What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-10 · 302 added, 241 removed, 587 unchanged (48% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2020 December 31,

Assets (Unaudited)

Current assets

10 unchanged sentences

Investment in unconsolidated ventures 5,750 21,210

Goodwill 154,131 154,131

Other assets, net 52,282 118,731

Total assets $ 7,007,927 $ 7,194,433

Liabilities and Equity

10 unchanged sentences

Operating lease obligations, less current portion 874,657 1,277,178

Line of credit

Deferred tax liability 12,671 15,397

1 unchanged sentence

Total liabilities 6,163,757 6,495,708

Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2020 and December 31, 2019;

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at September 30, 2020 and December 31, 2019;

no shares issued and outstanding

Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2020 and December 31, 2019;

Common stock, $ 0.01 par value, 400,000,000 shares authorized at September 30, 2020 and December 31, 2019;

198,442,483 and 199,593,343 shares issued and 187,914,958 and 192,128,586 shares outstanding (including 4,559,537 and 7,252,459 unvested restricted shares), respectively

1 unchanged sentence

Treasury stock, at cost;

10,527,525 and 7,464,757 shares at June 30, 2020 and December 31, 2019, respectively

10,527,525 and 7,464,757 shares at September 30, 2020 and December 31, 2019, respectively

( 102,774 ) ( 84,651 )

Accumulated deficit ( 3,267,064 ) ( 3,393,088 )

2 unchanged sentences

Noncontrolling interest 2,314 2,369

Total equity 844,170 698,725

Total liabilities and equity $ 7,007,927 $ 7,194,433

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Revenue and other operating income

5 unchanged sentences

Facility operating expense (excluding facility depreciation and amortization of $ 81,854 , $ 86,213 , $ 253,126 , and $ 261,110 , respectively)

570,530 615,717 1,765,046 1,792,057

General and administrative expense (including non-cash stock-based compensation expense of $ 6,136 , $ 5,929 , $ 18,212 , and $ 18,315 , respectively)

54,138 56,409 161,251 170,296

Facility operating lease expense 51,620 67,253 178,480 203,610

7 unchanged sentences

Interest expense:

Debt ( 36,908 ) ( 44,344 ) ( 117,645 ) ( 135,180 )

Financing lease obligations ( 11,908 ) ( 16,567 ) ( 37,082 ) ( 49,959 )

12 unchanged sentences

common stockholders:

Basic $ ( 0.68 ) $ ( 0.42 ) $ 0.69 $ ( 0.95 )

Diluted $ ( 0.68 ) $ ( 0.42 ) $ 0.69 $ ( 0.95 )

Weighted average common shares outstanding:

Basic 183,244 185,516 183,535 186,130

Diluted 183,244 185,516 183,668 186,130

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Total equity, balance at beginning of period $ 939,889 $ 866,204 $ 698,725 $ 1,018,413

9 unchanged sentences

Issuance of common stock under Associate Stock Purchase Plan 300 281 468 878

Issuance of warrants 22,883 — 22,883 —

Restricted stock, net 1 1 8 ( 31 )

Shares withheld for employee taxes ( 61 ) ( 137 ) ( 4,012 ) ( 3,238 )

Other, net 15 27 52 75

Balance at end of period $ 4,209,710 $ 4,167,146 $ 4,209,710 $ 4,167,146

26 unchanged sentences

(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

14 unchanged sentences

Non-cash management contract termination gain — ( 640 )

Other ( 1,965 ) ( 7,173 )

Changes in operating assets and liabilities:

21 unchanged sentences

Proceeds from line of credit 166,381 —

Repayment of line of credit ( 166,381 ) —

Purchase of treasury stock, net of related payables ( 18,123 ) ( 18,401 )

1 unchanged sentence

Payments of employee taxes for withheld shares ( 4,012 ) ( 3,242 )

Other 335 827

Net cash provided by (used in) financing activities 403,192 ( 112,834 )

35 unchanged sentences

As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company's condensed 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 condensed 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's community leases generally contain fixed annual rent escalators or annual rent

escalators based on an index, such as the consumer price index.

The Company recognizes lease expense as incurred for additional variable payments.

1 unchanged sentence

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 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 condensed 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.

10 unchanged sentences

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.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold intangibles, net on the Company's condensed consolidated balance sheets.

The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method.

3 unchanged sentences

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 such transactions, the Company removes the transferred assets from the condensed 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 continues to recognize the assets within property, plant and equipment and leasehold intangibles, net and continues to depreciate the asset over its useful life.

For such transactions, the Company continues to recognize the assets within property, plant and equipment and leasehold intangibles, net as financing leases and continues to depreciate the asset over its useful life.

Additionally, the Company accounts for any amounts received as a financing lease liability and the Company recognizes 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.

27 unchanged sentences

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company's business.

Although a significant portion of the Company’s corporate support associates began working from home in March 2020, the Company continues to serve and care for seniors through the pandemic.

Although a significant portion of the Company's corporate support associates began working from home in March 2020, the

Company continues to serve and care for seniors through the pandemic.

Due to the average age and prevalence of chronic medical conditions among the Company's residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.

Due to the pandemic, in March 2020 the Company began restricting visitors at all its communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and

requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days.

Upon confirmation of positive COVID-19 exposure at a community, the Company follows government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents.

These restrictions were in place across the Company’s portfolio for the three months ended June 30, 2020.

The pandemic and response efforts of senior living communities have significantly disrupted demand for senior living communities and the sales process.

The Company cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees the Company is able to collect from its residents.

The pandemic and the Company’s response efforts began to adversely impact the Company’s occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels.

Seeking to prevent the introduction of COVID-19 into the Company's communities, and to help control further exposure to infections within communities, in March 2020 the Company began restricting visitors at all of its communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days.

The Company began easing restrictions on a community-by-community basis in July 2020.

Due to the vulnerable nature of the Company's residents, the Company expects restrictions at its communities to continue for some time, and it may revert to more restrictive measures if the pandemic worsens or as necessary to comply with regulatory requirements.

The pandemic, including the related restrictions at the Company's communities, have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities.

The pandemic began to adversely impact the Company's occupancy and resident fee revenue during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels.

Further deterioration of the Company's resident fee revenue will result from lower move-in activity and the resident attrition inherent in its business, which may increase due to the impacts of COVID-19.

The Company's home health average daily census also began to decrease in March 2020 due to lower occupancy in its communities and fewer elective medical procedures and hospital discharges.

Facility operating expense for the three and six months ended June 30, 2020 includes $ 60.6 million and $ 70.6 million , respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, consulting and professional services costs, and costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

Facility operating expense for the three and nine months ended September 30, 2020 includes $ 24.5 million and $ 95.1 million , respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for:

acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation, increased labor, increased workers compensation and health plan expense, consulting and professional services, and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

The Company is not able to reasonably predict the total amount of costs it will incur related to the pandemic, and such costs are likely to be substantial.

