation of
an operations and maintenance plan and may result in third-party litigation for personal injury or property damage.
Furthermore, in some circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after
successful remediation, the known prior presence of extensive mold could adversely affect the ability of a community to retain
or attract residents and could adversely affect a community's market value.
Although we believe that we are currently in material compliance with applicable environmental laws, if we fail to comply with
such laws in the future, we would face increased expenditures both in terms of fines and remediation of the underlying
problem(s), potential litigation relating to exposure to such materials, and potential decrease in value to our business and in the
value of our underlying assets. Therefore, our failure to comply with existing environmental laws would have an adverse effect
on our financial condition, results of operations, and cash flow. We are unable to predict the future course of federal, state, and
local environmental regulation and legislation. Changes in the environmental regulatory framework (including legislative or
regulatory efforts designed to address climate change) could have a material adverse effect on our business. Because
environmental laws vary from state to state, expansion of our operations to states where we do not currently operate may
subject us to additional restrictions on the manner in which we operate our communities.
Significant legal actions and liability claims against us, including class action and stockholder derivative complaints,
could subject us to increased operating costs and substantial uninsured liabilities, which may adversely affect our
financial condition and results of operations.
We have been and are currently involved in litigation and claims incidental to the conduct of our business, which we believe are
generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative
class action claims from time to time regarding staffing at our communities and compliance with consumer protection laws and
the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs
to defend and resolve. As a result, we maintain general liability, professional liability, and other insurance policies in amounts
and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical
experience, availability, and industry standards. Our current policies provide for deductibles for each claim and contain various
exclusions from coverage. We use our wholly-owned captive insurance company for the purpose of insuring certain portions of
our risk retention under our general and professional liability insurance programs. Accordingly, we are, in effect, self-insured
for claims that are less than the deductible amounts and for claims that exceed the funding level of our captive, and for claims
or portions of claims that are not covered by such policies and/or exceed the policy limits. If we experience a greater number of
losses than we anticipate, or if certain claims are not covered by insurance, our results of operations and financial condition
could be adversely affected.
The senior living industry entails an inherent risk of liability, particularly given the demographics of our residents and the
services we provide. In recent years, we, as well as other participants in our industry, have been subject to an increasing number
of claims and lawsuits alleging that our services have resulted in resident injury or other adverse effects. Many of these lawsuits
involve large damage claims and significant legal costs. The frequency and magnitude of such alleged claims and legal costs
may increase due to the COVID-19 pandemic or our response efforts. Many states continue to consider tort reform and how it
will apply to the senior living industry. We may continue to be faced with the threat of large jury verdicts in jurisdictions that
do not find favor with large senior living providers. There can be no guarantee that we will not have any claims that exceed our
policy limits in the future, which could subject us to substantial uninsured liabilities.
If a successful claim is made against us and it is not covered by our insurance or exceeds the policy limits, our financial
condition and results of operations could be materially and adversely affected. In some states, state law may prohibit or limit
insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or
litigation. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of
our insurance policy limits. Also, our insurance policies' deductibles, or self-insured retention, are accrued based on an actuarial
projection of future liabilities. If these projections are inaccurate and if there is an unexpectedly large number of successful
claims that result in liabilities in excess of our accrued reserves, our operating results could be negatively affected. Claims
against us, regardless of their merit or eventual outcome, also could have a material adverse effect on our ability to attract
residents or expand our business and could require our management to devote time to matters unrelated to the day-to-day
operation of our business. We also have to renew our policies every year and negotiate terms for coverage, exposing us to the
volatility of the insurance markets, including the possibility of rate increases and changes in coverage and other terms. There
can be no assurance that we will be able to obtain liability insurance in the future or, if available, that such coverage will be
available on acceptable terms.
34
We face periodic and routine reviews, audits, and investigations by government agencies, and any adverse findings
could negatively impact our business, financial condition, results of operations, and cash flow.
The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result
in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters. In addition, we are
subject to various government reviews, audits, and investigations to verify our compliance with Medicare and Medicaid
programs and other applicable laws and regulations. CMS has engaged third-party firms to review claims data to evaluate
appropriateness of billings. In addition to identifying overpayments, audit contractors can refer suspected violations to
government authorities. An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil
fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid
programs, and damage to our business reputation. Our costs to respond to and defend any such audits, reviews, and
investigations may be significant, and any resulting sanctions or criminal, civil, or regulatory penalties could have a material
adverse effect on our business, financial condition, results of operations, and cash flow.
The cost and difficulty of complying with increasing and evolving regulation and enforcement could have an adverse
effect on our business, results of operations, and cash flow.
The regulatory environment surrounding the senior living industry continues to intensify in the number and type of laws and
regulations affecting it, many of which vary from state to state. Many senior living communities are subject to regulation and
licensing by state and local health and social service agencies and other regulatory authorities. In several of the states in which
we operate there are different levels of care that may be provided based on the level of licensure. Several of the states in which
we operate, or intend to operate, assisted living and memory care communities, or skilled nursing facilities require a certificate
of need before a community may be opened or the services at an existing community may be expanded. These regulatory
requirements, and the increased enforcement thereof, could affect our ability to expand into new markets, to expand our
services and communities in existing markets, and if any of our presently licensed communities were to operate outside of its
licensing authority, may subject us to penalties including closure of the community.
Federal, state, and local officials are increasingly focusing their efforts on enforcement of these laws and regulations. This is
particularly true for large for-profit, multi-community providers like us. Future regulatory developments as well as mandatory
increases in the scope and severity of deficiencies determined by survey or inspection officials could cause our operations to
suffer. We are unable to predict the future course of federal, state, and local legislation or regulation. If regulatory requirements
increase, whether through enactment of new laws or regulations or changes in the enforcement of existing rules, our business,
results of operations, and cash flow could be adversely affected.
The intensified regulatory and enforcement environment impacts providers like us because of the increase in the number of
inspections or surveys by governmental authorities and consequent citations for failure to comply with regulatory requirements.
We also expend considerable resources to respond to federal and state investigations or other enforcement action. From time to
time in the ordinary course of business, we receive survey reports from state or federal regulatory bodies citing deficiencies
resulting from such inspections or surveys. Although most inspection deficiencies are resolved through a plan of corrective
action, the reviewing agency may have the authority to take further action against a licensed or certified community, which
could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license,
suspension or denial of admissions, loss of certification as a provider under federal reimbursement programs, or imposition of
other sanctions, including criminal penalties. Furthermore, certain states may allow citations in one community to impact other
communities in the state. Revocation or suspension of a license, or a citation, at a given community could therefore impact our
ability to obtain new licenses or to renew existing licenses at other communities, which may also cause us to default under our
debt and lease documents and/or trigger cross-defaults. The failure to comply with applicable legal and regulatory requirements
could result in a material adverse effect to our business as a whole.
There are various extremely complex federal and state laws governing a wide array of referrals, relationships, and arrangements
and prohibiting fraud by healthcare providers, including those in the senior living industry, and governmental agencies are
devoting increasing attention and resources to such anti-fraud initiatives. Some examples are the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, the Balanced Budget Act of 1997, and the False Claims Act, which gives private
individuals the ability to bring an action on behalf of the federal government. The violation of any of these laws or regulations
may result in the imposition of fines or other penalties that could increase our costs and otherwise jeopardize our business.
Because of incentives allowing a private individual to bring a claim on behalf of the federal government, so-called
"whistleblower" suits have become more frequent.
Additionally, since we operate communities that participate in federal and/or state healthcare reimbursement programs, we are
subject to federal and state laws that prohibit anyone from presenting, or causing to be presented, claims for reimbursement
35
which are false, fraudulent, or are for items or services that were not provided as claimed. Similar state laws vary from state to
state. Violation of any of these laws can result in loss of licensure, citations, sanctions, and other criminal or civil fines and
penalties, the refund of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid
programs, which may also cause us to default under our debt and lease documents and/or trigger cross-defaults.
We are subject to certain federal and state laws that regulate financial arrangements by healthcare providers, such as the federal
Anti-Kickback Statute, the Stark laws, and certain state referral laws. Authorities have interpreted the federal Anti-Kickback
Statute very broadly to apply to many practices and relationships between healthcare providers and sources of patient referral. If
we were to violate the federal Anti-Kickback Statute, we may face criminal penalties and civil sanctions, including fines and
possible exclusion from government reimbursement programs, which may also cause us to default under our debt and lease
documents and/or trigger cross-defaults. Adverse consequences may also result if we violate federal Stark laws related to
certain Medicare and Medicaid physician referrals. While we endeavor to comply with all laws that regulate the licensure and
operation of our business, it is difficult to predict how our revenues could be affected if we were subject to an action alleging
such violations.
We are subject to federal and state laws, regulations and executive orders relating to healthcare providers’ response to the
COVID-19 pandemic. These requirements vary based on provider type and jurisdiction but generally may include mandatory
requirements vaccination of staff, testing of residents and/or staff, providing COVID-19 related paid leave, implementation of
infection control standards and procedures, imposition of restrictions on new admissions or readmissions of residents, required
screening of all persons entering a community, imposition of restrictions or limitations on who and how residents may be
visited, and imposition of mandatory notification requirements to residents, families, staff, and regulatory bodies related to
positive COVID-19 cases. Enhanced or additional penalties may apply for violation of such requirements.
Compliance with the Americans with Disabilities Act and Fair Housing Act, safety and health standards of the
Occupational Safety and Health Administration, and other fire, safety, health, and other regulations may require us to
make unanticipated expenditures, which could increase our costs and therefore adversely affect our results of operations
and financial condition.
Certain of our communities, or portions thereof, may be subject to compliance with the Americans with Disabilities Act, or
ADA. The ADA has separate compliance requirements for "public accommodations" and "commercial properties," but
generally requires that buildings be made accessible to people with disabilities. If applicable, compliance with ADA
requirements could require removal of access barriers and non-compliance could result in imposition of government fines or an
award of damages to private litigants.
We must also comply with the Fair Housing Act, which prohibits us from discriminating against individuals on certain bases in
any of our practices if it would cause such individuals to face barriers in gaining residency in any of our communities.
Additionally, the Fair Housing Act and other state laws require that we advertise our services in such a way that we promote
diversity and not limit it. We may be required, among other things, to change our marketing techniques to comply with these
requirements.
In addition, we are required to operate our communities in compliance with applicable safety and health standards of the
Occupational Safety and Health Administration, and other fire, health, and safety regulations, building codes and other land use
regulations, and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from
time to time. Like other healthcare facilities, senior living communities are subject to periodic survey or inspection by
governmental authorities to assess and assure compliance with regulatory requirements. Surveys occur on a regular (often
annual or bi-annual) schedule, and special surveys may result from a specific complaint filed by a resident, a family member, or
one of our competitors. We may be required to make substantial capital expenditures to comply with those requirements.
Legislation was adopted in the State of Florida in March 2018 that requires skilled nursing homes and assisted living
communities in Florida to obtain generators and fuel necessary to sustain operations and maintain comfortable temperatures in
the event of a power outage. Our cost to comply with this legislation has been approximately $20 million without a
corresponding increase in our revenues. If other states or jurisdictions were to adopt similar legislation or regulation, the cost to
comply with such requirements may be substantial and may not result in any additional revenues. The increased costs and
capital expenditures that we may incur in order to comply with any of the above would result in a negative effect on our results
of operations and financial condition.
36
Changes in federal, state, and local employment-related laws and regulations, or our failure to comply with these laws
and regulations could have an adverse effect on our financial condition, results of operations, and cash flow.
We are subject to a wide variety of federal, state, and local employment-related laws and regulations which govern matters
including, but not limited to, wage and hour requirements, equal employment opportunity obligations, leaves of absence and
reasonable accommodations, employee benefits, the right of employees to engage in protected concerted activity (including
union organizing), and occupational health and safety requirements. Because labor represents such a large portion of our
operating expenses, changes in federal, state, and local employment-related laws and regulations could increase our cost of
doing business. Furthermore, any failure to comply with these laws can result in significant protracted litigation, government
investigation, penalties, or other damages which could have an adverse effect on our financial condition, results of operations,
and cash flow.
Corporate Organization and Structure
Anti-takeover provisions in our organizational documents may delay, deter, or prevent a tender offer, merger, or
acquisition that investors may consider favorable.
Certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws may delay,
deter, or prevent a tender offer, merger, or acquisition that investors may consider favorable or prevent the removal of our
current board of directors. Such provisions include:
•
•
•
•
provisions allowing the Board of Directors to issue blank-check preferred stock;
provisions preventing stockholders from calling special meetings or acting by written consent;
advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual
meetings; and
no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors,
which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors
standing for election.
Additionally, our amended and restated certificate of incorporation provides that Section 203 of the Delaware General
Corporation Law, which restricts certain business combinations with interested stockholders in certain situations, will not apply
to us.
We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary
to meet our financial obligations.
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or
indirectly hold in our operating subsidiaries. As a result, we are dependent on loans, distributions, and other payments from our
subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and
have no obligation to make funds available to us.
Other Market Factors
Various factors, including general economic conditions and the spread of contagious illnesses, could adversely affect our
financial performance and other aspects of our business.
General economic conditions, such as inflation, the consumer price index, commodity costs, fuel and other energy costs,
competition in the labor market, costs of salaries, wages, benefits and insurance, interest rates, and tax rates, affect our facility
operating, facility lease, general and administrative and other expenses, and we have no control or limited ability to control such
factors. Current global economic conditions and uncertainties, including due to the COVID-19 pandemic, the potential for
failures or realignments of financial institutions, and the related impact on available credit may affect us and our business
partners, landlords, counterparties, and residents or prospective residents in an adverse manner including, but not limited to,
reducing access to liquid funds or credit, increasing the cost of credit, limiting our ability to manage interest rate risk, increasing
the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and
other impacts which we are unable to fully anticipate. In addition to the impact of the COVID-19 pandemic on our occupancy,
seasonal contagious illnesses such as cold and flu, which typically more severely impact seniors than the general population
may negatively affect our occupancy. The continued COVID-19 pandemic, severe cold and flu season, or an outbreak of other
contagious disease in the markets in which we operate could result in a regulatory ban on admissions, decreased occupancy, and
otherwise adversely affect our business.
37
The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial
losses for our stockholders.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading
volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common
stock declines significantly, stockholders may be unable to resell their shares at or above their purchase price. The market price
of our common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our
share price, result in fluctuations in the price, or trading volume of our common stock include:
•
•
•
•
•
•
•
•
•
•
•
variations in our reported results of operations and cash flow, and changes in our financial guidance;
the contents of published research reports about us or the senior living, healthcare, or real estate industries, the failure of
securities analysts to cover our common stock, or changes in market valuations of similar companies;
additions or departures of key management personnel;
any increased indebtedness we may incur, any inability to refinance maturing indebtedness, or lease obligations we may
enter into in the future;
actions by institutional stockholders;
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, or
capital commitments;
speculation or reports by the press or investment community with respect to us, other senior living operators or healthcare
providers, or the senior living, healthcare, or real estate industries in general;
proxy contests or other stockholder activism;
increases in market interest rates that may lead purchasers of our shares to demand a higher yield or downturns in the real
estate market;
changes or proposed changes in laws or regulations affecting the senior living and healthcare industries or enforcement of
these laws and regulations, or announcements relating to these matters; and
general market and economic conditions.
Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by offering additional debt or equity securities, including
commercial paper, medium-term notes, senior or subordinated notes, convertible securities, series of preferred shares, or shares
of our common stock. Upon liquidation, holders of our debt securities and preferred stock, and lenders with respect to other
borrowings, would receive a distribution of our available assets prior to the holders of our common stock. We may issue all of
the shares of our common stock that are authorized but unissued (and not otherwise reserved for issuance under our stock
incentive plan or purchase plans, outstanding warrants, or outstanding convertible senior notes) without any action or approval
by our stockholders. Additional equity offerings may dilute the economic and voting rights of our existing stockholders or
reduce the market price of our common stock, or both. Shares of our preferred stock, if issued, could have a preference with
respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay
dividends to the holders of our common stock. Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our
future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our
common stock and diluting their shareholdings in us.
Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources,
and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock.
We value constructive input from our stockholders and engage in dialogue with our stockholders regarding our governance
practices, strategy, and performance. However, activist stockholders may disagree with the composition of our Board of
Directors or management, our strategy, or capital allocation decisions and may seek to effect change through various strategies
that range from private engagement to public campaigns, proxy contests, efforts to force proposals, or transactions not
supported by our Board of Directors and litigation. Responding to these actions may be costly and time-consuming, disrupt our
operations, divert the attention of our Board of Directors, management, and our associates and interfere with our ability to
pursue our strategy and to attract and retain qualified Board and executive leadership. The perceived uncertainty as to our future
direction that may result from actions of activist stockholders may also negatively impact our ability to attract and retain
residents at our communities. We cannot provide assurance that constructive engagement with our stockholders will be
successful. Any such stockholder activism may have an adverse effect on our business, results of operations, cash flow, and the
market price of our common stock.
38
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Communities
As of December 31, 2021, we operated and managed 679 communities across 41 states, with the capacity to serve over 60,000
residents. As of December 31, 2021, we owned 347 communities, leased 299 communities, managed 33 communities on behalf
of others. As of December 31, 2021, 83% of our owned communities are subject to non-recourse mortgage debt. The following
table sets forth certain information regarding our owned, leased, and managed communities as of December 31, 2021, or, for
occupancy, represents the weighted average occupancy for December 2021.
39
State
Texas
Florida
California
North Carolina
Colorado
Ohio
Washington
Illinois
Arizona
Oregon
Michigan
Tennessee
New York
Kansas
New Jersey
Virginia
Massachusetts
Pennsylvania
Alabama
Oklahoma
Georgia
Connecticut
South Carolina
Idaho
Minnesota
Louisiana
Wisconsin
Missouri
New Mexico
Rhode Island
Mississippi
Indiana
Maryland
Arkansas
Nevada
Kentucky
Delaware
Vermont
West Virginia
New Hampshire
Montana
Total
Number of Communities
Units
Owned
Leased
8,018
6,083
5,661
3,401
3,380
2,895
2,833
2,816
2,051
1,805
1,678
1,506
1,498
1,116
1,024
964
899
766
732
687
656
636
611
548
538
486
485
479
426
397
386
373
359
332
256
163
105
101
93
90
76
57,409
56
43
26
7
13
15
15
3
17
12
9
16
10
8
7
7
3
7
4
3
8
2
4
6
—
6
5
2
2
3
5
4
3
4
4
2
2
1
1
1
1
347
19
29
19
50
11
14
18
9
9
11
22
6
9
10
5
3
3
3
—
15
—
3
6
1
12
—
7
—
1
—
—
4
—
—
—
—
—
—
—
—
—
299
Managed
11
—
3
—
5
6
—
1
—
—
—
1
2
—
—
—
—
—
—
—
—
1
1
—
—
—
—
1
—
—
—
—
1
—
—
—
—
—
—
—
—
33
Total
86
72
48
57
29
35
33
13
26
23
31
23
21
18
12
10
6
10
4
18
8
6
11
7
12
6
12
3
3
3
5
8
4
4
4
2
2
1
1
1
1
679
December 2021 occupancy rate (weighted average)
72.8 %
74.8 %
71.6 %
73.4 %
40
Corporate Offices
Our main corporate offices are leased, including our 98,656 square foot headquarters in Brentwood, Tennessee and our 156,016
square foot office in Milwaukee, Wisconsin.
Item 3.
Legal Proceedings
The information contained in Note 13 to the consolidated financial statements contained in "Item 8. Financial Statements and
Supplementary Data" is incorporated herein by reference.
Item 4.
Mine Safety Disclosures
Not applicable.
41
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol "BKD." As of February 11,
2022, there were approximately 350 holders of record of our common stock.
Dividend Policy
On December 30, 2008, our Board of Directors voted to suspend our quarterly cash dividend indefinitely. We may determine to
pay a regular quarterly dividend to the holders of our common stock in the future, but in the near term, we anticipate deploying
capital to, among other uses, fund: planned capital expenditures; any development, investment, acquisition, or potential lease
restructuring opportunities that we identify; investments to support our strategy; or reductions to our debt and lease leverage.
Our ability to pay and maintain cash dividends in the future will be based on many factors, including then-existing contractual
restrictions or limitations, our ability to execute our strategy, our ability to negotiate favorable lease and other contractual terms,
anticipated operating expense levels, our capital expenditure plans, the level of demand for our units, occupancy rates, the rates
we charge, and our liquidity position. Some of the factors are beyond our control and a change in any such factor could affect
our ability to pay or maintain dividends. We can give no assurance as to our ability to pay or maintain dividends in the future.
As we have done in the past, we may also pay dividends in the future that exceed our net income for the relevant period as
calculated in accordance with GAAP.
42
Share Price Performance Graph
The following graph compares the five-year cumulative total return for Brookdale common stock with the comparable
cumulative return of the Russell 3000 and S&P Health Care Indices.
The graph assumes that a person invested $100 in Brookdale stock and each of the indices on December 31, 2016 and that
dividends are reinvested. The comparisons in this graph are not intended to forecast or be indicative of possible future
performance of Brookdale shares or such indices.
Brookdale Senior Living Inc.
$ 100.00 $
78.10 $
53.95 $
58.53 $
35.67 $
Russell 3000
S&P Health Care
100.00
100.00
121.13
122.08
114.78
129.97
150.39
157.04
181.80
178.15
12/16
12/17
12/18
12/19
12/20
12/21
41.55
228.45
224.70
The performance graph and related information shall not be deemed to be filed as part of this Annual Report on Form 10-K and
do not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other filing by us under
the Securities Act or the Exchange Act, except to the extent that we specifically incorporate them by reference into such filing.
43
Recent Sales of Unregistered Securities
On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes"). We
received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount. See "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations –– Liquidity and Capital Resources
–– Convertible Senior Notes" for more information about the Notes, including their conversion terms. The Notes and the shares
of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the
Securities Act or any state securities laws. The Notes were issued to the initial purchasers in reliance upon Section 4(a)(2) of the
Securities Act in transactions not involving any public offering. The Notes were resold by the initial purchasers to persons
whom the initial purchasers reasonably believed are "qualified institutional buyers," as defined in, and in accordance with, Rule
144A under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information regarding purchases of our common stock made during the three months ended
December 31, 2021 by or on behalf of us or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act.
Total
Number of
Shares
Purchased (1)
Average
Price Paid
per Share
— $
27,635 $
— $
27,635 $
—
6.76
—
6.76
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Approximate Dollar
Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs (in
thousands) (2)
— $
— $
— $
—
44,026
44,026
44,026
Period
10/1/2021 - 10/31/2021
11/1/2021 - 11/30/2021
12/1/2021 - 12/31/2021
Total
(1) Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock and restricted stock
units. The average price paid per share for such share withholding is based on the closing price per share on the vesting
date of the restricted stock and restricted stock units or, if such date is not a trading day, the trading day immediately
prior to such vesting date.
(2) On November 1, 2016, we announced that our Board of Directors had approved a share repurchase program that
authorizes us to purchase up to $100.0 million in the aggregate of our common stock. The share repurchase program is
intended to be implemented through purchases made from time to time using a variety of methods, which may include
open market purchases, privately negotiated transactions, or block trades, or by any combination of such methods, in
accordance with applicable insider trading and other securities laws and regulations. The size, scope, and timing of any
purchases will be based on business, market, and other conditions and factors, including price, regulatory, and
contractual requirements, and capital availability. The repurchase program does not obligate us to acquire any
particular amount of common stock and the program may be suspended, modified, or discontinued at any time at our
discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. As of
December 31, 2021, $44.0 million remained available under the repurchase program.
Item 6.
(Reserved)
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our historical consolidated financial statements and related
notes contained in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this
discussion and analysis may contain forward-looking statements that involve risks, uncertainties, and assumptions, which could
cause actual results to differ materially from management's expectations. See additional risks and uncertainties described in
"Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could
cause such differences include those described in this section and "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
44
Executive Overview and Recent Developments
Our Business
We are the nation's premier operator of senior living communities, operating and managing 679 communities in 41 states as of
December 31, 2021, with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of
services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted
living, memory care, and CCRCs.
Our senior living communities and our comprehensive network help to provide seniors with care and services in an
environment that feels like home. Our expertise in healthcare, hospitality, and real estate provides residents with opportunities
to improve wellness, pursue passions, and stay connected with friends and loved ones. By providing residents with a range of
service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe
enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial
to residents' families who are concerned with care decisions for their elderly relatives.
Strategy
Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and
employer. Brookdale continues to be driven by its mission—to enrich the lives of those we serve with compassion, respect,
excellence, and integrity. During this pandemic recovery phase, we have continued to focus on the health and wellbeing of our
residents and associates and "Winning the Recovery, Faster" by providing high quality care and personalized service. We
believe successful execution on this strategy provides the best opportunity to create attractive long-term stockholder value.
During this recovery phase, we are focused on priorities that will position us for growth and take advantage of positive trends in
demographics, customer preferences, and lower new supply in the industry. Our key strategic priorities are as follows.
•
Attract, engage, develop, and retain the best associates. Brookdale’s culture is based on servant leadership. We believe
engaged associates lead to an enhanced resident experience, higher retention, and ultimately improved operations that
drives accelerated growth. Through this strategic priority, we intend to diversify and optimize our recruiting plans and
enhance our already compelling value proposition for our associates in the areas of compensation, leadership, career
growth, and meaningful work.
• Get every available room in service at the best profitable rate. We believe that we provide highly valuable services to
seniors, and we continue to strive to expand the number of seniors we serve through increasing our occupancy levels, while
remaining focused on driving rate and improving margin. With this strategic priority, we intend to ensure all communities
are appropriately priced within their market. Through our targeted sales and marketing efforts, we plan to drive increased
move-ins through enhanced outreach with impactful points of differentiation based on quality, a portfolio of choices, and
personalized service delivered by caring and engaged associates.
•
Earn resident and family trust and satisfaction by providing valued high quality care and personalized service. We
believe that earning the trust of our residents and their families will allow us to build relationships that create passionate
advocates and generate referrals. We intend to create a consistent high quality experience for residents, including through
the implementation and execution of our high quality clinical, operational, and resident engagement programs. We are a
learning organization that uses multiple tools to obtain feedback from residents, their families, and our associates to
improve our services to meet the changing needs of residents.
The above three priorities are intended to provide long-term returns to our stockholders by focusing on growing RevPAR,
Adjusted EBITDA, and cash flow.
Strategic innovation also continues to be an important factor for our long-term growth. We are piloting programs in several
areas and, in the future, plan to roll out initiatives to further accelerate our growth. We plan to explore additional products and
services that we may offer to our residents or to seniors living outside of our communities and, where opportunities arise,
pursue development, investment, and acquisition opportunities.
•
Enhance Healthcare and Wellness. Our vision is to enable those we serve to live well by offering our residents a high-
quality healthcare and wellness platform. We believe Brookdale is uniquely positioned to be a key participant and partner
in the value-based healthcare ecosystem. Our initiatives include piloting redesigned delivery of clinical care within assisted
living communities and embedding technology-enabled care management capabilities, in order to better align our
communities with payors, providers, and healthcare systems. We are also piloting the expansion of our private duty
45
services business to serve those living outside of our communities. We believe the successful execution of these initiatives
will improve resident health and wellbeing and drive incremental revenue by increasing move-ins and extending residents'
average length of stay resulting in increased occupancy.
•
Drive Innovation and Leverage Technology. We are engaged in a variety of innovation initiatives and over time plan to
pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience,
improve outcomes, and increase average length of stay and occupancy. With our technology platform, we also expect to
identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third
parties.
