SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and us on our business, results of operations, cash flow, revenue, expenses, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease, including the Delta variant, the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets, the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief, perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, the impact of COVID-19 on our residents' and their families' ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19, changes in the acuity levels of our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses, potentially greater associate attrition and use of contract labor due to our associate vaccine mandate, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other transactions or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including unfunded, mandatory testing, increased enforcement actions resulting from COVID-19, government action that may limit our collection or discharge efforts for delinquent accounts, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts; events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members; changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the impact of ongoing healthcare reform efforts; the effects of senior housing construction and development, lower industry occupancy (including due to the pandemic), and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where we are concentrated; terminations of our resident agreements and vacancies in the living spaces we lease, including due to the pandemic; limits on our ability to use net operating loss carryovers to reduce future tax payments; failure to maintain the security and functionality of our information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; our ability to complete our capital expenditures in accordance with our plans; our ability to identify and pursue development, investment and acquisition opportunities and our ability to successfully integrate acquisitions; competition for the acquisition of assets; our ability to complete pending or expected disposition, acquisition, or other transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future; risks related to the implementation of our strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results; delays in obtaining regulatory approvals; disruptions in the financial markets or decreases in the appraised values, performance, or occupancy of our communities that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs; our ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund our planned capital projects; the effect of our non-compliance with any of our debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of our indebtedness and long-term leases on our liquidity; the potential phasing out of LIBOR which may increase the costs of our debt obligations; our ability to obtain additional capital on terms acceptable to us; 28 -------------------------------------------------------------------------------- departures of key officers and potential disruption caused by changes in management; increased competition for or a shortage of personnel (including due to the pandemic or general labor market conditions), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of our communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us, including class action and stockholder derivative complaints; the cost and difficulty of complying with increasing and evolving regulation; costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; unanticipated costs to comply with legislative or regulatory developments; the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate; actions of activist stockholders, including a proxy contest; as well as other risks detailed from time to time in our filings with theSecurities and Exchange Commission , including those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in suchSEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this Quarterly Report on Form 10-Q. We cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based. 29 --------------------------------------------------------------------------------
Overview
We are the nation's premier operator of senior living communities, operating and managing 682 communities in 41 states as ofSeptember 30, 2021 , with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. Our senior living communities and our comprehensive network help to provide seniors with care and services in an environment that feels like home. Our expertise in healthcare, hospitality, and real estate provides residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives. As ofSeptember 30, 2021 , we operated in four business segments: Independent Living; Assisted Living andMemory Care ; CCRCs; and Management Services. Prior toJuly 1, 2021 , we had an additional reportable segment, Health Care Services. OnJuly 1, 2021 , we sold 80% of our equity in the Health Care Services segment, through which we formerly provided home health, hospice, and outpatient therapy services to our residents and seniors living outside our communities. For periods beginningJuly 1, 2021 , the results of operations and financial position of the Health Care Services segment are deconsolidated from our consolidated financial statements and our 20% equity interest in the Health Care Services venture ("HCS Venture") is accounted for under the equity method of accounting.
COVID-19 Pandemic Update
The COVID-19 pandemic has significantly disrupted the senior living industry and our business. The health and wellbeing of our residents, patients, and associates is and has been our highest priority as we continue to serve and care for seniors through the COVID-19 pandemic. In addition to the updates below, readers are directed to the "COVID-19 Pandemic" section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission ("SEC") onFebruary 25, 2021 for more information about the impact of the pandemic and our response efforts on our business, results of operations, and financial condition. Vaccine Update. ByApril 9, 2021 , we completed at least three rounds of COVID-19 vaccine clinics at all of our communities through thePharmacy Partnership for Long-Term Care Program offered through theU.S. Centers for Disease Control and Prevention ("CDC"). Upon completion of such clinics, our COVID-19 positive resident caseload had decreased by 97% since the peak inmid-December 2020 . As ofOctober 31, 2021 , our resident vaccine acceptance rate was 95%. TheCDC has recently recommended that certain populations, including residents in long-term care settings, should receive a COVID-19 booster dose. We have completed booster vaccine clinics in the vast majority of our communities. We have adopted a policy requiring our associates to be vaccinated against COVID-19, subject to limited exceptions, which we are implementing in a phased approach beginning with our corporate associates and field and community leadership. 30 -------------------------------------------------------------------------------- Rebuilding Occupancy. We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic. Our consolidated senior housing monthly net move-ins and move-outs turned positive inMarch 2021 for the first time since the pandemic began. Beginning inMarch 2021 , we have achieved eight consecutive months of weighted average consolidated senior housing occupancy growth on a sequential basis. According to data from theNational Investment Center for the Seniors Housing & Care Industry ("NIC"), seniors housing occupancy increased 120 basis points from the second quarter to the third quarter of 2021 for stabilized portfolios. Our weighted average consolidated senior housing occupancy increased 200 basis points sequentially for the third quarter of 2021 compared to the second quarter of 2021. During the three months endedSeptember 30, 2021 , the nationwide spread of the Delta variant caused some moderation in our sequential monthly occupancy growth rate. We believe that some potential residents and their families were more cautious, or temporarily delayed their decision regarding, moving into senior living communities in certain areas as the Delta variant spread. The table below sets forth our consolidated occupancy trend during the pandemic. Q1 Q2 Q3 Q4 Q1 Q2 Q3 2020 2020 2020 2020 2021 2021 2021 Weighted average 83.2 % 78.7 % 75.3 % 72.7 % 69.6 % 70.5 % 72.5 % Quarter end 82.2 % 77.8 % 75.0 % 71.5 % 70.6 % 72.6 % 74.2 % January February March April May June July August September October 2021 2021 2021 2021 2021 2021 2021 2021 2021 2021 Weighted average 70.0 % 69.4 % 69.4 % 69.9 % 70.5 % 71.2 % 72.0 % 72.5 % 73.0 % 73.3 % Month end 70.4 % 70.1 % 70.6 % 71.1 % 71.6 % 72.6 % 73.3 % 73.7 % 74.2 % 74.5 % As ofJuly 31, 2021 , all of our communities were open for visitors, new resident move-ins, and prospective residents. During the three months endedSeptember 30, 2021 , several of our communities experienced restrictions on visitors, new resident move-ins, and prospective residents, with a peak of such restrictions occurring inmid-September 2021 . As ofOctober 31, 2021 , substantially all of our communities were open for visitors, new resident move-ins, and prospective residents. We may revert to more restrictive measures at our 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. We cannot predict with reasonable certainty whether or when our occupancy will return to pre-COVID-19 pandemic levels or the extent to which the pandemic's effect on occupancy may adversely affect the amount of resident fees we are able to collect from our residents. Revenue and Expense Impacts. Compared to our pre-pandemic expectations for fiscal 2020, we estimate that the pandemic resulted in$76.4 million and$303.4 million of lost resident fee revenue for the three and nine months endedSeptember 30, 2021 , respectively. Estimated lost resident fee revenue includes$76.4 million and$252.4 million in our consolidated senior housing portfolio for the three and nine months endedSeptember 30, 2021 , respectively, and$51.0 million in our Health Care Services segment for the nine months endedSeptember 30, 2021 . On a cumulative basis throughSeptember 30, 2021 , we estimate that the pandemic has resulted in approximately$584.5 million of lost resident fee revenue, including$480.9 million in our consolidated senior housing portfolio. The estimated lost revenue represents the difference between the actual resident fee revenue for the period and our pre-pandemic expectations for the 2020 period. For the three and nine months endedSeptember 30, 2021 , we 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 endedSeptember 30, 2020 , we recognized$24.5 million and$95.1 million , respectively, of such facility operating expense. The direct costs include those for: acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; increased 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 throughSeptember 30, 2021 , we have incurred$169.8 million of pandemic related facility operating expense since the beginning of fiscal 2020. For the three and nine months endedSeptember 30, 2021 , we recorded$0.6 million and$13.4 million , respectively, of non-cash impairment charges in our operating results for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets. For the three and nine months endedSeptember 30, 2020 , we recorded$8.2 million and$95.2 million , respectively, of such non-cash impairment charges. Liquidity. We have taken, and continue to take, actions to enhance and preserve our liquidity in response to the pandemic. As ofSeptember 30, 2021 , our 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 our secured credit facility. We continue to seek opportunities to enhance and preserve our liquidity, including through increasing occupancy and maintaining expense 31 -------------------------------------------------------------------------------- discipline, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief.
