What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 250 added, 159 removed, 566 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2021 December 31,

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Trade accounts payable 73,810 71,233

Liabilities held for sale 102,545 —

Accrued expenses 293,920 287,851

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Total liabilities 5,860,553 6,099,029

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at June 30, 2021 and December 31, 2020;

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at September 30, 2021 and December 31, 2020;

no shares issued and outstanding

Common stock, $ 0.01 par value, 400,000,000 shares authorized at June 30, 2021 and December 31, 2020;

Common stock, $ 0.01 par value, 400,000,000 shares authorized at September 30, 2021 and December 31, 2020;

197,486,683 and 198,331,663 shares issued and 186,959,158 and 187,804,138 shares outstanding (including 1,598,510 and 4,349,421 unvested restricted shares), respectively

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Treasury stock, at cost;

10,527,525 shares at June 30, 2021 and December 31, 2020

10,527,525 shares at September 30, 2021 and December 31, 2020

( 102,774 ) ( 102,774 )

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Issuance of common stock under Associate Stock Purchase Plan 134 300 571 468

Issuance of warrants — 22,883 — 22,883

Restricted stock and restricted stock units, net 2 1 1 8

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(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

28 unchanged sentences

Investment in unconsolidated ventures ( 5,359 ) ( 1,809 )

Distributions received from unconsolidated ventures 2,155 —

Proceeds from sale of assets, net 315,583 331,103

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Proceeds from line of credit — 166,381

Repayment of line of credit — ( 166,381 )

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

1 unchanged sentence

Payments of employee taxes for withheld shares ( 4,772 ) ( 4,012 )

Other 144 335

Net cash provided by (used in) financing activities ( 75,731 ) 403,192

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The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs").

The Company's senior living communities and its comprehensive network of services help to provide seniors with care and services to support their lifestyle in an environment that feels like home.

The Company has five reportable segments:

The Company's senior living communities and its comprehensive network help to provide seniors with care and services in an environment that feels like home.

As of September 30, 2021, the Company has four reportable segments:

Independent Living;

Assisted Living and Memory Care;

Health Care Services;

and Management Services.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment, as described in Note 4.

The accompanying unaudited condensed consolidated financial statements include the financial position, results of operations, and cash flows of the Health Care Services segment.

For periods beginning July 1, 2021, the Company expects that the results and financial position of its Health Care Services segment will be deconsolidated from its consolidated financial statements and its 20 % equity interest in the Health Care Services venture will be accounted for under the equity method of accounting.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment, an additional reportable segment prior to that date, as described in Note 4.

The accompanying unaudited condensed consolidated financial statements include the financial position, results of operations, and cash flows of the Health Care Services segment through June 30, 2021.

For periods beginning July 1, 2021, the results and financial position of the Health Care Services segment are deconsolidated from the Company's consolidated financial statements and its 20 % equity interest in the Health Care Services venture (the "HCS Venture") is accounted for under the equity method of accounting.

Summary of Significant Accounting Policies

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The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.

The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810").

ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics:

(a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support;

(b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity;

or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.

Use of Estimates

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The Company, as lessee, recognizes a right-of-use asset and a lease liability on the Company's condensed consolidated balance sheet for its community, office, and equipment leases.

As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company's condensed consolidated balance sheet at the present value of

future minimum lease payments.

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.

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Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods, and estimated capitalization rates (Level 3).

The Company tests goodwill for impairment annually during the fourth quarter or more frequently if indicators of impairment arise.

Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for a sustained period since the last testing date, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends.

The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If so, the Company performs a quantitative goodwill impairment test based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying amount.

The fair values used in the quantitative goodwill impairment test are estimated using Level 3 inputs based upon discounted future cash flow projections for the reporting unit.

These cash flow projections are based upon a number of estimates and assumptions such as revenue and expense growth rates, capitalization rates, and discount rates.

The Company also considers market-based measures such as earnings multiples in its analysis of estimated fair values of its reporting units.

If the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued Accounting Standard Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments.

This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

The Company early adopted the ASU effective January 1, 2021 using the modified retrospective method of adoption and the adoption did not have a material impact on the Company's financial statements.

COVID-19 Pandemic

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The health and wellbeing of the Company's residents, patients, and associates is and has been its highest priority as it continues to serve and care for seniors through the COVID-19 pandemic.

During the second quarter of 2021 substantially all, and as of July 31, 2021 all, of the Company's communities were open for visitors, new resident move-ins, and prospective residents.

As of July 31, 2021, all of the Company’s communities were open for visitors, new resident move-ins, and prospective residents.

During the three months ended September 30, 2021, several of the Company’s communities experienced restrictions on visitors, new resident move-ins, and prospective residents, with a peak of such restrictions occurring in mid-September 2021.