• Grow and Improve Our Senior Living Portfolio. As we emerge from the pandemic, we intend to (i) expand our footprint
and services in core markets where we have, or can achieve, a clear leadership position, (ii) execute an ongoing capital
recycling program through acquiring leased communities and exiting non-strategic or underperforming owned assets or
leases when possible, and (iii) pivot back to portfolio growth through targeted development, investment, and acquisition
opportunities. We will also continue to invest in our development capital expenditures program through which we expand,
renovate, reposition, and redevelop selected existing senior living communities where economically advantageous.
We believe that our successful execution on these strategic priorities and our longer-term growth plans will allow us to achieve
our goal to be the first choice in senior living by being the nation’s most trusted and effective senior living provider and
employer.
COVID-19 Pandemic Update
The COVID-19 pandemic significantly disrupted the senior living industry and our business beginning in March 2020. We
expect the impact of this disruption to continue into 2023. The health and wellbeing of our residents and associates has been
and continues to be our highest priority. Due to the average age and prevalence of chronic medical conditions among our
residents, they generally are at disproportionately higher risk of becoming severely ill from COVID-19. By staying up to date
with COVID-19 vaccines, our residents can generally mitigate their risk of becoming severely ill from COVID-19 infection.
Since COVID-19 vaccines received emergency use authorization, we have worked diligently to ensure our residents have
access to vaccines, including completing at least three initial vaccine clinics and at least one booster vaccine clinic for all of our
communities. As of January 31, 2022, our resident vaccine acceptance rate was above 95%.
Community Response. Our COVID-19 response efforts center on infection prevention and control protocols, including
following requirements and guidance of federal, state, and local governments and agencies, including the CDC and CMS. We
have enhanced and reinforced training our associates in such protocols and continue to actively monitor government
requirements and guidance and adapt our policies, procedures, and response efforts when applicable. Upon confirmation of
positive COVID-19 exposure at a community, we take actions intended to minimize further exposure, including enhanced
personal protection protocols, temporarily isolating residents or finding placement in an alternate care setting to best address
their care needs, and in some cases, restricting new resident admissions as directed by authorities having jurisdiction.
We may also restrict visitors at our communities, screen associates and permitted visitors, suspend group outings or
programming, and modify communal dining as necessary to comply with regulatory requirements or at the direction of
authorities having jurisdiction. At the onset of the pandemic, substantial restrictions at our communities were in place across
our portfolio. We began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements
and guidance allowed. As of December 31, 2020, 89% of our communities were open for new resident move-ins.
During 2021, various communities experienced restrictions on new resident move-ins, with a peak of such restrictions occurring
in September 2021. As of January 31, 2022, substantially all of our communities were open for new resident move-ins. We may
revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic
worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of
authorities having jurisdiction.
Vaccine Update. In December 2020, the FDA authorized COVID-19 vaccines for emergency use, and we initiated our first
vaccine clinic a week after such authorization. By April 9, 2021, we facilitated at least three rounds of COVID-19 vaccine
clinics at all of our communities through the Pharmacy Partnership for Long-Term Care Program offered through the CDC. As
of January 31, 2022, our resident vaccine acceptance rate was above 95%. By November 2021, the CDC recommended that all
adults receive a vaccine booster dose. We have completed at least one booster vaccine clinic for all of our communities. In the
second half of 2021, we adopted a policy requiring our associates to be vaccinated against COVID-19, subject to certain
exceptions necessary to comply with applicable federal, state, and local laws.
46
Rebuilding Occupancy. We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic. From March
2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy. In 2021,
we achieved ten consecutive months of weighted average consolidated senior housing occupancy growth on a sequential basis.
During the latter half of 2021, we believe the nationwide spread of the COVID-19 Delta variant caused some moderation in our
sequential monthly occupancy growth rate as some potential residents and their families were more cautious, or temporarily
delayed their decision regarding moving into senior living communities in certain areas as the Delta variant spread. According
to data from NIC, senior housing occupancy increased 220 basis points from the first quarter to the fourth quarter of 2021 for
stabilized portfolios. Our weighted average consolidated senior housing occupancy increased 390 basis points during such
period. The table below sets forth our consolidated occupancy trend during the pandemic.
Weighted average
Quarter end
Q1
2020
83.2%
82.2%
Q2
2020
78.7%
77.8%
Q3
2020
75.3%
75.0%
Q4
2020
72.7%
71.5%
Q1
2021
69.6%
70.6%
Q2
2021
70.5%
72.6%
Q3
2021
72.5%
74.2%
Q4
2021
73.5%
74.5%
Jan
2021
Jan
2022
Weighted average 70.0% 69.4% 69.4% 69.9% 70.5% 71.2% 72.0% 72.5% 73.0% 73.3% 73.5% 73.6% 73.4%
70.4% 70.1% 70.6% 71.1% 71.6% 72.6% 73.3% 73.7% 74.2% 74.5% 74.3% 74.5% 74.2%
Month end
Jun
2021
Apr
2021
Feb
2021
Aug
2021
Nov
2021
Mar
2021
Oct
2021
Jul
2021
May
2021
Sep
2021
Dec
2021
We began to experience our typical seasonality pattern in January 2022. We cannot predict with reasonable certainty when our
occupancy will return to pre-COVID-19 pandemic levels.
Revenue and Expense Impacts. In the aggregate, for the years ended December 31, 2021 and 2020, and compared to our pre-
pandemic expectations for 2020, we estimate the pandemic has resulted in $660.1 million of lost resident fee revenue, including
$556.5 million in our consolidated senior housing portfolio. Estimated lost resident fee revenue for 2021 includes $328.0
million in our consolidated senior housing portfolio and $51.0 million in our former Health Care Services segment.
In the aggregate, for the years ended December 31, 2021 and 2020, we have incurred $173.2 million of facility operating
expense for incremental direct costs to respond to the pandemic, including $47.7 million for the year ended December 31, 2021.
The direct costs include those for: acquisition of additional PPE, medical equipment, and cleaning and disposable food service
supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers
compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by
government payor or third-party insurance sources. For the years ended December 31, 2021 and 2020, we recorded $23.0
million and $105.6 million, respectively, of non-cash impairment charges in our operating results for our operating lease right-
of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower
than expected operating performance at certain communities.
Financial Relief. The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care
Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other
things. Certain impacts of such programs are provided below.
•
•
During the years ended December 31, 2021 and 2020, we accepted $0.8 million and $109.8 million, respectively, of cash
from grants from the Provider Relief Fund administered by HHS, under which grants have been made available to eligible
healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. During the three months
ended December 31, 2021, we applied for the Phase 4 general distribution from the Provider Relief Fund. We expect to
receive the Phase 4 general distribution during the first half of 2022. We intend to pursue any additional funding that may
become available. There can be no assurance that we will qualify for, or receive, such future grants in the amount we
expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by
HHS, or that future funding programs will be made available for which we qualify.
During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment
Program administered by CMS, $75.2 million of which related to our former Health Care Services segment and
$12.3 million of which related to our CCRCs segment. Recoupment of advanced payments began one year after payments
were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at
a rate of 50% of Medicare payments for the next six months. Any outstanding balance of advanced payments will be due
following such recoupment period. During the year ended December 31, 2021, $20.8 million of the advanced payments
47
were recouped. Pursuant to the sale of 80% of our equity in our Health Care Services segment, $63.6 million of such
obligations related to our former Health Care Services segment were retained by the unconsolidated HCS Venture. As of
December 31, 2021, the outstanding balance of advanced payments related to our CCRCs segment was $3.1 million, for
which we expect recoupment during 2022.
•
During the year ended December 31, 2020, we deferred payment of $72.7 million of the employer portion of social security
payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act. Pursuant to the sale
of 80% of our equity in our Health Care Services segment, $9.6 million of such obligations related to our former Health
Care Services segment were retained by the unconsolidated HCS Venture. In December 2021, we paid $31.6 million of the
retained deferred amount and the remaining deferred amount of $31.6 million is due December 31, 2022.
• We were eligible to claim the employee retention credit for certain of our associates under the CARES Act. The credit for
2020 was available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to
orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and
was equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a
maximum credit of $5,000 per employee. During the year ended December 31, 2021, we recognized $9.9 million of
employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for
which we have received $3.4 million in cash as of December 31, 2021. The credit was modified and extended by
subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our
eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, credits in the amount or on
the timing we expect.
In addition to the grants described above, during the years ended December 31, 2021 and 2020, we received and recognized
$1.7 million and $5.9 million, respectively, of other operating income from grants from other government sources.
We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of
operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic
initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which
cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease;
the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the
development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization
of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may
become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of
financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in
demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact
of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment
rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new
residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration
and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health
plan, and other expenses; potentially greater use of contract labor and overtime due to COVID-19 and general labor market
conditions; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other
transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and
other covenants in our debt and lease documents; increased regulatory requirements, including the costs of unfunded,
mandatory testing of residents and associates and provision of test kits to our health plan participants; increased enforcement
actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts;
and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
Community Labor
We continue to experience pressures associated with the intensely competitive labor environment, which during 2021 included
increased associate turnover, difficulty in timely filling open positions, and increasing wages. Continued increased competition
for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low
levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits
package to compete effectively for such associates. We have increased our recruiting efforts to fill open positions, reviewed
wage rates in all of our markets, made appropriate adjustments, and will monitor to remain competitive. We seek to ensure that
our communities are staffed with full and part-time associates and our use of more expensive contract labor and overtime has
increased to cover open positions. Third-party staffing agencies from which we source contract labor have increased the rates
they charge which has resulted in increases in the cost of contract labor. Our labor expense in our same community portfolio
increased 2.6% in 2021 from 2020, and we expect that our same community labor expense will grow at a higher percentage in
48
2022 compared to 2021 as a result of an increase in our labor costs near the end of 2021, merit and market wage rate
adjustments, and an anticipated increase in hours worked as our occupancy levels grow. As we fill more full and part-time
positions, we expect to use less contract labor and overtime.
Resident Fee Rates
The rates charged at communities are highly dependent on local market conditions and the competitive environment in which
the communities operate. Substantially all of our private pay senior housing residency agreements allow for adjustments in the
monthly rate payable on 90 or fewer days’ notice which enables us to seek increases in monthly rates due to inflation or other
factors. Increases for level of care changes or additional services are typically allowed immediately upon notice of the change.
Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an
annual basis beginning January 1 each year. We have recently made the annual rate adjustment for our in-place private pay
residents, which was higher than our typical annual rate adjustment. Such adjustment reflects our increased costs associated
with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the
intensely competitive labor environment. The rate adjustment could result in a decrease in occupancy in our communities, and
any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR
results. In addition, the rate adjustment may not be sufficient to offset our increased costs.
Liquidity
During 2021, we received net cash proceeds of $347.6 million pursuant to the sale of 80% of our equity in our Health Care
Services segment and the resulting HCS Venture's subsequent sale of certain agencies to LHC Group Inc. On October 1, 2021,
we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026. We received net proceeds of
$224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million of the net proceeds to
pay the cost of capped call transactions entered into in connection with the issuance, which are expected generally to reduce or
offset potential dilution to holders of our common stock. During the three months ended December 31, 2021, we repaid a $45.0
million note payable and $284.4 million of mortgage debt, including $143.0 million of mortgage debt on 11 communities for
which we obtained $100.0 million of debt secured by non-recourse first mortgages. Such repayments represented substantially
all of our remaining 2022 maturities.
As of December 31, 2021, our total liquidity was $536.8 million, consisting of $347.0 million of unrestricted cash and cash
equivalents, $182.4 million of marketable securities, and $7.4 million of availability on our secured credit facility. We continue
to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense
discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-strategic or
underperforming owned assets, and seeking further government-sponsored financial relief related to the pandemic. There is no
assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts
will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to
qualify for, any such relief.
Transaction Activity
Sale of Health Care Services
On July 1, 2021, we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA
Healthcare for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Purchase Agreement
dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance
payments and deferred payroll tax payments related to the HCS Sale. We received net cash proceeds of $312.6 million,
including $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital
adjustment in October 2021. The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the
purchaser. At closing of the transaction, we retained a 20% equity interest in the HCS Venture.
The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial
statements as of July 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of
accounting subsequent to that date. As of July 1, 2021, we recognized a $100.0 million asset within investment in
unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling
interest in the HCS Venture. We recognized a $286.5 million gain on sale, net of transaction costs, within our consolidated
statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 21 to the consolidated financial
statements contained in "Item 8. Financial Statements and Supplementary Data" for selected financial data for the Health Care
Services segment through June 30, 2021.
49
On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served
by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, we received $35.0 million of cash distributions from
the HCS Venture from the net sale proceeds, which decreased our investment in unconsolidated ventures. We continue to own a
20% equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy
agencies in areas served by HCA Healthcare.
Community Transactions
During 2021, we continued execution on our ongoing capital recycling program through which we have exited non-strategic or
underperforming owned assets or leases. Such activities during 2021 included the sale of three owned communities and the
termination of triple-net lease obligations on two communities. Additionally, we have reduced our management of communities
on behalf of former unconsolidated ventures and third parties, representing a net reduction of 42 managed communities during
the year.
During the year ended December 31, 2021, we completed the sale of three owned communities (249 units) for cash proceeds of
$16.5 million, net of transaction costs. In addition to the conveyance of five communities to Ventas, Inc. ("Ventas") during the
year ended December 31, 2020, described below, we completed the sale of two owned communities (375 units) for cash
proceeds of $38.1 million, net of transaction costs.
During the year ended December 31, 2022, we expect to close on the disposition of two owned unencumbered communities
(130 units) classified as held for sale as of December 31, 2021 and the termination of our lease obligations on two communities
(194 units) for which we have provided notice of non-renewal. The closings of the various pending and expected transactions
are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.
There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
Summaries of the foregoing transactions are below. See also Note 4 to the consolidated financial statements contained in "Item
8. Financial Statements and Supplementary Data" for more information about the transactions.
Ventas Lease Restructuring
On July 26, 2020 (the "Effective Date"), we entered into definitive agreements with Ventas in connection with the restructuring
of our lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master Agreement"). Pursuant
to the Master Agreement:
•
On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the
"Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master
Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time.
Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual
minimum rent of approximately $100.0 million, which reflects a reduction of approximately $83 million of annual
minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the
annual minimum rent is subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two
10-year extension options available to us. The annual minimum rent for the initial lease year of any such renewal term will
be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year
applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically
extended the initial term in the event of the consummation of a change of control transaction by us. The Master Lease
requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit
on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term,
commencing with the 24-month period ended December 31, 2021. In addition, Ventas agreed to fund costs associated with
certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of
such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement
multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with
Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.
Our subsidiaries' obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The
Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a
security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the
basis of parent level financial covenants. Pursuant to the terms of the Guaranty, we may consummate a change of control
transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-
transaction guarantor’s maintaining a minimum tangible net worth of at least $600.0 million, having minimum levels of
50
•
•
•
operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to
Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a
maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the
occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until
such time (if any) as we exercise our lease term extension option with respect to the Master Lease), Ventas shall have the
right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month
coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such
communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease
that is less than the portfolio coverage ratio prior to such removal and termination.
On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides
that if a default occurs and is continuing under certain other material leases or under certain material financings and if the
same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies,
Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management
arrangement with us pursuant to a market management agreement (which is terminable by either party). Notwithstanding
the foregoing, Ventas may only transition one or more communities from the Master Lease to a management arrangement
if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master
Lease that is less than the portfolio coverage ratio prior to such transition.
On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78.4
million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new
terminable, market rate management agreements pursuant to which we manage the communities. We also paid to Ventas
$115.0 million in cash, released all security deposits to Ventas under the former guaranty (which included the release of a
$42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of
credit), and issued a $45.0 million unsecured interest-only promissory note to Ventas. The initial interest rate of the
promissory note was 9.0% per annum and was subject to increase by 0.50% on each anniversary of the date of issuance.
The promissory note was scheduled to mature on the earlier of December 31, 2025 or the occurrence of a change of control
transaction (as defined in the Guaranty). In October 2021, we repaid the $45.0 million promissory note without premium or
penalty.
On the Effective Date, we issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of our common stock,
$0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from
time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise
of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits,
reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To
the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6%
of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of
capital stock (the "Ownership Cap") (other than as a result of actions taken by Ventas), we would generally be required to
repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election
to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The
Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as
amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties
entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain
registration rights. Pursuant to the terms of the agreement, we filed a shelf registration statement with the SEC with respect
to the shares of common stock underlying the Warrant, which was declared effective on August 17, 2020. Ventas is entitled
to customary underwritten offering, piggyback, and additional demand registration rights with respect to the shares
underlying the Warrant.
Healthpeak CCRC Venture and Master Lease Transactions
On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the
"MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with
Healthpeak Properties, Inc. ("Healthpeak"). The parties subsequently amended the agreements to include one additional entry
fee CCRC community as part of the sale of our interest in our unconsolidated entry fee CCRC venture with Healthpeak (the
"CCRC Venture") (rather than removing the community from the CCRC Venture for joint marketing and sale). The
components of the multi-part transaction included:
•
CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51%
ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units) for a total purchase price of $289.2
51
million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended
June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital
adjustment). We recognized a $369.8 million gain on sale of assets for year ended December 31, 2020, and we
derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the
parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million
management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator. We
recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management
termination fee. The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees
generated approximately $579.0 million of taxable income in three months ended March 31, 2020. We utilized operating
losses and tax loss carryforwards to offset the federal taxable gain on this transaction. Prior to the January 31, 2020 closing,
the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the
same terms as the CCRC Venture to accommodate the sale of such two communities.
• Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing
master lease pursuant to which we continued to lease 25 communities (2,711 units) from Healthpeak, and we acquired 18
formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the
master lease. At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the
amended and restated master lease. We funded the community acquisitions with $192.6 million of non-recourse mortgage
financing and the proceeds from the multi-part transaction. In addition, Healthpeak agreed to terminate the lease for one
leased community (159 units), which occurred during December 2020. With respect to the continuing 24 communities
(2,552 units), our amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two
extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased
communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4%
per annum on April 1st of each year; and (iii) Healthpeak agreed to make available up to $35.0 million for capital
expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the
community acquisition transaction, we recognized a $19.7 million gain on debt extinguishment during the year ended
December 31, 2020 and derecognized the $105.1 million carrying amount of financing lease obligations for eight
communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing
involvement. During March 2020, we obtained $30.0 million of additional non-recourse mortgage financing on the
acquired communities.
During the year ended December 31, 2021, the new unconsolidated entry fee CCRC venture completed the sale of the two
remaining entry fee CCRCs for cash proceeds of $14.0 million, net of associated mortgage debt repayments and transaction
costs. Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations. During
the year ended December 31, 2021, we received $8.3 million of cash distributions from the new unconsolidated entry fee CCRC
venture and recognized $13.6 million of equity in earnings of unconsolidated ventures for our proportionate share of the net
income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the
sale of the two remaining entry fee CCRCs. Subsequent to these transactions, we have exited substantially all of our entry fee
CCRC operations.
Additional Acquisitions Pursuant to Purchase Option
On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc. pursuant
to our exercise of a purchase option for a purchase price of $39.3 million. We funded the community acquisitions with cash on
hand. During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily
secured by the acquired communities. On August 31, 2020, we acquired one formerly leased community (103 units) pursuant to
our exercise of a purchase option for a purchase price of $25.0 million and funded the acquisition with cash on hand and non-
recourse mortgage financing secured by the acquired community.
52
Revenue and Operating Expense Impacts of Transaction Activity
The table below sets forth our resident fee revenue and facility operating expense attributable to our former Health Care
Services segment and communities disposed since January 1, 2019.
(in thousands)
Resident fee revenue attributable to Health Care Services and disposed
communities
Facility operating expense attributable to Health Care Services and
disposed communities
Years Ended December 31,
2021
2020
2019
$
186,080 $
420,118 $
581,554
184,275
440,867
546,597
Results of Operations
As of December 31, 2021, our total operations included 679 communities with a capacity to serve over 60,000 residents. As of
that date, we owned 347 communities (31,636 units), leased 299 communities (20,949 units), and managed 33 communities
(4,824 units). The following discussion should be read in conjunction with our consolidated financial statements and the related
notes, which are included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. The
results of operations for any particular period are not necessarily indicative of results for any future period. Transactions
completed during the period of January 1, 2020 to December 31, 2021 affect the comparability of our results of operations, and
summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity."
We use the operating measures described below in connection with operating and managing our business and reporting our
results of operations.
•
•
•
Senior housing operating results and data presented on a same community basis reflect results and data of a consistent
population of communities by excluding the impact of changes in the composition of our portfolio of communities. The
operating results exclude natural disaster expense and related insurance recoveries. We define our same community
portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated
communities excluded from the same community portfolio include communities acquired or disposed of since the
beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition,
certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and
certain communities that have experienced a casualty event that significantly impacts their operations. Our management
uses same community operating results and data for decision making, and we believe such results and data provide useful
information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent
portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the
comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and
communities with results that are or likely will be impacted by completed or in-process development-related capital
expenditure projects. As presented herein, same community results include the direct costs incurred to respond to the
COVID-19 pandemic.
RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for
the corresponding portfolio for the period (excluding revenue from our former Health Care Services segment, revenue for
private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the
weighted average number of available units in the corresponding portfolio for the period, divided by the number of months
in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our
Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR for
decision making, and we believe the measure provides useful information to investors, because the measure is an indicator
of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.
RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for
the corresponding portfolio for the period (excluding revenue from our former Health Care Services segment, revenue for
private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the
weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months
in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our
Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for
decision making, and we believe the measure provides useful information to investors, because it reflects the average
53
amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy
rates. RevPOR is a significant driver of our senior housing revenue performance.
• Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by
residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and
Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same
community basis. Our management uses weighted average occupancy, and we believe the measure provides useful
information to investors, because it is a significant driver of our senior housing revenue performance.
This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for
our definition of the measure and other important information regarding such measure, including reconciliations to the most
comparable GAAP measure.
As of December 31, 2021, we had three reportable segments: Independent Living; Assisted Living and Memory Care; and
CCRCs. These segments were determined based on the way that our chief operating decision maker organizes our business
activities for making operating decisions, assessing performance, developing strategy, and allocating capital resources. On July
1, 2021, we sold 80% of our equity in our Health Care Services segment. For periods beginning July 1, 2021, the results and
financial position of our Health Care Services segment were deconsolidated from our consolidated financial statements and our
20% equity interest in the Health Care Services venture is accounted for under the equity method of accounting.
As of December 31, 2021, our Management Services operating segment is no longer identified as a reportable segment as a
result of the reduction in the number of communities we manage, which has reduced the operating segment's revenue, operating
income, and assets below the reporting threshold.
Discussion of our financial condition and results of operations for the year ended December 31, 2021 compared to the year
ended December 31, 2020 is presented below. Discussion of our financial condition and results of operations for the year ended
December 31, 2020 compared to the year ended December 31, 2019 can be found in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2020, filed with the SEC on February 25, 2021.
Comparison of Years Ended December 31, 2021 and 2020
Summary Operating Results
The following table summarizes our overall operating results for the years ended December 31, 2021 and 2020.
(in thousands)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Total resident fees and management fees revenue
$ 2,564,446 $ 3,023,257 $
(458,811)
Other operating income
Facility operating expense
Net income (loss)
Adjusted EBITDA
12,368
115,749
2,075,863
2,341,859
(99,364)
138,476
81,945
264,387
(103,381)
(265,996)
(181,309)
(125,911)
(15.2) %
(89.3) %
(11.4) %
NM
(47.6) %
The decrease in total resident fees and management fees revenue was primarily attributable to a $348.7 million decrease in
resident fees, including a 5.0% decrease in same community RevPAR, comprised of a 620 basis point decrease in same
community weighted average occupancy and a 3.2% increase in same community RevPOR. In addition, the deconsolidation of
results of the Health Care Services segment effective July 1, 2021 resulted in a decrease of $181.8 million of resident fees
compared to prior year. The disposition of 17 communities through sales and conveyances of owned communities and lease
terminations since the beginning of the prior year resulted in $41.4 million less in resident fees during the year ended
December 31, 2021 compared to the prior year. Management fee revenue decreased $110.1 million primarily due to $100.0
million of management fee revenue recognized during the prior year for the management termination fee payment from
Healthpeak and transition of management agreements on 67 net communities subsequent to the beginning of the prior year.
During the years ended December 31, 2021 and 2020, we recognized $12.4 million and $115.7 million, respectively, of
government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the
conditions of the grants and credits during the period.
54
The decrease in facility operating expense was primarily attributable to a $216.4 million decrease in facility operating expenses
for the Health Care Services segment, primarily due to deconsolidation of results of the segment effective July 1, 2021, which
resulted in a $186.4 million decrease in facility operating expenses. Additionally, the disposition of communities since the
beginning of the prior year resulted in $40.2 million less in facility operating expense during the year ended December 31, 2021
compared to the prior year. Same community facility operating expense decreased 0.6% which was primarily due to a $52.9
million decrease in non-labor incremental direct costs to respond to the COVID-19 pandemic. The decrease in same community
facility operating expense was partially offset by a $30.2 million, or 2.6%, increase in our same community labor expense
primarily resulting from an increase in the use of contract labor and overtime to cover open positions, offset by decreases in
incremental direct labor costs to respond to the COVID-19 pandemic and decreases in employee benefit expense and workers
compensation expense due to lower claims. For the year ended December 31, 2022, we expect our same community labor
expense will grow at a higher percentage as a result of an increase in our labor costs near the end of 2021, merit and market
wage rate adjustments, and an anticipated increase in hours worked as our occupancy levels grow. Facility operating expense
for the years ended December 31, 2021 and 2020 includes $47.7 million and $125.5 million, respectively, of incremental direct
costs to respond to the COVID-19 pandemic.
The change in net income (loss) was primarily attributable to the net impact of the revenue, other operating income, and facility
operating expense factors previously discussed, as well as an $85.7 million decrease in net gain on sale of assets, primarily due
to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior
year compared to the $286.5 million gain related to the sale of 80% of our equity in our Health Care Services segment in the
current year. These decreases were partially offset by decreases in non-cash asset impairment expense, facility operating lease
expense, general and administrative expense, and depreciation and amortization expense compared to the prior year period.
The decrease in Adjusted EBITDA was primarily attributable to the revenue, other operating income, and facility operating
expense factors previously discussed, partially offset by a $162.7 million decrease in cash facility operating lease payments,
primarily reflecting reduced cash lease payments as a result of the lease restructuring transaction with Ventas on July 26, 2020,
and a decrease in general and administrative expense as a result of the HCS Sale.
55
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living,
Assisted Living and Memory Care, and CCRCs) on a combined basis for the years ended December 31, 2021 and 2020
including operating results and data on a same community basis. See management's discussion and analysis of the operating
results on an individual segment basis on the following pages.