Financial Relief. The Coronavirus Aid, Relief, and Economic Security Act of 2020
("CARES Act"), signed into law on
•During the nine months endedSeptember 30, 2021 , we accepted$0.8 million of cash from grants from thePublic Health and Social Services Emergency Fund ("Provider Relief Fund ") administered by theU.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 nine months endedSeptember 30, 2021 represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to our skilled nursing care provided through our CCRCs. InSeptember 2021 , HHS announced that it has allocated$17.0 billion for a Phase 4 general distribution from theProvider 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. We applied for the Phase 4 general distribution and intend to pursue any additional funding that may become available. There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify. •During the year endedDecember 31, 2020 , we received$87.5 million under the Accelerated and Advance Payment Program administered by theCenters for Medicare & Medicaid Services ("CMS"),$75.2 million of which related to our Health Care Services segment and$12.3 million related to our CCRCs segment and of which$2.5 million and$87.5 million was received in the three and nine months endedSeptember 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 the three and nine months endedSeptember 30, 2021 ,$3.5 million and$17.8 million , respectively, of the advanced payments were recouped. Pursuant to the sale of 80% of our equity in our Health Care Services segment (as described below),$63.6 million of such obligations related to our Health Care Services segment were retained by the unconsolidated HCS Venture. As ofSeptember 30, 2021 , the outstanding balance of advanced payments related to our CCRCs segment was$6.1 million , of which we expect recoupment of approximately$3.0 million during the three months endedDecember 31, 2021 and the remainder in 2022. •During the year endedDecember 31, 2020 , we deferred payment of$72.7 million of the employer portion of social security payroll taxes incurred fromMarch 27, 2020 throughDecember 31, 2020 pursuant to the CARES Act. One-half of such deferral amount will become due on each ofDecember 31, 2021 andDecember 31, 2022 . Pursuant to the sale of 80% of our equity in our Health Care Services segment,$9.6 million of such obligations related to our Health Care Services segment were retained by the unconsolidated HCS Venture. We expect to pay$31.6 million of the deferred payments in bothDecember 2021 and 2022. •We are eligible to claim the employee retention credit for certain of our 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 afterMarch 12, 2020 throughDecember 31, 2020 to qualified employees, with a maximum credit of$5,000 per employee. During the nine months endedSeptember 30, 2021 , we recognized$9.9 million of employee retention credits on wages paid fromMarch 12, 2020 toDecember 31, 2020 within other operating income, of which none were recognized during the three months endedSeptember 30, 2021 . During the three and nine months endedSeptember 30, 2021 , we 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 fromJanuary 1, 2021 throughDecember 31, 2021 , and we are assessing our eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, credits in the amount or on the timing we expect. 32 --------------------------------------------------------------------------------
In addition to the grants described above, during the three and nine months
ended
We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease, including the Delta variant; the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents' and their families' ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses; potentially greater associate attrition and use of contract labor due to our associate vaccine mandate; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts. 33 --------------------------------------------------------------------------------
Sale of Health Care Services
OnJuly 1, 2021 , we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA Healthcare, Inc. ("HCA Healthcare ") for a purchase price of$400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") datedFebruary 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"). We received net cash proceeds of$305.8 million at closing onJuly 1, 2021 and$6.8 million upon completion of the post-closing net working capital adjustment inOctober 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, we retained a 20% equity interest in the HCS Venture. The results and financial position of our Health Care Services segment were deconsolidated from our consolidated financial statements as ofJuly 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date. As ofJuly 1, 2021 , we recognized a$100.0 million asset within investment in unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling interest in the HCS Venture. We recognized a$288.2 million gain on sale, net of transaction costs, within our condensed consolidated statement of operations for the three months endedSeptember 30, 2021 for the HCS Sale. Refer to Note 17 to the condensed consolidated financial statements for selected financial data for the Health Care Services segment throughJune 30, 2021 . InSeptember 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 onNovember 1, 2021 , we received$35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which further enhanced our liquidity. We continue 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 fromJanuary 1, 2020 throughSeptember 30, 2021 , we terminated triple-net lease obligations on an aggregate of 33 communities (2,978 units), including through the acquisition of 27 formerly leased communities (2,453 units), we sold four owned communities (504 units), and we sold our ownership interest in our unconsolidated entry fee CCRC venture (the "CCRC Venture") with Healthpeak Properties, Inc. ("Healthpeak"). OnJuly 26, 2020 , we entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements. In addition, we conveyed to Ventas five communities (471 units) and manage the communities following the closing. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onFebruary 25, 2021 for more details regarding the terms of significant transactions that occurred prior to 2021. During the nine months endedSeptember 30, 2021 , we completed the sale of two owned communities (129 units) for cash proceeds of$8.5 million , net of transaction costs, and for which we recognized a net gain on sale of assets of$0.5 million . We expect to close on the disposition of three owned unencumbered communities (250 units) classified as held for sale as ofSeptember 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
Prior to theJanuary 31, 2020 closing of our sale of our ownership interest in the CCRC Venture, we and Healthpeak moved the remaining two entry fee CCRCs into a new unconsolidated entry fee CCRC venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities. During the three months endedJune 30, 2021 , the new unconsolidated entry fee CCRC venture completed the sale of the two remaining entry fee CCRCs for cash proceeds of$14.0 million , net of associated mortgage debt repayments and transaction costs. Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations. During the three months endedJune 30, 2021 , we 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 our proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the sale of the two remaining entry fee CCRCs. During the three months endedSeptember 30, 2021 , we received$3.0 million of additional cash distributions from the new unconsolidated entry fee CCRC venture. 34 --------------------------------------------------------------------------------
Community Labor
We continue to see pressures associated with the intensely competitive labor environment. We have increased our recruiting efforts to fill open positions and, in certain markets, are actively adjusting wages to remain competitive. We seek to ensure that our communities are staffed with full and part-time associates, though our use of more expensive contract labor and overtime has increased to fill open positions. We expect the intensity of this competitive environment will be transitory, though likely to continue into 2022.