As of October 31, 2021, substantially all of the Company’s communities were open for visitors, new resident move-ins, and prospective residents.

The Company may revert to more restrictive measures at its communities, including restrictions on visitors and move-ins, if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities.

Pandemic-Related Expenses .

For the three and six months ended June 30, 2021, the Company recognized $ 9.7 million and $ 37.1 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

For the three and six months ended June 30, 2020, the Company recognized $ 60.6 million and $ 70.6 million, respectively, of such facility operating expense.

For the three and nine months ended September 30, 2021, the Company recognized $ 7.2 million and $ 44.3 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

For the three and nine months ended September 30, 2020, the Company recognized $ 24.5 million and $ 95.1 million, respectively, of such facility operating expense.

The direct costs include those for:

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increased employee-related costs, including labor, workers compensation, and health plan expense;

increased expense for general liability claims;

expense for general liability claims;

and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

On a cumulative basis through June 30, 2021, the Company has incurred $ 162.6 million of pandemic related facility operating expense since the beginning of fiscal 2020.

For the three and six months ended June 30, 2021, the Company recorded $ 1.5 million and $ 10.5 million, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

For the three and six months ended June 30, 2020, the Company recorded $ 6.6 million and $ 72.3 million, respectively, of such non-cash impairment charges.

On a cumulative basis through September 30, 2021, the Company has incurred $ 169.8 million of pandemic related facility operating expense since the beginning of fiscal 2020.

For the three and nine months ended September 30, 2021, the Company recorded $ 0.6 million and $ 13.4 million, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

For the three and nine months ended September 30, 2020, the Company recorded $ 8.2 million and $ 95.2 million, respectively, of such non-cash impairment charges.

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

As of June 30, 2021, the Company's total liquidity was $ 387.8 million, consisting of $ 280.7 million of unrestricted cash and cash equivalents, $ 100.0 million of marketable securities, and $ 7.1 million of availability on its secured credit facility.

As described in Note 4, the Company received net cash proceeds of $ 305.8 million at closing for the sale of 80 % of its equity in

its Health Care Services segment on July 1, 2021, which further enhanced its liquidity.

As of September 30, 2021, the Company's total liquidity was $ 645.8 million, consisting of $ 478.5 million of unrestricted cash and cash equivalents, $ 157.9 million of marketable securities, and $ 9.4 million of availability on its secured credit facility.

The Company continues to seek opportunities to enhance and preserve its liquidity, including through increasing occupancy and maintaining expense discipline, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic.

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Certain impacts of such programs are provided below.

• During the six months ended June 30, 2021, the Company accepted $ 0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S.

• During the nine months ended September 30, 2021, the Company accepted $ 0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S.

Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

The grants received in the six months ended June 30, 2021 represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to the Company's skilled nursing care provided through its CCRCs.

HHS continues to evaluate future allocations under the Provider Relief Fund and the regulation and guidance regarding grants made under the Provider Relief Fund.

The Company intends to pursue additional funding that may become available.

The grants received in the nine months ended September 30, 2021 represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to the Company's skilled nursing care provided through its CCRCs.

In September 2021, HHS announced that it has allocated $17.0 billion for a Phase 4 general distribution from the Provider Relief Fund.

According to HHS guidance, it intends to allocate 75% of the Phase 4 general distribution based on eligible applicants’ changes in revenues and operating expenses from patient care attributable to COVID-19 for the second half of 2020 and the first quarter of 2021, with smaller providers to receive a supplement in addition to a base payment.

HHS will determine the exact amount of the base payments and supplements after analyzing data from all the applications received.

HHS intends to allocate 25% of the Phase 4 general distribution for bonus payments that are based on the amount and type of services provided to Medicaid, Children's Health Insurance Program ("CHIP"), and Medicare patients.

The Company applied for the Phase 4 general distribution and intends to pursue any additional funding that may become available.

There can be no assurance that the Company will qualify for, or receive, such future grants in the amount it expects, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which it qualifies.

• During the year ended December 31, 2020, the Company received $ 87.5 million under the Accelerated and Advance Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS"), $ 75.2 million of which related to its Health Care Services segment and $ 12.3 million related to its CCRCs segment and of which $ 85.0 million was received in the three and six months ended June 30, 2020.

• During the year ended December 31, 2020, the Company received $ 87.5 million under the Accelerated and Advance Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS"), $ 75.2 million of which related to its Health Care Services segment and $ 12.3 million related to its CCRCs segment and of which $ 2.5 million and $ 87.5 million was received in the three and nine months ended September 30, 2020, respectively.

Recoupment of advanced payments began one year after payments were issued at a rate of 25 % of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50 % of Medicare payments for the next six months.

Any outstanding balance of advanced payments will be due following such recoupment period.