As described further in Note 6, the Company also recorded non-cash impairment charges in its operating results of $ 10.3 million and $ 87.0 million for the three and six months ended June 30, 2020, respectively, 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 communities for which assets were impaired.

As described further in Note 6, the Company also recorded non-cash impairment charges in its operating results of $ 8.2 million and $ 95.2 million for the three and nine months ended September 30, 2020, respectively, 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 communities for which assets were impaired.

The Company has taken, and continues to take, actions to enhance and preserve its liquidity in response to the pandemic.

The Company drew $ 166.4 million on its revolving credit facility in March 2020, and suspended repurchases under the Company’s existing share repurchase program.

During the three months ended June 30, 2020, the Company accepted $ 33.5 million of cash for grants under the Public Health and Social Services Emergency Fund (the “Emergency Fund”) and $ 85.0 million of accelerated/advanced Medicare payments, and the Company deferred $ 26.5 million of the employer portion of social security payroll taxes.

During the nine months ended September 30, 2020, the Company has completed its financing plans in the regular course of business, including refinancing substantially all of its remaining 2020 and 2021 maturities.

In addition, on August 31, 2020, the Company terminated its $ 250 million revolving credit facility and obtained $ 266.9 million of non-recourse mortgage financing on 16 communities, most of which had secured the credit facility prior to its termination.

See Note 10 for further information regarding the Company's financings.

During the nine months ended September 30, 2020, the Company accepted $ 36.1 million of cash for grants under the Public Health and Social Services Emergency Fund (the "Provider Relief Fund") and $ 87.5 million of accelerated/advanced Medicare payments, and it deferred $ 50.1 million of the employer portion of social security payroll taxes.

Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below.

The Company also has delayed or canceled a number of elective capital expenditure projects resulting in an approximate $ 50 million reduction to its pre-pandemic full-year 2020 capital expenditure plans.

On July 26, 2020, the Company entered into definitive agreements with Ventas, Inc.

("Ventas") to restructure its 120 community triple-net master lease arrangements as further described in Note 17.

Pursuant to the multi-part transaction, among other things, the Company paid a $ 119.2 million one-time cash payment to Ventas, reduced its initial annual minimum rent under the amended and restated master lease to $ 100 million effective July 1, 2020, and removed the prior requirements that the Company satisfy financial covenants and that the Company maintain a security deposit with Ventas.

The annual minimum rent under the amended and restated master lease reflects a reduction of approximately $ 86 million over the next twelve months.

As of June 30, 2020, the Company’s total liquidity was $ 600.2 million , consisting of $ 452.4 million of unrestricted cash and cash equivalents, $ 109.9 million of marketable securities, and $ 37.9 million of additional availability on its revolving credit facility.

As of June 30, 2020, $ 166.4 million of borrowings were outstanding on the revolving credit facility.

The Company also has delayed or canceled a number of elective capital expenditure projects and suspended repurchases under its existing share repurchase program.

On July 26, 2020, the Company restructured its 120 community triple-net master lease with Ventas, Inc.

("Ventas") in a multipart transaction.

The components included, among other things, reducing the Company's initial annual minimum rent to $ 100 million, representing a reduction of approximately $ 86 million over the twelve months ending June 30, 2021, and removal of the prior requirements that the Company satisfy financial covenants and maintain a security deposit with Ventas.

The Company paid a $ 119.2 million one-time cash lease payment to Ventas in connection with the transaction effective July 26, 2020.

See Note 5 for more information about the Ventas Lease Restructuring.

As of September 30, 2020, the Company's total liquidity was $ 490.7 million , consisting of $ 354.6 million of unrestricted cash and cash equivalents and $ 136.1 million of marketable securities.

The Company continues to seek opportunities to enhance and preserve its liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.

During March 2020, the Company completed its financing plans in the regular course of business, including closing three non-recourse mortgage debt financing transactions totaling $ 208.5 million with the proceeds used to refinance the majority of the Company’s 2020 maturities and to partially fund the Company’s acquisitions of 26 communities completed during the three months ended March 31, 2020.

As of June 30, 2020, the Company’s remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $ 36.4 million and $ 254.1 million , respectively, which are primarily non-recourse mortgage debt maturities.

As described further in Note 10, availability under the Company’s revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the Company's consolidated fixed charge coverage ratio.

To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, the Company would be required to repay the difference to restore the outstanding balance to the new borrowing base.

Due primarily to the impacts of the COVID-19 pandemic, and based upon the Company’s current estimate of cash flows, the Company has determined that it is probable that it will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on the Company’s part.

Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and the Company being required to repay the $ 166.4 million of borrowings outstanding on the revolving credit facility.

Based upon the Company’s current liquidity and estimated cash flows, the Company has estimated that it would be unable to repay a portion of the 2021 maturities and the borrowings outstanding on the revolving credit facility as they become due without refinancing these maturities or obtaining additional financing proceeds.

The Company has continued efforts on its plan to refinance the assets currently securing the credit facility and to refinance the substantial majority of the remaining 2020 and 2021 maturities with non-recourse mortgage debt.

The Company currently anticipates that it is probable that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $ 166.4 million balance on its revolving credit facility and terminate the facility without payment of a premium or penalty and to pay the Company’s contractual obligations as they come due over the next twelve months.

However, there is no assurance that debt financing will continue to be available on terms consistent with the Company’s expectations or at all, in which case the Company would expect to take other mitigating actions prior to the maturity dates.

There is no assurance that debt financing will continue to be available on terms consistent with the Company's expectations or at all, or that the Company's 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.

In response to the pandemic, on March 27, 2020, the President signed the CARES Act into law, which was amended and expanded by the Paycheck Protection Program and Health Care Enhancement Act signed into law on April 24, 2020.

The legislation provides liquidity and financial relief to certain businesses, among other things.

legislation provides liquidity and financial relief to certain businesses, among other things.

The impacts to the Company of certain provisions of the CARES Act are summarized below.

During the three months ended June 30, 2020 , the Company accepted $ 33.5 million of cash for grants from the Emergency Fund, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

Approximately $ 28.8 million of the grants were made available pursuant to the Emergency Fund's general distribution, with grant amounts based primarily on the Company's relative share of aggregate 2019 Medicare fee-for-service reimbursements and generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through the Company's Health Care Services and CCRCs segments.

Approximately $ 4.7 million of the grants were made available pursuant to the Emergency Fund's targeted allocation for certified skilled nursing facilities, with amounts determined using a per-facility and per-bed model.

During July 2020, the Company applied for additional grants pursuant to the Emergency Fund's Medicaid and CHIP allocation.

The amount of such grants are expected to be based on 2% of a portion of the Company's 2018 gross revenues from patient care.

The grants are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19.