Convertible Senior Notes Offering
OnOctober 1, 2021 , we issued$230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes"). We received net proceeds of$224.3 million at closing after the deduction of the initial purchasers' discount. We used approximately$15.9 million of the net proceeds to pay the cost of the capped call transactions described below. We also used a portion of the net proceeds to repay a$45.0 million note payable and$29.2 million of mortgage debt and intend 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 ofOctober 1, 2021 by and between us andAmerican Stock Transfer & Trust Company, LLC , as trustee. The Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment to any of our indebtedness that is not so subordinated. The Notes are effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries. The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash onApril 15 andOctober 15 of each year, beginning onApril 15, 2022 . The Notes will mature onOctober 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 precedingJuly 15, 2026 , only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending onDecember 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per$1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day; (3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or afterJuly 15, 2026 , holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election. The conversion rate for the Notes is initially 123.4568 shares of our common stock per$1,000 principal amount of Notes (equivalent to an initial conversion price of approximately$8.10 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert our Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances. We may not redeem the Notes prior toOctober 21, 2024 . We may redeem for cash all or (subject to certain limitations) any portion of the Notes, at our option, on or afterOctober 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes. If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal 35 --------------------------------------------------------------------------------
amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. The Notes were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believed are "qualified institutional buyers," as defined in, and in accordance with, Rule 144A under the Securities Act. In connection with the offering of the Notes, we entered into privately negotiated capped call transactions ("Capped Call Transactions") with each ofBank of America, N.A ., Royal Bank of Canada,Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the Notes and initially have an exercise price of$8.10 per share of common stock. The cap price of the Capped Call Transactions is initially approximately$9.90 per share of our common stock, representing a premium of 65% above the last reported sale price of$6.00 per share of our common stock onSeptember 28, 2021 , and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of our common stock upon conversion of the Notes and/or offset the potential cash payments that we could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price. The Capped Call Transactions are separate transactions entered into by us with the Capped Call counterparties and are not part of the terms of the Notes. The Capped Call Transactions had a cost of$15.9 million , which was paid onOctober 1, 2021 from the proceeds of the Notes. We 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 endingDecember 31, 2021 as the Capped Call Transactions are indexed to our common stock.
Results of Operations
As ofSeptember 30, 2021 , our total operations included 682 communities with a capacity to serve over 60,000 residents. As of that date, we owned 348 communities (31,783 units), leased 300 communities (21,026 units), and managed 34 communities (4,913 units). The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period ofJanuary 1, 2020 toSeptember 30, 2021 affect the comparability of our results of operations. We use the operating measures described below in connection with operating and managing our business and reporting our results of operations. •Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to respond to the COVID-19 pandemic. •RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the 36 -------------------------------------------------------------------------------- period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate. •RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance. •Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance. This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Comparison of Three Months Ended
Summary Operating Results
The following table summarizes our overall operating results for the three
months ended
Three Months Ended September 30, Increase (Decrease) (in thousands) 2021 2020 Amount Percent Total resident fees and management fees revenue$ 603,716 $ 706,440 $ (102,724) (14.5) % Other operating income 89 10,765 (10,676) (99.2) % Facility operating expense 480,423 570,530 (90,107) (15.8) % Net income (loss) 174,263 (124,993) 299,256 NM Adjusted EBITDA 34,582 (64,019) 98,601 NM The decrease in total resident fees and management fees revenue was primarily attributable to the deconsolidation of results of the Health Care Services segment effectiveJuly 1, 2021 , which resulted in a decrease of$89.9 million of resident fees compared to the three months endedSeptember 30, 2020 . The disposition of 12 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in$7.4 million less in resident fees during the three months endedSeptember 30, 2021 compared to the prior year period. The decrease was also attributable to a 0.9% decrease in same community RevPAR, comprised of a 300 basis point decrease in same community weighted average occupancy and a 3.1% increase in same community RevPOR. Management fee revenue decreased$2.0 million primarily due to the transition of management agreements on 43 net communities since the beginning of the prior year period. During the three months endedSeptember 30, 2021 and 2020, we recognized$0.1 million and$10.8 million , respectively, of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period. The decrease in facility operating expense was primarily attributable to the deconsolidation of results of the Health Care Services segment effectiveJuly 1, 2021 , which resulted in a decrease of$94.3 million of facility operating expense compared to the three months endedSeptember 30, 2020 . Additionally, the disposition of communities since the beginning of the prior year period resulted in$7.7 million less in facility operating expense during the three months endedSeptember 30, 2021 compared 37 -------------------------------------------------------------------------------- to the prior year period. These decreases in facility operating expense were partially offset by a 2.9% increase in same community facility operating expense, including an increase in labor expense arising from increased contract labor and overtime costs due to the intensely competitive labor market, partially offset by a$14.0 million decrease in incremental direct costs to respond to the COVID-19 pandemic. Facility operating expense for the three months endedSeptember 30, 2021 and 2020 includes$7.2 million and$24.5 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. The increase in net income was primarily attributable to the HCS Sale resulting in a net gain on sale of$288.2 million and decreases in facility operating lease expense, depreciation and amortization expense, non-cash asset impairment expense, and general and administrative expense, partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed. The increase in Adjusted EBITDA was primarily attributable to the$119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effectiveJuly 26, 2020 and a decrease in general and administrative expense (excluding non-cash stock based compensation expense and transaction and organizational restructuring costs), partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living andMemory Care , and CCRCs) on a combined basis for the three months endedSeptember 30, 2021 and 2020, including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages. Three Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 600,095 $ 610,868 $ (10,773) (1.8) % Other operating income$ 89 $ 4,873 $ (4,784) (98.2) % Facility operating expense$ 480,423 $ 476,197 $ 4,226 0.9 % Number of communities (period end) 648 652 (4) (0.6) % Number of units (period end) 52,809 53,110 (301) (0.6) % Total average units 52,811 53,440 (629) (1.2) % RevPAR$ 3,784 $ 3,806 $ (22) (0.6) % Occupancy rate (weighted average) 72.5 % 75.3 % (280) bps n/a RevPOR$ 5,219 $ 5,056 $ 163 3.2 % Same Community Operating Results and Data Resident fees$ 569,606 $ 574,949 $ (5,343) (0.9) % Other operating income$ 87 $ 3,704 $ (3,617) (97.7) % Facility operating expense$ 453,632 $ 440,977 $ 12,655 2.9 % Number of communities 634 634 - - Total average units 50,148 50,143 5 - RevPAR$ 3,786 $ 3,822 $ (36) (0.9) % Occupancy rate (weighted average) 72.5 % 75.5 % (300) bps n/a RevPOR$ 5,222 $ 5,064 $ 158 3.1 % 38
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Independent Living Segment
The following table summarizes the operating results and data for our
Independent Living segment for the three months ended