(in thousands, except communities, units, occupancy,
RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Resident fees
Other operating income
Facility operating expense
Number of communities (period end)
Number of units (period end)
Total average units
RevPAR
Occupancy rate (weighted average)
RevPOR
Same Community Operating Results and Data
Resident fees
Other operating income
Facility operating expense
Number of communities
Total average units
RevPAR
$ 2,369,684
$ 2,525,757
$ (156,073)
$
9,263
$ 92,862
$ (83,599)
$ 1,904,410
$ 1,954,025
$ (49,615)
646
52,585
52,840
651
52,982
53,687
$
3,734
$
3,917
$
(5)
(397)
(847)
(183)
71.5 %
77.5 %
(600) bps
$
5,221
$
5,054
$
167
$ 2,224,458
$ 2,342,245
$ (117,787)
$
8,324
$ 83,446
$ (75,122)
$ 1,778,352
$ 1,789,615
$ (11,263)
632
49,655
632
49,652
—
3
$
3,733
$
3,931
$
(198)
Occupancy rate (weighted average)
71.5 %
77.7 %
(620) bps
RevPOR
$
5,221
$
5,061
$
160
(6.2) %
(90.0) %
(2.5) %
(0.8) %
(0.7) %
(1.6) %
(4.7) %
n/a
3.3 %
(5.0) %
(90.0) %
(0.6) %
—
—
(5.0) %
n/a
3.2 %
56
Independent Living Segment
The following table summarizes the operating results and data for our Independent Living segment for the years ended
December 31, 2021 and 2020, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy,
RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Resident fees
Other operating income
Facility operating expense
Number of communities (period end)
Number of units (period end)
Total average units
RevPAR
Occupancy rate (weighted average)
RevPOR
Same Community Operating Results and Data
Resident fees
Other operating income
Facility operating expense
Number of communities
Total average units
RevPAR
$ 475,538
$ 512,598
$ (37,060)
$
1,512
$ 11,823
$ (10,311)
$ 330,942
$ 341,608
$ (10,666)
68
12,567
12,556
68
12,534
12,533
—
33
23
$
3,156
$
3,408
$
(252)
74.2 %
81.8 %
(760) bps
$
4,252
$
4,165
$
87
$ 461,962
$ 499,576
$ (37,614)
$
1,474
$ 11,536
$ (10,062)
$ 320,700
$ 331,360
$ (10,660)
66
12,164
66
12,157
—
7
$
3,165
$
3,425
$
(260)
Occupancy rate (weighted average)
74.3 %
81.8 %
(750) bps
RevPOR
$
4,262
$
4,187
$
75
(7.2) %
(87.2) %
(3.1) %
—
0.3 %
0.2 %
(7.4) %
n/a
2.1 %
(7.5) %
(87.2) %
(3.2) %
—
0.1 %
(7.6) %
n/a
1.8 %
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR,
comprised of a 750 basis point decrease in same community weighted average occupancy and a 1.8% increase in same
community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of
1,340 basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19
pandemic, which was partially offset by a 190 basis points increase in weighted average occupancy thereafter through
December 2021. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.
The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same
community facility operating expense, including a $10.1 million decrease in incremental direct costs to respond to the
COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the year. These decreases in the segment's
same community facility operating expense were partially offset by an increase in advertising costs as we scaled back
advertising during the prior year as a result of the initial year of the pandemic. The segment's facility operating expense for the
years ended December 31, 2021 and 2020 includes $5.9 million and $16.1 million, respectively, of incremental direct costs to
respond to the COVID-19 pandemic.
57
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the years
ended December 31, 2021 and 2020, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy,
RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Resident fees
Other operating income
Facility operating expense
Number of communities (period end)
Number of units (period end)
Total average units
RevPAR
Occupancy rate (weighted average)
RevPOR
Same Community Operating Results and Data
Resident fees
Other operating income
Facility operating expense
Number of communities
Total average units
RevPAR
$ 1,589,721
$ 1,691,276
$ (101,555)
$
5,963
$ 62,585
$ (56,622)
$ 1,301,364
$ 1,325,260
$ (23,896)
559
34,816
34,977
563
35,126
35,530
$
3,787
$
3,967
$
(4)
(310)
(553)
(180)
70.7 %
76.5 %
(580) bps
$
5,357
$
5,184
$
173
$ 1,561,748
$ 1,646,054
$ (84,306)
$
5,771
$ 61,145
$ (55,374)
$ 1,277,679
$ 1,284,251
$
(6,572)
553
34,306
553
34,310
—
(4)
$
3,794
$
3,998
$
(204)
Occupancy rate (weighted average)
70.6 %
76.5 %
(590) bps
RevPOR
$
5,374
$
5,224
$
150
(6.0) %
(90.5) %
(1.8) %
(0.7) %
(0.9) %
(1.6) %
(4.5) %
n/a
3.3 %
(5.1) %
(90.6) %
(0.5) %
—
—
(5.1) %
n/a
2.9 %
The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR,
comprised of a 590 basis point decrease in same community weighted average occupancy and a 2.9% increase in same
community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of
1,360 basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19
pandemic, which was partially offset by a 510 basis points increase in weighted average occupancy thereafter through
December 2021. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.
Additionally, the disposition of 14 communities (1,120 units) since the beginning of the prior year resulted in $18.7 million less
in resident fees during the year ended December 31, 2021 compared to the prior year.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the
beginning of the prior year, which resulted in $17.6 million less in facility operating expense during the year ended
December 31, 2021 compared to the prior year, and a decrease in the segment's same community facility operating expense.
The decrease in the segment's same community facility operating expense was primarily attributable to a $41.2 million decrease
in non-labor incremental direct costs to respond to the COVID-19 pandemic. The decrease in the segment's same community
facility operating expense was partially offset by a $26.3 million, or 3.1%, increase in the segment's same community labor
expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, offset by
decreases in incremental direct labor costs to respond to the COVID-19 pandemic and decreases in employee benefit expense
and workers compensation expense due to lower claims. The segment's facility operating expense for the years ended
December 31, 2021 and 2020 includes $32.3 million and $82.5 million, respectively, of incremental direct costs to respond to
the COVID-19 pandemic.
58
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the years ended December 31, 2021
and 2020, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy,
RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Resident fees
Other operating income
Facility operating expense
Number of communities (period end)
Number of units (period end)
Total average units
RevPAR
Occupancy rate (weighted average)
RevPOR
Same Community Operating Results and Data
Resident fees
Other operating income
Facility operating expense
Number of communities
Total average units
RevPAR
$ 304,425
$ 321,883
$ (17,458)
$
1,788
$ 18,454
$ (16,666)
$ 272,104
$ 287,157
$ (15,053)
19
5,202
5,307
4,753
$
20
5,322
5,624
4,738
$
$
(1)
(120)
(317)
15
70.6 %
74.2 %
(360) bps
$
6,733
$
6,389
$
344
$ 200,748
$ 196,615
$
1,079
$ 10,765
$ 179,973
$ 174,004
$
$
$
4,133
(9,686)
5,969
13
3,185
5,252
$
13
3,185
5,144
$
—
—
$
108
Occupancy rate (weighted average)
70.9 %
74.3 %
(340) bps
RevPOR
$
7,410
$
6,923
$
487
(5.4) %
(90.3) %
(5.2) %
(5.0) %
(2.3) %
(5.6) %
0.3 %
n/a
5.4 %
2.1 %
(90.0) %
3.4 %
—
—
2.1 %
n/a
7.0 %
The decrease in the segment's resident fees was primarily attributable to the disposition of three communities (576 units) since
the beginning of the prior year, which resulted in $22.7 million less in resident fees during the year ended December 31, 2021
compared to the prior year. The decrease in the segment's resident fees was partially offset by an increase in the segment's same
community RevPAR, comprised of a 7.0% increase in same community RevPOR and a 340 basis point decrease in same
community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of
an occupancy mix shift from less independent living services to more skilled nursing services within the segment and in-place
rent increases. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of 1,440
basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19 pandemic,
which was partially offset by a 640 basis points increase in weighted average occupancy thereafter through December 2021.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the
beginning of the prior year, which resulted in $22.6 million less in facility operating expense during the year ended
December 31, 2021 compared to the prior year period, partially offset by an increase in the segment's same community facility
operating expense. The increase in the segment's same community facility operating expense was primarily attributable to a
$6.9 million, or 5.9%, increase in the segment's same community labor expense primarily resulting from an increase in the use
of contract labor and overtime to cover open positions, offset by decreases in incremental direct labor costs to respond to the
COVID-19 pandemic and decreases in employee benefit expense and workers compensation expense due to lower claims. The
segment's facility operating expense for the years ended December 31, 2021 and 2020 includes $7.4 million and $18.8 million,
respectively, of incremental direct costs to respond to the COVID-19 pandemic.
59
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating results for the years ended December 31,
2021 and 2020.
(in thousands)
Years Ended
December 31,
Increase (Decrease)
2021
2020
Amount
Percent
Management fees
Reimbursed costs incurred on behalf of managed communities
$
20,598 $ 130,690 $ (110,092)
(219,744)
401,189
181,445
Costs incurred on behalf of managed communities
General and administrative expense
Facility operating lease expense
Depreciation and amortization
Asset impairment
181,445
184,916
174,358
337,613
23,003
401,189
206,575
224,033
359,226
107,308
(219,744)
(21,659)
(49,675)
(21,613)
(84,305)
Loss (gain) on facility operating lease termination, net
(2,003)
(2,303)
300
Interest income
Interest expense
Gain (loss) on debt modification and extinguishment, net
Equity in earnings (loss) of unconsolidated ventures
Gain (loss) on sale of assets, net
Other non-operating income (loss)
Benefit (provision) for income taxes
1,349
4,799
195,140
208,779
(1,932)
10,896
(3,450)
(13,639)
(12,828)
10,394
288,835
5,903
8,163
(2,107)
12,501
374,532
(85,697)
(22.9) %
5,648
255
(5,352)
13,515
4.5 %
NM
(84.2) %
(54.8) %
(54.8) %
(10.5) %
(22.2) %
(6.0) %
(78.6) %
13.0 %
(71.9) %
(6.5) %
NM
NM
Management Fees. The decrease in management fees was primarily attributable to $100.0 million of management agreement
termination fees recognized for the year ended December 31, 2020 for the management agreement termination fee received
from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture. As of December 31, 2021, we
have completed the transition of management arrangements on 67 net communities since the beginning of the prior year,
generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim
management arrangements on formerly leased communities. Management fees of $20.6 million for the year ended
December 31, 2021 include $5.2 million of management agreement termination fees and $2.7 million of other management fees
attributable to communities for which our management agreements were terminated during such period.
Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities. The
decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of
management agreements subsequent to the beginning of the prior year.
General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to
decreases in transaction and organizational restructuring costs, compensation costs as a result of reductions in our corporate
headcount related to the sale of 80% of our equity in our Health Care Services segment and as we scaled our general and
administrative costs in connection with community dispositions, and non-cash stock-based compensation expense. These
decreases were partially offset by an increase in incentive compensation costs. General and administrative expense includes
transaction and organizational restructuring costs of $3.8 million and $13.4 million for the years ended December 31, 2021 and
2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity,
and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and
other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and
administrative expense and our senior leadership changes, including severance costs. General and administrative expense of
$184.9 million for the year ended December 31, 2021 includes direct general and administrative expense attributable to the
Health Care Services segment, which was deconsolidated on July 1, 2021.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease
portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year.
60
Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity
since the beginning of the prior year and leasehold improvements for certain leased communities becoming fully depreciated
since the beginning of the prior year.
Asset Impairment. During the current year, we recorded $23.0 million of non-cash impairment charges, primarily for right-of-
use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and
for natural disaster related property damage sustained at certain communities during the year. During the prior year, we
recorded $107.3 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with
decreased future cash flow estimates as a result of the COVID-19 pandemic.
Interest Expense. The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt,
reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the
beginning of the prior year.
Gain (Loss) on Debt Modification and Extinguishment, Net. The decrease in gain (loss) on debt modification and
extinguishment, net was primarily due to a $19.7 million gain on debt extinguishment recognized during the year ended
December 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight
communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing
involvement. This gain was partially offset by $7.9 million of costs incurred during the three months ended September 30, 2020
for debt modifications and extinguishments.
Equity in Earnings (Loss) of Unconsolidated Ventures. The change in equity in earnings (loss) of unconsolidated ventures was
primarily due to the gain on sale of assets recognized by our CCRC Venture for the sale of the two remaining entry fee CCRCs
during the current year.
Gain (Loss) on Sale of Assets, Net. The decrease in gain on sale of assets, net was primarily due to a $369.8 million gain on sale
of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year compared to the
$286.5 million gain related to the HCS Sale in the current year.
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the years ended December 31, 2021 and
2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended
March 31, 2020 and the HCS Sale in the three months ended September 30, 2021. The impact represented the tax expense
recorded on the gain on the sale of our interest in the CCRC Venture and the HCS Sale, offset by a decrease in the valuation
allowance that was a direct result of the multi-part transaction with Healthpeak and the HCS Sale.
We recorded an aggregate deferred federal, state, and local tax expense of $3.2 million for the year ended December 31, 2021,
of which $104.3 million was recorded as the result of the HCS Sale that occurred on July 1, 2021, offset by a benefit of $101.1
million as a result of the operating loss for the year ended December 31, 2021. The tax expense was offset by a decrease in the
valuation allowance of $13.0 million, resulting from the HCS Sale, current operating losses, and the anticipated reversal of
future tax liabilities offset by future tax deductions.
We recorded an aggregate deferred federal, state, and local tax expense of $22.1 million for the year ended December 31, 2020.
The expense includes $93.1 million as a result of the gain on the sale of our ownership interest in the CCRC Venture, offset by
a benefit of $115.2 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the year ended
December 31, 2020. The tax expense for the year ended December 31, 2020 is offset by a reduction in valuation allowance of
$27.9 million.
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below
for our definition of the measure and other important information regarding such measure, including reconciliations to the most
comparable GAAP measure.
61
Liquidity
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the consolidated
statements of cash flows, and our Adjusted Free Cash Flow.
(in thousands)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Years Ended December 31,
2021
2020
Increase
(Decrease)
Amount
$
(94,634) $
205,649 $
(300,283)
181,457
(425,111)
(113,657)
382,913
606,568
(496,570)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(26,834)
163,451
(190,285)
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Adjusted Free Cash Flow
465,148
301,697
438,314 $
465,148 $
163,451
(26,834)
(286,694) $
24,181 $
(310,875)
$
$
The change in net cash provided by (used in) operating activities was attributable primarily to a decrease in same community
revenue compared to the prior year, a $111.8 million decrease in government grants and credits received compared to the prior
year, the $100.0 million management agreement termination fee payment received from Healthpeak in connection with the sale
of our ownership interest in the CCRC Venture in the prior year, $87.5 million of cash received under the Medicare accelerated
and advance payment program in the prior year, and the $104.3 million net impact of the $72.7 million of the employer portion
of social security payroll taxes deferred during the prior year compared to $31.6 million paid in the current year for the prior
year deferred amount. These changes were partially offset by a $162.7 million decrease in cash facility operating lease
payments, including the impact of the $119.2 million one-time cash lease payment made to Ventas in connection with our lease
restructuring transaction with Ventas effective July 26, 2020. Net cash used in operating activities of $94.6 million in the
current year reflects the significant disruption on our business as a result of the COVID-19 pandemic and $52.4 million of
repayments and recoupments in the current year as a result of the temporary liquidity relief under the CARES Act received in
the prior year.
The change in net cash provided by (used in) investing activities was primarily attributable to $472.2 million of cash paid for
the acquisition of communities during the prior year, a $78.0 million increase in proceeds from sales and maturities of
marketable securities, a $37.1 million increase in distributions received from unconsolidated ventures, a $16.0 million decrease
in purchases of marketable securities, and a $9.2 million decrease in cash paid for capital expenditures compared to the prior
year. The change also includes an increase of $2.7 million in proceeds from sale of assets. During the current year, we received
net cash proceeds of $312.5 million for the sale of 80% of our equity in our Health Care Services segment. During the prior
year, we received $289.2 million of net proceeds for the sale of our interest in our unconsolidated entry fee CCRC venture with
Healthpeak.
The change in net cash provided by (used in) financing activities was primarily attributable to a $610.1 million decrease in debt
proceeds compared to the prior year, partially offset by a $97.3 million decrease in repayment of debt and financing lease
obligations and an $18.1 million decrease in cash paid for share repurchases.
The change in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating
activities.
Our principal sources of liquidity have historically been from:
•
•
•
•
•
•
•
cash balances on hand, cash equivalents, and marketable securities;
cash flows from operations;
proceeds from our credit facilities;
funds generated through unconsolidated venture arrangements;
proceeds from mortgage financing or refinancing of various assets;
funds raised in the debt or equity markets; and
proceeds from the disposition of assets.
62
Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. We also have
received pandemic-related government relief, including cash grants and advanced Medicare payments, and we have elected to
utilize pandemic-related payroll tax deferral program, each as described above.
Our liquidity requirements have historically arisen from:
•
•
•
•
•
•
•
•
•
working capital;
operating costs such as employee compensation and related benefits, severance costs, general and administrative expense,
and supply costs;
debt, interest, and lease payments;
acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;
capital expenditures and improvements, including the expansion, repositioning, redeveloping, and major renovation of our
current communities and the development of new communities;
cash collateral required to be posted in connection with our financial instruments and insurance programs;
purchases of common stock under our share repurchase authorizations;
other corporate initiatives (including integration, information systems, branding, and other strategic projects); and
prior to 2009, dividend payments.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
•
•
•
•
•
•
•
•
•
•
working capital;
operating costs such as employee compensation and related benefits, severance costs, general and administrative expense,
and supply costs, including those related to the COVID-19 pandemic;
debt, interest, and lease payments;
payment of deferred payroll taxes under the CARES Act;
recoupment of payments received under the Accelerated and Advance Payment Program;
acquisition consideration;
transaction costs and investment in our healthcare and wellness initiatives;
capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our
existing communities;
cash collateral required to be posted in connection with our financial instruments and insurance programs; and
other corporate initiatives (including information systems and other strategic projects).
We are highly leveraged and have significant debt and lease obligations. As of December 31, 2021, we had $3.8 billion of debt
outstanding, at a weighted average interest rate of 3.4%. As of such date, 94.1%, or $3.6 billion, of our total debt obligations
represented non-recourse property-level mortgage financings. As of December 31, 2021, our 2022 mortgage debt maturities are
$30.0 million, excluding recurring monthly principal payments.
As of December 31, 2021, we had $1.4 billion of operating and financing lease obligations. For the year ending December 31,
2022, we will be required to make approximately $272.8 million of cash lease payments in connection with our existing
operating and financing leases.
As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million
secured credit facility. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as
of December 31, 2021, under which $13.6 million had been issued as of that date.
Total liquidity of $536.8 million as of December 31, 2021 included $347.0 million of unrestricted cash and cash equivalents
(excluding restricted cash of $91.3 million), $182.4 million of marketable securities, and $7.4 million of availability on our
secured credit facility. Total liquidity as of December 31, 2021 decreased $38.7 million from total liquidity of $575.5 million as
of December 31, 2020. The decrease was primarily attributable to $355.9 million of payments of mortgage debt, negative
$286.7 million of Adjusted Free Cash Flow, the repayment of a $45.0 million note payable, and $15.9 million paid for the
capped call transactions. These decreases in liquidity were partially offset by net cash proceeds of $347.6 million pursuant to
the sale of 80% of our equity in our Health Care Services segment and the resulting HCS Venture's subsequent sale of certain
agencies to LHC Group Inc., $224.3 million of net proceeds at closing for our offering of $230.0 million principal amount of
2.00% convertible senior notes due 2026, and $100.0 million of proceeds from mortgage debt.
We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash
balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next
12 months. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR,
63
maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-
strategic or underperforming owned assets, and seeking further government-sponsored financial relief related to the pandemic.
There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that
our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions
required to qualify for, any such relief.
Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual
level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item
1A. Risk Factors." The amount of mortgage financing available for our communities is generally dependent on their appraised
values and performance. In addition, our inability to satisfy underwriting criteria for individual communities may limit our
access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. Due to lower operating
performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 we sought and obtained non-
agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness. Until our communities’
performance recovers, we plan to refinance maturities using non-agency financing, and we expect our loan proceeds from such
financing generally will be insufficient to fully cover maturing mortgage indebtedness. We have pre-paid substantially all of our
2022 maturities. Our inability to obtain refinancing proceeds sufficient to cover 2023 and later maturing indebtedness could
adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less
attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may
have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment,
development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In
order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease
financing to provide additional funding. There can be no assurance that any such additional financing will be available or on
terms that are acceptable to us.
Capital Expenditures
Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level
capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence and for
unit turnovers over $500 per unit) and community renovations, apartment upgrades, and other major building infrastructure
projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our
support platform and, prior to July 1, 2021, healthcare services programs, and the remediation or replacement of assets as a
result of casualty losses. Development capital expenditures include community expansions, major community redevelopment
and repositioning projects, and the development of new communities.
With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our
communities where economically advantageous. Certain of our communities may benefit from additions and expansions or
from adding a new level of service for residents to meet the evolving needs of our customers. These development projects
include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not
currently present, or physical plant modifications.
The following table summarizes our capital expenditures for the year ended December 31, 2021 for our consolidated business.
(in millions)
Community-level capital expenditures, net (1)
Corporate capital expenditures, net (2)
Non-development capital expenditures, net (3)
Development capital expenditures, net
Total capital expenditures, net
$
$
109.7
27.7
137.4
3.2
140.6
(1) Reflects the amount invested, net of lessor reimbursements of $42.1 million.
(2) Includes $10.7 million of remediation costs at our communities resulting from natural disasters.
(3) Amount is included in Adjusted Free Cash Flow.
In the aggregate, we expect our full-year 2022 non-development capital expenditures, net of anticipated lessor reimbursements,
to be approximately $160.0 million. In addition, we expect our full-year 2022 development capital expenditures to be
approximately $20.0 million, net of anticipated lessor reimbursements, and such projects include those for expansion,
64
repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2022
capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and
reimbursements from lessors. As of December 31, 2021, the average age of the buildings in our consolidated senior housing
portfolio was approximately 24 years. To support our strategy and to protect the value of our community portfolio and ensure
that our communities are in appropriate physical condition, we expect that our community-level non-development capital
expenditures, net of lessor reimbursements will continue at annual levels of approximately $2,000 to $2,500 per unit. Our
community-level non-development capital expenditures, net of lessor reimbursements, were $2,077 per unit in 2021, and our
2022 plans equate to approximately $2,500 per unit.
Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring
opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to
continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing
resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any
such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be
certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly
issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to
raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Indebtedness
As of December 31, 2021, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 3.37%. As of such
date, 94.1%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of
December 31, 2021, we had approximately $2.4 billion of long-term fixed rate debt (including our $230.0 million principal
amount of 2.00% convertible senior notes due 2026), at a weighted average interest rate of 3.94%.
Increases in prevailing interest rates as a result of inflation or other factors will increase our payment obligations on our
variable-rate obligations to the extent they are unhedged and may increase our future borrowing and hedging costs. In the
normal course of business, we enter into interest rate agreements with major financial institutions to manage our risk above
certain interest rates on variable rate debt. Although we have interest rate cap agreements in place for a majority of our variable-
rate debt, these agreements only limit our exposure to increases in interest rates above certain levels and generally must be
renewed every two to three years. As of December 31, 2021, we had approximately $1.5 billion of long-term variable rate debt,
at a weighted average interest rate of 2.44%. As of such date, $1.2 billion of our debt is variable rate debt subject to interest rate
cap agreements. The remaining $226.9 million of our long-term variable rate debt is not subject to any interest rate cap
agreements.
The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of
December 31, 2021 are as follows (in thousands).
Years Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total obligations
Less amount representing deferred financing costs, net
Total
Long-term
Debt
Weighted
Rate
3.54 %
3.49 %
4.29 %
2.81 %
2.38 %
3.43 %
3.37 %
$
68,609
234,453
304,294
348,044
309,269
2,606,389
3,871,058
(29,846)
$ 3,841,212
65
Convertible Senior Notes
On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes"). We
received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million
of the net proceeds to pay the cost of the capped call transactions described below. Additionally, we used the remaining net
proceeds together with cash on hand to repay $284.4 million of mortgage debt and a $45.0 million note payable.
The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between us and
American Stock Transfer & Trust Company, LLC, as trustee. The Notes are our senior unsecured obligations and rank senior in
right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of
payment to any of our indebtedness that is not so subordinated. The Notes are effectively junior in right of payment to any of
our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all
indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries.
The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year,
beginning on April 15, 2022. The Notes will mature on October 15, 2026, unless earlier converted, redeemed or repurchased in
accordance with their terms. Holders of the Notes may convert all or any portion of their Notes at their option at any time prior
to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances: (1)
during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such
calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive)
during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding
calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five
business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per
$1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our common stock and the conversion rate for the Notes on each such trading day; (3) if we call any or all
of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately
preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the
occurrence of specified corporate events. On or after July 15, 2026, holders may convert all or any portion of their Notes at any
time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of
the foregoing conditions. Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may
be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election.
The conversion rate for the Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of Notes
(equivalent to an initial conversion price of approximately $8.10 per share of common stock). The conversion rate will be
subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain
corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will increase the
conversion rate for a holder who elects to convert our Notes in connection with such a corporate event or who elects to convert
any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.
We may not redeem the Notes prior to October 21, 2024. We may redeem for cash all or (subject to certain limitations) any
portion of the Notes, at our option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately
preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price
then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including
the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we
provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to
repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal
amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase
date.
The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to
be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. The Notes were
issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public
offering. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believed are
"qualified institutional buyers," as defined in, and in accordance with, Rule 144A under the Securities Act.
66
In connection with the offering of the Notes, we entered into privately negotiated capped call transactions ("Capped Call
Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their
respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to customary
anti-dilution adjustments, the number of shares of our common stock that initially underlie the Notes and initially have an
exercise price of $8.10 per share of common stock. The cap price of the Capped Call Transactions is initially approximately
$9.90 per share of our common stock, representing a premium of 65% above the last reported sale price of $6.00 per share of
our common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call
Transactions. The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of our
common stock upon conversion of the Notes and/or offset the potential cash payments that we could be required to make in
excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a
cap based on the cap price.
The Capped Call Transactions are separate transactions entered into by us with the Capped Call counterparties and are not part
of the terms of the Notes. The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1, 2021 from
the proceeds of the Notes. We account for Capped Call Transactions separately from the Notes and recognized the cost as a
reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to our
common stock.
Credit Facilities
On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative
agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to
$80.0 million which can be drawn in cash or as letters of credit. The agreement matures on January 15, 2024. Amounts drawn
under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of December 31, 2021.
Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of
December 31, 2021. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain
of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations
related to the appraised value and performance of the communities securing the credit facility.
As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million
secured credit facility, and the facility had $7.4 million of availability. We also had a separate secured letter of credit facility
providing up to $15.0 million of letters of credit as of December 31, 2021 under which $13.6 million had been issued as of that
date.
Long-Term Leases
As of December 31, 2021, we operated 299 communities under long-term leases (233 operating leases and 66 financing leases).
The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities
are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary
lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our
leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default
related to an individual property or limited number of properties within a master lease portfolio may result in a default on the
entire master lease portfolio.
67
The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based
upon changes in the consumer price index or leased property revenue. We are responsible for all operating costs, including
repairs, property taxes, and insurance. As of December 31, 2021, the weighted average remaining lease term of our operating
and financing leases was 5.9 and 5.3 years, respectively. The lease terms generally provide for renewal or extension options
from 5 to 20 years, and, in some instances, purchase options. The lease maturities of our senior housing community leases are
as follows without giving effect to future renewals or extension options.