During the three months ended June 30, 2020, the Company recognized $ 26.4 million of the grants as other operating income based upon the Company’s estimates of its satisfaction of the conditions of the grants during such period.

As of June 30, 2020, $ 7.1 million of unrecognized grants were included in refundable fees and deferred revenue within the Company's condensed consolidated balance sheets.

The $ 33.5 million of grants accepted from the Emergency Fund during the six months ended June 30, 2020 has been presented within net cash provided by (used in) operating activities within the Company’s condensed consolidated statement of cash flows.

During three months ended June 30, 2020 , the Company received $ 85.0 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act.

• During the three and nine months ended September 30, 2020, the Company accepted $ 2.6 million and $ 36.1 million of cash for grants from the Provider Relief Fund, respectively, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

The accepted grants were made available pursuant to the following distributions from the Provider Relief Fund:

• $ 28.9 million pursuant to the Phase 1 General Distribution, which generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through the Company's Health Care Services and CCRCs segments.

• $ 4.6 million pursuant to the Skilled Nursing Facility Targeted Distribution, which generally related to the Company's certified skilled nursing facilities.

• $ 2.6 million pursuant to the Nursing Home Infection Control Distribution, which related to its skilled nursing care provided through its CCRCs segments.

Further funding may become available to the Company from this distribution based on an incentive program that measures skilled nursing facilities’ COVID-19 infection rates and mortality.

The Company has applied for additional grants made available pursuant to the Provider Relief Fund's Phase 2 General Distribution, generally related to its senior housing segments.

The amount of such grants are expected to be based on 2% of a portion of the Company's 2018 revenues from patient care.

The Company has also applied for additional grants pursuant to the Provider Relief Fund’s Phase 3 General Distribution, for which HHS allocated up to $ 20 billion.

According to HHS’ guidance, eligible applicants will receive grant amounts to ensure that they have received approximately 2 % of their annual patient care revenue, plus an additional percentage of their change in revenues minus their operating expenses, in each case from patient care attributable to COVID-19.

Grants 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.

The permissible uses of grants from the Nursing Home Infection Control Distribution are further limited to certain infection control expenses.

During the three and nine months ended September 30, 2020, the Company recognized $ 8.6 million and $ 35.0 million, respectively, of the grants as other operating income based upon its estimates of its satisfaction of the conditions of the grants during such period.

As of September 30, 2020, $ 1.1 million of unrecognized grants were included in refundable fees and deferred revenue within the Company's condensed consolidated balance sheets.

The $ 36.1 million of grants accepted from the Provider Relief Fund during the nine months ended September 30, 2020 has been presented within net cash provided by (used in) operating activities within the Company's condensed consolidated statement of cash flows.

• During the three and nine months ended September 30, 2020, the Company received $ 2.5 million and $ 87.5 million, respectively, under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act.

Under the program, the Company requested acceleration/advancement of 100 % of its Medicare payment amount for a three-month period.

Recoupment of accelerated/advanced payments are required to begin 120 days after their issuance through offsets of new Medicare claims, and all accelerated/advanced payments are due 210 days following their issuance.

Such amount has been presented within net cash provided by operating activities within the Company’s condensed consolidated statement of cash flows.

The Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020, amended the repayment terms for accelerated/advanced payments.

As amended, recoupment of accelerated/advanced payments will begin one year after payments were issued.

Payments will be recouped 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 accelerated/advanced payments will be due following such recoupment period.

As of September 30, 2020, $ 87.5 million is recognized in refundable fees and deferred revenue within the condensed consolidated balance sheets.

The $ 87.5 million received has been presented within net cash provided by operating activities within the Company's condensed consolidated statement of cash flows.

• Under the CARES Act, the Company has elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020.

One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022.

As of June 30, 2020, the Company has deferred payment of $ 26.5 million of payroll taxes and presented such amount within other liabilities within the Company's condensed consolidated balance sheets.

As of September 30, 2020, the Company has deferred payment of $ 50.1 million under the program and presented such amount within other liabilities within the Company's condensed consolidated balance sheets.

• The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefits the Company's Health Care Services segment.

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 the Company’s response efforts may continue to delay or negatively impact its strategic initiatives, including plans for future growth.

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 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 impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in its markets;

the development and availability of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups;

government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief;

government financial and regulatory relief efforts that may become available to business and individuals, including its 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, 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, and other expenses;

the impact of COVID-19 on the Company’s ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in the Company’s debt and lease documents;

the impact of COVID-19 on its residents’ and their families’ ability to afford its resident fees, including due to changes in unemployment rates, consumer confidence, and equity markets caused by COVID-19;

changes in the acuity levels of its residents;

the disproportionate impact of COVID-19 on seniors generally and those residing in its communities;

the duration and costs of its response efforts, including increased equipment, supplies, labor, litigation, testing, and other expenses;

the impact of COVID-19 on its ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in its debt and lease documents;

increased regulatory requirements, including unfunded, mandatory testing;

increased enforcement actions resulting from COVID-19, including those that may limit the Company’s collection 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.

increased enforcement actions resulting from COVID-19, including those that may limit its collection efforts for delinquent accounts;

and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or its response efforts.

Earnings Per Share

2 unchanged sentences

Under the treasury stock method, 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 and restricted stock units.

Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units, and warrants.

The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statements of operations:

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Income attributable to common shareholders:

Net income (loss)

$ ( 124,975 ) $ ( 78,458 ) $ 126,139 $ ( 176,523 )

Weighted average shares outstanding - basic 183,244 185,516 183,535 186,130

3 unchanged sentences

Net income (loss) per share attributable to common shareholders

$ ( 0.68 ) $ ( 0.42 ) $ 0.69 $ ( 0.95 )

Diluted earnings (loss) per common share:

Net income (loss) per share attributable to common shareholders

For the three months ended June 30, 2020 , the Company reported a consolidated net loss.

As a result of the net loss, unvested restricted stock and restricted stock units were antidilutive for the period and were not included in the computation of diluted weighted average shares.

The weighted average restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 9.1 million for the three months ended June 30, 2020 .

For the six months ended June 30, 2020 , the calculation

of diluted weighted average shares excludes 7.1 million of non-performance-based restricted stock and restricted stock units, as the inclusion of such award would have been antidilutive.

$ ( 0.68 ) $ ( 0.42 ) $ 0.69 $ ( 0.95 )

For the three months ended September 30, 2020, the Company reported a consolidated net loss.

As a result of the net loss, unvested restricted stock, restricted stock units, and potential shares issuable under a warrant were antidilutive for the period and were not included in the computation of diluted weighted average shares.

The weighted average unvested restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 9.0 million for the three months ended September 30, 2020.

For the three months ended September 30, 2020, 16.3 million potential shares issuable under a warrant were excluded from the calculation of diluted net loss per share.