Three Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 119,584 $ 125,762 $ (6,178) (4.9) % Other operating income$ 9 $ 96 $ (87) (90.6) % Facility operating expense$ 82,860 $ 83,420 $ (560) (0.7) % Number of communities (period end) 68 68 - - Number of units (period end) 12,567 12,534 33 0.3 % Total average units 12,567 12,534 33 0.3 % RevPAR$ 3,172 $ 3,345 $ (173) (5.2) % Occupancy rate (weighted average) 74.7 % 80.0 % (530) bps n/a RevPOR$ 4,244 $ 4,182 $ 62 1.5 % Same Community Operating Results and Data Resident fees$ 115,999 $ 122,498 $ (6,499) (5.3) % Other operating income$ 9 $ 96 $ (87) (90.6) % Facility operating expense$ 80,149 $ 80,659 $ (510) (0.6) % Number of communities 66 66 - - Total average units 12,165 12,156 9 0.1 % RevPAR$ 3,179 $ 3,359 $ (180) (5.4) % Occupancy rate (weighted average) 74.8 % 79.9 % (510) bps n/a RevPOR$ 4,250 $ 4,203 $ 47 1.1 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 510 basis point decrease in same community weighted average occupancy and an 1.1% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for both the three months endedJune 30, 2021 andSeptember 30, 2021 . The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same community facility operating expense, including a$1.3 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period. These decreases in the segment's same community facility operating expense were partially offset by an increase in repairs and maintenance costs due to more move-ins during the period. The segment's facility operating expense for the three months endedSeptember 30, 2021 and 2020 includes$0.9 million and$2.2 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 39 --------------------------------------------------------------------------------
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living andMemory Care segment for the three months endedSeptember 30, 2021 and 2020, including operating results and data on a same community basis. Three Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 402,621 $ 408,695 $ (6,074) (1.5) % Other operating income$ 75 $ 1,936 $ (1,861) (96.1) % Facility operating expense$ 327,372 $ 323,479 $ 3,893 1.2 % Number of communities (period end) 560 563 (3) (0.5) % Number of units (period end) 34,891 35,124 (233) (0.7) % Total average units 34,893 35,268 (375) (1.1) % RevPAR$ 3,845 $ 3,863 $ (18) (0.5) % Occupancy rate (weighted average) 71.9 % 74.4 % (250) bps n/a RevPOR$ 5,347 $ 5,193 $ 154 3.0 % Same Community Operating Results and Data Resident fees$ 396,999 $ 400,484 $ (3,485) (0.9) % Other operating income$ 75 $ 1,937 $ (1,862) (96.1) % Facility operating expense$ 323,056 $ 314,277 $ 8,779 2.8 % Number of communities 554 554 - - Total average units 34,380 34,384 (4) - RevPAR$ 3,849 $ 3,882 $ (33) (0.9) % Occupancy rate (weighted average) 71.8 % 74.4 % (260) bps n/a RevPOR$ 5,363 $ 5,221 $ 142 2.7 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 260 basis point decrease in same community weighted average occupancy and a 2.7% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for both the three months endedJune 30, 2021 andSeptember 30, 2021 . The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 10 communities (836 units) since the beginning of the prior year period resulted in$2.8 million less in resident fees during the three months endedSeptember 30, 2021 compared to the prior year period. The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including an increase in labor expense arising from increased contract labor and overtime costs due to the intensely competitive labor market. The increase in the segment's same community facility operating expense was partially offset by a$10.7 million decrease in incremental direct costs to respond to the COVID-19 pandemic. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in$2.8 million less in facility operating expense during the three months endedSeptember 30, 2021 compared to the prior year period. The segment's facility operating expense for the three months endedSeptember 30, 2021 and 2020 includes$4.8 million and$15.5 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 40 --------------------------------------------------------------------------------
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs
segment for the three months ended
Three Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 77,890 $ 76,411 $ 1,479 1.9 % Other operating income$ 5 $ 2,841 $ (2,836) (99.8) % Facility operating expense$ 70,191 $ 69,298 $ 893 1.3 % Number of communities (period end) 20 21 (1) (4.8) % Number of units (period end) 5,351 5,452 (101) (1.9) % Total average units 5,351 5,638 (287) (5.1) % RevPAR$ 4,824 $ 4,477 $ 347 7.8 % Occupancy rate (weighted average) 71.2 % 70.7 % 50 bps n/a RevPOR$ 6,777 $ 6,332 $ 445 7.0 % Same Community Operating Results and Data Resident fees$ 56,608 $ 51,967 $ 4,641 8.9 % Other operating income$ 3 $ 1,671 $ (1,668) (99.8) % Facility operating expense$ 50,427 $ 46,041 $ 4,386 9.5 % Number of communities 14 14 - - Total average units 3,603 3,603 - - RevPAR$ 5,237 $ 4,808 $ 429 8.9 % Occupancy rate (weighted average) 71.8 % 71.2 % 60 bps n/a RevPOR$ 7,294 $ 6,751 $ 543 8.0 % The increase in the segment's resident fees was primarily attributable to the increase in the segment's same community RevPAR, comprised of an 8.0% increase in same community RevPOR and a 60 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of an occupancy mix shift from less independent living services to more skilled nursing services within the segment and in-place rent increases. The increase in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for each of the three months endedMarch 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 . The increase in resident fees was partially offset by disposition of two communities (456 units) since the beginning of the prior year period, which resulted in$4.6 million less in resident fees during the three months endedSeptember 30, 2021 compared to the prior year period. The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including an increase in labor expense arising from increased contract labor and overtime costs due to the intensely competitive labor market and an increase in healthcare supplies costs to respond to increased skilled nursing occupancy during the current year period. These increases in the segment's same community facility operating expense were partially offset by a$2.1 million decrease in incremental direct costs to respond to the COVID-19 pandemic. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in$4.9 million less in facility operating expense during the three months endedSeptember 30, 2021 compared to the prior year period. The segment's facility operating expense for the three months endedSeptember 30, 2021 and 2020 includes$1.5 million and$4.4 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 41 --------------------------------------------------------------------------------
Operating Results - Management Services Segment
The following table summarizes the operating results and data for our Management
Services segment for the three months ended
Three Months Ended September 30, Increase (Decrease) (in thousands, except communities and units) 2021 2020 Amount Percent Management fees$ 3,621 $ 5,669 $ (2,048) (36.1) % Reimbursed costs incurred on behalf of managed communities$ 37,849 $ 90,775 $ (52,926) (58.3) % Costs incurred on behalf of managed communities$ 37,849 $ 90,775 $ (52,926) (58.3) % Number of communities (period end) 34 74 (40) (54.1) % Number of units (period end) 4,913 9,980 (5,067) (50.8) % Total average units 5,328 10,446 (5,118) (49.0) % The decrease in management fees was primarily attributable to the transition of management arrangements on 43 net communities since the beginning of the prior year period generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities. Management fees of$3.6 million for the three months endedSeptember 30, 2021 include$0.2 million of management fees attributable to communities for which our management agreements were terminated during such period.
The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating
results for the three months ended
Three Months Ended September 30, Increase (Decrease) (in thousands) 2021 2020 Amount Percent
General and administrative expense
$ (10,326) (19.1) % Facility operating lease expense 43,226 51,620 (8,394) (16.3) % Depreciation and amortization 84,560 87,821 (3,261) (3.7) % Asset impairment 639 8,213 (7,574) (92.2) % Interest income 286 607 (321) (52.9) % Interest expense 49,361 50,546 (1,185) (2.3) % Gain (loss) on debt modification and extinguishment, net - (7,917) 7,917 NM Equity in earnings (loss) of unconsolidated ventures (1,474) (293) (1,181) NM Gain (loss) on sale of assets, net 288,375 2,209 286,166 NM Other non-operating income (loss) 571 948 (377) (39.8) % Benefit (provision) for income taxes (15,279) (14,884) (395) (2.7) % General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to decreases in transaction costs, compensation costs as a result of a reduction in our corporate headcount related to the sale of 80% of our equity in our Health Care Services segment, and non-cash stock-based compensation expense. General and administrative expense includes transaction and organizational restructuring costs of$0.9 million and$6.3 million for the three months endedSeptember 30, 2021 and 2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. In addition to 42 -------------------------------------------------------------------------------- the reductions in general and administrative expense directly attributable to the HCS Sale, we expect reductions of general and administrative expense for indirect scaling initiatives, including initiatives previously completed.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year period and lease termination activity since the beginning of the prior year period.
Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year period and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period. Asset Impairment. During the three months endedSeptember 30, 2021 and 2020, we recorded$0.6 million and$8.2 million , respectively, of non-cash impairment charges, primarily for natural disaster related property damage at certain communities and for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic. Gain (loss) on Debt Modification and Extinguishment, Net. The decrease in loss on debt modification and extinguishment was primarily due to$7.8 million of costs incurred during the three months endedSeptember 30, 2020 for debt modifications and extinguishments.