During both the three and six months ended June 30, 2021, $ 14.3 million of the advanced payments were recouped.

Pursuant to the sale of 80 % of the Company's equity in its Health Care Services segment (as described in Note 4), $ 63.6 million of such obligations related to its Health Care Services segment were retained by the unconsolidated Health Care Services venture.

As of June 30, 2021, the outstanding balance of advanced payments related to its CCRCs segment was $ 9.7 million.

During the three and nine months ended September 30, 2021, $ 3.5 million and $ 17.8 million, respectively, of the advanced payments were recouped.

As of September 30, 2021, the outstanding balance of advanced payments related to its CCRCs segment was $ 6.1 million.

• During the year ended December 31, 2020, the Company deferred payment of $ 72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act.

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

Pursuant to the sale of 80 % the Company's equity in its Health Care Services segment, $ 8.9 million of such obligations related to its Health Care Services segment were retained by the unconsolidated Health Care Services venture.

The Company expects to pay approximately $ 32 million of the deferred payments in both December 2021 and 2022.

Pursuant to the sale of 80 % of the Company's equity in its Health Care Services segment, $ 9.6 million of such obligations related

to its Health Care Services segment were retained by the unconsolidated HCS Venture.

The Company expects to pay $ 31.6 million of the deferred payments in both December 2021 and 2022.

• The Company is eligible to claim the employee retention credit for certain of its associates under the CARES Act.

The credit for 2020 is available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50 % of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $ 5,000 per employee.

During the three and six months ended June 30, 2021, the Company recognized $ 0.9 million and $ 9.9 million, respectively, of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income.

During the nine months ended September 30, 2021, the Company recognized $ 9.9 million of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, of which none were recognized during the three months ended September 30, 2021.

During the three and nine months ended September 30, 2021, the Company received $ 1.1 million for the employee retention credits, which were previously recognized within other operating income.

The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and the Company is assessing its eligibility to claim such credit.

There can be no assurance that the Company will qualify for, or receive, credits in the amount or on the timing it expects.

In addition to the grants described above, during the three and six months ended June 30, 2021, the Company received and recognized $ 0.4 million and $ 1.3 million, respectively, of other operating income from grants from other government sources.

The Company cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on its business, results of operations, cash flow, and liquidity, and its response efforts may continue to delay or negatively impact its strategic

initiatives, including plans for future growth.

The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease;

In addition to the grants described above, during the three and nine months ended September 30, 2021, the Company received and recognized $ 0.1 million and $ 1.4 million, respectively, of other operating income from grants from other government sources.

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

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Acquisitions, Dispositions and Other Transactions

During the period from January 1, 2020 through June 30, 2021, the Company acquired 27 communities that the Company formerly leased, disposed of nine owned communities (including the conveyance of five communities to Ventas, Inc.

("Ventas")), 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 six communities were terminated.

Additionally, the Company sold 80 % of its equity in its Health Care Services segment on July 1, 2021, as described below.

One unencumbered community in the CCRCs segment was classified as held for sale, resulting in $ 8.1 million being recorded as assets held for sale for senior housing communities within the condensed consolidated balance sheet as of June 30, 2021.

The closing of the sale of the community is subject to the satisfaction of various closing conditions, including the receipt of regulatory approvals.

There can be no assurance that the transaction will close or, if it does, when the actual closing will occur.

Completed Dispositions of Owned Communities

During the six months ended June 30, 2021, the Company completed the sale of two owned communities for cash proceeds of $ 8.5 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.5 million.

In addition to the conveyance of five communities to Ventas, during the year ended December 31, 2020, the Company completed the sale of two owned communities for cash proceeds of $ 38.1 million, net of transaction costs, and recognized a net gain on sale of assets of $ 2.7 million.

These dispositions included the sale of one owned community during the six months ended June 30, 2020 for which the Company received cash proceeds of $ 5.5 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.2 million.

Sale of Health Care Services

On July 1, 2021, the Company completed the sale of 80 % of its equity in its Health Care Services segment to affiliates of HCA Healthcare, Inc.

("HCA Healthcare") for a purchase price of $ 400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment (the "HCS Sale").

The Company received net cash proceeds of $ 305.8 million at closing on July 1, 2021.

Additionally, the Company received $ 6.8 million upon completion of the post-closing net working capital adjustment in October 2021;

such amount is included within prepaid expenses and other current assets, net in the condensed consolidated balance sheet as of September 30, 2021.

The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser.

Pursuant to the Purchase Agreement, at closing of the transaction, the Company retained a 20 % equity interest in the HCS Venture.

The results and financial position of the Company's Health Care Services segment were deconsolidated from its consolidated financial statements as of July 1, 2021, and its 20 % equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date.