Years Ending December 31,
Community Count
Total Units
2022
2023
2024
2025
2026
Thereafter
Total
39
—
7
121
41
91
299
1,854
—
904
10,286
1,994
5,911
20,949
The community leases contain other customary terms, which may include assignment and change of control restrictions,
maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to
maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. Our capital
expenditure plans for 2022 include required minimum spend of approximately $27.0 million for capital expenditures under
certain of our community leases. We are required to spend an average of approximately $26.0 million per year for each of the
following three years and approximately $18.0 million in aggregate thereafter under the initial lease terms of such leases. Our
lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid
provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to
post an additional lease security deposit if the required covenant is not met.
Certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities
within a specified distance from certain existing communities covered by such agreements. These radius restrictions could
negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.
For the year ended December 31, 2021, our cash lease payments for our operating leases were $210.2 million and for our
financing leases were $66.2 million. The aggregate amounts of future minimum lease payments, including community, office,
and equipment leases, recognized on the consolidated balance sheet as of December 31, 2021 are as follows (in millions).
Years Ending December 31,
Minimum Lease Payments
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Debt and Lease Covenants
$
$
272.8
261.9
263.8
250.8
136.9
259.3
1,445.5
Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain
prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and
requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-
community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with
GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-
leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as
revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the
debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial
68
covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance
coverage.
Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease
documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these
instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).
Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of
our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure
provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding
amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to
terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our
operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default
could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or
lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon
acceleration following an event of default.
As of December 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.
Summary of Contractual Obligations
The following table presents a summary of our material indebtedness and lease obligations, as of December 31, 2021.
(in millions)
2022
2023
2024
2025
2026
Thereafter
Total
Payments Due during the Years Ending December 31,
Principal on long-term debt(1)
Interest on long-term debt(2)
Debt obligations
Lease obligations(3)
Total debt and lease
obligations
$
68.6 $
234.5 $
304.3 $
348.0 $
309.3 $ 2,606.4 $ 3,871.1
130.5
199.1
272.8
123.4
357.9
261.9
117.9
422.2
263.8
103.6
451.6
250.8
96.2
405.5
136.9
172.4
2,778.8
259.3
744.0
4,615.1
1,445.5
$
471.9 $
619.8 $
686.0 $
702.4 $
542.4 $ 3,038.1 $ 6,060.6
(1) Excludes deferred financing costs of $29.8 million as of December 31, 2021.
(2) Represents contractual interest for all fixed-rate obligations and interest on variable rate instruments at the December 31,
2021 rate applicable for each instrument. As of December 31, 2021, our long-term variable rate debt had a weighted
average interest rate of 2.44%. We are subject to market risks from changes in interest rates and increases in prevailing
interest rates will increase our payment obligations on our variable-rate obligations.
(3) Reflects future cash lease payments after giving effect to fixed payments (including in-substance fixed payments) and
variable payments estimated utilizing the applicable index or rate as of December 31, 2021.
Critical Accounting Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States, or
GAAP, requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and revenues and expenses during the periods reported. We believe the
following accounting estimates are the most critical as they require assumptions to be made that were uncertain at the time the
estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material
impact on our consolidated results of operations or financial condition. These estimates are based on our best judgment about
current and future conditions, but actual results could differ from those estimates. Our significant accounting policies are
discussed in Note 2 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary
Data."
Long-Lived Asset Impairment
As of December 31, 2021, our long-lived assets were comprised primarily of $4.9 billion and $0.6 billion of net property, plant
and equipment and leasehold intangibles and operating lease right-of-use assets, respectively.
69
We test long-lived assets for recoverability annually during our fourth quarter or whenever events or changes in circumstances
indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by
comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group
through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that
the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The impairment loss
is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value.
In estimating the recoverability of asset groups for purposes of our long-lived asset impairment testing, we utilize future cash
flow projections that are generally developed internally. Any estimates of future cash flow projections necessarily involve
predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving
at our cash flow projections, we consider our historic operating results, approved budgets and business plans, future
demographic factors, expected growth rates, estimated asset holding periods, and other factors. In estimating the future cash
flows of asset groups for purposes of our long-lived asset impairment test, we make certain key assumptions. Those
assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that we would
receive upon a sale of the assets using estimated capitalization rates in the case of communities. We corroborate the estimated
capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.
Determining the future cash flows of an asset group involves the use of significant estimates and assumptions that are
unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates, operating
margins, and asset holding periods used to calculate projected future cash flows. Future events may indicate differences from
management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result
in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost
structure of existing communities, and our decision to dispose of assets, including execution on our ongoing capital recycling
program through exiting non-strategic or underperforming owned assets or leases. Significant adverse changes in our future
revenues and/or operating margins, significant changes in the market for senior housing, or the valuation of the real estate of
senior living communities, as well as other events and circumstances, including, but not limited to, increased competition and
changing economic or market conditions, could result in changes in estimated future cash flows and the determination that
additional assets are impaired.
During 2021, 2020, and 2019, we evaluated long-lived depreciable assets and lease right-of-use assets and determined that the
carrying amount of these assets exceeded the undiscounted cash flows for certain of our communities. Estimated fair values
were determined for these certain properties and we recorded asset impairment charges. The following is a summary of asset
impairment expense for these assets.
(in millions)
Operating lease right-of-use assets
Property, plant and equipment and leasehold intangibles, net
Total
For the Years Ended December 31,
2021
2020
2019
$
$
16.6 $
6.4
76.3 $
29.3
23.0 $
105.6 $
10.2
27.2
37.4
These impairment charges in 2021 and 2020 are primarily due to the COVID-19 pandemic and lower than expected operating
performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated
fair value. During 2021 and 2020, there was a wide range of possible outcomes as a result of the pandemic, as there was a high
degree of uncertainty about its ultimate impacts. In arriving at our cash flow projections, we considered our estimates of the
impacts of the pandemic. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are
difficult to predict, as further described in Note 3 to the consolidated financial statements contained in "Item 8. Financial
Statements and Supplementary Data". Future events may indicate differences from management's current judgments and
estimates which could, in turn, result in future impairments. These impairment charges in 2019 are primarily due to our decision
to dispose of assets, either through sales or lease terminations, or lower than expected performance of the underlying
communities and equal the amount by which the carrying amounts of the assets exceed their estimated fair value.
Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there have
been changes in circumstances that indicate the carrying amount may not be recoverable, the recoverability of asset groups, and,
if necessary, the fair value of our assets. As we periodically perform this assessment, changes in our estimates and assumptions
may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the
accuracy of our estimate of the future cash flows of assets, future changes in the assumptions used to make these estimates
could result in the recording of an impairment loss.
70
Self-Insurance Liability Accruals
We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain
general liability and professional liability insurance policies for our owned, leased, and managed communities under a master
insurance program, our current policies provide for deductibles for each claim and contain various exclusions from coverage.
As a result, we are effectively self-insured for claims that are less than the deductible amounts, for claims that exceed the
funding level of our wholly-owned captive insurance company, and for claims or portions of claims that are not covered by
such policies and/or exceed the policy limits. In addition, we maintain a high-deductible workers compensation program. Third-
party insurers are responsible for claim costs above program deductibles and retentions.
Outstanding losses and expenses for general liability, professional liability, and workers compensation are estimated based on
the recommendations of independent actuaries and management's estimates. The actuarial methods develop estimates of the
future ultimate claim costs based on the claims incurred as of the balance sheet date. We review the adequacy of our accruals
related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates,
consultants, advice from legal counsel, and industry data, and adjust accruals periodically. Estimated costs related to these self-
insurance programs are accrued based on known claims and projected claims incurred but not yet reported. These estimates
require significant judgment, and as a result these estimates are uncertain and our actual exposure may be different from our
estimates. Subsequent changes in actual experience are monitored and estimates are updated as information becomes available.
As of December 31, 2021, we accrued reserves of $109.1 million for general liability, professional liability, and workers
compensation programs. During the years ended December 31, 2021, 2020, and 2019, we reduced our estimate of the amount of
aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses
by $14.2 million, $4.2 million, and $11.3 million, for the years ended December 31, 2021, 2020, and 2019, respectively.
New Accounting Pronouncements
See Note 2 to the consolidated financial statements contained in "Item 8. Financial Statement and Supplementary Data" for a
discussion of new accounting pronouncements.
Non-GAAP Financial Measures
This Annual Report on Form 10-K contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are
not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP
financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and
liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures
determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by
(used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-
GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies
calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-
GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for
income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/
expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that
management does not consider as part of our underlying core operating performance and that management believes impact the
comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment
charges, gain/loss on facility operating lease termination, operating lease expense adjustment, non-cash stock-based
compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to
acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised
of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those
related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance.
We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the
metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core
operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that
management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by
eliminating items related to our financing and capital structure and other items that management does not consider as part of our
71
underlying core operating performance and that management believes impact the comparability of performance between
periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to
value companies in our industry.
Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are
necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and
impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets
and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for
which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and
extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may
significantly affect our operating results.
The table below reconciles Adjusted EBITDA from net income (loss).
(in thousands)
Net income (loss)
Provision (benefit) for income taxes
Equity in (earnings) loss of unconsolidated ventures
Loss (gain) on debt modification and extinguishment, net
Loss (gain) on sale of assets, net
Other non-operating (income) loss
Interest expense
Interest income
Income (loss) from operations
Depreciation and amortization
Asset impairment
Loss (gain) on facility operating lease termination, net
Operating lease expense adjustment
Non-cash stock-based compensation expense
Transaction and organizational restructuring costs
Adjusted EBITDA(1)
(1) Adjusted EBITDA includes:
Years Ended December 31,
2021
2020
$
(99,364) $
81,945
(8,163)
(10,394)
5,352
2,107
1,932
(10,896)
(288,835)
(374,532)
(5,903)
195,140
(1,349)
(216,936)
337,613
23,003
(2,003)
(5,648)
208,779
(4,799)
(97,692)
359,226
107,308
(2,303)
(23,280)
(136,276)
16,270
3,809
20,747
13,377
$
138,476 $
264,387
• $12.4 million and $115.7 million benefit for the years ended December 31, 2021 and 2020, respectively, of government
grants and credits recognized in other operating income
• $119.2 million for the year ended December 31, 2020 for the one-time cash lease payment made to Ventas in connection
with our lease restructuring transaction effective July 26, 2020
• $100.0 million benefit for the year ended December 31, 2020 for the management agreement termination fee payment
received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities
before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance
premiums financed with notes payable, changes in operating lease assets and liabilities for lease termination, cash paid/received
for gain/loss on facility operating lease termination, and lessor capital expenditure reimbursements under operating leases;
plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital
expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and
community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building
infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital
expenditures do not include capital expenditures for: community expansions, major community redevelopment and
repositioning projects, and the development of new communities.
72
We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the
metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of
operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in
share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator
to management to determine if adjustments to current spending decisions are needed.
Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for
dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory
debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on
facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of
timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure
for short-term comparisons.
The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.
(in thousands)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Net cash provided by (used in) operating activities
Distributions from unconsolidated ventures from cumulative share of net earnings
Changes in operating lease assets and liabilities for lease termination
Changes in assets and liabilities for lessor capital expenditure reimbursements under
operating leases
Non-development capital expenditures, net
Payment of financing lease obligations
Adjusted Free Cash Flow(1)
Years Ended December 31,
2021
2020
$
(94,634) $
205,649
$
$
181,457
(425,111)
(113,657)
(26,834) $
382,913
163,451
(94,634) $
205,649
(6,191)
2,380
(766)
—
(30,965)
(22,242)
(137,410)
(139,592)
(19,874)
$
(286,694) $
(18,868)
24,181
(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $3.8 million and $13.4 million for
the years ended December 31, 2021 and 2020, respectively. Additionally, Adjusted Free Cash Flow includes:
• $3.9 million and $115.7 million benefit for the years ended December 31, 2021 and 2020, respectively, from government
grants and credits received
• $87.5 million benefit from accelerated/advanced Medicare payments received for the year ended December 31, 2020
• $20.8 million recoupment of accelerated/advanced Medicare payments for the year ended December 31, 2021
• $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction
effective July 26, 2020 for the year ended December 31, 2020
• $100.0 million benefit from the management agreement termination fee payment received from Healthpeak for the year
ended December 31, 2020
• $72.7 million benefit from payroll taxes deferred for the year ended December 31, 2020
• $31.6 million paid during the year ended December 31, 2021 for deferred payroll taxes for the year ended December 31,
2020
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks from changes in interest rates charged on our credit facilities and other variable-rate
indebtedness. The impact on earnings and the value of our long-term debt are subject to change as a result of movements in
market rates and prices. As of December 31, 2021, 61.8%, or $2.4 billion, of our long-term debt had a weighted average fixed
interest rate of 3.94%. As of December 31, 2021, we had $1.5 billion of long-term variable rate debt, at a weighted average
interest rate of 2.44%.
In the normal course of business, we enter into certain interest rate cap agreements with major financial institutions to manage
our risk above certain interest rates on variable rate debt. As of December 31, 2021, $1.2 billion, or 32.3%, of our long-term
debt is variable rate debt subject to interest rate cap agreements, at a weighted-average interest rate of 2.46%, and $226.9
73
million, or 5.9%, of our long-term debt is variable rate debt not subject to any interest rate cap agreements. Approximately 91%
of our outstanding variable rate debt is indexed to LIBOR and approximately 9% of our outstanding variable rate debt is
indexed to the Secured Overnight Financing Rate ("SOFR"), and accordingly our annual interest expense related to variable rate
debt is directly affected by movements in LIBOR or SOFR. After consideration of hedging instruments currently in place,
increases in LIBOR and SOFR of 100, 200, and 500 basis points would have resulted in additional annual interest expense of
$15.0 million, $29.9 million, and $63.3 million, respectively. Certain of our variable debt instruments include springing
provisions that obligate us to acquire additional interest rate caps in the event that LIBOR or SOFR increases above certain
levels, and the implementation of those provisions would result in additional mitigation of interest costs.
74
Item 8.
Financial Statements and Supplementary Data
BROOKDALE SENIOR LIVING INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020, and 2019
Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
Schedule II — Valuation and Qualifying Accounts
PAGE
76
78
79
80
81
82
84
120
75
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of Brookdale Senior Living Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brookdale Senior Living Inc. (the Company) as of
December 31, 2021 and 2020, the related consolidated statements of operations, equity, and cash flows for each of the three
years in the period ended December 31, 2021, and the related notes and financial statement schedule included in the Index at
Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 15, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
76
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Description
of the Matter
Evaluation of Property, Plant and Equipment and Leasehold Intangibles, Net and Operating Lease Right-
of-Use Assets for Impairment
As of December 31, 2021, the Company's consolidated balance sheet included property, plant and equipment
and leasehold intangibles, net and operating lease right-of-use assets of $4.9 billion and $0.6 billion,
respectively. As discussed in Notes 2 and 5 to the consolidated financial statements, property, plant and
equipment and leasehold intangibles, net and operating lease right-of-use assets are routinely evaluated for
indicators of impairment. For property, plant and equipment and leasehold intangibles, net and operating
lease right-of-use assets with indicators of impairment, the Company compares the estimated undiscounted
future cash flows of each long-lived asset group to its carrying amount. If the long-lived asset group's
carrying amount exceeds its estimated undiscounted future cash flows, the fair value of the long-lived asset
group is then estimated by management and compared to its carrying amount. An impairment charge is
recognized on these long-lived assets when carrying amount exceeds fair value.
Auditing management's evaluation of property, plant and equipment and leasehold intangibles, net and
operating lease right-of-use assets for impairment was complex and involved a high degree of subjectivity
due to the significant estimation required to determine the estimated undiscounted future cash flows and fair
values of long-lived asset groups where indicators of impairment were determined to be present. In particular,
the future cash flows and fair value estimates were sensitive to significant assumptions including the
estimation of revenue and expense growth rates and capitalization rates, which are affected by expectations
about future market or economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company's process to evaluate property, plant and equipment and leasehold intangibles, net and operating
lease right-of-use assets for impairment, including controls over management's review of the significant
assumptions described above.
To test the Company's evaluation of long-lived asset groups for impairment, we performed audit procedures
that included, among others, assessing the methodologies used to estimate future cash flows and estimate fair
values, testing the significant assumptions used to develop the estimates of future cash flows and fair values,
and testing the completeness and accuracy of the underlying data used by the Company in its analysis. We
compared the significant assumptions used by management to current industry and economic trends and
evaluated whether changes to the Company's business and other relevant factors would affect the significant
assumptions. The evaluation of the Company's methodology and key assumptions was performed with the
assistance of our valuation specialists. We assessed the historical accuracy of the Company's estimates and
performed sensitivity analyses of significant assumptions to evaluate the changes in the undiscounted future
cash flows and fair values of the long-lived asset groups that would result from changes in the key
assumptions.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1993.
Chicago, Illinois
February 15, 2022
77
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of Brookdale Senior Living Inc.
Opinion on Internal Control over Financial Reporting
We have audited Brookdale Senior Living Inc.'s internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Brookdale Senior Living Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated
statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2021, and the
related notes and financial statement schedule included in the Index at Item 15 and our report dated February 15, 2022
expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 15, 2022
78
BROOKDALE SENIOR LIVING INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)
Assets
Current assets
Cash and cash equivalents
Marketable securities
Restricted cash
Accounts receivable, net
Assets held for sale
Prepaid expenses and other current assets, net
Total current assets
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Restricted cash
Investment in unconsolidated ventures
Goodwill
Deferred tax asset
Other assets, net
Total assets
Liabilities and Equity
Current liabilities
Current portion of long-term debt
Current portion of financing lease obligations
Current portion of operating lease obligations
Trade accounts payable
Accrued expenses
Refundable fees and deferred revenue
Total current liabilities
Long-term debt, less current portion
Financing lease obligations, less current portion
Operating lease obligations, less current portion
Deferred tax liability
Other liabilities
Total liabilities
Preferred stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2021 and
2020; no shares issued and outstanding
Common stock, $0.01 par value, 400,000,000 shares authorized at December 31, 2021 and
2020; 197,485,318 and 198,331,663 shares issued and 186,957,793 and 187,804,138
shares outstanding (including 1,549,059 and 4,349,421 unvested restricted shares),
respectively
Additional paid-in-capital
Treasury stock, at cost; 10,527,525 shares at December 31, 2021 and 2020
Accumulated deficit
Total Brookdale Senior Living Inc. stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
79
December 31,
2021
2020
$
347,031 $
182,393
26,845
51,137
3,642
87,946
698,994
4,904,292
630,423
64,438
67,424
27,321
279
17,296
380,420
172,905
28,059
109,221
16,061
66,937
773,603
5,068,060
788,138
56,669
4,898
154,131
—
56,259
$
6,410,467 $
6,901,758
$
63,125 $
22,151
148,642
76,125
254,831
67,080
631,954
68,885
19,543
146,226
71,233
287,851
96,995
690,733
3,778,087
3,847,103
532,136
681,876
—
86,791
543,764
819,429
9,557
188,443
5,710,844
6,099,029
—
—
1,975
1,983
4,208,675
4,212,409
(102,774)
(102,774)
(3,410,474)
(3,311,184)
697,402
2,221
699,623
800,434
2,295
802,729
$
6,410,467 $
6,901,758
BROOKDALE SENIOR LIVING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenue
Resident fees
Management fees
Reimbursed costs incurred on behalf of managed communities
Other operating income
Total revenue and other operating income
Expense
Facility operating expense (excluding facility depreciation and
amortization of $313,830, $334,768, and $349,215, respectively)
General and administrative expense (including non-cash stock-based
compensation expense of $16,270, $20,747, and $23,026, respectively)
Facility operating lease expense
Depreciation and amortization
Asset impairment
Loss (gain) on facility operating lease termination, net
Costs incurred on behalf of managed communities
Total operating expense
Income (loss) from operations
Interest income
Interest expense:
Debt
Financing lease obligations
Amortization of deferred financing costs
Gain (loss) on debt modification and extinguishment, net
Equity in earnings (loss) of unconsolidated ventures
Gain (loss) on sale of assets, net
Other non-operating income (loss)
Income (loss) before income taxes
Benefit (provision) for income taxes
Net income (loss)
Net (income) loss attributable to noncontrolling interest
Net income (loss) attributable to Brookdale Senior Living Inc. common
stockholders
Net income (loss) per share attributable to Brookdale Senior Living Inc.
common stockholders:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
For the Years Ended December 31,
2019
2020
2021
$
2,543,848 $
2,892,567 $
3,209,931
20,598
181,445
12,368
130,690
401,189
115,749
57,108
790,049
—
2,758,259
3,540,195
4,057,088
2,075,863
2,341,859
2,390,495
184,916
174,358
337,613
23,003
206,575
224,033
359,226
107,308
(2,003)
(2,303)
181,445
401,189
219,289
269,666
379,433
49,266
3,388
790,049
2,975,195
3,637,887
4,101,586
(216,936)
(97,692)
(44,498)
1,349
4,799
9,859
(141,409)
(153,817)
(177,718)
(46,282)
(48,534)
(66,353)
(7,449)
(1,932)
10,394
288,835
5,903
(107,527)
(6,428)
10,896
(2,107)
374,532
5,648
87,297
(4,270)
(5,247)
(4,544)
7,245
14,765
(270,761)
8,163
(5,352)
2,269
(99,364)
81,945
(268,492)
74
74
561
$
(99,290) $
82,019 $
(267,931)
$
$
(0.54) $
(0.54) $
0.45 $
0.44 $
(1.44)
(1.44)
184,975
184,975
183,498
184,386
185,907
185,907
See accompanying notes to consolidated financial statements.
80
BROOKDALE SENIOR LIVING INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Total equity, balance at beginning of period
Common stock:
Balance at beginning of period
Issuance of common stock under Associate Stock Purchase Plan
Restricted stock and restricted stock units, net
Shares withheld for employee taxes
$
$
For the Years Ended December 31,
2019
2020
2021
802,729 $
698,725 $
1,018,413
1,983 $
—
(1)
(7)
1,996 $
2
(9)
(6)
1,968
2
31
(5)
Balance at end of period
Additional paid-in-capital:
Balance at beginning of period
Compensation expense related to restricted stock grants
Issuance of common stock under Associate Stock Purchase Plan
Purchase of capped call transactions
Issuance of warrants
Restricted stock and restricted stock units, net
Shares withheld for employee taxes
Other, net
Balance at end of period
Treasury stock:
Balance at beginning of period
Purchase of treasury stock
Balance at end of period
Accumulated deficit:
Balance at beginning of period
Cumulative effect of change in accounting principle
Net income (loss)
Balance at end of period
Noncontrolling interest:
Balance at beginning of period
Noncontrolling interest contribution
Noncontrolling interest distribution
Balance at end of period
Total equity, balance at end of period
Common stock share activity
Outstanding shares of common stock:
Balance at beginning of period
Issuance of common stock under Associate Stock Purchase Plan
Restricted stock and restricted stock units, net
Shares withheld for employee taxes
Purchase of treasury stock
Balance at end of period
$
$
$
1,975 $
1,983 $
1,996
$
4,212,409 $
4,172,099 $
4,151,147
16,270
699
(15,916)
—
1
20,747
638
—
22,883
9
(4,813)
(4,037)
25
70
23,026
1,160
—
—
(31)
(3,308)
105
$
4,208,675 $
4,212,409 $
4,172,099
$
$
(102,774) $
(84,651) $
—
(18,123)
(102,774) $
(102,774) $
(64,940)
(19,711)
(84,651)
$
(3,311,184) $
(3,393,088) $
(3,069,272)
—
(115)
(55,885)
(99,290)
82,019
(267,931)
$
(3,410,474) $
(3,311,184) $
(3,393,088)
$
2,295 $
2,369 $
(490)
(561)
6,566
(3,146)
2,369
—
—
—
—
2,221 $
2,295 $
699,623 $
802,729 $
698,725
187,804
192,129
192,356
124
(159)
(811)
—
186,958
224
(830)
(656)
(3,063)
187,804
181
3,073
(476)
(3,005)
192,129
Net income (loss) attributable to noncontrolling interest
(74)
(74)
See accompanying notes to consolidated financial statements.
81
BROOKDALE SENIOR LIVING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
$
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss (gain) on debt modification and extinguishment, net
Depreciation and amortization, net
Asset impairment
Equity in (earnings) loss of unconsolidated ventures
Distributions from unconsolidated ventures from cumulative share of net earnings
Amortization of entrance fees
Proceeds from deferred entrance fee revenue
Deferred income tax (benefit) provision
Operating lease expense adjustment
Loss (gain) on sale of assets, net
Loss (gain) on facility operating lease termination, net
Non-cash stock-based compensation expense
Non-cash management contract termination gain
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Prepaid expenses and other assets, net
Trade accounts payable and accrued expenses
Refundable fees and deferred revenue
Operating lease assets and liabilities for lessor capital expenditure
reimbursements
Operating lease assets and liabilities for lease termination
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net
Purchase of marketable securities
Sale and maturities of marketable securities
Capital expenditures, net of related payables
Acquisition of assets, net of related payables and cash received
Investment in unconsolidated ventures
Distributions received from unconsolidated ventures
Proceeds from sale of assets, net
Proceeds from notes receivable
Net cash provided by (used in) investing activities
For the Years Ended December 31,
2019
2020
2021
(99,364) $
81,945 $
(268,492)
1,932
345,062
23,003
(10,394)
6,191
(1,758)
3,562
(9,837)
(23,280)
(288,835)
(2,003)
16,270
—
(4,689)
502
(15,483)
(54,032)
(10,066)
30,965
(2,380)
(94,634)
(100)
(362,257)
352,988
(176,657)
—
(5,436)
37,113
334,006
1,800
181,457
(10,896)
365,654
107,308
2,107
766
(2,122)
734
(5,840)
(136,276)
(374,532)
(2,303)
20,747
—
(2,777)
24,277
24,707
27,294
62,614
22,242
—
205,649
3,569
(378,269)
275,000
(185,871)
(472,193)
(4,082)
—
331,316
5,419
(425,111)
5,247
383,703
49,266
4,544
3,472
(1,634)
3,544
(2,654)
(19,453)
(7,245)
3,388
23,026
(969)
(8,700)
292
55,873
(12,984)
(25,117)
31,305
—
216,412
(859)
(186,224)
134,000
(304,092)
(497)
(4,346)
9,635
92,735
34,109
(225,539)
82
Cash Flows from Financing Activities
Proceeds from debt
Repayment of debt and financing lease obligations
Proceeds from line of credit
Repayment of line of credit
Purchase of treasury stock, net of related payables
Purchase of capped call transactions
Payment of financing costs, net of related payables
Payments of employee taxes for withheld shares
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
352,962
(441,571)
—
—
—
(15,916)
(3,904)
(4,820)
(408)
(113,657)
(26,834)
465,148
438,314 $
963,099
(538,859)
166,381
(166,381)
(18,123)
—
(19,649)
(4,037)
482
382,913
163,451
301,697
465,148 $
321,996
(427,923)
—
—
(23,955)
—
(7,309)
(3,313)
1,110
(139,394)
(148,521)
450,218
301,697
See accompanying notes to consolidated financial statements.
83
BROOKDALE SENIOR LIVING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Brookdale Senior Living Inc. ("Brookdale" or the "Company") is an operator of 679 senior living communities throughout the
United States. The Company is committed to its mission of enriching the lives of the people it serves with compassion, respect,
excellence, and integrity. The Company operates and manages independent living, assisted living, memory care, and continuing
care retirement communities ("CCRCs"). The Company's senior living communities and its comprehensive network help to
provide seniors with care and services in an environment that feels like home.