Gain (loss) on sale of assets, net. The increase in gain on sale of assets is
due to the
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the three months endedSeptember 30, 2021 and 2020 was primarily due to the HCS Sale that occurred in the three months endedSeptember 30, 2021 . We recorded an aggregate deferred federal, state, and local tax expense of$81.0 million and a reduction in the valuation allowance of$71.8 million , primarily a result of the HCS Sale in the three months endedSeptember 30, 2021 . The change in the valuation allowance for the three months endedSeptember 30, 2021 resulted from the anticipated reversal of future tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax benefit of$27.4 million as a result of the operating loss for the three months endedSeptember 30, 2020 , which was offset by an increase in the valuation allowance of$40.0 million . The change in the valuation allowance for the three months endedSeptember 30, 2020 resulted from the anticipated reversal of future tax liabilities offset by future tax deductions. We evaluate our 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. Our valuation allowance as ofSeptember 30, 2021 andDecember 31, 2020 was$354.5 million and$381.0 million , respectively.
Comparison of Nine Months Ended
Summary Operating Results
The following table summarizes our overall operating results for the nine months
ended
Nine Months Ended September 30, Increase (Decrease) (in thousands) 2021 2020 Amount Percent Total resident fees and management fees revenue$ 1,955,608 $ 2,335,567 $ (379,959) (16.3) % Other operating income 12,132 37,458 (25,326) (67.6) % Facility operating expense 1,587,581 1,765,046 (177,465) (10.1) % Net income (loss) (17,644) 126,084 (143,728) NM Adjusted EBITDA 102,627 165,783 (63,156) (38.1) % The decrease in total resident fees and management fees revenue was primarily attributable to a$276.7 million decrease in resident fees, including a 7.7% decrease in same community RevPAR, comprised of an 850 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR. In addition, the deconsolidation of results of the Health Care Services segment effectiveJuly 1, 2021 resulted in a decrease of$89.9 million of resident fees compared to the nine months endedSeptember 30, 2020 . The disposition of 15 communities through sales and conveyances of 43 -------------------------------------------------------------------------------- owned communities and lease terminations since the beginning of the prior year period resulted in$35.3 million less in resident fees during the nine months endedSeptember 30, 2021 compared to the prior year period. Management fee revenue decreased$103.3 million primarily due to$100.0 million of management fee revenue recognized during the three months endedMarch 31, 2020 for the management termination fee payment from Healthpeak and transition of management agreements on 66 net communities subsequent to the beginning of the prior year period.
During the nine months ended
The decrease in facility operating expense was primarily attributable to a$124.3 million decrease in facility operating expenses for the Health Care Services segment, primarily due to deconsolidation of results of the segment effectiveJuly 1, 2021 , which resulted in a$94.3 million decrease in facility operating expenses. Additionally, the disposition of communities since the beginning of the prior year period resulted in$34.1 million less in facility operating expense during the nine months endedSeptember 30, 2021 compared to the prior year period. Same community facility operating expense decreased 1.5% which was primarily due to a$42.8 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period. These decreases in same community facility operating expense were partially offset by an increase in labor costs arising from an increase in contract labor and overtime costs due to a competitive labor market and an increase in advertising costs as we scaled back advertising during the prior year period due to the pandemic. Facility operating expense for the nine months endedSeptember 30, 2021 and 2020 includes$44.3 million and$95.1 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. The decrease in net income was primarily attributable to the net impact of the revenue, other operating income, and facility operating expense factors previously discussed, as well as an$84.6 million decrease in net gain on sale of assets, primarily due to a$369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period compared to the$288.2 million gain related to the sale of 80% of our equity in our Health Care Services segment in the current period. These decreases were partially offset by decreases in non-cash asset impairment expense, facility operating lease expense, depreciation and impairment expense, and general and administrative expense compared to the prior year period. The decrease in Adjusted EBITDA was primarily attributable to the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a$163.0 million decrease in cash facility operating lease payments, primarily reflecting reduced cash lease payments as a result of the lease restructuring transaction with Ventas onJuly 26, 2020 . 44 --------------------------------------------------------------------------------
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living andMemory Care , and CCRCs) on a combined basis for the nine months endedSeptember 30, 2021 and 2020 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages. Nine Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 1,764,259 $ 1,940,215 $ (175,956) (9.1) % Other operating income$ 9,027 $ 14,571 $ (5,544) (38.0) % Facility operating expense$ 1,416,128 $ 1,469,300 $ (53,172) (3.6) % Number of communities (period end) 648 652 (4) (0.6) % Number of units (period end) 52,809 53,110 (301) (0.6) % Total average units 52,898 53,888 (990) (1.8) % RevPAR$ 3,702 $ 3,997 $ (295) (7.4) % Occupancy rate (weighted average) 70.9 % 79.1 % (820) bps n/a RevPOR$ 5,225 $ 5,054 $ 171 3.4 % Same Community Operating Results and Data Resident fees$ 1,673,510 $ 1,813,002 $ (139,492) (7.7) % Other operating income$ 8,249 $ 10,148 $ (1,899) (18.7) % Facility operating expense$ 1,335,267 $ 1,355,460 $ (20,193) (1.5) % Number of communities 634 634 - - Total average units 50,148 50,146 2 - RevPAR$ 3,708 $ 4,017 $ (309) (7.7) % Occupancy rate (weighted average) 70.8 % 79.3 % (850) bps n/a RevPOR$ 5,236 $ 5,065 $ 171 3.4 % 45
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Independent Living Segment
The following table summarizes the operating results and data for our
Independent Living segment for the nine months ended
Nine Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 356,371 $ 391,902 $ (35,531) (9.1) % Other operating income$ 1,484 $ 96 $ 1,388 NM Facility operating expense$ 248,501 $ 257,108 $ (8,607) (3.3) % Number of communities (period end) 68 68 - - Number of units (period end) 12,567 12,534 33 0.3 % Total average units 12,553 12,532 21 0.2 % RevPAR$ 3,154 $ 3,475 $ (321) (9.2) % Occupancy rate (weighted average) 73.9 % 83.5 % (960) bps n/a RevPOR$ 4,266 $ 4,160 $ 106 2.5 % Same Community Operating Results and Data Resident fees$ 346,283 $ 382,119 $ (35,836) (9.4) % Other operating income$ 1,446 $ 96 $ 1,350 NM Facility operating expense$ 240,819 $ 249,683 $ (8,864) (3.6) % Number of communities 66 66 - - Total average units 12,163 12,157 6 - RevPAR$ 3,163 $ 3,492 $ (329) (9.4) % Occupancy rate (weighted average) 73.9 % 83.5 % (960) bps n/a RevPOR$ 4,279 $ 4,183 $ 96 2.3 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 960 basis point decrease in same community weighted average occupancy and a 2.3% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for both the three months endedJune 30, 2021 andSeptember 30, 2021 . The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same community facility operating expense, including a$7.5 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period. These decreases in the segment's same community facility operating expense were partially offset by an increase in advertising costs as we scaled back advertising during the prior year period as a result of the pandemic. The segment's facility operating expense for the nine months endedSeptember 30, 2021 and 2020 includes$5.4 million and$13.0 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 46 --------------------------------------------------------------------------------