For the nine months ended September 30, 2020, the calculation of diluted weighted average shares excludes 6.9 million of non-performance-based unvested restricted stock and restricted stock units and 16.3 million potential shares issuable under a warrant as the inclusion of such shares would have been antidilutive.

Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date.

For the six months ended June 30, 2020 , the calculation of diluted weighted average shares excludes 1.8 million of performance-based restricted stock and restricted stock units.

During the three and six months ended June 30, 2019 , the Company reported a consolidated net loss.

For the nine months ended September 30, 2020, the calculation of diluted weighted average shares excludes 1.8 million of unvested performance-based restricted stock and restricted stock units.

During the three and nine months ended September 30, 2019, the Company reported a consolidated net loss.

As a result of the net loss, unvested restricted stock and restricted stock units were antidilutive for the periods and were not included in the computation of diluted weighted average shares.

The weighted average restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 7.8 million and 7.5 million for the three and six months ended June 30, 2019 , respectively.

The weighted average unvested restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 7.6 million for both the three and nine months ended September 30, 2019.

Acquisitions, Dispositions and Other Transactions

During the period from January 1, 2019 through June 30, 2020 , the Company acquired 26 communities that the Company formerly leased, disposed of 15 owned communities, and sold its ownership interest in its unconsolidated entry fee CCRC Venture (the "CCRC Venture") with Healthpeak Properties, Inc.

During the period from January 1, 2019 through September 30, 2020, the Company acquired 27 communities that the Company formerly leased, disposed of 21 owned communities (including the conveyance of five communities to Ventas discussed below), and sold its ownership interest in its unconsolidated entry fee CCRC Venture (the "CCRC Venture") with Healthpeak Properties, Inc.

("Healthpeak"), and the Company's triple-net lease obligations on 14 communities were terminated.

The acquisitions of formerly leased communities include the 18 communities acquired from Healthpeak described below and eight communities acquired pursuant to the exercise of a purchase option for a purchase price of $ 39.3 million, all of which occurred during the three months ended March 31, 2020.

As of June 30, 2020 , the Company owned 355 communities, leased 305 communities, managed 77 communities, and two unencumbered communities in the CCRCs segment were classified as held for sale, resulting in $ 37.4 million being recorded as assets held for sale.

During the three months ended September 30, 2020, the Company acquired one formerly leased community pursuant to the exercise of a purchase option for a purchase price of $ 25.0 million.

As of September 30, 2020, the Company owned 350 communities, leased 302 communities, and managed 74 communities.

One unencumbered community in the CCRCs segment was classified as held for sale, resulting in $ 8.3 million being recorded as assets held for sale as of September 30, 2020.

The closings of the various pending and expected transactions described within this note are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.

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Dispositions of Owned Communities

During the six months ended June 30, 2020 , the Company completed the sale of one owned community for cash proceeds of $ 5.5 million , net of transaction costs, and recognized a net gain on sale of assets of $ 0.2 million .

During the nine months ended September 30, 2020, the Company completed the sale of two owned communities (excluding the conveyance of five communities to Ventas, discussed below) 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.

The Company utilized a portion of the cash proceeds from the asset sales to repay approximately $ 5.1 million of associated mortgage debt and debt prepayment penalties.

These dispositions included the sale of eight communities during the six months ended June 30, 2019 for which the Company received cash proceeds of $ 44.1 million , net of transaction costs.

These dispositions included the sale of eight communities during the nine months ended September 30, 2019 for which the Company received cash proceeds of $ 44.1 million, net of transaction costs and recognized a net gain on sale of assets of $ 0.9 million for the nine months ended September 30, 2019.

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 million, which reflects a reduction of approximately $ 83 million of annual minimum rent in effect prior to the transaction.

Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3 % escalator.

The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to 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 ending December 31, 2021.

In addition, Ventas has agreed to fund costs associated with certain pre-approved capital

expenditure projects in the aggregate amount of up to $ 37.8 million.

Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50 % of the sum of the then current 10-year treasury note rate and 4.5 %.

The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.

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 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 is 9.0 % per annum and will increase by 0.50 % on each anniversary of the date of issuance.

The Company may prepay the outstanding principal amount in whole or in part at any time without premium or penalty.

The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty).

• On the Effective Date, 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 nine months ended September 30, 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 13 for more information regarding the adjustments to the Company’s condensed consolidated balance sheet as a result of this transaction.

Healthpeak CCRC Venture and Master Lease Transactions

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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 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 six months ended June 30, 2020.

The Company recognized a $ 369.8 million gain on sale of assets for the six months ended June 30, 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 $ 289.2 million of cash received from Healthpeak is presented within net cash used in investing activities for the nine months ended September 30, 2020.

The Company recognized a $ 369.8 million gain on sale of assets for the nine months ended September 30, 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 on 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.

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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 six months ended June 30, 2020.

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 nine months ended September 30, 2020.

The Company funded the community acquisitions with $ 192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction.

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and (iii) Healthpeak has agreed to make available up to $ 35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0 %.

As a result of the community acquisition transaction, the Company recognized a $ 19.7 million gain on debt extinguishment 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.

As a result of the community acquisition transaction, the Company recognized a $ 19.7 million gain on debt extinguishment during the three months ended March 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.

Fair Value Measurements

Marketable Securities

As of June 30, 2020 , marketable securities of $ 109.9 million are stated at fair value based on valuation provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

The Company had outstanding long-term debt obligations, including $ 166.4 million of borrowings outstanding on the revolving credit facility as of June 30, 2020 , with a carrying value of $ 3.9 billion and $ 3.6 billion as of June 30, 2020 and December 31, 2019 , respectively.

As of September 30, 2020, marketable securities of $ 136.1 million are stated at fair value based on valuation provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

The Company had outstanding long-term debt obligations with a carrying value of $ 3.9 billion and $ 3.6 billion as of September 30, 2020 and December 31, 2019, respectively.

Fair value of the long-term debt approximates carrying value in all periods presented.

The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.

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

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Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2020 2019 2020 2019

Property, plant and equipment and leasehold intangibles, net

$ 4.9 $ 0.8 $ 19.6 $ 2.0

Operating lease right-of-use assets 3.3 — 75.6 —

Investment in unconsolidated ventures — — 1.5 —

Other intangible assets, net

Assets held for sale — 1.3 — 1.3

Other assets, net — — — 3.0

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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 during the six months ended June 30, 2020, the Company utilized future cash flow projections that are generally developed internally.

In estimating the recoverability of asset groups for purposes of the Company’s long-lived asset impairment testing during the nine months ended September 30, 2020, the Company utilized 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 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 March 31, 2020 and June 30, 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.

As of March 31, 2020, June 30, 2020, and September 30, 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.

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.

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Operating Lease Right-of-Use Assets

As a result of the COVID-19 pandemic during the six months ended June 30, 2020, 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.

As a result of the COVID-19 pandemic during the nine months ended September 30, 2020, 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.