As of December 31, 2021, the Company owned 347 communities, representing a majority of the Company's consolidated
community portfolio, leased 299 communities, and managed 33 communities. As of such date, the Company has three
reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. On July 1, 2021, the Company sold
80% of its equity in its Health Care Services segment, an additional reportable segment prior to that date, as described in Note
4. The accompanying consolidated financial statements include the financial position, results of operations, and cash flows of
the Health Care Services segment through June 30, 2021. For periods beginning July 1, 2021, the results and financial position
of the Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20%
equity interest in the Health Care Services venture (the "HCS Venture") is accounted for under the equity method of
accounting.
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally
accepted accounting principles ("GAAP"). Except for the changes for the impact of the recently adopted accounting
pronouncements discussed in this Note, the Company has consistently applied its accounting policies to all periods presented in
these consolidated financial statements. The significant accounting policies are summarized below:
Principles of Consolidation
The consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. The ownership
interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the
accompanying consolidated financial statements. Intercompany balances and transactions have been eliminated in
consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. The
Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise
significant influence under the equity method of accounting.
The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided
for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation ("ASC
810"). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity
investment at risk is insufficient to finance the entity's activities without additional subordinated financial support; (b) as a
group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through
voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected
residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests,
and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has
disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for
which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's
activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Estimates are used for, but not limited to, revenue, other operating income, asset impairments, self-insurance reserves,
performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, income
taxes, and other contingencies. Although these estimates are based on management's best knowledge of current events and
actions that the Company may undertake in the future, actual results may differ from the original estimates.
84
Revenue Recognition
Resident Fees
Resident fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for
the services provided. These amounts are due from residents or third-party payors and include variable consideration for
retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are
determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are
satisfied.
Under the Company's senior living residency agreements, which are generally for a contractual term of 30 days to one year, the
Company provides senior living services to residents for a stated daily or monthly fee. The Company has elected the lessor
practical expedient within ASC 842, Leases ("ASC 842") and recognizes, measures, presents, and discloses the revenue for
services under the Company's senior living residency agreements based upon the predominant component, either the lease or
nonlease component, of the contracts. The Company has determined that the services included under the Company's
independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are
performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition
from Contracts with Customers ("ASC 606") for its independent living, assisted living, and memory care residency agreements
for which it has estimated that the nonlease components of such residency agreements are the predominant component of the
contract.
The Company receives payment for services under various third-party payor programs which include Medicare, Medicaid, and
other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated
reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for
providing services. The Company estimates the transaction price based on the terms of the contract with the payor,
correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are
recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive
adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as
final settlements are determined. Contractual or cost related adjustments from Medicare or Medicaid are accrued when assessed
(without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in
net revenues when known.
Management Services
The Company manages certain communities under contracts which provide periodic management fee payments to the Company
and reimbursement for costs and expense related to such communities. Management fees are generally determined by an agreed
upon percentage of gross revenues (as defined in the management agreement). Certain management contracts also provide for
an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. The Company
has determined that all community management activities are a single performance obligation, which is satisfied over time as
the services are rendered. The Company estimates the amount of incentive fee revenue expected to be earned, if any, during the
annual contract period and revenue is recognized as services are provided. The Company's estimate of the transaction price for
management services also includes the amount of reimbursement due from the owners of the communities for services provided
and related costs incurred. Such revenue is included in reimbursed costs incurred on behalf of managed communities on the
consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities on
the consolidated statements of operations.
Government Grants
The Company recognizes income for government grants on a systematic and rational basis over the periods in which the
Company recognizes the related expenses or loss of revenue for which the grants are intended to compensate when there is
reasonable assurance that the Company will comply with the applicable terms and conditions of the grant and there is
reasonable assurance that the grant will be received.
Lease Accounting
Refer to the Company's revenue recognition policy for discussion of the accounting policy for residency agreements, which
include a lease component.
85
The Company, as lessee, recognizes a right-of-use asset and a lease liability on the Company's consolidated balance sheet for its
community, office, and equipment leases. As of the commencement date of a lease, a lease liability and corresponding right-of-
use asset is established on the Company's consolidated balance sheet at the present value of future minimum lease payments.
The Company's community leases generally contain fixed annual rent escalators or annual rent escalators based on an index,
such as the consumer price index. The future minimum lease payments recognized on the consolidated balance sheet include
fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index or rate on the lease
commencement date. The Company recognizes lease expense as incurred for additional variable payments. For the Company's
leases that do not contain an implicit rate, the Company utilizes its estimated incremental borrowing rate to determine the
present value of lease payments based on information available at commencement of the lease. The Company's estimated
incremental borrowing rate reflects the fixed rate at which the Company could borrow a similar amount for the same term on a
collateralized basis. The Company elected the short-term lease exception policy which permits leases with an initial term of 12
months or less to not be recorded on the Company's consolidated balance sheet and instead to be recognized as lease expense as
incurred.
The Company, as lessee, makes a determination with respect to each of its community, office, and equipment leases as to
whether each should be accounted for as an operating lease or financing lease. The classification criteria is based on estimates
regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, economic life of the asset, and
certain other terms in the lease agreements.
Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of right-of-use assets are assessed by a comparison of the carrying amount of
the asset to the estimated future undiscounted net cash flows expected to be generated by the asset, calculated utilizing the
lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the
asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value
of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period.
Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue
and expense growth rates and estimated lease coverage ratios (Level 3).
Operating Leases
The Company recognizes operating lease expense for actual rent paid, generally plus or minus a straight-line adjustment for
estimated minimum lease escalators if applicable. The right-of-use asset is generally reduced each period by an amount equal to
the difference between the operating lease expense and the amount of expense on the lease liability utilizing the effective
interest method. Subsequent to the impairment of an operating lease right-of-use asset, the Company recognizes operating lease
expense consisting of the reduction of the right-of-use asset on a straight-line basis over the remaining lease term and the
amount of expense on the lease liability utilizing the effective interest method.
Financing Leases
Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold intangibles, net on the
Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the
effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-
line basis over the lease term unless the lease contains an option to purchase the underlying asset that the Company is
reasonably certain to exercise. If the Company is reasonably certain to exercise the purchase option, the asset is amortized over
the useful life.
Sale-Leaseback Transactions
For transactions in which an owned community is sold and leased back from the buyer (sale-leaseback transactions), the
Company recognizes an asset sale and lease accounting is applied if the Company has transferred control of the community. For
such transactions, the Company removes the transferred assets from the consolidated balance sheet and a gain or loss on the
sale is recognized for the difference between the carrying amount of the asset and the transaction price for the sale transaction.
For sale-leaseback transactions in which the Company has not transferred control of the underlying asset, the Company does
not recognize an asset sale or derecognize the underlying asset until control is transferred. For such transactions, the Company
recognizes the underlying assets within assets under financing leases as a component of property, plant and equipment and
leasehold intangibles, net on the consolidated balance sheets and continues to depreciate the assets over their useful lives.
Additionally, the Company accounts for any amounts received as a financing lease liability and the Company recognizes
86
interest expense on the financing lease liability utilizing the effective interest method with the interest expense limited to an
amount that is not greater than the cash payments on the financing lease liability over the term of the lease.
Gain (Loss) on Sale of Assets
The Company regularly enters into real estate transactions which may include the disposition of certain communities, including
the associated real estate. The Company recognizes a gain or loss from real estate sales when the transfer of control is complete.
The Company recognizes a gain or loss from the sale of equity method investments when the transfer of control is complete and
the Company has no continuing involvement with the transferred financial assets.
Purchase Accounting
For the acquisition of assets that do not meet the definition of a business, the Company accounts for the transaction as an asset
acquisition at the purchase price, including acquisition costs, allocated among the acquired assets and assumed liabilities,
including identified intangible assets and liabilities, based upon the relative fair values using Level 3 inputs at the date of
acquisition.
For acquisitions of a business, the Company accounts for the transaction as a business combination pursuant to the acquisition
method and assets acquired and liabilities assumed, including identified intangible assets and liabilities, are recorded at fair
value. In determining the allocation of the purchase price of companies and communities to net tangible and identified
intangible assets acquired and liabilities assumed, the Company makes estimates of fair value using information obtained as a
result of pre-acquisition due diligence, marketing, leasing activities, and/or independent appraisals.
In connection with a business combination, the excess of the fair value of liabilities assumed and common stock issued and cash
paid over the fair value of identifiable assets acquired is allocated to goodwill. Transaction costs associated with business
combinations are expensed as incurred.
Deferred Financing Costs
Fees paid to lenders and third-party costs incurred to obtain debt are recorded as a direct adjustment to the carrying amount of
debt and amortized on a straight-line basis, which approximates the effective yield method, over the term of the related debt.
Unamortized deferred financing costs are written-off if the associated debt is retired before the maturity date. Upon the
refinancing of mortgage debt or amendment of the line of credit, unamortized deferred financing costs and additional financing
costs incurred are accounted for in accordance with ASC 470-50, Debt Modifications and Extinguishments.
Stock-Based Compensation
Measurement of the cost of employee services received in exchange for stock-based compensation is based on the grant-date
fair value of the employee stock awards, which is based on the quoted price of the Company's common shares on the grant date
for the majority of the Company's awards. The Company evaluates if grant-date fair value adjustments are necessary based on
whether the Company is in possession of material non-public information at the grant date and the changes in the Company’s
stock price subsequent to the release of such information and no adjustments were made. Generally, the cost is recognized as
compensation expense ratably over the employee's requisite service period. The Company recognizes forfeitures of stock-based
awards as they occur and any previously recognized compensation expense is reversed for forfeited awards. Stock-based
awards that vest over a requisite service period, other than those with performance or market conditions, generally vest ratably
in annual installments over a period of three to four years. Incremental compensation costs arising from subsequent
modifications of awards after the grant date are recognized when incurred.
Certain of the Company's employee stock-based awards vest only upon the achievement of performance conditions. The
Company recognizes compensation cost only when achievement of performance conditions is considered probable.
Consequently, the Company’s determination of the amount of stock-based compensation expense requires judgment in
estimating the probability of achievement of these performance conditions. Performance conditioned awards that vest
dependent upon attainment of various levels of performance that equal or exceed threshold levels generally vest based upon
performance at the end of a three-year performance period. The number of shares that ultimately vest can range from 0% to
125% of the stock-based awards granted depending on the level of achievement of the performance criteria.
Certain of the Company's employee stock-based awards vest only upon the achievement of a market condition where the
measurement period is three years and vesting of the awards is based on the Company's level of attainment of a specified total
87
stockholder return relative to the percentage appreciation of a specified index of companies for the respective three-year
measurement period. Compensation expense for awards with market conditions is recognized over the service period, which is
generally four years, and the actual achievement of the market condition does not impact expense recognition. The Company
uses a Monte Carlo valuation model to estimate the grant date fair value of such awards. Depending on the results achieved
during the three-year measurement period, the number of shares that ultimately vest may range from 0% to 150% of the stock-
based awards granted. The expected volatility of the Company's common stock at the date of grant is estimated based on a
historical average volatility rate for the approximate three-year performance period and the estimated expected weighted
average volatility was 42.5% and 45.2% for awards granted in 2020 and 2019, respectively. The risk-free interest rate
assumption is based on observed interest rates consistent with the approximate three-year measurement period and the
estimated weighted average risk free interest rate was 1.4% and 2.4% for awards granted in 2020 and 2019, respectively.
For all share-based awards with graded vesting other than performance conditioned awards, the Company records compensation
expense for the entire award on a straight-line basis (or, if applicable, on the accelerated method) over the requisite service
period. For performance conditioned awards, total compensation expense is recognized over the requisite service period for
each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance condition is
deemed probable of achievement. Performance conditions are evaluated quarterly. If such conditions are not ultimately met or it
is not probable the conditions will be achieved, no compensation expense for performance conditioned awards is recognized
and any previously recognized compensation expense is reversed.
Income Taxes
The Company accounts for income taxes under the asset and liability approach which requires recognition of deferred tax assets
and liabilities for the differences between the financial reporting and tax basis of assets and liabilities using the tax rates in
effect for the year in which the differences are expected to affect taxable income. A valuation allowance reduces deferred tax
assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. When it is
determined that it is more likely than not that the Company will be able to realize deferred tax assets in the future in excess of
the net recorded amount, an adjustment to the deferred tax asset is made and reflected in income. This determination is made by
considering various factors, including the reversal and timing of existing temporary differences, tax planning strategies, and
estimates of future taxable income exclusive of the reversal of temporary differences.
Fair Value of Financial Instruments
Fair value measurements are based on a three-level valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. The three levels are defined as follows.
Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are
observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.
Marketable Securities
Marketable securities are investments in commercial paper and short-term corporate bond instruments with maturities of greater
than 90 days as of their acquisition date by the Company.
Accounts Receivable, Net
Accounts receivable are reported net of an allowance for credit losses to represent the Company's estimate of expected losses at
the balance sheet date. The adequacy of the Company's allowance for credit losses is reviewed on an ongoing basis, using
historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, a
review of specific accounts, as well as expected future economic conditions and market trends, and adjustments are made to the
allowance as necessary.
88
Assets Held for Sale
The Company designates communities as held for sale when certain criteria are met, including when management has
committed to a plan to sell the community and the sale is probable within one year of the reporting date. The Company records
these assets on the consolidated balance sheet at the lesser of the carrying amount and fair value less estimated selling costs. If
the carrying amount is greater than the fair value less the estimated selling costs, the Company records an impairment charge.
The Company evaluates the fair value of the assets held for sale each period to determine if it has changed. The long-lived
assets are not depreciated while classified as held for sale.
Property, Plant and Equipment and Leasehold Intangibles, Net
Property, plant and equipment and leasehold intangibles, net are recorded at cost. Depreciation and amortization is computed
using the straight-line method over the estimated useful lives of the assets, which are as follows.
Asset Category
Buildings and improvements
Furniture and equipment
Resident lease intangibles
Estimated
Useful Life
(in years)
40
3 – 10
1 – 3
Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements,
which improve and/or extend the useful life of the asset, are capitalized and depreciated over the estimated useful life of the
renovations or improvements. For communities subject to operating or financing leases, leasehold improvements are
depreciated over the shorter of the estimated useful life of the assets or the term of the lease. For financing leases that have a
purchase option the Company is reasonably certain to exercise, the leasehold improvements are depreciated over their estimated
useful life. Facility operating expense excludes facility depreciation and amortization.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an
asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the
estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition,
calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset
group is not recoverable, the Company is required to recognize an impairment loss. The impairment loss is measured by the
amount by which the carrying amount of the asset exceeds its estimated fair value, with any amount in excess of fair value
recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are
based on a number of assumptions such as revenue and expense growth rates, estimated holding periods, and estimated
capitalization rates (Level 3).
Investment in Unconsolidated Ventures
The initial carrying amount of investments in unconsolidated ventures is based on the amount paid to purchase the investment
or its fair value in the case of a retained noncontrolling interest upon deconsolidation of a former subsidiary. The Company's
reported share of earnings of an unconsolidated venture is adjusted for the impact, if any, of basis differences between its
carrying amount of the equity investment and its share of the venture's underlying assets.
Distributions received from an investee are recognized as a reduction in the carrying amount of the investment. If distributions
are received from an investee that would reduce the carrying amount of an equity method investment below zero, the Company
evaluates the facts and circumstances of the distributions to determine the appropriate accounting for the excess distribution,
including an evaluation of the source of the proceeds and implicit or explicit commitments to fund the investee. The excess
distribution is either recorded as a gain on investment, or in instances where the source of proceeds is from financing activities
or the Company has a significant commitment to fund the investee, the excess distribution would result in an equity method
liability and the Company would continue to record its share of the investee's earnings and losses.
The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances
indicate that the Company's investment is other than temporarily impaired. A current fair value of an investment that is less than
its carrying amount may indicate a loss in value of the investment. If the Company determines that an equity method investment
is other than temporarily impaired, it is recorded at its fair value with an impairment charge recognized in asset impairment
expense for the difference between its carrying amount and fair value.
89
Goodwill
The Company tests goodwill for impairment annually during the fourth quarter or more frequently if indicators of impairment
arise. Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant
decline in the Company's stock price or market capitalization for a sustained period since the last testing date, significant
underperformance relative to historical or projected future operating results, and significant negative industry or economic
trends. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If so, the Company performs a quantitative goodwill impairment test based upon a
comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's
carrying amount. The fair values used in the quantitative goodwill impairment test are estimated using Level 3 inputs based
upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of
estimates and assumptions such as revenue and expense growth rates, capitalization rates, and discount rates. The Company
also considers market-based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If
the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated fair value, an
impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill
allocated to the reporting unit.
Self-Insurance Liability Accruals
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the
Company maintains general liability and professional liability insurance policies for its owned, leased, and managed
communities under a master insurance program, the Company's current policies provide for deductibles for each claim and
contain various exclusions from coverage. As a result, the Company is, in effect, self-insured for claims that are less than the
deductible amounts, for claims that exceed the funding level of the Company’s wholly-owned captive insurance company, and
for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. In addition, the Company
maintains a high deductible workers compensation program and a self-insured employee medical program.
The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis using historical claims,
actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel, and industry data, and adjusts
accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected
claims incurred but not yet reported. Subsequent changes in actual experience are monitored, and estimates are updated as
information becomes available.
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders'
equity.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses:
Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss
impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of
a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard
effective January 1, 2020 and recognized the cumulative effect of the adoption as an immaterial adjustment to beginning
accumulated deficit as of January 1, 2020.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which amends the former accounting principles
for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires a
lessee to recognize a right-of-use asset and a lease liability on the consolidated balance sheet for most leases. Additionally, ASU
2016-02 made targeted changes to lessor accounting, including changes to align certain aspects with the revenue recognition
model, and enhanced disclosure of lease arrangements.
In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements ("ASU 2018-11"), which provides entities with a
transition method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the
opening balance of retained earnings in the period of adoption, and a practical expedient allowing lessors to not separate
nonlease components from the associated lease components when certain criteria are met. The Company adopted these lease
accounting standards effective January 1, 2019 and utilized the modified retrospective transition method with no adjustments to
comparative periods presented. Additionally, the Company elected the package of practical expedients within ASU 2016-02
90
that allows an entity to not reassess, as of January 1, 2019, its prior conclusions on whether an existing contract contains a lease,
lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs. The
Company did not elect the hindsight practical expedient which would have allowed it to revisit key assumptions, such as lease
term, that were made when it originally entered into the lease.
The Company's adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $1.6 billion and right-of-
use assets of $1.3 billion on the consolidated balance sheet for its existing community, office, and equipment operating leases
based on the remaining present value of the minimum lease payments as of January 1, 2019. The future minimum lease
payments recognized on the consolidated balance sheet included fixed payments (including in-substance fixed payments) and
variable payments estimated utilizing the index or rate as of January 1, 2019. Such right-of-use asset amounts were recognized
based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, intangible assets, and the
recognition of right-of-use asset impairments. As of December 31, 2018, the Company had a net liability of $231.4 million
recognized on its consolidated balance sheet for accrued lease payments and intangible assets for operating leases. Additionally,
$58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to
beginning accumulated deficit as of January 1, 2019.
In addition to the previously unrecognized right-of-use asset impairment of $58.1 million, the Company recognized cumulative
effect adjustments to beginning accumulated deficit as of January 1, 2019 for the impact of the adoption of accounting
standards by its equity method investees and the deferred tax impact of these adjustments. The recognition of the right-of-use
assets and corresponding liabilities and the removal of the deferred tax position related to these leases as of December 31, 2018
had a $0.3 million impact on the Company's net deferred tax position. A deferred tax asset of $14.1 million and an increase to
the valuation allowance of $13.8 million was recorded against accumulated deficit reflecting the tax impact of the previously
unrecognized right-of-use asset impairments.
The adoption of the new accounting standards resulted in the following adjustments to the Company's consolidated balance
sheet as of January 1, 2019.
(in millions)
Assets
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Investment in unconsolidated ventures
Other intangible assets, net
Other assets, net
Total assets
Liabilities and Equity
Operating lease obligations
Deferred liabilities
Total liabilities
Total equity
Total liabilities and equity
$
$
$
$
(11)
1,329
(2)
(5)
(6)
1,305
1,618
(257)
1,361
(56)
1,305
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting
("ASU 2020-04"), which provides optional guidance for a limited period of time through December 31, 2022 to ease the
potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and
other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or other reference rates expected to be
discontinued. The guidance may be elected over time and the Company elected the optional practical expedient provided by
ASU 2020-04 for debt contract modifications related to the discontinuation of reference rates. The adoption of the optional
expedient has not had and is not expected to have a material impact on the Company's consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by reducing
the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock
method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The
91
Company early adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective method of adoption.
Subsequent to the Company's adoption of ASU 2020-06, the Company's issuance of $230.0 million principal amount of 2.00%
convertible senior notes due 2026 (the "Notes") on October 1, 2021 was recognized as a single liability presented as long-term
debt measured at its amortized cost within the Company’s consolidated balance sheet rather than separate presentation of the
embedded conversion feature at fair value within stockholders’ equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on
the Company's consolidated financial position or results of operations.
3. COVID-19 Pandemic
The COVID-19 pandemic significantly disrupted the senior living industry and the Company's business beginning in March
2020. The health and wellbeing of the Company's residents and associates has been and continues to be its highest priority. As
of January 31, 2022, substantially all of the Company’s communities were open for new resident move-ins. The Company may
revert to more restrictive measures at its communities, including restrictions on visitors and move-ins, if the pandemic worsens,
as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities
having jurisdiction.
Pandemic-Related Expenses. In the aggregate, for the years ended December 31, 2021 and 2020, the Company has incurred
$173.2 million of facility operating expense for incremental direct costs to respond to the pandemic, including $47.7 million
and $125.5 million, for the years ended December 31, 2021 and 2020, respectively. The direct costs include those for:
acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service
supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers
compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by
government payor or third-party insurance sources. For the years ended December 31, 2021 and 2020, the Company recorded
$23.0 million and $105.6 million, respectively, of non-cash impairment charges in its operating results for its operating lease
right-of-use assets and property, plant, and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and
lower than expected operating performance at certain communities.
Financial Relief. The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), signed into law on March
27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide
liquidity and financial relief to certain businesses, among other things. Certain impacts of such programs are provided below.
•
•
•
During the years ended December 31, 2021 and 2020, the Company accepted $0.8 million and $109.8 million, respectively,
of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by
U.S. Department of Health and Human Services ("HHS"), under which grants have been made available to eligible
healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. During the three months
ended December 31, 2021, the Company applied for the Phase 4 general distribution from the Provider Relief Fund. There
can be no assurance that the Company will qualify for, or receive, such future grants in the amount it expects, that
additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that
future funding programs will be made available for which it qualifies.
During the year ended December 31, 2020, the Company received $87.5 million under the Accelerated and Advance
Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS"), $75.2 million of which related
to its former Health Care Services segment and $12.3 million of which related to its CCRCs segment. Recoupment of
advanced payments began one year after payments were issued at a rate of 25% of Medicare payments for the first eleven
months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months. Any
outstanding balance of advanced payments will be due following such recoupment period. During the year ended
December 31, 2021, $20.8 million of the advanced payments were recouped. Pursuant to the sale of 80% of the Company's
equity in its Health Care Services segment (as described in Note 4), $63.6 million of such obligations related to its former
Health Care Services segment were retained by the unconsolidated HCS Venture. As of December 31, 2021, the
outstanding balance of advanced payments related to the CCRCs segment was $3.1 million.
During the year ended December 31, 2020, the Company deferred payment of $72.7 million of the employer portion of
social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act.
Pursuant to the sale of 80% of the Company's equity in its Health Care Services segment, $9.6 million of such obligations
related to its former Health Care Services segment were retained by the unconsolidated HCS Venture. In December 2021,
92
the Company paid $31.6 million of its retained deferred amount and the remaining deferred amount of $31.6 million is due
December 31, 2022.
•
The Company was eligible to claim the employee retention credit for certain of its associates under the CARES Act. The
credit for 2020 was available to employers that fully or partially suspended operations during any calendar quarter in 2020
due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19,
and was equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees,
with a maximum credit of $5,000 per employee. During the year ended December 31, 2021, the Company recognized $9.9
million of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating
income, for which the Company has received $3.4 million in cash as of December 31, 2021. The Company recognized a
receivable for the remaining $6.5 million within prepaid expenses and other current assets, net on the consolidated balance
sheet as of December 31, 2021. The credit was modified and extended by subsequent legislation for wages paid from
January 1, 2021 through December 31, 2021, and the Company is assessing its eligibility to claim such credit. There can be
no assurance that the Company will qualify for, or receive, credits in the amount or on the timing it expects.
In addition to the grants described above, during the years ended December 31, 2021 and 2020, the Company received and
recognized $1.7 million and $5.9 million, respectively, of other operating income from grants from other government sources.
The Company cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on its business, results
of operations, cash flow, and liquidity, and its response efforts may continue to delay or negatively impact its strategic
initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which
cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease;
the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in the Company's
markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the
prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts
that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and
conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic;
changes in demand for senior living communities and the Company's ability to adapt its sales and marketing efforts to meet that
demand; the impact of COVID-19 on the Company's residents’ and their families’ ability to afford its resident fees, including
due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19;
changes in the acuity levels of the Company's new residents; the disproportionate impact of COVID-19 on seniors generally and
those residing in the Company's communities; the duration and costs of the Company's response efforts, including increased
equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses; potentially greater use of
contract labor and overtime due to COVID-19 and general labor market conditions; the impact of COVID-19 on the Company's
ability to complete financings and refinancings of various assets, or other transactions or to generate sufficient cash flow to
cover required debt, interest, and lease payments and to satisfy financial and other covenants in its debt and lease documents;
increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision
of test kits to the Company's health plan participants; increased enforcement actions resulting from COVID-19; government
action that may limit the Company's collection or discharge efforts for delinquent accounts; and the frequency and magnitude of
legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts.
4. Acquisitions, Dispositions, and Other Significant Transactions
Sale of Health Care Services
On July 1, 2021, the Company completed the sale of 80% of its equity in its Health Care Services segment to affiliates of HCA
Healthcare, Inc. ("HCA Healthcare") for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in
the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the
remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the
Health Care Services segment (the "HCS Sale"). The Company received net cash proceeds of $312.6 million, including
$305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment
in October 2021. The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. At
closing of the transaction, the Company retained a 20% equity interest in the HCS Venture.
The results and financial position of the Health Care Services segment were deconsolidated from its consolidated financial
statements as of July 1, 2021 and its 20% equity interest in the HCS Venture is accounted for under the equity method of
accounting subsequent to that date. As of July 1, 2021, the Company recognized a $100.0 million asset within investment in
unconsolidated ventures on its consolidated balance sheet for the estimated fair value of its retained 20% noncontrolling interest
in the HCS Venture. The Company recognized a $286.5 million gain on sale, net of transaction costs, within its consolidated
93
statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 21 for selected financial data for
the Health Care Services segment through June 30, 2021.
On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served
by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, the Company received $35.0 million of cash
distributions from the HCS Venture from the net sale proceeds, which decreased its investment in unconsolidated ventures. The
Company continues to own a 20% equity interest in the remaining HCS Venture, which continues to operate home health,
hospice, and outpatient therapy agencies in areas served by HCA Healthcare.