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living andMemory Care segment for the nine months endedSeptember 30, 2021 and 2020, including operating results and data on a same community basis. Nine Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 1,181,277 $ 1,298,330 $ (117,053) (9.0) % Other operating income$ 5,808 $ 2,088 $ 3,720 178.2 % Facility operating expense$ 963,266 $ 993,557 $ (30,291) (3.0) % Number of communities (period end) 560 563 (3) (0.5) % Number of units (period end) 34,891 35,124 (233) (0.7) % Total average units 35,007 35,666 (659) (1.8) % RevPAR$ 3,748 $ 4,045 $ (297) (7.3) % Occupancy rate (weighted average) 69.9 % 78.1 % (820) bps n/a RevPOR$ 5,363 $ 5,181 $ 182 3.5 % Same Community Operating Results and Data Resident fees$ 1,162,599 $ 1,262,793 $ (100,194) (7.9) % Other operating income$ 5,648 $ 2,088 $ 3,560 170.5 % Facility operating expense$ 946,728 $ 962,294 $ (15,566) (1.6) % Number of communities 554 554 - - Total average units 34,382 34,386 (4) - RevPAR$ 3,757 $ 4,080 $ (323) (7.9) % Occupancy rate (weighted average) 69.8 % 78.1 % (830) bps n/a RevPOR$ 5,383 $ 5,222 $ 161 3.1 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of an 830 basis point decrease in same community weighted average occupancy and a 3.1% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for both the three months endedJune 30, 2021 andSeptember 30, 2021 . The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 13 communities (1,044 units) since the beginning of the prior year period resulted in$16.6 million less in resident fees during the nine months endedSeptember 30, 2021 compared to the prior year period. The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in$16.1 million less in facility operating expense during the nine months endedSeptember 30, 2021 compared to the prior year period, and a decrease in the segment's same community facility operating expense. The decrease in the segment's same community facility operating expense was primarily attributable to a$31.3 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period. These decreases in the segment's same community facility operating expense were partially offset by an increase in labor costs arising from an increase in contract labor and overtime costs due to a competitive labor market and an increase in advertising costs as we scaled back advertising during the prior year period as a result of the pandemic. The segment's facility operating expense for the nine months endedSeptember 30, 2021 and 2020 includes$29.8 million and$61.9 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 47 --------------------------------------------------------------------------------
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs
segment for the nine months ended
Nine Months Ended September 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent Resident fees$ 226,611 $ 249,983 $ (23,372) (9.3) % Other operating income$ 1,735 $ 12,387 $ (10,652) (86.0) % Facility operating expense$ 204,361 $ 218,635 $ (14,274) (6.5) % Number of communities (period end) 20 21 (1) (4.8) % Number of units (period end) 5,351 5,452 (101) (1.9) % Total average units 5,338 5,690 (352) (6.2) % RevPAR$ 4,689 $ 4,850 $ (161) (3.3) % Occupancy rate (weighted average) 70.0 % 75.7 % (570) bps n/a RevPOR$ 6,702 $ 6,405 $ 297 4.6 % Same Community Operating Results and Data Resident fees$ 164,628 $ 168,090 $ (3,462) (2.1) % Other operating income$ 1,155 $ 7,964 $ (6,809) (85.5) % Facility operating expense$ 147,720 $ 143,483 $ 4,237 3.0 % Number of communities 14 14 - - Total average units 3,603 3,603 - - RevPAR$ 5,077 $ 5,184 $ (107) (2.1) % Occupancy rate (weighted average) 70.1 % 76.3 % (620) bps n/a RevPOR$ 7,246 $ 6,793 $ 453 6.7 % The decrease in the segment's resident fees was primarily attributable to the disposition of two communities (456 units) since the beginning of the prior year period which resulted in$18.7 million less in resident fees during the nine months endedSeptember 30, 2021 compared to the prior year period. Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 620 basis point decrease in same community weighted average occupancy and a 6.7% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period. The segment's period end occupancy increased on a sequential basis for each of the three months endedMarch 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 . The increase in the segment's same community RevPOR was primarily the result of an occupancy mix shift from less independent living services to more skilled nursing services within the segment and in-place rent increases. The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in$18.1 million less in facility operating expense during the nine months endedSeptember 30, 2021 compared to the prior year period, partially offset by an increase in the segment's same community facility operating expense. The increase in the segment's same community facility operating expense was primarily attributable to an increase in labor expense arising from increased contract labor and overtime costs due to a competitive labor market and wage rate increases and an increase in healthcare supplies costs to respond to increased skilled nursing occupancy during the current year period. These increases in the segment's same community facility operating expense were partially offset by a$4.0 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period. The segment's facility operating expense for the nine months endedSeptember 30, 2021 and 2020 includes$6.9 million and$14.3 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 48 --------------------------------------------------------------------------------
Operating Results - Management Services Segment
The following table summarizes the operating results and data for our Management
Services segment for the nine months ended
Nine Months Ended September 30, Increase (Decrease) (in thousands, except communities and units) 2021 2020 Amount Percent Management fees$ 17,185 $ 120,460 $ (103,275) (85.7) % Reimbursed costs incurred on behalf of managed communities$ 146,651 $ 315,003 $ (168,352) (53.4) % Costs incurred on behalf of managed communities$ 146,651 $ 315,003 $ (168,352) (53.4) % Number of communities (period end) 34 74 (40) (54.1) % Number of units (period end) 4,913 9,980 (5,067) (50.8) % Total average units 6,647 11,559 (4,912) (42.5) % The decrease in management fees was primarily attributable to$100.0 million of management agreement termination fees recognized for the nine months endedSeptember 30, 2020 for the management agreement termination fee received from Healthpeak in connection with the sale of our ownership interest in the CCRCVenture. As ofSeptember 30, 2021 , we have completed the transition of management arrangements on 66 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities. Management fees of$17.2 million for the nine months endedSeptember 30, 2021 include$5.2 million of management agreement termination fees and$2.6 million of other management fees attributable to communities for which our management agreements were terminated during such period.
The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating
results for the nine months ended
Nine Months Ended September 30, Increase (Decrease) (in thousands) 2021 2020 Amount Percent
General and administrative expense
$ (15,096) (9.4) % Facility operating lease expense 131,508 178,480 (46,972) (26.3) % Depreciation and amortization 252,042 271,713 (19,671) (7.2) % Asset impairment 13,394 96,729 (83,335) (86.2) % Interest income 1,048 4,305 (3,257) (75.7) % Interest expense 147,025 159,328 (12,303) (7.7) % Gain (loss) on debt modification and extinguishment, net - 11,107 (11,107) NM Equity in earnings (loss) of unconsolidated ventures 11,941 (863) 12,804 NM Gain (loss) on sale of assets, net 289,408 374,019 (84,611) (22.6) % Other non-operating income (loss) 5,163 4,598 565 12.3 % Benefit (provision) for income taxes (15,239) (7,560) (7,679) (101.6) % General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to decreases in transaction and organizational restructuring costs, compensation costs as a result of a reduction in our corporate headcount related to the sale of 80% of our equity in our Health Care Services segment and as we scaled our general and administrative costs in connection with community dispositions, non-cash stock-based compensation expense, and travel costs. These decreases were partially offset by an increase in incentive compensation costs. General and administrative expense 49 -------------------------------------------------------------------------------- includes transaction and organizational restructuring costs of$3.5 million and$11.6 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. General and administrative expense of$146.2 million for the nine months endedSeptember 30, 2021 includes direct general and administrative expense attributable to the Health Care Services segment, which was deconsolidated onJuly 1, 2021 . In addition to the reductions in general and administrative expense directly attributable to the HCS Sale, we expect reductions of general and administrative expense for indirect scaling initiatives, including initiatives previously completed. Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year period. Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year period and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period. Asset Impairment. During the current year period, we recorded$13.4 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the period. During the prior year period, we recorded$96.7 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.