The Company recognized the right-of-use assets for the operating leases for 35 communities on the condensed consolidated balance sheets as of March 31, 2020 at the estimated fair value of $ 106.7 million.

Additionally, 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 condensed consolidated balance sheets at the estimated fair value of $ 10.3 million .

As a result, the Company recorded non-cash impairment charges for the operating lease right-of-use assets of $ 6.6 million and $ 72.3 million for the three and six months ended June 30, 2020, respectively.

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 condensed consolidated balance sheets 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 condensed consolidated balance sheets as of September 30, 2020 at the estimated fair value of $ 3.0 million.

As a result, the Company recorded non-cash impairment charges for the operating lease right-of-use assets of $ 3.3 million and $ 75.6 million for the three and nine months ended September 30, 2020, respectively.

The fair values of the operating lease right-of-use assets of these communities were estimated utilizing a discounted cash flow approach based upon historical and 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.

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Property, Plant and Equipment and Leasehold Intangibles, Net

During the six months ended June 30, 2020 , the Company evaluated property, plant and equipment and leasehold intangibles 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.

During the nine months ended September 30, 2020, the Company evaluated property, plant and equipment and leasehold intangibles 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 recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $ 3.7 million and $ 14.7 million for the three and six months ended June 30, 2020 , respectively.

The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $ 4.9 million and $ 19.6 million for the three and nine months ended September 30, 2020, respectively.

The fair values of the property, plant and equipment of these communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market capitalization rates.

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Grants of restricted stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows:

(in thousands, except for per share and unit amounts)

Restricted Stock Units and Stock Awards Granted

Weighted Average Grant Date Fair Value

Total Grant Date Fair Value

(in thousands, except for per share and unit amounts) Restricted Stock Units and Stock Awards Granted Weighted Average Grant Date Fair Value Total Grant Date Fair Value

Three months ended March 31, 2020 4,438 $ 7.06 $ 31,341

Three months ended June 30, 2020 78 $ 3.91 $ 303

The Company's Independent Living and Health Care Services segments had a carrying value of goodwill of $ 27.3 million and $ 126.8 million , respectively, as of both June 30, 2020 and December 31, 2019 .

During the six months ended June 30, 2020, the Company identified indicators of impairment of goodwill, including the COVID-19 pandemic and a significant decline in the Company's stock price and market capitalization for a sustained period.

Three months ended September 30, 2020 52 $ 2.78 $ 144

The Company's Independent Living and Health Care Services segments had a carrying value of goodwill of $ 27.3 million and $ 126.8 million, respectively, as of both September 30, 2020 and December 31, 2019.

During the nine months ended September 30, 2020, the Company identified indicators of impairment of goodwill, including the COVID-19 pandemic and a significant decline in the Company's stock price and market capitalization for a sustained period.

Refer to Note 3 for additional information on the COVID-19 pandemic.

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The Company’s quantitative goodwill impairment test as of March 31, 2020 included reduced estimates of projected future cash flows as a result of changes to significant assumptions using information known or knowable about the COVID-19 pandemic, including current industry and economic trends, changes in business plans, and changes in expected revenue and facility operating expense growth rates.

Additionally, the Company considered the additional risk within the future cash flow estimates when selecting risk-adjusted discount rates.

The Company determined no impairment of goodwill was necessary for the six months ended June 30, 2020.

Additionally, the Company considered the additional risk within the future cash flow

estimates when selecting risk-adjusted discount rates.

The Company determined no impairment of goodwill was necessary for the nine months ended September 30, 2020.

Determining the fair value of the Company’s reporting units involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain.

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Property, Plant and Equipment and Leasehold Intangibles, Net

As of June 30, 2020 and December 31, 2019 , net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:

(in thousands)

June 30, 2020

December 31, 2019

As of September 30, 2020 and December 31, 2019, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:

(in thousands) September 30, 2020 December 31, 2019

Land $ 503,686 $ 450,894

Buildings and improvements 5,193,677 4,790,769

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Property, plant and equipment and leasehold intangibles, net $ 5,127,167 $ 5,109,834

Assets under financing leases and leasehold improvements includes $ 0.4 billion and $ 0.6 billion of financing lease right-of-use assets, net of accumulated amortization, as of June 30, 2020 and December 31, 2019 , respectively.

Assets under financing leases and leasehold improvements includes $ 0.4 billion and $ 0.6 billion of financing lease right-of-use assets, net of accumulated amortization, as of September 30, 2020 and December 31, 2019, respectively.

Refer to Note 11 for further information on the Company's financing leases.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 93.2 million for both the three months ended June 30, 2020 and 2019 , and $ 183.9 million and $ 189.3 million for the six months ended June 30, 2020 and 2019 , respectively.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 87.8 million and $ 93.3 million for the three months ended September 30, 2020 and 2019, respectively, and $ 271.7 million and $ 282.6 million for the nine months ended September 30, 2020 and 2019, respectively.

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 6 for additional information on impairment expense for property, plant and equipment and leasehold intangibles.

Long-term debt as of June 30, 2020 and December 31, 2019 consists of the following:

(in thousands)

June 30, 2020

December 31, 2019

Long-term debt as of September 30, 2020 and December 31, 2019 consists of the following:

(in thousands) September 30, 2020 December 31, 2019

Mortgage notes payable due 2021 through 2047;

weighted average interest rate of 4.08% for the six months ended June 30, 2020, less debt discount and deferred financing costs of $21.8 million and $17.0 million as of June 30, 2020 and December 31, 2019, respectively (weighted average interest rate of 4.72% in 2019)

Other notes payable, weighted average interest rate of 4.56% for the six months ended June 30, 2020 (weighted average interest rate of 5.77% in 2019) and maturity dates ranging from 2020 to 2021

weighted average interest rate of 3.52 % as of September 30, 2020, less debt discount and deferred financing costs of $ 28.3 million and $ 17.0 million as of September 30, 2020 and December 31, 2019, respectively (weighted average interest rate of 4.56 % as of December 31, 2019)

$ 3,883,026 $ 3,496,735

Other notes payable, weighted average interest rate of 8.98 % as of September 30, 2020 (weighted average interest rate of 5.77 % as of December 31, 2019) and maturity dates ranging from 2021 to 2025

47,139 58,388

Total long-term debt 3,930,165 3,555,123

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Total long-term debt, less current portion $ 3,857,820 $ 3,215,710

The $ 166.4 million of borrowings outstanding on the revolving credit facility as of June 30, 2020 are excluded from the table above and are further described below.

Credit Facilities

The Company's Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender and swingline lender and the other lenders from time to time parties thereto (the "Credit Agreement"), provides commitments for a $ 250 million revolving credit facility with a $ 60 million sublimit for letters of credit and a $ 50 million swingline feature.