Community Transactions
The Company entered into transactions with Ventas, Inc. ("Ventas"), announced on July 27, 2020, and Healthpeak Properties,
Inc. ("Healthpeak"), announced on October 1, 2019, which together restructured a significant portion of the Company's triple-
net lease obligations. As a result of the transactions with Healthpeak, as well as other community transactions, the Company
acquired 27 communities that the Company formerly leased or managed and sold substantially all of its ownership interests in
unconsolidated senior housing ventures during 2019 through 2021. Additionally, the Company disposed of an aggregate of 24
owned communities (including the conveyance of five communities to Ventas) and the Company's triple-net lease obligations
on 17 communities were terminated from 2019 to 2021 (ten in 2019, five in 2020, and two in 2021).
The following table sets forth the amounts included within the Company's consolidated financial statements for the 41
communities that it disposed of through sales, conveyances, and lease terminations for the years ended December 31, 2021,
2020, and 2019 through the respective disposition dates.
(in thousands)
Resident fees
Assisted Living and Memory Care
CCRCs
Senior housing resident fees
Facility operating expense
Assisted Living and Memory Care
CCRCs
Senior housing facility operating expense
Cash lease payments
Years Ended December 31,
2021
2020
2019
$
$
$
$
$
5,445 $
6,471
11,916 $
5,142 $
7,680
12,822 $
1,726 $
24,105 $
29,203
53,308 $
22,723 $
30,310
53,033 $
6,752 $
60,204
74,090
134,294
52,228
72,096
124,324
11,014
As of December 31, 2021, two communities in the Assisted Living and Memory Care segment were classified as held for sale,
resulting in $3.6 million being recorded as assets held for sale within the consolidated balance sheet. The closings of the sales
of the communities are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of
regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will
occur.
Completed Dispositions of Owned Communities
During the year ended December 31, 2021, the Company completed the sale of three owned communities for cash proceeds of
$16.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.3 million. In addition to the conveyance
of five communities to Ventas, during the year ended December 31, 2020, the Company completed the sale of two owned
communities for cash proceeds of $38.1 million, net of transaction costs, and recognized a net gain on sale of assets of $2.7
million. During the year ended December 31, 2019, the Company completed the sale of 14 owned communities for cash
proceeds of $85.4 million, net of transaction costs, and recognized a net gain on sale of assets of $5.5 million.
94
Ventas Lease Restructuring
On July 26, 2020 (the "Effective Date"), the Company entered into definitive agreements with Ventas in connection with the
restructuring of the Company’s lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master
Agreement"). Pursuant to the Master Agreement:
•
•
•
On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the
"Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master
Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time.
Pursuant to the Master Lease, the Company continues to lease 120 communities for an aggregate initial annual
minimum rent of approximately $100.0 million, which reflects a reduction of approximately $83 million of annual
minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022,
the annual minimum rent is subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025,
with two 10-year extension options available to the Company. The annual minimum rent for the initial lease year of
any such renewal term will be the greater of the fair market rental of the communities or the increased annual
minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision
that would have automatically extended the initial term in the event of the consummation of a change of control
transaction by the Company. The Master Lease requires the Company to spend (or escrow with Ventas) a minimum of
$1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case
per 24-month period ending December 31 during the lease term, commencing with the 24-month period ended
December 31, 2021. In addition, Ventas agreed to fund costs associated with certain pre-approved capital expenditure
projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum
rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then
current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master
Lease and certain other agreements between the parties will be cross-defaulted.
The Company’s subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the
Guaranty. The Guaranty removed the prior requirements that the Company satisfy, at the parent level, financial
covenants and that the Company maintain a security deposit with Ventas. The Guaranty also removed the prior right of
Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the
Guaranty, the Company may consummate a change of control transaction without the need for consent of Ventas so
long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum
tangible net worth of at least $600.0 million, having minimum levels of operational experience and reputation in the
senior living industry, and paying a change of control fee of $25.0 million to Ventas. The Guaranty removed the prior
provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that
the Company fund additional capital expenditures, and that the Company extend the term upon the occurrence of the
change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if
any) as the Company exercises its lease term extension option with respect to the Master Lease), Ventas shall have the
right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month
coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any
such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master
Lease that is less than the portfolio coverage ratio prior to such removal and termination.
On the Effective Date, the Company entered into a Second Amended and Restated Omnibus Agreement with Ventas,
which provides that if a default occurs and is continuing under certain other material leases or under certain material
financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises
any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master
Lease to a management arrangement with the Company pursuant to a market management agreement (which is
terminable by either party). Notwithstanding the foregoing, Ventas may only transition one or more communities from
the Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with
respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such
transition.
On the Effective Date, the Company conveyed five owned communities to Ventas in full release and satisfaction of
$78.4 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into
new terminable, market rate management agreements pursuant to which the Company manages the communities. The
Company also paid to Ventas $115.0 million in cash, released all security deposits to Ventas under the former guaranty
(which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as
settlement of the amount of letters of credit), and issued a $45.0 million unsecured interest-only promissory note to
95
Ventas. The initial interest rate of the promissory note was 9.0% per annum and was subject to increase by 0.50% on
each anniversary of the date of issuance. The promissory note was scheduled to mature on the earlier of December 31,
2025 or the occurrence of a change of control transaction (as defined in the Guaranty). In October 2021, the Company
repaid the $45.0 million promissory note without premium or penalty.
•
On the Effective Date, the Company issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of the
Company’s common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at
Ventas' option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and
the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for
cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common
stock and business combination transactions. To the extent that the number of shares owned by Ventas (including
shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all the Company’s
classes of capital stock or of the total value of shares of all the Company’s classes of capital stock (the "Ownership
Cap") (other than as a result of actions taken by Ventas), the Company would generally be required to repurchase the
number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require
the Company to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The
Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as
amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties
entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to
certain registration rights. Pursuant to the terms of the agreement, the Company filed a shelf registration statement with
the SEC with respect to the shares of common stock underlying the Warrant, which was declared effective on August
17, 2020. Ventas is entitled to customary underwritten offering, piggyback, and additional demand registration rights
with respect to the shares underlying the Warrant.
As a result of the modification of the community leases with Ventas, the Company reduced the carrying amount of lease
obligations and assets under leases by $370.0 million and $159.5 million, respectively, in the three months ended September 30,
2020. As the Company's community leases do not contain an implicit rate, the Company utilized its incremental borrowing rate
based on information available on the Effective Date to determine the present value of remaining lease payments for the
community leases with Ventas. Additionally, the results and financial position of the five communities conveyed to Ventas
were deconsolidated from the Company's financial statements prospectively as of the Effective Date. As of the Effective Date,
the Warrant was recognized as a component of stockholders’ equity at its estimated fair value of $22.9 million. The Company’s
net cash provided by operating activities for the year ended December 31, 2020 includes the $119.2 million one-time cash lease
payment made to Ventas in connection with its lease restructuring transaction effective July 26, 2020. See Note 20 for more
information regarding the adjustments to the Company’s consolidated balance sheet as a result of this transaction.
Healthpeak CCRC Venture and Master Lease Transactions
On October 1, 2019, the Company entered into definitive agreements, including a Master Transactions and Cooperation
Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part
transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC
community as part of the sale of the Company's interest in its unconsolidated entry fee CCRC venture with Healthpeak (the
"CCRC Venture") (rather than removing the community from the CCRC Venture for joint marketing and sale). The
components of the multi-part transaction included:
•
CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired the
Company's 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs, for a total purchase price
of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the
three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a
net working capital adjustment). The $289.2 million of cash received from Healthpeak is presented within net cash
used in investing activities for the year ended December 31, 2020. The Company recognized a $369.8 million gain on
sale of assets for the year ended December 31, 2020, and the Company derecognized the net equity method liability for
the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the Company's existing
management agreements with the 14 entry fee CCRCs, Healthpeak paid the Company a $100.0 million management
agreement termination fee, and the Company transitioned operations of the entry fee CCRCs to a new operator. The
Company recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the
management termination fee. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee
CCRCs into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the
sale of such two communities.
96
• Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated the existing
master lease pursuant to which the Company continued to lease 25 communities from Healthpeak, and the Company
acquired 18 formerly leased communities from Healthpeak, at which time the 18 communities were removed from the
master lease. At the closing, the Company paid $405.5 million to acquire such communities and to reduce its annual
rent under the amended and restated master lease. The $405.5 million of cash paid to Healthpeak and $1.7 million of
direct acquisition costs are presented within net cash used in investing activities for the year ended December 31,
2020. The Company funded the community acquisitions with $192.6 million of non-recourse mortgage financing and
the proceeds from the multi-part transaction. In addition, Healthpeak agreed to terminate the lease for one leased
community, which occurred during December 2020. As a result of the lease termination, the Company recognized a
$2.3 million gain on lease termination during the year ended December 31, 2020 for the amount by which the lease
obligations exceeded the net carrying amount of the Company's assets under the operating lease as of the lease
termination date. With respect to the continuing 24 communities, the Company's amended and restated master lease:
(i) has an initial term to expire on December 31, 2027, subject to two extension options at the Company's election for
ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual
base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each
year; and (iii) Healthpeak agreed to make available up to $35.0 million for capital expenditures for a five-year period
related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, the
Company recognized a $19.7 million gain on debt extinguishment during the year ended December 31, 2020 and
derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were
previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement.
During March 2020, the Company obtained $30.0 million of additional non-recourse mortgage financing on the
acquired communities.
During the year ended December 31, 2021, the new unconsolidated entry fee CCRC venture completed the sale of the two
remaining entry fee CCRCs for cash proceeds of $14.0 million, net of associated mortgage debt repayments and transaction
costs. Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations. During
the year ended December 31, 2021, the Company received $8.3 million of cash distributions from the new unconsolidated entry
fee CCRC venture and recognized $13.6 million of equity in earnings of unconsolidated ventures for the Company’s
proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a
gain on sale of assets for the sale of the two remaining entry fee CCRCs. Subsequent to these transactions, the Company has
exited substantially all of its entry fee CCRC operations.
5. Fair Value Measurements
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are reflected in the accompanying consolidated balance sheets at amounts considered
by management to reasonably approximate fair value due to their short maturity of 90 days or less.
Marketable Securities
As of December 31, 2021, marketable securities of $182.4 million are stated at fair value based on valuations provided by third-
party pricing services and are classified within Level 2 of the valuation hierarchy.
Investment in Unconsolidated Ventures
As of July 1, 2021, the Company recognized a $100.0 million asset within investment in unconsolidated ventures on its
consolidated balance sheet for the estimated fair value of its retained 20% noncontrolling interest in the HCS Venture. The
initial recognized amount of the Company’s 20% equity interest in the HCS Venture was determined based upon a pro-rata
share of the total enterprise value of the HCS Venture considering the $400.0 million purchase price paid by HCA Healthcare,
as the Company's 20% interest shares ratably in all of the benefits and losses expected to be generated by the HCS Venture. The
fair value measurement is classified within Level 2 of the valuation hierarchy.
Interest Rate Derivatives
The Company's derivative assets include interest rate caps that effectively manage the risk above certain interest rates for a
portion of the Company's variable rate debt. The derivative positions are valued using models developed internally by the
respective counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and
97
are classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when
evaluating the fair value of its derivatives.
The following table summarizes the Company's interest rate cap instruments as of December 31, 2021.
(in thousands)
Current notional balance
Weighted average fixed cap rate
Earliest maturity date
Latest maturity date
Estimated asset fair value (included in other assets, net) at December 31, 2021
Estimated asset fair value (included in other assets, net) at December 31, 2020
Debt
$ 1,461,665
4.33%
2022
2024
313
22
$
$
The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current
borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding long-
term debt with a carrying amount of approximately $3.8 billion and $3.9 billion as of December 31, 2021 and 2020,
respectively. Fair value of the long-term debt approximates carrying amount in all periods presented. The Company's fair value
of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.
Warrant
On July 26, 2020, the Company issued to Ventas a warrant to purchase up to 16.3 million shares of the Company’s common
stock, at a price per share of $3.00. The fair value of this warrant of $22.9 million as of July 26, 2020 was estimated using the
Black-Scholes option-pricing model utilizing a stock price volatility assumption of 65% which is considered a Level 2 input of
the valuation hierarchy.
Asset Impairment Expense
The following is a summary of asset impairment expense.
(in millions)
For the Years Ended December 31,
2021
2020
2019
Operating lease right-of-use assets
$
16.6 $
76.3 $
Property, plant and equipment and leasehold intangibles, net
Investment in unconsolidated ventures
Assets held for sale
Other assets, net
Asset impairment
6.4
—
—
29.3
1.5
0.2
$
—
23.0 $
—
107.3 $
10.2
27.2
—
1.3
10.6
49.3
Although the Company cannot predict with reasonable certainty the ultimate impacts of the COVID-19 pandemic, the Company
concluded that the impacts of the pandemic have adversely affected the Company’s projections of revenue, expense, and cash
flow for its senior housing community long-lived assets and constitute an indicator of potential impairment. Accordingly, the
Company assessed its long-lived assets for recoverability. Refer to Note 3 for additional information on the COVID-19
pandemic.
In estimating the recoverability of asset groups for purposes of the Company’s long-lived asset impairment testing, the
Company utilizes future cash flow projections that are developed internally. Any estimates of future cash flow projections
necessarily involve predicting unknown future circumstances and events and require significant management judgments and
estimates. In arriving at the cash flow projections, the Company considers its estimates of the impacts of the pandemic, historic
operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset
holding periods, and other factors.
As of December 31, 2021 and 2020 there was a wide range of possible outcomes as a result of the pandemic, as there was a
high degree of uncertainty about its ultimate impact. Management’s estimates of the impact of the pandemic are highly
98
dependent on variables that are difficult to predict, as further described in Note 3. Future events may indicate differences from
management's current judgments and estimates which could, in turn, result in future impairments.
Operating Lease Right-of-Use Assets
During the years ended December 31, 2021, 2020, and 2019, the Company evaluated operating lease right-of-use assets for
impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net
cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their
carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over
fair value. During the year ended December 31, 2021, the Company recognized the right-of-use assets for the operating leases
for 11 communities on the consolidated balance sheet at the estimated fair value of $31.0 million. The Company recognized the
right-of-use assets for the operating leases for 35 communities on the consolidated balance sheet as of March 31, 2020 at the
estimated fair value of $106.7 million. During the three months ended June 30, 2020, the Company recognized the right-of-use
assets for the operating leases for nine communities on the consolidated balance sheet at the estimated fair value of
$10.3 million. During the three months ended September 30, 2020, the Company recognized the right-of-use assets for the
operating leases for two communities on the consolidated balance sheets at the estimated fair value of $3.0 million. During the
three months ended December 31, 2020, the Company recognized the right-of-use assets for the operating leases for five
communities on the consolidated balance sheet at the estimated fair value of $2.3 million. In the aggregate, the Company
recorded a non-cash impairment charge of $16.6 million, $76.3 million, and $10.2 million for the years ended December 31,
2021, 2020, and 2019, respectively, to operating lease right-of-use assets. These impairment charges in 2021 and 2020 are
primarily due to the COVID-19 pandemic and the lower than expected operating performance at these communities and reflect
the amount by which the carrying amounts of the assets exceeded their estimated fair value.
The Company's adoption of ASU 2016-02 resulted in the recognition of the right-of-use assets for the operating leases for 25
communities on the consolidated balance sheet as of January 1, 2019 at the estimated fair value of $56.6 million, and
$58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to
accumulated deficit as the Company determined that the long-lived assets of such communities were not recoverable as of such
date. See Note 2 for more information regarding the recognition of right-of-use assets for operating leases upon the adoption of
ASU 2016-02.
The fair values of the operating lease right-of-use assets were estimated utilizing a discounted cash flow approach based upon
projected community cash flows and market data, including management fees and a market supported lease coverage ratio, all
of which are considered Level 3 inputs within the valuation hierarchy. The estimated future cash flows were discounted at a rate
that is consistent with a weighted average cost of capital from a market participant perspective. The range of discount rates
utilized was 9.0% to 12.3%, depending upon the property type, geographical location, and the quality of the respective
community.
Property, Plant and Equipment and Leasehold Intangibles, Net
During the years ended December 31, 2021, 2020, and 2019, the Company evaluated property, plant and equipment and
leasehold intangibles for impairment and identified properties with a carrying amount of the assets in excess of the estimated
future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of
the assets to their carrying amount for these identified properties and recorded an impairment charge for the excess of carrying
amount over fair value.
The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating
results of $6.4 million, $29.3 million, and $27.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.
The fair values of the assets of these communities were primarily determined utilizing a discounted cash flow approach or direct
capitalization method considering stabilized facility operating income and market capitalization rates. These fair value
measurements are considered Level 3 measurements within the valuation hierarchy. The range of capitalization rates utilized
was 7.0% to 9.0%, depending upon the property type, geographical location, and the quality of the respective community. The
Company corroborated the estimated fair values with a sales comparison approach with information observable from recent
market transactions. These impairment charges are primarily due to the COVID-19 pandemic, lower than expected operating
performance at these properties, or the Company's decision to dispose of assets and reflect the amount by which the carrying
amounts of the assets exceeded their estimated fair value.
99
6. Revenue
Disaggregation of Revenue
Resident fee revenue by payor source and reportable segment is as follows.
(in thousands)
Private pay
Year Ended December 31, 2021
Independent
Living
Assisted Living
and Memory
Care
CCRCs
Health Care
Services
Total
$
473,740 $
1,521,588 $
212,981 $
601 $
2,208,910
Government reimbursement
Other third-party payor programs
1,798
—
68,133
—
57,362
34,082
134,083
39,480
261,376
73,562
Total resident fee revenue
$
475,538 $
1,589,721 $
304,425 $
174,164 $
2,543,848
(in thousands)
Private pay
Year Ended December 31, 2020
Independent
Living
Assisted Living
and Memory
Care
CCRCs
Health Care
Services
Total
$
510,254 $
1,622,117 $
235,018 $
906 $
2,368,295
Government reimbursement
Other third-party payor programs
2,344
—
69,159
—
59,614
27,251
287,512
78,392
418,629
105,643
Total resident fee revenue
$
512,598 $
1,691,276 $
321,883 $
366,810 $
2,892,567
(in thousands)
Private pay
Year Ended December 31, 2019
Independent
Living
Assisted Living
and Memory
Care
CCRCs
Health Care
Services
Total
$
542,112 $
1,748,364 $
281,197 $
753 $
2,572,426
Government reimbursement
Other third-party payor programs
2,446
—
67,574
—
81,054
39,924
357,963
88,544
509,037
128,468
Total resident fee revenue
$
544,558 $
1,815,938 $
402,175 $
447,260 $
3,209,931
Contract Balances
The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source,
although terms generally include payment to be made within 30 days. Resident fee revenue for recurring and routine monthly
services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care
residency agreements. Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears.
Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under
the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are
collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.
The Company had total deferred revenue (included within refundable fees and deferred revenue, and other liabilities within the
consolidated balance sheets) of $67.5 million and $138.3 million, including $27.5 million and $21.1 million of monthly resident
fees billed and received in advance, as of December 31, 2021 and 2020, respectively. During the year ended December 31,
2020, the Company received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, of
which $3.1 million and $87.5 million was included in such total deferred revenue as of December 31, 2021 and 2020,
respectively. Refer to Note 3 for additional information on such program. Pursuant to the HCS Sale, $63.6 million of such
obligations related to the Company's Health Care Services segment were retained by the HCS Venture and therefore
derecognized from the Company's consolidated balance sheet. For the years ended December 31, 2021, 2020, and 2019 the
Company recognized $60.2 million, $60.6 million, and $94.6 million respectively, of revenue that was included in the deferred
revenue balance as of January 1, 2021, 2020, and 2019, respectively. The Company applies the practical expedient in ASC
606-10-50-14 and does not disclose amounts for remaining performance obligations that have original expected durations of
one year or less.
100
The following table presents the changes in allowance for credit losses on accounts receivable for the periods indicated.
(in millions)
Balance at beginning of period
Provision within facility operating expense
Write-offs
Recoveries and other
Balance at end of period
For the Years Ended December 31,
2021
2020
2019
$
9.8 $
7.8 $
21.6
(19.2)
1.1
$
13.3 $
16.7
(16.2)
1.5
9.8 $
7.9
15.2
(19.5)
4.2
7.8
7. Property, Plant and Equipment and Leasehold Intangibles, Net
As of December 31, 2021 and 2020, net property, plant and equipment and leasehold intangibles, which include assets under
financing leases, consisted of the following.
(in thousands)
Land
Buildings and improvements
Furniture and equipment
Resident and leasehold operating intangibles
Construction in progress
Assets under financing leases and leasehold improvements
Property, plant and equipment and leasehold intangibles
Accumulated depreciation and amortization
Property, plant and equipment and leasehold intangibles, net
As of December 31,
2021
2020
$
502,610 $
505,298
5,262,136
5,215,460
990,006
303,737
51,037
1,609,217
8,718,743
945,783
307,071
61,491
1,523,055
8,558,158
(3,814,451)
(3,490,098)
$
4,904,292 $
5,068,060
Assets under financing leases and leasehold improvements includes $332.3 million and $363.1 million of financing lease right-
of-use assets, net of accumulated amortization, as of December 31, 2021 and 2020, respectively. Refer to Note 10 for further
information on the Company's financing leases.
Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives
(or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever
indicators of impairment arise. Refer to Note 5 for information on impairment expense for property, plant and equipment and
leasehold intangibles.
For the years ended December 31, 2021, 2020, and 2019, the Company recognized depreciation and amortization expense on its
property, plant and equipment and leasehold intangibles of $337.6 million, $359.2 million, and $377.6 million, respectively.
101
8. Goodwill
The following is a summary of the carrying amount of goodwill presented on a reportable segment basis.
(in thousands)
Independent Living
Assisted Living and Memory Care
Total
(in thousands)
Independent Living
Assisted Living and Memory Care
Health Care Services
Total
December 31, 2021
Gross
Carrying
Amount
Dispositions
and Other
Reductions
Accumulated
Impairment
Net
$
$
28,141 $
(820) $
— $
27,321
605,469
(48,817)
(556,652)
—
633,610 $
(49,637) $
(556,652) $
27,321
December 31, 2020
Gross
Carrying
Amount
Dispositions
and Other
Reductions
Accumulated
Impairment
Net
$
28,141 $
(820) $
— $
27,321
605,469
126,810
(48,817)
(556,652)
—
—
$
760,420 $
(49,637) $
(556,652) $
—
126,810
154,131
The Company's Health Care Services segment had a carrying amount of goodwill of $126.8 million as of December 31, 2020,
which was derecognized upon completion of the HCS Sale on July 1, 2021.
9. Debt
Long-term debt consists of the following.
(in thousands)
Fixed mortgage notes payable due 2023 through 2047; weighted average interest rate of
4.14% and 4.18% as of December 31, 2021 and 2020, respectively.
Variable mortgage notes payable due 2022 through 2030; weighted average interest rate of
2.44% and 2.49% as of December 31, 2021 and 2020, respectively.
Convertible notes payable due October 2026; weighted average interest rate of 2.00% as of
December 31, 2021.
Other notes payable; weighted average interest rate of 8.98% as of December 31, 2020.
Deferred financing costs, net
Total long-term debt
Current portion
December 31,
2021
2020
$
2,164,115 $
2,366,996
1,476,943
1,529,935
230,000
—
—
46,557
(29,846)
(27,500)
3,841,212
3,915,988
63,125
68,885
Total long-term debt, less current portion
$
3,778,087 $
3,847,103
As of December 31, 2021, 94.1%, or $3.6 billion of the Company's total debt obligations represented non-recourse property-
level mortgage financings.
102
The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of
December 31, 2021 are as follows (in thousands).
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total obligations
Less amount representing deferred financing costs, net
Total
Convertible Debt Offering
Long-term
Debt
Weighted
Rate
3.54 %
3.49 %
4.29 %
2.81 %
2.38 %
3.43 %
3.37 %
$
68,609
234,453
304,294
348,044
309,269
2,606,389
3,871,058
(29,846)
$ 3,841,212
On October 1, 2021, the Company issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the
"Notes"). The Company received net proceeds of $224.3 million at closing after the deduction of the initial purchasers'
discount. The Company used $15.9 million of the net proceeds to pay the Company’s cost of the capped call transactions
described below. Additionally, the Company used the remaining net proceeds together with cash on hand to repay
$284.4 million of mortgage debt and a $45.0 million note payable.
The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between the
Company and American Stock Transfer & Trust Company, LLC, as trustee. The Notes are the Company’s senior unsecured
obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of
payment to the Notes, and equal in right of payment to any of the Company’s indebtedness that is not so subordinated. The
Notes are effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the
assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and
any preferred equity of current or future subsidiaries of the Company.
The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year,
beginning on April 15, 2022. The Notes will mature on October 15, 2026, unless earlier converted, redeemed, or repurchased in
accordance with their terms. Holders of the Notes may convert all or any portion of their Notes at their option at any time prior
to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances: (1)
during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such
calendar quarter), if the last reported sale price of the common stock of the Company for at least 20 trading days (whether or not
consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during
the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price
per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the
last reported sale price of the common stock of the Company and the conversion rate for the Notes on each such trading day; (3)
if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled
trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for
redemption; or (4) upon the occurrence of specified corporate events. On or after July 15, 2026, holders may convert all or any
portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the
maturity date regardless of the foregoing conditions. Upon conversion, the Company will satisfy its conversion obligation by
paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of
the Company’s common stock at the Company’s election.
The conversion rate for the Notes is initially 123.4568 shares of the Company’s common stock per $1,000 principal amount of
Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock). The conversion rate will be
subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain
corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, the Company will
increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or who elects
to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.
103
The Company may not redeem the Notes prior to October 21, 2024. The Company may redeem for cash all or (subject to
certain limitations) any portion of the Notes, at the Company's option, on or after October 21, 2024 and prior to the 51st
scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company's common stock
has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any
30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day
immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of
the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No
sinking fund is provided for the Notes.
The Company has recognized the Notes in their entirety as a liability on the consolidated balance sheet and no portion of the
proceeds from the issuance of the convertible debt instrument was accounted for separately as an embedded conversion feature
within stockholders’ equity. The Notes were initially recognized at $223.3 million, which reflects $230.0 million principal
amount less the $5.7 million initial purchasers' discount and $1.0 million of debt issuance costs.
Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions ("Capped
Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or
their respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to
customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Notes and
initially have an exercise price of $8.10 per share of common stock. The cap price of the Capped Call Transactions is initially
approximately $9.90 per share of the Company’s common stock, representing a premium of 65% above the last reported sale
price of $6.00 per share of the Company’s common stock on September 28, 2021, and is subject to certain adjustments under
the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce or offset potential
dilution to holders of the Company’s common stock upon conversion of the Notes and/or offset the potential cash payments that
the Company could be required to make in excess of the principal amount of any converted Notes upon conversion thereof,
with such reduction and/or offset subject to a cap based on the cap price.
The Capped Call Transactions are separate transactions entered into by the Company with the Capped Call counterparties and
are not part of the terms of the Notes. The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1,
2021 from the proceeds of the Notes. The Company accounted for the Capped Call Transactions separately from the Notes and
recognized the $15.9 million cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the
Capped Call Transactions are indexed to the Company’s common stock.
Credit Facilities
On December 11, 2020, the Company entered into a revolving credit agreement with Capital One, National Association, as
administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment
amount of up to $80.0 million which can be drawn in cash or as letters of credit. The agreement matures on January 15, 2024.
Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of
December 31, 2021. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the
facility as of December 31, 2021. The revolving credit facility is currently secured by first priority mortgages and negative
pledges on certain of the Company’s communities. Available capacity under the facility will vary from time to time based upon
borrowing base calculations related to the appraised value and performance of the communities securing the credit facility.
As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under the Company's
$80.0 million secured credit facility. The Company also had a separate secured letter of credit facility providing up to
$15.0 million of letters of credit as of December 31, 2021 under which $13.6 million had been issued as of that date.
2021 Financings
On December 17, 2021, the Company obtained $100.0 million of debt secured by the non-recourse first mortgages on 11
communities. The loan bears interest at a variable rate equal to the 30-day Secured Overnight Financing Rate ("SOFR") plus a
margin of 215 basis points and matures in January 2025, with the option to extend for two additional terms of one year each.
104
2020 Financings
On January 31, 2020, the Company obtained $238.2 million of debt secured by the non-recourse first mortgages on 14
communities, including $192.6 million of non-recourse first mortgage financing on 13 communities acquired from Healthpeak
on such date. Seventy percent of the principal amount bears interest at a fixed rate of 3.62%, and the remaining thirty percent of
the principal amount bears interest at a variable rate equal to 30-day LIBOR plus a margin of 209 basis points. The debt
matures in February 2030. The proceeds from the financing were utilized to fund the acquisition of communities from
Healthpeak and repay $33.1 million of outstanding mortgage debt maturing in 2020. Refer to Note 4 for more information
about the Company's acquisition of communities from Healthpeak.
On March 19, 2020, the Company obtained $29.2 million of debt secured by the non-recourse first mortgages on seven
communities, primarily communities acquired during the three months ended March 31, 2020. The loan bears interest at a
variable rate equal to the 30-day LIBOR plus a margin of 225 basis points and matures in April 2030.
On March 20, 2020, the Company obtained $30.0 million of debt secured by the non-recourse first mortgage on one community
acquired from Healthpeak on January 31, 2020. The loan bears interest at a variable rate equal to the 30-day LIBOR plus a
margin of 250 basis points and matures in March 2022, with the option to extend for one year subject to certain financial
covenants.
On March 31, 2020, the Company obtained $149.3 million of debt secured by the non-recourse first mortgages on 18
communities. Of the total principal, $73.1 million bears interest at a fixed rate of 3.55%, and the remaining $76.2 million bears
interest at a variable rate equal to the 30-day LIBOR plus a margin of 210 basis points. The debt matures in April 2030. The
$149.3 million of proceeds from the financing were primarily utilized to repay $136.3 million of outstanding mortgage debt
maturing in 2020.
On August 31, 2020, the Company obtained $266.9 million of debt secured by the non-recourse first mortgages on 16
communities, most of which secured the credit facility prior to its termination. Of the total principal, $191.3 million bears
interest at a fixed rate of 2.89%, and the remaining $75.6 million bears interest at a variable rate equal to the 30-day LIBOR
plus a margin of 249 basis points. The debt matures in September 2030. The $266.9 million of proceeds from the financing
were primarily utilized to repay the outstanding principal amount under the Credit Agreement and to cash collateralize letters of
credit.
On September 9, 2020, the Company obtained $220.5 million of debt secured by the non-recourse first mortgages on 27
communities. Of the total principal, $156.5 million bears interest at a fixed rate of 3.18%, and the remaining $64.0 million bears
interest at a variable rate equal to the 30-day LIBOR plus a margin of 254 basis points. The debt matures in October 2030. The
$220.5 million of proceeds from the financing were primarily utilized to repay outstanding mortgage debt maturing in 2020 and
2021.
Financial Covenants
Certain of the Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to
maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service ratios, and requiring the
Company not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-
community, and/or entity basis. In addition, the Company's debt documents generally contain non-financial covenants, such as
those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
The Company's failure to comply with applicable covenants could constitute an event of default under the applicable debt
documents. Many of the Company's debt documents contain cross-default provisions so that a default under one of these
instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).
Furthermore, the Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or
more of its subsidiaries.
As of December 31, 2021, the Company is in compliance with the financial covenants of its debt agreements.
105
10. Leases
As of December 31, 2021, the Company operated 299 communities under long-term leases (233 operating leases and 66
financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master
lease, numerous communities are leased through an indivisible lease. The Company typically guarantees the performance and
lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property
or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.
The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based
upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs,
including repairs, property taxes, and insurance. As of December 31, 2021, the weighted average remaining lease term of the
Company's operating and financing leases was 5.9 and 5.3 years, respectively. The leases generally provide for renewal or
extension options from 5 to 20 years and in some instances, purchase options. For accounting purposes, renewal or extension
options are included in the lease term at lease inception or modification when it is reasonably certain that the Company will
exercise the option. Generally, renewal or extension options are not included in the lease term for accounting purposes.
The community leases contain other customary terms, which may include assignment and change of control restrictions,
maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring the
Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in
each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the
Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with
Medicare or Medicaid provider requirements and maintain insurance coverage.
The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease
documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of
these instruments could cause a default under other debt and lease documents (including documents with other lenders and
lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit
if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a
guaranty by the Company and/or one or more of its subsidiaries.
As of December 31, 2021, the Company is in compliance with the financial covenants of its long-term leases.
A summary of operating and financing lease expense (including the respective presentation on the consolidated statements of
operations) and net cash outflows from leases is as follows.
Operating Leases (in thousands)
Facility operating expense
Facility lease expense
Operating lease expense
Operating lease expense adjustment (1)
Changes in operating lease assets and liabilities for lessor
capital expenditure reimbursements
Operating net cash outflows from operating leases
$
2021
Years Ended December 31,
2020
2019
$
12,606 $
19,241 $
174,358
186,964
23,280
224,033
243,274
136,276
(30,965)
179,279 $
(22,242)
357,308 $
18,677
269,666
288,343
19,453
(31,305)
276,491
(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
Operating cash flows from operating leases for the year ended December 31, 2020 includes the $119.2 million one-time
cash lease payment made to Ventas in connection with the Company's lease restructuring transaction effective July 26,
2020.
106
Financing Leases (in thousands)
Depreciation and amortization
Interest expense: financing lease obligations
Financing lease expense
Operating cash outflows from financing leases
Financing cash outflows from financing leases
Changes in financing lease assets and liabilities for lessor
capital expenditure reimbursement
Total net cash outflows from financing leases
2021
Years Ended December 31,
2020
2019
$
$
$
$
30,542 $
46,282
76,824 $
46,282 $
19,874
(11,135)
55,021 $
32,647 $
48,534
81,181 $
48,534 $
18,867
(5,603)
61,798 $
46,646
66,353
112,999
66,353
22,242
(3,504)
85,091
As of December 31, 2021, the weighted average discount rate of the Company's operating and financing leases was 7.2% and
8.0%, respectively.
The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on
the consolidated balance sheet as of December 31, 2021 are as follows (in thousands).
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Purchase option liability and non-cash gain on future sale of property
Imputed interest and variable lease payments
Total lease obligations
11. Accrued Expenses
Operating
Leases
Financing
Leases
$
204,702 $
193,070
193,796
191,439
76,228
206,388
1,065,623
—
68,101
68,840
70,044
59,413
60,659
52,881
379,938
418,542
(235,105)
(244,193)
$
830,518 $
554,287
Accrued expenses reflected within current liabilities on the Company’s consolidated balance sheets consist of the following.
(in thousands)
Salaries and wages
Insurance reserves
Deferred payroll taxes (Note 3)
Paid time off
Real estate taxes
Interest
Utilities
Taxes payable
Other
Total
As of December 31,
2021
2020
$
60,601 $
55,309
31,553
26,821
25,826
11,239
7,430
1,978
65,310
64,633
36,336
37,848
25,495
11,453
7,507
3,806
34,074
254,831 $
35,463
287,851
$
107
12. Investment in Unconsolidated Ventures
As of December 31, 2021, the Company holds a 20% equity interest, and HCA Healthcare owns an 80% interest, in the HCS
Venture, and the Company has determined the HCS Venture is a VIE. The Company does not consolidate this VIE because it
does not have the ability to control the activities that most significantly impact this VIE's economic performance. The
Company's interest in the HCS Venture is accounted for under the equity method of accounting. The carrying amount of the
Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership
interest in the HCS Venture was $62.5 million, which is included in investments in unconsolidated ventures on the
accompanying consolidated balance sheet, as of December 31, 2021. As of December 31, 2021, the Company is not required to
provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIE. Refer to Note 4 for
information on the formation of the HCS Venture.
13. Commitments and Contingencies
Litigation
The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it
believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited
to, putative class action claims from time to time regarding staffing at the Company’s communities and compliance with
consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts
and may require significant costs to defend and resolve. As a result, the Company maintains general liability, professional
liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate,
based on the nature and risks of its business, historical experience, availability, and industry standards. The Company's current
policies provide for deductibles for each claim and contain various exclusions from coverage. Accordingly, the Company is, in
effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered
by such policies and/or exceed the policy limits.
The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result
in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters. In addition, the
Company is subject to various government reviews, audits, and investigations to verify compliance with Medicare and
Medicaid programs and other applicable laws and regulations. CMS has engaged third-party firms to review claims data to
evaluate appropriateness of billings. In addition to identifying overpayments, audit contractors can refer suspected violations to
government authorities. An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil
fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid
programs, and damage to the Company’s business reputation. The Company’s costs to respond to and defend any such audits,
reviews, and investigations may be significant.
In June 2020, the Company and several current and former executive officers were named as defendants in a putative class
action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee.
The lawsuit asserted that the defendants made material misstatements and omissions concerning the Company's business,
operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and
April 2020. The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the
plaintiffs did not file an appeal. Between October 2020 and June 2021, alleged stockholders of the Company filed several
stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which
was subsequently transferred to the Middle District of Tennessee. The derivative lawsuits are currently pending and assert
claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to
the Company. The complaints refer to the securities lawsuit described above and incorporate substantively similar allegations.
Other
The Company has employment or letter agreements with certain officers of the Company and has adopted policies to which
certain officers of the Company are eligible to participate, which grant these employees the right to receive a portion or multiple
of their base salary, pro-rata bonus, bonus, and/or continuation of certain benefits, for a defined period of time, in the event of
certain terminations of the officers' employment, as described in those agreements and policies.
14. Self-Insurance
The Company obtains various insurance coverages, including general and professional liability and workers compensation
programs, from commercial carriers at stated amounts as defined in the applicable policy. The Company's current general and
108
professional liability policies provide for deductibles for each claim and contain various exclusions from coverage. As a result,
the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding
level of the Company’s wholly-owned captive insurance company, and for claims or portions of claims that are not covered by
such policies and/or exceed the policy limits. Losses related to self-insured amounts are accrued based on the Company's
estimate of expected losses plus incurred but not reported claims.
As of December 31, 2021 and 2020, the Company accrued reserves of $130.7 million and $153.0 million, respectively, under
the Company's insurance programs, of which $75.4 million and $88.4 million is classified as other liabilities as of
December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Company accrued $14.3 million and $18.0
million, respectively, of estimated amounts receivable from the insurance companies under these insurance programs.
The Company has secured self-insured retention risk under its primary workers' compensation programs with restricted cash
deposits of $15.8 million as of both December 31, 2021 and 2020. Letters of credit securing the programs aggregated to $62.1
million and $61.3 million as of December 31, 2021 and 2020, respectively. In addition, the Company also had deposits of $6.5
million and $7.7 million, as of December 31, 2021 and 2020, respectively, to fund claims paid under a high deductible,
collateralized insurance policy.
15. Stock-Based Compensation
The following table sets forth information about the Company's restricted stock awards and restricted stock units.
(in thousands, except value per share and unit)
Outstanding on January 1, 2019
Granted
Vested
Cancelled/forfeited
Outstanding on December 31, 2019
Granted
Vested
Cancelled/forfeited
Outstanding on December 31, 2020
Granted
Vested
Cancelled/forfeited
Outstanding on December 31, 2021
Number of
Restricted
Stock Units and
Stock Awards
Weighted
Average
Grant Date
Fair Value
5,756 $
4,381
(1,571)
(1,314)
7,252
4,603
(2,073)
(1,277)
8,505
1,998
(2,641)
(2,851)
5,011
11.78
7.81
13.71
11.18
9.08
6.92
10.19
8.83
7.68
5.12
8.40
6.77
6.80
As of December 31, 2021, there was $20.4 million of total unrecognized compensation cost related to outstanding, unvested
share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.2 years and is
based on grant date fair value.
During 2021, grants of restricted stock and restricted stock units under the Company's 2014 Omnibus Incentive Plan were as
follows.
(in thousands, except for weighted average amounts)
Three months ended March 31, 2021
Three months ended June 30, 2021
Three months ended September 30, 2021
Three months ended December 31, 2021
Restricted
Stock Unit
and Stock
Award Grants
Weighted
Average
Grant Date
Fair Value
Total Grant
Date Fair
Value
1,961 $
20 $
3 $
14 $
5.09 $
6.62 $
7.76 $
6.69 $
9,988
130
22
97
109
Through December 31, 2021, the Company had an employee stock purchase plan for all eligible employees. Under the plan,
eligible employees of the Company could purchase shares of the Company's common stock on a quarterly basis at a discounted
price through accumulated payroll deductions. Each participating employee could elect to deduct up to 15% of his or her base
pay each quarter and no more than 200 shares could be purchased by a participating employee each quarter. Subject to certain
limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant's
pay over the course of the quarter was used to purchase whole shares of the Company's common stock at a purchase price equal
to 90% of the closing market price on the New York Stock Exchange on that date. This plan was terminated effective
December 31, 2021.
16. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of shares of
common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock
equivalents. Diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible
into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock
equivalents include unvested restricted stock, restricted stock units, the Warrant, and the Notes. Refer to Note 4 for information
on the Warrant. Refer to Note 9 for information on the issuance of the Notes on October 1, 2021.
The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the
consolidated statements of operations.
(in thousands, except for per share amounts)
Income attributable to common stockholders:
Net income (loss)
Weighted average shares outstanding - basic
Effect of dilutive securities
Weighted average shares outstanding - diluted
Years Ended December 31,
2020
2021
2019
$
(99,290) $
82,019 $
(267,931)
184,975
—
184,975
183,498
888
184,386
185,907
—
185,907
Net income (loss) per share attributable to common stockholders - basic
Net income (loss) per share attributable to common stockholders - diluted
$
$
(0.54) $
(0.54) $
0.45 $
0.44 $
(1.44)
(1.44)
For the purposes of computing diluted EPS, weighted average shares outstanding do not include potentially dilutive securities
that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are
included based on the attainment of the applicable performance metrics as of the end of the reporting period. The following
potentially outstanding shares of common stock were excluded from the computation of diluted net income (loss) per share
attributable to common stockholders because including them would have been antidilutive.
(in millions)
Non-performance-based restricted stock and restricted stock units
Performance-based restricted stock and restricted stock units
Warrant
Notes
Total
As of December 31,
2021(1)
2020
2019(1)
4.7
0.3
16.3
38.3
59.6
6.8
1.6
—
—
8.4
6.4
1.1
—
—
7.5
(1) As a result of the net loss reported for the period, all unvested restricted stock, restricted stock units, and potential shares
issuable under the Warrant and the Notes were antidilutive for the period and as such were not included in the computation
of diluted weighted average shares outstanding.
As of December 31, 2021, the maximum number of shares issuable upon conversion of the Notes is 38.3 million (after giving
effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or
other events).
110
17. Share Repurchase Program
On November 1, 2016, the Company announced that its Board of Directors had approved a share repurchase program that
authorizes the Company to purchase up to $100.0 million in the aggregate of the Company's common stock. The share
repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which
may include open market purchases, privately negotiated transactions, or block trades, or by any combination of these methods,
in accordance with applicable insider trading and other securities laws and regulations.
The size, scope, and timing of any purchases will be based on business, market, and other conditions and factors, including
price, regulatory, and contractual requirements or consents, and capital availability. The repurchase program does not obligate
the Company to acquire any particular amount of common stock and the program may be suspended, modified, or discontinued
at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as
treasury shares. The Company temporarily suspended purchases under the share repurchase plan in March 2020 in response to
the COVID-19 pandemic.
Repurchases under the share repurchase program were as follows.
(amounts in thousands, except per share amounts)
Total number of shares repurchased
Average price paid per share
Aggregate purchase price
For the Years Ended December 31,
2020
2019
$
$
3,063
5.92 $
18,123 $
3,005
6.56
19,710
There were no repurchases under the share repurchase program in 2021. As of December 31, 2021, approximately $44.0 million
remains available under the share repurchase program.
18. Retirement Plans
The Company maintains a 401(k) retirement savings plan for all employees that meet minimum employment criteria. Such plan
provides that the participants may defer eligible compensation subject to certain Internal Revenue Code maximum amounts.
The Company makes matching contributions in amounts equal to 25.0% of the employee's contribution to such plan, for
contributions up to a maximum of 4.0% of eligible compensation. An additional matching contribution of 12.5%, subject to the
same limit on eligible compensation, may be made at the discretion of the Company based upon the Company's performance.
For the years ended December 31, 2021, 2020, and 2019, the Company's expense for such plan was $4.6 million, $6.2 million,
and $8.0 million, respectively.
19. Income Taxes
The benefit (provision) for income taxes is comprised of the following.
(in thousands)
Federal:
Current
Deferred
Total federal
State:
Current
Deferred (included in federal above)
Total state
Total
For the Years Ended December 31,
2019
2020
2021
$
161 $
55 $
9,837
9,998
5,840
5,895
(1,835)
(11,247)
—
—
(1,835)
8,163 $
(11,247)
(5,352) $
$
64
2,654
2,718
(449)
—
(449)
2,269
111
A reconciliation of the benefit (provision) for income taxes to the amount computed at the U.S. Federal statutory rate of 21% is
as follows.
(in thousands)
Tax benefit (provision) at U.S. statutory rate
State taxes, net of federal income tax
Valuation allowance
Goodwill derecognition
Stock compensation
Officer compensation
Meals and entertainment
Other
Total
For the Years Ended December 31,
2021
2020
2019
$
22,565 $
(18,348) $
7,673
13,027
(31,829)
(1,856)
(1,107)
(146)
(164)
(11,909)
27,913
—
(280)
(169)
(441)
$
8,163 $
(5,352) $
56,742
10,423
(60,376)
—
(204)
(416)
(1,261)
2,269
(2,118)
(2,639)
Significant components of the Company's deferred tax assets and liabilities are as follows.
(in thousands)
Deferred income tax assets:
Operating loss carryforwards
Operating lease obligations
Financing lease obligations
Accrued expenses
Intangible assets
Tax credits
Investment in unconsolidated ventures
Capital loss carryforward
Other
Total gross deferred income tax asset
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Property, plant and equipment
Operating lease right-of-use assets
Investment in unconsolidated ventures
Total gross deferred income tax liability
Net deferred tax asset (liability)
As of December 31,
2021
2020
$
281,384 $
208,460
87,992
56,151
50,576
50,415
—
2,205
6,450
237,728
322,122
90,011
96,410
60,069
50,356
5,105
2,263
8,561
743,633
872,625
(367,963)
(380,990)
375,670
491,635
(202,103)
(223,703)
(158,237)
(277,489)
(15,051)
(375,391)
279 $
—
(501,192)
(9,557)
$
As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards generated in 2017 and prior of
approximately $808.7 million and $812.0 million, respectively, which are available to offset future taxable income from 2022
through 2037. Additionally, as of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards
generated after 2017 of $335.8 million and $181.1 million, respectively, which have an indefinite life, but with usage limited to
80% of taxable income in any given year. The Company had state capital loss carryforwards of $2.2 million and $2.3 million as
of December 31, 2021 and 2020, respectively, which are available to offset future capital gains through 2023. The Company
determined that a valuation allowance was required after consideration of the Company's estimated future reversal of existing
timing differences as of December 31, 2021 and 2020. The Company does not consider estimates of future taxable income in its
determination due to the existence of cumulative historical operating losses. For the years ended December 31, 2021 and 2020,
the Company recorded a reduction to the valuation allowance of approximately $13.0 million and $27.9 million, respectively, to
reflect the required valuation allowance of $368.0 million and $381.0 million as of December 31, 2021 and 2020, respectively.
112
The Company has recorded valuation allowances of $315.3 million and $328.4 million against its federal and state net operating
losses as of December 31, 2021 and 2020, respectively. The Company has recorded a valuation allowance against its state
capital loss carryforward of $2.2 million as of December 31, 2021. The Company's sale of its ownership interest in the CCRC
Venture in 2020 utilized all of the capital loss carryforward for federal tax purposes and a portion of its net operating losses.
The Company recorded a decrease in the valuation allowance of $95.2 million for the year ended December 31, 2021 as a result
of the HCS Sale that occurred on July 1, 2021, offset by an increase in the valuation allowance of $82.2 million established
against current operating losses during the year ended December 31, 2021. The Company also recorded a valuation allowance
against federal and state credits of $50.4 million and $50.3 million as of December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Company had gross tax affected unrecognized tax benefits of $18.1 million and $18.4
million, respectively, of which, if recognized, would result in an income tax benefit recorded in the consolidated statement of
operations. Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated
financial statements. Total interest and penalties reserved is $0.1 million as of both December 31, 2021 and 2020. As of
December 31, 2021, the Company's tax returns for years 2017 through 2020 are subject to future examination by tax authorities.
In addition, the net operating losses from prior years are subject to adjustment under examination. The Company does not
expect that unrecognized tax benefits for tax positions taken with respect to 2021 and prior years will significantly change in
2022.
A reconciliation of the unrecognized tax benefits is as follows.
(in thousands)
Balance at beginning of period
Additions for tax positions related to the current year
Additions (reductions) for tax positions related to prior years
Balance at end of period
20. Supplemental Disclosure of Cash Flow Information
(in thousands)
Supplemental Disclosure of Cash Flow Information:
Interest paid
Income taxes paid, net of refunds
Capital expenditures, net of related payables:
Capital expenditures - non-development, net
Capital expenditures - development, net
Capital expenditures - non-development - reimbursable
Trade accounts payable
Net cash paid
Acquisition of communities from Healthpeak:
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Financing lease obligations
Operating lease obligations
Loss (gain) on debt modification and extinguishment, net
For the Years Ended December 31,
2021
2020
18,385 $
18,326
—
(296)
—
59
18,089 $
18,385
$
$
For the Years Ended December 31,
2019
2020
2021
$
$
188,791 $
204,696 $
244,469
5,923 $
8,878 $
1,534
$
137,410 $
139,592 $
235,797
3,208
42,100
13,667
27,846
(6,061)
176,657 $
4,766
185,871 $
24,595
34,809
8,891
304,092
$
$
— $
286,734 $
—
—
—
—
(63,285)
129,196
74,335
(19,731)
—
—
—
—
—
—
Net cash paid
$
— $
407,249 $
113
Master Agreement with Ventas:
Property, plant and equipment and leasehold intangibles, net
$
— $
(66,444) $
—
—
—
—
—
—
(153,213)
(42,354)
34,053
7,077
362,944
(22,883)
— $
119,180 $
(57,582) $
— $
(1,806)
(8,145)
100,000
(126,810)
(32,963)
1,387
25,226
57,314
8,145
9,165
(286,489)
(312,558) $
—
—
—
—
—
—
—
—
—
—
—
— $
— $
684 $
—
—
—
64,260
— $
64,944 $
— $
(14,848) $
—
—
—
34,706
60,748
(369,831)
— $
(289,225) $
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44
453
—
497
—
—
—
—
—
(1,983) $
(1,318) $
(16,166)
(34,348)
(878)
—
(75)
(2,346)
(938)
—
(786)
(4,701)
(4,422)
(79,054)
(379)
(156)
(1,479)
(7,245)
$
(21,448) $
(42,091) $
(92,735)
Operating lease right-of-use assets
Other assets, net
Long-term debt
Financing lease obligations
Operating lease obligations
Additional paid-in-capital
Net cash paid
Proceeds from HCS Sale, net:
Accounts receivable, net
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Investments in unconsolidated ventures
Goodwill
Prepaid expenses and other assets, net
Trade accounts payable
Accrued expenses
Refundable fees and deferred revenue
Operating lease obligations
Other liabilities
Loss (gain) on sale of assets, net
Net cash received
Acquisition of other assets, net of related payables and cash received:
Property, plant and equipment and leasehold intangibles, net
Other intangible assets, net
Financing lease obligations
Net cash paid
Proceeds from sale of CCRC Venture, net:
Investments in unconsolidated ventures
Current portion of long-term debt
Other liabilities
Loss (gain) on sale of assets, net
Net cash received
Proceeds from sale of other assets, net:
Prepaid expenses and other assets, net
Assets held for sale
Property, plant and equipment and leasehold intangibles, net
Investments in unconsolidated ventures
Other liabilities
Loss (gain) on sale of assets, net
Net cash received
114
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Assets designated as held for sale:
Assets held for sale
Property, plant and equipment and leasehold intangibles, net
Net
Healthpeak master lease modification:
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Financing lease obligations
Operating lease obligations
Net
Other non-cash lease transactions, net:
Prepaid expenses and other assets, net
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Operating lease obligations
Financing lease obligations
Other liabilities
Loss (gain) on facility operating lease termination, net
$
$
$
$
$
For the Years Ended December 31,
2021
2020
2019
3,612 $
7,935 $
28,608
(3,612)
(7,935)
(28,608)
— $
— $
— $
(57,462) $
—
—
—
88,044
70,874
(101,456)
— $
— $
— $
— $
4,056
17,197
10,707
(7,941)
(17,197)
15,126
(4,056)
(15,483)
—
—
(77)
(2,332)
—
—
—
—
—
—
(636)
(1,963)
18,148
(18,206)
—
(731)
3,388
—
Net
$
— $
— $
During 2019, the Company and its venture partner contributed cash in an aggregate amount of $13.3 million to a consolidated
venture which owns two senior housing communities as of December 31, 2021. The Company obtained a $6.6 million
promissory note receivable from its venture partner secured by a 50% equity interest in the venture in a non-cash exchange for
the Company funding the $13.3 million aggregate contribution in cash. At the closing of the sale of a senior housing community
during 2019 by the consolidated venture, the consolidated venture distributed $6.3 million to the partners with the Company
receiving a $3.1 million repayment on the promissory note in a non-cash exchange.
Refer to Note 2 for a schedule of the non-cash adjustments to the Company's consolidated balance sheet as of January 1, 2019
as a result of the adoption of new accounting standards.
115
Restricted cash consists principally of deposits as security for self-insured retention risk under workers' compensation programs
and property insurance programs, escrow deposits for real estate taxes, property insurance, and capital expenditures, and debt
service reserve accounts required by certain lenders under mortgage debt agreements. The components of restricted cash are as
follows.
(in thousands)
Current:
December 31,
2021
2020
Real estate tax and property insurance escrows
$
16,272 $
Replacement reserve escrows
Resident deposits
Other
Subtotal
Long term:
Insurance deposits
Debt service reserve
CCRCs escrows
Letters of credit collateral
Subtotal
Total
9,756
93
724
26,845
30,932
18,053
15,346
107
64,438
$
91,283 $
17,465
9,465
253
876
28,059
21,903
17,784
15,329
1,653
56,669
84,728
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated
balance sheets that sums to the total of the same such amounts shown in the consolidated statements of cash flows.