Interest Expense. The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.
Gain (loss) on Debt Modification and Extinguishment, Net. The decrease in gain (loss) on debt modification and extinguishment, net was primarily due to a$19.7 million gain on debt extinguishment recognized during the three months endedMarch 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. This gain was partially offset by$7.8 million of costs incurred during the three months endedSeptember 30, 2020 for debt modifications and extinguishments. Equity in Earnings (Loss) ofUnconsolidated Ventures . The change in equity in earnings (loss) of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our unconsolidated entry fee CCRC venture for the sale of the two remaining entry fee CCRCs during the current year period. Gain (Loss) on Sale of Assets, Net. The decrease in gain on sale of assets, net was primarily due to a$369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period compared to the$288.2 million gain related to the HCS Sale in the current period. Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the nine months endedSeptember 30, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months endedMarch 31, 2020 as well as the HCS Sale in the three months endedSeptember 30, 2021 . The impact represented the tax expense recorded on the gain on the sale of our interest in the CCRC Venture and the HCS Sale, offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak and the HCS Sale, respectively. We recorded an aggregate deferred federal, state, and local tax expense of$35.0 million for the nine months endedSeptember 30, 2021 , of which$104.3 million was recorded as the result of the HCS Sale, offset by a benefit of$69.3 million as a result of the operating loss for the nine months endedSeptember 30, 2021 . The tax expense was offset by a decrease in the valuation allowance of$26.5 million , resulting from the HCS Sale, current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax expense of$36.8 million , of which,$56.3 million was recorded as a result of the benefit on our operating loss for the nine months endedSeptember 30, 2020 . The benefit was offset by$93.1 million of tax expense that was recorded on the sale of our interest in the CCRC Venture. The tax expense was offset by a decrease in the valuation allowance of$39.5 million . The change in the valuation allowance for the nine months endedSeptember 30, 2020 resulted from the tax impact of the Healthpeak transaction, the increase in valuation allowance on current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions. 50 --------------------------------------------------------------------------------
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Liquidity and Indebtedness
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow:
Nine Months Ended September 30, Increase (Decrease) (in thousands) 2021 2020 Amount Percent Net cash provided by (used in) operating activities$ (13,247) $ 132,150 $ (145,397) NM Net cash provided by (used in) investing activities 201,729 (343,964) 545,693 NM Net cash provided by (used in) financing activities (75,731) 403,192 (478,923) NM Net increase (decrease) in cash, cash equivalents, and restricted cash 112,751 191,378 (78,627) (41.1) % Cash, cash equivalents, and restricted cash at beginning of period 465,148 301,697 163,451 54.2 % Cash, cash equivalents, and restricted cash at end of period$ 577,899 $ 493,075 $ 84,824 17.2 % Adjusted Free Cash Flow$ (147,991) $ 4,306 $ (152,297) NM The change in net cash provided by (used in) operating activities was attributable primarily to a decrease in same community revenue compared to the prior year period, the$100.0 million management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture in the prior year period,$87.5 million of cash received under the Medicare accelerated and advance payment program in the prior year period,$50.1 million of the employer portion of social security payroll taxes deferred during the prior year period, and a$35.3 million decrease in government grants accepted and credits received compared to the prior year period. These changes were partially offset by a$163.0 million decrease in cash facility operating lease payments, including the impact of the$119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction with Ventas effectiveJuly 26, 2020 . The change in net cash provided by (used in) investing activities was primarily attributable to$472.2 million of cash paid for the acquisition of communities during the prior year period, a$74.2 million increase in proceeds from sales and maturities of marketable securities, a$14.9 million decrease in cash paid for capital expenditures, and a$7.5 million decrease in purchases of marketable securities compared to the prior year period. These changes were partially offset by a$15.5 million decrease in net proceeds from the sale of assets compared to the prior year period. The change in net cash provided by (used in) financing activities was primarily attributable to a$936.7 million decrease in debt proceeds compared to the prior year period, partially offset by a$422.6 million decrease in repayment of debt and financing lease obligations, an$18.1 million decrease in cash paid for share repurchases, and a$17.9 million decrease in cash paid for financing costs compared to the prior year period. The change in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities, excluding distributions from unconsolidated ventures and changes in prepaid insurance premiums financed with notes payable.
Our principal sources of liquidity have historically been from:
•cash balances on hand, cash equivalents, and marketable securities; •cash flows from operations; •proceeds from our credit facilities; •funds generated through unconsolidated venture arrangements; •proceeds from mortgage financing or refinancing of various assets; •funds raised in the debt or equity markets; and 51 --------------------------------------------------------------------------------
•proceeds from the disposition of assets.
Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. During 2020, we also received cash grants and advanced Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above.
Our liquidity requirements have historically arisen from:
•working capital; •operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs; •debt, interest, and lease payments; •acquisition consideration, lease termination and restructuring costs, and transaction and integration costs; •capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our current communities and the development of new communities; •cash collateral required to be posted in connection with our financial instruments and insurance programs; •purchases of common stock under our share repurchase authorizations; •other corporate initiatives (including integration, information systems, branding, and other strategic projects); and •prior to 2009, dividend payments.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
•working capital; •operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic; •debt, interest, and lease payments; •payment of deferred payroll taxes under the CARES Act; •recoupment of payments received under the Accelerated and Advance Payment Program; •acquisition consideration; •transaction costs and investment in our health care and wellness initiatives; •capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities; •cash collateral required to be posted in connection with our financial instruments and insurance programs; and •other corporate initiatives (including information systems and other strategic projects). We are highly leveraged and have significant debt and lease obligations. As ofSeptember 30, 2021 , we had$3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%. As of such date, 98.3%, or$3.8 billion of our total debt obligations represented non-recourse property-level mortgage financings. As ofSeptember 30, 2021 ,$1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining$128.2 million of our long-term variable rate debt is not subject to any interest rate cap agreements. As ofSeptember 30, 2021 ,$70.6 million of letters of credit and no cash borrowings were outstanding under our$80.0 million secured credit facility. We also had a separate secured letter of credit facility providing up to$15.0 million of letters of credit as ofSeptember 30, 2021 under which$13.6 million had been issued as of that date. OnOctober 1, 2021 , we issued$230.0 million principal amount of 2.00% convertible senior notes due 2026 and we received net proceeds of$224.3 million at closing after the deduction of the initial purchasers' discount as described above. We utilized$15.9 million of the net proceeds to pay our cost of the capped call transactions described above. Additionally, we used a portion of the net proceeds to repay a$45.0 million note payable and$29.2 million of mortgage debt and we intend to use the remaining net proceeds for general corporate purposes, including refinancing or repaying maturing debt.