The Company has a one-time right under the Credit Agreement to increase commitments on the revolving credit facility by an additional $ 100 million , subject to obtaining commitments for the amount of such increase from acceptable lenders.

The Credit Agreement provides the Company a one-time right to reduce the amount of the revolving credit commitments, and the Company may terminate the revolving credit facility at any time, in each case without payment of a premium or penalty.

The Credit Agreement matures on January 3, 2024 .

Amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin.

The applicable margin varies based on the percentage of the total commitment drawn, with a 2.25 % margin at utilization equal to or lower than 35 % , a 2.75 % margin at utilization greater than 35 % but less than or equal to 50 % , and a 3.25 % margin at utilization greater than 50 % .

A quarterly commitment fee is payable on the unused portion of the facility at 0.25 % per annum when the outstanding amount of obligations (including revolving credit and swingline loans and letter of credit obligations) is greater than or equal to 50 % of the revolving credit commitment amount or 0.35 % per annum when such outstanding amount is less than 50 % of the revolving credit commitment amount.

The credit facility is secured by first priority mortgages on certain of the Company's communities.

In addition, the Credit Agreement permits the Company to pledge the equity interests in subsidiaries that own other communities and grant negative pledges in connection therewith (rather than mortgaging such communities), provided that not more than 10 % of the borrowing base may result from communities subject to negative pledges.

Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the Company's consolidated fixed charge coverage ratio.

During 2019, parties entered into an amendment to the Credit Agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds.

The Credit Agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth.

Amounts drawn on the credit facility may be used for general corporate purposes.

As of June 30, 2020 , $ 166.4 million of borrowings were outstanding on the revolving credit facility, $ 45.5 million of letters of credit were outstanding, and the revolving credit facility had $ 37.9 million of availability.

The Company also had a separate unsecured letter of credit facility of up to $ 50.0 million of letters of credit as of June 30, 2020 under which $ 48.2 million had been issued as of that date.

Refer to Note 3 for more information regarding the Company's planned financing activities.

On August 31, 2020, the Company terminated its Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender, and swingline lender and the other lenders from time to time parties thereto (as amended, the (“Credit Agreement”).

The Credit Agreement had provided commitments for a $ 250.0 million revolving credit facility with a $ 60.0 million sublimit for letters of credit and a $ 50.0 million swingline feature.

The credit facility was secured by first priority mortgages on certain of the Company's communities, and availability varied from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the Company's consolidated fixed charge coverage ratio.

The Credit Agreement was terminated in connection with the Company obtaining approximately $ 266.9 million of non-recourse mortgage financing on 16 communities on August 31, 2020, most of which had secured the Credit Agreement prior to its termination.

At the closing, the Company repaid the $ 166.4 million outstanding principal amount under the Credit Agreement, together with accumulated interest, without payment of any termination fee or penalty, and the Company cash collateralized the letters of credit outstanding under the Credit Agreement.

As of September 30, 2020, $ 87.7 million of letters of credit have been issued of which $ 46.7 million were issued under the Company's $ 50.0 million unsecured credit facility.

Restricted cash as of September 30, 2020 includes $ 41.4 million of collateral deposits for the $ 41.0 million secured letters of credit.

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.

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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

4 unchanged sentences

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 June 30, 2020 , the Company is in compliance with the financial covenants of its debt agreements.

As of June 30, 2020 , the Company operated 305 communities under long-term leases ( 237 operating leases and 68 financing leases).

As of September 30, 2020, the Company is in compliance with the financial covenants of its debt agreements.

As of September 30, 2020, the Company operated 302 communities under long-term leases ( 236 operating leases and 66 financing leases).

The substantial majority of the Company's lease arrangements are structured as master leases.

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The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum 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.

3 unchanged sentences

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 June 30, 2020 , the Company is in compliance with the financial covenants of its long-term leases.

As of September 30, 2020, 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 condensed consolidated statements of operations) and cash flows from leasing transactions is as follows:

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

2020 2019 2020 2019

Facility operating expense $ 4,755 $ 4,532 $ 14,540 $ 13,761

2 unchanged sentences

Operating lease expense adjustment (1)

117,322 4,814 132,276 13,626

Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements ( 3,131 ) ( 11,043 ) ( 13,640 ) ( 12,043 )

Operating cash flows from operating leases $ 170,566 $ 65,556 $ 311,656 $ 218,954

Represents the difference between cash paid and expense recognized.

(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense recognized in accordance with Accounting Standards Codification, Leases ("ASC 842").

Operating cash flows from operating leases for the three and nine months ended September 30, 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.

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

2020 2019 2020 2019

Depreciation and amortization $ 7,818 $ 11,675 $ 24,999 $ 35,030

6 unchanged sentences

Total cash flows from financing leases $ 15,533 $ 22,116 $ 47,057 $ 66,461

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of June 30, 2020 are as follows (in thousands):

Year Ending December 31,

Operating Leases

Financing Leases

2020 (six months)

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of September 30, 2020 are as follows (in thousands):

Year Ending December 31, Operating Leases Financing Leases

2020 (three months) $ 53,625 $ 15,968

2021 212,133 64,630

2022 195,487 65,234

2023 195,734 65,960

2024 195,462 67,166

Thereafter 482,894 166,745

Total lease payments 1,335,335 445,703

2 unchanged sentences

Total lease obligations $ 1,020,610 $ 566,996

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.

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.

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While the Company cannot predict with certainty the result of this or any other legal proceedings, the Company believes the allegations in the suit are without merit and does not expect this matter to have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

In October 2020, an alleged stockholder of the Company filed a stockholder derivative lawsuit in the federal court for the Middle District of Tennessee, asserting claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company.

The complaint refers to the securities lawsuit described above and incorporates substantively similar allegations.

Supplemental Disclosure of Cash Flow Information

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2020 2019

15 unchanged sentences

Net cash paid $ 407,249 $ —

Master Agreement with Ventas:

Property, plant and equipment and leasehold intangibles, net $ ( 66,444 ) $ —

Operating lease right-of-use assets ( 153,213 ) —

Other assets, net ( 42,354 ) —

Long-term debt 34,053 —

Financing lease obligations 7,077 —

Operating lease obligations 362,944 —

Additional paid-in-capital ( 22,883 ) —

Net cash paid $ 119,180 $ —

Acquisition of other assets, net of related payables and cash received:

Property, plant and equipment and leasehold intangibles, net $ 684 $ —

Other intangible assets, net — 453

Financing lease obligations 64,260 —

34 unchanged sentences

The Company obtained a $ 6.6 million promissory note receivable from its joint venture partner secured by a 50 % equity interest in the joint venture in a non-cash exchange for the Company funding the $ 13.3 million aggregate contribution in cash.

Restricted cash consists principally of escrow deposits for real estate taxes, property insurance, and capital expenditures required by certain lenders under mortgage debt agreements and deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs.