(in thousands)
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents
Restricted cash
Long-term restricted cash
Total cash, cash equivalents, and restricted cash
21. Segment Information
December 31,
2021
2020
$
347,031 $
380,420
26,845
64,438
438,314 $
28,059
56,669
465,148
$
As of December 31, 2021, the Company has three reportable segments: Independent Living; Assisted Living and Memory Care;
and CCRCs. Operating segments are defined as components of an enterprise that engage in business activities from which it
may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are
regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make
decisions about resources to be allocated to the segment. Prior to July 1, 2021, the Company had an additional reportable
segment, Health Care Services. On July 1, 2021, the Company sold 80% of its equity in its Health Care Services segment, as
described in Note 4. For periods beginning July 1, 2021, the results and financial position of its Health Care Services segment
were deconsolidated from the Company's consolidated financial statements and its 20% equity interest in the HCS Venture is
accounted for under the equity method of accounting as of that date.
As of December 31, 2021, the Company's Management Services operating segment is no longer identified as a reportable
segment as a result of the reduction in the number of communities it manages, which has reduced the operating segment's
revenue, operating income, and assets below the reporting threshold. Management services operations are reported within the
All Other category. All prior period segment disclosures reflect this reportable segment change.
Independent Living. The Company's Independent Living segment includes owned or leased communities that are primarily
designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts
of ownership. The majority of the Company's independent living communities consist of both independent and assisted living
units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior
independent and assisted living services to accommodate their changing needs.
116
Assisted Living and Memory Care. The Company's Assisted Living and Memory Care segment includes owned or leased
communities that offer housing and 24-hour assistance with activities of daily living for the Company's residents. The
Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as
smaller, freestanding, single story communities. The Company also provides memory care services at freestanding memory care
communities that are specially designed for residents with Alzheimer's disease and other dementias.
CCRCs. The Company's CCRCs segment includes large owned or leased communities that offer a variety of living
arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs. Most of the Company's
CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus or within the
immediate area.
All Other. All Other includes communities operated by the Company pursuant to management agreements. Under the
management agreements for these communities, the Company receives management fees as well as reimbursement of expenses
it incurs on behalf of the owners.
Health Care Services. The Company's former Health Care Services segment included the home health, hospice, and outpatient
therapy services provided to residents of many of its communities and to seniors living outside its communities. The Health
Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled
nursing units, which are included in the Company's CCRCs segment.
The accounting policies of the Company's reportable segments are the same as those described in the summary of significant
accounting policies in Note 2.
The following table sets forth selected segment financial data.
(in thousands)
Revenue and other operating income:
Independent Living (1)(2)
Assisted Living and Memory Care (1)(2)
CCRCs (1)(2)
All Other (3)
Health Care Services (1)(2)
Total revenue and other operating income
Segment operating income:(4)
Independent Living
Assisted Living and Memory Care
CCRCs
All Other
Health Care Services
Total segment operating income
General and administrative expense (including non-cash stock-based
compensation expense)
Facility operating lease expense:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All Other
For the Years Ended December 31,
2021
2020
2019
$
477,050 $
524,421 $
544,558
1,595,684
1,753,861
1,815,938
306,213
202,043
177,269
340,337
531,879
389,697
402,175
847,157
447,260
$
2,758,259 $
3,540,195 $
4,057,088
$
146,108 $
182,813 $
294,320
34,109
20,598
5,816
500,951
428,601
53,180
130,690
1,863
797,147
203,741
518,636
72,072
57,108
24,987
876,544
184,916
206,575
219,289
42,162
111,117
15,932
5,147
60,445
137,900
20,406
5,282
81,680
157,823
24,248
5,915
117
Depreciation and amortization:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All Other
Health Care Services
Asset impairment:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All other
Health Care Services
74,922
200,677
37,891
23,783
340
3,483
14,384
4,790
346
—
70,803
224,790
38,426
24,458
749
31,317
61,640
12,413
1,938
—
Loss (gain) on facility operating lease termination, net
(2,003)
(2,303)
81,745
222,574
44,163
28,704
2,247
1,812
32,229
4,983
2,664
7,578
3,388
Income (loss) from operations
$
(216,936) $
(97,692) $
(44,498)
Total interest expense:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All Other
Total capital expenditures for property, plant and equipment, and leasehold
intangibles:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All Other
Health Care Services
(in thousands)
Total assets:
Independent Living
Assisted Living and Memory Care
CCRCs
Corporate and All Other
Health Care Services
Total assets
$
45,209 $
44,682 $
121,785
18,756
9,390
134,015
19,928
10,154
46,713
166,097
27,426
8,105
$
195,140 $
208,779 $
248,341
$
36,992 $
47,889 $
105,177
19,086
21,463
—
90,354
18,709
23,638
515
78,831
157,845
33,535
24,506
484
$
182,718 $
181,105 $
295,201
As of December 31,
2021
2020
$
1,349,341 $
1,419,838
3,601,144
3,787,611
693,386
766,596
—
738,121
723,010
233,178
$
6,410,467 $
6,901,758
(1) All revenue and other operating income is earned from external third parties in the United States.
118
(2) Includes other operating income recognized for the credits or grants pursuant to the employee retention credit, Provider
Relief Fund, and other government sources, as described in Note 3. Allocations to the applicable segment generally
reflect the credits earned by the segment, the segment’s receipt and acceptance of the grant, or the segment’s
proportional utilization of the grant. Other operating income by segment is as follows.
(in thousands)
Independent Living
Assisted Living and Memory Care
CCRCs
Health Care Services
Total other operating income
For the Years Ended December 31,
2021
2020
1,512 $
5,963
1,788
3,105
11,823
62,585
18,454
22,887
$
12,368 $
115,749
(3) All Other revenue and other operating income includes management fees and reimbursements of costs incurred on behalf
of managed communities. For the years ended December 31, 2021, 2020, and 2019, revenue and other operating income
includes $17.2 million, $67.2 million, and $329.9 million of revenue earned from unconsolidated ventures in which the
Company had or has an ownership interest.
(4) Segment operating income is defined as segment revenues and other operating income less segment facility operating
expenses (excluding facility depreciation and amortization) and costs incurred on behalf of managed communities.
119
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2021
(In thousands)
Additions
Description
Deferred Tax Valuation Allowance:
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
Balance at
beginning of
period
Charged to
costs and
expenses
Charged to
other
accounts
Deductions
Balance at
end of
period
$
$
$
336,417
408,903
380,990
$
$
$
60,376 (1) $
(27,913) (3) $
(13,027) (4) $
13,790 (2) $
$
—
—
$
(1,680)
$ 408,903
—
—
$ 380,990
$ 367,963
(1) Additional valuation allowance for federal and state net operating losses.
(2) Additional valuation allowance charged to accumulated deficit upon the adoption of ASC 842.
(3) Reduction of valuation allowance for federal and state net operating losses.
(4) Reduction of valuation allowance for federal and state net operating losses and credits.
120
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended). Our management, under the supervision of and with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2021, our
disclosure controls and procedures were effective.
Management's Assessment of Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only
provide reasonable assurance with respect to financial statement preparation and presentation.
Based on the Company's evaluation, management concluded that our internal control over financial reporting was effective as
of December 31, 2021. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of
our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, the independent
registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-
K, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K and incorporated herein by
reference.
Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2021 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
121
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
To the extent not set forth herein, the information required by this item is incorporated by reference from the discussions under
the headings "Election of Directors," "Corporate Governance," and "Executive Officers" in our Definitive Proxy Statement for
the 2022 Annual Meeting of Stockholders, to be filed with the SEC by May 2, 2022.
Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all employees, directors, and
officers, including our principal executive officer, our principal financial officer, our principal accounting officer or controller,
or persons performing similar functions, as well as a Code of Ethics for Chief Executive and Senior Financial Officers, which
applies to our President and Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and Treasurer, both of
which are available on our website at www.brookdale.com/investor. Any amendment to, or waiver from, a provision of such
codes of ethics granted to a principal executive officer, principal financial officer, principal accounting officer or controller, or
person performing similar functions, or to any executive officer or director, will be posted on our website.
Item 11.
Executive Compensation
The information required by this item is incorporated by reference from the discussions under the headings "Director
Compensation" and "Executive Compensation" in our Definitive Proxy Statement for the 2022 Annual Meeting of
Stockholders, to be filed with the SEC by May 2, 2022.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
To the extent not set forth herein, the information required by this item regarding security ownership of certain beneficial
owners and management is incorporated by reference from the discussion under the heading "Stock Ownership Information" in
our Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC by May 2, 2022.
The following table provides certain information as of December 31, 2021 with respect to our equity compensation plans (after
giving effect to shares issued and/or vesting on such date).
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a) (1)
Weighted average
exercise price of
outstanding options,
warrants, and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
$
$
3,591,609 $
—
3,591,609
— $
—
— $
9,915,422
35,936
9,951,358
Plan category
Equity compensation plans approved by
security holders (2)
Equity compensation plans not approved
by security holders (3)
Total
(1) The table above includes 106,612 shares issuable pursuant to vested restricted stock units; 3,411,160 shares potentially
issuable pursuant to unvested restricted stock units, including 81,676 shares that may be issued for performance
achievement in excess of target; and 73,837 shares that may be issued pursuant to unvested performance-based restricted
stock awards for performance achievement in excess of target. Pursuant to SEC guidance, the table above excludes an
aggregate of 1,549,059 shares of unvested restricted stock that were outstanding under our 2014 Omnibus Incentive Plan as
of December 31, 2021. Our 2014 Omnibus Incentive Plan allows awards to be made in the form of stock options, stock
appreciation rights, restricted shares, restricted stock units, unrestricted shares, performance awards, and other stock-based
awards.
(2) The number of shares remaining available for future issuance under equity compensation plans approved by security
holders consists of 9,915,422 shares remaining available for future issuance under our 2014 Omnibus Incentive Plan,
excluding those reported in column (a). Effective December 31, 2021 the Associate Stock Purchase Plan was terminated.
122
(3) Represents shares remaining available for future issuance under our Director Stock Purchase Plan. Under the existing
compensation program for the members of our Board of Directors, each non-employee director has the opportunity to elect
to receive either immediately vested shares or restricted stock units in lieu of up to 50% of his or her quarterly cash
compensation. Any immediately vested shares that are elected to be received will be issued pursuant to the Director Stock
Purchase Plan. Under the director compensation program, all cash amounts are payable quarterly in arrears, with payments
to be made on April 1, July 1, October 1 and January 1. Any immediately vested shares that a director elects to receive
under the Director Stock Purchase Plan will be issued at the same time that cash payments are made. The number of shares
to be issued will be based on the closing price of our common stock on the date of issuance (i.e., April 1, July 1, October 1
and January 1), or if such date is not a trading date, on the previous trading day's closing price. Fractional amounts will be
paid in cash. The Board of Directors initially reserved 100,000 shares of our common stock for issuance under the Director
Stock Purchase Plan.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item regarding director independence is incorporated by reference from the discussion under
the heading "Director Independence" in our Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders, to be
filed with the SEC by May 2, 2022.
Certain Relationships and Related Transactions
Our Board of Directors has adopted a written Policy and Procedures with Respect to Related Person Transactions (the "Related
Person Policy"). Pursuant to the terms of the Related Person Policy, we will enter into or ratify related person transactions only
when the Audit Committee determines that the transaction in question is in, or is not inconsistent with, the best interests of the
Company and our stockholders.
The Related Person Policy covers all transactions, arrangements or relationships (or any series of similar transactions,
arrangements or relationships) in which the Company (including any of its subsidiaries) was, is or will be a participant and the
amount involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest.
A "Related Person", as defined in the Related Person Policy, means any person who is, or at any time since the beginning of the
Company’s last year was, a director or executive officer of the Company or a nominee to become a director of the Company;
any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; any
immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive
officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of
such director, executive officer, nominee or more than 5% beneficial owner; and any firm, corporation or other entity in which
any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has
a 5% or greater beneficial ownership interest.
The Related Person Policy also requires Audit Committee pre-approval of proposed charitable contributions, or pledges of
charitable contributions, by the Company to a charitable or non-profit organization for which a Related Person is actively
involved in fundraising or otherwise serves as a director, trustee or in a similar capacity.
Except as set forth below, since December 31, 2020, there have not been any related person transactions that are required to be
disclosed pursuant to Item 404(a) of Regulation S-K.
Ventas, Inc. ("Ventas") holds a warrant (the "Warrant") to purchase 16.3 million shares of our common stock at a price per
share of $3.00, which is exercisable at Ventas' option at any time and from time to time, in whole or in part, until December 31,
2025. We issued the Warrant to Ventas in connection with restructuring our lease arrangements with Ventas on July 26, 2020,
as further described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Since Ventas has the right to acquire such shares of common stock within 60 days, Ventas is deemed to beneficially own more
than 5% of our outstanding common stock under Exchange Act rules and is therefore a Related Person.
We have a long-standing community leasing relationship with Ventas, which is currently our largest lessor. Accordingly, we
have several commercial agreements with Ventas that involve amounts greater than $120,000. With respect to the period
beginning January 1, 2021, such agreements included the following.
• We continued to lease 120 communities and perform ancillary obligations under the Amended and Restated Master Lease
and Security Agreement dated July 26, 2020, as amended by Amendment No. 1 dated April 15, 2021 and Amendment No.
123
2 dated July 12, 2021 (the "Master Lease"). Under the Master Lease, for the year ended December 31, 2021, we paid
$101.1 million of cash facility lease payments to Ventas, received $21.5 million of lessor reimbursements from Ventas for
capital expenditure projects, and we reimbursed $1.1 million to Ventas for payment of real estate and gross receipts taxes
on our behalf.
•
During the year ended December 31, 2021, we repaid without interest or penalty the $45.0 million promissory note issued
to Ventas in connection with restructuring our lease arrangements with Ventas on July 26, 2020. During the year, we paid
$3.2 million of interest on the note.
• We continued to manage eight communities on behalf of Ventas pursuant to management agreements entered into during
or prior to 2020, including five agreements entered into in connection with restructuring our lease arrangements with
Ventas on July 26, 2020. The management agreements provide periodic management fee payments to us as a percentage of
revenue and reimbursement for costs and expense related to such communities. During the year ended December 31, 2021,
we received approximately $1.7 million of management fees and were reimbursed for approximately $27.6 million of costs
and expenses pursuant to such management agreements.
•
Ventas and its permitted transferees are entitled to certain customary registration rights with respect to the Warrant
pursuant to the Registration Rights Agreement dated as of July 26, 2020, including underwritten offering, piggyback, and
additional demand registration rights with respect to the shares underlying the Warrant.
The Audit Committee has reviewed and approved or ratified the foregoing transactions, including the ongoing obligations
thereunder.
Item 14.
Principal Accounting Fees and Services
The information required by this item is incorporated by reference from the discussion under the heading "Ratification of
Appointment of Independent Registered Public Accounting Firm for 2022" in our Definitive Proxy Statement for the 2022
Annual Meeting of Stockholders, to be filed with the SEC by May 2, 2022.
124
Item 15.
Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
PART IV
1)
Our Audited Consolidated Financial Statements
Report of the Independent Registered Public Accounting Firm
Report of the Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020, and 2019
Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
2)
Exhibits:
Exhibit No.
2.1
Description
Securities Purchase Agreement dated as of February 24, 2021, by and among the Company and certain of its
subsidiaries and certain subsidiaries of HCA Healthcare, Inc. (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on February 24, 2021 (File No. 001-32641)).†
3.1
3.2
4.1
4.2
4.3
4.4
10.1.1
10.1.2
Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on November 5, 2019 (File No.
001-32641)).
Amended and Restated Bylaws of the Company dated October 29, 2019 (incorporated by reference to Exhibit
3.3 to the Company's Current Report on Form 8-K filed on October 29, 2019 (File No. 001-32641)).
Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Amendment No. 3) filed on November 7, 2005 (File No. 333-127372)).
Description of the Company's common stock (incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K filed on February 19, 2020 (File No. 001-32641)).
Indenture, dated as of October 1, 2021, by and among the Company and American Stock Transfer & Trust
Company, LLC, as trustee, governing the 2.00% Convertible Senior Notes due 2026 (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 1, 2021 (File No.
001-32641)).
Form of 2.00% Convertible Senior Notes due 2026 (included in Exhibit 4.3).
Letter Agreement dated as of July 26, 2020 by and between the Company and Ventas (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 10, 2020 (File
No. 001-32641)).††
Amended and Restated Master Lease and Security Agreement dated as of July 26, 2020 by an among certain
subsidiaries of the Company as Tenant and certain subsidiaries of Ventas as Landlord (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 10, 2020 (File
No. 001-32641)).††
125
10.1.3
10.1.4
10.1.5
10.1.6
10.1.7
10.2
10.3
10.4.1
10.4.2
10.4.3
10.5
10.6
10.7
10.8
10.9
10.10
Amended and Restated Guaranty dated as of July 26, 2020 by and among the Company as Guarantor, certain
subsidiaries of the Company as Tenant, and Ventas and certain of its subsidiaries (incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 10, 2020 (File No.
001-32641)).††
Warrant dated July 26, 2020 by and between the Company and Ventas (incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q filed on August 10, 2020 (File No. 001-32641)).
Registration Rights Agreement dated as of July 26, 2020 by and between the Company and Ventas
(incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on August
10, 2020 (File No. 001-32641)).
Amendment No. 1 dated effective April 15, 2021 to Amended and Restated Master Lease and Security
Agreement by and between certain affiliates of the Company as Tenant and certain subsidiaries of Ventas as
Landlord (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed
on May 7, 2021 (File No. 001-32641)).†
Amendment No. 2 dated effective July 12, 2021 to Amended and Restated Master Lease and Security
Agreement by and between certain affiliates of the Company as Tenant and certain subsidiaries of Ventas as
Landlord (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed
on August 6, 2021 (File No. 001-32641)).†
Master Credit Facility Agreement (Senior Housing) dated as of August 31, 2017, by and between Jones Lang
LaSalle Multifamily, LLC and the Company's subsidiaries named as borrowers therein (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on November 7, 2017 (File
No. 001-32641)).
Amended and Restated Employment Agreement dated November 3, 2021 by and between the Company and
Lucinda M. Baier (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on November 4, 2021 (File No. 001-32641)).*
Amended and Restated Brookdale Senior Living Inc. 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 29, 2019 (File No.
001-32641)) (the "Omnibus Incentive Plan").*
Amendment No. 1 to Omnibus Incentive Plan effective February 12, 2020 (incorporated by reference to
Exhibit 10.6.2 to the Company’s Annual Report on Form 10-K filed on February 19, 2020 (File No.
001-32641)).*
Amendment No. 2 to Omnibus Incentive Plan effective January 26, 2022.*
Form of Restricted Share Agreement under the Omnibus Incentive Plan (2018 Time-Vesting Form)
(incorporated by reference to Exhibit 10.47 to the Company's Amendment No. 1 to Annual Report on Form
10-K/A filed on April 24, 2018 (File No. 001-32641)).*
Form of Restricted Share Agreement under the Omnibus Incentive Plan (2018 Cliff-Vesting Form)
(incorporated by reference to Exhibit 10.48 to the Company's Amendment No. 1 to Annual Report on Form
10-K/A filed on April 24, 2018 (File No. 001-32641)).*
Restricted Share Agreement under the Omnibus Incentive Plan dated as of March 5, 2018 by and between the
Company and Lucinda M. Baier (Time-Vesting) (incorporated by reference to Exhibit 10.50 to the Company's
Amendment No. 1 to Annual Report on Form 10-K/A filed on April 24, 2018 (File No. 001-32641)).*
Form of Restricted Share Agreement under the Omnibus Incentive Plan (2019 Time-Based Vesting Form for
Executive Officers) (incorporated by reference to Exhibit 10.37 to the Company's Amendment No. 1 to
Annual Report on Form 10-K/A on April 29, 2019 (File No. 001-32641)).*
Form of Restricted Share Agreement under the Omnibus Incentive Plan (2019 Performance-Based Vesting
Form for Executive Officers) (incorporated by reference to Exhibit 10.38 to the Company's Amendment No. 1
to Annual Report on Form 10-K/A on April 29, 2019 (File No. 001-32641)).*
Form of Restricted Stock Unit Agreement under the Omnibus Incentive Plan (2020 Time-Based Form for
Executive Officers) (incorporated by reference to Exhibit 10.29 to the Company’s Amendment No. 1 to
Annual Report on Form 10-K/A filed on April 29, 2020 (File No. 001-32641)).*
126
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
21
23
31.1
31.2
32
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Form of Restricted Stock Unit Agreement under the Omnibus Incentive Plan (2020 Performance-Based Form
for Executive Officers) (incorporated by reference to Exhibit 10.30 to the Company’s Amendment No. 1 to
Annual Report on Form 10-K/A filed on April 29, 2020 (File No. 001-32641)).*
Form of Restricted Stock Unit Agreement under the Omnibus Incentive Plan (2021 Time-Based Form for
Executive Officers) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q filed on May 7, 2021 (File No. 001-32641)).*
Form of Performance-Based Cash Award Agreement under the Omnibus Incentive Plan (2021 Performance-
Based Form for Executive Officers other than CEO) (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q filed on May 7, 2021 (File No. 001-32641)).*
Performance-Based Cash Award Agreement dated as of February 22, 2021, by and between the Company and
Lucinda M. Baier (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-
Q filed on May 7, 2021 (File No. 001-32641)).*
Form of Letter Agreement dated February 22, 2021 Providing for Voluntary Forfeiture of Certain 2019 and
2020 Long-Term Incentive Awards (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q filed on May 7, 2021 (File No. 001-32641)).*
Form of Outside Director Restricted Stock Unit Agreement under the Omnibus Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2016 (File
No. 001-32641)).*
Amended and Restated Tier I Severance Pay Policy dated February 10, 2022.*
Offer Letter Agreement dated as of September 13, 2021 by and between the Company and Kevin Bowman.*
Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K filed on February 28, 2011 (File No. 001-32641)).*
Summary of Brookdale Senior Living Inc. Director Stock Purchase Plan (incorporated by reference to Exhibit
99.1 to the Company's Registration Statement on Form S-8 filed on June 30, 2009 (File No. 333-160354)).*
Subsidiaries of the Registrant.
Consent of Ernst & Young LLP.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021,
formatted in Inline XBRL (included in Exhibit 101).
* Management Contract or Compensatory Plan
† Schedules and exhibits have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to
furnish supplementally a copy of any of the omitted schedules and exhibits upon request by the Securities and Exchange
Commission.
†† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
Item 16.
Form 10-K Summary
None.
127
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BROOKDALE SENIOR LIVING INC.
By:
/s/ Lucinda M. Baier
Name: Lucinda M. Baier
Title:
Date:
President and Chief Executive Officer
February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Guy P. Sansone
Non-Executive Chairman of the Board
February 15, 2022
Guy P. Sansone
/s/ Lucinda M. Baier
President, Chief Executive Officer and Director
February 15, 2022
Lucinda M. Baier
(Principal Executive Officer)
/s/ Steven E. Swain
Executive Vice President and Chief Financial Officer
February 15, 2022
Steven E. Swain
(Principal Financial Officer)
/s/ Dawn L. Kussow
Senior Vice President and Chief Accounting Officer
February 15, 2022
Dawn L. Kussow
(Principal Accounting Officer)
/s/ Jordan R. Asher
Director
Jordan R. Asher
/s/ Marcus E. Bromley
Director
Marcus E. Bromley
/s/ Frank M. Bumstead
Director
Frank M. Bumstead
/s/ Victoria L. Freed
Director
Victoria L. Freed
/s/ Rita Johnson-Mills
Director
Rita Johnson-Mills
/s/ Denise W. Warren
Director
Denise W. Warren
/s/ Lee S. Wielansky
Director
Lee S. Wielansky
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
128
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lucinda M. Baier, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Brookdale Senior Living Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:
February 15, 2022
/s/ Lucinda M. Baier
Lucinda M. Baier
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven E. Swain, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Brookdale Senior Living Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:
February 15, 2022
/s/ Steven E. Swain
Steven E. Swain
Executive Vice President and Chief Financial
Officer
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Brookdale Senior Living Inc. (the "Company") for the fiscal year ended
December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Lucinda M.
Baier, as President and Chief Executive Officer of the Company, and Steven E. Swain, as Executive Vice President and Chief
Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Lucinda M. Baier
Name:
Title:
Date:
Lucinda M. Baier
President and Chief Executive Officer
February 15, 2022
/s/ Steven E. Swain
Name:
Title:
Date:
Steven E. Swain
Executive Vice President and Chief Financial Officer
February 15, 2022
Board of Directors
Guy P. Sansone, Non-Executive Chairman of the Board
Chairman and CEO,
H2 Health
Victoria L. Freed, Director2, 4
Senior Vice President of Sales, Trade Support and Service,
Royal Caribbean International
Lucinda M. Baier, Director
President and Chief Executive Officer,
Brookdale Senior Living Inc.
Rita Johnson-Mills, Director3, 4
President (Southern Region),
CINQCARE
Dr. Jordan R. Asher, Director1, 3
Chief Physician Executive and Senior Vice President,
Sentara Healthcare
Denise W. Warren, Director1, 2
Former Executive Vice President and Chief Operating Officer,
WakeMed Health & Hospitals
Marcus E. Bromley, Director1, 3
Former Chairman and Chief Executive Officer,
Gables Residential Trust
Lee S. Wielansky, Director1, 3
Chairman and Chief Executive Officer,
Opportunistic Equities
Frank M. Bumstead, Director2, 3, 4
Principal Shareholder,
Flood, Bumstead, McCready & McCarthy, Inc.
1. Audit Committee
2. Compensation Committee
3. Investment Committee
4. Nominating and Corporate Governance Committee
Executive Officers
Lucinda M. Baier
President and Chief Executive Officer
Jaclyn C. Pritchett
Executive Vice President — Human Resources
Kevin W. Bowman
Executive Vice President — Community Operations
Steven E. Swain
Executive Vice President and Chief Financial Officer
George T. Hicks
Executive Vice President — Finance and Treasurer
H. Todd Kaestner
Executive Vice President — Corporate Development
and President — CCRCs
Chad C. White
Executive Vice President, General Counsel
and Secretary
Corporate Data
Corporate Office
111 Westwood Place
Brentwood, TN 37027
(615) 221-2250
www.brookdale.com
Transfer Agent
American Stock Transfer & Trust Company LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
Stock Listing
NYSE: BKD
Brookdale Investor Relations Contact
Kathy MacDonald
(615) 505-1968
Independent Registered Public Accounting Firm
Ernst & Young LLP
155 North Wacker Drive
Chicago, IL 60606
2022 Annual Meeting
June 21, 2022 at 10:00 a.m. CDT
Brookdale Senior Living
111 Westwood Place
Brentwood, TN 37027
(615) 221-2250
Governance
Brookdale’s corporate governance guidelines, code of
business conduct and ethics, the charters of the principal
board committees and other governance information can
be accessed through the Investor Relations portion of its
website, brookdale.com/investor.
350 registered record holders as of April 27, 2022
Our Vision
To be the nation’s first choice in senior living
Our Cornerstones
More than a job, a passion
Have fun and celebrate life every day.
Doing the right thing takes courage
Provide meaningful rewards for residents,
associates and shareholders.
We succeed through partnership
Work together as one team.
Built on a foundation of trust
Listen, understand, partner and solve.
For more information, visit our website: brookdale.com
©2022 Brookdale Senior Living Inc. All rights reserved.
BROOKDALE SENIOR LIVING is a registered trademark of Brookdale Senior Living Inc.
631050 FF