As of
Total liquidity of$645.8 million as ofSeptember 30, 2021 included$478.5 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of$102.1 million in the aggregate),$157.9 million of marketable securities, and$9.4 million of availability on our secured credit facility. Total liquidity as ofSeptember 30, 2021 increased$70.3 million from total liquidity of$575.5 million as ofDecember 31, 2020 . The increase was primarily attributable to the sale of 80% of our equity in our Health Care Services segment onJuly 1, 2021 , for net cash proceeds of$305.8 million at closing, 52 -------------------------------------------------------------------------------- partially offset by negative$148.0 million of Adjusted Free Cash Flow and$60.7 million of payments of mortgage debt during the nine months endedSeptember 30, 2021 . As described above, we received cash proceeds of$208.3 million at closing for the issuance of convertible senior notes, net of the initial purchasers' discount and the cost of the capped call transactions, onOctober 1, 2021 , which further enhanced our liquidity. We currently estimate our net cash proceeds from the convertible senior notes transactions and our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic. As ofSeptember 30, 2021 , we have no remaining 2021 mortgage debt maturities and our 2022 mortgage debt maturities are$310.6 million , excluding recurring monthly principal payments. We have continued efforts on our plan to repay or refinance those maturities. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief. Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onFebruary 25, 2021 , Part II, "Item 1A", and elsewhere in this Quarterly Report on Form 10-Q. Disruptions in the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing of various assets. Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities' maturing indebtedness. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities. If we are unable to obtain refinancing proceeds sufficient to cover maturing indebtedness, our liquidity could be adversely impacted and we may seek alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us. Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over$1,500 per occurrence and for unit turnovers over$500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and, prior toJuly 1, 2021 , healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities. With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications. 53 --------------------------------------------------------------------------------
The following table summarizes our capital expenditures for the nine months
ended
17.6
Non-development capital expenditures, net(3) 91.4 Development capital expenditures, net
2.7 Total capital expenditures, net$ 94.1
(1)Reflects the amount invested, net of lessor reimbursements of
(2)Includes
(3)Amount is included in Adjusted Free Cash Flow.
In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately$140.0 million . In addition, we expect our full-year 2021 development capital expenditures to be approximately$8.0 million , net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors. Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Credit Facilities
OnDecember 11, 2020 , we entered into a revolving credit agreement withCapital One, National Association , as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to$80.0 million which can be drawn in cash or as letters of credit. The agreement matures onJanuary 15, 2024 . Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as ofSeptember 30, 2021 . Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as ofSeptember 30, 2021 . The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility. As ofSeptember 30, 2021 ,$70.6 million of letters of credit and no cash borrowings were outstanding under our$80.0 million secured credit facility and the facility had$9.4 million of availability. We also had a separate secured letter of credit facility providing up to$15.0 million of letters of credit as ofSeptember 30, 2021 under which$13.6 million had been issued as of that date. 54 --------------------------------------------------------------------------------
Long-Term Leases
As ofSeptember 30, 2021 , we operated 300 communities under long-term leases (234 operating leases and 66 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio. The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options. The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met. In addition, certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies. For the three and nine months endedSeptember 30, 2021 , our cash lease payments for our operating leases were$51.1 million and$158.8 million , respectively and for our financing leases were$16.7 million and$49.2 million , respectively. For the twelve months endingSeptember 30, 2022 , we will be required to make$271.9 million of cash lease payments in connection with our existing operating and financing leases. Our capital expenditure plans for 2021 include required minimum spend of approximately$18 million for capital expenditures under certain of our community leases. Additionally, we are required to spend an average of approximately$26 million per year for each of the following four years and approximately$17 million thereafter under the initial lease terms of such leases. Debt and Lease Covenants Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or 55 -------------------------------------------------------------------------------- lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.
As of
Contractual Commitments
Significant ongoing commitments consist primarily of leases, debt, and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onFebruary 25, 2021 . There have been no material changes outside the ordinary course of business in our contractual commitments during the nine months endedSeptember 30, 2021 . As described above, onOctober 1, 2021 , we issued$230.0 million principal amount of 2.00% convertible senior notes due 2026.
Off-Balance Sheet Arrangements
As ofSeptember 30, 2021 , we do not have an interest in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources. We own interests in certain unconsolidated ventures as described under Note 2 to the condensed consolidated financial statements. Except in limited circumstances, our risk of loss is limited to our investment in each venture.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance withU.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance. We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry. 56 -------------------------------------------------------------------------------- Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.
The table below reconciles Adjusted EBITDA from net income (loss).
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2021 2020 2021 2020 Net income (loss)$ 174,263 $ (124,993) $ (17,644) $ 126,084 Provision (benefit) for income taxes 15,279 14,884 15,239 7,560 Equity in (earnings) loss of unconsolidated ventures 1,474 293 (11,941) 863 Loss (gain) on debt modification and extinguishment, net - 7,917 - (11,107) Loss (gain) on sale of assets, net (288,375) (2,209) (289,408) (374,019) Other non-operating (income) loss (571) (948) (5,163) (4,598) Interest expense 49,361 50,546 147,025 159,328 Interest income (286) (607) (1,048) (4,305) Income (loss) from operations (48,855) (55,117) (162,940) (100,194) Depreciation and amortization 84,560 87,821 252,042 271,713 Asset impairment 639 8,213 13,394 96,729 Operating lease expense adjustment (6,273) (117,322) (16,263) (132,276) Non-cash stock-based compensation expense 3,568 6,136 12,878 18,212 Transaction and organizational restructuring costs 943 6,250 3,516 11,599 Adjusted EBITDA(1)$ 34,582 $ (64,019) $ 102,627 $ 165,783 (1) Adjusted EBITDA includes: •$0.1 million and$12.1 million benefit for the three and nine months endedSeptember 30, 2021 , respectively, and$10.8 million and$37.5 million benefit for the three and nine months endedSeptember 30, 2020 of government grants and credits recognized in other operating income •$119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effectiveJuly 26, 2020 for the three and nine months endedSeptember 30, 2020 •$100.0 million benefit for the nine months endedSeptember 30, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities. We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in 57 -------------------------------------------------------------------------------- share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed. Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.
The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2021 2020 2021 2020 Net cash provided by (used in) operating activities$ 7,200 $ (77,169) $ (13,247) $ 132,150 Net cash provided by (used in) investing activities 203,974 (48,554) 201,729 (343,964) Net cash provided by (used in) financing activities (19,177) 96,668 (75,731) 403,192 Net increase (decrease) in cash, cash equivalents, and restricted cash$ 191,997 $
(29,055)
Net cash provided by (used in) operating activities$ 7,200 $ (77,169) $ (13,247) $ 132,150 Distributions from unconsolidated ventures from cumulative share of net earnings (836) (766) (6,191) (766) Changes in prepaid insurance premiums financed with notes payable (4,151) (5,841) 4,634 5,823 Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases (11,551) (3,131) (27,057) (13,640) Non-development capital expenditures, net (28,193) (22,872) (91,438) (104,949) Payment of financing lease obligations (5,039) (4,548) (14,692) (14,312) Adjusted Free Cash Flow(1)$ (42,570) $
(114,327)
(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of$0.9 million and$3.5 million for the three and nine months endedSeptember 30, 2021 , respectively, and$6.3 million and$11.6 million for the three and nine months endedSeptember 30, 2020 , respectively. Additionally, Adjusted Free Cash Flow includes: •$1.1 million and$3.3 million benefit for the three and nine months endedSeptember 30, 2021 , respectively, and$4.4 million and$38.6 million benefit for the three and nine months endedSeptember 30, 2020 , respectively, from Provider Relief Funds and other government grants and credits accepted or received •$3.5 million and$17.8 million recoupment of accelerated/advanced Medicare payments for the three and nine months endedSeptember 30, 2021 , respectively •$2.5 million and$87.5 million benefit from accelerated/advanced Medicare payments received for the three and nine months endedSeptember 30, 2020 , respectively •$23.6 million and$50.1 million benefit from payroll taxes deferred for the three and nine months endedSeptember 30, 2020 , respectively •$119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effectiveJuly 26, 2020 for the three and nine months endedSeptember 30, 2020 •$100.0 million benefit for the nine months endedSeptember 30, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture
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