Restricted cash consists principally of deposits for letters of credit, escrow deposits for real estate taxes, property insurance, and capital expenditures, debt service reserve accounts required by certain lenders under mortgage debt agreements, and deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

(in thousands)

June 30, 2020

December 31, 2019

(in thousands) September 30, 2020 December 31, 2019

Reconciliation of cash, cash equivalents, and restricted cash:

3 unchanged sentences

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 493,075 $ 301,697

The difference between the Company's effective tax rate for the three and six months ended June 30, 2020 and June 30, 2019 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020.

The difference between the Company's effective tax rate for the three and nine months ended September 30, 2020 and September 30, 2019 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020.

The impact represented the tax expense recorded on the gain of the sale of the Company's interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak.

This was slightly offset by the adjustment for stock-based compensation, which was greater in the six months ended June 30, 2019 compared to the six months ended June 30, 2020 .

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 26.7 million for the three months ended June 30, 2020 and an aggregate deferred federal, state, and local tax expense of $ 64.2 million for the six months ended June 30, 2020 .

The expense includes $ 93.1 million as a result of the gain on the sale of the Company's interest in the CCRC Venture offset by a benefit of $ 28.9 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the six months ended June 30, 2020 .

The benefit for the three months ended June 30, 2020 is offset by additional valuation allowance of $ 33.2 million .

The tax expense for the six months ended June 30, 2020 is offset by a reduction in valuation allowance of $ 79.5 million .

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 13.0 million and $ 19.5 million for the three and six months ended June 30, 2019 .

The benefit includes $ 13.0 million and $ 21.2 million as a result of the operating losses for the three and six months ended June 30, 2019 .

The benefit was reduced by a $ 1.7 million reduction in the deferred tax asset related to employee stock compensation for the six months ended June 30, 2019 .

This was slightly offset by the adjustment for stock-based compensation, which was greater in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2020.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 27.4 million for the three months ended September 30, 2020 and an aggregate deferred federal, state, and local tax expense of $ 36.8 million for the nine months ended September 30, 2020.

The expense includes $ 93.1 million as a result of the gain on the sale of the Company's interest in the CCRC Venture offset by a benefit of $ 56.3 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the nine months ended September 30, 2020.

The benefit for the three months ended September 30, 2020 is offset by additional valuation allowance of $ 40.0 million.

The tax expense for the nine months ended September 30, 2020 is offset by a reduction in valuation allowance of $ 39.5 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 19.4 million and $ 39.0 million for the three and nine months ended September 30, 2019.

The benefit includes $ 19.4 million and $ 40.7 million as a result of the operating losses for the three and nine months ended September 30, 2019.

The benefit was reduced by a $ 1.7 million reduction in the deferred tax asset related to employee stock compensation for the nine months ended September 30, 2019.

The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized.

The Company's valuation allowance as of June 30, 2020 and December 31, 2019 was $ 329.5 million and $ 408.9 million , respectively.

The change in the valuation allowance for the six months ended June 30, 2020 is primarily the result of a reduction in the Company’s valuation allowance of $ 117.6 million as a result of the Healthpeak transaction offset by the anticipated reversal of future tax liabilities offset by future tax deductions.

The increase in the valuation allowance during the six months ended June 30, 2019 was comprised of multiple components.

The increase included $ 13.8 million resulting from the adoption of Accounting Standards Codification ("ASC") 842, Leases ("ASC 842") recorded to equity, and the related addition of future timing differences recorded in the three months ended March 31, 2019.

An additional $ 21.7 million of allowance was established against the current operating loss incurred during the six months ended June 30, 2019 .

The Company's valuation allowance as of September 30, 2020 and December 31, 2019 was $ 369.4 million and $ 408.9 million, respectively.

The decrease in the valuation allowance for the nine months ended September 30, 2020 is the result of a reduction in the Company’s valuation allowance of $ 117.6 million as a result of the Healthpeak transaction offset by an increase in the valuation allowance of $ 78.1 million established against current operating losses during the nine months ended September 30, 2020, and by the anticipated reversal of future tax liabilities offset by future tax deductions.

The increase in the valuation allowance during the nine months ended September 30, 2019 was comprised of multiple components.

The increase included $ 13.8 million resulting from the adoption of ASC 842 recorded to equity, and the related addition of future timing differences recorded in the three months ended March 31, 2019.

An additional $ 39.4 million of allowance was established against the current operating loss incurred during the nine months ended September 30, 2019.

Offsetting the increases was a decrease of $ 1.7 million of allowance as a result of removal of future timing differences related to employee stock compensation recorded in the three months ended March 31, 2019.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and six months ended June 30, 2020 and 2019 which are included in income tax expense or benefit for the period.

As of June 30, 2020 , tax returns for years 2015 through 2018 are subject to future examination by tax authorities.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and nine months ended September 30, 2020 and 2019 which are included in income tax expense or benefit for the period.

September 30, 2020, tax returns for years 2015 through 2018 are subject to future examination by tax authorities.

In addition, the net operating losses from prior years are subject to adjustment under examination.

3 unchanged sentences

See details on a reportable segment basis in the tables below.

Three Months Ended June 30, 2020

(in thousands)

Independent Living

Assisted Living and Memory Care

Health Care Services

Three Months Ended September 30, 2020

(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total

Private pay $ 125,156 $ 391,292 $ 57,129 $ 221 $ 573,798

Government reimbursement 606 17,403 13,440 71,095 102,544

1 unchanged sentence

Total resident fee revenue $ 125,762 $ 408,695 $ 76,411 $ 89,903 $ 700,771

Three Months Ended June 30, 2019

(in thousands)

Independent Living

Assisted Living and Memory Care

Health Care Services

Three Months Ended September 30, 2019

(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total

Private pay $ 136,274 $ 435,367 $ 70,353 $ 171 $ 642,165

Government reimbursement 600 17,107 19,931 89,157 126,795

1 unchanged sentence

Total resident fee revenue $ 136,874 $ 452,474 $ 100,104 $ 111,785 $ 801,237

Six Months Ended June 30, 2020

(in thousands)

Independent Living

Assisted Living and Memory Care

Health Care Services

Nine Months Ended September 30, 2020

(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total

Private pay $ 390,124 $ 1,246,181 $ 181,812 $ 649 $ 1,818,766

Government reimbursement 1,778 52,149 46,589 215,350 315,866

1 unchanged sentence

Total resident fee revenue $ 391,902 $ 1,298,330 $ 249,983 $ 274,892 $ 2,215,107

Six Months Ended June 30, 2019

(in thousands)

Independent Living

Assisted Living and Memory Care

Health Care Services

Nine Months Ended September 30, 2019

(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total

Private pay $ 406,667 $ 1,310,867 $ 212,978 $ 554 $ 1,931,066

Government reimbursement 1,852 50,358 61,614 269,428 383,252

9 unchanged sentences

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 condensed consolidated balance sheets) of $ 154.7 million and $ 72.5 million , including $ 34.7 million and $ 38.9 million of monthly resident fees billed and received in advance, as of June 30, 2020 and December 31, 2019 , respectively.