As of July 1, 2021, the Company recognized a $ 100.0 million asset within investment in unconsolidated ventures on its condensed consolidated balance sheet for the estimated fair value of its retained 20 % noncontrolling interest in the HCS Venture.

The Company recognized a $ 288.2 million gain on sale, net of transaction costs, for the HCS Sale within gain on sale of assets, net within its condensed consolidated statement of operations for the three months ended September 30, 2021.

Refer to Note 17 for selected financial data for the Health Care Services segment through June 30, 2021.

In September 2021, the HCS Venture entered into a Securities Purchase Agreement with LHC Group Inc., providing for the sale of home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare.

Upon the completion of the sale on November 1, 2021, the Company received $ 35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which will decrease its investment in unconsolidated ventures.

The Company continues to retain a 20 % equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy agencies in areas served by HCA Healthcare.

Community Transactions

During the period from January 1, 2020 through September 30, 2021, the Company terminated triple-net lease obligations on an aggregate of 33 communities, including through the acquisition of 27 formerly leased communities, it sold four owned communities, and it sold its ownership interest in its unconsolidated entry fee CCRC venture (the "CCRC Venture") with Healthpeak Properties, Inc.

("Healthpeak").

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

("Ventas") to restructure its 120 community triple-net master lease arrangements.

In addition, it conveyed to Ventas five communities and manages the communities following the closing.

During the nine months ended September 30, 2021, the Company completed the sale of two owned communities for cash proceeds of $ 8.5 million, net of transaction costs, for which it recognized a net gain on sale of assets of $ 0.5 million.

In addition to the conveyance of communities to Ventas, during the nine months ended September 30, 2020, the Company completed the sale of two owned communities for cash proceeds of $ 38.1 million, net of transaction costs, and recognized a net gain on sale of assets of $ 2.7 million.

Three unencumbered communities ( one in the CCRCs segment and two in the Assisted Living and Memory Care segment) were classified as held for sale, resulting in $ 11.7 million being recorded as assets held for sale within the condensed consolidated balance sheet as of September 30, 2021.

The closings of the sales of the communities are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.

There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Completed Dispositions of Entry Fee CCRCs by Unconsolidated Venture

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During the three months ended June 30, 2021, the Company received $ 5.4 million of cash distributions from the new unconsolidated entry fee CCRC venture and recognized $ 13.9 million of equity in earnings of unconsolidated ventures for the Company’s proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the sale of the two remaining entry fee CCRCs.

Sale of Health Care Services

On February 24, 2021, the Company entered into the Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc., providing for the sale of 80 % of the Company’s equity in its Health Care Services segment for a purchase price of $ 400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment, which were $ 63.6 million and $ 8.9 million, respectively, as of June 30, 2021.

The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser.

The closing of the sale transaction was completed on July 1, 2021.

The Company received net cash proceeds of $ 305.8 million at closing, which remains subject to a post-closing net working capital adjustment as set forth in the Purchase Agreement.

Additionally, $ 10.0 million of the purchase price was deposited into an escrow account as set forth in the Purchase Agreement, the majority of which is expected to be released to the Company upon completion of the post-closing net working capital adjustment.

Pursuant to the Purchase Agreement, at closing of the transaction, the Company retained a non-controlling 20 % equity interest in the business.

The Company expects that the results and financial position of its Health Care Services segment will be deconsolidated from its consolidated financial statements as of July 1, 2021 and that its 20 % equity interest in the Health Care Services venture will be accounted for under the equity method of accounting.

The Company estimates that it will recognize an approximate $ 288 million gain on sale, net of transaction costs, within its condensed consolidated statement of operations for the three months ended September 30, 2021 for the sale transaction.

The assets and liabilities of the Health Care Services segment are included within assets held for sale and liabilities held for sale, respectively, within the Company’s condensed consolidated balance sheet as of June 30, 2021.

As of June 30, 2021, assets held for sale and liabilities held for sale of the Health Care Services segment consisted of the following:

(in thousands)

Accounts receivable, net $ 57,582

Property, plant and equipment and leasehold intangibles, net 1,806

Operating lease right-of-use assets 8,145

Goodwill 126,810

Prepaid expenses and other assets, net 35,888

Assets held for sale $ 230,231

Trade accounts payable $ 1,387

Accrued expenses 29,402

Refundable fees and deferred revenue 63,611

Operating lease obligations 8,145

Liabilities held for sale $ 102,545

Refer to Note 16 for selected financial data for the Health Care Services segment.

During the three months ended September 30, 2021, the Company received $ 3.0 million of additional cash distributions from the new unconsolidated entry fee CCRC venture.

Fair Value Measurements

Marketable Securities

As of June 30, 2021, marketable securities of $ 100.0 million are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

As of September 30, 2021, marketable securities of $ 157.9 million are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Investment in Unconsolidated Venture

The initial recognized amount of the Company’s 20 % equity interest in the HCS Venture was determined based upon a pro-rata share of the total enterprise value of the HCS Venture considering the $ 400.0 million purchase price paid by HCA Healthcare, as the Company's 20 % interest shares ratably in all of the benefits and losses expected to be generated by the HCS Venture.

The fair value measurement is classified within Level 2 of the valuation hierarchy.

The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.9 billion as of both June 30, 2021 and December 31, 2020.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.9 billion as of both September 30, 2021 and December 31, 2020.

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

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Resident fee revenue by payor source and reportable segment is as follows:

Three Months Ended June 30, 2021

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

Three Months Ended September 30, 2021

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

Private pay $ 119,137 $ 385,553 $ 53,366 $ 558,056

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Total resident fee revenue $ 119,584 $ 402,621 $ 77,890 $ 600,095

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

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

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

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

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Total resident fee revenue $ 356,371 $ 1,181,277 $ 226,611 $ 174,164 $ 1,938,423

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

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Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears.

A portion of the Company's reimbursement from Medicare for certain healthcare services is billed near the start of each period of care, and cash is generally received before all services are rendered.

The amount of revenue recognized for periods of care which are incomplete at period end is based on the Company's historical average percentage of days complete on each period of care and any unearned amounts are deferred and recognized when the service is performed.

Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements.

Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under

the Company's independent living, assisted living, and memory care residency agreements.

Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.

The Company had total deferred revenue (included within refundable fees and deferred revenue, liabilities held for sale, and other liabilities within the condensed consolidated balance sheets) of $ 131.8 million and $ 138.3 million, including $ 25.7 million and $ 21.1 million of monthly resident fees billed and received in advance, as of June 30, 2021 and December 31, 2020, respectively.

Such amount of total deferred revenue as of June 30, 2021 and December 31, 2020 also included $ 73.3 million and $ 87.5 million, respectively, received in the year ended December 31, 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by CMS.

The Company had total deferred revenue (included within refundable fees and deferred revenue, and other liabilities within the condensed consolidated balance sheets) of $ 67.1 million and $ 138.3 million, including $ 25.0 million and $ 21.1 million of monthly resident fees billed and received in advance, as of September 30, 2021 and December 31, 2020, respectively.

Such amount of total deferred revenue as of September 30, 2021 and December 31, 2020 also included $ 6.1 million and $ 87.5 million, respectively, received in the year ended December 31, 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by CMS.

Refer to Note 3 for additional information on such program.

For the six months ended June 30, 2021 and 2020, the Company recognized $ 46.2 million and $ 55.2 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2021 and 2020, respectively.

Pursuant to the HCS Sale, $ 63.6 million of such obligations related to the Company's Health Care Services segment were retained by the HCS Venture and therefore derecognized from the Company's condensed consolidated balance sheet.

For the nine months ended September 30, 2021 and 2020, the Company recognized $ 56.2 million and $ 59.3 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2021 and 2020, respectively.

Property, Plant and Equipment and Leasehold Intangibles, Net

As of June 30, 2021 and December 31, 2020, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:

(in thousands) June 30, 2021 December 31, 2020

As of September 30, 2021 and December 31, 2020, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:

(in thousands) September 30, 2021 December 31, 2020

Land $ 502,918 $ 505,298

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Property, plant and equipment and leasehold intangibles, net $ 4,940,553 $ 5,068,060

Assets under financing leases and leasehold improvements includes $ 0.3 billion and $ 0.4 billion of financing lease right-of-use assets, net of accumulated amortization, as of June 30, 2021 and December 31, 2020, respectively.

Refer to Note 10 for further information on the Company's financing leases.

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 83.6 million and $ 93.2 million for the three months ended June 30, 2021 and 2020, respectively, and $ 167.5 million and $ 183.9 million for the six months ended June 30, 2021 and 2020, respectively.

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, 2021 and December 31, 2020.

The goodwill of the Health Care Services segment is included within assets held for sale within the Company’s condensed consolidated balance sheet as of June 30, 2021.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 84.6 million and $ 87.8 million for the three months ended September 30, 2021 and 2020, respectively, and $ 252.0 million and $ 271.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The Company's Independent Living segment had a carrying amount of goodwill of $ 27.3 million as of both September 30, 2021 and December 31, 2020.

The Company's Health Care Services segment had a carrying amount of goodwill of $ 126.8 million as of December 31, 2020, which was derecognized upon completion of the HCS Sale on July 1, 2021.

Long-term debt consists of the following:

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Fixed mortgage notes payable due 2022 through 2047;

weighted average interest rate of 4.17 % and 4.18 % as of June 30, 2021 and December 31, 2020, respectively

weighted average interest rate of 4.17 % and 4.18 % as of September 30, 2021 and December 31, 2020, respectively

$ 2,322,629 $ 2,366,996

Variable mortgage notes payable due 2022 through 2030, weighted average interest rate of 2.45 % and 2.49 % as of June 30, 2021 and December 31, 2020, respectively

Variable mortgage notes payable due 2022 through 2030;

weighted average interest rate of 2.43 % and 2.49 % as of September 30, 2021 and December 31, 2020, respectively

1,513,622 1,529,935

Other notes payable due 2021 to 2025;

weighted average interest rate of 8.29 % and 8.98 % as of June 30, 2021 and December 31, 2020, respectively

weighted average interest rate of 9.48 % and 8.98 % as of September 30, 2021 and December 31, 2020, respectively

45,131 46,557

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Total long-term debt, less current portion $ 3,638,136 $ 3,847,103

As of June 30, 2021, 98.1 %, or $ 3.8 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of June 30, 2021, $ 70.3 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility.

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of June 30, 2021 under which $ 13.6 million had been issued as of that date.

As of September 30, 2021, 98.3 %, or $ 3.8 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of September 30, 2021, $ 70.6 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility.

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of September 30, 2021 under which $ 13.6 million had been issued as of that date.

Convertible Debt Offering

On October 1, 2021, the Company issued $ 230.0 million principal amount of 2.00 % convertible senior notes due 2026 (the "Notes").

The Company received net proceeds of $ 224.3 million at closing after the deduction of the initial purchasers' discount.

The Company used $ 15.9 million of the net proceeds to pay the Company’s cost of the capped call transactions described below.

Additionally, the Company used a portion of the net proceeds to repay a $ 45.0 million note payable and $ 29.2 million of mortgage debt and intends to use the remaining net proceeds for general corporate purposes, including refinancing or repaying maturing debt.

The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee.

The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment to any of the Company’s indebtedness that is not so subordinated.

The Notes are effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of current or future subsidiaries of the Company.

The Notes bear interest at 2.00 % per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning on April 15, 2022.

The Notes will mature on October 15, 2026, unless earlier converted, redeemed, or repurchased in accordance with their terms.

Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock of the Company for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the common stock of the Company and the conversion rate for the Notes on each such trading day;

(3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption;

or (4) upon the occurrence of specified corporate events.

On or after July 15, 2026, holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion, the Company will satisfy its conversion obligation by

paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock at the Company’s election.

The conversion rate for the Notes is initially 123.4568 shares of the Company’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $ 8.10 per share of common stock).

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.

The Company may not redeem the Notes prior to October 21, 2024.

The Company may redeem for cash all or (subject to certain limitations) any portion of the Notes, at its option, on or after October 21, 2024 and prior to the 51 st scheduled trading day immediately preceding the maturity date if the last reported sale price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

No sinking fund is provided for the Notes.

Capped Call Transactions

In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties").

The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Notes and initially have an exercise price of $ 8.10 per share of common stock.

The cap price of the Capped Call Transactions is initially approximately $ 9.90 per share of the Company’s common stock, representing a premium of 65 % above the last reported sale price of $ 6.00 per share of the Company’s common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions.

The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of the Company’s common stock upon conversion of the Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.

The Capped Call Transactions are separate transactions entered into by the Company with the Capped Call counterparties and are not part of the terms of the Notes.

The Capped Call Transactions had a cost of $ 15.9 million, which was paid on October 1, 2021 from the proceeds of the Notes.

The Company will separately account for Capped Call Transactions from the Notes and will recognize the cost as a reduction of additional paid-in capital in the three months ending December 31, 2021 as the Capped Call Transactions are indexed to the Company’s common stock.

Financial Covenants

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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, 2021, the Company is in compliance with the financial covenants of its debt agreements.

As of June 30, 2021, the Company operated 300 communities under long-term leases ( 234 operating leases and 66 financing leases).

As of September 30, 2021, the Company is in compliance with the financial covenants of its debt agreements.

As of September 30, 2021, the Company operated 300 communities under long-term leases ( 234 operating leases and 66 financing leases).

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

Under a master lease, numerous communities are leased through an indivisible lease.

Under a master

lease, numerous communities are leased through an indivisible lease.

The Company typically guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases.

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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, 2021, the Company is in compliance with the financial covenants of its long-term leases.

As of September 30, 2021, the Company is in compliance with the financial covenants of its long-term leases.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

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Operating net cash outflows from operating leases $ 39,582 $ 170,566 $ 131,710 $ 311,656

(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 842, Leases ("ASC 842").

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

Operating net cash outflows from operating leases for the three and nine months ended September 30, 2020 include 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

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Financing lease expense $ 19,351 $ 19,726 $ 57,450 $ 62,081

Operating cash flows from financing leases $ 11,492 $ 11,892 $ 22,875 $ 25,174

Financing cash flows from financing leases 4,864 4,677 9,653 9,764

Operating cash outflows from financing leases $ 11,674 $ 11,908 $ 34,549 $ 37,082

Financing cash outflows from financing leases 5,039 4,548 14,692 14,312

Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement ( 4,136 ) ( 923 ) ( 7,583 ) ( 4,337 )

Total net cash outflows from financing leases $ 12,577 $ 15,533 $ 41,658 $ 47,057

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases (excluding minimum lease payments related to $ 8.1 million of operating lease obligations included within liabilities held for sale) recognized on the condensed consolidated balance sheet as of June 30, 2021 are as follows (in thousands):

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, 2021 are as follows (in thousands):

Year Ending December 31, Operating Leases Financing Leases

2021 (six months) $ 101,163 $ 32,833

2021 (three months) $ 50,822 $ 16,608

2022 205,262 67,070

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Total lease obligations $ 872,537 $ 556,487

Investment in Unconsolidated Ventures

As of September 30, 2021, the Company holds a 20 % equity interest, and HCA Healthcare owns an 80 % interest, in the HCS Venture, and the Company has determined the HCS Venture is a VIE.

The Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance.

The Company's interest in the HCS Venture is accounted for under the equity method of accounting.

The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture was $ 98.8 million as of September 30, 2021.

As of September 30, 2021, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIE.

Refer to Note 4 for information on the formation of the HCS Venture.

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company’s communities and compliance with consumer protection laws and the Americans with Disabilities Act.

Certain claims and lawsuits allege large damage amounts

and may require significant costs to defend and resolve.

Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve.

As a result, the Company maintains general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards.

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In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee.

The lawsuit asserts that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and April 2020.

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.

The lawsuit asserted that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and April 2020.

The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the plaintiffs did not file an appeal.

Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, asserting claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company.

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Three months ended June 30, 2021 20 $ 6.62 $ 130

Three months ended September 30, 2021 3 $ 7.76 $ 22

Earnings Per Share

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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, restricted stock units, and warrants.

For the three and nine months ended September 30, 2021 and 2020, potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units, and warrants.

Refer to Note 9 for information on the issuance of convertible notes on October 1, 2021.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except for per share amounts) 2021 2020 2021 2020

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Weighted average shares outstanding - basic 185,317 183,244 184,841 183,535

Effect of dilutive securities - Unvested restricted stock, restricted stock units, and warrants — — — 180

Effect of dilutive securities 10,913 — — 133

Weighted average shares outstanding - diluted 196,230 183,244 184,841 183,668

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 (1)

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Warrants 6.8 16.3 16.3 16.3

Total 10.6 25.3 21.5 25.0

(1) As a result of the net loss reported for the period, all unvested restricted stock, restricted stock units, and potential shares issuable under warrants were antidilutive for the period and as such were not included in the computation of diluted weighted average shares outstanding.

The difference between the Company's effective tax rate for the three and six months ended June 30, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020.

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.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 20.8 million as a result of the operating loss for the three months ended June 30, 2021, which was offset by a proportionate increase in the valuation allowance of $ 19.8 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 46.0 million as a result of the operating loss for the six months ended June 30, 2021, which was offset by a proportionate increase in the valuation allowance of $ 45.3 million.

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 included $ 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 was offset by additional valuation allowance of $ 33.2 million.

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

The difference between the Company's effective tax rate for the three and nine months ended September 30, 2021 and 2020 was primarily due to the HCS Sale in the three months ended September 30, 2021, and the tax impact of the multi-part transaction with Healthpeak in the nine months ended September 30, 2020.

For the three months ended September 30, 2021 the impact represented the tax expense recorded on the gain on the HCS Sale, offset by a decrease in the valuation allowance that was a direct result of the sale.

In the nine months ended September 30, 2021 and 2020, the Company recorded tax expense on the gain on the HCS Sale and sale of the Company's interest in the CCRC Venture respectively, offset by a decrease in the valuation allowance.

In the nine months ended September 30, 2021, the tax gain from the HCS Sale was offset by operational losses, but in 2020 the tax gain for the sale of the Company's interest in the CCRC Venture was not offset by operational losses resulting in estimated taxable income through the nine months ended September 30, 2020.

The Company recorded an aggregate deferred federal, state, and local tax expense of $ 81.0 million for the three months ended September 30, 2021 and an aggregate deferred federal, state, and local tax expense of $ 35.0 million for the nine months ended September 30, 2021.

The expense included $ 104.3 million as a result of the gain on the HCS Sale, offset by a benefit of $ 69.3 million as a result of operating losses (exclusive of the HCS Sale) for the nine months ended September 30, 2021.

The expense for the three months ended September 30, 2021 is offset by a reduction to the valuation allowance of $ 71.8 million.

The tax expense for the nine months ended September 30, 2021 is offset by a reduction to the valuation allowance of $ 26.5 million.

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 included $ 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 was offset by additional valuation allowance of $ 40.0 million.

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

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, 2021 and December 31, 2020 was $ 426.3 million and $ 381.0 million, respectively.

The increase in the valuation allowance for the six months ended June 30, 2021 is the result of current operating losses during the six months ended June 30, 2021.

The change in the valuation allowance for the six months ended June 30, 2020 was 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 Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and six months ended June 30, 2021 and 2020 which are included in income tax expense or benefit for the period.

As of June 30, 2021, tax returns for years 2016 through 2019 are subject to future examination by tax authorities.

The Company's valuation allowance as of September 30, 2021 and December 31, 2020 was $ 354.5 million and $ 381.0 million, respectively.

The decrease in the valuation allowance for the nine months ended September 30, 2021 is primarily the result of a $ 95.2 million reduction recorded as a result of the HCS Sale, offset by an increase in the valuation allowance of $ 68.7 million established against current operating losses during the nine months ended September 30, 2021.

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 Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and nine months ended September 30, 2021 and 2020 which are included in income tax expense or benefit for the period.

As of September 30, 2021, tax returns for years 2016 through 2019 are subject to future examination by tax authorities.

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

Supplemental Disclosure of Cash Flow Information

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2021 2020

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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

Proceeds from HCS Sale, net:

Accounts receivable, net $ ( 57,582 ) $ —

Property, plant and equipment and leasehold intangibles, net ( 1,806 ) —

Operating lease right-of-use assets ( 8,145 ) —

Investments in unconsolidated ventures 100,000 —

Goodwill ( 126,810 ) —

Prepaid expenses and other assets, net ( 26,409 ) —

Trade accounts payable 1,387 —

Accrued expenses 25,226 —

Refundable fees and deferred revenue 57,314 —

Operating lease obligations 8,145 —

Other liabilities 11,135 —

Loss (gain) on sale of assets, net ( 288,233 ) —

Net cash received $ ( 305,778 ) $ —

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

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Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:

Assets designated as held for sale:

Assets held for sale $ 3,612 $ —

Property, plant and equipment and leasehold intangibles, net ( 3,612 ) —

Healthpeak master lease modification:

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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, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Reconciliation of cash, cash equivalents, and restricted cash:

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Segment Information

The Company has five reportable segments:

As of September 30, 2021, the Company has four reportable segments:

Independent Living;

Assisted Living and Memory Care;

Health Care Services;

and Management Services.

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and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

Prior to July 1, 2021, the Company had an additional reportable segment, Health Care Services.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment, as described in Note 4.

For periods beginning July 1, 2021, the results and financial position of its Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20 % equity interest in the HCS Venture is accounted for under the equity method of accounting as of that date.

Independent Living .

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Most of the Company's CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus or within the immediate area.

Health Care Services .

The Company's Health Care Services segment includes the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities.

The Health Care Services segment does not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment, as described in Note 4.

Management Services.

The Company's Management Services segment includes communities operated by the Company pursuant to management agreements.

In some of the cases, the controlling financial interest in the community is held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest.

In some of the cases, the ownership of the community is fully held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest.

Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of expenses it incurs on behalf of the owners.

Health Care Services .

The Company's Health Care Services segment included the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities.

The Health Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

The following table sets forth selected segment financial data:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020 2021 2020

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77,895 79,252 228,346 262,370

Health Care Services (2)

87,835 107,165 177,269 201,984

Management Services (3)

41,470 96,444 163,836 435,463

Health Care Services (1)(2)

— 95,795 177,269 297,779

Total revenue and other operating income $ 641,654 $ 807,980 $ 2,114,391 $ 2,688,028

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CCRCs 7,704 9,954 23,985 43,735

Health Care Services 3,413 9,692 5,816 571

Management Services 3,621 5,669 17,185 120,460

Health Care Services — 1,462 5,816 2,033

Total segment operating income 123,382 146,675 380,159 607,979

9 unchanged sentences

Income (loss) from operations $ ( 48,855 ) $ ( 55,117 ) $ ( 162,940 ) $ ( 100,194 )

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Total assets:

2 unchanged sentences

CCRCs 715,310 738,121

Health Care Services 230,231 233,178

Corporate and Management Services 918,569 723,010

Health Care Services — 233,178

Total assets $ 6,654,333 $ 6,901,758

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020 2021 2020

7 unchanged sentences

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