Such amount of total deferred revenue as of June 30, 2020 also included $ 85.0 million received in April 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS").

Such amount of advance receipts is anticipated to either be recognized as revenue and retained by the Company during the recoupment period from August to November 2020 as services are provided or refunded by the Company at the conclusion of such period.

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 139.5 million and $ 72.5 million, including $ 24.2 million and $ 38.9 million of monthly resident fees billed and received in advance, as of September 30, 2020 and December 31, 2019, respectively.

Such amount of total deferred revenue as of September 30, 2020 also included $ 87.5 million received in the nine months ended September 30, 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by CMS.

Such amount of advance receipts is anticipated to either be recognized as revenue and retained by the Company during the recoupment period from 2021 to 2022 as services are provided or refunded by the Company at the conclusion of such period.

Refer to Note 3 for additional information on such program.

For the six months ended June 30, 2020 and 2019 , the Company recognized $ 55.2 million and $ 72.7 million , respectively, of revenue that was included in the deferred revenue balance as of January 1, 2020 and 2019.

For the nine months ended September 30, 2020 and 2019, the Company recognized $ 59.3 million and $ 83.7 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2020 and 2019.

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.

For both the three months ended June 30, 2020 and 2019 , the Company recognized $ 3.6 million and for both the six months ended June 30, 2020 and 2019 , the Company recognized $ 7.6 million and $ 7.1 million , respectively, of charges within facility operating expense within the condensed consolidated statements of operations for additions to the allowance for credit losses.

For the three months ended September 30, 2020 and 2019, the Company recognized $ 4.8 million and $ 3.8 million, respectively, and for the nine months ended September 30, 2020 and 2019, the Company recognized $ 12.4 million and $ 10.8 million, respectively, of charges within facility operating expense within the condensed consolidated statements of operations for additions to the allowance for credit losses.

Segment Information

12 unchanged sentences

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 life to mid-acuity frail and elderly residents.

Assisted living and memory care communities include both freestanding, multi-story communities and freestanding, single story

Assisted living and memory care communities include both freestanding, multi-story communities and 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.

10 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

1 unchanged sentence

Independent Living (1)(2)

$ 125,858 $ 136,874 $ 391,998 $ 408,519

Assisted Living and Memory Care (1)(2)

410,631 452,474 1,300,418 1,361,225

79,252 100,104 262,370 305,084

Health Care Services (1)(2)

95,795 111,785 297,779 337,751

Management Services (3)

96,444 207,712 435,463 657,871

Total revenue and other operating income $ 807,980 $ 1,008,949 $ 2,688,028 $ 3,070,450

2 unchanged sentences

Assisted Living and Memory Care 87,152 116,856 306,861 390,699

CCRCs 9,954 14,472 43,735 53,956

Health Care Services 1,462 4,778 2,033 22,118

2 unchanged sentences

General and administrative expense (including non-cash stock-based compensation expense)

54,138 56,409 161,251 170,296

Facility operating lease expense 51,620 67,253 178,480 203,610

3 unchanged sentences

Assisted Living and Memory Care 8,213 802 51,301 2,340

Health Care Services

Management Services

CCRCs — 1,252 12,173 1,252

Corporate and Management Services — 40 1,938 2,662

Total asset impairment 8,213 2,094 96,729 6,254

1 unchanged sentence

Income (loss) from operations $ ( 55,117 ) $ ( 20,222 ) $ ( 100,194 ) $ ( 1,350 )

(in thousands)

June 30, 2020

December 31, 2019

(in thousands) September 30, 2020 December 31, 2019

Total assets:

1 unchanged sentence

Assisted Living and Memory Care 3,853,458 4,157,610

CCRCs 759,743 742,809

Health Care Services 238,621 256,715

Corporate and Management Services 721,793 595,647

Total assets $ 7,007,927 $ 7,194,433

(1) All revenue and other operating income is earned from external third parties in the United States.

The CCRCs and Health Care Services segments include $ 9.7 million and $ 17.0 million , respectively, of other operating income recognized for grants pursuant to the Emergency Fund described in Note 3 and other government sources.

Allocations to the applicable segment reflect the segment's receipt and acceptance of the amounts and the Company's estimates of the segment's satisfaction of the conditions of grant during the period.

(2) The Independent Living, Assisted Living and Memory Care, CCRCs, and Health Care Services segments include $ 0.1 million, $ 1.9 million, $ 2.8 million, and $ 5.9 million respectively, for the three months ended September 30, 2020 and $ 0.1 million, $ 2.1 million, $ 12.4 million , and $ 22.9 million respectively, for the nine months ended September 30, 2020, of other operating income recognized for grants pursuant to the Provider Relief Fund described in Note 3 and other government sources.

Allocations to the applicable segment reflect the segment's receipt and acceptance of the amounts and the Company's estimates of its satisfaction of the conditions of grant during the period.

(3) Management services segment revenue includes management fees and reimbursements of costs incurred on behalf of managed communities.

(4) Segment operating income is defined as segment revenues and other operating income less segment facility operating expense (excluding depreciation and amortization) and costs incurred on behalf of managed communities.

Subsequent Events

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 million , which reflects a reduction of approximately $ 83 million of annual minimum rent in effect prior to the transaction.

Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3 % escalator.

The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to the Company.

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.

In addition, Ventas has agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $ 37.8 million .

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 million , having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $ 25 million to Ventas.

The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy

a maximum leverage ratio level, that the Company fund additional capital expenditures, and that the Company extend the term upon the occurrence of the change in control transaction.

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 community(ies) 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 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 will manage the communities.

The Company also paid to Ventas $ 115 million in cash, released all security deposits under the former guaranty (which included the release of a $ 42.4 million deposit held by Ventas and the payment of $ 4.2 million in cash as settlement of the amount of letters of credit), and issued a $ 45 million unsecured interest-only promissory note to Ventas.

The initial interest rate of the promissory note is 9.0 % per annum and will increase by 0.50 % on each anniversary of the date of issuance.

The Company may prepay the outstanding principal amount in whole or in part at any time without premium or penalty.

The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty).

On the Effective Date, 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.

On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights.

Under the terms of the agreement, the Company is required to use reasonable best efforts to prepare and file a shelf registration statement with the SEC as promptly as practicable, but no later than the close of business on the fifth day following the date on which the Company files its Quarterly Report on Form 10-Q for the period ended June 30, 2020, with respect to the shares of common stock underlying the Warrant, and, if the registration statement is not automatically effective, to have the registration statement declared effective promptly thereafter.

Ventas is entitled to customary underwritten offering, piggyback and additional demand registration rights with respect to the shares underlying the Warrant.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements